**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**





Mark
      one


[X]
      QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934


For
      the
      period ended September 30, 2006





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


For
      the
      transition period from _______________to_______________







**000
      32797**


Commission
      File Number








**IVI
      COMMUNICATIONS, INC.**





(Exact
      name of registrant as specified in its charter)








**Nevada**
              
              (State
                or other jurisdictionof
              incorporation
                or organization)
            **33-0965560**
              (I.R.S.
                Employer
              Identification
                  No.)






**IVI
      COMMUNICATIONS, INC.**


**555
      H St., Suite H, Eureka, CA 95501**  (Address
      of principal executive offices) (Zip Code)





**(707)
      444-6617**





(Registrant's
      Telephone Number, Including Area Code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) 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]





The
      number of shares outstanding of the registrant's common stock as of September
      30, 2006 was 78,245,430.









**IVI
      COMMUNICATIONS, INC.**


**FORM
      10-QSB**






**Table
      of
      Contents**


**ITEM NO.**
            **DESCRIPTION**
            **PAGE****PART
                I - FINANCIAL
                INFORMATION**Item 1.
            Financial Statements
            3Condensed Consolidated
              Balance
              Sheet as of September 30, 2006
            F-1Condensed
              Consolidated Statements of Operations for theSix
              Months and Three Months Ended September 30, 2006 and 2005
            F-2Condensed Consolidated
              Statements of Cash Flows for the Six
              Months Ended September 30, 2006 and 2005
            F-3Notes to Condensed Consolidated
              Financial Statements
            F-5Item 2.
            Management's Discussion
              and
              Analysis of Financial Condition and
              Results of Operations
            5Item 3.
            Controls and Procedures
            17**PART
                II - OTHER
                INFORMATION**Item 1.
            Legal Proceedings
            17Item 2.
            Unregistered Sales of
              Equity
              Securities and Use of Proceeds
            18Item 3.
            Defaults Upon Senior
              Securities
            18Item 4.
            Submission of Matters
              to a Vote
              of Security Holders
            19Item 5.
            Other Information
            19Item 6.
            Exhibits
            20Signatures
            
            21






i




**PART
      I - FINANCIAL INFORMATION**








**ITEM
      1. FINANCIAL STATEMENTS**




**IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
          30, 2006 AND 2005**
 
 **(UNAUDITED)**








3




**IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **INDEX
        TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006 AND 2005**
 **(UNAUDITED)**
   Condensed Consolidated Balance Sheet as of
                September
                  30, 2006 (Unaudited)
              F-1Condensed
                  Consolidated Statements of Operations for the Six Months and Three
                  Months
                  Ended
                September
                  30, 2006 and 2005 (Unaudited)
              F-2Condensed
                  Consolidated Statements of Cash Flows for the Six Months and Three
                  Months Ended
                September
                  30, 2006 and 2005 (Unaudited)
              F-3Notes
                to Condensed Consolidated Financial Statements (Unaudited)
              F-5
   4
  **IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED BALANCE SHEET**
 **(UNAUDITED)**
 **SEPTEMBER
          30, 2006**
  **ASSETS****2006****CURRENT
                      ASSETS**Cash
                      and cash equivalents
                  
                  $
                  152,211Accounts
                      receivable, net of allowance $39,390
                  
                  
                  234,054Inventory
                  
                  
                  86,795Other
                      current assets
                  
                  
                  15,775**Total
                      current asset**
                  
                  
                  488,835Fixed
                      Assets, net of $50,937 in accumulated depreciation
                  
                  
                  96,016**OTHER
                      ASSETS**Goodwill,
                      net of impairment
                  
                  
                  4,112,482**TOTAL
                      ASSETS**
                  
                  $
                  4,697,333**LIABILITIES
                      AND STOCKHOLDERS' (DEFICIT)****CURRENT
                      LIABILITIES**Current
                      portion of notes payable
                  
                  $
                  467,311Accounts
                      payable and accrued liabilities
                  
                  
                  2,682,744Current
                      portion of obligations under capital lease
                  
                  
                  30,677Acquisition
                      contracts
                  
                  
                  145,000Litigation
                      Settlement
                  
                  
                  450,000Deferred
                      revenue
                  
                  
                  8,454Liability
                      for stock payable
                  
                  
                  218,700Derivative
                      liability
                  
                  
                  51,588Convertible
                      debentures, net of discount $166,666
                  
                  
                  450,084**Total
                      current liabilities**
                  
                  
                  4,504,558**LONG-TERM
                      LIABILITIES**Convertible
                      debentures, long term
                  
                  
                  600,000Obligations
                      under capital lease, net of current portion
                  
                  
                  22,337Loan
                      payable officer
                  
                  
                  373,507**Total
                      long-term liabilities**
                  
                  
                  995,844**TOTAL
                      LIABILITIES**
                  
                  
                  5,500,402**COMMITMENTS
                      AND CONTINGENCIES****TEMPORARY
                      EQUITY**Common
                      stock, $.001 par value; 100,000,000 shares authorized;78,245,430
                      issued and outstanding
                  
                  
                  49,697Additional
                      paid-in capital
                  
                  
                  154,255**STOCKHOLDERS'
                      (DEFICIT)**Preferred
                      stock, $.001 par value; 5,000,000 shares authorized;4,000,000
                      issued and outstanding
                  
                  
                  4,000Common
                      stock, $.001 par value; 100,000,000 shares authorized;78,245,430
                      issued and outstanding
                  
                  
                  28,549Prepaid
                      consulting fees
                  
                  
                  (827,083
                  )Additional
                      paid-in capital
                  
                  
                  25,067,261Accumulated
                      deficit
                  
                  
                  (25,279,748
                  )**Total
                      stockholders' (deficit)**
                  
                  
                  (803,069
                  )**TOTAL
                      LIABILITIES AND STOCKHOLDERS' (DEFICIT)**
                  
                  $
                  4,697,333
   **The
        accompanying notes are an integral part of these condensed consolidated
        financial statements**
 F-1
 
  **IVI
            COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 **FOR
              THE SIX MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2006 AND
              2005**
 **SIX
                      MONTHS ENDED**
                  ****
                  **THREE
                      MONTHS ENDED**
                  ********
                  ****
                  **SEPTEMBER
                      30**
                  ****
                  **SEPTEMBER
                      30**
                  ********
                  ****
                  **2006**
                  ****
                  **2005**
                  ****
                  **2006**
                  ****
                  **2005****OPERATING
                      REVENUE**
                  
                  $
                  1,123,226
                  
                  $
                  1,442,100
                  
                  $
                  461,103
                  
                  $
                  664,264**COST
                      OF OPERATIONS**
                  
                  
                  776,635
                  
                  
                  963,171
                  
                  
                  348,782
                  
                  
                  474,549**GROSS
                      PROFIT**
                  
                  
                  346,591
                  
                  
                  478,929
                  
                  
                  112,321
                  
                  
                  189,715**OPERATING
                      EXPENSES**Selling
                  
                  
                  7,092
                  
                  
                  13,557
                  
                  
                  4,488
                  
                  
                  9,434General
                      and administrative
                  
                  
                  937,460
                  
                  
                  1,086,261
                  
                  
                  504,831
                  
                  
                  751,199Depreciation
                      and amortization
                  
                  
                  58,326
                  
                  
                  13,870
                  
                  
                  30,096
                  
                  
                  9,611**Total
                      operating expenses**
                  
                  
                  1,002,878
                  
                  
                  1,113,688
                  
                  
                  539,415
                  
                  
                  770,244**OPERATING
                      (LOSS)**
                  
                  
                  (656,287
                  )
                  
                  (634,759
                  )
                  
                  (427,094
                  )
                  
                  (580,529
                  )**OTHER
                      INCOME (EXPENSES)**Other
                      income
                  
                  
                  1,032,913
                  
                  
                  166,408
                  
                  
                  1,003,323
                  
                  
                  116,303Gain
                      on Revaluation of Derivatives
                  
                  
                  164,729
                  
                  
                  -
                  
                  
                  (4,314
                  )
                  
                  -Litigation
                      damages
                  
                  
                  -
                  
                  
                  (934,136
                  )
                  
                  -
                  
                  
                  -Other
                      expense
                  
                  
                  -
                  
                  
                  (646
                  )
                  
                  -
                  
                  
                  -Interest
                      expense
                  
                  
                  (176,659
                  )
                  
                  (127,922
                  )
                  
                  (96,483
                  )
                  
                  (65,586
                  )Interest
                      income
                  
                  
                  211
                  
                  
                  -
                  
                  
                  175
                  
                  
                  -**Total
                      other income (expense)**
                  
                  
                  1,021,194
                  
                  
                  (896,296
                  )
                  
                  902,701
                  
                  
                  50,717**INCOME
                    (LOSS) BEFORE PROVISION****FOR
                      INCOME TAXES**
                  
                  
                  364,907
                  
                  
                  (1,531,055
                  )
                  
                  475,607
                  
                  
                  (529,812
                  )Provision
                      for income taxes
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -**NET
                    INCOME (LOSS) ATTRIBUTED TO****COMMON
                      SHAREHOLDERS**
                  
                  $
                  364,907
                  
                  $
                  (1,531,055
                  )
                  $
                  475,607
                  
                  $
                  (529,812
                  )**BASIC
                      INCOME (LOSS) PER SHARE**
                  
                  $
                  0.00
                  
                  $
                  (0.02
                  )
                  $
                  0.01
                  
                  $
                  (0.01
                  )**DILUTED
                      INCOME (LOSS) PER SHARE**
                  
                  $
                  0.00
                  
                  $
                  (0.02
                  )
                  $
                  0.00
                  
                  $
                  (0.01
                  )**AVERAGE
                      WEIGHTED NUMBER OF COMMON****SHARES
                      OUTSTANDING****BASIC**
                  
                  
                  75,919,983
                  
                  
                  62,936,648
                  
                  
                  73,876,832
                  
                  
                  63,781,455**DILUTED**
                  
                  
                  106,447,688
                  
                  
                  62,936,648
                  
                  
                  104,404,537
                  
                  
                  63,781,455
   **The
            accompanying notes are an integral part of these condensed consolidated
            financial statements**
 F-2
 **IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **FOR
          THE SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
 **2006**
                
                **2005****CASH
                    FLOW FROM OPERATING ACTIVITIES**Net
                    income (loss)
                
                $
                364,907
                
                $
                (1,531,055
                )**Adjustments
                    to reconcile net income (loss) to net cash****used
                    in operating activities:**Common
                    stock issued for services and compensation
                
                
                160,417
                
                
                440,750Beneficial
                    interest on debt conversion
                
                
                8,502
                
                
                -Depreciation
                
                
                24,993
                
                
                13,870Amortization
                
                
                33,333
                
                
                -Gain
                    on revaluation of derivatives
                
                
                (164,729
                )
                
                -**Changes
                    in assets and liabilities**Decrease
                    in accounts receivable, net
                
                
                88,752
                
                
                32,277(Increase)
                    decrease in inventory
                
                
                58,600
                
                
                (14,039
                )(Increase)
                    decrease in other current assets
                
                
                (25,953
                )
                
                2,997Decrease
                    in other assets
                
                
                6,513
                
                
                -Increase
                    in accounts payable and accrued liabilities
                
                
                11,216
                
                
                486,928(Decrease)
                    in contingent liability
                
                
                (484,782
                )
                
                -(Decrease)
                    in acquisition contracts
                
                
                (150,000
                )
                
                -(Decrease)
                    in deferred revenue
                
                
                (6,837
                )
                
