**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**









**(Mark
      One)**


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




**OR**




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




Commission
      file number**000-29587**




**IBSG
      INTERNATIONAL, INC.**


(Name
      of
      small business issuer in its charter)




****


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






**1132
      Celebration Blvd., Celebration, FL 34747**


(Address
      and Zip Code of Principal Executive Offices)




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




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


**None**




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


**Common
      Stock, $0.001 par value per share**


**(Title
      of Class)**




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





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




As
      of
      November 12, 2006, there were 6,997,436 shares of the registrant's common
      stock outstanding.


-1-


**IBSG
      INTERNATIONAL, INC.**





**Part
      I. Financial Information**




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




(a)
              Consolidated
                  Balance Sheets as of September 30, 2006
                  (unaudited)


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





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





(d)
            Notes
                to Consolidated Financial Statements
                (unaudited)




Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operation




Item
      3. Controls and Procedures




**Part
      II. Other Information**





Item
      1. Legal Proceedings




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




Item
      3. Defaults upon Senior
      Securities




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




Item
      5. Other
      Information




Item
      6.
      Exhibits




Signatures










-2-


PART
      I
      FINANCIAL INFORMATION





General





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









**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




**September
      30, 2006**


**(Unaudited)**








-3-






**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Balance Sheet


(Unaudited)








ASSETS




CURRENT
                ASSETS
            
            
            **September
                30, 2006**Cash
            
            $
            1,121,311Accounts
                receivable
            
            
            11,680,000Prepaid
                expenses
            
            
            493,483Total
                Current Assets
            
            
            13,294,794FURNITURE,
                FIXTURES AND SOFTWARE, NET
            
            
            716,075OTHER
                ASSETSAccount
                receivable - Long term
            
            
            3,000,000Deposits
            
            
            4,164Deferred
                Consulting Services
            
            
            3,850,695Goodwill
            
            
            38,000Total
                Other Assets
            
            
            6,892,859TOTAL
                ASSETS
            
            $
            20,903,728


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




-4-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Balance Sheet (Continued)


(Unaudited)







LIABILITIES
      AND STOCKHOLDERS’ EQUITY




CURRENT
                LIABILITIES
            
            **September
                30, 2006**Accounts
                payable and accrued expenses
            
            $
            378,821Accrued
                tax provision
            
            
            1,158,202Deferred
                revenue
            
            
            2,095,824Capital
                leases payable
            
            
            5,374Total
                Current Liabilities
            
            
            3,638,221COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS’
                EQUITYCommon
                stock authorized 100,000,000 shares at $0.001par
                value; 7,017,519 shares issued and outstanding
            
            
            7,017Additional
                paid-in capital
            
            
            16,114,755Retained
                Earnings
            
            
            1,143,735Total
                Stockholders’ Equity
            
            
            17,265,507TOTAL
                LIABILTIES AND STOCKHOLDERS’ EQUITY
            
            $
            20,903,728


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


-5-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Statements of Operations


(Unaudited)





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**(Restated
                Note 5)
            
            
            
            (Restated
                  Note 5)**Sales**
            
            $
            2,798,686
            
            $
            1,379,537
            
            $
            7,516,378
            
            $
            3,819,018**Cost
                of Sales**
            
            
            68,042
            
            
            119,162
            
            
            204,129
            
            
            321,842**Gross
                Profit**
            
            
            2,730,644
            
            
            1,260,375
            
            
            7,312,249
            
            
            3,497,176**Operating
                Expenses**Amortization
                and Depreciation
            
            
            8,829
            
            
            77,066
            
            
            28,647
            
            
            231,633Stock
                based compensation
            
            
            595,292
            
            
            351,724
            
            
            1,243,213
            
            
            1,150,619Bonus
                shares expense
            
            
            -
            
            
            -
            
            
            **-**
            
            
            19,200Bonus
            
            
            -
            
            
            -
            
            
            25,000
            
            
            -Bad
                debt expense - related party
            
            
            -
            
            
            -
            
            
            -
            
            
            9,007Professional
                Fees
            
            
            165,003
            
            
            189,028
            
            
            643,979
            
            
            508,150General
                and Administrative
            
            
            1,008,144
            
            
            54,443
            
            
            1,913,267
            
            
            739,784**Total
                Operating Expenses**
            
            
            1,777,268
            
            
            855,782
            
            
            3,854,106
            
            
            2,658,393**Income
                from Operations**
            
            
            953,376
            
            
            404,593
            
            
            3,458,143
            
            
            838,783**Other
                Income (Expense)**Gain
                on debt settlement
            
            
            -
            
            
            -
            
            
            -
            
            
            52,317Loss
                on debt settlement and warrants
            
            
            -
            
            
            -
            
            
            (470,897
            )
            
            -Change
                in Fair Value of embedded options
            
            
            -
            
            
            (83,207
            )
            
            (18,683
            )
            
            (270,629
            )Change
                in Fair Value of warrants
            
            
            -
            
            
            (118,163
            )
            
            (61,181
            )
            
            371,993Loss
                on asset sale
            
            
            -
            
            
            -
            
            
            -
            
            
            -Liquidated
                damages expense
            
            
            -
            
            
            (60,000
            )
            
