##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-KSB
  (Mark One)þ

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number
    000-29129
      Innuity, Inc.
 (Name of small business issuer
    in its charter)
  Utah

87-0370820(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)8644
    154th Avenue
    NE
    Redmond, WA

98052(Zip Code)(Address of principal executive
    offices)   Issuers
    telephone number:(425) 497-9909
  Securities
    registered under Section 12(b) of the Exchange
    Act:
 None
  Securities
    registered under Section 12(g) of the Exchange Act:
  Title of
    Class
      Common
    stock, $0.00025 par value per share
      o
  þ o
  Regulation S-B Form 10-KSB Form 10-KSB. o
  rule 12b-2 o þ
            DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-KSB
  o þ




---



##### 



INNUITY,
    INC.
  FORM 10-KSB
  TABLE OF
    CONTENTS
  
  PagePART IItem 1.


Description of
    Business


3Item 2.


Description of
    Property


17Item 3.


Legal
    Proceedings


18Item 4.


Submission of
    Matters to a Vote of Security Holders


18PART IIItem 5.


Market for Common
    Equity, Related Stockholder Matters and Small Business Issuer
    Purchases of Equity Securities


18Item 6.


Managements
    Discussion and Analysis or Plan of Operation


19Item 7.


Financial
    Statements


41Item 8A.


Controls and
    Procedures


41Item 8B.


Other
    Information


42PART IIIItem 9.


Directors,
    Executive Officers, Promoters, Control Persons and Corporate
    Governance; Compliance With Section 16(a) of the Exchange
    Act


42Item 10.


Executive
    Compensation


42Item 11.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


42Item 12.


Certain
    Relationships and Related Transactions, and Director
    Independence


42Item 13.


Exhibits


42Item 14.


Principal
    Accountant Fees and Services


44EXHIBIT 3.1EXHIBIT 10.19EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 10.23EXHIBIT 10.24EXHIBIT 10.25EXHIBIT 21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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PART I    This Annual Report on
    Form 10-KSB
    contains forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended and
    Section 21E of the Securities Exchange Act of 1934, as
    amended. We use words such as anticipates,
    believes, estimates, may,
    intends, expects and similar expressions
    to identify forward-looking statements. Discussions containing
    forward-looking statements may be found in the material set
    forth under Description of Business,
    Managements Discussion and Analysis or Plan of
    Operation and in other sections of the report. All
    forward-looking statements, including, but not limited to,
    statements regarding the benefits and risks associated with our
    combination with Vista.com, Inc., our future operating results,
    financial position, and business strategy, expectations
    regarding our growth and the growth of the industry in which we
    operate, and plans and objectives of management for future
    operations, such as plans to develop or acquire certain
    applications or services or to build a Productivity division for
    our business, are inherently uncertain as they are based on our
    expectations and assumptions concerning future events. Any or
    all of our forward-looking statements in this report may turn
    out to be inaccurate. We have based these forward-looking
    statements largely on our current expectations and projections
    about future events and financial trends that we believe may
    affect our financial condition, results of operations, business
    strategy and financial needs. They may be affected by inaccurate
    assumptions we might make or by known or unknown risks and
    uncertainties, including the risks, uncertainties and
    assumptions described in the section entitled Risk
    Factors and elsewhere in this report. In light of these
    risks, uncertainties and assumptions, the forward-looking events
    and circumstances discussed in this report may not occur as
    contemplated, and our actual results could differ materially
    from those anticipated or implied by the forward-looking
    statements. All forward-looking statements in this report are
    made as of the date hereof, based on information available to us
    as of the date hereof, and we assume no obligation to update any
    forward-looking statement.
  Item 1.
    Description
    of Business  Overview
    tm start-up
    Market
    Overview
   3




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Products &
    Services Overview
        pay-per-click
  point-of-sale
 4




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Strategy
    Overview
    
    Expanding our sales, marketing and distribution efforts through
    private label partners, aggregator partners and on a direct
    basis;
    Focusing on key vertical markets, such as retail, restaurant and
    hospitality;
    Expanding and continuing to integrate the offerings in our two
    divisions (Promotion and Commerce);
    Launching our planned Productivity division;
    Enabling integration of third-party onsite systems and
    applications with our Internet technology platform; and
    Increasing the number of applications and services used by our
    customers.  Marketing &
    Sales Overview
    
    Private Label Partnerships  Private label
    packages are sold under the partners brand to small
    businesses. We enter into strategic partner arrangements with
    well-positioned, market leader companies such as
    Sams Club, Ottoway Newspapers and Sallie Mae which private
    label our offerings and sell them to their small business
    customers under their own brands. We support our private label
    partners with an inbound and outbound marketing-sales model
    designed to obtain paying and courtesy customers, up-sell those
    customers and deliver superior customer service.
    Aggregator Partnerships  Targeted products are
    sold directly to aggregators which are companies operating under
    a franchiser/franchisee or replicated corporate business site
    model. We form direct sales and service relationships with
    aggregators such as Red Robin, Jamba Juice, Peets Coffee and
    Kimpton which purchase targeted Innuity products, such as our
    point-of-sale
    systems, for their franchisees or replicated business sites.
    Direct Sales Model  Integrated packages and
    high-profile point (individual) applications are
    sold directly to small businesses. Utilizing an outbound
    marketing and sales approach, we sell integrated packages and
    popular products/services targeted at a small business
    life stage  that is, getting started,
    growth and profitability stages. Examples of integrated packages
    sold include Business Essentials, eCommerce Professional, Online
    Promotion Essentials and Transaction Savings Essentials.
    Examples of individual products and services sold include
    LeadConnecttm
    (local search online business profiles),
    pay-per-click
    advertising, merchant processing, domain names and
    business-eCommerce websites. 5




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History
          (801) 705-5128.
  (801) 705-9372  E-mail:
  Industry
    Background
       6




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and/or
  2006-2008
        Our
    Solution
   7




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Innuity Velocity Internet Technology
    Platform.
  Internet Technology Solutions.
    Promotion division. pay-per-click
  Commerce division. point-of-sale
  Business
    Strategy
    Expand Our Sales, Marketing and Distribution Efforts, Both
    Through Customer-Acquisition Partners and on a Direct
    Basis.
   8




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Focus on Key Vertical Markets.
    Expand and Integrate Our Internet Technology Solutions
    Offerings. easy-to-use
    Integrate Legacy Third-Party Onsite Systems and Applications
    with Our Velocity Internet Technology
    Platform.
  Increase the Number of Applications and Services Used by Our
    Customers.
 9




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Products
    and Services
  brick-and-mortar
  Promotion Division.
  Small Business Online Marketing. pay-per-click easy-to-navigate
  
    LeadConnecttm-Local
    Online Business Profiles  Drives top local search
    rankings for our customers in the major search engines. This
    service develops enhanced online local business profiles, places
    customized business profiles in one centralized location and
    automatically distributes these business profiles to major
    search engines and yellow page directories including Google,
    Yahoo, MSN, AOL, Ask, Citysearch and YellowPages.com.
    Business Websites  Design, implementation
    and delivery of websites designed to effectively market small
    businesses online, provide successful customer interaction and
    help current and prospective customers learn about the business.
    eCommerce Websites  Design, implementation and
    delivery of websites with safe and secure online stores, and
    creation and maintenance of compelling online
    storefronts  providing a quick, thorough and
    efficient way to sell products online.
    Pay-Per-Click
    Advertising  Identify, analyze and select
    high-impact keywords; buy sponsored listings and advertising
    space in places such as Google for identified keywords and
    keyword phrases; and rapidly deliver highly qualified leads.  easy-to-use
  ®
  Search Engine Marketing Services.
 10




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##### Table of Contents




    Search Engine Optimization  Designed to
    deliver high natural search engine results (rankings) for
    carefully selected, high-impact keywords at a fraction of the
    cost for premium, paid keyword search engine placement.
    Continuous optimization efforts transform websites into
    long-term assets.
    Pay-Per-Click
    Advertising  Identify, analyze and select
    high-impact keywords; buy sponsored listings, advertising space,
    on search engines for identified keywords and keyword phrases;
    and quickly deliver highly qualified leads.  Optify Optify
  Commerce Division.
  Merchant Services. end-to-end easy-to-use
    set-up set-up,
    point-of-sale
  
    Electronic Check Processing  Allows merchants
    to accept checks from consumers over the Internet or by phone,
    including comprehensive online paperless check processing.
    eCommerce Card Processing  Provides the
    service and functionality needed to accept major credit cards
    online, including Visa, MasterCard, American Express, Discover,
    Diners Club, and JCB. 11




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
    Recurring Billing Payment Processing  Enables
    online bill presentment and payment, providing the ability to
    apply payments.  In-Store Systems.
    
