Ibsg International 10QSB/A 2006 Q2 Quarterly report (small business) (amended)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-29587

IBSG INTERNATIONAL, INC.

(Name of small business issuer in its charter)

Florida	65-0705328
(State or other jurisdiction of incorporation )	(I.R.S.Employer identification No.)

1132 Celebration Blvd., Celebration, FL 34747

(Address and Zip Code of Principal Executive Offices)

Registrant’s Telephone Number: (321) 939-6321

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value per share

(Title of Class)

Check whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X|

As of August 6, 2006, there were 72,689,194  shares of the registrant's common stock outstanding.

IBSG INTERNATIONAL, INC.

Item 1.Condensed Consolidated Financial Statements and Notes to Consolidated Financial Statements

(b)   Consolidated Statements of Operations for the Three Months, and Six Months Ended June 30, 2006 and 2005 (unaudited)

(c)   Consolidated Statement of Cash Flow for the Six Months Ended June 30, 2006 and 2005 (unaudited)

(d)   Notes to Consolidated Financial Statements (unaudited)

This 10-QSB was amended to update the additional revenue related from the Industrial Development Corporation changed in percentage of initial recognition. The Company restated its financial statements for the year ended December 31, 2005 in regards to the recognition of revenue for Industrial Development Corporation- South Africa Initiative. Management decided to present recognized revenue for Industrial Development Corporation -South Africa Initiative consistent with the other contracts to make it clearer to its shareholders. An additional $425,000 of revenue was deferred for December 31, 2005. This deferred revenue generated an additional $105,955 for the second quarter.

PART I FINANCIAL INFORMATION

General

The accompanying reviewed financial statements have been prepared in accordance with the instructions to Form 10-QSB. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flow, and stockholders’ equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the company’s annual report on Form 10-KSB for the year ended December 31, 2005. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the quarter ended June 30, 2006 are not necessarily indicative of the results that can be expected for the year ended December 31, 2006.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

(Unaudited)

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet

(Unaudited)

ASSETS

CURRENT ASSETS		June 30, 2006
		(as Restated note 6)
Cash	$	1,187,008
Accounts receivable		8,892,500
Prepaid expenses		528,202
Total Current Assets		10,607,710
FURNITURE, FIXTURES AND SOFTWARE, NET		784,290
OTHER ASSETS
Account receivable - Long term		3,000,000
Deposits		5,564
Deferred Consulting Services		4,144,362
Total Other Assets		7,149,926
TOTAL ASSETS	$	18,541,926

The accompanying notes are an integral part of these consolidated financial statements.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet (Continued)

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

		June 30, 2006
		(as Restated note 6)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	387,266
Accrued tax provision		794,244
Deferred revenue		875,109
Capital leases payable		6,718
Total Current Liabilities		2,063,337
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock authorized 100,000,000 shares at $0.001
par value; 68,325,193 shares issued and outstanding		68,325
Additional paid-in capital		15,751,447
Retained Earnings		658,817
Total Stockholders’ Equity		16,478,589
TOTAL LIABILTIES AND STOCKHOLDERS’ EQUITY	$	18,541,926

The accompanying notes are an integral part of these consolidated financial statements.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
		2006 (as Restated note 6)			2005			2006 (as Restated note 6)			2005
Sales	$	3,000,772		$	1,330,937		$	4,699,584		$	2,439,481
Cost of Sales		68,042			137,691			136,085			226,575
Gross Profit		2,932,730			1,193,246			4,563,499			2,212,906
Operating Expenses
Amortization and Depreciation		9,425			148,256			19,819			149,278
Stock based compensation		301,332			316,948			647,921			798,895
Bonus shares expense		-			-			-			19,200
Bonus		-			-			25,000			-
Bad debt expense - related party		-			3,998			-			9,007
Professional Fees		406,616			245,284			478,976			319,123
General and Administrative		490,716			222,686			887,015			479,626
Total Operating Expenses		1,208,089			937,172			2,058,731			1,775,129
Income from Operations		1,724,641			256,074			2,504,768			437,777
Other Income (Expense)
Gain on debt settlement		-			-			-			52,317
Loss on debt settlement and warrants		-			-			(470,897	)		-
Change in Fair Value of embedded options		-			170,869			(18,683	)		(187,422	)
Change in Fair Value of warrants		-			195,634			(61,181	)		490,158
Loss on asset sale		-			-			-			-
Liquidated damages expense		-			(40,000	)		-			(40,000	)
Interest expense					(146,537	)		-			(167,074	)
Tax Provision		(677,556)	)		-			(689,744)	)		-
								-			-
Total Other Income (Expense), net		(677,556)	)		179,966			(1,240,505	)		147,979
Net Income	$	1,047,085		$	436,040		$	1,264,263		$	585,756
Net Income Per Share - Basic	$	0.01		$	0.01		$	0.01		$	0.01
Net Income Per Share - Diluted	$	0.01		$	0.01		$	0.01		$	0.01
Weighted average number of shares outstanding during the period - Basic		68,271,544			45,690,919			67,207,138			41,520,539
Weighted average number of shares outstanding during the period - Diluted		68,271,544			49,241,726			67,207,138			43,458,443

The accompanying notes are an integral part of these consolidated financial statements.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