                -Total
                    adjustments
                
                
                (439,975
                )
                
                962,783**Net
                    cash (used in) operating activities**
                
                
                (75,068
                )
                
                (568,272
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of fixed assets
                
                
                (29,690
                )
                
                (26,386
                )**Net
                    cash (used in) investing activities**
                
                
                (29,690
                )
                
                (26,386
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from convertible debentures
                
                
                397,500
                
                
                767,311Proceeds
                    from officer loans
                
                
                -
                
                
                155,795Payments
                    on installment note payable
                
                
                (28,789
                )
                
                (206,253
                )Payments
                    on note payable
                
                
                (300,000
                )
                
                (465,327
                )Payments
                    on officer loans
                
                
                (45,286
                )
                
                -Proceeds
                    from the issuance of common stock
                
                
                -
                
                
                400,000**Net
                    cash provided by financing activities**
                
                
                23,425
                
                
                651,526
   **The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.**
 F-3
 
  **IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**
 **(UNAUDITED)**
 **FOR
          THE SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
  **2006**
                
                **2005****NET
                    INCREASE (DECREASE) IN****CASH
                    AND CASH EQUIVALENTS**
                
                
                (81,333
                )
                
                56,868**CASH
                    AND CASH EQUIVALENTS -****BEGINNING
                    OF PERIOD**
                
                
                233,544
                
                
                124,071**CASH
                    AND CASH EQUIVALENTS - END OF PERIOD**
                
                $
                152,211
                
                $
                180,939**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                    paid during the period for:Interest
                    paid
                
                $
                3,682
                
                $
                2,345Income
                    taxes paid
                
                
                -
                
                
                7,715**SUPPLEMENTAL
                    DISCLOSURE OF NON-CASH INFORMATION:**Common
                    stock issued and liability incurred for prepaid consulting fees,
                    classified as equity
                
                $
                987,500
                
                $
                -Debt
                    incurred for stock to be issued
                
                $
                218,700
                
                $
                -
   **The
            accompanying notes are an integral part of these condensed consolidated
            financial statements.**
 F-4
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  1-**
              **ORGANIZATION
                  AND BASIS OF
                  PRESENTATION**
 
 The
        condensed consolidated unaudited interim financial statements included herein
        have been prepared, without audit, pursuant to the rules and regulations
        of the
        Securities and Exchange Commission (“SEC”). The condensed consolidated financial
        statements and notes are presented as permitted on Form 10-QSB and do not
        contain information included in the Company’s annual consolidated statements and
        notes. 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 pursuant
        to such rules and regulations, although the Company believes that the
        disclosures are adequate to make the information presented not misleading.
        It is
        suggested that these condensed consolidated financial statements be read
        in
        conjunction with the March 31, 2006 audited financial statements and the
        accompanying notes thereto. While management believes the procedures followed
        in
        preparing these condensed consolidated financial statements are reasonable,
        the
        accuracy of the amounts are in some respects dependent upon the facts that
        will
        exist, and procedures that will be accomplished by the Company later in the
        year.
  These
        condensed consolidated unaudited financial statements reflect all adjustments,
        including normal recurring adjustments which, in the opinion of management,
        are
        necessary to present fairly the consolidated operations and cash flows for
        the
        periods presented.
 
 The
        Company was formed in California in September 1995 to acquire traditional
        local
        and regional Internet access Service Providers (ISP’s) in the Western States to
        achieve economies of operation and accelerated growth through centralized
        management.
 
 Effective
        May 23, 2002, Internet Ventures, Inc. agreed to recapitalize with Turer
        Corporation by becoming a wholly owned subsidiary of Turer. To accommodate
        this
        recapitalization, the 11,930,746 shares then outstanding of Internet Ventures,
        Inc. were exchanged for 11,930,746 shares of Turer. In August 2002, Turer
        changed its name to IVI Communications, Inc.
 
 For
        accounting purposes, the transaction has been accounted for as a reverse
        acquisition under the purchase method of accounting. Accordingly, IVI
        Communications, Inc. will be treated as the continuing entity for accounting
        purposes, and the financial statements presented herein are those of IVI
        Communications, Inc.
 
 On
        July
        1, 2004, the Company issued 4,500,000 shares of common stock to consultants
        as
        an S-8 stock issuance filed June 29, 2004. On July 1, 2004, the Company amended
        its Articles of Incorporation and pursuant to a board resolution, increased
        the
        authorized level of common stock from 50,000,000 to 100,000,000. In addition,
        the Company’s board of directors’ authorized a 2:1 stock split on July 2,
        2004.
  F-5
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
 
 **NOTE
                    2-**
                **SUMMARY
                    OF SIGNIFICANT ACCOUNTING
                    POLICIES**
 **Principles
        of Consolidation**
 
 The
        condensed consolidated financial statements include the accounts of the Company
        and its wholly owned subsidiaries. All significant inter-company accounts
        and
        transactions have been eliminated in consolidation.
 
 **Use
        of Estimates**
 
 The
        preparation of condensed consolidated 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 disclosure of contingent assets and
        liabilities at the date of the financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. Actual results could differ
        from those estimates.
 
 **Cash
        and Cash Equivalents**
 
 The
        Company considers all highly liquid debt instruments and other short-term
        investments with an initial maturity of three months or less to be cash or
        cash
        equivalents. There were no cash equivalents as of September 30, 2006 and
        2005.
 
 The
        Company maintains cash and cash equivalent balances at several financial
        institutions that are insured by the Federal Deposit Insurance Corporation
        up to
        $100,000. At September 30, 2006, the Company had $30,966 in excess of the
        insured limit.
 
 **Revenue
        Recognition**
 
 Internet
        service subscription revenues are recognized over the period that services
        are
        provided. The Company generally bills for Internet access service on the
        terms
        that range from one month to one year in advance. Monthly access fees are
        not
        prorated, and refunds are not given for partial months. Therefore, revenues
        for
        the first month of service paid in advance are recognized at the inception
        of
        the service month. Revenues for terms of service greater than one month that
        are
        paid in advance are deferred and amortized over the period in which the services
        are provided. Consulting revenues are recognized upon the service being
        provided. All equipment sales are final upon delivery of the
        merchandise.
 F-6
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
 
 **Income
        Taxes**
 
 The
        Company has adopted the provisions of Statement of Financial Accounting
        Standards No. 109 (the Statement), Accounting for Income Taxes. The Statement
        requires an asset and liability approach for financial accounting and reporting
        for income taxes, and the recognition of deferred tax assets and liabilities
        for
        the temporary differences between the financial reporting bases and tax bases
        of
        the Company’s assets and liabilities at enacted tax rates expected to be in
        effect when such amounts are realized or settled.
 
 **Fair
        Value of Financial Instruments**
 
 The
        carrying amounts reported in the consolidated balance sheets for cash and
        cash
        equivalents, accounts receivable, accounts payable, accrued expenses and
        notes
        payable approximate fair value because of the immediate or short-term maturity
        of these financial instruments.
 
 **Advertising
        Costs**
 
 The
        Company expenses the costs associated with advertising as incurred. Advertising
        expenses are included in selling expenses in the condensed consolidated
        statements of operations for the six months ended September 30, 2006 and
        2005.
 
 **Equipment**
 
 Equipment
        is stated at cost. Depreciation is computed using the straight-line method
        over
        the estimated useful lives of the assets. When the assets are retired or
        otherwise disposed of, the costs and related accumulated depreciation are
        removed from the accounts, and any resulting gain or loss is recognized in
        income for the period. The cost of maintenance and repairs is charged to
        expense
        as incurred; significant renewals and betterments are capitalized. Deduction
        is
        made for retirements resulting from renewals or betterments.
 
 **Accounts
        Receivable**
 
 The
        Company conducts business and extends credit based on an evaluation of the
        customers’ financial condition, generally without requiring collateral. Exposure
        to losses on receivables is expected to vary by customer due to the financial
        condition of each customer. The Company monitors exposure to credit losses
        and
        maintains allowances for anticipated losses considered necessary under the
        circumstances. The allowance for doubtful accounts at September 30, 2006
        is
        $39,390.
  F-7
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
 
 **Earnings
        (Loss) Per Share of Common Stock**
 
 Historical
        net earnings (loss) per common share is computed using the weighted average
        number of common shares outstanding. Diluted earnings per share (EPS) include
        additional dilution from common stock equivalents, such as stock issuable
        pursuant to the exercise of stock options and warrants. Common stock equivalents
        were not included in the computation of diluted earnings per share when the
        Company reported a loss because to do so would be antidilutive for periods
        presented.
 
 The
        following is a reconciliation of the computation for basic and diluted
        EPS:
 
 September
                  30
              
              September
                  302006
              
              2005Net
                  income (loss)
              
              $
              364,907
              
              $
              (1,531,055
              )Weighted-average
                  common sharesOutstanding
                  (Basic)
              
              
              75,919,983
              
              
              62,936,648Weighted-average
                  common storkEquivalentsStock
                  options
              
              
              -0-
              
              
              -0-Warrants
              
              
              30,527,705
              
              
              -0-Weighted-average
                  common sharesOutstanding
                  (Diluted)
              
              
              106,447,688
              
              
              62,936,648
 
 Options
        and warrants outstanding to purchase stock were not included in the computation
        of diluted EPS for September 30, 2006 because inclusion would have been
        antidilutive. At September 30, 2006 and 2005, there were 30,527,705 and 527,705
        warrants, and 0 and 1,334,000 options available, respectively.
 
 **Goodwill
        and Other Intangible Assets**
 
 In
        September 2001, the FASB issued Statement No. 142 “Goodwill and Other Intangible
        Assets”. This statement addresses financial accounting and reporting for
        acquired goodwill and other intangible assets and supersedes APB Opinion
        No. 17,
        Intangible Assets. It addresses how intangible assets that are acquired
        individually or with a group of other assets (but not those acquired in a
        business combination) should be accounted for in financial statements upon
        their
        acquisition. This Statement also addresses how goodwill and other intangible
        assets should be accounted for after they have been initially recognized
        in the
        financial statements. The Company recorded $3,437,548 in goodwill in its
        acquisition of Internet Business Consulting and AppState.Net, LLC. The Company
        recorded $674,934 in goodwill in its acquisition of Futura, Inc. on February
        6,
        2006. Goodwill is tested for impairment annually, therefore there is no
        impairment as of September 30, 2006.
  F-8
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
 
 
 **NOTE
                  2**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
  **Stock-Based
        Compensation**
 
 Employee
        stock awards under the Company’s compensation plans are accounted for in
        accordance with Accounting Principles Board Opinion No. 25 (“APB 25”),
“*Accounting for Stock Issued to Employees*”, and related
        interpretations. The Company provides the disclosure requirements of Statement
        of Financial Accounting Standards No. 123, “*Accounting for Stock-Based
        Compensation*” (“SFAS 123”), and related interpretations. Stock-based awards
        to non-employees are accounted for under the provisions of SFAS 123 and the
        Company has adopted the enhanced disclosure provisions of SFAS No. 148
“Accounting for Stock-Based Compensation- Transition and Disclosure, an
        amendment of SFAS No. 123”.
 
 The
        Company measures compensation expense for its employee stock-based compensation
        using the intrinsic-value method. Under the intrinsic-value method of accounting
        for stock-based compensation, when the exercise price of options granted
        to
        employees is less than the estimated fair value of the underlying stock on
        the
        date of grant, deferred compensation is recognized and is amortized to
        compensation expense over the applicable vesting period. In each of the periods
        presented, the vesting period was the period in which the options were granted.
        All options were expensed to compensation in the period granted rather than
        the
        exercise date.
 