    Point of Sale (POS)  Operates the front
    end of the hospitality or retail business, providing cash
    control and sales mix reporting.
    Labor Management  Manages the back
    end business functions of time keeping and labor
    scheduling.
    Inventory Management  Manages the back
    office elements of purchasing, receiving, product costing,
    physical accounts and actual product costs.    
    Implementation-Installation  Service teams
    create a database of needed customer/client information; train
    management and related employees onsite; install physical
    placement of hardware; and provide live, in-person, support.
    Staging  Service teams create an integrated
    system for customers/clients.    
    Help Desk  Provides 24x7 call center support
    to customers/clients.
    On-Site
    Field Service  Consultants go to customer/client
    locations to assess and solve technical needs.
    Depot Service  Customers/clients mail in
    systems for technical assessment and repair. Service teams
    identify and correct problems and ship back refurbished systems.    Marketing
    and Sales
   12




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Competition
  and/or
  
    Small Business Online Marketing
    Services Companies such as Yahoo Small
    Business, Microsoft Office Live, Website Pros, Web.com, Go
    Daddy, Verio, 1&1 and Network Solutions.
    Search Engine Marketing Services  Companies
    such as Yahoo Small Business, Google, Microsoft, iCrossing,
    iProspect, SEO.com, R.H. Donnelly Local Launch!, Marchex
    (Traffic Leader) and local search engine optimization companies.
    Merchant Services  Companies such as
    Authorize.net, PayPal, Heartland Payment Systems, iPayment,
    CyberSource, Global Payments, The Sage Group, and Peachtree, as
    well as banking competitors such as Bank of America, Chase
    Manhattan Bank, Wells Fargo and small independent sales
    organizations.
    In-Store Systems  Integrated equipment and
    software companies such as Micros Systems and Radiant Systems;
    independent software vendors such as Positouch, Digital Dining
    and Microsoft Retail Management System; and hardware competitors
    such as NCR, IBM, and Dell.      Technology
    
    Support millions of small business customers, processing
    billions of dollars in transactions. Our applications, and the
    information residing in them, are accessible and controllable by
    the small business customer. 13




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Consumers can find small businesses, employees can run any
    application and owners can manage and track information.  
    Centralize service and support.  Our
    centralized service and support capabilities enable our small
    business customers to take advantage of an optimized cost
    structure, while providing them with a high availability of
    resources, redundant systems and highly monitored security
    systems  advantages that previously were available
    only to larger companies with substantial information technology
    budgets.
    Optimize and leverage hardware.  Our hardware
    is optimized with custom software applications that achieve high
    performance with great scalability, giving our small business
    customers the direct cost and performance advantages of our
    centralized hardware/infrastructure. Our platform dynamically
    allocates hardware and other resources to a small business
    customer only when they are utilizing our applications, instead
    of permanently allocating a certain amount of resources,
    independent of application usage.
    Deliver applications services on demand.  Our
    on-demand and monthly subscription model enables small
    businesses to determine what applications services they need,
    when they need them and when it is appropriate for them
    financially. As result, they have better operational control and
    can experience significantly lower costs.    
    Application Architecture.  Our application
    architecture has been designed with some core principles in
    mind. First, applications are reentrant so that multiple
    entities can safely and dependably access our software code
    simultaneously. Applications are also stateless, meaning that
    the states (activities) of the applications reside in a
    database. We have designed the architecture so that speed is
    optimized for each state, and so that for each state there are
    set time parameters to accomplish the related task, with
    immediate shifts to additional hardware resources as needed.
    Additionally, all our applications are designed to use
    databases, and our data architecture is designed to index
    millions of small businesses and, for each small business, its
    pertinent business information. Our applications support XML for
    data integration, and XML is employed to move data between
    applications.
    Network Architecture.  Our network architecture
    keeps track of individual requests, providing session
    information to the application servers. It is designed for high
    security, in order to prevent hackers, as well as prevent denial
    of service attacks and block unauthorized use of the system.
    Designed for high availability and redundancy, the network
    architecture has no single point of failure.
    Platform Architecture.  Our Velocity technology
    platform has been designed to be able to scale to serve millions
    of customers. Our platform consists of Intel-based commodity
    front-end servers utilizing industry standard software operating
    systems, languages and APIs (application program
    interfaces) including Linux, Apache, PHP, SOAP and XML. These
    servers run our proprietary software and are load-balanced with
    F5 Networks BigIP appliances. The front-end server pool is
    easily scalable by adding commodity servers as volume of traffic
    requires. The front-end servers connect to the back-end system
    through Cisco and Extreme Networks switches. Our back-end system
    consists of file and Oracle database servers. Our back-end
    systems are built to scale by both upgrading hardware as
    processor speeds and capacity continue to increase, and
    partitioning any single system to multiple servers.
    Data Center.  Our technology infrastructure is
    located in two data center locations operated by third parties.
    Our information systems are backed up daily, and backups are
    taken offsite monthly. The data center feeds are dual homed and
    BGP routed over multiple backbone connections. The data centers
    have split physical entry points for the feeds and can route
    traffic down either circuit in the event a circuit fails. In the
    case of an electrical power failure, the data centers has an
    uninterruptible power supply (UPS) that is dual sourced from
    public power and a local diesel generator. The generator starts
    automatically in the event of public power failure. Both data
    centers maintain an onsite fuel supply to power the generator
    during short-term disruptions. All equipment for routing,
    switching and data cabinets is also powered from the UPS,
    allowing operation without interruption during a public power
    outage. 14




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
    Systems Security.  Our security systems
    continuously monitor the Velocity Internet technology platform
    for possible vulnerabilities, as well as for possible
    intrusions, utilizing a combination of commercially available
    and open source software and services, as well as our own
    internally developed tools. We use industry standard protocols
    and systems for network security. Multiple layers of firewalls
    are designed to prevent unauthorized access externally and
    improper access to confidential information internally. We use
    standard encryption and authentication technology, licensed from
    third parties, designed to provide secure transmission of
    confidential information, such as end-user credit card numbers.
    Our Web servers use application-level security, limiting what
    transactional information is available.
    Consumer Security.  Through our customers and
    service providers, we collect information from consumers, such
    as consumer names and email aliases that enable us to personally
    identify consumers who visit the websites of our small business
    customers. In addition, consumers provide financial information,
    such as credit card numbers and bank account numbers, when
    purchasing products or services from our small business
    customers. We have security measures in place designed to
    protect the loss, misuse and alteration of the confidential
    information under our control. Only our authorized employees are
    permitted to have access to a consumers personal
    information and such access is limited based upon business need.
    We generally do not share financial information with outside
    parties, except to the extent necessary to provide consumers
    with the product or service they have purchased. We may also
    release specific personal information in order to comply with
    applicable laws and regulations and governmental proceedings,
    such as criminal investigations, search warrants, subpoenas or
    court orders. We take what we believe are reasonable steps,
    including using industry standard encryption technology, in
    order to protect such personal information. However, no data
    transmitted over the Internet or over any wireless network can
    be guaranteed to be absolutely secure. As a result, while we
    strive to protect the personal and financial information of
    consumers, we cannot guarantee the security of any such
    information.
    Customization and Integration.  We have
    developed our business applications and services to require only
    slight, if any, customization in order to be useful to most
    types of small businesses in our target vertical markets. We
    plan to continue to pursue this minimal-customization objective,
    in order to benefit from cross-market efficiencies. In the event
    we acquire rather than develop future applications, we will look
    for similar efficiency opportunities. We also provide a
    developer API for our commerce applications and services so that
    small businesses and their vendors can integrate their custom
    applications with our payment gateway. Integration options
    include: SSL POST with name/value pairs and secure socket
    connection; and for Windows-based applications, a COM object is
    also available to simplify the integration. Sample scripts are
    available (e.g., Perl, C++, Visual Basic, ASP) to shorten the
    learning curve and speed development time.  Customers
     15