		For the Six Months Ended
		June 30,
		2006 (as Restated note 6)			2005
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income	$	1,264,263		$	585,756
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Recognition of deferred consulting fee		587,334			693,894
Bad debt expense - related party		-			9,007
Amortization and depreciation expense		155,906			149,278
Amortization of debt discount		-			143,835
Amortization of debt issue costs		-			2,166
Change in fair value of warrants					(302,736	)
Change in fair value of embedded opt		-
Loss on settlement of debt		470,897			-
Gain on debt settlement		-			(52,317	)
Reduction of stock subscription payable		-			(59,500	)
Stock issued for services		20,000			703,700
Changes in operating assets and liabilities:
Accounts receivable		1,745,879			(1,170,500	)
Prepaids		88,238			(966,796	)
Decrease (increase) in other assets		(3,004,164	)		(1,400	)
Increase (decrease) in accounts payable & accrued expenses		(270,616	)		(127,543	)
Accrued interest payable		(55,425	)		31,802
Accrued liquidated damages		11,613			40,000
Accrued tax provision		689,744			-
Deferred revenue		(806,314	)		(406,981	)
Net Cash Provided (Used) by Operating Activities		897,355			(728,335	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Disbursement for loan - related party		-			(9,007	)
Purchase of fixed assets		(17,824	)		(3,111	)
Net Cash Provided (Used) by Investing Activities		(17,824	)		(12,118	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Investment		-			965,225
Costs related to Investment		-			-
Repurchase of stock from shareholders		(979,406	)		-
Payment of investor		(125,000	)		-
Payments of related party borrowings		-			(238,803	)
Payments on Note Payable		(250,000	)		-
Payments on capital leases		(7,368	)		(4,756	)
Proceeds from stock subscription payable		353,270			-
Stock offering costs		(1,300	)		-
Common stock issued for cash		19,833			319,575
Net Cash Provided (Used) by Financing Activities		(989,971	)		1,041,241
NET INCREASE (DECREASE) IN CASH		(110,440	)		300,788
CASH AT BEGINNING OF PERIOD		1,297,448			8,421
CASH AT END OF PERIOD	$	1,187,008		$	309,209

The accompanying notes are an integral part of these consolidated financial statements.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

		For the Six Months Ended
		June 30,
		2006 (as Restated note 6)		2005
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	-	$	-
Income taxes paid	$	-	$	-
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for services	$	-	$	124,200
Initial recording of debt discounts from issue costs and derivatives	$	-	$	1,000,000

The accompanying notes are an integral part of these consolidated financial statements.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 1 -BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s most recent 8-K filings and audited financial statements and notes thereto included in its December 31, 2005 Annual Report on Form 10-KSB. Operating results for the three ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Accounting Method

The consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a calendar year end

b.Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

c. Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition

Our license agreements typically run for four or five years. A first year license fee, inclusive of maintenance. Installation, integration and training, are payable at the initiation of the license as separate line items. . License maintenance is payable on the second through fourth/fifth anniversary date of the license. Each fee covers the license/maintenance fee for one year. Such fees are accounted as unearned revenue and recognized as revenue ratably over each annual period. We recognize revenue in accordance with Statement of Position, or SOP 97-2, “Software Revenue Recognition,” as amended, by Staff Accounting Bulletin No. 104, Revenue Recognition. The Company adopted Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We recognize license revenues when all of the following criteria are met: persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the related receivables is probable, delivery of the license has occurred and the customer has accepted the license (including the expiration of an acceptance period) if the terms of the contract include an acceptance requirement. Licenses are considered delivered once a license agreement has been entered into between the customer and the Company. Actual access to the software, due to the web nature of the software, is provided upon a mutually agreed schedule but the license fee due at time of conveyance and is not contingent upon the customer providing the hardware, staff for training or scheduling conflicts in general. Training and installation are scheduled as a separate activity and can be delivered at any time after the license has been conveyed. A portion of the year one license revenue and any subsequent years licenses are amortized on an annual basis commensurate with the start of the license agreement and then each subsequent anniversary date of the license and recognized generally in 12 periods (months) per year. In the event that we grant a customer the right to specified upgrades and vendor-specific objective evidence of fair value exists for such upgrades, value to the customer is determined on a stand-alone basis and there is objective and reliable evidence of fair value of the undelivered elements. Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately until we have delivered the specified upgrade or additional service. If professional services are essential to the functionality of the other elements of the arrangement, we defer recognition of revenue until we have satisfied our professional services obligations. To date, professional services have not been essential to the functionality of the other elements, and thus have been accounted for separately.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition (Continued)

We consider a non-cancelable agreement signed by the customer and the Company to be evidence of an arrangement. Delivery is considered to occur when media containing the licensed programs is provided to a common carrier, or the customer is given electronic access to the licensed software via the internet. Our typical end user license agreements do not contain acceptance clauses. We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment. If the fee is not fixed or determinable, we recognize revenue as the amounts become due and payable. Probable assurance of collection is based upon our assessment of the customer’s financial condition through review of their current financial statements or credit reports. Additional consideration is given to the type of customer. Most of our customers are government or quasi-government agencies and are thus considered low collection risk although payments could take as long as 12 months to be brought current by the customer due to the slow pay nature of such entities. Late payments and interest can be assessed based on unpaid balances on a monthly basis. Contracts do not include Rights of Return. They do include cancellation clauses available to both parties for material breaches of contracts.

For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. If we determine that collection is not probable, we will defer the revenue and recognize the revenue upon cash collection. When our software licenses contain multiple elements, we allocate revenue to each element based on the relative fair values of the elements. Multiple element arrangements generally include post-contract support (PCS or maintenance), software products, and end-user subscriptions with billings recorded as received and in some cases, other professional services. Revenue from multiple-element arrangements is allocated to undelivered elements of the arrangement, such as PCS, based on the relative fair values of the elements specific to us. Our determination of fair value of each element in multi-element arrangements is based on vendor-specific objective evidence, which is generally determined by sales of the individual element to third parties or by reference to a renewal rate specified in the related arrangement.

