**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 **December 31, 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 December
      31, 2006 was 83,350,161.









**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 December 31, 2006
            F-1Condensed
              Consolidated Statements of Operations for the Nine
              Months and Three Months Ended December 31, 2006 and 2005
            F-2Condensed Consolidated
              Statements of Cash Flows for the Nine
              Months Ended December 31, 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




2




**PART
      I - FINANCIAL INFORMATION**






ITEM
      1. FINANCIAL
      STATEMENTS








**IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2006 AND 2005**
 
 **(UNAUDITED)**
      3
  **IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **INDEX
          TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
          31, 2006 AND 2005**
 **(UNAUDITED)**
  **Page**Condensed
                    Consolidated Balance Sheet as of December 31, 2006
                    (Unaudited)
                F-1Condensed
                    Consolidated Statements of Operations for the Nine Months and
                    Three Months
                  Ended
                    December 31, 2006 and 2005 (Unaudited)
                F-2Condensed
                    Consolidated Statements of Cash Flows for the Nine Months Ended
                  December
                    31, 2006 and 2005 (Unaudited)
                F-3Notes
                    to Condensed Consolidated Financial Statements (Unaudited)
                F-4
 4


**IVI
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **(UNAUDITED)**


**DECEMBER
        31, 2006**




**ASSETS****2006****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              243,431Accounts
                  receivable, net of allowance $39,610
              
              
              240,606Inventory
              
              
              95,305Other
                  current assets
              
              
              24,905**Total
                  current asset**
              
              
              604,247Fixed
                  Assets, net of $63,785 in accumulated depreciation
              
              
              88,385**OTHER
                  ASSETS**Goodwill,
                  net of impairment
              
              
              4,112,4824,112,482**TOTAL
                  ASSETS**
              
              $
              4,805,114**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)****CURRENT
                  LIABILITIES**Current
                  portion of notes payable
              
              $
              471,311Accounts
                  payable and accrued liabilities
              
              
              2,986,774Current
                  portion of obligations under capital lease
              
              
              43,930Acquisition
                  contracts
              
              
              125,000Litigation
                  Settlement
              
              
              449,375Deferred
                  revenue
              
              
              9,590Liability
                  for stock payable
              
              
              157,500Derivative
                  liability
              
              
              14,159Convertible
                  debentures, net of discount $149,999
              
              
              429,251**Total
                  current liabilities**
              
              
              4,686,890**LONG-TERM
                  LIABILITIES**Convertible
                  debentures, long term
              
              
              600,000Obligations
                  under capital lease, net of current portion
              
              
              37,481Loan
                  payable officer
              
              
              378,023**Total
                  long-term liabilities**
              
              
              1,015,504**TOTAL
                  LIABILITIES**
              
              
              5,702,394**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS'
                  (DEFICIT)**Preferred
                  stock, $.001 par value; 5,000,000 shares authorized;4,000,000
                  issued and outstanding
              
              
              4,000Common
                  stock, $.001 par value; 400,000,000 shares authorized;83,350,161
                  issued and outstanding
              
              
              83,349Prepaid
                  Consulting Fees
              
              
              (580,207
              )Additional
                  paid-in capital
              
              
              25,214,451Additional
                  paid-in capital - warrants
              
              
              154,255Accumulated
                  deficit
              
              
              (25,773,128
              )**Total
                  stockholders' (deficit)**
              
              
              (897,280
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' (DEFICIT)**
              
              $
              4,805,114







**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 NINE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 2006 AND
        2005**
  **NINE
                  MONTHS ENDED**
              