            -
            
            
            (100,000
            )Interest
                expense
            
            
            
            
            
            (126,792
            )
            
            -
            
            
            (294,096
            )Tax
                Provision
            
            
            (468,458
            )
            
            -
            
            
            (1,158,202
            )
            
            -**Total
                Other Income (Expense), net**
            
            
            (468,458
            )
            
            (388,162
            )
            
            (1,708,963
            )
            
            (240,415
            )**Net
                Income**
            
            **$**
            **484,918**
            
            **$**
            **16,431**
            
            **$**
            **1,749,180**
            
            **$**
            **598,368****Net
                Income Per Share - Basic**
            
            **$**
            **0.07**
            
            **$**
            **0.00**
            
            **$**
            **0.26**
            
            **$**
            **0.13****Net
                Income Per Share - Diluted**
            
            **$**
            **0.07**
            
            **$**
            **0.00**
            
            **$**
            **0.26**
            
            **$**
            **0.13****Weighted
                average number of shares outstanding during the period -
                Basic**
            
            
            **6,865,880**
            
            
            **4,658,574**
            
            
            **6,720,714**
            
            
            **4,568,679****Weighted
                average number of shares outstanding during the period -
                Diluted**
            
            
            **6,865,880**
            
            
            **4,947,730**
            
            
            **6,720,714**
            
            
            **4,568,679**




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


-6-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Statements of Cash Flows


(Unaudited)




**For
                the Nine Months Ended****September
                30,****2006**
            
            **2005**(Restated
                  Note 5)CASH
                FLOW FROM OPERATING ACTIVITIES:Net
                Income
            
            $
            1,749,180
            
            $
            598,368Adjustments
                to reconcile net income (loss) to netcash
                used by operating activities:Recognition
                of deferred consulting fee
            
            
            881,003
            
            
            940,842Bad
                debt expense - related party
            
            
            -Amortization
                and depreciation expense
            
            
            232,775
            
            
            231,633Amortization
                of debt discount
            
            
            335,677
            
            
            251,736Amortization
                of debt issue costs
            
            
            -
            
            
            -Change
                in fair value of warrants
            
            
            
            
            
            (101,365
            )Change
                in fair value of embedded opt
            
            
            -Loss
                on settlement of debt
            
            
            470,897
            
            
            -Gain
                on debt settlement
            
            
            -Reduction
                of stock subscription payable
            
            
            -
            
            
            -Stock
                issued for services
            
            
            382,211
            
            
            535,114Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,041,621
            )
            
            (1,893,204
            )Contributed
                services by officers, directors, or shareholders
            
            
            -
            
            
            141,812Prepaids
            
            
            122,957
            
            
            (726,803
            )Increase
                (decrease)in other assets
            
            
            (3,040,764
            )
            
            (12,661
            )Increase
                (decrease) in accounts payable & accrued expenses
            
            
            (663,336
            )
            
            (142,743
            )Increase
                (decrease) Accrued interest payable
            
            
            (55,425
            )
            
            37,781Increase
                (decrease) Accrued liquidated damages
            
            
            -
            
            
            100,000Increase
                (decrease) Accrued tax provision
            
            
            1,053,702
            
            
            -Increase
                (decrease) Deferred revenue
            
            
            414,402
            
            
            (366,518
            )Net
                Cash Provided (Used) by Operating Activities
            
            
            841,658
            
            
            (406,008
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of fixed assets
            
            
            (26,480
            )
            
            (10,689
            )Net
                Cash Provided (Used) by Investing Activities
            
            
            (26,480
            )
            
            (10,689
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from convertible promissory note, net of issue costs
            
            
            -
            
            
            980,275Repurchase
                of stock from shareholders
            
            
            (979,406
            )
            
            -Payment
                of investor
            
            
            (125,000
            )
            
            -Payments
                of related party borrowings
            
            
            -
            
            
            (238,960
            )Payments
                on Note Payable
            
            
            (250,000
            )
            
            -Payments
                on capital leases
            
            
            (8,712
            )
            
            (7,203
            )Proceeds
                from stock subscription payable
            
            
            353,270
            
            
            -Stock
                offering costs
            
            
            (1,300
            )
            
            -Common
                stock issued for cash
            
            
            19,833
            
            
            319,575Net
                Cash Provided (Used) by Financing Activities
            
            
            (991,315
            )
            
            1,053,687NET
                INCREASE (DECREASE) IN CASH
            
            
            (176,137
            )
            
            636,990CASH
                AT BEGINNING OF PERIOD
            
            
            1,297,448
            
            
            8,421CASH
                AT END OF PERIOD
            
            $
            1,121,311
            
            $
            645,411





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


-7-


IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES


Consolidated
      Statements of Cash Flows (Continued)


(Unaudited)




**For
                the Nine Months Ended****September
                30,****2006**
            
            **2005**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONInterest
                paid
            
            $
            -
            
            $
            2,462Income
                taxes paid
            
            $
            104,500
            
            $
            -SCHEDULE
                OF NON-CASH FINANCING ACTIVITIESCommon
                stock issued for services
            