Where vendor-specific objective evidence of fair-value exists for all undelivered elements, but evidence does not exist for one or more delivered elements, we account for the delivered elements in accordance with the Residual Method prescribed by SOP 98-9. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. In most cases, the bundled multiple elements include PCS and the software product. In such cases, when vendor-specific objective evidence of fair value exists for all of the undelivered elements (most commonly PCS), the residual or remaining amount is recognized as revenue and the PCS is recognized ratably over the PCS term, which is typically 12 months.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition (Continued)

Revenues from professional services consist of training and implementation services. Training revenues are recognized as the services are performed. Professional services are not considered essential to the functionality of the other elements of the arrangement and are accounted for as a separate element. Professional services are recognized as the services are performed for time and materials contracts or upon achievement of milestones on fixed price contracts. A provision for estimated losses on fixed-price professional services contracts is recognized in the period in which the loss becomes known.

Deferred revenues include amounts billed to customers for which revenue has not yet been recognized that generally results from deferred maintenance, consulting or training services not yet rendered and license revenue deferred until all requirements under SOP 97-2 are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under SOP 97-2 are satisfied.

Our licenses for the state of California for each regional office are sold for $50,000 each for the first year. The Company recognizes 65% of the license fee or $32,500 as revenue upon the activation of the license by a regional office. The balance of 35% is amortized on a straight line basis over a one year period. During the three months ended March 31, 2006 we renewed seven licenses for regional offices for $87,500. In the three months ending June 30, 2006 we renewed 22 licenses for regional offices for $275,000.

Our licenses for the Corporate Affairs Commission (Government of Nigeria) consisted of the following: 1) 1^st year license fee of a 5 year term effective from June 1, 2004 to June 1, 2005 for $250,000. Of this amount $162,500 was recognized upon the activation of the license and the balance of $87,500 is being amortized on a straight line basis over the 1 year period. 2) A subscription fee for 35,000 businesses at $6.00 per business per month for a period of three (3) months total invoice of $630,000. All of this revenue was recognized in the period of June 1, 2004 to September 1, 2004. 3) A subscription fee for 35,000 businesses for the next three months which is being recognized on a straight line basis for the period from September 2004 to November 1, 2004 total invoice of $840,000, and 4) a subscription fee for 35,000 businesses for the six months ended June 1, 2005. The invoice was for $1,260,000 of which $210,000 was recognized for December 2004 and the balance of $1,020,000 is deferred for 2005. In the period of January 1, 2005 to June 30, 2005, $1,020,000 was recognized on the balance of $1,020,000 that was deferred the prior period, leaving a deferred balance of $0.00. There was also $22,055 from the invoicing of the 1 year license was also recognized in the period ending June 30, 2005, leaving a deferred balance of $20,136.00 which was recognized in the 2^nd quarter for the balance of the contract. A subscription fee for 35,000 businesses for the period of July 1, 2005 to March 31, 2006 of $630,000 was recognized. This asset was sold to Galaxy Five. Galaxy Five contract allowed for the Company to receive $1,000,000 in revenue immediately and pay three million dollars over the next four years.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Doubtful Accounts and Sales Returns

We maintain an allowance for doubtful accounts and a sales return allowance to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider (i) the type of entity (government, commercial, retail) and the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable, such as whether it derives from license, professional services or maintenance revenue; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customers industry, whether the entity is government, as well as general economic conditions, among other factors.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Should any of these factors change, the estimates that we make may also change, which could impact our future provision for doubtful accounts. For example, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional provision for doubtful accounts could be required.

We currently have three (3) major customers, the State of California, Galaxy Five of South Africa, and the Industrial Development Corporation - South Africa Initiative. This does not reflect sub-licenses of our customers. Our accounts receivable are as follows at June 30, 2006:

Current - Account Revievable
Galaxy Five	$	500,000
State of California		2,705,000
Industrial Development Corporation		5,687,500
	$	8,892,500
Account Recievable - Long term
Galaxy Five	$	3,000,000
Total Long term receivable	$	3,000,000

We recognized revenue of the following amounts for the three months ended June 30, 2006:

State of California	$	267,420
Industrial Development Corporation		2,733,352
	$	3,000,772

Deferred revenue consisted of the following at June 30, 2006:

Industrial Development Corporation	$	749,867
State of California		125,242
	$	875,109

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

e. Equity Transactions

Equity transactions for consideration other than cash are valued at the closing trading price of the Company’s common stock on the date of authorization.

f.Depreciation and Amortization

The Company is depreciating its furniture on a straight-line basis over 5 years and equipment on a straight-line basis over a three-year period. The software acquired is being amortized on a straight line over a five-year period.

NOTE 3 -EQUITY ISSUANCES

In January 2006, the Company issued 8,347,336 shares of common stock as part of a settlement of debt and outstanding warrants valued at $0.10 per share (see note 7).

In January 2006, the Company issued 100,000 shares of common stock for services valued at $0.10 per share.

In January 2006, the Company issued 110,000 shares of common stock for cash valued at $0.10 per share.

In February 2006, the Company issued 100,000 shares of common stock for services valued at $0.10 per share.

In March 2006, the Company issued 3,633,000 shares of common stock for cash valued at $0.10 per share.

In April 2006, the Company re-purchased 4,614,001 shares of common stock at $0.18 per share.