              **THREE
                  MONTHSENDED****DECEMBER
                  31**
              
              **DECEMBER
                  31****2006**
              
              **2005**
              
              **2006**
              
              **2005****OPERATING
                  REVENUE**
              
              $
              1,703,296
              
              $
              2,075,450
              
              $
              584,586
              
              $
              633,350**COST
                  OF OPERATIONS**
              
              
              1,123,591
              
              
              1,395,810
              
              
              351,409
              
              
              432,639**GROSS
                  PROFIT**
              
              
              579,705
              
              
              679,640
              
              
              233,177
              
              
              200,711**OPERATING
                  EXPENSES**Selling
              
              
              12,362
              
              
              322,624
              
              
              5,270
              
              
              309,068General
                  and administrative
              
              
              1,566,374
              
              
              2,822,899
              
              
              628,977
              
              
              1,736,636Depreciation
              
              
              87,841
              
              
              17,740
              
              
              29,515
              
              
              3,870**Total
                  operating expenses**
              
              
              1,666,577
              
              
              3,163,263
              
              
              663,762
              
              
              2,049,574**OPERATING
                  (LOSS)**
              
              
              (1,086,872
              )
              
              (2,483,623
              )
              
              (430,585
              )
              
              (1,848,863
              )**OTHER
                  INCOME (EXPENSES)**Other
                  income
              
              
              1,032,913
              
              
              166,411
              
              
              0
              
              
              3Gain
                  on Revaluation of Derivatives
              
              
              202,158
              
              
              
              
              
              37,429Litigation
                  damages
              
              
              -
              
              
              (934,782
              )
              
              -
              
              
              0Other
                  expense
              
              
              (500
              )
              
              
              
              
              (500
              )Interest
                  expense
              
              
              (276,445
              )
              
              (221,900
              )
              
              (99,786
              )
              
              (93,978
              )Interest
                  income
              
              
              274
              
              
              
              
              
              63**Total
                  other income (expenses)**
              
              
              958,400
              
              
              (990,271
              )
              
              (62,794
              )
              
              (93,975
              )**(LOSS)
                  BEFORE PROVISION FOR INCOME TAXES**
              
              
              (128,472
              )
              
              (3,473,894
              )
              
              (493,379
              )
              
              (1,942,838
              )Provision
                  for income/Franchise taxes
              
              
              0
              
              
              10,332
              
              
              0
              
              
              10,332**NET
                  (LOSS) ATTRIBUTED TO COMMON SHAREHOLDERS**
              
              $
              (128,472
              )
              $
              (3,484,226
              )
              $
              (493,379
              )
              $
              (1,953,170
              )**NET
                LOSS PER BASIC AND DILUTED SHARES**Basic
                    and diluted from continuing operations
              
              $
              (0.00
              )
              $
              (0.06
              )
              $
              (0.01
              )
              $
              (0.03
              )**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**
              
              
              77,444,502
              
              
              62,229,731
              
              
              80,476,970
              
              
              60,823,582




**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 NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005**


**2006**
              
              **2005****CASH
                  FLOW FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              (128,472
              )
              $
              (3,484,226
              )**Adjustments
                  to reconcile net income (loss) to net cash****used
                  in operating activities:**Common
                  stock issued for services and compensation
              
              
              390,996
              
              
              2,143,824Beneficial
                  interest on debt conversion
              
              
              31,094
              
              
              -Depreciation
              
              
              37,841
              
              
              17,740Amortization
              
              
              50,001
              
              
              -Gain
                  on revaluation of derivatives
              
              
              (202,158
              )
              
              -**Changes
                  in assets and liabilities**Decrease
                  in accounts receivable, net
              
              
              82,200
              
              
              64,098(Increase)
                  decrease in inventory
              
              
              50,090
              
              
              (118,958
              )(Increase) 
                  in other current assets
              
              
              (6,281
              )
              
              (10,757
              )(Increase)
                  decrease in other assets
              
              
              6,513
              
              
              (13,859
              )Increase
                  in accounts payable and accrued liabilities
              
              
              314,594
              
              
              908,411(Decrease)
                  in contingent liability
              
              
              (484,761
              )
              
              -(Decrease)
                  in acquisition contracts
              
              
              (170,000
              )
              
              -(Decrease)
                  in deferred revenue
              
              
              (5,701
              )
              
              -Total
                  adjustments
              
              
              94,428
              
              
              2,990,499**Net
                  cash (used in) operating activities**
              
              
              (34,044
              )
              
              (493,727
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of fixed assets
              
              
              (34,907
              )
              
              (27,450
              )**Net
                  cash (used in) investing activities**
              
