**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-QSB **

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**OR**

**TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**Commission      File Number: 333-116255**

**VIVID      LEARNING SYSTEMS, INC.**

| **Delaware**(State                or other jurisdiction ofincorporation                or organization) | **42-1623500**(I.R.S.                Employer Identification No.) |
|---------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|

**5728      Bedford Street**

**Pasco,      WA 99301**

**(509)      545-1800**

----

**VIVID        LEARNING SYSTEMS, INC.**

**DECEMBER      31, 2006**
**      QUARTERLY REPORT ON FORM 10-QSB**

**TABLE      OF CONTENTS**

|                                       |                                                                            | **PAGE** |
|--------------------------------------------|---------------------------------------------------------------------------------|----------|
|                                       |                                                                            |     |
|                                       | Special                Note Regarding Forward Looking                Statements | 3        |
|                                       |                                                                            |     |
| **PART                  I**                |
| **FINANCIAL                  INFORMATION** |
|                                       |                                                                            |     |
| Item                  1                    | Financial                  Statements                                           | 4        |
| Item                  2                    | Management’s                  Discussion And Analysis                     |     |
|                                       | Of                  Financial Condition And Results Of Operations               | 20       |
| Item                  3                    | Controls                  and Procedures                                        | 23       |
|                                       |                                                                            |     |
| **PART                  II**               |
| **OTHER                  INFORMATION**     |
|                                       |                                                                            |     |
| Item                  6                    | Exhibits                                                                        | 24       |

----

**SPECIAL          NOTE REGARDING FORWARD-LOOKING STATEMENTS**

----

**PART      I - FINANCIAL INFORMATION**

| **ITEM                1    FINANCIAL                STATEMENTS** | **PAGE**  |
|--------------------------------------------------------------------------------------|----------------|
| Consolidated                  Balance Sheets                                         | 5              |
|                                                                                 |           |
| Consolidated                  Statements of Income                                   | 6              |
|                                                                                 |           |
| Consolidated                  Statements of Cash Flows                               | 7              |
|                                                                                 |           |
| Notes                  to Financial Statements                                       | 8-17           |
|                                                                                 |           |
| Consolidated                  Balance Sheets - Proforma                              | 188            |
|                                                                                 |           |
| Consolidated                  Statements of Income - Proforma                        | 19             |

