**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  
  **FORM
        10-QSB/A**
 
 **(Mark
        One)**
 **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30,
                  2005**
  **OR**
  ** ̈**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  **Commission
        file number 000-29587**
 
 **IBSG
        INTERNATIONAL, INC.**
 **(Name
        of small business issuer in its charter)**
  **Florida**
              **65-0705328****(State
                  or other jurisdiction of incorporation )**
              **(I.R.S.Employer
                  identification No.)**
  **1132
        Celebration Blvd., Celebration, FL 34747**
 **(Address
        and Zip Code of Principal Executive Offices)**
  **Registrant’s
        Telephone Number:** **(321)
        939-6321** ****
 
 **Securities
        registered under Section 12(b) of the Exchange Act:**
 **None**
  **Securities
        registered under Section 12(g) of the Exchange Act:**
 **Common
        Stock, $0.001 par value per share**
 **(Title
        of Class)**
  Check
        whether the issuer: (i) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (ii) has been
        subject to such filing requirements for the past 90
        days.    Yes x No  ̈
  As
        of
        August 8, 2005, there were 45,682,857  shares
        of
        the registrant's common stock outstanding.
 
 
  **IBSG
        INTERNATIONAL, INC.**
 **Part
                    I.**
                **Financial
                    Information**Item
                    1.
                Condensed
                    Consolidated Financial Statements and Notes to Consolidated Financial
                    Statements(a)
                    Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited)(b)
                    Consolidated Statements of Operations for the Three and Six Months
                    Ended
                    June 30, 2005 and 2004 (unaudited)(c)
                    Consolidated Statement of Cash Flow for the Three Months Ended
                    June 30,
                    2005 and 2004 (unaudited)(d)
                    Notes to Consolidated Financial Statements (unaudited)Item
                    2.
                Managements
                    Discussion and Analysis of Financial Condition and Result of
                    OperationsItem
                    3.
                Controls
                    and Procedures**Part
                    II.**
                Other
                    InformationItem
                    1.
                Legal
                    ProceedingsItem
                    2.
                Changes
                    in Securities and Small Business Issuer Purchases of
                    Equity SecuritiesItem
                    3.
                Defaults
                    Upon Senior SecuritiesItem
                    4.
                Submission
                    of Matters to a Vote of Security HoldersItem
                    5.
                Other
                    InformationItem
                    6.
                Exhibits
                    and Reports on Form 8-KSignatures
  
  -1-
 PART
          I
          FINANCIAL INFORMATION
  General
  The
          accompanying unaudited consolidated 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 changes in 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 consolidated financial statements included in the company's
          annual
          report on Form 10-KSB for the year ended December 31, 2004. In the opinion
          of
          management, all adjustments considered necessary for a fair presentation
          of the
          results of operations and financial position have been included and all
          such
          adjustments are of a normal recurring nature. Operating results for the
          quarter
          ended June 30, 2005 are not necessarily indicative of the results that
          can be
          expected for the year ended December 31, 2005.
 
 This
          Form
          10-QSB is being amended to restate the accompanying consolidated financial
          statements. In April 2006, management determined that the embedded conversion
          options in the $1 million senior secured convertible note, and the related
          warrants should have been recorded as derivative liabilities as of March
          17,
          2005 with changes in fair value charged to other income (expense) through
          June
          30, 2005. See the consolidated financial statements Note 9 for further
          information.
 -2-
 
 **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 
  **CONSOLIDATED
          FINANCIAL STATEMENTS**
 
 **June
          30, 2005**
 **(unaudited)**
  -3-
 **IBSG
          International, Inc. and Subsidiaries**
 **Consolidated
          Balance Sheet**
 **June
          30, 2005**
 **As
          Restated (Note 9)**
 **(Unaudited)**
 
 **ASSETS**
 **Current
                    Assets**Cash
                
                $
                309,209Accounts
                    receivable
                
                
                5,785,575Prepaids
                
                
                248,771**Total
                    Current Assets**
                
                
                **6,343,555****Equipment,
                    net**
                
                
                **1,093,275****Other
                    Assets**Prepaids
                
                
                725,000Debt
                    issue costs
                
                
                12,884Deposits
                
                
                2,780Deferred
                    consulting
                
                
                5,035,249**Total
                    Other Assets**
                
                
                **740,664****Total
                    Assets**
                
                **$**
                **13,212,743**
 **LIABILITIES
          AND STOCKHOLDERS' EQUITY**
 **Current
                    Liabilities**Accounts
                    payable and accrued expenses
                
                $
                169,145Accrued
                    interest payable
                
                
                31,802Deferred
                    revenue
                
                
                940,505Capital
                    leases payable
                
                
                7,224Notes
                    payable - related party
                
                
                157Convertible
                    promissory note payable, net
                
                
                143,835Accrued
                    liquidated damages
                
                
                40,000Warrant
                    liability
                
                
                392,944Embedded
                    conversion option liability
                
                
                284,594**Total
                    Current Liabilities**
                
                
                **2,010,206****Commitments
                    and Contingencies (see Note 5)****Stockholders'
                    Equity**Common
                    stock, $0.001 par value, 100,000,000 shares authorized45,682,857
                    shares issued and outstanding
                
                
                45,683Additional
                    paid in capital
                
                
                13,506,661Accumulated
                    deficit
                
                
                (2,349,807
                )**Total
                    Stockholders' Equity**
                
                
                **11,202,537****Total
                    Liabilities and Stockholders' Equity**
                
                **$**
                **13,212,743**
 The
          accompanying notes are an integral part of these unaudited consolidated
          financial statements
  -4-
 
 **IBSG
          International, Inc. and Subsidiaries**
 **Consolidated
          Statement of Operations**
 **(Unaudited)**
  **Three
                    months ended June 30, 2005**
                
                
                **Three
                    months ended June 30, 2004**
                
                
                **Six
                    months ended June 30, 2005**
                
                
                **Six
                    months ended June 30, 2004****As
                    Restated (Note 9)**
                
                
                
                
                
                **As
                    Restated (Note 9)****Sales**
                
                $
                1,330,937
                
                $
                838,074
                
                $
                2,439,481
                
                $
                838,074**Cost
                    of Sales**
                
                
                137,691
                
                
                10,980
                
                
                226,575
                
                
                10,980**Gross
                    Profit**
                
                
                1,193,246
                
                
                827,094
                
                
                2,212,906
                
                
                827,094**Operating
                    Expenses**Amortization
                    and Depreciation
                
