August 2007
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August 2007


Innuity, Inc. Reports Second Quarter 2007 Financial Results

The Company Dramatically Decreases Net Loss and Generates $375,000 of Adjusted EBITDA Through Decreased Operating Expenses and Settlement of Debt


REDMOND, Wash. (August 14, 2007) – Innuity, Inc. (INNU.OB), a Software as a Service (SaaS) company that designs, acquires and integrates applications to deliver affordable solutions to small business, reported its financial results for the second quarter of 2007.
 
The company's net loss for the second quarter of 2007 was $517,000, or $0.02 per share, compared with a net loss of $2.5 million, or $0.13 per share, for the second quarter of 2006. The significant improvement to net loss resulted from the tightening of operating costs, the elimination of royalty payments, and the improvement of margins for service revenue, as well as a gain from the settlement of debt. Consolidated revenues for the second quarter of 2007 decreased to $5.5 million from $5.6 million reported during the same quarter of 2006. Revenue for the six months ended June 30, 2007 was $10.8 million, a 3% increase over $10.5 million of revenue for the same period in 2006. The net loss for the six months ended June 30, 2007 was $2.1 million, or $0.10 per share, compared with $5.0 million, or $0.26 per share, for the same period in 2006. The Company's Adjusted EBITDA was $375,000 for the three months ended June 30, 2007, which represented a $1.1 million quarter-over-quarter improvement from a negative Adjusted EBITDA of $(748,000) for the three months ended March 31, 2007. Adjusted EBITDA for the three months ended June 30, 2007 includes a $577,000 gain from the settlement of debt.

"I am quite pleased with the achievement of our first quarter of positive Adjusted EBITDA. This is a significant milestone for the company that has been accomplished by our team," said John Wall, Innuity chairman and CEO. "With this dramatic decrease in net loss and positive Adjusted EBITDA, Innuity is continuing the strong momentum towards sustainable cash flow from operations."

About Innuity

Headquartered in Redmond, WA, Innuity is a Software as a Service (SaaS) company that designs, acquires and integrates applications to deliver solutions for small business. Innuity's Internet technology is based on an affordable, on-demand model that allows small businesses to simply interact with customers, business partners and vendors and efficiently manage their businesses. Innuity delivers its on-demand applications through its Internet technology platform, Innuity Velocity(TM). The Velocity technology platform enables use-based pricing, provides the opportunity to choose applications individually or as an integrated suite and facilitates minimum start-up costs and maintenance. For more information on Innuity, go to www.innuity.com.

Forward-Looking Statements

This release contains information about management's view of Innuity's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of a variety of factors, including, but not limited to, risks and uncertainties associated with our ability to develop or offer additional internet technology applications and solutions in a timely and cost-effective manner. If we are unable to develop, license, acquire or otherwise offer through arrangements with third parties the additional services that our customers desire, or if any of our existing or future relationships with these third parties were to be terminated, we could lose our ability to provide key internet technology solutions at cost-effective prices to our customers, which could hinder our ability to introduce new products and services and could cause our revenues to decline. In addition, we have incurred losses since our inception, and we may not achieve or maintain profitability. We will need additional funding to support our operations and capital expenditures, which may not be available in amounts or terms acceptable to us. If adequate additional funds are not available, we may be required to delay, reduce the scope of or eliminate implementation of material parts of our business strategy. Additional risks and uncertainties include our financial condition and those other risk factors described in our quarterly reports on Form 10-QSB, our annual report on Form 10-KSB, and other documents we file periodically with the Securities and Exchange Commission.

Non-GAAP Financial Information

To supplement Innuity's consolidated financial statements presented in accordance with GAAP and to provide clarity internally and externally, Innuity uses Adjusted EBITDA which is a non-GAAP measure of financial performance. Adjusted EBITDA is calculated by reducing net losses computed in accordance with GAAP for interest expense, income taxes, depreciation, amortization and share-based payments. This measure, among other things, is one of the primary metrics by which Innuity evaluates the performance of its business and believes this measure is useful to investors because it represents meaningful supplemental information regarding liquidity and Innuity's ability to fund operations and its financing obligations.

Innuity's management believes that investors should have access to, and Innuity is obligated to provide, the same set of tools that management uses in analyzing the company's results. Non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered in isolation, as a substitute for, or superior to, GAAP results. Non-GAAP terms, as defined by Innuity, may not be comparable to similarly titled measures used by other companies. A reconciliation of Innuity's GAAP net losses to Adjusted EBITDA for the three months ended March 31, 2007, and June 30, 2007, as well as for the six months ended June 30, 2007, is included with the financial statement tables.