            $
            -
            
            $
            124,200Initial
                recording of debt discounts from issue costs and
                derivatives
            
            $
            -
            
            $
            1,000,000





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


-8-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


September
      30, 2006





NOTE
      1
      -  BASIS
      OF
      FINANCIAL STATEMENT PRESENTATION





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





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





a.  Accounting
      Method




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




b.  Estimates




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





c.  Cash
      and
      Cash Equivalents




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




-9-


***IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES***
  Notes
        to
        the Consolidated Financial Statements
 September
        30, 2006
 
 NOTE
        2
        -  SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


d.  Revenue
      Recognition





**Revenue
      Recognition**





We
      derive
      our revenue from the sale of products and services that we classify into the
      following sources: (1) licenses, (2) post-contract customer support, (3)
      professional services.





*Background*





We
      sell
      our services and license our products thru master licensee arrangements with
      state operated Small Business Development Centers (“SBDC”), Fortune 1000
      Corporations, Business Associations, Banking Institutions and International
      Economic Development Projects. These organizations represent our current
      customer base, and focus on servicing or supporting small and medium sized
      enterprises (SME). Our target market is comprised of emerging enterprises in
      need of a suite of Business-to-Business products or Web enabled capabilities,
      but lack the resources required for internal development or are focusing their
      resources on growth by outsourcing these capabilities. Master license
      arrangements currently produce the majority of our revenue. We utilize written
      contracts in the form of master license arrangements as the means to establish
      the terms and conditions upon which our products and services are sold.





*Master
      License Customer Characteristics*





As
      discussed above, Master Licensee’s represent our current customer base and
      generate the majority of our current revenue. Master licenses arrangements
      are characterized by the following;





o
            Master
                License arrangements typically represent larger value “multiple element”
                arrangements where a multi-year term license is delivered bundled
                with the
                first year of post contract support and certain professional services.
                Professional services are accounted for separately and are not considered
                essential to the functionality of the software. Master license holders
                can
                accept delivery either by electronic download to their system or
                by
                accessing their software residing on our system through the Internet.
                Only
                minimal installation and training are required. Revenue is recognized
                on
                master license or similar arrangements in accordance with the policies
                discussed below;


o
            the
                license element is recognized when the license becomes
                accessible,


o
            the
                post-contract customer support element is recognized ratably over
                the
                support period,


o
            professional
                services are recognized as services are
                delivered.




*General*





We
      recognize revenue in accordance with the American Institute of Certified Public
      Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,”
as modified by SOP 98-9 “Modifications of SOP 97-2, Software Revenue
      Recognition, With Respect to Certain Transactions,” and interpreted by the
      Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104 -
      Revenue Recognition. The Company adopted Emerging Issues Task Force (“EITF”)
      Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.





As
      described below, significant management judgments and estimates are made and
      used to determine the revenue recognized in any accounting period. Material
      differences may result in the amount and timing of our revenue for any period
      if
      our management made different judgments or utilized different
      estimates.


-10-


***IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES***
  Notes
        to
        the Consolidated Financial Statements
 September
        30, 2006
 
 NOTE
        2
        -  SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


We
      recognize revenue on software related transactions on single element
      arrangements and on each element of a multiple element arrangement, when all
      of
      the following criteria are met:





1.
            Persuasive
                evidence of an arrangement exists, which consists of a written,
                non-cancelable contract signed by both the customer and us.





2.
            The
                fee is fixed or determinable when we have a signed contract that
                states
                the agreed upon fee for our products and/or services, which specifies
                the
                related payment terms and conditions of the arrangement and it is
                not
                subject to refund or adjustment. We have standard payment terms,
                typically
                net 60 days, included in our contracts.





3.
            Delivery
                occurs,





a.
            For
                licenses-
                due to the Web nature of our software, when access to the software
                is made
                available to our customer through the Internet or the software is
                delivered electronically. Our arrangements are typically not contingent
                upon the customer providing the hardware, staff for training or scheduling
                conflicts in general nor do our arrangements contain acceptance clauses.
                If they did, delivery occurs after the customer has accepted the
                software.





b.
            For
                post-contract customer support-
                ratably over the annual service
                period.





c.
            For
                professional services-
                as the services are performed for time and materials contracts or
                upon
                achievement of milestones on fixed price
                contracts.





4.
            Collection
                is probable as determined by a credit evaluation, the customer’s payment
                history (either with other vendors or with us in the case of follow-on
                sales and renewals) and financial position.





For
      “multiple-element” arrangements we recognize revenue using the residual method
      in accordance with SOP 98-9. Under the residual method, a portion of the
      arrangement fee is allocated to the undelivered elements based on vendor
      specific objective evidence (“VSOE”) of the fair value of such undelivered
      elements, deferred and recognized over the initial service period, typically
      one
      year. The remaining portion of the arrangement fee is allocated to the delivered
      elements and recognized as revenue, provided all other revenue recognition
      criteria have been met. The undelivered elements in these arrangements typically
      consist of Post-contract Customer Support services and Professional Services.
      The VSOE for Post-contract Customer Support is based on the stated renewal
      rate
      in the license arrangements. The VSOE for Professional Services is based on
      the
      published rates for time and materials associated with such
      projects.