                
                148,256
                
                
                129,024
                
                
                149,278
                
                
                170,583Stock
                    based compensation
                
                
                316,948
                
                
                268,809
                
                
                798,895
                
                
                3,124,502Bonus
                    shares expense
                
                
                -
                
                
                -
                
                
                19,200
                
                
                -Bad
                    debt expense
                
                
                -
                
                
                77,523
                
                
                -
                
                
                -Bad
                    debt expense - related party
                
                
                3,998
                
                
                -
                
                
                9,007
                
                
                264,539General
                    and Administrative
                
                
                467,970
                
                
                291,977
                
                
                798,749
                
                
                582,531**Total
                    Operating Expenses**
                
                
                937,172
                
                
                767,333
                
                
                1,775,129
                
                
                4,142,155**Income
                    (Loss) from Operations**
                
                
                256,074
                
                
                59,761
                
                
                437,777
                
                
                (3,315,061
                )**Other
                    Income (Expense)**Gain
                    on debt settlement
                
                
                -
                
                
                -
                
                
                52,317
                
                
                -Loss
                    on extinguishment of debt - related party
                
                
                -
                
                
                (156,765
                )
                
                -
                
                
                (156,765
                )Interest
                    expense
                
                
                (146,537
                )
                
                (12,505
                )
                
                (167,074
                )
                
                (28,250
                )Liquidated
                    damages expense
                
                
                (40,000
                )
                
                -
                
                
                (40,000
                )
                
                -Change
                    in fair value of embedded conversion option liability
                
                
                170,869
                
                
                -
                
                
                (187,422
                )
                
                -Change
                    in fair value of warrant liability
                
                
                195,634
                
                
                -
                
                
                490,158
                
                
                -**Total
                    Other Income (Expense), net**
                
                
                179,966
                
                
                (169,270
                )
                
                147,979
                
                
                (185,015
                )**Net
                    Income (Loss)**
                
                $
                436,040
                
                $
                (109,509
                )
                $
                585,756
                
                $
                (3,500,076
                )**Net
                    Income (Loss) Per Share - Basic**
                
                $
                0.01
                
                $
                (0.00
                )
                $
                0.01
                
                $
                (0.13
                )**Net
                    Income (Loss) Per Share - Diluted**
                
                $
                0.01
                
                $
                (0.00
                )
                $
                0.01
                
                $
                (0.13
                )**Weighted
                    average number of shares outstanding****during the period - Basic**
                
                
                **45,690,919**
                
                
                **32,652,615**
                
                
                **41,520,539**
                
                
                **27,795,623****Weighted
                    average number of shares outstanding****during the period - Diluted**
                
                
                **49,241,726**
                
                
                **32,652,615**
                
                
                **43,458,443**
                
                
                **27,795,623**
 The
          accompanying notes are an integral part of these unaudited consolidated
          financial statements
  -5-
 **IBSG
          International, Inc. and Subsidiaries**
 **Consolidated
          Statement of Cash Flows**
 **(Unaudited)**
  **Six
                    Months Ended**
                ********
                ****
                **June
                    30,**
                ********
                ****
                **2005**
                ****
                **2004**As
                    Restated(Note
                    9)**Cash
                    Flows from Operating Activities:**Net
                    income (loss)
                
                $
                585,756
                
                $
                (3,500,576
                )Adjustments
                    to reconcile net income (loss) to net cash used in operating
                    activities:Amortization
                    and depreciation
                
                
                149,278
                
                
                170,583Amortization
                    of debt issue costs
                
                
                2,166
                
                
                -Amortization
                    of debt discount costs
                
                
                143,835
                
                
                -Change
                    in fair value of warrants and embedded conversion option
                    liability
                
                
                (302,736
                )
                
                -Bad
                    debt expense
                
                
                -
                
                
                264,339Bad
                    debt expense - related party
                
                
                9,007
                
                
                -Gain
                    on debt settlement
                
                
                (52,317
                )
                
                -Loss
                    on debt extinguishment
                
                
                -
                
                
                156,765Recognition
                    of deferred stock based consulting fee
                
                
                693,894
                
                
                -Reduction
                    of stock subscription payable
                
                
                (59,500
                )
                
                -Stock
                    issued for services
                
                
                703,700
                
                
                3,124,502Changes
                    in operating assets and liabilities:(Increase)
                    decrease in:Accounts
                    receivable
                
                
                (1,170,500
                )
                
                (1,730,000
                )Prepaids
                
                
                (966,796
                )
                
                (32,943
                )Deposits
                
                
                (1,400
                )
                
                (1,380
                )Increase
                    (decrease) in:Accounts
                    payable and accrued expenses
                
                
                (127,543
                )
                
                117,066Accrued
                    interest payable
                
                
                31,802
                
                
                -Accrued
                    liquidated damages
                
                
                40,000
                
                
                -Deferred
                    revenue
                
                
                (406,981
                )
                
                904,426**Net
                    Cash Used In Operating Activities**
                
                
                (728,335
                )
                
                (527,218
                )**Cash
                    Flows from Investing Activities:**Disbursement
                    for loan - related party
                
                
                (9,007
                )
                
                (149,308
                )Purchase
                    of equipment
                
                
                (3,111
                )
                
                (106,218
                )Advances
                    to parent prior to consolidation
                
                
                -
                
                
                (203,753
                )**Net
                    Cash Used In Investing Activities**
                
                
                (12,118
                )
                
                (459,279
                )**Cash
                    Flows from Financing Activities:**Proceeds
                    from investment
                
                
                -
                
                
                -Costs
                    related to investment
                
                
                -
                
                
                -Proceeds
                    from convertible promissory note, net of issue costs
                
                
                965,225
                
                
                -Repayments
                    of related party borrowings
                
                
                (238,803
                )
                
                (190,424
                )Repayments
                    of capital leases - principal portion
                
                
                (4,756
                )
                
                (6,856
                )Proceeds
                    from issuance of common stock, net of offering costs
                
                
                319,575
                
                
                1,537,072**Net
                    Cash Provided by Financing Activities**
                
                
                1,041,241
                
                
                1,339,792Net
                    Increase in Cash
                
                $
                300,788
                
                $
                353,295Cash
                    at Beginning of Period
                
                
                8,421
                
                
                5,559**Cash
                    at End of Period**
                
                $
                309,209
                
                $
                358,854Supplemental
                    Disclosure of Cash Flow InformationCash
                    Paid for:Interest
                
                $
                -
                
                $
                -Taxes
                
                $
                -
                
                $
                -SCHEDULE
                    OF NON-CASH FINANCING ACTIVITIESCommon
                    stock issued for deferred consulting expenses
                
                $
                -
                
                $
                7,545,600Common
                    stock issued for services
                
                $
                124,200
                
                $
                2,541,293Initial
                    recording of debt discounts from issue costs and
                    derivatives
                
                $
                1,000,000
                
                $
                -
   The
          accompanying notes are an integral part of these unaudited consolidated
          financial statements
  -6-
 IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 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, 2004 Annual Report
          on
          Form 10-KSB. Operating results for the three and six months ended June
          30, 2005
          are not necessarily indicative of the results that may be expected for
          the year
          ending December 31, 2005.
 