 The
        Company measures compensation expense for its non-employee stock-based
        compensation under the Financial Accounting Standards Board (FASB) Emerging
        Issues Task Force (EITF) Issue No. 96-18, “*Accounting for Equity Instruments
        that are Issued to Other Than Employees for Acquiring, or in Conjunction
        with********Selling, Goods or Services*”.
        The fair value of the option issued is used to measure the transaction, as
        this
        is more reliable than the fair value of the services received. The fair value
        is
        measured at the value of the Company’s common stock on the date that the
        commitment for performance by the counterparty has been reached or the
        counterparty’s performance is complete. The fair value of the equity instrument
        is charged directly to compensation expense and additional paid-in
        capital.
  F-9
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  2**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
  **Derivative
        Instruments**
  The
        Company has an outstanding convertible debt instrument that contains an embedded
        derivative. The Company accounts for this derivative in accordance with FAS
        No.
        133, “*Accounting for Derivative Instruments and Hedging Activities*”,
        and EITF Issue No. 00-19, “*Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock*.” In
        accordance with the provisions of FAS No. 133 and EITF Issue No. 00-19, the
        embedded derivative is required to be bifurcated from the debt instrument
        and
        recorded as a liability at fair value on the consolidated balance sheet.
        Changes
        in the fair value of the derivative is recorded at each reporting period
        and
        recorded in net gain (loss) on derivative, a separate component of the other
        income (expense). As of September 30, 2006, the fair value of the derivatives
        was $51,588. A gain in revaluation of the derivative for the six months ended
        September 30, 2006 was $164,729.
  **Recent
        Accounting Pronouncements**
 
 On
        December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
        Statement of Financial Accounting Standards No. 123 (Revised 2004),
“*Share-Based Payment*” (“SFAS 123R”). SFAS 123R requires that
        compensation cost related to share-based payment transactions be recognized
        in
        the financial statements. Share-based payment transactions within the scope
        of
        SFAS 123R include stock options, restricted stock plans, performance-based
        awards, stock appreciation rights, and employee share purchase plans. The
        provisions of SFAS 123R, as amended, are effective for small business issuers
        beginning as of the next fiscal year after December 15, 2005. Accordingly,
        the
        Company has implement the revised standard in the first quarter of fiscal
        year
        2006.
  In
          November 2004, the FASB issued Financial Accounting Standards No. 151 (FAS
          151),
“ *Inventory
          Costs - an amendment of ARB No. 43, Chapter 4* ”.
          FAS151
          clarifies the accounting for abnormal amounts of idle facility expense,
          freight,
          handling costs and spoilage. In addition, FAS 151 requires companies to
          base the
          allocation of fixed production overhead to the costs of conversion on the
          normal
          capacity of production facilities. FAS151 is effective for the Company
          in 2006.
          FAS 151 did not have a material impact on its results or financial
          statements.
  F-10
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
 
 **Recent
        Accounting Pronouncements (Continued)**
 
 On
        December 16, 2004, FASB issued Financial Accounting Standards No. 153, Exchanges
        of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for
        Non-monetary Transactions ("FAS 153"). This statement amends APB Opinion
        29 to
        eliminate the exception for non-monetary exchanges of similar productive
        assets
        and replaces it with a general exception for exchanges of non-monetary assets
        that do not have commercial substance. Under FAS 153, if a non-monetary exchange
        of similar productive assets meets a commercial-substance criterion and fair
        value is determinable, the transaction must be accounted for at fair value
        resulting in recognition of any gain or loss. FAS153 is effective for
        non-monetary transactions in fiscal periods that begin after June 15, 2005.
        The
        implementation of this standard did not have a material impact on its financial
        position, results of operations or cash flows.
 
 In
        March
        2005, the FASB issued Statement of Financial Accounting Standards Interpretation
        Number 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.”
FIN 47 provides clarification regarding the meaning of the term “conditional
        asset retirement obligation” as used in FAS 143, “Accounting for Asset
        Retirement Obligations.” FIN 47 is effective for the year ended December 31,
        2005. The implementation of this standard did not have a material impact
        on its
        financial position, results of operations or cash flows.
 
 In
        May
        2005, the FASB issued SFAS 154, “Accounting for Changes and Error Corrections—a
        replacement of APB Opinion No. 20 and FASB Statement No. 3.” FAS154
        changes the requirements, with regard to the accounting for and reporting
        a
        change in an accounting principal. The provisions of FAS 154 require, unless
        impracticable, retrospective application to prior periods presented in financial
        statements for all voluntary changes in an accounting principle and changes
        required by the adoption of a new accounting pronouncement in the unusual
        instance that the new pronouncement does not indicate a specific transition
        method. FAS 154 also requires that a change in depreciation, amortization
        or
        depletion method for long-lived, non-financial assets be accounted for as
        a
        change in an accounting estimate, which requires prospective application
        of the
        new method. FAS 154 is effective for all changes in an accounting principle
        made
        in fiscal years beginning after December 15, 2005. The Company adopted FAS
        154 beginning January 1, 2006. Because SAS 154 is directly dependent upon
        future
        events, the Company cannot determine what effect, if any, the adoption of
        FAS
        154 will have on its financial condition, results of operations or cash
        flows.
 
 F-11
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)**
 
 **Recent
        Accounting Pronouncements (Continued)**
 
 In
        February 2006, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards (FAS) No. 155, Accounting for Certain
        Hybrid Financial Instruments. FAS No. 155 replaces FAS No. 133
        Accounting for Derivative Instruments and Hedging Activities, and FAS
        No. 140 Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities. FAS No. 155 resolves issues addressed in
        Statement 133 Implementation Issue No. D1, “Application of Statement 133 to
        Beneficial Interests in Securitized Financial Assets.” This statement will be
        effective for all financial instruments acquired or issued after the beginning
        of an entity’s fiscal year that begins after September 15, 2006. The
        Company is currently analyzing whether this new standard will have impact
        on its
        financial position and results of operations.
 
 In
        September 2006, the FASB issued SFAS No. 157 “Fair Value
        Measurements,” which provides a definition of fair value, establishes a
        framework for measuring fair value and requires expanded disclosures about
        fair
        value measurements. SFAS No. 157 is effective for financial statements
        issued for fiscal years beginning after November 15, 2007 and interim
        periods within those fiscal years. The provisions of SFAS No. 157
        should be applied prospectively. The Company is currently analyzing whether
        this
        new standard will have impact on its financial position and results of
        operations.
 
 In
        September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting
        for Defined Benefit Pension and Other Postretirement Plans”, which amends
        SFAS No. 87 “Employers’ Accounting for Pensions”
(SFAS No. 87), SFAS No. 88 “Employers’ Accounting for
        Settlements and Curtailments of Defined Benefit Pension Plans and for
        Termination Benefits” (SFAS No. 88), SFAS No. 106
“Employers’ Accounting for Postretirement Benefits Other Than Pensions”
(SFAS No. 106), and SFAS No. 132R “Employers’ Disclosures
        about Pensions and Other Postretirement Benefits (revised 2003)”
(SFAS No. 132R). This Statement requires companies to recognize an
        asset or liability for the overfunded or underfunded status of their benefit
        plans in their financial statements. SFAS No. 158 also requires the
        measurement date for plan assets and liabilities to coincide with the sponsor’s
        year end. The standard provides two transition alternatives related to the
        change in measurement date provisions. The recognition of an asset and liability
        related to the funded status provision is effective for fiscal year ending
        after
        December 15, 2006 and the change in measurement date provisions is
        effective for fiscal years ending after December 15, 2008 The
        implementation of this standard did not have a material impact on its financial
        position, results of operations or cash flows.
  F-12
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
 
 
 **NOTE
                  3-**
              **INSTALLMENT
                  DEBT**
 
 Installment
        debt consists of approximately 11 notes for various pieces of equipment.
        The
        Company has not reflected the asset value on the books because the assets
        are
        considered to have no value remaining.
 
 These
        assets are however collateral for the debt. The Company has reflected these
        balances in the condensed consolidated balance sheet as installment debt
        and in
        accounts payable. The portion in accounts payable represents the amounts
        overdue, and the portion in installment debt represents the amounts still
        due
        under the agreements. The installment debt liability at September 30, 2006
        is
        $0, as all amounts have been reclassified as accounts payable.
 
 Installment
        debt also consists of two subsidiary equipment leases, which are reflected
        in
        fixed assets. The liability is $53,014 at September 30, 2006, of which $30,677
        is current and $22,337 is due through fiscal 2009.
  **NOTE
                  4-**
              **NOTES
                  PAYABLE**
 
 The
        Company borrowed a total of $1,077,955 from 22 different individuals during
        1999
        through the present, at interest rates ranging from 7-12%, with no collateral
        and payment terms of 2 to 3 years. As of September 30, 2006, all amounts
        unpaid
        are overdue. As of September 30, 2006 the balance of the note payable was
        $462,311 and the accrued interest totaled $464,327. These amounts are reflected
        as current liabilities in the condensed consolidated balance sheet.
 
 In
        accordance with the purchase agreement between the Company and Internet Business
        Consulting and AppState.net, LLC, the Company entered into two separate note
        agreements.
 
 The
        Company agrees to make 12 monthly payments of $8,334 with the first payment
        due
        with the signing of the agreement. The Company completed those payments in
        March
        2006. The Company also entered into an agreement to make 24 payments of $20,000
        all due no later than the 1st day of the month following completion of IBC’s and
        AppState’s audits (April 2005) and then on the 1st day of each subsequent month
        thereafter until paid in full. IBC and AppState may, at their option up and
        until all payments have been made, have any or all of this paid as part of
        an
        employment contract with James Hollis, the owner of IBC, as compensation.
        The
        Company has made 18 of these payments and has a remaining balance of $120,000
        classified as a current liability under the caption, Acquisition
        Contracts.
  F-13
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  4-**
              **NOTES
                  PAYABLE (Continued)**
 
 In
        association with the acquisition of Futura, Inc., the Company agreed to make
        3
        installment payments in $25,000 increments on June 1, 2006, September 1,
        2006
        and December 1, 2006. The June 1 and September 1 payments have been made
        and the
        balance of $25,000 is classified as a current liability under the caption,
        Acquisition Contracts.
 
 On
        May
        22, 2006, the Company borrowed $5,000 on a Promissory Note with a maturity
        date
        of May 22, 2007. The note carries no interest.
  **NOTE
                  5-**
              **CONVERTIBLE
                  DEBENTURES**
 
 The
        Company sold units of securities for $984,428 to approximately 100 individuals
        during 1998 and 1999. Each unit consisted of one share of common stock and
        one
        debenture with interest at 12%, no collateral, and an original due date of
        December 2001. The debentures are convertible at any time at $7.50 per share.
        In
        late 1999 to early 2000, the Company converted $373,128 in debentures into
        common stock. In mid-2002, the Company offered conversions at $.40 per share
        and
        32 individuals with a face amount of $274,550 plus accrued interest of $101,254
        accepted this conversion to 939,511 shares of common stock.
 
 The
        Company sold units of securities for $215,000 to 14 individuals/entities
        in
        December 2004. The debentures accrue interest at 10% per annum and were due
        December 31, 2005. The conversion price was $.10 per common share. In January
        2006, the debentures were converted to 2,365,00 shares of common stock. A
        beneficial interest expense of $249,150 was realized on the
        conversion.
 
 The
        Company sold a security for $25,000 to one entity in January 2005. This
        debenture, which was for services rendered, also accrues interest at 10%
        per
        annum and was due January 31, 2006. The conversion price is $.10 per common
        share. No conversion or repayment of the debenture has occurred at September
        30,
        2006.
 