*License
      Revenue*





License
      revenues are primarily generated from the sale of master license agreements
      to
      SBDC’s and other potential master licensees. License arrangements are typically
      sold with the first year of Post-contract Customer Support included. As such,
      the combination of these products and services represent a “multiple-element”
arrangement for revenue recognition purposes.





Our
      revenue recognition policy for multiple-element arrangements, as described
      above, generally results in 65% of the first year arrangement fee being
      allocated to license revenue, the delivered element. Recognition of license
      revenue occurs in the first month, once all the recognition criteria discussed
      above are met. License revenue is intended to cover the initial development
      cost
      and testing of the software and the System.





-11-




***IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES***




Notes
      to
      the Consolidated Financial Statements


September
      30, 2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





d.  Revenue
      Recognition (Continued)





** *Post-contract
      Customer Support (“PCS”) Revenue*





Post-contract
      customer support includes technical support, maintenance, enhancements, upgrades
      and in some cases system access. License arrangements are typically sold with
      the first year of PCS included. The customers can also purchase annual PCS
      renewals over their arrangement term, which is typically 5 years. Enhancements
      and upgrades are made available on a “when and if” basis and are rarely if ever
      based on specifically identified enhancements.





Our
      revenue recognition policy for multiple-element arrangements, as described
      above, generally results in 35% of the initial arrangement fee being allocated
      to PCS, the undelivered element at the time the license arrangement is entered
      into. The customers can also acquire additional annual PCS renewal contracts.
      The PCS renewal rate utilized in subsequent years is consistent with the 35%
      allocation to PCS in the initial year. Recognition of PCS revenue occurs ratably
      over the PCS service period, once all the recognition criteria discussed above
      are met.





*Professional
      Services Revenue*





Professional
      services include training and installation services. Training and installation
      are separately described and priced in the license arrangement and can be
      delivered at any time after the license has been conveyed.





Because
      of the Web nature of product delivery, little installation support is required.
      The System also includes extensive on-line training capabilities (Virtual
      Trainer) at the time the license is conveyed and is available for every page
      in
      the System. No additional formal training on System use is required or provided.
      Supplemental training, if required, is generally restricted to System
      administration training. Training revenues are recognized as the services are
      performed.





Professional
      services are not considered essential to the functionality of the other elements
      of the arrangement and are accounted for as a separate element. Professional
      services are recognized as the services are performed for time and materials
      contracts or upon achievement of milestones on fixed price contracts. A
      provision for estimated losses on fixed-price professional services contracts
      is
      recognized in the period in which the loss becomes known. No losses have been
      recorded to date.




*Factors
      for Government or Quasi-Government Agency Customers*





Most
      of
      our current customers are government or quasi-government agencies and are
      considered a low collection risk. However, due to the “slow pay” nature of these
      entities, payments could take as long as 12 months to be brought current,
      although management expects to reduce that time to no more than 9 months. As
      more fully discussed in SOP 97-2, the fees are determined to be fixed and
      determinable because;


·
            our
                software is not subject to obsolescence, any more than is typical
                for
                comparable software and we have not made concessions to effect
                collections,


·
            our
                software is integral to the fundamental mission of our master license
                customers,


·
            our
                contracts are long term, generally greater then 12 months and collections
                on invoices are expected to be less than 12 months,


·
            our
                contracts provide for normal collection terms which are substantially
                less
                than the term of our agreements and further permit the assessment
                of late
                fees and interest on delinquent
                balances,


·
            our
                contracts are with government entities, and by law, these entities
                are
                precluded from not disbursing funds that have been approved and allocated
                for the license agreement,


·
            our
                contracts do not include any Fiscal Funding Clauses,


·
            our
                contracts do not include any Rights of Return or Cancellation Clauses,
                and


·
            payment
                is not dependant on the number of SME’s engaged.




-12-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


September
      30, 2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





d.  Revenue
      Recognition (Continued)





*Deferred
      Revenue*





Deferred
      revenue result from fees billed to customers for which revenue has not yet
      been
      recognized. Deferred revenue generally represents PCS and training services
      not
      yet rendered and deferred until all requirements under SOP 97-2 are met.
      Deferred revenue is recognized upon delivery of our products, as services are
      rendered, or as other requirements requiring deferral under SOP 97-2 are
      satisfied.





Allowance
      for Doubtful Accounts and Sales Returns





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


-13-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


September
      30, 2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




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





We
      currently have four (4) major customers, the State of California, Galaxy Five
      of
      South Africa, the Industrial Development Corporation - South Africa Initiative
      and the Ministry of Trade and Industry of the Kenya Government (Kenya). This
      does not reflect sub-licenses of our customers. Our accounts receivable are
      as
      follows at September 30, 2006:







Current
                - Account ReceivableGalaxy
                Five
            
            $
            500,000State
                of California
            
            
            2,942,500Industrial
                Development Corporation
            
            
            4,437,500Kenya
            
            
            3,800,000$
            11,680,000Account
                Receivable - Long termGalaxy
                Five
            