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face-to-face
  Intellectual
    Property
    Small is the new
    big
      Government
    Regulation
     16




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Employees
    Website
  www.innuity.com Form 10-KSB, Form 10-QSB, Form 8-K
  Item 2.
    Description
    of Property    Approximate


Monthly


LeaseLocation

General Usage

Square Feet


Rent


ExpirationIrvine, California

Operations  In-Store
    Services business line


18,000


$
17,100
(1)

July 2013San Francisco, California

Operations  In-Store
    Services business line


3,765


$
2,942


August 2007Orem, Utah

Operations 
    Administrative services


7,781


$
6,424
(2)

June 2008Los Angeles, California

Operations  Merchant
    Services business line


3,376


$
7,931
(3)

October 2008Redmond, Washington

Operations  Promotions
    division and executive offices


5,431


$
5,974
(4)

March 2008Bellingham, Washington

Data Center


2,506


$
2,650
(5)

October 2006     (1)
    
    Escalation clause increases rent on anniversary date of lease by
    4%.(2)
    
    Escalation clause increases rent on anniversary date of lease by
    $0.50 per square foot.(3)
    
    Escalation clause increases rent on anniversary date of lease by
    3%. Monthly rent includes facility and property maintenance,
    utilities, commercial general liability and umbrella liability
    insurance.(4)
    
    Escalation clause increases rent on anniversary date of lease by
    4% to 5% depending on year. Monthly rent includes facility and
    property maintenance.(5)
    
    Escalation clause increases rent on anniversary date of lease by
    3%. 17




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Item 3.
    Legal
    Proceedings        Item 4.
    Submission
    of Matters to a Vote of Securities Holders   PART II  Item 5.
    Market
    for Common Equity and Related Stockholder Matters  Market
    Information 
  Over-the-Counter mark-up,
  COMMON
    STOCK
  Period  Fiscal Year 2006

High Bid


Low BidFirst Quarter

$
4.50


$
3.50Second Quarter

$
3.25


$
2.00Third Quarter

$
2.10


$
0.36Fourth Quarter

$
0.64


$
0.48   Period  Fiscal Year 2005

High Bid


Low BidFirst Quarter

$
5.00


$
0.75Second Quarter

$
4.90


$
1.02Third Quarter

$
5.25


$
3.74Fourth Quarter

$
4.75


$
3.32   Holders
   18




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Dividends
    Securities
    Authorized for Issuance under Equity Compensation
    Plans
    Number of SecuritiesRemaining for FutureNumber of Securities


Weighted-Average


Issuance Underto be Issued Upon


Exercise Price of


Equity CompensationExercise of Outstanding


Outstanding


Plans (ExcludingOptions, Warrants


Options, Warrants


Securities Reflected inand Rights


and Rights


Column(a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


2,159,911


$
0.83



1,973,011Equity compensation plans not
    approved by security holders


0



N/A



0Total


2,159,911


$
0.83



1,973,011   Item 6.
    Managements
    Discussion and Analysis or Plan of Operation  The following discussion should be read in conjunction with
    the audited consolidated financial statements and the notes to
    those statements which appear elsewhere in this Annual Report on
    Form 10-KSB.
    The following discussion contains forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. We use words such as
    anticipates, believes,
    estimates, may, intends,
    expects and similar expressions to identify
    forward-looking statements. Discussions containing
    forward-looking statements may also be found in the material set
    forth under Business and in other sections of the
    report. All forward-looking statements, including, but not
    limited to, statements regarding our future operating results,
    financial position, and business strategy, expectations
    regarding our growth and the growth of the industry in which we
    operate, and plans and objectives of management for future
    operations, such as plans to develop or acquire certain
    applications or services or to build a Productivity division for
    our business, are inherently uncertain as they are based on our
    expectations and assumptions concerning future events. Any or
    all of our forward-looking statements in this report may turn
    out to be inaccurate. We have based these forward-looking
    statements largely on our current expectations and projections
    about future events and financial trends that we believe may
    affect our financial condition, results of operations, business
    strategy and financial needs. They may be affected by inaccurate
    assumptions we might make or by known or unknown risks and
    uncertainties, including the risks, uncertainties and
    assumptions described in the section entitled Risk
    Factors and elsewhere in this report. In light of these
    risks, uncertainties and assumptions, the forward-looking events
    and circumstances discussed in this report may not occur as
    contemplated, and our actual results could differ materially
    from those anticipated or implied by the forward-looking
    statements. All forward-looking statements in this report are
    made as of the date hereof, based on information available to us
    as of the date hereof, and we assume no obligation to update any
    forward-looking statement.
  Overview
  Form 10-KSB.
  
    Our Business  a general description of our
    business and the industry in which we operate. 19




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
    Critical Accounting Policies  a discussion of
    accounting policies that require critical judgments and
    estimates.
    Operations Review  an analysis of our
    consolidated results of operations.
    Liquidity and Capital Resources  an analysis
    of our cash flows, sources and uses of cash.
    Off-balance Sheet Arrangements  a discussion
    of any off-balance sheet arrangements that may have a future
    effect on our operations and financial condition.
    Risk Factors  a description of certain risks
    and uncertainties that could cause our actual results to differ
    materially from our historical results or our current
    expectations or projections.  Our
    Business
    tm start-up
    Critical
    Accounting Policies
  Form 10-KSB.
  Revenue
    Recognition
     20




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Subscriptions and Maintenance Support and/or
  Transaction Processing and Affiliate (Reseller)
    Programs
  Professional Services and/or and/or and/or
  Systems Sales point-of-sale
    Credit
    Risk
    Long-Lived
    Assets
  Accounting for the impairment or disposal of long-lived
    assets,
 21




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Goodwill
  Goodwill and other
    intangible assets.
      Stock-Based
    Compensation
  Accounting for
    Stock Based Compensation
     22




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Accounting for Stock Issued to Employees
  Operations
    Review
    Analysis
    of Consolidated Statements of Operations
  Year Ending December 31,%2006


2005


ChangeRevenuesProduct sales

$
8,760,588


$
3,849,581



128
%Services


12,923,691



8,616,020



50
%Total revenues


21,684,279



12,465,601



74
%Operating
    expensesCost of product sales


6,761,494



2,743,334



146
%Cost of services


7,261,588



4,106,526



77
%General and administrative


6,634,587



7,695,290



(14
)%Selling and marketing


5,313,385



3,484,548



52
%Research and development


1,423,679



1,240,527



15
%Royalty expense


1,247,246



1,662,994



(25
)%Amortization expense


958,045



628,893



52
%Loss from operations


(7,915,745
)


(9,096,511
)


(13
)%Other income
    (expense)Interest expense


(627,927
)


(294,310
)


113
%Other


69,984



24,791



*Total other expense


(557,943
)


(269,519
)


107
%Net Loss

$
(8,473,688
)

$
(9,366,030
)


(10
)%     *
    
    Calculation is not meaningful    Revenues
   23




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##### Table of Contents



Expenses
  Cost of product sales.
  Cost of services.
  General and administrative.
        Selling and marketing. go-to-market
  Research and development.
 24




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Royalty.
  Amortization.
  Interest. and/or
  Liquidity
    and Capital Resources
           25