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

June 30, 2006

NOTE 4 - SETTLEMENT OF $1 MILLION SENIOR SECURED CONVERTIBLE NOTE AND RELATED WARRANTS

On January 18, 2006 (the “Settlement Date”) the Company paid $150,000 in cash and issued 8,347,336 common shares to settle the outstanding principal, accrued interest and accrued liquidated damages relating to the $1 million senior secured convertible note and the related outstanding warrants. Of this amount, 1,014,000 was restricted stock was settled in January 2006 for all Class A and B warrants (approximately 4 million shares in warrants) at a ratio of approximately four to one. A loss on settlement of $470,897 was recorded. At the time of settlement, accrued interest payable was $55,425, accrued liquidated damages was $171,613, discount warrant value was $533,491, discount lender fee was $11,916, discount BCF was $58,703, and debt issue cost was $9,092. The shares were valued at $0.10 per share. This created an administrative loss for the period of approximately $470,897 ($533,490(debt discounts)- $171,613(liquidated damages))for this transaction. The SEC position follows the AICPA position as delineated in the AICPA Practice Alert 2000-1.  It is that contractually negotiated prices or values are not representative of fair value. Although the Company carried a market value on the warrants of $533,490 until the point of settlement and the Company settled the debt for less than approximately 25% of that value, regulations prevent the Company from adjusting the value to the lower value.  

On the Settlement Date, the $292,034 fair value liability of the embedded conversion option and the then $555,412 fair value liability of the warrants were reclassified to equity as additional paid-in capital.

NOTE 5 - SUBSEQUENT EVENTS

In July 2006, the Company issued 1,650,000 shares of stock for the members of the board of directors.

In July 2006, the Company issued 200,000 shares of stock for the aquistion of A-Division Systems IT, LTD.

In the third quarter, the Company expects to close an offering to raise 2.5 million in investments.

NOTE 6 – RESTATEMENT

The Company restated its financial statements for the year ended December 31, 2005 in regards to the recognition of revenue for Industrial Development Corporation- South Africa Initiative. Management decided to present recognized revenue for Industrial Development Corporation -South Africa Initiative consistent with the other contracts to make it clearer to its shareholders. An additional $425,000 of revenue was deferred for a later time period. This deferred revenue generated an additional $105,955 for the second quarter.

 

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

Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-QSB, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management’s discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC in terms of recognition of software licenses and recurring revenue. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Management’s Discussion and Analysis of Consolidated Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements included herein. Further, this quarterly report on Form 10-QSB should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in its 2005 Annual Report on Form 10-KSB. In addition, you are urged to read this report in conjunction with the risk factors described herein.

Overview     

IBSG International, Inc. is a holding company for four technology and software subsidiaries: Intelligent Business Systems Group, Inc. (IBSG), a provider of turn-key digital service center software; Secure Blue, Inc., a Sarbanes-Oxley and security software solution provider; Intelligent Business Systems Development (IBSD), a software development, maintenance and data storage company and; A-Division IT, a consultant company focused on development of IT projects for multi-national corporations.

A-Division IT Systems Ltd. (A-Division), a United Kingdom based company and partner in IBSG International’s (IBSGI) South African project. A-Division is a subcontractor to BAE Systems and provides IT projects for BAE’s offset programs by establishing IT Hubs. A-Division is engaged in international business development and consultancy in the Technology sector and is a subcontractor for BAE System’s offset credit projects around the world. The purchase gives IBSG participation in e-commerce platform projects for Small-Midsize Enterprises [SMEs] in countries beyond South Africa. IBSGI’s relationship with A-Division and BAE has already brought the South African project and opportunities with similar projects in Saudi Arabia, Malaysia and India.

The IBSG offers enterprise solutions designed to enhance the operating efficiency and create revenue for State Small Business Development Centers, business associations (e.g., Chambers of Commerce) and Fortune 1000 corporations through the licensing of its unique turnkey digital service center software, which provides a broad range of digital budgetary, administrative and commercial services (B2B, e-commerce, government to business and enterprise business services) on a single platform known as the Biz World Pro (copyrighted).

The Company’s other subsidiary, Secure Blue, Inc. provides, in management’s opinion, an economical Sarbanes-Oxley (SOX) compliant and security software called Secure Blue Pro. This product is targeted to small and mid cap public companies as well as private companies that work with public companies and must be in compliance with SOX as a result of working with a public company.

A-Division IT establishes it projects for multi-national corporations around the world. The projects are recognized off set program qualified and provide a required contractual obligation of theses corporations. A-Division IT is the IT off set provider to BAE Systems and maintains relationships with various other multi national corporations. A-Division maintains office in the United Kingdom. A-Division, through a range of associations with various government representatives, is also providing it solutions to various governments.

IBSD, Inc. will provide ongoing support of International’s other subsidiaries, IBS Group and Secure Blue. The company provides development, system support and secure data storage, and will maintain offices in the US and India, where its current offshore development and support team is located.

As software providers, system integrators and Application Service Provider, IBSG, Inc. and Secure Blue, Inc. generate their revenue from license sales, system modifications, and system support and a percentage of monthly customer fees. The typical IBSG/Secure Blue license agreement has a five-year term, but, being updated on an annual basis, has historically been renewed upon expiration (to date the Company has had only one licensee not renew, due to the expiration of the licensee's contract with their client).

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. A critical accounting policy is one that is both very important to the portrayal of our financial condition and results, and requires management’s most difficult, subjective or complex judgments. Typically, the circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. We believe the accounting policies below represent our critical accounting policies:

      • Revenue recognition;

      • Estimating sales returns and the allowance for doubtful accounts;

      • Value of long lived assets including purchased software;

      • Valuation of services paid for with common stock.