----

| **VIVID                      LEARNING SYSTEMS, INC.**                              |   |                              |       |                                |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------|------------|------------------------------------------|--------|
| **CONSOLIDATED                      BALANCE SHEETS**                               |   |                              |       |                                |   |
|                                                                               |   |                              |       |                                |   |
|                                                                               |   |                              |       |                                |   |
|                                                                               |   | December                      31, |       |  September                      30, |   |
|                                                                               |   | 2006                              |       |  2006                               |   |
|                                                                               |   | (unaudited)                       |       |                                |   |
| **ASSETS**                                                                         |   |                              |       |                                |   |
|                                                                               |   |                              |       |                                |   |
| CURRENT                      ASSETS                                                |   |                              |       |                                |   |
| Cash                                                                               |   | $                                 | 151,969    |                                     | $      | 166,645 |   |
| Accounts                      and contracts receivable                             |   |                              | 849,358    |                                     |   | 700,115 |   |
| Accounts                      and contracts receivable, Fluor Hanford              |   |                              | 25,450     |                                     |   | 27,077 |   |
| Accounts                      receivable, related party                            |   |                              | 65,863     |                                     |   | - |   |
| Prepaid                      expenses                                              |   |                              | 167,050    |                                     |   | 119,110 |   |
| Other                      current assets                                          |   |                              | 173,242    |                                     |   | 219,795 |   |
|  TOTAL                      CURRENT ASSETS                                    |   |                              | 1,432,932  |                                     |   | 1,232,742 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| PROPERTY,                      PLANT AND EQUIPMENT                                 |   |                              |       |                                     |   |   |   |
| Property                      and equipment                                        |   |                              | 1,624,797  |                                     |   | 1,318,651 |   |
| Less:                      Accumulated depreciation                                |   |                              | (1,107,921 | )                                        |   | (862,828 | ) |
|  TOTAL                      PROPERTY, PLANT AND EQUIPMENT                     |   |                              | 516,876    |                                     |   | 455,823 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| OTHER                      ASSETS                                                  |   |                              |       |                                     |   |   |   |
| Software,                      net of amortization                                 |   |                              | 1,445,189  |                                     |   | 1,485,038 |   |
| Intangibles,                      net of amortization                              |   |                              | 411,943    |                                     |   | 436,943 |   |
| Goodwill                                                                           |   |                              | 375,000    |                                     |   | 375,000 |   |
| Long-term                      contracts receivable                                |   |                              | 205,597    |                                     |   | 244,375 |   |
| Deferred                      tax asset                                            |   |                              | 529,029    |                                     |   | 505,867 |   |
|  TOTAL                      OTHER ASSETS                                      |   |                              | 2,966,758  |                                     |   | 3,047,223 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| **TOTAL                      ASSETS**                                              |   | $                                 | 4,916,566  |                                     | $      | 4,735,788 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| **LIABILITIES                      AND STOCKHOLDERS' EQUITY**                      |   |                              |       |                                     |   |   |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| CURRENT                      LIABILITIES                                           |   |                              |       |                                     |   |   |   |
| Accounts                      payable                                              |   | $                                 | 162,456    |                                     | $      | 94,049 |   |
| Payable                      to related party                                      |   |                              | -          |                                     |   | 670,702 |   |
| Accrued                      contract labor                                        |   |                              | 265,036    |                                     |   | 160,300 |   |
| Other                      current liabilities                                     |   |                              | 69,720     |                                     |   | 63,136 |   |
| Unearned                      revenue                                              |   |                              | 30,346     |                                     |   | 20,355 |   |
| Notes                      payable, related parties                                |   |                              | 112,297    |                                     |   | 111,853 |   |
| Current                      portion of long-term liabilities                      |   |                              | 39,144     |                                     |   | 25,795 |   |
|  TOTAL                      CURRENT LIABILITIES                               |   |                              | 678,999    |                                     |   | 1,146,190 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| LONG-TERM                      LIABILITIES                                         |   |                              |       |                                     |   |   |   |
| Long-term                      debt                                                |   |                              | 159,329    |                                     |   | 162,579 |   |
| Related                      party payables                                        |   |                              | 412,820    |                                     |   | 422,325 |   |
| Other                      long-term liabilities                                   |   |                              | 157,049    |                                     |   | 122,096 |   |
|  TOTAL                      LONG-TERM LIABILITIES                             |   |                              | 729,198    |                                     |   | 707,000 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
|  TOTAL                      LIABILITIES                                       |   |                              | 1,408,197  |                                     |   | 1,853,190 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| COMMITMENTS                      AND CONTINGENCIES                                 |   |                              | -          |                                     |   | - |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| STOCKHOLDERS'                      EQUITY                                          |   |                              |       |                                     |   |   |   |
| Preferred                      stock, $0.0001 par value;                           |   |                              |       |                                     |   |   |   |
| 5,000,000                      shares authorized, no shares issued and outstanding |   |                              | -          |                                     |   | - |   |
| Common                      stock, $0.0001 par value;                              |   |                              |       |                                     |   |   |   |
| 200,000,000                      shares authorized, 13,372,203 and 12,030,674      |   |                              |       |                                     |   |   |   |
| shares                      issued and outstanding, respectively                   |   |                              | 1,337      |                                     |   | 1,203 |   |
| Additional                      paid-in capital                                    |   |                              | 4,347,355  |                                     |   | 3,673,311 |   |
| Accumulated                      deficit                                           |   |                              | (840,323   | )                                        |   | (791,916 | ) |
|  TOTAL                      STOCKHOLDERS' EQUITY                              |   |                              | 3,508,369  |                                     |   | 2,882,598 |   |
|                                                                               |   |                              |       |                                     |   |   |   |
| **TOTAL                      LIABILITIES AND STOCKHOLDERS' EQUITY**                |   | $                                 | 4,916,566  |                                     | **$**  | 4,735,788 |   |

```
The accompanying condensed notes are an integral part of these interim consolidated financial statements.  5 
```