              
              (34,907
              )
              
              (27,450
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from convertible debentures
              
              
              401,000
              
              
              552,311Proceeds
                  from officer loans
              
              
              
              
              
              170,844Payments
                  on installment note payable & capital lease
                  obligations
              
              
              14,608
              
              
              (35,948
              )Payments
                  on note payable
              
              
              (296,000
              )
              
              (1,023,855
              )Payments
                  on officer loans
              
              
              (40,770
              )
              
              -Proceeds
                  from the issuance of common stock
              
              
              -
              
              
              768,747**Net
                  cash provided by financing activities**
              
              
              78,838
              
              
              432,099**NET
                  INCREASE (DECREASE) IN****CASH
                  AND CASH EQUIVALENTS**
              
              
              9,887
              
              
              (89,078
              )**CASH
                  AND CASH EQUIVALENTS -****BEGINNING
                  OF PERIOD**
              
              
              233,544
              
              
              124,071**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              243,431
              
              $
              34,993**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid during the period for:Interest
                  paid
              
              $
              6,582
              
              $
              2,345Income
                  taxes paid
              
              
              10,314
              
              
              7,715**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INFORMATION:**Common
                  stock issued for prepaid consulting fees, classified as
                  equity
              
              $
              580,207
              
              
              0Commn
                  stock issued for services and compensation
              
              $
              390,996
              
              
              2,143,824Common
                  stock (cancelled) for subscription receivable
              
              
              0
              
              
              (2,023,173
              )Common
                  stock issued for asset acquisition
              
              
              0
              
              
              2,574,312Debt
                  incurred for stock to be issued
              
              $
              157,500
              
              
              0




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


F-3




**IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 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-4
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
 
 **NOTE
        1-**  **ORGANIZATION
        AND BASIS OF PRESENTATION CONTINUED**
  On
        October 4, 2006, 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.
 
 **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 December 31, 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 December 31, 2006, the Company had $152,047 in excess of the
        insured limit.
  F-5
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
   **NOTE
        2-**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
  **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.
 
 **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 December 31, 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
  F-6
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
 
 **NO**  **NOTE
        2-** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
 
 **Equipment
        Continued**
 
 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 December 31, 2006 is
        $39,610.
 
 **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 EPS:
 
 **December
                  31**
              ****
              **December
                  31**
              ********
              ****
              **2006**
              ****
              **2005**Net
                  income (loss)
              
              $
              (128,472
              )
              $
              (3,484,226
              )Weighted-average
                  common sharesOutstanding
                  (Basic)
              
              
              77,444,502
              
              
              62,229,731Weighted-average
                  common stockEquivalentsStock
                  optionsWarrantsWeighted-average
                  common sharesOutstanding
                  (Diluted)
              
              
              77,444,502
              
              
              62,229,731
  F-7
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
  
 **NOTE
        2** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED**
 
 **Earnings
        (Loss) Per Share of Common Stock Continued**
 
 Options
        and warrants outstanding to purchase stock were not included in the computation
        of diluted EPS for December 31, 2006 because inclusion would have been
        antidilutive. At December 31, 2006 and 2005, there were 50,114,482 and 527,705
        warrants, and 0 and 84,000 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 December 31, 2006.
  **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.
  F-8
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
   **NOTE
        2** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
  **Stock-Based
        Compensation Continued**
 
 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.
 
 
 **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 December 31, 2006, the fair value of the derivatives
        was
        $14,159. A gain in revaluation of the derivative for the nine months ended
        December 31, 2006 was $202,158.
  **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,
  F-9
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        2-**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES** **(CONTINUED)**
 
 **Recent
        Accounting Pronouncements Continued**
 
 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.
 
 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.
 
 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
  F-10
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
  
 **NOTE
        2-**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES** **(CONTINUED)**
 
 **Recent
        Accounting Pronouncements Continued**
 
 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.
  **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
  F-11
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        3-**  **INSTALLMENT
        DEBT CONTINUED**
 
 the
        amounts still due under the agreements. The installment debt liability at
        December 31, 2006 is $0, as all amounts have been reclassified as accounts
        payable.
 