 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.
 
 -7-
  ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          2
          - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 d.
           Revenue Recognition
 
 Our
          license agreements typically run for five years. A first year license fee,
          inclusive of installation, integration and training, is payable at the
          initiation of the license. However, neither of our customers paid at the
          initiation of the license. License maintenance is payable on the second
          through
          fifth anniversary date of the license. Each fee covers the license/maintenance
          fee for one year. Such fees are accounted as unearned revenue and recognized
          as
          revenue ratably over each annual period. We recognize revenue in accordance
          with
          Statement of Position, or SOP 97-2, “Software Revenue Recognition,” as amended,
          by Staff Accounting Bulletin No. 104, *Revenue Recognition* . The
          Company adopted Emerging Issues Task Force Issue No. 00-21, *Revenue Arrangements with Multiple Deliverables* . We
          recognize license revenues when all of the following criteria are met:
          persuasive evidence of an arrangement exists, the fee is fixed or determinable,
          collection of the related receivables is probable, delivery of the license
          has
          occurred and the customer has accepted the license (including the expiration
          of
          an acceptance period) if the terms of the contract include an acceptance
          requirement. Licenses are considered delivered once a license agreement
          has been
          entered into between the customer and the Company. Actual access to the
          software, due to the web nature of the software, is provided upon a mutually
          agreed schedule but the license fee due at time of conveyance and is not
          contingent upon the customer providing the hardware, staff for training
          or
          scheduling conflicts in general. Training and installation are included
          in the
          license fee and can be delivered at any time after the license has been
          conveyed. A portion of the year one license revenue and any subsequent
          years
          licenses are amortized on an annual basis commensurate with the start of
          the
          license agreement and then each subsequent anniversary date of the license
          and
          recognized generally in 12 periods (months) per year. In the event that
          we grant
          a customer the right to specified upgrades and vendor-specific objective
          evidence of fair value exists for such upgrades, value to the customer
          is
          determined on a stand-alone basis and there is objective and reliable evidence
          of fair value of the undelivered elements. Professional services and other
          revenues, when sold with subscription and support offerings, are accounted
          for
          separately until we have delivered the specified upgrade or additional
          service.
          If professional services are essential to the functionality of the other
          elements of the arrangement, we defer recognition of revenue until we have
          satisfied our professional services obligations. To date, professional
          services
          have not been essential to the functionality of the other elements, and
          thus
          have been accounted for separately.
 
  -8-
 
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          2
          - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 d.
           Revenue Recognition (Continued)
 
 We
          consider a non-cancelable agreement signed by the customer and us to be
          evidence
          of an arrangement. Delivery is considered to occur when media containing
          the
          licensed programs is provided to a common carrier, or the customer is given
          electronic access to the licensed software. Our typical end user license
          agreements do not contain acceptance clauses. We consider the fee to be
          fixed or
          determinable if the fee is not subject to refund or adjustment. If the
          fee is
          not fixed or determinable, we recognize revenue as the amounts become due
          and
          payable. Probable assurance of collection is based upon our assessment
          of the
          customer's financial condition through review of their current financial
          statements or credit reports. Additional consideration is given to the
          type of
          customer. Most of our customers are government or quasi-government agencies
          and
          are thus considered low collection risk although payments could take as
          long as
          12 months to be brought current by the customer due to the slow pay nature
          of
          such entities. Late payments and interest can be assessed based on unpaid
          balances on a monthly basis. Contracts do not include Rights of Return.
          They do
          include cancellation clauses available to both parties for material breaches
          of
          contracts.
 
 For
          follow-on sales to existing customers, prior payment history is also used
          to
          evaluate probability of collection. If we determine that collection is
          not
          probable, we will defer the revenue and recognize the revenue upon cash
          collection. When our software licenses contain multiple elements, we allocate
          revenue to each element based on the relative fair values of the elements.
          Multiple element arrangements generally include post-contract support (PCS
          or
          maintenance), software products, and end-user subscriptions with billings
          recorded as received and in some cases, other professional services. Revenue
          from multiple-element arrangements is allocated to undelivered elements
          of the
          arrangement, such as PCS, based on the relative fair values of the elements
          specific to us. Our determination of fair value of each element in multi-element
          arrangements is based on vendor-specific objective evidence, which is generally
          determined by sales of the individual element to third parties or by reference
          to a renewal rate specified in the related arrangement.
 
 Where
          vendor-specific objective evidence of fair-value exists for all undelivered
          elements, but evidence does not exist for one or more delivered elements,
          we
          account for the delivered elements in accordance with the Residual Method
          prescribed by SOP 98-9. Under the residual method, the fair value of the
          undelivered elements is deferred and the remaining portion of the arrangement
          fee is recognized as revenue. In most cases, the bundled multiple elements
          include PCS and the software product. In such cases, when vendor-specific
          objective evidence of fair value exists for all of the undelivered elements
          (most commonly PCS), the residual or remaining amount is recognized as
          revenue
          and the PCS is recognized ratably over the PCS term, which is typically
          12
          months.
  -9-
  ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          2
          - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 d.
           Revenue Recognition (Continued)
 
 Revenues
          from professional services consist of training and implementation services.
          Training revenues are recognized as the services are performed. Professional
          services are not considered essential to the functionality of the other
          elements
          of the arrangement and are accounted for as a separate element. Professional
          services are recognized as the services are performed for time and materials
          contracts or upon achievement of milestones on fixed price contracts. A
          provision for estimated losses on fixed-price professional services contracts
          is
          recognized in the period in which the loss becomes known.
 
 Deferred
          revenues include amounts billed to customers for which revenue has not
          yet been
          recognized that generally results from deferred maintenance, consulting
          or
          training services not yet rendered and license revenue deferred until all
          requirements under SOP 97-2 are met. Deferred revenue is recognized upon
          delivery of our products, as services are rendered, or as other requirements
          requiring deferral under SOP 97-2 are satisfied.
 
 Our
          licenses for the state of California for each regional office are sold
          for
          $50,000 each for the first year. The Company recognizes 65% of the license
          fee
          or $32,500 as revenue upon the activation of the license by a regional
          office.
          The balance of 35% is amortized on a straight line basis over a one year
          period.
          During the six months ended June 30, 2005 we activated 12 licenses for
          regional
          offices.
 