Revenue Recognition. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

We recognize revenue in accordance with Statement of Position, or SOP 97-2, “Software Revenue Recognition,” as amended, by Staff Accounting Bulletin No. 104, Revenue Recognition. The Company adopted Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We recognize license revenues when all of the following criteria are met: persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the related receivables is probable, delivery of the license has occurred and the customer has accepted the license (including the expiration of an acceptance period) if the terms of the contract include an acceptance requirement. Licenses are considered delivered once a license agreement has been entered into between the customer and the Company. Actual access to the software, due to the web nature of the software, is provided upon a mutually agreed schedule but the license fee due at time of conveyance and is not contingent upon the customer providing the hardware, staff for training or scheduling conflicts in general. Training and installation had been included in the year one license fee and in the later part of 2005. The Company decided to separate these activities/services from the year one license fee. These services can be delivered at any time after the license has been conveyed. A portion of the year one license revenue and any subsequent years licenses are amortized on an annual basis commensurate with the start of the license agreement and then each subsequent anniversary date of the license and recognized generally in 12 periods (months) per year. The revenue recognition policy is as follows; 65% of the year one license recognized upfront to cover the costs OF the initial investment/purchase of the license of the System. This revenue is recognized in month one. The original agreement on the purchase of the license of System was to be paid within a payment schedule over a period of time in order to recoup maintenance costs. It was agreed that on an average taking 65% license fee would cover this cost, the initial expenses of the employees’ time on business development which includes assisting the customer with public awareness and providing initial marketing assistance and guidance in developing a list of prospect satellite candidates as well as presentation assistance for the same and initial profit for the license sale. The balance in deferred would be maintenance costs for the remainder of the first year and gross profit. The average contract length is five years. As stated in paragraph 27 of SOP 97-2, the customer intends to utilize the system over that period of time as an integral part of their overall operation and as such can continue to be reflected as fixed or determinable. The length of time that a customer is projected to bring invoices current is 12 months and believed to be atypical for these types of contracts but is expected by management to reduce in time to no more then 9 months to be brought current at such time as our receivables become part of the customers’ accounts payable system. Based on paragraph 28 of SOP 97-2, our contracts are generally long term (greater then 12 months and payments on invoices are not expected to be longer than 12 months, the fee is therefore recognized as fixed and determinable as set forth in paragraph 28.

 In the event that we grant a customer the right to specified upgrades and vendor-specific objective evidence of fair value exists for such upgrades, value to the customer is determined on a stand-alone basis and there is objective and reliable evidence of fair value of the undelivered elements. Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately until we have delivered the specified upgrade or additional service. If professional services are essential to the functionality of the other elements of the arrangement, we defer recognition of revenue until we have satisfied our professional services obligations. To date, professional services have not been essential to the functionality of the other elements, and thus have been accounted for separately.

We consider a non-cancelable agreement signed by the customer and us to be evidence of an arrangement. Delivery is considered to occur when media containing the licensed programs is provided to a common carrier, or the customer is given electronic access to the licensed software. Our typical end user license agreements do not contain acceptance clauses. We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment. If the fee is not fixed or determinable, we recognize revenue as the amounts become due and payable. The possibility of cancellation is considered “remote” as stated in paragraphs 33, of SOP 97-2. As directed per paragraph 33, no contingency for cancel ability is required. Therefore there are no funding clauses in our agreements and therefore the Company has not adopted any accounting policies for such conditions. If, in the future, such clauses are added to any license agreements, the Company will develop the appropriate policies as described in paragraphs 32 and 33 of SOP 97-2.

Probable assurance of collection is based upon our assessment of the customer’s financial condition through review of their current financial statements or credit reports. Additional consideration is given to the type of customer. Most of our customers are government or quasi-government agencies and are thus considered low collection risk although payments could take as long as 12 months to be brought current by the customer due to the slow pay nature of such entities. As stated in paragraph 27 of SOP 97-2, the customer intends to utilize the system over that period of time as an integral part of their overall operation and as such can continue to be reflected as fixed or determinable. The length of time that a customer is projected to bring invoices current is 12 months and believed to be atypical for these types of contracts but is expected by management to reduce in time to no more then 9 months to be brought current at such time as our receivables become part of the customers’ accounts payable system. Based on paragraph 28 of SOP 97-2, our contracts are generally long term (greater then 12 months and payments on invoices are not expected to be longer than 12 months, the fee is therefore recognized as fixed and determinable as set forth in paragraph 28. Late payments and interest can be assessed based on unpaid balances on a monthly basis. Contracts do not include Rights of Return. They do include cancellation clauses available to both parties for material breaches of contracts.

For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. If we determine that collection is not probable, we will defer the revenue and recognize the revenue upon cash collection. When our software licenses contain multiple elements, we allocate revenue to each element based on the relative fair values of the elements. Multiple element arrangements generally include post-contract support (PCS or maintenance), software products, and end-user subscriptions with billings recorded as received and in some cases, other professional services. Revenue from multiple-element arrangements is allocated to undelivered elements of the arrangement, such as PCS, based on the relative fair values of the elements specific to us. Our determination of fair value of each element in multi-element arrangements is based on vendor-specific objective evidence, which is generally determined by sales of the individual element to third parties or by reference to a renewal rate specified in the related arrangement.

Where vendor-specific objective evidence of fair-value exists for all undelivered elements, but evidence does not exist for one or more delivered elements, we account for the delivered elements in accordance with the Residual Method prescribed by SOP 98-9. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. In most cases, the bundled multiple elements include PCS and the software product. In such cases, when vendor-specific objective evidence of fair value exists for all of the undelivered elements (most commonly PCS), the residual or remaining amount is recognized as revenue and the PCS is recognized ratably over the PCS term, which is typically 12 months.