---



##### Table of Contents



free-up
      Off-Balance
    Sheet Arrangements
    Risks
    Factors
    We
    have incurred losses since our inception, and we may not achieve
    or maintain profitability.
    We
    have a significant working capital deficit and will need
    additional funding to support our operations and capital
    expenditures; sufficient funding may not be available to us, and
    the unavailability of funding could adversely affect our
    business.
   26




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##### Table of Contents



We
    have incurred substantial indebtedness, some of which is past
    due and in default.
    Our
    limited operating history makes evaluation of our business
    difficult.
    We
    face intense and growing competition from larger, more
    established companies, as well as new entrants into our market,
    and we may not be able to compete effectively, which could
    reduce demand for our services.
      Our
    future revenues may be uncertain because of reliance on third
    parties for marketing and distribution.
   27




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##### Table of Contents



If we
    fail to develop and maintain an effective system of internal
    controls, we may not be able to accurately report our financial
    results or prevent fraud; as a result, current and potential
    shareholders could lose confidence in our financial reporting,
    which could harm our business and the trading price of our
    common stock.
  Form 10-KSB Form 10-KSB
  We
    will incur increased costs as a public company which may make it
    more difficult for us to achieve profitability and an active
    trading market.
   28




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##### Table of Contents



Our
    business will be harmed if we are unable to develop or offer
    additional Internet technology applications and solutions in a
    timely and cost-effective manner.
    Expansion
    in the sales of our Internet technology applications and
    solutions will depend on the continued acceptance of the
    Internet as a communications and commerce platform for small
    businesses.
  ease-of-use,
  pay-per-click e-commerce
 29




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##### Table of Contents



We may
    find that it is difficult to identify, or license or acquire
    additional Internet technology solutions on favorable terms, or
    to integrate future technology or business acquisitions, which
    could limit our growth, disrupt our business and adversely
    affect our operating results.
      If we
    are unable to expand or appropriately enhance or modify our
    Internet technology solutions offerings quickly and efficiently,
    our business and operating results will be adversely
    affected.
    
    identify and anticipate emerging technological and market trends
    affecting the small business segment in which we do business;
    enhance our current services offerings so as to increase their
    functionality, features and cost-effectiveness;
    develop, license or acquire new applications or services that
    meet emerging customer needs;
    modify our services offerings in response to changing business
    practices and technical requirements of our customers, as well
    as new regulatory requirements;
    integrate our current and future services offerings with
    third-party systems and services; and
    create and maintain interfaces to changing customer and third
    party systems and services.   30




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##### Table of Contents



If we
    are unable to maintain our existing private label distribution
    arrangements or if we are unable to enter into additional
    private label distribution arrangements, our future revenues
    could be significantly reduced and our expenses would
    increase.
      If we
    are unable to sell additional services to our existing
    customers, or if our renewal rates decline for any reason, our
    revenues may decrease and our business will be
    harmed.
  month-to-month
  Our
    systems and our third-party providers systems may fail due
    to factors beyond our control, which could interrupt our
    service, causing us to lose business and increase our
    costs.
   31




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##### Table of Contents




    loss of revenues;
    loss of customers;
    loss of customers credit card data;
    harm to our business or reputation;
    exposure to fraud losses or other liabilities;
    negative publicity;
    additional operating and development costs; and/or
    diversion of technical and other resources.  Changes
    to credit card association rules or practices could adversely
    impact our business.
    Our
    reliance on suppliers and vendors could adversely affect our
    ability to provide our services and products to our small
    business customers on a timely and cost-efficient basis, which
    could reduce our revenues.
      The
    loss of key customers could negatively affect our revenues and
    profitability.
   32




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##### Table of Contents



We
    have faced, and may in the future face, significant chargeback
    liability if our small business customers refuse or cannot
    reimburse chargebacks resolved in favor of their customers, and
    we may also face potential liability for merchant or customer
    fraud; we may not accurately forecast or protect ourselves
    against these liabilities.
  card-not-present
    On
    occasion, we experience increases in interchange costs; if we
    cannot pass these increases along to our small business
    customers, our profit margins will be reduced.
    Our
    ability to effectively improve a websites positioning in
    search rankings depends on our ability to determine and search
    engine algorithms; a significant change in the way these
    algorithms function could negatively affect our
    business.
   33




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##### Table of Contents




    search engines stop providing critical data used by our
    internally developed tools;
    search engine algorithms arbitrarily prevent new sites from
    obtaining rankings;
    search engine algorithms weigh new factors that are more
    difficult for us to influence;
    search engines implementation of new algorithms; or
    search engines switch to an entirely fee-based system,
    eliminating natural rankings as currently used.  Margins
    on
    pay-per-click
    advertising may become too low to be profitable.
  pay-per-click pay-per-click pay-per-click
  Hackers
    or black-hat search engine optimization companies
    may negatively impact the publics perception of the search
    engine optimization industry, which could impair our ability to
    maintain our current customers and attract new
    customers.
    We
    have grown quickly and if we fail to manage our growth, our
    business could suffer.
   34




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##### Table of Contents



The
    loss of any members of our senior management could harm our
    current and future operations and prospects.
  ,
  We
    face significant competition for a limited supply of qualified
    software engineers, consultants and sales and marketing
    personnel.
    We may
    be unable to protect our intellectual property adequately or
    cost-effectively, which may cause us to lose market share or
    force us to reduce our prices.
    We may
    become a party to intellectual property infringement claims,
    which could harm our business.
  01-441
 35




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##### Table of Contents



Our
    Internet technology applications and solutions involve the
    storage and transmission of our small business customers
    proprietary information, as well as the personal information of
    their customers. Our business could be harmed if there is a
    breach of privacy.
    e-commerce,
  Our
    technical systems are vulnerable to interruption and damage that
    may be costly and time-consuming for us to resolve and may harm
    our business and reputation, and we could be subject to
    liability as a result of service interruptions by
    cyber-terrorists or fraudulent or illegal use of our
    services.
   36




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##### Table of Contents



We
    rely heavily on the reliability, security, and performance of
    our internally developed systems and operations, and any
    difficulties in maintaining these systems may result in service
    interruptions, decreased customer service, or increased
    expenditures.
      Our
    business may be harmed by errors in our software.
   37




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##### Table of Contents




    we may suffer a loss of revenues if, due to software errors, we
    are temporarily unable to provide Internet technology
    applications and solutions to our customers;
    we may not be paid for the applications and services provided to
    a customer that contain or result in errors, or we may be liable
    for losses or damages sustained by a customer or its subscribers
    as a result of such errors;
    we may incur additional expenses to correct errors in our
    software, or to fund product development projects that we may
    undertake to minimize the occurrence of such errors in the
    future;
    we may damage our relationships with customers or suffer a loss
    of reputation within our industry;
    we may become subject to litigation or regulatory
    scrutiny; and
    our customers may terminate or fail to renew their agreements
    with us or reduce the services they purchase from us.  If
    economic or other factors negatively affect the small business
    sector, our customers may become unwilling or unable to purchase
    our Internet technology applications and solutions and related
    products, which could cause our revenues to decline and impair
    our ability to operate profitably.
    If we
    are unable to respond to the rapid technological changes that
    are characteristic of our industry, our Internet technology
    applications and solutions may not be competitive.
    We and
    our small business customers must comply with complex and
    changing laws and regulations.
   38




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##### Table of Contents



Government
    regulation of the Internet may adversely affect our business and
    operating results.
    
    the Digital Millennium Copyright Act and its related safe
    harbors, are intended to reduce the liability of online service
    providers for listing or linking to third-party websites that
    include materials that infringe copyrights or other rights of
    others;
    the Childrens Online Protection Act and the
    Childrens Online Privacy Protection Act are intended to
    restrict the distribution of certain materials deemed harmful to
    children, and impose additional restrictions on the ability of
    online services to collect user information from minors;
    the Protection of Children from Sexual Predators Act of 1998
    requires online service providers to report evidence of
    violations of federal child pornography laws under certain
    circumstances; and
    the CAN-SPAM Act of 2003 and certain state laws are intended to
    regulate interstate commerce by imposing limitations and
    penalties on the transmission of unsolicited commercial
    electronic mail via the Internet.    and/or
  We may
    be subject to lawsuits for information displayed on our small
    business customers websites, which may affect our
    business.
   39