 Our
          licenses for the Corporate Affairs Commission (Government of Nigeria) consisted
          of the following: 1) 1 st year
          license fee of a 5 year term effective from June 1, 2004 to June 1, 2005
          for
          $250,000. Of this amount $162,500 was recognized upon the activation of
          the
          license and the balance of $87,500 is being amortized on a straight line
          basis
          over the 1 year period. 2) A subscription fee for 35,000 businesses at
          $6.00 per
          business per month for a period of three (3) months total invoice of $630,000.
          All of this revenue was recognized in the period of June 1, 2004 to September
          1,
          2004. 3) A subscription fee for 35,000 businesses for the next three months
          which is being recognized on a straight line basis for the period from
          September
          2004 to November 1, 2004 total invoice of $840,000, and 4) a subscription
          fee
          for 35,000 businesses for the six months ended June 1, 2005. The invoice
          was for
          $1,260,000 of which $210,000 was recognized for December 2004 and the balance
          of
          $1,020,000 is deferred for 2005. In the period of January 1, 2005 to June
          30,
          2005, $1,020,000 was recognized on the balance of $1,020,000 that was deferred
          the prior period, leaving a deferred balance of $0.00. There was also $22,055
          from the invoicing of the 1 year license was also recognized in the period
          ending June 30, 2005, leaving a deferred balance of $20,136.00 which was
          recognized in the 2 nd quarter
          for the balance of the contract.
  -10-
 
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          2
          - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 d.
           Revenue Recognition (Continued)
 
 Our
          licenses for the organization, Buzgate for the first year contract at $100,000.
          The Company recognizes 65% of the license fee or $65,000 as revenue upon
          the
          activation of the agreement. The balance of 35% is amortized on a straight
          line
          basis over a one year period. This contract will be financed by the Company.
          Per
          the contract the Company will receive 60% instead of the standard 30% of
          all
          Subscription Fees from here on.
 
 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.
 
 We
          currently have four (4) customers, the State of California, the Government
          of
          Nigeria, BuzGate, and the state of Connecticut. Our accounts receivable
          are as
          follows at June 30, 2005:
  Corporate
                    Affairs Commission (Nigeria)
                
                $
                3,340,575State
                    of California
                
                
                2,295,000BuzGate
                
                
                100,000Connecticut
                
                
                50,000$
                5,785,575
  -11-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          2
          - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 We
          recognized revenue of the following amounts for the six months ended June
          30,
          2005:
 
 Corporate
                    Affairs Commission (Nigeria)
                
                $
                1,517,814State
                    of California
                
                
                813,622BuzGate
                
                
                75,545Connecticut
                
                
                32,500$
                2,439,481
 
 Deferred
          revenue consisted of the following at June 30, 2005:
 
 Corporate
                    Affairs Commission (Nigeria)
                
                $
                649,886State
                    of California
                
                
                247,664BuzGate
                
                
                25,455Connecticut
                
                
                17,500$
                940,505
 
 e.
           Equity Transactions
 
 The
          Company records the values for the common stock issuances based on the
          closing
          prices of the common stock on the date of authorization for services,
          extinguishments of debt, or any other consideration other than cash. From
          time
          to time, the Company will enter the equity market and raise cash from
          unaffiliated 3rd party investors. These issuances are valued at the cash
          prices
          that the Company is able to sell the stock for.
 
 f.
          Accounting for Derivatives
 
 The
          Company evaluates its convertible debt, options, warrants or other contracts
          to
          determine if those contracts or embedded components of those contracts
          qualify
          as derivatives to be separately accounted for under Statement of Financial
          Accounting Standards 133 “Accounting for Derivative Instruments and Hedging
          Activities” and related interpretations including EITF 00-19 “Accounting for
          Derivative Financial Instruments Indexed to, and Potentially Settled in,
          a
          Company’s Own Stock”.
 
 The
          result of this accounting treatment is that the fair value of the embedded
          derivative is marked-to-market each balance sheet date and recorded as
          a
          liability. In the event that the fair value is recorded as a liability,
          the
          change in fair value is recorded in the consolidated statement of operations
          as
          an other income or expense. Upon conversion or exercise of a derivative
          instrument, the instrument is marked to fair value at the conversion date
          and
          then that fair value is reclassified to equity. Equity instruments that
          are
          initially classified as equity that become subject to reclassification
          under
          SFAS 133 are reclassified to liability at the fair value of the instrument
          on
          the reclassification date.
 
 g. 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 -
 RELATED PARTY TRANSACTIONS
 
 During
          the period ended June 30, 2005, the Company made cash payments of $238,803
          on
          the notes payable to related parties.
 
 The
          President of the Company is being compensated at $150,000 per the year
          ended
          December 31, 2004 and $180,000 for 2005. No formal employment agreement
          exists.
          The President of the Company contributed accrued salary of $120,000 to
          capital
          as of June 30, 2005.
  -12-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          3 -
 RELATED PARTY TRANSACTIONS (Continued)
 
 The
          Company loaned $9,007 in the period ended June 30, 2005, $171,072 in the
          year
          ended December 31, 2004 and $115,231 in the year ended December 31, 2003
          to
          Commerce, Inc. These amounts were deemed to be uncollectible due to Commerce's
          bankruptcy filing. Accordingly the Company recorded a bad debt expenses
          of
          $171,072 and $115,231 for the years ended December 31, 2004 and 2003,
          respectively. In the period ended June 30, 2005 the Company will record
          a bad
          debt of $9,007. The company's president is a former officer and director
          of
          Commerce. He served as Commerce's president and as a director for seven
          years
          prior to his extended personal leave in September of 2002 and resignation
          in
          February 2003.
 
 At
          June
          30, 2005, the Company owed the M&K Trust $156, the Company expects to pay
          this amount off in 2005.
 
 NOTE
          4
          - EQUITY ISSUANCES
 
 In
          January 2005, the Company issued 996,667 shares of common stock for cash
          valued
          at $0.15 per share.
 
 In
          January 2005, the Company issued 28,571 shares of common stock for cash
          valued
          at $0.175 per share.
 
 In
          January 2005, the Company issued 125,000 shares of common stock for fund
          raising
          valued at $0.51 per share, which was the closing price on the date of
          issue.
 
 Pursuant
          to the private placements for cash mentioned previously, the Company was
          required to issue additional shares of common stock to the various parties
          because the closing bid price of the Company's stock was not $1.00 at the
          time
          of the SB-2 filing. Accordingly, the Company issued an additional 2,222,779
          shares of common stock to the private placement investors for their cash
          purchases. These individuals did not contribute any services or other items
          to
          the Company. These shares were valued at $0.00 per share.
 