| **VIVID                  LEARNING SYSTEMS, INC.**                |   |                               |       |                                |   |
|------------------------------------------------------------------|--------|------------------------------------|------------|------------------------------------------|--------|
| **CONSOLIDATED                  STATEMENTS OF INCOME**           |   |                               |       |                                |   |
|                                                             |   |                               |       |                                |   |
|                                                             |   |                               |       |                                |   |
|                                                             |   | Three                  Months      |       |  Three                  Months      |   |
|                                                             |   | Ended                              |       |  Ended                              |   |
|                                                             |   | December                  31, 2006 |       |  December                  31, 2005 |   |
|                                                             |   | (unaudited)                        |       |  (unaudited)                        |   |
| REVENUES                                                         |   |                               |       |                                |   |
| Training                  subscriptions                          |   | $                                  | 700,205    |                                     | $      | 610,607 |   |
| Training                  subscriptions, Fluor Hanford           |   |                               | 138,316    |                                     |   | 143,489 |   |
| Custom                  products and services                    |   |                               | 497,802    |                                     |   | 256,223 |   |
| Custom                  products and services, Fluor Hanford     |   |                               | 148,930    |                                     |   | 41,499 |   |
|                                                             |   |                               | 1,485,253  |                                     |   | 1,051,818 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| COST                  OF REVENUES                                |   |                               |       |                                     |   |   |   |
| Training                  subscriptions                          |   |                               | 178,542    |                                     |   | 175,877 |   |
| Custom                  products and services                    |   |                               | 387,534    |                                     |   | 132,885 |   |
|                                                             |   |                               | 566,076    |                                     |   | 308,762 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| GROSS                  PROFIT                                    |   |                               | 919,177    |                                     |   | 743,056 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| EXPENSES                                                         |   |                               |       |                                     |   |   |   |
| Marketing                  and related labor expenses            |   |                               | 349,757    |                                     |   | 250,409 |   |
| Bad                  debt expense                                |   |                               | 1,540      |                                     |   | 563 |   |
| Reseller                  commissions                            |   |                               | 97,251     |                                     |   | 36,509 |   |
| Depreciation                  and amortization                   |   |                               | 54,805     |                                     |   | 14,300 |   |
| Wages                  and contract labor                        |   |                               | 196,336    |                                     |   | 149,560 |   |
| Other                  operating expenses                        |   |                               | 278,724    |                                     |   | 237,778 |   |
|  TOTAL                  OPERATING EXPENSES                  |   |                               | 978,413    |                                     |   | 689,119 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| INCOME                  (LOSS) FROM OPERATIONS                   |   |                               | (59,236    | )                                        |   | 53,937 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| OTHER                  INCOME (EXPENSE)                          |   |                               |       |                                     |   |   |   |
| Gain                  on sale of equipment and intangible assets |   |                               | 900        |                                     |   | 30,276 |   |
| Interest                  income                                 |   |                               | 282        |                                     |   | - |   |
| Interest                  expense                                |   |                               | (13,515    | )                                        |   | (17,611 | ) |
|  TOTAL                  OTHER INCOME (EXPENSE)              |   |                               | (12,333    | )                                        |   | 12,665 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| INCOME                  (LOSS) BEFORE INCOME TAXES               |   |                               | (71,569    | )                                        |   | 66,602 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| INCOME                  TAX BENEFIT (EXPENSE)                    |   |                               | 23,162     |                                     |   | (22,645 | ) |
|                                                             |   |                               |       |                                     |   |   |   |
| NET                  INCOME (LOSS)                               |   | $                                  | (48,407    | )                                        | $      | 43,957 |   |
|                                                             |   |                               |       |                                     |   |   |   |
| BASIC                  NET INCOME (LOSS) PER COMMON SHARE        |   | $                                  | nil        |                                     | $      | nil |   |
| DILUTED                  NET INCOME (LOSS) PER COMMON SHARE      |   | $                                  | nil        |                                     | $      | nil |   |
|                                                             |   |                               |       |                                     |   |   |   |
|                                                             |   |                               |       |                                     |   |   |   |
| WEIGHTED                  AVERAGE COMMON SHARES OUTSTANDING:     |   |                               |       |                                     |   |   |   |
| BASIC                                                            |   |                               | 12,701,376 |                                     |   | 10,816,213 |   |
| DILUTED                                                          |   |                               | 12,701,376 |                                     |   | 10,868,182 |   |