 Installment
        debt also consists of three subsidiary equipment leases, which are reflected
        in
        fixed assets. The liability is $81,411 at December 31, 2006, of which $43,930
        is
        current and $37,481 is due through fiscal 2010.
  **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 December 31, 2006, all amounts unpaid
        are overdue. As of December 31, 2006 the balance of the note payable was
        $462,311 and the accrued interest totaled $491,267. 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 19 of these payments and has a remaining balance of $100,000
        classified as a current liability under the caption, Acquisition Contracts.
        The
        Company is delinquent on the November and December 2006 payments.
 
 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. The Company is delinquent on the December 1, 2006
        payment.
 
 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.
 
 On
        December 22, 2006, the Company borrowed $4,000 on a Promissory Note with
        a
        maturity date of December 22, 2007. The note carries no interest.
  F-12
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
 **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 are due
        December 31, 2005. The conversion price is $.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 December
        31,
        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.
 
 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.
 
 The
        Company sold a security for $12,500 to one entity in September 2006. This
        debenture carries no interest and has a conversion rate of 50% discount to
        market of the ten day average closing bid price.
 
 The
        Company sold a security for $12,500 to one entity in October 2006. This
        debenture carries no interest and has a conversion rate of 50% discount to
        market of the ten day average closing bid price.
  F-13
 
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
  **NOTE
        5-**  **CONVERTIBLE
        DEBENTURES CONTINUED**
  **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.
 
 On
        October 17, 2006, the debenture holder converted $10,000 of principal for
        444,444 shares of common stock; the conversion price was $.0225, 90% of the
        lowest closing bid price of $.025 during the prior 30 days.
 
 On
        November 9, 2006, the debenture holder converted $20,000 of principal for
        1,388,889 shares of common stock; the conversion price was $.0144, 90% of
        the
        lowest closing bid price of $.016 during the prior 30 days.
 
 On
        December 20, 2006, the debenture holder converted $20,000 of principal for
        1,481,481 shares of common stock; the conversion price was $.0135, 90% of
        the
        lowest closing bid price of $.015 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
  F-14
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        5-**  **CONVERTIBLE
        DEBENTURES CONTINUED**
  **Derivative
        Liability Continued**
  
 issued
        and outstanding shares of Common Stock, including shares issuable upon
        conversion of, and payment of interest.
 
 In
        accordance with SFAS 133, *“Accounting
        for Derivative Instruments and Hedging Activities”* and EITF
        00-19, *“Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock”* ,
        the
        conversion feature associated with the $600,000 convertible debenture represents
        an embedded derivative. The Company had recognized the embedded derivative
        in
        the amount of $216,317 as a liability in the accompanying condensed consolidated
        balance sheet, and it is now measured it at its estimated fair value of $14,159.
        The estimated fair value of the embedded derivative has been calculated based
        on
        a Black-Scholes pricing model using the following assumptions:
 
 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 registrati 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
  F-15
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        5-**  **CONVERTIBLE
        DEBENTURES CONTINUED**
 
 **Derivative
        Liability Continued**
  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, 2006 the company issued stock at a market price of $.04. This increased
        the
        number of warrants from 3,500,000 to 30,000,000 at $.04 exercise
        price.
   On
        December 29, 2006 the company issued stock at a market price of $.0242. This
        increased the number of warrants from 30,000,000 to 49,586,777 at $.0242
        exercise price.
  As
        of
        March 31, 2006, the fixed freestanding warrants issued in connection with
        the
        $600,000 convertible debenture has been valued at $674,417 based on a
        Black-Scholes pricing model using the following assumptions:
  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
        $149,999.
 
 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.
  F-16
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        5-**  **CONVERTIBLE
        DEBENTURES CONTINUED**
 
 **Derivative
        Liability Continued**
 
 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.
 
 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.
 
 **NOTE
        6-**  **STOCKHOLDERS’
        DEFICIT**
 
 **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 December 31, 2006.
 
 There
        were no preferred stock transactions for the nine months ended December 31,
        2006.
 