 In
          February 2005, the Company issued 1,466,666 shares of common stock for
          cash
          valued at $0.15 per share.
 
 In
          February 2005, the Company issued 30,149 shares of common stock for fund
          raising
          valued at $0.33 per share, which was the closing price on the date of
          issue.
 
 In
          February 2005, the Company issued 300,000 shares of common stock for fund
          raising valued at $0.35 per share, which was the closing price on the date
          of
          issue.
 
 In
          February 2005, the Company issued 100,000 shares of common stock under
          Bonus
          Shares, valued at $0.36 per share, which was the closing price on the date
          of
          issue.
 
 In
          February 2005, the Company issued 85,714 shares of common stock for cash
          valued
          at $0.175 per share.
  -13-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
  Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          4 -
 EQUITY ISSUANCES (Continued)
 
 In
          March
          2005, the Company issued 130,000 shares of common stock for services rendered
          valued at $0.36 per share, which was the closing price on the date of
          issue.
 
 In
          March
          2005, the Company issued 3,100 shares of common stock for fund raising
          valued
          $0.29 per share, which was the closing price on the date of issue.
 
 In
          March
          2005, the Company canceled (30,000) shares of common stock, which was originally
          issued on June 10, 2004 as Bonus Shares valued at $0.56 per share, which
          was the
          closing price on the date of issue.
 
 In
          May
          2005, the Company issued 2,000,000 shares of common stock for Board of
          Directors
          compensation for services for the entire year of 2005, part was recorded
          as an
          expense and part was deferred, valued at $0.20 per share, which was the
          closing
          price on the date of issue.
 
 In
          June
          2005, additional shares were issued due to a calculation error on the original
          shares issued in January 2005 for the pursuant to private placement for
          cash
          mentioned previously, the Company was required to issue additional shares
          of
          common stock to various parties because the closing price of the Company's
          stock
          was not $1.00 at time of original SB2 filing. Accordingly, the Company
          issued an
          additional 619,009 shares of common stock to the private placement investors
          for
          their cash purchases. These individuals did not contribute any services
          or other
          items to the Company. These shares were valued at $0.00 per share.
  NOTE
          5 -
 COMMITMENTS AND CONTINGENCIES
 
 The
          Company in April 2005 made a settlement agreement with American Express
          for
          payment of $52,317 of the $105,000 owed, which has been paid and forgiveness
          of
          the balance, recorded under “Gain on Debt Settlement”.
 
 NOTE
          6 -
 WARRANTS
 
 On
          September 7, 2004 the Company entered into a consulting agreement with
          Redwood
          Consultants, LLC. As consideration for the consulting agreement, the Company
          granted 325,000 warrants exercisable at $0.55 per warrant, 325,000 warrants
          exercisable at $0.75 per warrant, 325,000 warrants exercisable at $1.00
          per
          warrant and 500,000 warrants exercisable at $1.75 per warrant. The Company
          calculated the fair value of the warrants using the Black-Scholes fair
          value
          model and determined that the fair value of the warrants was $216,366.
          The
          Company expensed the warrants immediately because the warrants are
          non-refundable and are not a prepayment for future services.
  -14-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          7
          - GOING CONCERN
 
 The
          Company's condensed consolidated financial statements are prepared using
          accounting principles generally accepted in the United States of America
          applicable to a going concern which contemplates the realization of assets
          and
          liquidation of liabilities in the normal course of business. The Company
          has
          incurred cumulative operating losses through June 30, 2005 of $2,349,807.
          Revenues had not been sufficient to cover its operating costs and to allow
          it to
          continue as a going concern. The potential proceeds from the sale of common
          stock, other contemplated debt and equity financing, and increases in operating
          revenues from new development would enable the Company to continue as a
          going
          concern. There can be no assurance that the Company can or will be able
          to
          complete any debt or equity financing. If these are not successful, management
          is committed to meeting the operational cash flow needs of the
          Company.
 
 NOTE
          8
          - NOTE PAYABLE: LH ASSOCIATES
 
 In
          the
          period ended March 31, 2005, the Company secured a $1 Million
          Investment.
 
 Securities
                    Issued:
                **·**$1
                    million Senior Secured Convertible Notes (the "Notes") and
                  **·**Class A and Class B common stock purchase
                    warrants.
 
 
 Coupon:
                7%
                    annual, payable semiannually in cash or at the option of the
                    investor in
                    common stock. If an event of default occurs at any time after
                    the Issue
                    Date and is not cured within 20 days, the Default Rate of 15%
                    per annum
                    applies.
 
 
 Principal
                    Repayments:
                On
                    the 12thmonth anniversary of the Closing Date, the Company shall be required
                    to
                    make principal repayments based on the following schedule: o
                    Equal monthly
                    installments for the remainder of the note in cash or at the
                    option of the
                    Company in stock at a price equal to a 15% discount of the company's
                    common stock price at time of repayment with a maximum price
                    of a discount
                    of 15% off the company's common stock price at the Issue
                    Date.
 
 
 Maturity:
                The
                    Notes will mature 24 months after the Issue
                    Date.
 
 -15-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          8 -
 NOTE PAYABLE: LH ASSOCIATES (Continued)
 
 Seniority
                    and Security:
                The
                    Notes will be senior to any and all indebtedness of The Company
                    except for
                    a bank line currently being negotiated for up to $500,000 and
                    will be
                    secured substantially by all assets of the Company and its subsidiaries.
                    At the option of the investor this may be waived. Notwithstanding
                    the
                    foregoing, Investor agrees to sign the appropriate subordination
                    documents
                    requested by the bank.
 
 
 
 Conversion
                    Price:
                The
                    Notes issued will be convertible at the option of the holder,
                    at a fixed
                    price of Price $.29, however, if the Company's revenues for fiscal
                    2004
                    were not at least $5,000,000 and revenue results for the first
                    quarter of
                    fiscal 2005 are not at least $2,000,000 then the conversion price
                    will be
                    reduced by one third. For the purposes of this transaction only,
                    revenue
                    is defined as both recognized and deferred
                    revenue.
 
 
 Effective
                    Date:
                The
                    day the Registration Statement is declared
                    effective.
 