            $
            3,000,000Total
                Long term receivable
            
            $
            3,000,000




We
      recognized revenue of the following amounts for the nine months ended September
      30, 2006:




State
                of California
            
            $
            407,118Industrial
                Development Corporation
            
            
            4,170,989Kenya
            
            
            2,470,000Galaxy
            
            $
            468,271Total
                Recognized Revenue
            
            $
            7,516,378





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




Industrial
                Development Corporation
            
            $
            379,011State
                of California
            
            
            386,813Kenya
            
            $
            1,330,000Total
                Deferred Revenue
            
            $
            2,095,824




-14-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


September
      30, 2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




e.  Equity
      Transactions





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





f.  Depreciation
      and Amortization





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




NOTE
      3
      -  EQUITY
      ISSUANCES





In
      January 2006, the Company issued 834,734 shares of common stock as part of
      a
      settlement of debt and outstanding warrants valued at $1.00 per share (see
      note
      7).





In
      January 2006, the Company issued 10,000 shares of common stock for services
      valued at $1.00 per share.





In
      January 2006, the Company issued 11,000 shares of common stock for cash valued
      at $1.00 per share.





In
      February 2006, the Company issued 10,000 shares of common stock for services
      valued at $1.00 per share.





In
      March
      2006, the Company issued 363,300 shares of common stock for cash valued at
      $1.00
      per share.





In
      April
      2006, the Company re-purchased 461,400 shares of common stock at $1.80 per
      share.





In
      July
      2006, the Company issued 165,000 shares of common stock for services valued
      at
      $1.60 per share.





In
      July
      2006, the Company issued 20,000 shares of common stock for acquisition of a
      business valued at $1.90 per share.





In
      September 2006, the Company processed a ten for one stock split all references
      to common stock have been retroactively restated.


-15-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


September
      30, 2006







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





On
      January 18, 2006 (the “Settlement Date”) the Company paid $150,000 in cash and
      issued 834,734 common shares to settle the outstanding principal, accrued
      interest and accrued liquidated damages relating to the $1 million senior
      secured convertible note and the related outstanding warrants. Of this amount,
      101,400 was restricted stock was settled in January 2006 for all Class A and
      B
      warrants (approximately 4 million shares in warrants) at a ratio of
      approximately four to one. A loss on settlement of $470,897 was recorded. At
      the
      time of settlement, accrued interest payable was $55,425, accrued liquidated
      damages was $171,613, discount warrant value was $533,491, discount lender
      fee
      was $11,916, discount BCF was $58,703, and debt issue cost was $9,092. The
      shares were valued at $1.00 per share. This created an administrative loss
      for
      the period of approximately $470,897 ($533,490(debt discounts)-
      $171,613(liquidated damages))for this transaction. The SEC position follows
      the
      AICPA position as delineated in the AICPA Practice Alert 2000-1.  It is
      that contractually negotiated prices or values are not representative of fair
      value. Although the Company carried a market value on the warrants of $533,490
      until the point of settlement and the Company settled the debt for less than
      approximately 25% of that value, regulations prevent the Company from adjusting
      the value to the lower value.





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




NOTE
      5 -
      RESTATEMENT


Certain
          balances have been reclassified from the presentation used at September
          30, 2005
          to conform to the presentation used at September 30, 2006. Specifically,
          $3,850,695 identified as Deferred Consulting Services, has been reclassified
          from Total Stockholder’s Equity to Total Other Assets. Consulting services were
          paid for by the issuance of restricted common shares of the Company. The
          unearned portion of the consulting services was deferred and is being amortized
          on a straight-line basis over the term of the agreement. In 2005, management
          determined that the transaction was more appropriately presented as if
          the
          Company had paid cash for the consulting services, thereby requiring that
          Deferred Consulting Services be presented as an asset and not as a contra
          equity
          account.
  
 -16-




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





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





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


****


**Overview**




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


A-Division
        IT Systems Ltd. (A-Division), a United Kingdom based subsidiaryand provides
        business development support in IBSG International’s (IBSGI) South African
        project. A-Division is a subcontractor to BAE Systems and provides IT projects
        for BAE’s offset programs by establishing IT Hubs. A-Division is engaged in
        international business development and consultancy in the Technology sector
        and
        is a subcontractor for BAE System’s offset credit projects around the world. The
        purchase gives IBSGI participation in e-commerce platform (BizWorld Pro,
        copyrighted and trade mark protected) projects for Small-Midsize Enterprises
        [SMEs] internationally in countries beyond South Africa. IBSGI’s relationship
        with A-Division and BAE has already brought the South African project and
        opportunities with similar projects in Saudi Arabia, Malaysia, members of
        the EU
        and India.
  The
        IBSGroup offers BizWorld Pro as a solutions to enhance the operating efficiency
        and create revenue for State Small Business Development Centers, business
        associations (e.g., Chambers of Commerce) and Fortune 1000 corporations through
        the licensing of its unique turnkey digital service center software, which
        provides a broad range of digital budgetary, administrative and commercial
        services (B2B, e-commerce, government to business and enterprise business
        services) on a single platform.