Revenues from professional services consist of training and implementation services. Training revenues are recognized as the services are performed. Professional services are not considered essential to the functionality of the other elements of the arrangement and are accounted for as a separate element. Professional services are recognized as the services are performed for time and materials contracts or upon achievement of milestones on fixed price contracts. A provision for estimated losses on fixed-price professional services contracts is recognized in the period in which the loss becomes known.

Deferred revenues include amounts billed to customers for which revenue has not yet been recognized that generally results from deferred maintenance, consulting or training services not yet rendered and license revenue deferred until all requirements under SOP 97-2 are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under SOP 97-2 are satisfied.

In December 2004, the FASB revised Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and the related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. For public entities that are not small business issuers, the implementation of this Statement is required as of the beginning of the first interim or annual reporting period after June 15, 2005. For public entities that are small business issuers, like Coach, the implementation of this Statement, is required as of the beginning of the first interim or annual reporting period after December 15, 2005. Management is required to implement this Statements beginning in fiscal year beginning on January 1, 2006 and they are currently evaluating the impact of implementation of this Statement on the Company.

Market for our products

The potential market for the BizWorld Data System includes any entity that has a customer, vendor or membership base comprised of small to mid size business enterprises. The potential markets for Secure Blue are public companies required to establish internal control systems. The projected combined market size for both products is greater than $5 billion annually. No assurances can be made that such market shall be realized or result in profitability.

 The market for the BizWorld Data System includes state operated Small Business Development Centers, business organizations such as chambers of commerce, large corporations, and other entities which seek to help small and medium size businesses succeed. When Intelligent Business Systems Group, Inc. sells a master “host” license to a state Small Business Development Center or business associations (i.e. chambers of commerce), that entity can sell “sub-licenses’ to the other vertical markets in their respective states or markets, from which Intelligent Business Systems Group, Inc. may receive incremental revenue. This market represents a projected $2.5-$3.5 billion NOT including international application. No assurances can be made that such market shall be realized or result in profitability.

Small Business Development Centers

Many states operate Small Business Development Centers funded by a combination of US Small Business Administration and state resources. The purpose of these centers is to provide a range of assistance and training to the small and mid-size business sector. We currently have a license agreement with California’s small business development center system which has fifty regional offices, and an agreement with the state of Connecticut to install such a system for their 12 regional offices.

Fortune 1000 Corporations

Intelligent Business Systems Group, Inc. suggests that Small Business Development Centers seek to sell Corporate Sponsor subscription licenses to Fortune 1000 corporations for an average of $75,000/year. This license would provide the sponsor with unlimited access to the constituent pool of the Small business development centers small-mid size businesses of which a significant percentage are minority owned in order to facilitate the large corporation’s recruitment of small and minority owned businesses as vendors. The System platform permits end users to interact not only with these large corporations, but also among each other. Intelligent Business Systems Group, Inc. anticipates receiving 60% of all such licenses sold. To date no such sponsorship licenses have been sold.

Business Associations

Other business associations such as local chambers of commerce have membership or offer services to small and medium size businesses. We seek to license the BizWorld Data System to these organizations as a way of providing additional services and generate additional revenues. We currently are in the process of implementing a BizWorld Data System for The Knowledge Institute’s Virtual Business Incubator project called ‘myVBI” which will be offered to its more than 720,000 small business memberships.

Banking Institutions

Many major banking institutions maintain divisions specializing in providing banking services to small-to-medium sized businesses. These banks can add BizWorld access to their customers to encourage their use of the internet to grow their businesses, add another revenue stream to their own business services offerings, and create an excellent new communication tool whereby the bank can pursue enhanced revenue relationships for their existing service offerings.

Economic Development Projects

These markets reflect a combination of the above market needs. The BizWorld Data System can provide them with similar benefits and the ability to create multiple associations with the other markets in a similar fashion as previously described.

Foreign Markets

In 2004 we signed a license agreement with an agency of the country of Nigeria. We are positioning the product as a national solution for the support and development of the small to mid size business community and provide access to the same by larger corporations and government entities. By providing the ability to manage developing businesses on the internet while creating a robust internet presence, small to mid size businesses will be enabled for domestic and international business. In 2005 we signed the Republic of South Africa and a SME development and support platform in conjunction with the BAE Systems offset program. Additional business development efforts under this program are currently occurring in multiple other nations. No assurances can be given that any new business will materialize form these efforts.

Secure Blue Markets

Secure Blue will be targeting small to mid size cap public companies. Because of the broad encompassing nature of the SOX legislation, any private company doing business with a public company must be SOX compliant for those records dealing with that business. This market represents a projected value of $3-$4 billion. The market for SOX solutions in the US is projected to grow to $6.9 billion in 2006. Secure Blue is currently targeting sales activity at small and mid-cap public companies with a market valuation of less than $75 million. This is a market sector largely ignored by other vendors. Also, in order for many public companies to ensure that they stay SOX compliant they are demanding that private companies doing business with them are also compliant with many of the major SOX requirements and in particular Sections 404 and 302 relating to internal controls on financial reporting. Currently in the US there are an estimated 10,000 small cap companies and over 100,000 private companies doing business with public companies. No assurances can be made that such market shall be realized or result in profitability.

International Markets

Many aspects of the Sarbanes-Oxley Act are to be incorporated into new European legislation later in 2005 and this will lead to rapid growth and a huge global market for SOX solutions well in excess of the US projection. Additionally, foreign companies doing business with US public companies will be required to be SOX compliant as well. It is our objective to establish Secure Blue in the US before expanding into European and Asian markets.

Sales & Market Strategy

 Intelligent Business Systems Group, Inc. current marketing effort primarily consists of “word of mouth” referrals from existing or potential customers, targeted prospect awareness campaigns, various conventions and trade shows and cold calling entities with resources and marketing research. The most effective and powerful marketing tool is the demonstration of the system and its comprehensive features. Demonstrations and contract negotiations are handled on a personal basis.