 
 
 Class
                    A Warrants:
                The
                    investors received Class A Warrants to purchase 3,225,807 shares.
                    The
                    Class A Warrants: warrants shall have a 5-year life and an exercise
                    price
                    of $.312. The warrants shall be re-priced if the Company does
                    not have
                    revenues of at least $20 million for 2005 based on the following
                    schedule:
                  
                  Less
                    than $20m -- 15% discounted
                  Less
                    than $15m - 30% discounted
                  Less
                    than $10m - 45% discounted
  -16-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          8
          - NOTE PAYABLE: LH ASSOCIATES (Continued)
 
 Forced
                    Conversion Feature:
                If,
                    following the Effective Date, all of the Milestones specified
                    below are
                    satisfied on each trading day occurring during any period of
                    ten
                    consecutive trading days, then the Company may force conversion
                    of the
                    Notes by delivering to the Investors written notice thereof (a
“Forced
                    Conversion Notice”) on the business day immediately following the last day
                    of such period (the “Forced Conversion Date”). The Forced Conversion
                    Notice will specify the aggregate principal amount of the Notes
                    that is
                    subject to the forced conversion, which amount (i) shall not
                    exceed 35% of
                    the aggregate dollar volume traded on the Company's principal
                    market
                    during the seven (7) trading days immediately preceding the Forced
                    Conversion Date and (ii) shall be allocated among the Investors
                    on a pro
                    rata basis. On the Forced Conversion Date, each Investor will
                    be deemed to
                    have converted an amount of principal of its Debenture equal
                    to (A) its
                    pro rata share of the aggregate principal amount specified in
                    the Forced
                    Conversion Notice minus (B) the amount of principal converted
                    by such
                    Investor during the twenty trading days immediately preceding
                    the Forced
                    Conversion Date.
 
 
 Milestones:
                (a)
                    The Registration Statement must be effective and available for
                    resale of
                    the Conversion Shares and Warrant Shares by the Investors.
                  (b)
                    The closing bid price for the common stock must be above
                    $.60.
                  (c)
                    No event of default, or event that could become an event of default,
                    shall
                    have occurred.
                  (d)
                    The issuance pursuant to the Forced Conversion does not cause
                    (i) the
                    number of shares beneficially owned by any Investor to exceed
                    4.9% of the
                    number of shares then outstanding.
 
 
 Anti-dilution
                    Rights:
                Should
                    the company sell any Common shares or any instrument convertible
                    into
                    such, at a price per share that is less than the conversion price,
                    then
                    the conversion price shall automatically be lowered to that new
                    price.
 
 
 Restrictions
                    on other financing:
                The
                    Company will be restricted from borrowing money or issuing debt
                    securities
                    in the public or private markets until the Effective Date except
                    for the
                    Bank line disclosed in Seniority.
  -17-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          8
          - NOTE PAYABLE: LH ASSOCIATES (Continued)
 
 Insider
                    Lock -up:
                The
                    insiders will be locked up to sell their shares in the company
                    unless the
                    stock price is over $.65 and then subject to Regulation 144 selling
                    rules,
                    However, they may sell if the stock is below $.65 only after
                    9 months of
                    the registration being effective, subject to rule
                    144.
 
 
 Future
                    Offerings:
                For
                    a period of up to 1 year from the Effective Date, the investor
                    will retain
                    the right to participate in public or private offerings of The
                    Company's
                    equity and equity linked securities (including anything convertible
                    into
                    equity) and will be eligible to participate in up to at least
                    20%.
 
 
 Fundamental
                    Change:
                Upon
                    a Fundamental Change, the Investor(s) will have the right to
                    put the
                    security to The Company at 105% of outstanding principal, plus
                    unpaid
                    accrued unpaid interest. A merger or other change of control
                    transaction
                    shall constitute a Fundamental
                    Change.
 
 
 Registration
                    Rights:****
                Registrant
                    shall file a registration statement with the SEC covering the
                    resale and
                    distribution by the investors of all shares which may be received
                    by the
                    investors upon conversion of Notes and exercise of the Warrants
                    within 40
                    days of the Closing Date, which Registration Statement shall
                    be declared
                    effective within 135 days of such Closing Date. Penalties: If
                    the
                    Registration Statement is not effective within 135 days from
                    the Issue
                    Date or if the Company does not respond to an SEC comment within
                    10
                    business days or if the effective registration is unavailable
                    to the
                    Investors for more than twenty (20) days during a 365-day period,
                    a 2%
                    penalty per month will be assessed until the Registration Statement
                    is
                    declared effective or becomes available. The penalty will be
                    payable
                    monthly in cash.
 
 
 Class
                    B Warrants:
                The
                    investors received Class B Warrants to purchase 322,581 shares.
                    The Class
                    B Warrants have a 180-day life post effective registration and
                    an exercise
                    price of $.26 per share.
 
 -18-
 ***IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES***
 Notes
          to
          the Consolidated Financial Statements
 June
          30,
          2005
 (Unaudited)
 
 
 NOTE
          8
          - NOTE PAYABLE: LH ASSOCIATES (Continued)
 
 Due
                    Diligence Fee:
                2%
                    (two percent) of investment payable out of the escrow account
                    upon
                    closing.
 
  The
          Company evaluated whether or not the senior secured convertible notes contain
          embedded conversion options which meet the definition of derivatives under
          SFAS
          133 “Accounting for Derivative Instruments and Hedging Activities” and related
          interpretations. The Company concluded that since the secured convertible
          debentures were subject to liquidated damages requiring potential cash
          payments
          in the event the Company does not meet registration statement filing or
          effectiveness deadlines, pursuant to the criteria of EITF 00-19, the embedded
          conversion option must be accounted for as a derivative liability. In addition,
          the Class A and B warrants must be classified as liabilities for the same
          reason. The Company recorded an embedded conversion options liability of
          $716,652 and warrant liability relating to the warrants of $883,102 at
          the March 17, 2005 funding date and recorded a debt discount $980,274 along
          with debt discounts for other issue costs to the lender of $19,726 and
          a charge
          to change in fair value of embedded conversion option and warrants of of
          $619,480 The debt discount is being amortized over the term of the notes.
          The
          change in fair value recorded as other income from April 1, 2005 to June
          30,
          2005 was a credit of $366,503 and from March 17,2005 to June 30, 2005 was
          a net
          credit of $302,736. . The embedded conversion option and warrants were
          valued
          using a black-scholes option pricing model with the following
          assumptions:
 
 **Warrants******
                ****
                **3/17/05**
                ****
                **3/31/05**
                ****
                **3/17/05**Expected
                    volatility
                
                111%
                    to 148%
                
                111%
                    to 148%
                
                148%Expected
                    term
                
                0.5
                    to 5 years
                
                0.5
                    to 5 years
                
                2
                    yearsAnnual
                    rate of dividends
                
                0
                
                0
                
                0Discount
                    rate
                
                4.14%
                
                4.14%
                
                4.14
 
 **Embedded
                    Conversion Options******
                ****
                **3/17/05**
                ****
                **3/31/05**
                ****
                **3/17/05**Expected
                    volatility
                
                111%
                    to 148%
                
                111%
                    to 148%
                
                148%Expected
                    term
                
                0.5
                    to 5 years
                
                0.5
                    to 5 years
                
                2
                    yearsAnnual
                    rate of dividends
                
                0
                
                0
                
                0Discount
                    rate
                
                4.14%
                
                4.14%
                
                4.14
 
 
 Secured
          Convertible Notes payable at June 30, 2005 were as follows:
 
 Secured
          convertible
          notes                     $1,000,000
 Debt
          discount 856,165
 
 Secured
          convertible note,
          net                $ 143,835
 
 Amortization
          expense for the six months ended June 30, 2005 was $143,835.
 