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




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





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


-17-






**Critical
      Accounting Policies and Estimates**




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





•
      Revenue recognition;


•
      Estimating sales returns and the allowance for doubtful accounts;


•
      Value of long lived assets including purchased software;


•
      Valuation of services paid for with common stock.




We
      derive
      our revenue from the sale of products and services that we classify into the
      following sources: (1) licenses, (2) post-contract customer support, (3)
      professional services.





*Background*





We
      sell
      our services and license our products thru master licensee arrangements with
      state operated Small Business Development Centers (“SBDC”), Fortune 1000
      Corporations, Business Associations, Banking Institutions and International
      Economic Development Projects. These organizations represent our current
      customer base, and focus on servicing or supporting small and medium sized
      enterprises (SME). Our target market is comprised of emerging enterprises in
      need of a suite of Business-to-Business products or Web enabled capabilities,
      but lack the resources required for internal development or are focusing their
      resources on growth by outsourcing these capabilities. Master license
      arrangements currently produce the majority of our revenue. We utilize written
      contracts in the form of master license arrangements as the means to establish
      the terms and conditions upon which our products and services are sold.





*Master
      License Customer Characteristics*





As
      discussed above, Master Licensee’s represent our current customer base and
      generate the majority of current revenue. Master license arrangements are
      characterized by the following;





o
            Master
                License arrangements typically represent larger value “multiple element”
                arrangements where a multi-year term license is delivered bundled
                with the
                first year of post contract support and certain professional services.
                Professional services are accounted for separately and are not considered
                essential to the functionality of the software. Master license holders
                can
                accept delivery either by electronic download to their system or
                by
                accessing their software residing on our system through the Internet.
                Only
                minimal installation and training are required. Revenue is recognized
                on
                master license or similar arrangements in accordance with the policies
                discussed below;


o
            the
                license element is recognized when the license becomes
                accessible,


o
            the
                post-contract customer support element is recognized ratably over
                the
                support period,


o
            professional
                services are recognized as services are
                delivered.








-18-


*General*





We
      recognize revenue in accordance with the American Institute of Certified Public
      Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,”
as modified by SOP 98-9 “Modifications of SOP 97-2, Software Revenue
      Recognition, With Respect to Certain Transactions,” and interpreted by the
      Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104 -
      Revenue Recognition. The Company adopted Emerging Issues Task Force (“EITF”)
      Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.





As
      described below, significant management judgments and estimates are made and
      used to determine the revenue recognized in any accounting period. Material
      differences may result in the amount and timing of our revenue for any period
      if
      our management made different judgments or utilized different
      estimates.





We
      recognize revenue on software related transactions on single element
      arrangements and on each element of a multiple element arrangement, when all
      of
      the following criteria are met:





5.
            Persuasive
                evidence of an arrangement exists, which consists of a written,
                non-cancelable contract signed by both the customer and us.





6.
            The
                fee is fixed or determinable when we have a signed contract that
                states
                the agreed upon fee for our products and/or services, which specifies
                the
                related payment terms and conditions of the arrangement and it is
                not
                subject to refund or adjustment. We have standard payment terms,
                typically
                net 60 days, included in our contracts.





7.
            Delivery
                occurs,





a.
            For
                licenses-
                due to the Web nature of our software, when access to the software
                is made
                available to our customer through the Internet or the software is
                delivered electronically. Our arrangements are typically not contingent
                upon the customer providing the hardware, staff for training or scheduling
                conflicts in general nor do our arrangements contain acceptance clauses.
                If they did, delivery occurs after the customer has accepted the
                software.





b.
            For
                post-contract customer support-
                ratably over the annual service
                period.





c.
            For
                professional services-
                as the services are performed for time and materials contracts or
                upon
                achievement of milestones on fixed price
                contracts.





8.
            Collection
                is probable as determined by a credit evaluation, the customer’s payment
                history (either with other vendors or with us in the case of follow-on
                sales and renewals) and financial position.





For
      “multiple-element” arrangements we recognize revenue using the residual method
      in accordance with SOP 98-9. Under the residual method, a portion of the
      arrangement fee is allocated to the undelivered elements based on vendor
      specific objective evidence (“VSOE”) of the fair value of such undelivered
      elements, deferred and recognized over the initial service period, typically
      one
      year. The remaining portion of the arrangement fee is allocated to the delivered
      elements and recognized as revenue, provided all other revenue recognition
      criteria have been met. The undelivered elements in these arrangements typically
      consist of Post-contract Customer Support services and Professional Services.
      The VSOE for Post-contract Customer Support is based on the stated renewal
      rate
      in the license arrangements. The VSOE for Professional Services is based on
      the
      published rates for time and materials associated with such
      projects.





*License
      Revenue*





License
      revenues are primarily generated from the sale of master license agreements
      to
      SBDC’s and other potential master licensees. License arrangements are typically
      sold with the first year of Post-contract Customer Support included. As such,
      the combination of these products and services represent a “multiple-element”
arrangement for revenue recognition purposes.





Our
      revenue recognition policy for multiple-element arrangements, as described
      above, generally results in 65% of the first year arrangement fee being
      allocated to license revenue, the delivered element. Recognition of license
      revenue occurs in the first month, once all the recognition criteria discussed
      above are met.