 **Common
        Stock**
 
 As
        of
        December 31, 2006, the Company has 400,000,000 shares of common stock
        authorized, 83,350,161 issued and outstanding.
 
 For
        the
        nine months ended December 31, 2006 the following common stock was
        issued:
 
 August
        8,
        2006, 14,764,413 shares of unregistered common stock were issued to Big Apple
        Consulting in accordance with a contract for consulting services. A registration
        statement is required to be filed by December 12, 2006 to cover these shares.
        The registration statement has not yet been filed.
 
 On
        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.
  F-17
  **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
  **NOTE
        6-**  **STOCKHOLDERS’
        DEFICIT CONTINUED**
 
 **Common
        Stock Continued**
 
 On
        October 17, 2006, 280,000 shares of unregistered common stock were issued
        in
        settlement of a debt.
 
 On
        November 2, 2006, 200,000 and 1,000,000 shares of unregistered common stock
        were
        issued to two individuals for consulting services.
 
 On
        December 19, 2006 309,917 shares of unregistered common stock were issued
        to one
        individual for public relations services.
 
 On
        October 27, 2006, November 9, 2006, and December 20, 2006, 444,444, 1,388,889,
        and 1,481,481 shares respectively were issued to Cornell Capital Partners,
        LLC
        for conversion of $10,000, $20,000, and $20,000 respectively of the convertible
        debenture.
  **NOTE
        7-**  **GOING
        CONCERN**
 
 As
        shown
        in the accompanying consolidated financial statements the Company has sustained
        net operating losses for the nine months ended December 31, 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.
  F-18
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
 
 **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.
 
 At
        December 31, 2006, net deferred tax assets approximated the
        following:
  Deferred
                    tax assets
                
                $
                8,600,000Less:
                    valuation allowance
                
                
                (
                    8,600,000$
                -0-
  At
        December 31, 2006, the Company had accumulated deficits approximating
        $26,000,000 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 December 31, 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
  F-19
 **IVI
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(CONTINUED)**
 **DECEMBER
        31, 2006 AND 2005 (UNAUDITED)**
 
 
 **NOTE
        9-**  **LITIGATION/
        ARBITRATION (CONTINUED)**
  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.
 
 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 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
        $263,403 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. The default of $28,000
        was
        settled for 280,000 shares of common stock.
 
 **NOTE
        10-**  **SUBSEQUENT
        EVENTS**
 
 On
        January 23, 2007, the debenture holder converted $25,000 of principal for
        2,314,815 shares of common stock; the conversion price was $.0108, 90% of
        the
        lowest closing bid price of $.012 during the prior 30 days.


F-20




**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 December 31, 2006 Compared With Three Months Ended December 31,
      2005





Revenue
      for the three months ended December 31, 2006 was $584,586 compared to $633,350
      for the three months ended December 31, 2005. There was a decrease of $156,174
      in IBC equipment sales, a decrease in corporate consulting services of $20,000,
      offset by an increase in internet services provided by AppState.net of $9,860
      and sales of internet services for Futura, Inc. of $117,550. In consolidation,
      sales of $4,516 were eliminated in the three months ended December 31,
      2006.





IBC's
      revenue for the three months ended December 31, 2006 consisted of equipment
      sales of $373,249. AppState posted revenue for internet services of $61,786,
      consulting services of $8,239 and $662 in equipment sales for the three months
      ended December 31, 2006. Futura, Inc. posted sales for internet services of
      $117,550 for the three months ended December 31, 2006. The Company also received
      $23,100 as management and consulting fees.





Cost
      of
      operations for the three months ended December 31, 2006 were $351,409 compared
      to $432,639 for the three months ended December 31, 2005. This decrease was
      due
      to a reduction in equipment costs for IBC of $161,335, a reduction at
      AppState.net of $412 offset by an increase in costs of $80,517 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 $4,516 in equipment
      costs were eliminated in the three months ended December 31, 2006.