 NOTE
          9 -
          RESTATEMENT
 
 In
          April
          2006 management determined that the embedded conversion options in the
          $1
          million senior secured convertible note, and the related warrants should
          have
          been recorded as derivative liabilities as of March 17, 2005 with changes
          in
          fair value charged to other income (expense). In addition the Company should
          have accrued certain liquidated damages.
 
 The
          effect at June 30, 2005 and for the six months then ended is as
          follows:
 
 (a) Increase
          in warrant liability to $392,944
 (b) Increase
          embedded conversion option liability to $284,594
 (c) Increase
          in change in fair value net income of $302,736
 (d) Decrease
          to additional paid-in capital of $980,275
 (e)
          Increase in liquidated damages liability and expense of $40,000
 
 The
          effect on net income and earnings per share was an increase in net income
          of
          $326,503 and $262,736 for the three and six months, respectively, ended
          June30,
          2005 and $.01 per share for the three months ended June 30, 2005.with no
          changes
          to the earnings per share for the six months ended June 30, 2005
  -19-
 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 2004 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. ("IBSGI" or the "Company") is a holding company for
          two
          software subsidiaries: Intelligent Business Systems Group, Inc. ("IBSG"),
          a
          provider of turn-key digital service center software; and Secure Blue,
          Inc., a
          Sarbanes-Oxley and security software.
  The
          IBSG
          offers enterprise solutions designed to enhance the operating efficiency
          and
          create revenue for State Small Business Development Centers, business
          associations (e.g., Chambers of Commerce) and Fortune 1000 corporations
          through
          the licensing of its unique turnkey digital service center software, which
          provides a broad range of digital budgetary, administrative and commercial
          services (B2B, e-commerce, government to business and enterprise business
          services) on a single platform known as the Biz World Pro
          (copyrighted).
  -20-
 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.
 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).
  This
          software is currently in development and has not been released for sale.
          No
          revenue was generated by Secure Blue in 2004.
  **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.
 •
          Valuation of derivative liabilities
 