-19-


** *Post-contract
      Customer Support (“PCS”) Revenue*





Post-contract
      customer support includes technical support, maintenance, enhancements, upgrades
      and in some cases system access. License arrangements are typically sold with
      the first year of PCS included. The customers can also purchase annual PCS
      renewals over their arrangement term, which is typically 5 years. Enhancements
      and upgrades are made available on a “when and if” basis and are rarely if ever
      based on specifically identified enhancements.





Our
      revenue recognition policy for multiple-element arrangements, as described
      above, generally results in 35% of the initial arrangement fee being allocated
      to PCS, the undelivered element at the time the license arrangement is entered
      into. The customers can also acquire additional annual PCS renewal contracts.
      The PCS renewal rate utilized in subsequent years is consistent with the 35%
      allocation to PCS in the initial year. Recognition of PCS revenue occurs ratably
      over the PCS service period, once all the recognition criteria discussed above
      are met.





*Professional
      Services Revenue*





Professional
      services include training and installation services. Training and installation
      are separately described and priced in the license arrangement and can be
      delivered at any time after the license has been conveyed.





Because
      of the Web nature of product delivery, little installation support is required.
      The System also includes extensive on-line training capabilities (Virtual
      Trainer) at the time the license is conveyed and is available for every page
      in
      the System. No additional formal training on System use is required or provided.
      Supplemental training, if required, is generally restricted to System
      administration training. Training revenues are recognized as the services are
      performed.





Professional
      services are not considered essential to the functionality of the other elements
      of the arrangement and are accounted for as a separate element. Professional
      services are recognized as the services are performed for time and materials
      contracts or upon achievement of milestones on fixed price contracts. A
      provision for estimated losses on fixed-price professional services contracts
      is
      recognized in the period in which the loss becomes known. No losses have been
      recorded to date.





*Factors
      for Government or Quasi-Government Agency Customers*





Most
      of
      our current customers are government or quasi-government agencies and are
      considered a low collection risk. However, due to the “slow pay” nature of these
      entities, payments could take as long as 12 months to be brought current,
      although management expects to reduce that time to no more than 9 months. As
      more fully discussed in SOP 97-2, the fees are determined to be fixed and
      determinable because;


·
            our
                software is not subject to obsolescence, any more than is typical
                for
                comparable software and we have not made concessions to effect
                collections,


·
            our
                software is integral to the fundamental mission of our master license
                customers,


·
            our
                contracts are long term, generally greater then 12 months and collections
                on invoices are expected to be less than 12 months,


·
            our
                contracts provide for normal collection terms which are substantially
                less
                than the term of our agreements and further permit the assessment
                of late
                fees and interest on delinquent
                balances,


·
            our
                contracts are with government entities, and by law, these entities
                are
                precluded from not disbursing funds that have been approved and allocated
                for the license agreement,


·
            our
                contracts do not include any Fiscal Funding Clauses,


·
            our
                contracts do not include any Rights of Return or Cancellation Clauses,
                and


·
            payment
                is not dependant on the number of SME’s engaged.




*Deferred
      Revenue*




Deferred
      revenue result from fees billed to customers for which revenue has not yet
      been
      recognized. Deferred revenue generally represents PCS and training services
      not
      yet rendered and deferred until all requirements under SOP 97-2 are met.
      Deferred revenue is recognized upon delivery of our products, as services are
      rendered, or as other requirements requiring deferral under SOP 97-2 are
      satisfied.




-20-


**Market
      for our products**




The
        potential market for the BizWorld Data System includes any entity that has
        a
        customer, vendor or membership base comprised of small to mid size business
        enterprises. The potential markets for Secure Blue are public companies required
        to establish internal control systems or companies that require extringent
        tracking of sensitive files. All current and proejected revenues for the
        Company
        are associated with the digital commerce platform, BizWorld Pro and the
        recurring revenues projected from both license revenues and on going monthly
        subscription fees form small to mid size enterprises. The projected market
        size
        for BizWorld Pro is greater than $15 billion annually. No assurances can
        be made
        that such market shall be realized or result in
        profitability.




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




**Small
      Business Development Centers**




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




**Fortune
      1000 Corporations**




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




**Business
      Associations**




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




**Banking
      Institutions**




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




-21-


**Economic
      Development Projects**




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







**Foreign
      Markets**


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


Secure
        Blue will be targeting small to mid size cap public companies. Because of
        the
        broad encompassing nature of the SOX legislation, any private company doing
        business with a public company both in the US and abroad must be SOX compliant
        for those records dealing with that business. This market represents a projected
        value of $3-$4 billion. Currently in the US there are an estimated 10,000
        small cap companies and over 100,000 private companies doing business with
        public companies. No assurances can be made that such market shall be realized
        or result in profitability.