----

| **VIVID                      LEARNING SYSTEMS, INC.**                            |   |                                   |     |                                   |   |
|----------------------------------------------------------------------------------|--------|----------------------------------------|----------|----------------------------------------|--------|
| **CONSOLIDATED                      STATEMENTS OF CASH FLOWS**                   |   |                                   |     |                                   |   |
|                                                                             |   |                                   |     |                                   |   |
|                                                                             |   |                                   |     |                                   |   |
|                                                                             |   | Three                      Months      |     | Three                      Months      |   |
|                                                                             |   | Ended                                  |     | Ended                                  |   |
|                                                                             |   | December                      31, 2006 |     | December                      31, 2005 |   |
|                                                                             |   | (unaudited)                            |     | (unaudited)                            |   |
| **CASH                      FLOWS FROM OPERATING ACTIVITIES:**                   |   |                                   |     |                                   |   |
| Net                      income (loss)                                           |   | $                                      | (48,407  | )                                      | $      | 43,957 |   |
| Adjustments                      to reconcile net income (loss)                  |   |                                   |     |                                   |   |   |   |
| to                      net cash provided by operating activities:               |   |                                   |     |                                   |   |   |   |
| Depreciation                      and amortization                          |   |                                   | 54,805   |                                   |   | 14,300 |   |
| Amortization                      of capitalized software                   |   |                                   | 62,771   |                                   |   | 70,382 |   |
| Bad                      debt expense                                       |   |                                   | 1,540    |                                   |   | 563 |   |
| Options                      issued for compensation                        |   |                                   | 3,445    |                                   |   | - |   |
| Gain                      on sale of equipment and intangible assets        |   |                                   | -        |                                   |   | (30,276 | ) |
| Subtotal                                                                    |   |                                   | 74,154   |                                   |   | 98,926 |   |
| Changes                      in assets and liabilities:                          |   |                                   |     |                                   |   |   |   |
| Accounts                      and contracts receivable                      |   |                                   | 63,939   |                                   |   | 49,544 |   |
| Prepaid                      expenses                                       |   |                                   | (22,351  | )                                      |   | (22,931 | ) |
| Other                      current assets                                   |   |                                   | 51,134   |                                   |   | 181,870 |   |
| Deferred                      tax asset                                     |   |                                   | (23,162  | )                                      |   | 22,861 |   |
| Accounts                      payable                                       |   |                                   | 41,217   |                                   |   | 21,797 |   |
| Accrued                      payroll and related expenses                   |   |                                   | (62,681  | )                                      |   | (71,962 | ) |
| Long-term                      receivable contracts                         |   |                                   | 38,778   |                                   |   | 49,293 |   |
| Other                      current liabilities                              |   |                                   | 2,817    |                                   |   | (41,940 | ) |
| Unearned                      revenue                                       |   |                                   | 9,991    |                                   |   | (18,340 | ) |
|  Net                      cash provided by operating activities             |   |                                   | 173,836  |                                   |   | 269,118 |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
| **CASH                      FLOWS FROM INVESTING ACTIVITIES:**                   |   |                                   |     |                                   |   |   |   |
| Acquisition                      of property, equipment and intangible assets    |   |                                   | (11,613  | )                                      |   | (4,037 | ) |
| Acquisition                      of software                                     |   |                                   | (22,922  | )                                      |   | (22,246 | ) |
|  Net                      cash used by investing activities                 |   |                                   | (34,535  | )                                      |   | (26,283 | ) |
|                                                                             |   |                                   |     |                                   |   |   |   |
| **CASH                      FLOWS FROM FINANCING ACTIVITIES:**                   |   |                                   |     |                                   |   |   |   |
| Stock                      options exercised for common stock                    |   |                                   | 31       |                                   |   | - |   |
| Payments                      on notes payable, related party                    |   |                                   | (149,493 | )                                      |   | (153,454 | ) |
| Payments                      on long-term debt                                  |   |                                   | (1,265   | )                                      |   | - |   |
| Payments                      on long-term liabilities                           |   |                                   | (3,250   | )                                      |   | - |   |
|  Net                      cash provided (used) by financing activities      |   |                                   | (153,977 | )                                      |   | (153,454 | ) |
|                                                                             |   |                                   |     |                                   |   |   |   |
|  Net                      increase (decrease) in cash                       |   |                                   | (14,676  | )                                      |   | 89,381 |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
|  Cash                      at beginning of period                           |   |                                   | 166,645  |                                   |   | 16,622 |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
|  Cash                      at end of period                                 |   | $                                      | 151,969  |                                   | $      | 106,003 |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
| SUPPLEMENTAL                      CASH FLOW INFORMATION:                         |   |                                   |     |                                   |   |   |   |
| Interest                      paid                                               |   | $                                      | 13,515   |                                   | $      | 17,611 |   |
| Income                      taxes paid                                           |   | $                                      | -        |                                   | $      | - |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
|                                                                             |   |                                   |     |                                   |   |   |   |
| NON-CASH                      TRANSACTIONS:                                      |   |                                   |     |                                   |   |   |   |
| Common                      stock issued for related party debt                  |   | $                                      | 670,702  |                                   | $      | 1,092,448 |   |
| Note                      receivable for sale of equipment and intangible assets |   | $                                      | -        |                                   | $      | 45,000 |   |
| Acquisition                      of fixed assets via capital lease               |   | $                                      | 53,399   |                                   | $      | - |   |

----

**VIVID            LEARNING SYSTEMS, INC.**

**CONDENSED            NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December            31, 2006 **

----

**NOTE            1 - BUSINESS ORGANIZATION**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

----

**VIVID      LEARNING SYSTEMS, INC.**

**CONDENSED      NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December      31, 2006 **

----

----

**VIVID        LEARNING SYSTEMS, INC.**

**CONDENSED        NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December        31, 2006 **

----

** **

----

**VIVID      LEARNING SYSTEMS, INC.**

**CONDENSED      NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December      31, 2006 **

----

|                                      |   | December                31, 2006 |       | September                30,2006 |   |
|-------------------------------------------|--------|----------------------------------|------------|----------------------------------|--------|
| Software                development costs |   | $                                | 3,490,378  |                             | $      | 3,467,456 |   |
| Accumulated                amortization   |   |                             | (2,045,189 | )                                |   | (1,982,418 | ) |
|                                      |   | $                                | 1,445,189  |                             | $      | 1,485,038 |   |