General
      and administrative expenses for the three months ended December 31, 2006 were
      $628,977 compared to $1,736,636 for the three months ended December 31, 2005.
      The largest component of expense for the three months ended December 31, 2006
      consisted of employee compensation of $248,297 and consulting fees of $257,876.
      There was a decrease in general and administrative expenses for the three months
      ended December 31, 2006 compared to the three months ended December 31, 2005,
      of
      which $1,156,474 was a decrease in consulting, professional and legal fees,
      offset by an increase of $48,815, 83% of which was Futura,Inc.




Selling
      expenses for the three months ended December 31, 2006 were $5,270, compared
      to
      selling expenses of $309,068 for the three months ended December 31, 2005.
      A
      decrease of $310,453 in corporate promotions was offset by an increase of $6,655
      in advertising and promotions at the subsidiaries.





Depreciation
      and amortization expense was $29,515 for the three months ended December 31,
      2006, compared to depreciation expense of $3,870 for the three months ended
      December 31, 2005. There was an increase of $5,737 in depreciation of equipment
      acquired at AppState.net and $3,241 at 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 ($430,585) in the three months ended December 31, 2006
      compared to the net operating loss of ($1,848,863) in the three months ended
      December 31, 2005.





The
      Company incurred a reduction of the gain on the revaluation of derivatives
      associated with the Cornell Capital LP debentures of $37,429 for the three
      months ended December 31, 2006.





The
      Company incurred interest expenses of $99,786 in the three months ended December
      31, 2006, compared to $93,978 for the three months ended December 31, 2005.
      This
      increase was due to additional interest on notes, debentures, and capital
      leases.





The
      Company had other income of $0 in the three months ended December 31, 2006,
      compared to $3 in the three months ended December 31, 2005; $63 interest income
      in the three months ended December 31, 2006 compared to $0 in the three months
      ended December 31, 2005; and $500 in other expenses in the three months ended
      December 31, 2006 compared to $0 in the three months ended December 31,
      2005





Due
      to
      the above factors, our net loss for the three months ended December 31, 2006
      decreased to ($493,379) compared to a net loss of ($1,942,838) for the three
      months ended December 31, 2005. Basic and diluted loss per share for the three
      months ended December 31, 2006 was ($0.01), compared to ($0.03) for the three
      months ended December 31, 2005.





Nine
      Months Ended December 31, 2006 Compared With Nine Months Ended December 31,
      2005





Revenue
      for the nine months ended December 31, 2006 was $1,703,296 compared to
      $2,075,450 for the nine months ended December 31, 2005. There was a decrease
      of
      $646,577 in IBC equipment sales, a decrease in corporate consulting services
      of
      $142,650, offset by an increase in internet services provided by AppState.net
      of
      $53,258 and sales of internet services for Futura, Inc. of $375,724. In
      consolidation, equipment sales of $11,909 were eliminated in the nine months
      ended December 31, 2006.




IBC's
      revenue for the nine months ended December 31, 2006 consisted of equipment
      sales
      of $1,052,055, consulting services of $3,072, and other services of $500.
      AppState posted revenue for internet services of $195,214, $11,041 in equipment
      sales and $8,299 in consulting services for the nine months ended December
      31,
      2006. Futura, Inc. posted sales for internet services of $375,724 for the nine
      months ended December 31, 2006. The Company also received $69,300 as management
      and consulting fees. In consolidation, equipment sales of $11,909 were
      eliminated in the nine months ended December 31, 2006.





Cost
      of
      operations for the nine months ended December 31, 2006 were $1,123,591 compared
      to $1,395,810, for the nine months ended December 31, 2005. This decrease was
      due to a reduction in equipment costs for IBC of $501,575, offset by an increase
      in costs at AppState.net of $10,887 and an increase of $230,315 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, $11,846 in equipment
      costs were eliminated in the nine months ended December 31, 2006.




7





General
      and administrative expenses for the nine months ended December 31, 2006 were
      $1,566,374 compared to $2,822,899 for the nine months ended December 31, 2005.
      The largest component of expense for the nine months ended December 31, 2006
      consisted of employee compensation of $714,477. There was a decrease in general
      and administrative expenses for the nine months ended December 31, 2006 compared
      to the nine months ended December 31, 2005, of which $1,226,328 was a decrease
      in consulting, professional and legal fees, $260,165 was a general decrease
      in
      expenses, offset by an increase of $39,535 in general expenses at AppState
      and
      $190,433, which was general and administrative expense for Futura.