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##### Table of Contents



State
    and local governments may in the future be permitted to levy
    additional taxes on Internet access and electronic commerce
    transactions, which could result in a decrease in the
    attractiveness of the Internet to our customers and potential
    customers, and could reduce demand for our Internet technology
    applications and solutions.
    Shares
    of our common stock may continue to be subject to price
    volatility and illiquidity because our shares may continue to be
    thinly traded and may never become eligible for trading on
    Nasdaq or a national securities exchange.
      Future
    sales of shares of our common stock may decrease the price for
    such shares.
   40




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##### Table of Contents



Our
    stock price may be volatile, and you may lose some or all of
    your investment.
    
    variations in our operating results;
    announcements of technological innovations, new services or
    service enhancements, or significant agreements, by us or by our
    competitors;
    recruitment or departure of key personnel;
    changes in estimates of our operating results, or changes in
    recommendations by any securities analysts that may follow us;
    sales of our common stock, particularly sales by officers,
    directors and significant shareholders; or
    conditions in our industry, the industries of our customers and
    the economy as a whole.  Our
    stock may be subject to regulation as a penny stock,
    which could severely limit the liquidity of your
    securities.
  Rule 15g-9
  Item 7.
    Financial
    Statements   Item 8A.  Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(e)
  Internal
    Control
   41




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##### Table of Contents



Item 8B.  Other
    Information   PART III  Item 9.
    Directors,
    Executive Officers, Promoters, Control Persons and Corporate
    Governance; Compliance with Section 16(a) of the Exchange
    Act    Item 10.
    Executive
    Compensation    Item 11.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 12.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 13.
    Exhibits    ExhibitNumber

Notes

Description3
.1



Articles of Incorporation, as
    amended.3
.2

(4)

Articles of Amendment to Articles
    of Incorporation.3
.3

(3)

Amended and Restated Bylaws.4
.1

(3)

Form of Warrant to Purchase Common
    Stock.4
.2

(3)

Form of Warrant to Purchase Common
    Stock.4
.4

(3)

Registration Rights Agreement,
    dated as of June 6, by and among Vista.com, Inc. and
    certain parties listed therein.10
.1

(4)

Innuity, Inc. Amended and Restated
    1999 Stock Option Plan.*10
.2

(3)

Form of Stock Option Agreement.*10
.3

(3)

Form of Common Stock Purchase
    Agreement.*10
.4

(3)

Lease Agreement dated as of
    December 23, 2003, entered into by and between Vista.com,
    Inc. and TIAA Realty, Inc., as amended as of February 28,
    2005.10
.5

(5)

Lease Agreement dated
    March 3, 2006, by and between Kelly L. Sapp Trust and
    Jadeon, Inc.10
.6

(3)

Lease Agreement dated
    July 26, 2005, by and between 10x Marketing, LLC and TCU
    Properties II, LLC.10
.7

(3)

Loan and Security Agreement, dated
    as of February 18, 2005, entered into by and between
    Vista.com, Inc. and Comerica Bank, as amended. 42




---



##### Table of Contents



ExhibitNumber

Notes

Description10
.8

(3)

Consulting Agreement dated
    December 16, 2004, as amended, by and between Vista.com,
    Inc. and BayHill Group, LC.*10
.9

(3)

Employment Agreement dated
    June 16, 2005, between Vista.com, Inc. and Mark LeMay.*10
.10

(3)

Indemnification Agreement, dated
    November 9, 2005, by and among Vista.com, Inc., Source
    Energy Corporation, Craig Carpenter and Jenson Services, Inc.10
.11

(3)

Lease Option Agreement, dated
    November 9, 2005, by and between Source Energy Corporation
    and Craig Carpenter.10
.12

(7)

Second Amendment to Loan and
    Security Agreement with Comerica Bank10
.13

(6)

Security Purchase Agreement
    relating to 15% Convertible Secured Promissory Notes10
.14

(6)

Form of 15% Convertible
    Secured Promissory Note10
.15

(6)

Registration Rights Agreement10
.16

(6)

Form of Common Stock Purchase
    Warrant10
.17

(8)

Asset Purchase Agreement dated
    November 8, 2006, by and between Creditdiscovery, LLC,
    Randall L. Sargent, Ralph H. Smith and Innuity, Inc.10
.18

(8)

Asset Purchase Agreement dated
    November 8, 2006, by and between Acquirint, LLC, Randall L.
    Sargent, Ralph H. Smith and Innuity, Inc.10
.19



Registration Rights Agreement
    between Innuity, Inc. and Creditdiscovery, LLC, dated
    December 22, 2006.10
.20



Registration Rights Agreement
    between Innuity, Inc. and Acquirint, LLC, dated
    December 22, 2006.10
.21



Lease Agreement dated
    November 2, 2006, by and between Bryan & Mary Lou
    Chesledon and Innuity, Inc.10
.22



Stock Purchase Agreement dated
    December 29, 2006, by and between Seaport Ventures and
    Innuity, Inc.10
.23



Stock Purchase Agreement dated
    December 29, 2006, by and between Maryanne Dennis and
    Innuity, Inc.10
.24



Stock Purchase Agreement dated
    December 29, 2006 by and between John and Maryanne Dennis
    Foundation and Innuity, Inc.10
.25



Settlement Agreement dated
    January 31, 2007 by and among Vista.com; Ticketmaster,
    doing business as Citysearch.com; and John Wall.21
.0



Subsidiaries of Innuity, Inc.31
.1



Certification of the Chief
    Executive Officer Pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.31
.2



Certification of the Chief
    Financial Officer Pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.32
.1



Certification of Chief Executive
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2



Certification of Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     
    
    Filed herewith.  *
    
    Indicates a management contract or compensatory plan.(1)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed on October 24, 2005.(2)
    
    Incorporated by reference to our
    Form 10-SB
    registration statement filed on January 26, 2000.(3)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed on November 10, 2005.(4)
    
    Incorporated by reference to our Annual Report on From
    10-KSB for
    the year ended December 31, 2005, filed on March 23,
    2006. 43




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##### Table of Contents



(5)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-QSB
    for the quarter ended March 31, 2006, filed on May 15,
    2006.(6)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-QSB
    for the quarter ended June 30, 2006, filed on
    August 4, 2006.(7)
    
    Incorporated by reference to our Quarterly Report on
    Form 10-QSB
    for the quarter ended September 30, 2006, filed on
    November 6, 2006.(8)
    
    Incorporated by reference to our Current Report on
    Form 8-K
    filed on November 13, 2006.  Item 14.
    Principal
    Accountant Fees and Services   44




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##### Table of Contents



SIGNATURES
      By:
    /s/  JOHN
    R. WALL  Chief Executive Officer
 (Principal Executive Officer)
      Signature

Title

Date/s/  JOHN
    R. WALLJohn
    R. Wall

Chief Executive Officer 
    (Principal Executive Officer), Chairman of the Board, Treasurer
    and Secretary

March 5, 2007/s/  ROBERT
    K. BENCHRobert
    K. Bench

Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 5, 2007/s/  KEITH
    A. CANNONKeith
    A. Cannon

Director

March 5, 2007/s/  JOHN
    R. DENNISJohn
    R. Dennis

President, Director

March 5, 2007/s/  HAROLD
    H. KAWAGUCHIHarold
    H. Kawaguchi

Director

March 5, 2007/s/  MARVIN
    A. MALLMarvin
    A. Mall

Chief Operating Officer, Director

March 5, 2007/s/  GREG
    M. STEVENSONGreg
    M. Stevenson

Director

March 5, 2007  45




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##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of December 31, 2006 and 2005