 The
        Company sold a security for $5,000 to one entity in January 2006. This
        debenture, which was for services rendered, accrues interest at 9% per annum
        and
        is due January 1, 2007. The conversion price is $.05 per common share. This
        debenture has been converted to 100,000 shares of common stock. A beneficial
        interest expense of $16,000 was realized on the conversion.
 
 The
        Company sold a security for $20,000 to one entity in March 2006. This debenture,
        which was for services rendered, accrues interest at 9% per annum and is
        due
        April 1, 2007. The conversion price is $.05 per common share. This debenture
        was
        converted to 400,000 shares of common stock. A beneficial interest expense
        of
        $40,000 was realized on the conversion.
  F-14
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
  
 **NOTE
                  5-**
              **CONVERTIBLE
                  DEBENTURES (Continued)**
 
 The
        Company sold a security for $257,500 to one entity in March 2006. This
        debenture, which was for services rendered, accrues interest at 9% per annum
        and
        is due May 15, 2007. In the event the Company receives funding in the amount
        of
        at least Six Hundred Thousand Dollars ($600,000), Forty Five Thousand Dollars
        ($45,000) immediately becomes due and payable to the holder. The conversion
        price is $.05 per common share.
  **Derivative
        Liability**
  On
        March
        27, 2006, the Company entered into a securities purchase agreement with Cornell
        Capital Partners L.P. providing for the sale by the Company to Cornell of
        our
        12% secured convertible debentures in the aggregate principal amount of $600,000
        of which $200,000 was advanced immediately. The second installment of $200,000
        was advanced on April 18, 2006. The last installment of $200,000 was advanced
        on
        August 16, two (2) business days after the date the registration statement
        was
        declared effective.
  The
        Convertible Debentures mature on the third anniversary of the date of issuance
        and the Company is not required to make any payments until the maturity date.
        Holders of the Debentures may convert at any time amounts outstanding under
        the
        debentures into shares of our common stock at a conversion price per share
        equal
        to the lower of (i) $0.20 or (ii) ninety percent (90%) of the lowest closing
        Bid
        Price of the Common Stock during the thirty (30) trading days immediately
        preceding the conversion date as quoted by Bloomberg, LP. Cornell has agreed
        not
        to short any of the shares of Common Stock. The Company has the right to
        redeem
        a portion or all amounts outstanding under the debenture prior to the maturity
        date at a 20% redemption premium provided that the closing bid price of our
        common stock is less than $0.20
 
 On
        August
        22, 2006, the debenture holder converted $5,000 of principal for 158,730
        shares
        of common stock; the conversion price was $.0315, 90% of the lowest closing
        bid
        price of $.035 during the prior 30 days.
 
 On
        September 21, 2006, the debenture holder converted $10,000 of principal for
        336,700 shares of common stock; the conversion price was $.0297, 90% of the
        lowest closing bid price of $.033 during the prior 30 days.
 
 A
        holder
        of the Convertible Debenture may not convert or receive shares as payment
        of
        interest to the extent such conversion or receipt of such interest payment
        would
        result in the holder, together with any affiliate of the holder, beneficially
        owning in excess of 4.99% of the then issued and outstanding shares of Common
        Stock, including shares issuable upon conversion of, and payment of
        interest.
  F-15
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  5-**
              **CONVERTIBLE
                  DEBENTURES (Continued)**
 
 **Derivative
        Liability (Continued)**
  “Accounting for Derivative
        Instruments and Hedging Activities” “Accounting for
        Derivative Financial Instruments Indexed to, and Potentially Settled in,
        a
        Company's Own Stock”
  Fair
                  market value of stock
              $0.20Exercise
                  price
              $0.18Dividend
                  yield
              0.00%Risk
                  free interest rate
              4.00%Expected
                  volatility
              192.95%Expected
                  life
              5.0
                  Years
  The
          Company also issued to Cornell five-year warrants to purchase 2,000,000
          and
          1,500,000 shares of Common Stock at prices of $0.30, and $0.40,
          respectively. If at
          the time of exercise of the Warrants, the shares of Common Stock underlying
          the
          Warrant are not subject to an effective registration statement under the
          Securities Act of 1933, as amended (the "Act") or if an event of default
          under
          the Convertible Debentures has occurred, which is not cured in any applicable
          cure period, the holder of the Warrant, in lieu of making payment of the
          Exercise Price in cash, may elect a cashless exercise in accordance with
          the
          formula set forth in the Warrant.  If,
          subject to the exceptions set forth in the warrants, during the time that
          the
          Warrants are outstanding, the Company issues or sells, or is deemed to
          have
          issued or sold, any shares of Common Stock for a consideration per share
          less
          than a price equal to the then exercise price, then the exercise price
          will be
          reduced to an amount equal to such consideration per share. Upon each such
          adjustment, the number of shares of Common Stock issuable upon exercise
          of the
          Warrants will be adjusted to the number of shares determined by multiplying
          the
          exercise price in effect immediately prior to such adjustment by the number
          of
          shares issuable upon exercise of the warrants immediately prior to such
          adjustment and dividing the product by the exercise price resulting from
          such
          adjustment. Similar adjustments will be made upon any issuance or sale
          by us of
          options to purchase Common Stock or convertible securities.
  
 F-16
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  5-**
              **CONVERTIBLE
                  DEBENTURES (Continued)**
 
 Derivative
        Liability (Continued)
  On
        August
        8, 2006 the Company issued stock at a market price of $.04. In accordance
        with
        the agreement, this increased the number of warrants from 3,500,000 to
        30,000,000 at $.04 exercise price.
   Fair
                    market value of stock
                $0.20Exercise
                    price
                $0.30
                    and $0.40Dividend
                    yield
                0.00%Risk
                    free interest rate
                4.00%Expected
                    volatility
                192.95%Expected
                    life
                5.0
                    Years
 The
        allocation of the proceeds of the convertible debenture to the warrants and
        the
        recognition of the embedded derivative resulted in discounts to the convertible
        debenture of $154,255 and $45,745, respectively. The discount on debt of
        $200,000 is being amortized to interest through March 31, 2009 using the
        effective interest method. The current debt discount balance is
        $166,666.
 
 In
        connection with the Purchase Agreement, the Company also entered into a
        registration rights agreement with Cornell providing for the registration
        of the
        shares of common stock issuable upon conversion of the debentures and exercise
        of the warrants. The Company is obligated to use its best efforts to cause
        the
        registration statement to be declared effective no later than July 25, 2006
        and
        to insure that the registration statement remains in effect until all of
        the
        shares of common stock issuable upon conversion of the debentures and exercise
        of the warrants have been sold. In the event of a default of the Company’s
        obligations under the registration rights agreement, including its agreement
        to
        file the registration statement no later than May 11, 2006, or if the
        registration statement is not declared effective by July 25, 2006, the Company
        is required to pay to Cornell, as liquidated damages, for each month that
        the
        registration statement has not been filed or declared effective, as the case
        may
        be, either a cash amount or shares of its common stock equal to 2% of the
        liquidated value of the Debentures. On August 14, 2006, the registration
        statement for 22,500,000 shares of common stock for Cornell Capital Partners
        L.P. was declared effective. The Company was liable for liquidated damages
        up to
        2% per month for failure to have an effective registration statement by July
        25,
        2006. Cornell Capital Partners has verbally agreed to waive said
        damages.
 
 F-17
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
 
 
 **NOTE
                  5-**
              **CONVERTIBLE
                  DEBENTURES (Continued)**
 
 **Derivative
        Liability (Continued)**
 
 The
        Company’s obligations under the purchase agreement are secured by substantially
        all of its assets and the assets of its subsidiaries. As further security
        for
        its obligations thereunder, Nyhl Henson, Chief Executive Officer, and Charles
        Roodenburg, Chief Operating Officer, have granted a security interest in
        an
        aggregate of 925,000 shares of their common stock and 3,300,000 shares of
        their
        Series A Preferred Stock. The Company also granted a security interest in
        15,000,000 shares of its stock, issued from treasury.
 
 On
        July
        14, 2006, the Company entered into an agreement with Cornell Capital Partners
        to
        cancel the security interest in the 15,000,000 shares. These shares were
        subsequently returned and cancelled on July 24, 2006.
  **NOTE
                  6-**
              **STOCKHOLDERS’
                  EQUITY**
 
 **Preferred
        Stock**
 
 The
        Company has 5,000,000 shares of preferred stock authorized and 4,000,000
        shares
        of preferred stock issued and outstanding as of September 30, 2006.
 
 There
        were no preferred stock transactions for the six months ended September 30,
        2006.
 
 **Common
        Stock**
 
 As
        of
        September 30, 2006, the Company has 100,000,000 shares of common stock
        authorized, 78,245,430 issued and outstanding.
 
 For
        the
        six months ended September 30, 2006 the following common stock was
        issued:
 
 August
        8,
        2006, 14,764,413 shares of unregistered common stock, with a fair market
        value
        of $780,000, were issued to Big Apple Consulting in accordance with a 2-year
        contract for consulting services. A registration statement is required by
        December 12, 2006 to cover these shares.
 
 One
        August 22, 2006 and September 21, 2006, 158,730 and 336,700 shares respectively
        were issued to Cornell Capital Partners, LLC for conversion of $5,000 and
        $10,000 respectively of the convertible debenture. Beneficial interest expense
        of $8,502 was realized on this transaction.
  F-18
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  6-**
              **STOCKHOLDERS’
                  EQUITY (Continued)**
 
 **Temporary
        Equity**
 
 The
        Company is authorized to issue 100,000,000 shares of its $.001 par value
        Common
        stock. However, as of September 20, 2006, the Company did not have enough
        authorized stock to satisfy the redemption and conversion features of its
        debentures and warrants. As such, this has created a temporary equity
        classification within the Company. The shares and their related values have
        been
        reclassified to temporary equity.
  **NOTE
                  7-**
              **GOING
                  CONCERN**
 
 As
        shown
        in the accompanying consolidated financial statements the Company has sustained
        net operating losses for the six months ended September 30, 2006 and the
        years
        ended March 31, 2006 and 2005, and has sustained large accumulated deficits.
        In
        addition, the Company has sold off its operations in Colorado, Oregon and
        California, and was operating essentially as a shell company up until January
        2005, when it acquired Internet Business Consulting/AppState.net, LLC. This
        raises substantial doubt about the Company’s ability to continue as a going
        concern.
 
 Management
        has restructured the Company and is continuing to search for more profitable
        internet and communications related service companies to acquire.
 
 The
        Company’s future success is dependent upon its ability to achieve profitable
        operations and generate cash from operating activities, and upon additional
        financing. There is no guarantee that the Company will be able to raise enough
        capital or generate revenues to sustain its operations.
 
 The
        condensed consolidated financial statements do not include any adjustments
        relating to the recoverability or classification of recorded assets and
        liabilities that might result should the Company be unable to continue as
        a
        going concern.
 
 **NOTE
                  8-**
              **PROVISION
                  FOR INCOME TAXES**
 
 Deferred
        income taxes will be determined using the liability method for the temporary
        differences between the financial reporting basis and income tax basis of
        the
        Company’s assets and liabilities. Deferred income taxes will be measured based
        on the tax rates expected to be in effect when the temporary differences
        are
        included in the Company’s consolidated tax return. Deferred tax assets and
        liabilities are recognized based on anticipated future tax consequences
        attributable to differences between financial statement carrying amounts
        of
        assets and liabilities and their respective tax bases.
  F-19
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
                  8-**
              **PROVISION
                  FOR INCOME TAXES
                  (Continued)**
 
 At
        September 30, 2006, net deferred tax assets approximated the
        following:
 
 Deferred
                  tax assets
              
              $
              8,600,000Less:
                  valuation allowance
              
              
              (
                  8,600,000
              )$
              -0-
  At
        September 30, 2006, the Company had accumulated deficits approximating
        $25,000,000 available to offset future taxable income through 2023. The Company
        established valuation allowances equal to the full amount of the deferred
        tax
        assets due to the uncertainty of the utilization of the operating losses
        in
        future periods.
 