Selling
      expenses for the nine months ended December 31, 2006 were $12,362, compared
      to
      selling expenses of $322,624 for the nine months ended December 31, 2005. A
      decrease of $318,167 in corporate promotions was offset by an increase of $7,905
      in advertising and promotions at the subsidiaries.





Depreciation
      and amortization expense was $87,841 for the nine months ended December 31,
      2006, compared to depreciation expense of $17,740 for the nine months ended
      December 31, 2005. There was an increase of $20,100 in depreciation of equipment
      acquired at AppState.net and Futura, Inc. There was $50,001 in amortization
      for
      the discount on debt associated with the Cornell Capital LP
      debentures.





The
      net
      operating loss was ($1,086,872) for the nine months ended December 31, 2006
      compared to a net operating loss of ($2,483,623) for the nine months ended
      December 31, 2005.





The
      Company incurred interest expenses of $276,445 in the nine months ended December
      31, 2006, compared to $221,900 for the nine months ended December 31, 2005.
      This
      increase was due to additional interest on notes, debentures, and capital
      leases.





The
      Company had interest income in the nine months ended December 31, 2006 in the
      amount of $274, compared to $0 in the nine months ended December 31,
      2005.





The
      Company incurred a gain on the revaluation of derivatives associated with the
      Cornell Capital LP debentures of $202,158 for the nine months ended December
      31,
      2006.





The
      Company had other income of $1,032,913 in the nine months ended December 31,
      2006, compared to $166,411 in the nine months ended December 31, 2005. In the
      nine months ended December 31, 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 loss for the nine months ended December 31, 2006
      increased to ($128,472) compared to a net loss of ($3,473,894) for the nine
      months ended December 31, 2005. Basic and diluted loss per share for the nine
      months ended December 31, 2006 was $.00, compared to a loss of ($0.06)per share
      for the nine months ended December 31, 2005.




8




**LIQUIDITY
      AND CAPITAL RESOURCES**




In
      the
      nine months ended December 31, 2006, we continued to spend cash to fund our
      operations. Cash used by operating activities for nine months ended December
      31,
      2006 equaled $34,044, and consisted of a net loss of $128,472, common stock
      issued for services of $390,996, a gain on revaluation of derivatives in the
      amount of $202,158, an increase in depreciation and amortization of $87,842,
      a
      beneficial interest gain of $31,094, an increase in accounts payable and accrued
      liabilities of $314,594, a decrease in inventory of $50,090, a decrease in
      accounts receivable of $82,200, an increase in other current assets of $6,281,
      a
      decrease in other assets of $6,513, a decrease in contingent liability of
      $484,761,a decrease in acquisition contracts of $170,000, and a decrease in
      deferred revenue of $5,701. For the comparable period in 2005, cash used by
      operating activities equaled $493,727 and consisted of a net loss of $3,484,226,
      common stock issued for services and compensation of $2,143,824, an increase
      in
      depreciation of $17,740, a decrease in accounts receivable of $64,098, an
      increase in inventory of $118,958, an increase in other current assets of
      $10,757, an increase in other assets of $13,859, and an increase in accounts
      payable and accrued liabilities of $908,411.





We
      used
      net cash of $34,907 in investing activities for the nine months ended December
      31, 2006 for the purchase of fixed assets at AppState. For the comparable period
      in 2005, net cash of $27,450 was used for the purchase of fixed
      assets.





Cash
      flow
      from financing activities for the nine months ended December 31, 2006 produced
      a
      net increase in cash of $78,838 consisting of $401,000 in proceeds from
      convertible debentures, a $14,608 increase in capital leases, offset by $296,000
      in payments on notes payable, and $40,770 payment on officer loans. Cash flow
      from financing activities for the nine months ended December 31, 2005 produced
      a
      net increase in cash of $432,099 which resulted from $552,311 in proceeds from
      convertible debentures, $170,844 proceeds from officer loans, $768,747 in
      proceeds from issuance of common stock, offset by $35,948 payments on
      installment debt and $1,023,855 in payments on notes payable.