F-3Consolidated
    Statements of Operations for the Years Ended December 31,
    2006 and 2005


F-4Consolidated
    Statements of Stockholders Deficit for the Years Ended
    December 31, 2005 and 2006


F-5Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006 and 2005


F-6Notes to
    Consolidated Financial Statements


F-8  F-1




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##### Table of Contents



Hansen, Barnett & Maxwell, p.c.A Professional CorporationCERTIFIED PUBLIC ACCOUNTANTS5 Triad Center, Suite 750Salt Lake City, UT 84180-1128Phone: (801) 532-2200Fax: (801) 532-7944www.hbmcpas.com

Registered with the Public CompanyAccounting Oversight Board(LOGO)   REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             Share-Based
    Payment
  HANSEN, BARNETT & MAXWELL, P.C.
    F-2




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##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  December 31,2006


2005ASSETSCurrent AssetsCash and cash equivalents

$
307,483


$
696,997Settlement deposits


467,078



529,900Settlement receivable, net of
    allowance for doubtful accounts of $12,864 and $47,939,
    respectively


173,098



254,499Trade accounts receivable, net of
    allowance for doubtful accounts of $115,693, and $254,106,
    respectively


1,318,773



1,848,819Inventories, net of allowance for
    obsolete inventory of $226,656 and $115,141, respectively


486,736



522,600Prepaid royalty






1,247,246Other current assets


184,891



209,813Total Current Assets


2,938,059



5,309,874Property and equipment, net


901,318



347,724Intangible Assets, net


1,670,582



2,370,714Goodwill


1,833,220



1,833,220Total Assets

$
7,343,179


$
9,861,532LIABILITIES AND
    STOCKHOLDERS DEFICITCurrent LiabilitiesTrade accounts payable

$
2,587,227


$
1,595,272Accrued salaries and wages


612,745



406,036Merchant settlement payable


453,596



774,975Accrued liabilities


1,229,872



492,661Deferred revenues


2,543,397



1,859,971Line of credit


699,365



489,515Related party notes payable,
    current portion, net of discount of $2,700 and $2,700,
    respectively


658,105



658,106Long-term debt, current portion


1,294,529



1,215,000Capital lease obligations, current
    portion


142,972



36,420Total Current
    Liabilities


10,221,808



7,527,956Long-Term LiabilitiesRelated party notes payable, net
    of discount of $248,357 and $22,944, respectively


330,832



1,470,867Long-term debt, net of discount of
    $0 and $254,087, respectively


180,126



3,397,563Capital lease obligations


190,024



52,102Total Long-Term
    Liabilities


700,982



4,920,532Total Liabilities


10,922,790



12,448,488Commitments and Contingencies
    (Notes 8, 10 and 11)Stockholders
    DeficitCommon stock;
    200,000,000 shares authorized; par value $0.00025 per
    share; 20,741,538 shares and 16,371,289 shares issued
    and outstanding, respectively


5,185



4,093Additional paid-in capital


32,897,053



26,430,420Deferred compensation






(1,013,308
)Accumulated deficit


(36,481,849
)


(28,008,161
)Total Stockholders
    Deficit


(3,579,611
)


(2,586,956
)Total Liabilities and
    Stockholders Deficit

$
7,343,179


$
9,861,532    F-3




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##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2006


2005RevenuesProduct sales

$
8,760,588


$
3,849,581Services


12,923,691



8,616,020Total revenues


21,684,279



12,465,601Operating expensesCost of product sales


6,761,494



2,743,334Cost of services


7,261,588



4,106,526General and administrative


6,634,587



7,695,290Selling and marketing


5,313,385



3,484,548Research and development


1,423,679



1,240,527Royalty expense


1,247,246



1,662,994Amortization expense


958,045



628,893Loss from operations


(7,915,745
)


(9,096,511
)Other income
    (expense)Gain on sale of assets






24,791Other income


69,984



Interest expense


(627,927
)


(294,310
)Total other income
    (expense)


(557,943
)


(269,519
)Net Loss

$
(8,473,688
)

$
(9,366,030
)Basic and Diluted Loss Per
    Common Share

$
(0.43
)

$
(1.02
)Basic and Diluted
    Weighted-Average Common Shares Outstanding


19,555,243



9,184,411    F-4




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##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  STATEMENTS OF STOCKHOLDERS DEFICIT
 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2006
  Series A

















TotalPreferred Stock


Common Stock


Additional


Deferred


Accumulated


StockholdersShares


Amount


Shares


Amount


Paid-In Capital


Compensation


Deficit


DeficitBalance 
    January 1, 2005


4,635,948


$
4,387,114



2,597,753


$
649


$
13,500,506


$
(663,758
)

$
(18,642,131
)

$
(1,417,620
)Preferred Series A stock
    issued for cash


25,000



25,000























25,000Issuance of common stock for buyout
    of royalty agreement, $0.90 per share










1,500,000



375



1,349,625











1,350,000Issuance of common stock to
    Directors and Officers, $0.90 per share










3,074,789



769



2,766,541











2,767,310Issuance of common stock for
    accrued bonus, $0.912 per share










209,142



52



190,686











190,738Issuance of common stock for
    purchase of Jadeon, Inc., $0.912 per share (Note 14)










2,134,340



534



1,945,984











1,946,518Issuance of common stock for
    purchase of 10X Marketing, $0.912 per share (Note 14)










630,000



158



574,402











574,560Issuance of common stock to Leasing
    Company, $1.956 per share










70,000



18



136,902











136,920Issuance of common stock to
    Directors and Officers, $1.956 per share










93,175



23



182,227











182,250Issuance of common stock for
    purchase of Source Energy










904,451



226



(181,003
)










(180,777
)Conversion of Series A
    Preferred Stock


(4,660,948
)


(4,412,114
)


4,660,948



1,165



4,410,949











To record beneficial conversion
    feature on convertible notes


















301,189











301,189Stock options and warrants exercised










496,691



124



38,150











38,274Stock options and warrants issued
    for services


















130,454











130,454Amortization of deferred
    compensation






















734,258







734,258Stock options issued to employees


















1,557,393



(1,557,393
)






Stock options forfeited


















(473,585
)


473,585







Net loss


























(9,366,030
)


(9,366,030
)Balance 
    December 31, 2005










16,371,289



4,093



26,430,420



(1,013,308
)


(28,008,161
)


(2,586,956
)Reclassification of deferrred
    compensation (note 13)


















(1,013,308
)


1,013,308







Issuance of common stock for
    conversion of convertible debt, $1.50 per share (Note 7)










3,283,295



821



4,923,991











4,924,812Issuance of common stock for a
    potential acquisition target, $3.20 per share










143,000



36



457,564











457,600Issuance of common stock to an
    employee as part of a severance package, $2.00 per share










8,000



2



15,998











16,000Issuance of stock for settlement of
    registration right liability, $0.60 per share (note 9 )










100,000



25



59,975











60,000Issuance of common stock for
    services, $0.60 per share










125,000



31



74,969











75,000Stock issued for purchase of Credit
    Discovery, $0.59 per share (Note 14)










454,000



114



267,746











267,860Stock options and warrants exercised










256,954



63



6,035











6,098Stock warrants issued for extension
    of Line of Credit


















24,142











24,142Discount on convertible note


















332,232











332,232Non-cash share based compensation
    expense on options


















1,317,289











1,317,289Net loss


























(8,473,688
)


(8,473,688
)Balance 
    December 31, 2006





$




20,741,538


$
5,185


$
32,897,053


$



$
(36,481,849
)

$
(3,579,611
)    F-5




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years Ending December 31,2006


2005Cash flows from operating
    activitiesNet loss

$
(8,473,688
)

$
(9,366,030
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


1,242,664



865,098Accretion of discount on notes
    payable


360,907



105,539Non-cash share based compensation


1,317,289



734,258Common stock and warrants issued
    for services


632,744



3,028,318Bad debt provision


366,053



32,000Expense for prepaid royalties


1,247,246



1,662,994Gain on sale of assets






(24,791
)Changes in assets and liabilities,
    net of acquisitions:Settlement deposits


62,822



(380,748
)Trade accounts receivable


188,564



(388,506
)Settlement receivable


56,830



(212,961
)Inventories


35,864



(183,812
)Other current assets


24,922



(36,982
)Trade accounts payable


991,955



347,196Merchant settlement payable


(321,379
)


262,981Accrued salaries and wages


206,709



73,238Deferred revenues


683,426



(2,025
)Accrued liabilities


935,937



(52,819
)Total adjustments


8,032,553



5,828,978Net cash used in operating
    activities


(441,135
)


(3,537,052
)Cash flows from investing
    activitiesPurchase of property and equipment


(178,496
)


(109,320
)Change in restricted cash






300,151Purchase of intangible assets






(55,000
)Purchase of Jadeon, Inc.