----

**VIVID      LEARNING SYSTEMS, INC.**

**CONDENSED      NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December      31, 2006 **

----

**NOTE      3 - RELATED PARTY TRANSACTIONS**

----

**VIVID        LEARNING SYSTEMS, INC.**

**CONDENSED        NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December        31, 2006 **

----

**NOTE      4 - STOCKHOLDERS’ EQUITY**

**NOTE      5 - STOCK-BASED COMPENSATION**

----

**VIVID      LEARNING SYSTEMS, INC.**

**CONDENSED      NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December      31, 2006 **

----

| Equity                compensation plans approved by shareholders |   | Number                of shares to be issued upon exercise of outstanding                options |   | Weighted-average                exercise price of outstanding options |   | Number                of shares remaining available for future issuance under equity                compensation plans |
|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
| 2003                Stock Option Plan                             |   | 570,940                                                                                          |   | $                0.33                                                 |   | 1,745,685                                                                                                              |
| Total                                                             |   | 570,940                                                                                          |   |                                                                  |   | 1,745,685                                                                                                              |

|                                                     |   | Number                of Shares |    | Weighted                Average Exercise Price |   |
|----------------------------------------------------------|--------|---------------------------------|---------|------------------------------------------------|--------|
|                                                     |   |                            |    |                                           |   |
| Outstanding                at October 1, 2005            |   |                            | 504,334 |                                           | $      | 0.25 |   |
| Granted                                                  |   |                            | 153,606 |                                           |   | 0.54 |   |
| Exercised                                                |   |                            | (33,375 | )                                              |   | 0.25 |   |
| Expired                or terminated                     |   |                            | (53,625 | )                                              |   | 0.25 |   |
| Outstanding                at September 30, 2006         |   |                            | 570,940 |                                           | $      | 0.33 |   |
| Options                exercisable at September 30, 2006 |   |                            | 365,189 |                                           | $      | 0.31 |   |
|                                                     |   |                            |    |                                           |   |   |   |
| Outstanding                at October 1, 2006            |   |                            | 570,940 |                                           | $      | 0.33 |   |
| Granted                                                  |   |                            | -       |                                           |   | - |   |
| Exercised                                                |   |                            | 125     |                                           |   | 0.25 |   |
| Expired                or terminated                     |   |                            | -       |                                           |   | - |   |
| Outstanding                at December 31, 2006          |   |                            | 570,815 |                                           | $      | 0.33 |   |
| Options                exercisable at December 31, 2006  |   |                            | 365,189 |                                           | $      | 0.31 |   |

**NOTE      6 - ECONOMIC DEPENDENCY**

** **

----

**VIVID        LEARNING SYSTEMS, INC.**

**CONDENSED        NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December        31, 2006 **

----

|                                                                   |   |   |  **Three                Months Ending**** ** **December                31,** |   |
|------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------|--------|
|                                                                   |   |   | **2006**                                                                                    |   |   | **2005**  |   |
| **Revenues—Fluor****Hanford**                                    |   | **$**  | **287,246**                                                                                 |   | **$** | **184,988** |   |
| **Accounts                Receivable****Fluor                Hanford** |   |   | **25,450**                                                                                  |   |   | **40,156** |   |
| **Revenues—CH2M                Hill Hanford**                    |   |   | **154,425**                                                                                 |   |   | **2,369** |   |
| **Accounts                Receivable—CH2M Hill Hanford**         |   |   | **25,719**                                                                                  |   |   | **-** |   |

**NOTE      7 - COMMITMENTS AND CONTINGENCIES**

**NOTE      8 - **
**SEGMENT      INFORMATION**

----

**VIVID        LEARNING SYSTEMS, INC.**

**CONDENSED        NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December        31, 2006 **

----

|                                                 |   | December                  31,2006 |      | December                    31,2005 |   |
|------------------------------------------------------|--------|-----------------------------------|-----------|-------------------------------------|--------|
| Revenues:                                            |   |                              |      |                           |   |
| Training                subscriptions                |   | $                                 | 838,521   |                                | $      | 754,096 |   |
| Custom                products and services          |   |                              | 646,732   |                                |   | 297,722 |   |
| **Total                Revenues**                    |   | $                                 | 1,485,253 |                                | $      | 1,051,818 |   |
|                                                 |   |                              |      |                                |   |   |   |
| Income                (loss) before income taxes:    |   |                              |      |                                |   |   |   |
| Training                subscriptions                |   |                              | 659,979   |                                |   | 578,219 |   |
| Custom                products and services          |   |                              | 259,198   |                                |   | 164,837 |   |
| Corporate                                            |   |                              | (990,746  | )                                   |   | (676,454 | ) |
| **Income                (loss) before income taxes** |   | $                                 | (71,569   | )                                   | $      | 66,602 |   |