 **NOTE
                  9-**
              **LITIGATION/
                  ARBITRATION**
 
 The
        Company is currently negotiating settlements with vendors and debt holders
        for
        amounts currently outstanding. As of September 30, 2006, the Company has
        recognized the full liability for all amounts that are due.
 
 On
        December 1, 2004, a judgment was entered against Internet Ventures, Inc.,
        the
        predecessor Company, in favor of Catherine and Joe Santistevan in the amount
        of
        $1,367,500. After discussions with legal counsel, the Company believed the
        amount of the judgment would be mitigated in a full hearing on the matter,
        which
        the company intended to vigorously pursue. The judgment was under submission
        to
        be set aside by the Judge of the Superior Court of San Joaquin County, Stockton,
        CA. On July 14, 2005, the Company received notice from the Superior Court
        of San
        Joaquin that the judgment was upheld.
 
 On
        September 30, 2006 a confidential Settlement Agreement and Release was entered
        by and among Joe and Catherine Santistevan (“Santistevans”) and IVI
        Communications, Inc., successor in interest defendant Internet Ventures,
        Inc.,
        to set aside the default judgment entered against Internet Ventures, Inc.
        in the
        amount of $1,367,500. Under the terms of the agreement IVI Communications
        will
        pay the Santistevans a total four hundred and fifty thousand dollars ($450,000),
        to settle a claim of $1,367,500. If IVI Communications, Inc. defaults on
        the
        agreement, a judgment would be entered by stipulation in the amount of
        1,367,500.
  F-20
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **SEPTEMBER
        30, 2006 AND 2005 (UNAUDITED)**
   **NOTE
                  9-**
              **LITIGATION/
                  ARBITRATION
                  (Continued)**
 
 The
        Company has six default judgments against it for a total amount of $135,367.
        Four of these judgments have settlements in place with total balances of
        $57,778. The amounts are recorded in accounts payable. One judgment in the
        amount of $62,328 is in favor of an equipment leasing company and is against
        a
        wholly owned subsidiary of Internet Ventures, Inc. This is recorded under
        accounts payable and installment debt. One judgment in the amount of $15,261
        is
        in favor of a debenture holder against Internet Ventures, Inc. The amount
        is
        recorded in debentures payable, debenture interest payable, and accounts
        payable.
 
 On
        October 7, 2005, a Complaint for Damages was filed in the Superior Court
        of the
        State of California, County of San Joaquin, Case No. CV027700, by Annette
        S.
        Paoletti as Successor Trustee of the Clare P. Evelyn B. McEnerney Family
        Trust.
        No dollar amount was stated. A note payable and accrued interest in the amount
        of $255,730 is recorded in notes payable and interest on notes payable.
        Company’s counsel has answered the complaint and is currently in negotiations
        with plaintiff’s counsel to settle the matter amicably.
 
 On
        September 14, 2006, the Company was notified of a Demand for Arbitration
        to
        obtain judgment on a settlement default of $28,000. This amount is recorded
        in
        accounts payable. The default of $28,000 was settled for 280,000 shares of
        common stock and is recorded as a liability for stock payable.
 
 **NOTE
                  10-**
              **SUBSEQUENT
                  EVENTS**
 
 On
        October 4, 2006, IVI Communications held its annual shareholder
        meeting.
 
 The
        Company increased its authorized shares of common stock from 100,000,000
        to
        400,000,000 common shares.
 
 On
        October 10, 2006 the Company issued 280,000 shares of unregistered common
        stock
        valued at $13,720 in settlement of an outstanding judgment.
 
 On
        October 17, Cornell submitted a Notice of Conversion to convert $10,000 of
        the
        Debenture for which the Company has issued 444,444 of its registered common
        shares at a conversion price per share of $.0225.
 
 On
        November 2, 2006 the Company issued an aggregate of 1,200,000 shares of
        unregistered common stock to consultants as compensation for services valued
        at
        $61,200.
 
 On
        November 9, Cornell submitted a Notice of Conversion to convert $20,000 of
        the
        Debenture for which the Company has issued 1,388,889 of its registered common
        shares at a conversion price per share of $.014




F-21




**ITEM
      2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION:**




THIS
      QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
      21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION,
      STATEMENTS REGARDING OUR EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES
      THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES",
      OR SIMILAR LANGUAGE. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES
      AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT
      ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF AND SPEAK ONLY
      AS
      OF THE DATE HEREOF. THE FACTORS DISCUSSED BELOW UNDER "RISK FACTORS" AND ELSEWHERE
      IN THIS QUARTERLY REPORT ON FORM 10-QSB ARE AMONG THOSE FACTORS
      THAT


IN
      SOME
      CASES HAVE AFFECTED OUR RESULTS AND COULD CAUSE THE ACTUAL RESULTS TO DIFFER
      MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.





The
      following discussion should be read in conjunction with the Condensed Consolidated
      Financial Statements and Notes thereto.




**OVERVIEW**





Our
      revenue and operations are derived through three wholly owned subsidiaries
      of
      IVI Communications, Inc Our business plan is to acquire and operate ISPs in
      rural markets and to deploy fixed wireless broadband Internet access and
      associated broadband services such as VoIP.




Internet
      Business Consulting,
      Inc. ("IBC") and AppState.Net, LLC ("AppState") are two of the operating
      subsidiaries. IBC is a leading provider of turnkey wireless networks that has
      the expertise required to engineer, install, and support wireless applications
      and solutions. AppState is an Internet Service Provider ("ISP") founded in
      July
      1999. In February 2005, we launched the Company’s nationally branded fixed
      wireless broadband service, Lickity-SplitSM, at AppState.





On
      February 6, 2006 we entered into a Purchase Agreement and acquired 100% of
      the
      outstanding stock of Futura, Inc. from Francis and Lois Allen, the shareholders
      of Futura, Inc. Futura, Inc. is an operating subsidiary, and is an Internet
      Service Provider founded in 1995 in Cabot, Arkansas, that provides dialup and
      DSL broadband Internet access, and associated services such as Email spam and
      virus filtering, VoIP telephony, "Kid Safe" surfing (Parental Control), and
      web
      accelerator services, to communities surrounding Little Rock Arkansas including
      Cabot, Carlisle, Clarendon, DeValls Bluff, DeWitt, England, Hazen, Jacksonville,
      and Stuttgart.




5





We
      expect
      operating losses and negative operating cash flows to continue for at least
      the
      next twelve months, because of expected additional costs and expenses related
      to
      brand development, marketing and other promotional activities, strategic
      relationship development and potential acquisitions of related complementary
      businesses.




**RESULTS
      OF OPERATIONS**





Three
      Months Ended September 30, 2006 Compared With Three Months Ended September
      30,
      2005





Revenue
      for the three months ended September 30, 2006 was $461,103 compared to $664,264
      for the three months ended September 30, 2005. There was a decrease of $298,184
      in IBC equipment sales, a decrease in corporate consulting services of $2,550,
      offset by an increase in internet services provided by AppState.net of $9,492
      and sales of internet services for Futura, Inc. of $95,474. In consolidation,
      equipment sales of $7,393 were eliminated in the three months ended September
      30, 2006.





IBC's
      revenue for the three months ended September 30, 2006 consisted of equipment
      sales of $280,144. AppState posted revenue for internet services of $65,030
      and
      $4,748 in equipment sales for the three months ended September 30, 2006. Futura,
      Inc. posted sales for internet services of $95,474 for the three months ended
      September 30, 2006. The Company also received $23,100 as management and
      consulting fees.





Cost
      of
      operations for the three months ended September 30, 2006 were $348,782 compared
      to $474,549 for the three months ended September 30, 2005. This decrease was
      due
      to a reduction in equipment costs for IBC of $213,371, offset by an increase
      in
      costs at AppState.net of $7,839 and an increase of $87,158 for the costs at
      Futura, Inc. Cost of operations includes the cost of wireless equipment and
      services sold by IBC and the cost of wireless equipment and internet data
      services sold by AppState.net and Futura. In consolidation $7,393 in equipment
      costs were eliminated in the three months ended September 30, 2006.





General
      and administrative expenses for the three months ended September 30, 2006 were
      $504,831 compared to $751,199 for the three months ended September 30, 2005.
      The
      largest component of expense for the three months ended September 30, 2006
      consisted of employee compensation of $222,130. There was a decrease in general
      and administrative expenses for the three months ended September 30, 2006
      compared to the three months ended September 30, 2005, of which $299,543 was
      a
      decrease in consulting and legal fees, offset by an increase of $43,194, 91%
      of
      which was Futura,Inc.




Selling
      expenses for the three months ended September 30, 2006 were $4,488, compared
      to
      selling expenses of $9,434 for the three months ended September 30, 2005. The
      decrease was a general reduction in advertising.





Depreciation
      and amortization expense was $30,096 for the three months ended September 30,
      2006, compared to depreciation expense of $9,611 for the three months ended
      September 30, 2005. There was an increase of $3,818 in depreciation of equipment
      acquired at AppState.net and Futura, Inc. There was $16,667 in amortization
      for
      the discount on debt associated with the Cornell Capital LP
      debentures.




6





The
      net
      operating loss was ($427,094) in the three months ended September 30, 2006
      compared to the net operating loss of ($580,529) in the three months ended
      September 30, 2005.





The
      Company incurred a reduction of the gain on the revaluation of derivatives
      associated with the Cornell Capital LP debentures of $4,314 for the three months
      ended September 30, 2006.





The
      Company incurred interest expenses of $96,483 in the three months ended
      September 30, 2006, compared to $65,586 for the three months ended September
      30,
      2005. This increase was due to additional interest on notes, debentures, and
      capital leases.





The
      Company had other income of $1,003,323 in the three months ended September
      30,
      2006, compared to $116,303 in the three months ended September 30, 2005. In
      the
      three months ended September 30, 2006, The Company settled litigation resulting
      in other income of $986,523 (see Part II, Item I, Legal Proceedings), and
      settled a debt which forgave $16,800.





Due
      to
      the above factors, our net income for the three months ended September 30,
      2006
      increased to $475,607 compared to a net loss of ($529,812) for the three months
      ended September 30, 2005. Basic and diluted income per share for the three
      months ended September 30, 2006 was $0.01, compared to a loss of ($0.01) for
      the
      three months ended September 30, 2005.





Six
      Months Ended September 30, 2006 Compared With Six Months Ended September 30,
      2005





Revenue
      for the six months ended September 30, 2006 was $1,123,226 compared to
      $1,442,100 for the six months ended September 30, 2005. There was a decrease
      of
      $490,261 in IBC equipment sales, a decrease in corporate consulting services
      of
      $122,650, offset by an increase in internet services provided by AppState.net
      of
      $43,256 and sales of internet services for Futura, Inc. of $258,174. In
      consolidation, equipment sales of $7,393 were eliminated in the six months
      ended
      September 30, 2006.