498,822Purchase of Source Energy,
    Inc.






144,014Cash paid for purchase of Credit
    Discovery


(15,053
)


Cash paid for purchase of Source
    Energy






(300,000
)Net cash provided by (used in)
    investing activities


(193,549
)


478,667Cash flows from financing
    activitiesProceeds from related party notes
    payable


345,000



Proceeds from convertible note






3,514,007Increase in lines of credit


209,850



489,515Payments on related party notes
    payable


(185,187
)


(595,232
)Payments on long-term debt


(30,528
)


(107,508
)Payments on capital lease
    obligations


(100,062
)


(11,514
)Proceeds from issuance of
    Series A preferred stock






25,000Proceeds from exercise of options
    and warrants


6,097



30,043Common stock issued for cash






223,627Net cash provided by financing
    activities


245,170



3,567,938Net increase (decrease) in cash
    and cash equivalents


(389,514
)


509,553Cash and cash equivalents at
    beginning of year


696,997



187,444Cash and cash equivalents at
    end of year

$
307,483


$
696,997    F-6




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS 
    (Continued)
  For the Years Ended December 31,2006


2005Supplemental disclosure of cash
    flow informationCash paid during the period for
    interest

$
85,733


$
42,464Noncash investing and financing
    activitiesIssuance of options and warrants

$



$
1,557,392Stock options forfeited






473,584Exercise of warrants for
    settlement of liabilities






8,231Issuance of note payable for
    purchase of intangible assets






45,000Note payable issued as prepayment
    of royalties






1,824,471Common stock issued as prepayment
    of royalties






1,350,000Common stock issued for settlement
    of certain liabilities






230,727Series A preferred stock
    converted to common stock






4,412,114Discount on notes payable


332,232



273,497Conversion of old note and accrued
    interest to new convertible note






137,644Conversion of related party note
    payable to convertible note






1,074,434Acquisition of property and
    equipment under terms of capital lease agreements


344,536



93,179Convertible debt converted to
    common stock


4,726,085



Accrued interest converted to
    common stock


198,727



Reclassification of deferrred
    compensation to additional paid in capital in accordance with
    Statement of Financial Accounting Standards No. 123R


1,013,308



Purchase of software with note


290,182



Purchase of Jadeon (see
    Note 14)Fair value of assets acquired






5,602,842Liabilities assumed






(3,656,324
)Common stock issued






(1,946,518
)Purchase of 10X Marketing (see
    Note 14)Fair value of assets acquired






700,906Liabilities assumed






(126,346
)Common stock issued






(574,560
)Purchase of Source Energy (see
    Note 1)Fair value of assets acquired






194,223Cash paid for acquisition






(300,000
)Liabilities assumed






(75,000
)Common stock issued






180,777Purchase of Credit
    Discovery/Acquirint (see Note 14)Fair value of assets acquired


282,914



Liabilities assumed


15,054



Common stock issued


297,968



Sale of Source Energy Assets
    (see Note 1)Forgiveness of debt






(75,000
)Value of assets sold






50,209Gain on sale of assets






(24,791
)    F-7




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS
  NOTE 1 
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    one-for-one
      Nature of Operations tm start-up
  pay-per-click
  point-of-sale
   F-8




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Principles of Consolidation
  Use of Estimates
  Revenue Recognition
      Subscriptions and Maintenance Support and/or
  Transaction Processing and Affiliate (Reseller)
    Programs
 F-9




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Professional Services and/or and/or and/or
  Systems Sales point-of-sale
  Cash and Cash Equivalents
  Settlement Accounts
  Trade Account Receivable account-by-account
  Inventories (first-in,
    Property and Equipment
 F-10




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    EstimatedService Livesin YearsInfrastructure 
    computer equipment


3-5Other computer equipment


3-5Software


2-5Capital leases


3Furniture and fixtures


2Leasehold Improvements


3   Intangible Assets and Goodwill Accounting for Goodwill
    and Intangible Assets,
  Computer Software Costs 98-1, Accounting for the Costs of Computer Software Developed
    or Obtained for Internal Use
  Advertising costs
  Impairment of Long-Lived Assets
  Deferred Revenue
  Stock-Based Compensation
 F-11




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based Payment Accounting for Stock-Based Compensation, Accounting for Stock Issued to
    Employees Accounting for Stock-Based Compensation
  For the Year Ended December 31,

2005Net loss, as reported

$
(9,366,030
)Add: Stock-based employee
    compensation expense included in net loss


734,258Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards


(1,015,010
)Pro forma net loss

$
(9,646,782
)Basic and diluted loss per common
    share as reported

$
(1.02
)Basic and diluted loss per common
    share pro forma

$
(1.05
)     2005Expected dividend yield


Risk free interest rate


4.15
%Expected volatility


97
%Expected life


5.0 yearsWeighted average fair value per
    share

$
1.33   Income Taxes
  Other Comprehensive Income
  Reclassifications
  Business Segments and Related Information Disclosures about Segments of
    an Enterprise and Related Information 
  Concentrations of Risk
 F-12




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Fair Value of Financial Instruments
  Loss Per Share
  New Accounting Standards Exchanges of Non-monetary Assets-an amendment of APB
    Opinion No. 29
  Accounting Changes and Errors Corrections-an amendment
    to APB Opinion No. 20 and Statement of Financial Accounting
    Standards No. 3
  Accounting for Uncertainty in Income Taxes
  Fair Value
    Measurements
    NOTE 2 
    GOING CONCERN
   F-13




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  NOTE 3 
    PROPERTY AND EQUIPMENT
    EstimatedService Lives2006


2005


in YearsInfrastructure 
    computer equipment

$
796,576


$
770,441



3-5Other computer equipment


54,212



54,212



3-5Software


462,523



117,786



2-5Equipment under capital lease
    obligations


437,614



93,179



3Furniture and fixtures


53,137



43,282



2Leasehold Improvements


113,052







31,917,114



1,078,900Less: accumulated depreciation


1,015,796



731,176Property and Equipment, Net

$
901,318


$
347,724     NOTE 4 
    CUSTOMER CONTRACTS
   F-14




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 5 
    INTANGIBLE ASSETS AND GOODWILL
  Intangible Assets
  2006


2005Estimated


Gross Carrying


Accumulated


Gross Carrying


AccumulatedUseful Lives


Amount


Amortization


Amount


AmortizationAcquired software


3-5 years


$
1,198,813


$
549,876


$
940,900


$
336,558Domain name registration


1 year



100,000



100,000



100,000



58,333Distribution rights


3 years



32,000



16,446



32,000



5,778Customer contracts and
    relationships


3 years



2,077,179



1,071,088



2,077,179



378,696Total





$
3,407,992


$
1,737,410


$
3,150,079


$
779,365     Year Ending December 31,2007

$
1,002,3492008


582,2632009


85,970$
1,670,582   Goodwill
   F-15




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 6 
    ACCRUED LIABILITIES
    2006