|                                                                     |   | December                31,2006 |      | December                31,2005 |   |
|--------------------------------------------------------------------------|--------|---------------------------------|-----------|---------------------------------|--------|
| Identifiable                assets:                                      |   |                            |      |                       |   |
| Training                subscriptions                                    |   | $                               | 1,445,189 |                            | $      | 1,606,169 |   |
| Custom                products and services                              |   |                            | 232,047   |                            |   | 180,532 |   |
| Corporate                                                                |   |                            | 3,239,330 |                            |   | 3,327,084 |   |
| **Total                Identifiable Assets**                             |   | $                               | 4,916,566 |                            | $      | 5,113,785 |   |
|                                                                     |   |                            |      |                            |   |   |   |
| Depreciation                and amortization:                            |   |                            |      |                            |   |   |   |
| Training                subscriptions                                    |   | $                               | 62,771    |                            | $      | 70,382 |   |
| Custom                products and services                              |   |                            | 3,359     |                            |   | 3,002 |   |
| Corporate                                                                |   |                            | 51,446    |                            |   | 11,298 |   |
| **Total                Depreciation****and                Amortization** |   | $                               | 117,576   |                            | $      | 84,682 |   |

**NOTE      9 - INCOME TAXES**

----

**VIVID      LEARNING SYSTEMS, INC.**

**CONDENSED      NOTES TO THE CONSOLIDATED FINANCIALS STATEMENTS**

**December      31, 2006 **

----

**NOTE      10 - ACQUISTION AND PROFORMA**

| Accounts                  Receivable                          |   | $      | 211,555  |   |
|---------------------------------------------------------------|--------|--------|----------|--------|
| Other                  Current Assets                         |   |   | 30,170   |   |
| Net                  Property and Equipment                   |   |   | 42,619   |   |
| Total                  Assets Acquired                        |   |   | 284,344  |   |
| Accounts                  Payable                             |   |   | (27,190  | )      |
| Other                  Current Liabilities                    |   |   | (171,184 | )      |
| Total                  Liabilities Assumed                    |   |   | (198,374 | )      |
| Net                  assets acquired in excess of liabilities |   | $      | 85,970   |   |