                    INNUITY, INC. AND SUBSIDIARIES
          CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                               June 30,   December 31,
                                                 2007         2006
----------------------------------------------------------------------

ASSETS

Current Assets
  Cash and cash equivalents                  $   423,829  $   307,483
  Settlement deposits                            266,617      467,078
    Settlement receivable, net of allowance
     for doubtful accounts                       183,693      173,098
  Trade accounts receivable, net of allowance
   for doubtful accounts                       1,035,845    1,318,773
  Inventories, net of allowance for obsolete
   inventory                                     348,919      486,736
  Other current assets                           179,959      184,891
----------------------------------------------------------------------
Total Current Assets                           2,438,862    2,938,059
----------------------------------------------------------------------

Property and equipment, net                      724,354      901,318
Intangible assets, net                         1,165,127    1,670,582
Goodwill                                       1,833,220    1,833,220
----------------------------------------------------------------------
Total Assets                                 $ 6,161,563  $ 7,343,179
----------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
  Trade accounts payable                     $ 2,701,390  $ 2,587,227
  Accrued salaries and wages                     466,186      612,745
  Merchant settlement payable                    404,832      453,596
  Accrued liabilities                          1,076,988    1,229,872
  Deferred revenues                            3,040,240    2,543,397
  Line of credit                                       -      699,365
  Related party notes payable, current
   portion, net of discount                      654,994      658,105
  Long-term debt, current portion, net of
   discount                                    1,706,144    1,294,529
  Capital lease obligations, current portion     148,787      142,972
----------------------------------------------------------------------
Total Current Liabilities                     10,199,561   10,221,808

Long-Term Liabilities
  Related party notes payable, net of
   discount of $0 and $22,944, respectively            -      330,832
  Long-term debt, net of discount of $0 and
   $254,087, respectively                        133,156      180,126
  Capital lease obligations                      114,187      190,024
----------------------------------------------------------------------
Total Long-Term Liabilities                      247,343      700,982

----------------------------------------------------------------------
Total Liabilities                             10,446,904   10,922,790

Commitments and Contingencies
Stockholders' Deficit                         (4,285,341)  (3,579,611)
----------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit  $ 6,161,563  $ 7,343,179
----------------------------------------------------------------------

                    INNUITY, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                      Three months ended         Six months ended
                           June 30,                  June 30,
                       2007         2006         2007         2006
----------------------------------------------------------------------

Revenues
  Product sales    $ 2,277,666  $ 2,348,069  $ 4,390,537  $ 4,247,910
  Services           3,240,644    3,210,626    6,414,514    6,268,656
----------------------------------------------------------------------
Total revenues       5,518,310    5,558,695   10,805,051   10,516,566

Operating expenses
  Cost of product
   sales             1,744,245    1,688,520    3,388,218    3,248,572
  Cost of services   1,771,838    1,820,444    3,586,559    3,532,389
  General and
   administrative    1,088,598    2,000,961    2,418,472    3,484,021
  Selling and
   marketing         1,172,423    1,509,988    2,415,594    2,862,174
  Research and
   development         348,769      341,027      809,934      705,472
  Royalty expense            -      415,749            -      831,497
  Amortization
   expense             254,868      245,761      505,455      500,097
----------------------------------------------------------------------

Loss from
 operations           (862,431)  (2,463,755)  (2,319,181)  (4,647,656)
----------------------------------------------------------------------

Other income
 (expense)
  Gain from
   settlement of
   debt                577,434            -      577,434            -
  Other income               -        2,323            -       69,710
  Interest expense    (231,656)     (68,026)    (329,611)    (407,868)
----------------------------------------------------------------------
Total other expense    345,778      (65,703)     247,823     (338,158)
----------------------------------------------------------------------

Net Loss           $  (516,653) $(2,529,458) $(2,071,358) $(4,985,814)
----------------------------------------------------------------------

Basic and Diluted
 Loss Per Common
 Share             $     (0.02) $     (0.13) $     (0.10) $     (0.26)
----------------------------------------------------------------------

Basic and Diluted
 Weighted-Average
   Common Shares
    Outstanding     21,904,776   19,820,623   21,675,482   18,852,999
----------------------------------------------------------------------

Adjusted EBITDA:
                               Three Months  Three Months  Six Months
                                  Ended         Ended         Ended
                                March 31,     June 30,      June 30,
                                   2007          2007          2007
                               ------------  ------------  -----------

GAAP Net Loss                 $ (1,554,705) $   (516,653) $(2,071,358)
  Add back:
    Interest expense                 97,955       231,656      329,611
    Income taxes                          -             -            -
    Depreciation                    100,681        96,379      197,060
    Amortization                    250,587       254,868      505,455
    Share-based payments            357,213       308,517      665,730
                               ------------  ------------  -----------

        Adjusted EBITDA       $   (748,269) $     374,767 $  (373,502)
                               ============  ============  ===========

Contact:
The Investor Relations Group
Jordan Silverstein or Christine Berni
212-825-3120
jsilverstein@investorrelationsgroup.com
or
Innuity, Inc.
Shivonne Byrne, 425-968-0306
shivonne@innuity.com