IBC's
      revenue for the six months ended September 30, 2006 consisted of equipment
      sales
      of $678,806, consulting services of $3,072, and other services of $500. AppState
      posted revenue for internet services of $133,428 and $10,379 in equipment sales
      and $60 in consulting services for the six months ended September 30, 2006.
      Futura, Inc. posted sales for internet services of $258,174 for the six months
      ended September 30, 2006. The Company also received $46,200 as management and
      consulting fees. In consolidation, equipment sales of $7,393 were eliminated
      in
      the six months ended September 30, 2006.





Cost
      of
      operations for the six months ended September 30, 2006 were $776,635 compared
      to
      $963,171, for the six months ended September 30, 2005. This decrease was due
      to
      a reduction in equipment costs for IBC of $337,453, offset by an increase in
      costs at AppState.net of $8,512 and an increase of $149,798 for the costs at
      Futura, Inc. Cost of operations includes the cost of wireless equipment and
      services sold by IBC and the cost of wireless equipment and internet data
      services sold by AppState.net and Futura. In consolidation, $7,393 in equipment
      costs were eliminated in the six months ended September 30, 2006.




7





General
      and administrative expenses for the six months ended September 30, 2006 were
      $937,460 compared to $1,086,261 for the six months ended September 30, 2005.
      The
      largest component of expense for the six months ended September 30, 2006
      consisted of employee compensation of $466,181. There was a decrease in general
      and administrative expenses for the six months ended September 30, 2006 compared
      to the six months ended September 30, 2005, of which $291,969 was a decrease
      in
      consulting and legal fees, offset by an increase of $133,187, 94% of which
      was
      general and administrative expense for Futura.




Selling
      expenses for the six months ended September 30, 2006 were $7,092, compared
      to
      selling expenses of $13,557 for the six months ended September 30, 2005. The
      decrease was a general reduction in advertising.





Depreciation
      and amortization expense was $58,326 for the six months ended September 30,
      2006, compared to depreciation expense of $13,870 for the six months ended
      September 30, 2005. There was an increase of $11,122 in depreciation of
      equipment acquired at AppState.net and Futura, Inc. There was $33,334 in
      amortization for the discount on debt associated with the Cornell Capital LP
      debentures.





The
      net
      operating loss was ($656,287) for the six months ended September 30, 2006
      compared to a net operating loss of ($634,759) for the six months ended
      September 30, 2005.





The
      Company incurred interest expenses of $176,659 in the six months ended September
      30, 2006, compared to $127,922 for the six months ended September 30, 2005.
      This
      increase was due to additional interest on notes, debentures, and capital
      leases.





The
      Company had interest income in the six months ended September 30, 2006 in the
      amount of $211, compared to $0 in the six months ended September 30,
      2005.





The
      Company incurred a gain on the revaluation of derivatives associated with the
      Cornell Capital LP debentures of $164,729 for the six months ended September
      30,
      2006.





The
      Company had other income of $1,032,913 in the six months ended September 30,
      2006, compared to $166,408 in the six months ended September 30, 2005. In the
      six months ended September 30, 2006, the Company settled litigation resulting
      in
      other income of $986,523 (see Part II, Item I, Legal Proceedings), settled
      a
      debt which forgave $16,800, and management evaluated the allowance for bad
      debt
      and determined that it should be reduced from the prior year end in the amount
      of $29,590.




Due
      to
      the above factors, our net income for the six months ended September 30, 2006
      increased to $364,907 compared to a net loss of ($1,531,055) for the six months
      ended September 30, 2005. Basic and diluted income per share for the six months
      ended September 30, 2006 was nominal, compared to a loss of ($0.02)per share
      for
      the six months ended September 30, 2005.




8





**LIQUIDITY
      AND CAPITAL RESOURCES**




In
      the
      six months ended September 30, 2006, we continued to spend cash to fund our
      operations. Cash used by operating activities for six months ended September
      30,
      2006 equaled $75,068, and consisted of net income of $364,907, common stock
      issued for services of $160,417, a gain on revaluation of derivatives in the
      amount of $164,729, an increase in depreciation and amortization of $58,326,
      a
      beneficial interest gain of $8,502, an increase in accounts payable and accrued
      liabilities of $11,216, a decrease in inventory of $58,600, a decrease in
      accounts receivable of $88,752, an increase in other current assets of $25,953,
      a decrease in other assets of $6,513, a decrease in contingent liability of
      $484,782,a decrease in acquisition contracts of $150,000, and a decrease in
      deferred revenue of $6,838. For the comparable period in 2005, cash used by
      operating activities equaled $568,272 and consisted of a net loss of $1,531,055,
      common stock issued for services and compensation of $440,750, an increase
      in
      depreciation of $13,870, a decrease in accounts receivable of $32,277, an
      increase in inventory of $14,039, a decrease in other current assets of $2,997,
      and an increase in accounts payable and accrued liabilities of
      $486,928.





We
      used
      net cash of $29,690 in investing activities for the six months ended September
      30, 2006 for the purchase of fixed assets at Futura. For the comparable period
      in 2005, net cash of $26,386 was used for the purchase of fixed
      assets.





Cash
      flow
      from financing activities for the six months ended September 30, 2006 produced
      a
      net increase in cash of $23,425 consisting of $397,500 in proceeds from
      convertible debentures, offset by an increase of $28,789 in payments on
      installment notes, $300,000 in payments on notes payable, and $45,286 payment
      on
      officer loans. Cash flow from financing activities for the six months ended
      September 30, 2005 produced a net increase in cash of $651,526 which resulted
      from $767,311 in proceeds from convertible debentures, $155,795 proceeds from
      officer loans, $400,000 in proceeds from issuance of common stock, offset by
      $206,253 payments on installment debt and $465,327 in payments on notes
      payable.





As
      of
      September 30, 2006, we had cash and cash equivalents amounting to $152,211
      a
      decrease of $81,333 from the balance at March 31, 2006. Our working capital
      deficit decreased to $ 4,015,723 at
      September 30, 2006 from $4,832,575 at March 31, 2006.





As
      of
      September 30, 2006, we had an accumulated operating deficit of ($25,279,748)
      and
      stockholders' deficit of ($803,069).





The
      Company’s principal source of operating capital has been provided by the sale of
      its stock and securities, corporate consulting services, and operations of
      its
      wholly owned subsidiaries.





On
      March
      27, 2006, the Company entered into a securities purchase agreement with Cornell
      Capital Partners L.P. providing for the sale by the Company to Cornell of our
      12% secured convertible debentures in the aggregate principal amount of $600,000
      of which $200,000 was advanced immediately. The second installment of $200,000
      was advanced on April 18, 2006 upon the filing of the SB2 Registration
      Statement. The last installment of $200,000 was received August 16, 2006, two
      (2) business days after the date the registration statement was declared
      effective on August 14, 2006.





The
      Convertible Debentures mature on the third anniversary of the date of issuance
      and the Company is not required to make any payments until the maturity date.
      Holders of the Debentures may convert at any time amounts outstanding under
      the
      debentures into shares of our common stock at a conversion price per share
      equal
      to the lower
      of
      (i) $0.20 or (ii) ninety percent (90%) of the lowest closing Bid Price of the
      Common Stock during the thirty (30) trading days immediately preceding the
      conversion date as quoted by Bloomberg, LP. Cornell
      has agreed not to short any of the shares of Common Stock. The Company has
      the
      right to redeem a portion or all amounts outstanding under the debenture prior
      to the maturity date at a 20% redemption premium provided that the closing
      bid
      price of our common stock is less than $0.20.




9





A
      holder
      of the Convertible Debenture may not convert or receive shares as payment of
      interest to the extent such conversion or receipt of such interest payment
      would
      result in the holder, together with any affiliate of the holder, beneficially
      owning in excess of 4.99% of the then issued and outstanding shares of Common
      Stock, including shares issuable upon conversion of, and payment of
      interest.





During
      the quarter ended September 30, 2006 Cornell has submitted Notices of Conversion
      to convert $15,000 of the Debenture for which the Company has issued 495,430
      of
      its registered common shares at an average conversion price per share of
      $.0303.




The
      Company also issued to Cornell five-year warrants to purchase 2,000,000 and
      1,500,000 shares of Common Stock at prices of $0.30, and $0.40,
      respectively. If at
      the time of exercise of the Warrants, the shares of Common Stock underlying
      the
      Warrant are not subject to an effective registration statement under the
      Securities Act of 1933, as amended (the "Act") or if an event of default under
      the Convertible Debentures has occurred, which is not cured in any applicable
      cure period, the holder of the Warrant, in lieu of making payment of the
      Exercise Price in cash, may elect a cashless exercise in accordance with the
      formula set forth in the Warrant.  If,
      subject to the exceptions set forth in the warrants, during the time that the
      Warrants are outstanding, the Company issues or sells, or is deemed to have
      issued or sold, any shares of Common Stock for a consideration per share less
      than a price equal to the then exercise price, then the exercise price will
      be
      reduced to an amount equal to such consideration per share. Upon each such
      adjustment, the number of shares of Common Stock issuable upon exercise of
      the
      Warrants will be adjusted to the number of shares determined by multiplying
      the
      exercise price in effect immediately prior to such adjustment by the number
      of
      shares issuable upon exercise of the warrants immediately prior to such
      adjustment and dividing the product by the exercise price resulting from such
      adjustment. Similar adjustments will be made upon any issuance or sale by us
      of
      options to purchase Common Stock or convertible securities.




On
      August
      8, the Company issued 14,764,413 shares of common stock at $.04 per share to
      Big
      Apple Consulting. This adjusted the number of shares for the Cornell five-year
      warrants to 30,000,000.




In
      connection with the Purchase Agreement, the Company also entered into a
      registration rights agreement with Cornell providing for the registration of
      the
      shares of common stock issuable upon conversion of the debentures and exercise
      of the warrants. The Company is obligated to use its best efforts to cause
      the
      registration statement to be declared effective, which occurred on August 14,
      2006, and to insure that the registration statement remains in effect until
      all
      of the shares of common stock issuable upon conversion of the debentures and
      exercise of the warrants have been sold.





The
      Company’s obligations under the purchase agreement are secured by substantially
      all of its assets and the assets of its subsidiaries. As further security for
      its obligations thereunder, Nyhl Henson, Chief Executive Officer, and Charles
      Roodenburg, Chief Operating Officer, have granted a security interest in an
      aggregate of 925,000 shares of their common stock and 3,300,000 shares of their
      Series A Preferred Stock. The Company also granted a security interest in
      15,000,000 shares of its stock, issued from treasury.




10





On
      July
      14, 2006, Cornell agreed to release the 15,000,000 shares granted as a security
      interest and they were returned to the Company and cancelled.





On
      May
      22, 2006, the Company borrowed $5,000 on a Promissory Note with a maturity
      date
      of May 22, 2007. The note carries no interest.





We
      anticipate incurring expenditures for acquisitions in excess of $1,000,000
      to
      expand our operations during the next twelve months, and believe that the
      current cash flows generated from revenues will not be sufficient to fund this
      anticipated expansion. We will require additional funding to finance our
      operations through private and public debt or equity offerings. However, there
      is no assurance that we can obtain such financing. We also anticipate receiving
      recurring revenues from ISP management services but no management service
      contracts have been executed at this time. There can be no assurance that we
      will secure these contracts. As shown in the accompanying condensed consolidated
      financial statements, we have sustained net operating losses for the six months
      ended September 30, 2006 and the years ended March 31, 2006 and 2005, and have
      a
      large accumulated stockholders' deficit. In addition, we sold our operations
      in
      Colorado, Oregon and California, and were operating as a shell company up until
      January 2005, when we acquired IBC and AppState. This raises substantial doubt
      about the our ability to continue as a going concern





Recent
      Agreement with Big Apple Consulting, USA, Inc.