----

| **VIVID                    LEARNING SYSTEMS, INC.**                              |   |                            |       |                               |   |
|----------------------------------------------------------------------------------|--------|---------------------------------|------------|-----------------------------------------|--------|
| **CONSOLIDATED                    BALANCE SHEETS**                               |   |                            |       |                               |   |
| **PROFORMA**                                                                     |   |                            |       |                               |   |
|                                                                             |   |                            |       |  Proforma                          |   |
|                                                                             |   |                            |       |  (Includes                    ETS) |   |
|                                                                             |   | December                    31, |       |  September                    30,  |   |
|                                                                             |   | 2006                            |       | 2006                                    |   |
|                                                                             |   | (unaudited)                     |       |                               |   |
| **ASSETS**                                                                       |   |                            |       |                               |   |
|                                                                             |   |                            |       |                               |   |
| CURRENT                    ASSETS                                                |   |                            |       |                               |   |
| Cash                                                                             |   | $                               | 151,969    |                                    | $      | 166,645 |   |
| Accounts                    and contracts receivable                             |   |                            | 849,358    |                                    |   | 911,670 |   |
| Accounts                    and contracts receivable, Fluor Hanford              |   |                            | 25,450     |                                    |   | 27,077 |   |
| Accounts                    receivable, related party                            |   |                            | 65,863     |                                    |   | - |   |
| Prepaid                    expenses                                              |   |                            | 167,050    |                                    |   | 144,699 |   |
| Other                    current assets                                          |   |                            | 173,242    |                                    |   | 224,376 |   |
|  TOTAL                    CURRENT ASSETS                                    |   |                            | 1,432,932  |                                    |   | 1,474,467 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| PROPERTY,                    PLANT AND EQUIPMENT                                 |   |                            |       |                                    |   |   |   |
| Property                    and equipment                                        |   |                            | 1,624,797  |                                    |   | 1,573,961 |   |
| Less:                    Accumulated depreciation                                |   |                            | (1,107,921 | )                                       |   | (1,075,519 | ) |
|  TOTAL                    PROPERTY, PLANT AND EQUIPMENT                     |   |                            | 516,876    |                                    |   | 498,442 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| OTHER                    ASSETS                                                  |   |                            |       |                                    |   |   |   |
| Software,                    net of amortization                                 |   |                            | 1,445,189  |                                    |   | 1,485,038 |   |
| Intangibles,                    net of amortization                              |   |                            | 411,943    |                                    |   | 436,943 |   |
| Goodwill                                                                         |   |                            | 375,000    |                                    |   | 375,000 |   |
| Long-term                    contracts receivable                                |   |                            | 205,597    |                                    |   | 244,375 |   |
| Deferred                    tax asset                                            |   |                            | 529,029    |                                    |   | 505,867 |   |
|  TOTAL                    OTHER ASSETS                                      |   |                            | 2,966,758  |                                    |   | 3,047,223 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| **TOTAL                    ASSETS**                                              |   | $                               | 4,916,566  |                                    | $      | 5,020,132 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| **LIABILITIES                    AND STOCKHOLDERS' EQUITY**                      |   |                            |       |                                    |   |   |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| CURRENT                    LIABILITIES                                           |   |                            |       |                                    |   |   |   |
| Accounts                    payable                                              |   | $                               | 162,456    |                                    | $      | 121,239 |   |
| Payable                    to related party                                      |   |                            | -          |                                    |   | 756,672 |   |
| Accrued                    contract labor                                        |   |                            | 265,036    |                                    |   | 327,717 |   |
| Other                    current liabilities                                     |   |                            | 69,720     |                                    |   | 66,903 |   |
| Unearned                    revenue                                              |   |                            | 30,346     |                                    |   | 20,355 |   |
| Notes                    payable, related parties                                |   |                            | 112,297    |                                    |   | 111,853 |   |
| Current                    portion of long-term liabilities                      |   |                            | 39,144     |                                    |   | 25,795 |   |
|  TOTAL                    CURRENT LIABILITIES                               |   |                            | 678,999    |                                    |   | 1,430,534 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| LONG-TERM                    LIABILITIES                                         |   |                            |       |                                    |   |   |   |
| Long-term                    debt                                                |   |                            | 159,329    |                                    |   | 162,579 |   |
| Related                    party payables                                        |   |                            | 412,820    |                                    |   | 422,325 |   |
| Other                    long-term liabilities                                   |   |                            | 157,049    |                                    |   | 122,096 |   |
|  TOTAL                    LONG-TERM LIABILITIES                             |   |                            | 729,198    |                                    |   | 707,000 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
|  TOTAL                    LIABILITIES                                       |   |                            | 1,408,197  |                                    |   | 2,137,534 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| COMMITMENTS                    AND CONTINGENCIES                                 |   |                            | -          |                                    |   | - |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| STOCKHOLDERS'                    EQUITY                                          |   |                            |       |                                    |   |   |   |
| Preferred                    stock, $0.0001 par value;                           |   |                            |       |                                    |   |   |   |
| 5,000,000                    shares authorized, no shares issued and outstanding |   |                            | -          |                                    |   | - |   |
| Common                    stock, $0.0001 par value;                              |   |                            |       |                                    |   |   |   |
| 200,000,000                    shares authorized, 13,372,203 and 12,030,674      |   |                            |       |                                    |   |   |   |
| shares                    issued and outstanding, respectively                   |   |                            | 1,337      |                                    |   | 1,203 |   |
| Additional                    paid-in capital                                    |   |                            | 4,347,355  |                                    |   | 3,673,311 |   |
| Accumulated                    deficit                                           |   |                            | (840,323   | )                                       |   | (791,916 | ) |
|  TOTAL                    STOCKHOLDERS' EQUITY                              |   |                            | 3,508,369  |                                    |   | 2,882,598 |   |
|                                                                             |   |                            |       |                                    |   |   |   |
| **TOTAL                    LIABILITIES AND STOCKHOLDERS' EQUITY**                |   | $                               | 4,916,566  |                                    | **$**  | 5,020,132 |   |