 To achieve our growth plans Intelligent Business Systems Group, Inc. needs to employ more business developers, present a more visible presence at conventions and accelerate contract implementation. We also anticipate the need to provide enhanced training and marketing services to its customers, which can best be achieved by acquiring existing service companies with expertise in that field. The addition of more technical staff will accelerate contract implementation and add-on work (system modifications) as the customer base is extended. There can be no assurance that we will be able to meet our growth plans or have sufficient financial resources to provide the enhanced services.

Secure Blue was launched in mid-April of 2005 and in May 2005 we began a series of online, live demos to potential channel partners (i.e. accounting and law firms, brokerage firms and potential end users). Our distribution strategy is to develop third-party channels through professional advisors to small/mid cap companies. These include investor relations firms, law firms, accountancy firms, compliance consultancies, corporate finance advisors, venture capital companies and other strategically important organizations. We are approaching these potential channel partners individually and demonstrating SOX Pro live online to create a dialogue leading to long-term business partnerships. We will continue to focus our sales activity on third-party channels until we are satisfied we can achieve significant traction in the market place. Our third-party channels will attack the end-user market through their existing client base.

In addition we will continue to promote and demonstrate SOX Pro to potential end-users where appropriate. In the longer term we will build a specialist direct sales team focused on specific target sectors within the small/mid cap market selling direct or providing qualified leads to our channel partners.

There can be no assurance that Secure Blue will be able to establish satisfactory channels of distribution for its product or that the product will generate success in the marketplace.

Marketing, Sales and Support

 We market our products primarily through direct contact of potential customers, referrals from existing customers or potential customers and conferences that are market specific. The key to the marketing of the various products is the ability under the BizWorld product to enable customers to act as channel partners through the ability to sell sub-licenses of the system and provide revenue generating digital service center to their customers. This makes us dependent on the efforts of our customers since we have no direct way to communicate with those parties which may be potential ultimate users of the BizWorld product.

Secure Blue has direct market application focusing primarily on the small cap public companies. Secure Blue is currently seeking to establish channel partner arrangements with Investor Relation firms that primarily target the small cap market. Secure Blue will also seek to expand its marketing efforts to include telemarketing and direct target contact through telemarketing firms that specializes in software sales. There can be no assurance that Secure Blue will be able to establish satisfactory channels of distribution for its product or that the product will generate success in the marketplace.

Secure Blue will also seek to expand its marketing efforts to include marketing support for both channel partners and direct sales using PR, advertising, and direct marketing techniques, once the basic distribution infrastructure is in place. Our aims are to make SOX Pro the preferred SOX solution within the small/mid cap market, to prepare the marketplace for our channel partners and to generate good quality, qualified leads for the sales teams.

Customer Support

Our management believes that strong customer support is crucial to both the initial marketing of its products and maintenance of customer satisfaction, which in turn will enhance our reputation and generate repeat orders. In addition, we believe that customer interaction and feedback involved in our ongoing support functions provide us with information on market trends and customer requirements that is critical to future product development efforts. Intelligent Business Systems Group, Inc. provides toll free and web site support. However, the first line of support is built into the systems through a self diagnostic feature which is enhanced by the system being capable of providing instructions to navigate a user error or auto report a potential system “bug” which is directed to the technical center’s program team which can correct the anomaly on-line and auto down load the correction to all systems.

Secure Blue believes that effective and speedy customer support is crucial to the long-term success of SOX Pro. As a mission-critical application, SOX Pro must be totally reliable and the support available must be of the highest order. We will be including 24/7 support as an integral part of the SOX Pro package with an ongoing annual fee of 20% of the first years license cost. Our team based in Florida will provide technical support for end users and channel partners

Research and Development

We believe that our success will depend in large part on our ability to maintain and enhance our current product lines, develop new products, maintain technological competitiveness and meet an expanding range of customer requirements. Our management constantly requests and receives comments on desired functionality or system changes from not only the company’s customers but the customer’s, customer. Our management also intends to hold focus groups taking a sample population of customers and discussing in an open forum the potential revisions of the various systems.

Competition

Our management believes that we are the leading provider of digital commerce and management systems for small and medium businesses provided over the internet. However our products compete against a variety of individual software programs designed to provide similar functions for small and medium sized business users. Additionally, many digital commerce solutions are available to small businesses through established internet portals such as Yahoo. Many internet hosting providers help their customers set up e-commerce sites and provide software for such sites. Internet based service providers are increasingly targeting the small and medium business market. A wide variety of consultants market e-commerce solutions to small businesses and offer a more personalized service than are available through small business development centers.         

The marketplace is full of so-called point products offering solutions to various elements of Sarbanes-Oxley compliance. Virtually all of these solutions are heavily biased in price and complexity toward the larger corporation. Secure Blue has a major cost advantage over the competition and is a more comprehensive SOX solution. We have built the solution on a comprehensive and proven security software solution and added sophisticated enhancements such as the PDA access for compliant and sub compliant officers to have access to data on activity of sensitive information. This provides our customer with the required base criteria of SOX which is a secure network with sophisticated functionality of SOX specific monitoring. The majority of the competition has established distribution infrastructures built on a range of existing and complementary products. We are confident that we can leverage the success of the other subsidiary, IBS Group, and their network. Once our third-party channel network is established we will focus on attempting take a significant share of the small-mid cap company market.