On
      August
      8, 2006, the Company entered into a Consulting Agreement with Big Apple
      Consulting, USA. On a monthly basis Big Apple shall be entitled to receive
      Sixty-Five Thousand U.S. Dollars ($65,000.00) per month due the 8th of each
      month. If payment is made in stock Big Apple shall be entitled to receive
      Sixty-Five Thousand U.S. Dollars ($65,000.00) per month worth of common shares
      of IVI Communications, Inc. (IVCM) common stock due the 8th of each month based
      upon the previous ten (10) day average closing bid price. The first and last
      month’s payment of 2,600,000 shares of common stock is due and payable upon the
      signing of this Agreement. Commencing on or before August 8, 2006, all
      subsequent monthly payments will be delivered from the escrow account. All
      shares are earned when received.





The
      Company agrees to register 14,764,413 shares, the common stock issued for
      compensation, in the name of “Big Apple Consulting USA, Inc.” in an SB-2
      registration with the SEC within one hundred twenty (120) days of the effective
      date of the currently pending SB-2 registration which shall become effective
      within sixty (60) days after the date of such SB-2 filing date. However,
      Consultant acknowledges that the Company cannot guarantee the exact date on
      which SEC shall declare the SB-2 effective. In the event that the SB-2 has
      not
      become effective within one hundred twenty (120) days after the date of such
      SB-2 filing date, then Consultant shall have the option to terminate this
      Agreement with five (5) days written notice.





Company
      agrees to deposit 12,164,413 shares of common stock in an escrow account with
      J.
      Bennett Grocock, Esq., Big Apple Consulting's SEC attorney, upon the signing
      of
      this Agreement. Pursuant to Section 2.02(b), commencing on or before August
      8,
      2006, and continuing throughout the Initial Term of this Agreement, on or before
      the 8th of each month, Sixty-Five Thousand U.S. Dollars ($65,000.00) worth
      of
      IVI Communications, Inc. common stock based upon the previous ten (10) day
      average closing bid price will be released from the escrow account. After
      expiration of this Agreement any free trading shares common stock remaining
      in
      escrow will be returned to the Company.




11




**Risk
      Factors and Cautionary Statements**





**WE
      HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE, WHICH MEANS
      THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL** **FUNDING**




Prior
      to
      the acquisitions of IBC and AppState, we operated as a shell company with no
      significant operations. Since then, we have incurred substantial losses from
      operations, and expect to incur net losses for the foreseeable future. We
      incurred a net loss of $510,916 for the three months ended September 30, 2006,
      when adjusted for the extraordinary other income generated from a litigation
      settlement. If our growth is slower than anticipated or operating expenses
      exceed expectations, losses will be significantly greater. We may never achieve
      profitability. Primarily as a result of these recurring losses, and because
      we
      operated as a shell company prior to the acquisition of IBC and AppState, our
      independent certified public accountants modified their report on the March
      31,
      2006 financial statements to include an uncertainty paragraph wherein they
      expressed substantial doubt about our ability to continue as a going
      concern.





Our
      business plan requires the acquisition of additional ISPs. We anticipate that
      the funds spent on these acquisitions will need to increase significantly. Additionally,
      we may not be able to secure funding in the future necessary to complete
      these acquisitions.





These
      conditions give rise to substantial doubt about our ability to continue as a
      going
      concern. Our financial statements do not include adjustments relating to the
      recoverability and classification of reported asset amounts or the amount and
      classification of liabilities that might be necessary should we be unable to continue
      as a going concern. Our continuation as a going concern is dependent upon
      our
      ability to obtain additional financing from the sale of our securities, as
      may be
      required, and ultimately to attain profitability.





We
      have
      relied almost entirely on external financing to fund our operations and acquisitions
      to date. Such financing has historically come from a combination of borrowings
      from and sale of common stock to third parties. Over the next twelve months
      we
      anticipate that we will need to raise additional capital to fund acquisitions.
      We anticipate that these additional funds will be in the range of $2,000,000
      to $5,000,000, depending on the pace and size of our acquisitions. We cannot
      assure you that financing, whether from external sources or related parties,
      will be available if needed or on favorable terms. The sale of our common
      stock to raise capital may cause dilution to our existing shareholders. If
      additional financing is not available when required or is not available on acceptable
      terms, we may be unable to fund our operations and expansion, successfully
      promote our brand name, products or services, take advantage of business
      opportunities or respond to competitive market pressures, any of which could
      make it more difficult for us to continue operations.




12





**WE
      REQUIRE IMMEDIATE ADDITIONAL CAPITAL.**





Our
      operating plan for the following twelve months is focused on the acquisition of
      ISPs.
      It is our estimate that a cash requirement of $2,000,000 to $5,000,000 is
      required to support this plan for the next twelve months. During the year ended
      March 31, 2006, we received an aggregate of $800,000 from the issuance of common
      stock. During the six months ended September 30, 2006 we received nothing from
      the issuance of common stock. We are actively seeking additional funding. There
      can be no assurance that the required additional financing will be available
      on
      terms favorable to us or at all.





Obtaining
      capital will be challenging in a difficult environment, due to the downturn
      in the United States economy and current world instability. We currently
      have no commitments for any funding, and there can be no assurance that
      we
      will be able to obtain additional funding in the future from either debt or
      equity
      financings, bank loans, collaborative arrangements or other sources on terms
      acceptable to us, or at all.





If
      adequate funds are not available or are not available on acceptable terms when
      required, we may be required to significantly curtail our operations or may not
      be
      able to fund expansion, take advantage of acquisition opportunities, develop
      or enhance services or products or respond to competitive pressures. Such
      inability could have a material adverse effect on our business, results
      of operations and financial condition. If additional funds are raised through
      the issuance of equity or convertible debt securities, the percentage ownership
      of our shareholders will be reduced, shareholders may experience additional
      dilution, and such securities may have rights, preferences and privileges
      senior to those of our common stock.





WE
      MAY
      NOT BE SUCCESSFUL IN INTEGRATING THE MANAGEMENT TEAMS OF IBC WIRELESS, APPSTATE
      AND FUTURA, WHICH COULD ADVERSELY AFFECT THE LEADERSHIP OF OUR COMPANY, DIVERT
      MANAGEMENT TIME AND ADVERSELY AFFECT THE BUSINESS AND RESULTS OF
      OPERATIONS.





Failure
      to successfully integrate the management teams of the three companies could
      divert management time and resources, which would adversely affect our operations.





WE
      ARE AN
      EARLY STAGE COMPANY AND OUR STRATEGY IS UNPROVEN.





We
      intend
      to pursue additional acquisitions to further the development of our internet
      services business. Our strategy is unproven and the revenue and income potential
      from our strategy is unproven. We will encounter risks and difficulties
      frequently encountered by early-stage companies in new and rapidly changing
      markets, including the risks described elsewhere in this section. Our business
      strategy may not be successful and we may not be able to successfully address
      these risks. In addition, because of our limited operating history, we have
      limited insights into trends that may emerge and affect our
      business.




13





IF
      WE ARE
      NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE INTERNET SERVICE
      PROVIDER AND WIRELESS COMMUNICATIONS INDUSTRIES WE MAY BE FORCED TO REDUCE
      OR
      CEASE OPERATIONS.





The
      wireless communications industry has experienced consolidation of participants,
      and this trend may continue. If wireless carriers consolidate with companies
      that utilize technologies that are similar to or compete with our wireless
      technology, our proportionate share of the emerging market for wireless technologies
      may be reduced or eliminated. This reduction or elimination of our market
      share could reduce our ability to obtain profitable operations and could even
      cause us to reduce or cease operations. We believe that our ability to compete
      successfully in the Internet services market depends on a number of factors,
      including market presence; the adequacy our member and technical support
      services; the capacity, reliability and security of our network infrastructure;
      the ease of access to and navigation of the Internet provided
      by our services; our pricing policies, our competitors and suppliers; the timing
      of introductions of new services; our ability to support existing and emerging
      industry standards; and industry and general economic trends. There can be
      no
      assurance that we will have the financial resources, technical expertise or
      marketing and support capabilities to compete successfully.





WE
      MAY
      NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, WHICH COULD RENDER
      OUR PRODUCTS AND PROCESSES OBSOLETE.





The
      wireless communications industry is characterized by rapid technological change,
      changes in customer requirements and preferences, frequent introduction of
      products and services embodying new technologies and the emergence of new industry
      standards and practices that could render our existing technology and systems
      obsolete. Our future success will depend on our ability to enhance and improve
      the responsiveness, functionality, accessibility and features of our products.
      We expect that our marketplace will require extensive technological


upgrades
      and enhancements to accommodate many of the new products and services that
      we
      anticipate will be added to our marketplace. We cannot assure you that we
      will
      be able to expand and upgrade our technology and systems, or successfully
      integrate new technologies or systems we develop in the future, to accommodate
      such increases in a timely manner.





OUR
      BUSINESS REVENUE GENERATION MODEL IS UNPROVEN AND COULD FAIL.





Our
      revenue model is new and evolving, and we cannot be certain that it will be successful.
      Our ability to generate revenue depends, among other things, on our ability
      to provide quality internet connectivity and services to our customers. Our
      success is largely dependent upon our ability to successfully integrate and manage
      our acquisitions. Accordingly, we cannot assure you that our business model
      will be successful or that we can sustain revenue growth or achieve or sustain
      profitability.





WE
      MAY
      NOT EFFECTIVELY MANAGE THE GROWTH NECESSARY TO EXECUTE OUR BUSINESS PLAN, WHICH
      COULD ADVERSELY AFFECT THE QUALITY OF OUR OPERATIONS AND OUR COSTS.





In
      order
      to achieve the critical mass of business activity necessary to successfully
      execute our business plan, we must significantly increase the number
      of
      strategic partners and customers that use our technology. This growth will
      place significant strain on our personnel, systems and resources. We also expect
      that we will continue to hire employees, including technical, management-level
      employees, and sales staff for the foreseeable future. This growth
      will require us to improve management, technical, information and accounting
      systems, controls and procedures. We may not be able to maintain the quality
      of our operations, control our costs, continue complying with all applicable
      regulations and expand our internal management, technical information and
      accounting systems in order to support our desired growth. We cannot be sure that
      we
      will manage our growth effectively, and our failure to do so could cause us
      to
      reduce or cease operations.




14





OUR
      BUSINESS DEPENDS ON THE GROWTH AND MAINTENANCE OF THE INTERNET INFRASTRUCTURE.





Our
      success will depend on the continued growth and maintenance of the internet infrastructure.
      This includes maintenance of a reliable network backbone with the
      necessary speed, data capacity and security for providing reliable internet services.
      Internet infrastructure may be unable to support the demands placed on it
      if the
      number of internet users continues to increase, or if existing or future
      internet users access the internet more often or increase their bandwidth requirements.
      In addition, viruses, worms and similar programs may harm the performance
      of the internet. The internet has experienced a variety of outages and
      other
      delays as a result of damage to portions of its infrastructure, and
      it


could
      face outages and delays in the future. These outages and delays could reduce
      the level of internet usage as well as our ability to provide our solutions.
      Additionally, for many of our customers we rely upon ILECs to assist in
      provisioning T-1 and dial-up lines. In the event that these ILECs are unable or
      unwilling to provide service, our ability to service existing customers or add
      new
      customers could be impaired.





WE
      MAY
      NOT BE ABLE TO ATTRACT OR RETAIN QUALIFIED PERSONNEL.