----

| **VIVID                    LEARNING SYSTEMS, INC.**                |   |                                 |       |                                  |   |
|--------------------------------------------------------------------|--------|--------------------------------------|------------|--------------------------------------------|--------|
| **CONSOLIDATED                    STATEMENTS OF INCOME**           |   |                                 |       |                                  |   |
| **PROFORMA**                                                       |   |                                 |       |                                  |   |
|                                                               |   |                                 |       |                                  |   |
|                                                               |   |                                 |       |                                  |   |
|                                                               |   |                                 |       |                                  |   |
|                                                               |   |                                 |       |  Proforma                             |   |
|                                                               |   |                                 |       |  (Includes                    ETS)    |   |
|                                                               |   | Three                    Months      |       |  Three                    Months      |   |
|                                                               |   | Ended                                |       |  Ended                                |   |
|                                                               |   | December                    31, 2006 |       |  December                    31, 2005 |   |
|                                                               |   | (unaudited)                          |       |  (unaudited)                          |   |
| REVENUES                                                           |   |                                 |       |                                  |   |
| Training                    subscriptions                          |   | $                                    | 700,205    |                                       | $      | 610,607 |   |
| Training                    subscriptions, Fluor Hanford           |   |                                 | 138,316    |                                       |   | 143,489 |   |
| Custom                    products and services                    |   |                                 | 497,802    |                                       |   | 431,170 |   |
| Custom                    products and services, Fluor Hanford     |   |                                 | 148,930    |                                       |   | 604,387 |   |
|                                                               |   |                                 | 1,485,253  |                                       |   | 1,789,653 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| COST                    OF REVENUES                                |   |                                 |       |                                       |   |   |   |
| Training                    subscriptions                          |   |                                 | 178,542    |                                       |   | 175,877 |   |
| Custom                    products and services                    |   |                                 | 387,534    |                                       |   | 650,013 |   |
|                                                               |   |                                 | 566,076    |                                       |   | 825,890 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| GROSS                    PROFIT                                    |   |                                 | 919,177    |                                       |   | 963,763 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| EXPENSES                                                           |   |                                 |       |                                       |   |   |   |
| Marketing                    and related labor expenses            |   |                                 | 349,757    |                                       |   | 331,958 |   |
| Bad                    debt expense                                |   |                                 | 1,540      |                                       |   | 563 |   |
| Reseller                    commissions                            |   |                                 | 97,251     |                                       |   | 36,509 |   |
| Depreciation                    and amortization                   |   |                                 | 54,805     |                                       |   | 17,296 |   |
| Wages                    and contract labor                        |   |                                 | 196,336    |                                       |   | 180,089 |   |
| Other                    operating expenses                        |   |                                 | 278,724    |                                       |   | 324,701 |   |
|  TOTAL                    OPERATING EXPENSES                  |   |                                 | 978,413    |                                       |   | 891,116 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| INCOME                    (LOSS) FROM OPERATIONS                   |   |                                 | (59,236    | )                                          |   | 72,647 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| OTHER                    INCOME (EXPENSE)                          |   |                                 |       |                                       |   |   |   |
| Gain                    on sale of equipment and intangible assets |   |                                 | 900        |                                       |   | 31,433 |   |
| Interest                    income                                 |   |                                 | 282        |                                       |   | - |   |
| Interest                    expense                                |   |                                 | (13,515    | )                                          |   | (21,115 | ) |
|  TOTAL                    OTHER INCOME (EXPENSE)              |   |                                 | (12,333    | )                                          |   | 10,318 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| INCOME                    (LOSS) BEFORE INCOME TAXES               |   |                                 | (71,569    | )                                          |   | 82,965 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| INCOME                    TAX BENEFIT (EXPENSE)                    |   |                                 | 23,162     |                                       |   | (24,936 | ) |
|                                                               |   |                                 |       |                                       |   |   |   |
| NET                    INCOME (LOSS)                               |   | $                                    | (48,407    | )                                          | $      | 58,029 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| BASIC                    NET INCOME (LOSS) PER COMMON SHARE        |   | $                                    | nil        |                                       | $      | 0.01 |   |
| DILUTED                    NET INCOME (LOSS) PER COMMON SHARE      |   | $                                    | nil        |                                       | $      | 0.01 |   |
|                                                               |   |                                 |       |                                       |   |   |   |
|                                                               |   |                                 |       |                                       |   |   |   |
| WEIGHTED                    AVERAGE COMMON SHARES OUTSTANDING:     |   |                                 |       |                                       |   |   |   |
| BASIC                                                              |   |                                 | 12,701,376 |                                       |   | 10,816,213 |   |
| DILUTED                                                            |   |                                 | 12,701,376 |                                       |   | 10,868,182 |   |

----

**ITEM            2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF            OPERATIONS**

**Results            of Operations:**

**RESULTS            OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED WITH THREE            MONTHS            ENDED DECEMBER 31, 2005**

**Revenues:**

**Operating            Expenses**

**Cost            of Revenues:**

----

**Marketing            and Related Labor Expenses:**

**Reseller            Commissions:**

**Depreciation            and Amortization:**

**General            and Administrative Expenses:**

----

**Income            from Operations:**

**Other            Income (Expense):**

**Net            Income (Loss)**

**Seasonality            and Other Factors Affecting Quarterly Results**

**Liquidity            and Capital Resources**

----

**ITEM      3 - CONTROLS AND PROCEDURES**

----

**PART      II - OTHER INFORMATION**

**ITEM      6** **EXHIBITS.** 

| **Exhibit                No.** | **Description**                                                                                           |
|--------------------------------|-----------------------------------------------------------------------------------------------------------|
| 31.1                      | Rule                13(a)-14(a)/15(d)-14(a) Certification of Chief Executive                Officer  |
| 31.2                      | Rule                13(a)-14(a)/15(d)-14(a) Certification of Chief Financial                Officer  |
| 32.1                           | Rule                1350 Certification of Chief Executive Officer                                    |
| 32.2                           | Rule                1350 Certification of Chief Financial                Officer                          |

----

**SIGNATURES      **

|                                    |                                        |                                         |
|-----------------------------------------|---------------------------------------------|----------------------------------------------|
|                                    | Vivid                Learning Systems, Inc. |
|                               |                                   |                                    |
| Dated:                February 13, 2007 | By:                               | /s/ Christopher              L. Britton |
|                                    | Christopher              L. Britton         |
|                                    | Chief                Executive Officer      |

----