Results of Operations for the Three and Six Months ended June 30, 2006 and 2005

The Company reflected an increase in sales revenues for the three months ended June 30, 2006 to $3,000,772 compared to sales revenues for the three months ended June 30, 2005 of $1,330,937, an increase of $1,669,835. The majority of this additional revenue was from Industrial Development Corporation who signed up additional satellite licenses for $2,362,500. The Company also recorded higher sales revenues for the six months ended June 30, 2006 of $4,699,584 compared to June 30, 2005 sale revenues of $2,439,481. The Company had deferred revenues for the six months ended June 30, 2006 of $875,109 (deferred pending recognition based on amortization policies previously stated; See Note 2 of the Financial Statements).

Operating Expenses for the Three and Six Months ended June 30, 2006 and 2005

The Company had operating expenses of $1,208,089 for the three months ended June 30, 2006 compared to operating expenses of $937,172 for the three months ended June 30, 2005, an increase of $270,917. The primary reason for the increase was due to an increase in professional fees of $161,332 and also an increase in salary of $138,831, The salary increase was due to the staff located in India as well as an increase in staff due to increase of sales. The professional services expense was increase due to the contract obtained in South Africa. This reflects an operating profit for the three months ended June 30, 2006 of $1,047,085, as compared to $436,040 for the three months ending June 30, 2005.

Other Expense for the Three and Six Months ended June 30, 2006 and 2005

The company had other expenses of $1,240,505 for the six months ended June 30, 2006 compared to other net income of $147,979 for the six months ended June 30, 2005. The 2005 figures were restated to reflect the change in fair value of the embedded conventional options and in the fair value of the warrants. The increase of other expenses for 2006 was due to the settlement of the debt and warrants outstanding, the sale of an asset and a provision for taxes. The loss associated with the settlement of the debt and warrants were $470,897. The Company has allocated $689,744 for proposed taxes. The Company accrued $12,188 of taxes for the first quarter and an additional $677,556 for the second quarter. The Net Income reported for the six months ending June 30, 2006 was $264,263.

Liquidity and Capital Resources

The company has been able to pay off the $1,000,000 of Senior Secured Convertible Notes. In the second quarter of 2006, the company purchased 4,614,001 of common stock from the debt holder. We believe the proceeds from the receivables and the reserves will generate sufficient cash in assisting with the operating needs of the company. The company is continuing to inquire into new investments to provide for further research and development capital and assisting further acquisitions over the next twelve months.

We currently have three (3) major customers, the State of California, Galaxy Five - of South Africa and Industrial Development Corporation a South Africa Initiative. Our current accounts receivable are as follows at June 30, 2006:

Galaxy Five	$	500,000
State of California		2,705,000
Industrial Development Corporation		5,687,500
	$	8,892,500

In the third quarter, the Company expects to close an offering in which the Company expects to raise 2.5 million in investments.

FACTORS THAT COULD AFFECT FUTURE RESULTS

Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. We have no arrangements or sources of additional capital and may have to curtail our operations if additional capital is needed but is not available

Our customers who are generally state government agencies or quasi government business associations can be exceedingly tardy in paying their obligations to us.  We may have to curtail our operations if we do not have sufficient funds to pay for the expenses of operating our business. The Company will use additional commercial market opportunities to offset the slow pay nature of the lucrative government contract market. The Company’s current and projected acquisitions will expand the Company’s retail and private sector markets which should create a blend of payment cycles between the secured government markets and the commercial markets.

We acquired our enterprise software and began servicing licensees of such software in 2004.   Prior financial information reflects a profitable operation. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in relatively new and rapidly evolving markets. These risks may include:

· uncertain commercial acceptance of our products;

· technological obsolescence; and

· Competition

We cannot assure you that we will succeed in addressing these risks. If we fail to do so, our revenue and operating results could be materially harmed.

Our software products are subject to rapid technological change and to compete, we must offer products that achieve market acceptance.

The software industry is characterized by rapid technological change.  To remain competitive, we must continue to improve our existing products to meet the needs of our customers.  We cannot assure you that new products offered by our competitors may not prove attractive to our clients and potential clients and adversely affect our future revenues.  Our failure to adequately protect our proprietary rights could adversely affect our ability to compete effectively. We rely on a combination of contracts, copyrights, continued evolution of our core product (s) and other security measures in order to establish and protect our proprietary rights. We can offer no assurance that the measures we have taken or may take in the future will prevent misappropriation of our technology or that others will not independently develop similar products, design around our proprietary technology or duplicate our products.

Allowance for Doubtful Accounts and Sales Returns. We maintain an allowance for doubtful accounts and a sales return allowance to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider (i) the type of entity (government, commercial, retail) and the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable, such as whether it derives from license, professional services or maintenance revenue; (iv) our historical provision for doubtful accounts; (v) the credit worthiness of the customer; and (vi) the economic conditions of the customers industry, whether the entity is government, as well as general economic conditions, among other factors.

Should any of these factors change, the estimates that we make may also change, which could impact our future provision for doubtful accounts. For example, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional provision for doubtful accounts could be required.

ITEM 3. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2006 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the Quarter ended June 30, 2006, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 In April 2006, the Company re-purchased 4,614,001 shares of common stock at $0.18 per share.

Item 3. Defaults upon Senior Securities

 Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

 Not applicable

Item 6. Exhibits

A. Exhibits:  

31.1  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

31.2  Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1  Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2  Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Celebration, Florida, on May 10, 2006.

	IBSG INTERNATIONAL, INC.
Date: December 5, 2006	By:	/s/ Michael Rivers
		Michael Rivers
		President, Chief Executive Officer

	IBSG INTERNATIONAL, INC.
Date: December 5, 2006	By:	/s/ Geoffrey Birch
		Geoffrey Birch
		Principal Accounting Officer