2005Merchant reserve

$
369,023


$
175,264Accrued interest


187,099



234,662Sales tax payable


148,087



35,457Partner payments


102,021



24,603Penalties


267,000



Accrued rent


63,447



Other


93,195



22,675Total

$
1,229,872


$
492,661   NOTE 7 
    LONG-TERM DEBT
      Proceeds

$
345,000Debt discount for warrants


(116,309
)Debt discount for beneficial
    conversion feature


(215,923
)Net value of debt at issuance

$
12,768     Line of Credit
   F-16




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005Non-interest bearing note payable
    to an unrelated party, interest imputed at 8%, in default

$
1,200,000


$
1,200,000Convertible notes payable to
    individuals, net of $0 and $254,807 of unamortized discount,
    accrued interest and principal settled for 2,532,624 shares
    of common stock in 2006






3,397,563Non-interest bearing note payable
    to an individual, settled in 2006






15,000Note payable to an unrelated
    party, interest imputed at 2.49%, matures October 2009, monthly
    payments of $8,357 beginning October 2006, unsecured


274,655



Total debt

$
1,474,655


$
4,612,563Less current maturities


(1,294,529
)


(1,215,000
)Long-term debt

$
180,126


$
3,397,563     Year Ending December 31,2007

$
1,294,5292008


96,9102009


83,216Total

$
1,474,655     December 31,2006


2005Notes payable to a shareholder,
    interest at 12%, due on demand, in default, unsecured

$
200,000


$
200,000Convertible note payable to a
    related party, accrued interest and principal settled for
    750,671 shares of common stock in 2006






1,074,434Note payable to former owner of
    Jadeon, interest at 5%, minimum payment of $45,000 quarterly,
    matures June 2016, net of discount of $22,944 and $25,644,
    unsecured


391,244



573,734Note payable to a related party,
    interest at 12%, matures December 2009, monthly payments of
    $13,468 beginning September 2005, in default, unsecured


280,805



280,805Convertible note payable to
    related parties, interest at 15%, matures beginning April 2008,
    net of discount of $228,112 and $0, unsecured


116,888



Total related party notes payable

$
988,937


$
2,128,973Less current maturities


(658,105
)


(658,106
)Long-term related party notes
    payable

$
330,832


$
1,470,867    F-17




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ending December 31,2007

$
377,3002008


276,6442009


54,188Total

$
708,132   NOTE 8 
    LEASES
    Capital


OperatingYear Ending December 31,

Leases


Leases2007

$
164,596


$
524,9992008


149,268



445,6382009


58,794



255,9762010






236,9772011






246,456Thereafter






612,892Total future minimum lease payments

$
372,658


$
2,322,938Less: amount representing interest


39,662Total capital lease obligations


332,996Less: current portion


142,972Capital lease obligations, net of
    current portion

$
190,024       NOTE 9 
    RELATED PARTY TRANSACTIONS
  Buyout of Royalty Agreement
   F-18




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Common Stock Issued for Services
    Common Stock issued to Officers and Directors
    NOTE 10 
    COMMITMENTS AND CONTINGENCIES
   F-19




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 11 
    INCOME TAXES
    2006


2005Deferred Income Tax Assets:Amortization of Intangibles

$
608,945


$
321,193Accrued liabilities


110,741



92,228Reserves for bad debt and
    inventory obsolescence


132,495



155,611Depreciation


28,814



9,861FAS 123R


1,026,437



Net operating loss carryforward


9,691,085



7,315,901Total Deferred Income Tax Assets


11,598,517



7,894,794Valuation allowance


(11,598,517
)


(7,894,794
)Net Deferred Income Tax Asset

$



$
         2006


2005Benefit at statutory rate (34%)

$
(2,881,054
)

$
(3,184,450
)Non-deductible expenses


188,625



19,892Change in valuation allowance


3,703,723



3,472,592Adjustment due to FAS 123R


(749,970
)


State tax benefit, net of federal
    tax benefit


(261,324
)


(308,034
)Net Benefit from Income Taxes

$



$
   NOTE 12 
    STOCKHOLDERS EQUITY
  Exercise of Stock Options
    Common Stock issued for exercise of warrants
 F-20




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   New Series A Preferred Stock Issued
    Common Stock issued for Lease Agreement
  Common Stock issued for Services
      NOTE 13 
    SHARE BASED PAYMENTS
  Stock Option Plan
     F-21




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Dividend yield


0.0
%Expected Volatility


169
%Risk-free interest rate


4.64
%Expected term


5 years       Weighted


WeightedShares


Average


Average


AggregateUnder


Exercise


Remaining


IntrinsicOption


Price


Contract Term


ValueOutstanding at December 31,
    2005


1,980,885


$
0.38Granted


678,000


$
1.81Exercised


(245,906
)

$
0.24Forfeited or expired


(253,068
)

$
0.49Outstanding at December 31,
    2006


2,159,911


$
0.83



8.42 Years


$
232,189Exercisable at December 31,
    2006


1,116,886


$
0.59



7.78 Years


$
164,046     Warrants
 F-22




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       2006


2005Expected dividend yield






Risk free interest rate


4.95
%


3.76
%Expected volatility


140
%


100
%Expected life


2.0 years



2.5 yearsWeighted average fair value per
    share

$
2.32


$
0.47     Warrants OutstandingWeighted-





Warrants ExercisableNumber of


Average


Weighted-


Number of


Weighted-Warrants


Remaining


Average


Warrants


AverageRange of Exercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise Price$0.007 - $0.01


517,016



0.67 years


$
0.007



517,016


$
0.007$0.50


50,000



0.29 years



0.50



50,000



0.50$ 1.00 - $1.50


19,780



3.23 years



1.39



19,780



1.39$0.007 - $1.50


586,796



0.72 years


$
0.096



586,796


$
0.096   NOTE 14 
    ACQUISITIONS
  Aloha Webservices acquisition
  10x Marketing Acquisition
     F-23




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Current Assets

$
52,983Property and equipment


21,559Intangible assets


626,364Total assets acquired


700,906Current liabilities


(126,346
)Total liabilities assumed


(126,346
)Net Assets Acquired

$
574,560   Jadeon Acquisition
     F-24




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Current Assets

$
1,957,714Property and equipment


135,785Intangible assets


3,504,393Other assets


4,950Total assets acquired


5,602,842Current liabilities


(2,814,426
)Other liabilities


(841,898
)Total liabilities assumed


(3,656,324
)Net Assets Acquired

$
1,946,518         Year EndedDecember 31,2005Revenue

$
18,141,705Net loss

$
(9,265,948
)Net loss per share

$
(0.89
)   Credit Discovery/Acquirint acquisition
   F-25




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Property and equipment

$
25,000Intangible asset


257,913Total assets acquired


282,913Current liabilities


(15,053
)Total liabilities assumed


(15,053
)Net Assets Acquired

$
267,860   NOTE 15 
    SEGMENT INFORMATION
    Promotion pay-per-click
  Commerce point-of-sale
 F-26




---



##### Table of Contents



INNUITY,
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the Year Ended December 31, 2006Promotion


Commerce


Intercompany


TotalRevenue from external customers

$
3,428,804


$
18,255,475


$



$
21,684,279Depreciation and amortization


406,203



836,461







1,242,664Interest expense


312,459



315,468







627,927Segment loss


(4,334,162
)


(4,139,526
)






(8,473,688
)Segment assets


3,920,467



5,992,725



(2,570,013
)


7,343,179     For the Year Ended December 31, 2005Promotion


Commerce


Intercompany


TotalRevenue from external customers

$
2,987,494


$
9,478,107


$



$
12,465,601Depreciation and amortization


210,563



654,535







865,098Interest expense


112,596



181,714







294,310Segment loss


(4,620,642
)


(4,745,388
)






(9,366,030
)Segment assets


6,322,699



7,257,303



(3,718,470
)


9,861,532     NOTE 16 
    SUBSEQUENT EVENTS
   F-27