As
      of
      December 31, 2006, we had cash and cash equivalents amounting to $243,431 an
      increase of $9,887 from the balance at March 31, 2006. Our working capital
      deficit decreased to $ 4,082,642
      at December 31, 2006 from $4,832,575 at March 31, 2006.





As
      of
      December 31, 2006, we had an accumulated operating deficit of ($25,773,128)
      and
      stockholders' deficit of ($897,280).





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.




9





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.





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 three months ended December 31, 2006 Cornell has submitted Notices of
      Conversion to convert $50,000 of the Debenture for which the Company has issued
      3,314,814 of its registered common shares at a weighted average conversion
      price
      per share of $.0124.





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.
      This
      adjusted the number of shares for the Cornell five-year warrants to
      30,000,000.




On
      December 19, 2006 the company issued 309,917 shares of common stock at a market
      price of $.0242. This increased the number of warrants from 30,000,000 to
      49,586,777 at $.0242 exercise price.




10




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.





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.





On
      September 25, 2006, the Company issued a convertible debenture in the amount
      of
      $12,500. The debenture carries no interest, and is convertible at a 50% discount
      to market of the ten day average closing bid price.





On
      October 23, 2006, the Company issued a convertible debenture in the amount
      of
      $12,500. The debenture carries no interest, and is convertible at a 50% discount
      to market of the ten day average closing bid price.





On
      December 22, 2006, the Company borrowed $4,000 on a Promissory Note with a
      maturity date of December 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 nine months
      ended December 31, 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.




11





The
      Company agreed 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
      agreed to deposit 12,164,413 shares of common stock in an escrow account with
      J.
      Bennett Grocock, Esq., an 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.




This
      agreement is currently in default.




**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 $493,379 for the three months ended December 31, 2006.
      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.




12





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.





**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 nine months ended December 31, 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.**




13





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.





IF
      WE ARE
      NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE INTERNETSERVICE
      PROVIDER AND WIRELESS COMMUNICATIONS INDUSTRIES WE MAY BE FORCED TOREDUCE
      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 COULDRENDER
      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.




14





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.
  **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.**
  15
  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:
  ·
              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.
  16
  **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. 
 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.
  17
  ***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.
  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 $263,403 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.
  **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.
  18
  On
          October 10, 2006 we issued 280,000 shares of unregistered common stock
          valued at
          $13,720 in settlement of an outstanding judgment.
  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.
  On
          December 19, 2006 we issued 309,917 shares of unregistered common stock
          valued
          at $7,500 for public relations services.
 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.
  **ITEM
          4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER**
  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
  19
  **ITEM
          5. OTHER INFORMATION.**
  **SUBSEQUENT
          EVENTS**
  On
          January 23, 2007, Cornell submitted a Notice of Conversion to convert $25,000
          of
          the Debenture for which the Company has issued 2,314,815 of its registered
          common shares at a conversion price per share of $.0108.
  On
          January 29, 2007, the Company issued 3,500,000 shares of unregistered stock
          for
          a consulting contract valued at $157,500 which was recorded as stock
          payable.
  On
          February 5, 2007, the Company issued 4,449,332 shares of common stock in
          partial
          payment of a promissory note.
  On
          February 6, 2007, the Company issued 4,260,789 shares of common stock in
          partial
          payment of a promissory note.
  On
          February 9, 2007, Cornell submitted a Notice of Conversion to convert $20,000
          of
          the Debenture for which the Company has issued 2,222,222 of its registered
          common shares at a conversion price per share of $.009.
   **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**Date: February
                  14, 2007
                By:
                /s/ Nyhl
                  HensonNyhl Henson
                  Chief
                    Executive Officer  **IVI
                  COMMUNICATIONS**Date: February
                  14, 2007
                By:
                /s/ Charles
                  RoodenburgCharles Roodenburg
                  Chief
                    Financial Officer
 
 20