**International
      Markets**





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




**Sales
      & Market Strategy**




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




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


-22-


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





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





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




**Marketing,
      Sales and Support**




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




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


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




**Customer
      Support**




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




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




-23-


**Research
      and Development**




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




**Competition**




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


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




**Results
      of Operations for the Three and Nine Months ended September 30, 2006 and
      2005**




The
      Company reflected an increase in sales revenues for the three months ended
      September 30, 2006 to $2,798,686 compared to sales revenues for the three months
      ended September 30, 2005 of $1,379,537, an increase of $1,419,149. The majority
      of this additional revenue was from the Ministry of Trade and Industry of the
      Kenya Government who signed a master licenses for $3,800,000. The Company also
      recorded higher sales revenues for the nine months ended September 30, 2006
      of
      $7,516,378 compared to September 30, 2005 sale revenues of $3,819,018. The
      Company had deferred revenues for the nine months ended September 30, 2006
      of
      $2,095,824 (deferred pending recognition based on amortization policies
      previously stated; See Note 2 of the Financial Statements).




**Operating
      Expenses for the Three and Nine Months ended September 30, 2006 and
      2005**




The
      Company had operating expenses of $1,777,268 for the three months ended
      September 30, 2006 compared to operating expenses of $855,782 for the three
      months ended September 30, 2005, an increase of $921,486. The primary reason
      for
      the increase was due to additional consulting services of $592,500 and $264,000
      of stock compensation given to the board of directors. The consulting services
      expense increase was due to the contract obtained in Kenya. This reflects an
      operating profit for the three months ended September 30, 2006 of $953,376,
      as
      compared to $404,593 for the three months ending September 30,
      2005.




**Other
      Expense for the Three and Nine Months ended September 30, 2006 and
      2005**





The
      company had other expenses of $468,458 for the three months ended September
      30,
      2006 compared to other expenses of $388,162 for the three months ended
      September 30, 2005. The $468,458 was for a tax provision accrual. The other
      expenses for the nine months ending 2006 was $1,708,963 compared to $240,415
      for
      2005. The 2005 figures were restated to reflect the change in fair value of
      the
      embedded conventional options and in the fair value of the warrants. The
      increase of other expenses for 2006 was due to the settlement of the debt and
      warrants outstanding, the sale of an asset and a provision for taxes. The loss
      associated with the settlement of the debt and warrants were $470,897. The
      Company has allocated $1,158,202 for proposed taxes. The Company accrued $12,188
      of taxes for the first quarter an additional $677,556 for the second quarter
      and
      $468, 918 for the third quarter. The Net Income reported for the nine months
      ending September 30, 2006 was $1,749,180.





-24-


**Liquidity
      and Capital Resources**




The
      company has been able to pay off the $1,000,000 of Senior Secured Convertible
      Notes. In the second quarter of 2006, the company purchased 461,400 of common
      stock from the debt holder. We believe the proceeds from the receivables and
      the
      reserves will generate sufficient cash in assisting with the operating needs
      of
      the company. The company is continuing to inquire into new investments to
      provide for further research and development capital and assisting further
      acquisitions over the next twelve months.




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


Galaxy
                Five
            
            $
            500,000State
                of California
            
            
            2,942,500Industrial
                Development Corporation
            
            
            4,437,500Kenya
            
            $
            3,800,000$
            11,680,000




Management
      expects to close an offering of securities in which the Company shall use the
      proceeds to fund its business plan.






**FACTORS
      THAT COULD AFFECT FUTURE RESULTS**




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




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




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




·
            uncertain
                commercial acceptance of our products;·
            technological
                obsolescence; and·
            Competition





-25-


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





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





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




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




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




**ITEM
      3. CONTROLS AND PROCEDURES**




a)
            Evaluation
                of Disclosure Controls and
                Procedures.





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures (as such
      term
      is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
      “Exchange Act”). Disclosure controls and procedures are the controls and other
      procedures that we designed to ensure that we record, process, summarize and
      report in a timely manner the information we must disclose in reports that
      we
      file with or submit to the Securities and Exchange Commission under the Exchange
      Act. Based on this evaluation, our Chief Executive Officer and our Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective as of the end of the period covered by this report.





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





b)
            Changes
                in Internal Control over Financial
                Reporting




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





-26-


. PART
      II OTHER INFORMATION








Item
      1.  Legal
      Proceedings




Not applicable





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





In
      April 2006, the Company re-purchased 461,400 shares of common stock at $1.80
      per
      share.




Item
      3.
      Defaults upon Senior Securities





Not
      applicable





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





None.





Item
      5.
      Other Information





Not
      applicable





Item
      6.
      Exhibits





A.
                Exhibits:




31.1
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            Certification
                of Principal Financial and Accounting Officer Pursuant to Section
                302 of
                the Sarbanes-Oxley Act.


32.1
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act.32.2
            Certification
                of Principal Financial and Accounting Officer Pursuant to Section
                906 of
                the Sarbanes-Oxley Act.







-27-





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(b) of the Securities Exchange Act of
      1934, the registrant caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized, in the City of Celebration, Florida,
      on
      November 14, 2006.






**IBSG
                INTERNATIONAL, INC.**Date: November
                14, 2006
            By:
            /s/ Michael
                RiversMichael
                RiversPresident,
                Chief Executive Officer





**IBSG
                INTERNATIONAL, INC.**Date: November14,
                2006
            By:
            /s/ Geoffrey
                BirchGeoffrey
                BirchPrincipal
                Accounting Officer









-28-