Our
      future success also depends on our ability to identify, attract, hire, retain
      and motivate well-qualified managerial, technical, sales and marketing personnel.
      There can be no assurance that these professionals will be available in
      the
      market or that we will be able to meet their compensation
      requirements.





WE
      MAY
      FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS.





We
      believe that the establishment of strategic partnerships will greatly benefit the
      growth of our business, and we intend to seek out and enter into strategic alliances.
      We may not be able to enter into these strategic partnerships on commercially
      reasonable terms or at all. Even if we enter into strategic alliances,
      our partners may not attract significant numbers of customers or otherwise
      prove advantageous to our business. Our inability to enter into new distribution
      relationships or strategic alliances could have a material and adverse
      effect on our business.





SHARES
      ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR
      STOCK
      PRICE.





To
      date,
      we have had a very limited trading volume in our common stock. As long as
      this
      condition continues, the sale of a significant number of shares of common
      stock at any particular time could be difficult to achieve at the market prices
      prevailing immediately before such shares are offered. In addition, sales of
      substantial amounts of common stock, including shares issued upon the exercise
      of outstanding options and warrants, under Securities and Exchange Commission
      Rule 144 or otherwise could adversely affect the prevailing market price
      of
      our common stock and could impair our ability to raise capital at that time
      through the sale of our securities.





OUR
      COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE; OUR COMMON STOCK IS "PENNY
      STOCK".





The
      market price of our common stock is likely to be highly volatile as the stock
      market in general, and the market for technology companies in particular, has
      been
      highly volatile. The trading prices of many technology companies' stocks
      have recently been highly volatile and have recorded lows well below historical
      highs.





Factors
      that could cause such volatility in our common stock may include, among other
      things:




15





-
      actual
      or anticipated fluctuations in our quarterly operating results;





-
      announcements of technological innovations;





-
      changes
      in financial estimates by securities analysts;





-
      conditions or trends in our industry; and





-
      changes
      in the market valuations of other comparable companies.





In
      addition, our stock is currently traded on the NASD O-T-C Bulletin Board and it
      is
      uncertain that we will be able to successfully apply for listing on the AMEX,
      the
      NASDAQ National Market, or the Nasdaq SmallCap Market in the foreseeable
      future due to the trading price of our common stock, our working capital
      and revenue history. Failure to list our shares on the AMEX, the Nasdaq National
      Market, or the Nasdaq SmallCap Market will impair the liquidity of our common
      stock.





The
      Securities and Exchange Commission has adopted regulations which generally define
      a
      "penny stock" to be any security that 1) is priced under five dollars, 2)
      is not
      traded on a national stock exchange or on NASDAQ, 3) may be listed in the
      "pink
      sheets" or the NASD OTC Bulletin Board, 4) is issued by a company that has
      less
      than $5 million in net tangible assets and has been in business less than
      three years, or by a company that has under $2 million in net tangible assets
      and has been in business for at least three years, or by a company that has
      revenues of less than $6 million for three years.





Penny
      stocks can be very risky: penny stocks are low-priced shares of small companies
      not traded on an exchange or quoted on NASDAQ. Prices often are not available.
      Investors in penny stocks are often unable to sell stock back to the dealer
      that sold them the stock. Thus an investor may lose his/her investment. Our
      common stock is a "penny stock" and thus is subject to rules that impose additional
      sales practice requirements on broker/dealers who sell such securities
      to persons other than established customers and accredited investors, unless
      the common stock is listed on The Nasdaq SmallCap Market. Consequently, the
      "penny stock" rules may restrict the ability of broker/dealers to sell our securities,
      and may adversely affect the ability of holders of our common stock to
      resell
      their shares in the secondary market.





SOME
      OF
      THE INFORMATION IN THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS.





Some
      of
      the information in this Quarterly Report contains forward-looking statements
      that involve substantial risks and uncertainties. You can identify these
      statements by forward-looking words such as "may", "will", "expect", "intend",
      "anticipate", "believe", "estimate" and "continue" or similar words. You
      should read statements that contain these words carefully because
      they:





-
      discuss
      our expectations about our future performance;





-
      contain
      projections of our future operating results or of our future financial
      condition; or





-
      state
      other "forward-looking" information.




16





We
      believe it is important to communicate our expectations to our shareholders. There
      may
      be events in the future, however, that we are not able to predict accurately
      or over which we have no control. The risk factors listed in this section,
      as well as any cautionary language in this Report, provide examples of risks,
      uncertainties and events that may cause our actual results to differ materially
      from the expectations we describe in our forward- looking statements. Before
      you invest in our common stock, you should be aware that the occurrence of
      any of
      the events described in these risk factors and elsewhere in this Report
      could have a material and adverse effect on our business, results of operations
      and financial condition and that upon the occurrence of any of these events,
      the trading price of our common stock could decline and you could lose all
      or
      part of your investment.




**ITEM
      3. CONTROLS AND PROCEDURES**




The
      Company maintains controls and procedures designed to ensure that information
      required to be disclosed in this report is recorded, processed, accumulated
      and
      communicated to our management, including our chief executive officer and our
      chief financial officer, to allow timely decisions regarding the required
      disclosure.





The
      management of the Company has evaluated the effectiveness of the issuer’s
      disclosure controls and procedures as of the end of the period of the report
      (evaluation date) and have concluded that the disclosure controls internal
      controls and procedures are adequate and effective based upon their evaluation
      as of the evaluation date.





There
      were no changes in the small business issuer’s internal controls over financial
      reporting identified in connection with the company evaluation required by
      paragraph (3) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred
      during the small business issuer’s fourth fiscal quarter that has materially
      affected or is reasonably likely to materially affect the small business
      issuer’s internal control over financial reporting.




**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**




On
      December 1, 2004, a judgment was entered against Internet Ventures, Inc., our predecessor
      company, in favor of Catherine and Joe Santistevan in the amount of $1,367,500
      (Case No. CV022344). The Santistevans filed the suit against Internet Ventures,
      Inc. to enforce obligations under a promissory note issued by Internet Ventures,
      Inc. in August 2000. After discussions with legal counsel, we believed the
      amount of the judgment would be mitigated in a full hearing on the matter,
      which
      we intended to vigorously pursue. We currently have $459,755 recorded in notes
      and notes interest payable, and a contingent liability in the amount of $934,136
      has been established. On July 14, 2005, we received notice from the Superior
      Court of San Joaquin County, Stockton, California that the motion to set aside
      the default judgment was denied. That decision was appealed. In addition, our
      legal counsel is currently in negotiations with plaintiff’s counsel to settle
      the matter amicably.




17





On
      September 30, 2006 a confidential Settlement Agreement and Release was entered
      by and among Joe and Catherine Santistevan (“Santistevans”) and IVI
      Communications, Inc., successor in interest defendant Internet Ventures, Inc.,
      to set aside the default judgment entered against Internet Ventures, Inc. in
      the
      amount of $1,367,500. Under the terms of the agreement IVI Communications will
      pay the Santistevans a total four hundred and fifty thousand dollars ($450,000),
      to settle a claim of $1,367,500. If IVI Communications, Inc. defaults on the
      agreement a judgment would be entered by stipulation in the amount of
      $1,367,500.





We
      have
      six default judgments against us for a total amount of $135,367. Four of these
      judgments have settlements in place with total aggregate balances of $57,778.
      The amounts are recorded in accounts payable. We are currently not performing
      under the terms of the settlements.





On
      October 19, 2005, a complaint was erroneously served on IVI Communications, Inc.,
      fka
      Internet Ventures, Inc. by Annette S. Paoletti, as Successor Trustee of
      the
      Clare P. and Evelyn B. McEnerney Family Trust, for unspecified damages resulting
      from the delinquent payment of principal and interest on a note payable
      from Internet Ventures, Inc. IVI Communications, Inc. has contested this complaint.
      A note payable and accrued interest in the amount of $255,730 is recorded in
      notes payable and interest on notes payable. Our counsel has answered the
      complaint and in addition is currently in negotiations with plaintiff’s counsel
      to settle the matter amicably.





On
      June
      14, 2006, the Company was notified of a Demand for Arbitration to obtain
      judgment on a settlement default of $28,000. This amount is recorded in accounts
      payable. The default of $28,000 was settled for 280,000 shares of common stock
      and is recorded as a liability for stock payable.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




On
      August
      8, 2006, the Company issued 14,764,413 unregistered shares of common stock
      to
      Big Apple Consulting for consulting services. Exhibit 10.29 is incorporated
      by
      reference to the exhibits filed in the Company’s Form 8-K filed September 15,
      2006.





On
      October 10, 2006 we issued 280,000 shares of unregistered common stock valued
      at
      $13,720 in settlement of an outstanding judgement. These were recorded as stock
      payable at September 30, 2006.





On
      November 2, 2006 we issued an aggregate of 1,200,000 shares of unregistered
      common stock to consultants as compensation for services valued at $61,200.
      These were recorded as stock payable at September 30, 2006.





Each
      of
      the above issuances of common stock were exempt from registration pursuant
      to
      Section 4(2) of the Securities Act of 1933.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




There
      were no defaults in the payment of any undisputed indebtedness during the period
      of
      this report.




18




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER**





No
      matters were submitted to a vote of security holders during the period of this
      report.




**ITEM
      5. OTHER INFORMATION.**




**SUBSEQUENT
      EVENTS**





On
      October 4, 2006, IVI Communications held its annual shareholder
      meeting.





By
      vote
      of a majority of the issued and outstanding shares of IVI Communications common
      and preferred stock as of the date of record for the Annual Meeting of the
      shareholders Nyhl Henson and Charles Roodenburg were elected as Directors to
      hold office until the next annual meeting of stockholders or until their
      respective successors have been elected and qualified.





By
      vote
      of a majority of the issued and outstanding shares of IVI Communications common
      and preferred stock as of the date of record for the Annual Meeting of the
      shareholders the Articles of Incorporation were amended to increase the
      Company's authorized shares of common stock to four hundred million shares
      and
      to approve the Amendment of the Articles of Incorporation to increase the
      authorized capital from 100,000,000 to 400,000,000 common shares.





By
      vote
      of a majority of the issued and outstanding shares of IVI Communications common
      and preferred stock as of the date of record for the Annual Meeting of the
      shareholders the Articles of Incorporation were amended to amend the Articles
      of
      Incorporation to allow shareholder action by written consent of a majority
      of
      common shareholders pursuant to Nevada Revised Statute 78.320(2).





By
      vote
      of a majority of the issued and outstanding shares of IVI Communications common
      and preferred stock as of the date of record for the Annual Meeting of the
      shareholders the appointment of Bagell, Josephs, Levine & Company, L.L.C.
      was ratified as the independent accountants for the period ending March 31,
      2007





On
      October 17, Cornell submitted a Notice of Conversion to convert $10,000 of
      the
      Debenture for which the Company has issued 444,444 of its registered common
      shares at a conversion price per share of $.0225.





On
      November 9, Cornell submitted a Notice of Conversion to convert $20,000 of
      the
      Debenture for which the Company has issued 1,388,889 of its registered common
      shares at a conversion price per share of $.0144.




19


**SIGNATURES**








In
      accordance with the requirements of the Exchange Act, the registrant caused this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.




**IVI
              COMMUNICATIONS, INC.**Date: November
              20, 2006
            By:
            /s/ Nyhl
              HensonNyhl Henson
              Chief Executive
                Officer


**COMPANY
              NAME CORPORATION**Date: November
              20, 2006
            By:
            /s/ Charles
              RoodenburgCharles Roodenburg
              Chief Financial
                Officer






20