  Revenue
          Recognition. As described below, significant management judgments and estimates
          must be made and used in connection with the revenue recognized in any
          accounting period. Material differences may result in the amount and timing
          of
          our revenue for any period if our management made different judgments or
          utilized different estimates.
  -21-
 We
          recognize revenue in accordance with Statement of Position, or SOP 97-2,
“Software Revenue Recognition,” as amended, by Staff Accounting Bulletin No.
          104, Revenue Recognition. The Company adopted Emerging Issues Task Force
          Issue
          No. 00-21, Revenue Arrangements with Multiple Deliverables. We recognize
          license
          revenues when all of the following criteria are met: persuasive evidence
          of an
          arrangement exists, the fee is fixed or determinable, collection of the
          related
          receivables is probable, delivery of the license has occurred and the customer
          has accepted the license (including the expiration of an acceptance period)
          if
          the terms of the contract include an acceptance requirement. Licenses are
          considered delivered once a license agreement has been entered into between
          the
          customer and the Company. Actual access to the software, due to the web
          nature
          of the software, is provided upon a mutually agreed schedule but the license
          fee
          due at time of conveyance and is not contingent upon the customer providing
          the
          hardware, staff for training or scheduling conflicts in general. Training
          and
          installation are included in the license fee and can be delivered at any
          time
          after the license has been conveyed. A portion of the year one license
          revenue
          and any subsequent years licenses are amortized on an annual basis commensurate
          with the start of the license agreement and then each subsequent anniversary
          date of the license and recognized generally in 12 periods (months) per
          year.
          The revenue recognition policy is as follows; 65% of the year one license
          recognized upfront to cover the costs related to the installation, testing,
          training and the initial investment/purchase of the license of the System.
          This
          revenue is recognized in month one. The original agreement on the purchase
          of
          the license of System was to be paid within a payment schedule over a period
          of
          time in order to recoup implementation costs. It was agreed that on an
          average
          taking 65% license fee would cover this cost, the initial expenses of the
          employees' time on business development which includes assisting the customer
          with public awareness and providing initial marketing assistance and guidance
          in
          developing a list of prospect sub-license candidates as well as presentation
          assistance for the same and initial profit for the license sale. The balance
          in
          deferred would be maintenance costs for the remainder of the first year
          and
          gross profit. The average contract length is five years. As stated in paragraph
          27 of SOP 97-2, the customer intends to utilize the system over that period
          of
          time as an integral part of their overall operation and as such can continue
          to
          be reflected as fixed or determinable. The length of time that a customer
          is
          projected to bring invoices current is 12 months and believed to be atypical
          for
          these types of contracts but is expected by management to reduce in time
          to no
          more then 9 months to be brought current at such time as our receivables
          become
          part of the customers' accounts payable system. Based on paragraph 28 of
          SOP
          97-2, our contracts are generally long term (greater then 12 months and
          payments
          on invoices are not expected to be longer than 12 months, the fee is therefore
          recognized as fixed and determinable as set forth in paragraph 28.
  In
          the event that we grant a customer the right to specified upgrades and
          vendor-specific objective evidence of fair value exists for such upgrades,
          value
          to the customer is determined on a stand-alone basis and there is objective
          and
          reliable evidence of fair value of the undelivered elements. Professional
          services and other revenues, when sold with subscription and support offerings,
          are accounted for separately until we have delivered the specified upgrade
          or
          additional service. If professional services are essential to the functionality
          of the other elements of the arrangement, we defer recognition of revenue
          until
          we have satisfied our professional services obligations. To date, professional
          services have not been essential to the functionality of the other elements,
          and
          thus have been accounted for separately.
  -22-
 We
          consider a non-cancelable agreement signed by the customer and us to be
          evidence
          of an arrangement. Delivery is considered to occur when media containing
          the
          licensed programs is provided to a common carrier, or the customer is given
          electronic access to the licensed software. Our typical end user license
          agreements do not contain acceptance clauses. We consider the fee to be
          fixed or
          determinable if the fee is not subject to refund or adjustment. If the
          fee is
          not fixed or determinable, we recognize revenue as the amounts become due
          and
          payable. The possibility of cancellation is considered “remote” as stated in
          paragraphs 33, of SOP 97-2. As directed per paragraph 33, no contingency
          for
          cancel ability is required. Therefore there are no funding clauses in our
          agreements and therefore the Company has not adopted any accounting policies
          for
          such conditions. If, in the future, such clauses are added to any license
          agreements, the Company will develop the appropriate policies as described
          in
          paragraphs 32 and 33 of SOP 97-2.
 Probable
          assurance of collection is based upon our assessment of the customer's
          financial
          condition through review of their current financial statements or credit
          reports. Additional consideration is given to the type of customer. Most
          of our
          customers are government or quasi-government agencies and are thus considered
          low collection risk although payments could take as long as 12 months to
          be
          brought current by the customer due to the slow pay nature of such entities.
          As
          stated in paragraph 27 of SOP 97-2, the customer intends to utilize the
          system
          over that period of time as an integral part of their overall operation
          and as
          such can continue to be reflected as fixed or determinable. The length
          of time
          that a customer is projected to bring invoices current is 12 months and
          believed
          to be atypical for these types of contracts but is expected by management
          to
          reduce in time to no more then 9 months to be brought current at such time
          as
          our receivables become part of the customers' accounts payable system.
          Based on
          paragraph 28 of SOP 97-2, our contracts are generally long term (greater
          then 12
          months and payments on invoices are not expected to be longer than 12 months,
          the fee is therefore recognized as fixed and determinable as set forth
          in
          paragraph 28. Late payments and interest can be assessed based on unpaid
          balances on a monthly basis. Contracts do not include Rights of Return.
          They do
          include cancellation clauses available to both parties for material breaches
          of
          contracts.
  For
          follow-on sales to existing customers, prior payment history is also used
          to
          evaluate probability of collection. If we determine that collection is
          not
          probable, we will defer the revenue and recognize the revenue upon cash
          collection. When our software licenses contain multiple elements, we allocate
          revenue to each element based on the relative fair values of the elements.
          Multiple element arrangements generally include post-contract support (PCS
          or
          maintenance), software products, and end-user subscriptions with billings
          recorded as received and in some cases, other professional services. Revenue
          from multiple-element arrangements is allocated to undelivered elements
          of the
          arrangement, such as PCS, based on the relative fair values of the elements
          specific to us. Our determination of fair value of each element in multi-element
          arrangements is based on vendor-specific objective evidence, which is generally
          determined by sales of the individual element to third parties or by reference
          to a renewal rate specified in the related arrangement.
  Where
          vendor-specific objective evidence of fair-value exists for all undelivered
          elements, but evidence does not exist for one or more delivered elements,
          we
          account for the delivered elements in accordance with the Residual Method
          prescribed by SOP 98-9. Under the residual method, the fair value of the
          undelivered elements is deferred and the remaining portion of the arrangement
          fee is recognized as revenue. In most cases, the bundled multiple elements
          include PCS and the software product. In such cases, when vendor-specific
          objective evidence of fair value exists for all of the undelivered elements
          (most commonly PCS), the residual or remaining amount is recognized as
          revenue
          and the PCS is recognized ratably over the PCS term, which is typically
          12
          months.
  -23-
 Revenues
          from professional services consist of training and implementation services.
          Training revenues are recognized as the services are performed. Professional
          services are not considered essential to the functionality of the other
          elements
          of the arrangement and are accounted for as a separate element. Professional
          services are recognized as the services are performed for time and materials
          contracts or upon achievement of milestones on fixed price contracts. A
          provision for estimated losses on fixed-price professional services contracts
          is
          recognized in the period in which the loss becomes known.
  Deferred
          revenues include amounts billed to customers for which revenue has not
          yet been
          recognized that generally results from deferred maintenance, consulting
          or
          training services not yet rendered and license revenue deferred until all
          requirements under SOP 97-2 are met. Deferred revenue is recognized upon
          delivery of our products, as services are rendered, or as other requirements
          requiring deferral under SOP 97-2 are satisfied.
 
 In
          December 2004, the FASB revised Statement of Financial Accounting Standards
          No.
          123 Accounting for Stock-Based Compensation. This statement supersedes
          APB
          Opinion No. 25, Accounting for Stock Issued to Employees, and the related
          implementation guidance. This statement establishes standards for the accounting
          for transactions in which an entity exchanges its equity instruments for
          goods
          and services. It also addresses transactions in which an entity incurs
          liabilities in exchange for goods and services that are based on the fair
          value
          of the entity's equity instruments or that may be settled by the issuance
          of
          those equity instruments. This Statement focuses primarily on accounting
          for
          transactions in which an entity obtains employee services in share-based
          payment
          transactions. For public entities that are not small business issuers,
          the
          implementation of this Statement is required as of the beginning of the
          first
          interim or annual reporting period after June 15, 2005. For public entities
          that
          are small business issuers, like Coach, the implementation of this Statement,
          is
          required as of the beginning of the first interim or annual reporting period
          after December 15, 2005. Management is required to implement this Statements
          beginning in fiscal year beginning on January 1, 2006 and they are currently
          evaluating the impact of implementation of this Statement on the
          Company.
 
 The
          Company evaluates its convertible debt, options, warrants or other contracts
          to
          determine if those contracts or embedded components of those contracts
          qualify
          as derivatives to be separately accounted for under Statement of Financial
          Accounting Standards 133 “Accounting for Derivative Instruments and Hedging
          Activities” and related interpretations including EITF 00-19 “Accounting for
          Derivative Financial Instruments Indexed to, and Potentially Settled in,
          a
          Company’s Own Stock”.
 
 The
          result of this accounting treatment is that the fair value of the embedded
          derivative is marked-to-market each balance sheet date and recorded as
          a
          liability. In the event that the fair value is recorded as a liability,
          the
          change in fair value is recorded in the consolidated statement of operations
          as
          an other income or expense. Upon conversion or exercise of a derivative
          instrument, the instrument is marked to fair value at the conversion date
          and
          then that fair value is reclassified to equity. Equity instruments that
          are
          initially classified as equity that become subject to reclassification
          under
          SFAS 133 are reclassified to liability at the fair value of the instrument
          on
          the reclassification date.
  **Market
          for our products**
  The
          potential market for the BizWorld Data System includes any entity that
          has a
          customer, vendor or membership base comprised of small to mid size business
          enterprises. The potential markets for Secure Blue are public companies
          required
          to establish internal control systems. The projected combined market size
          for
          both products is greater than $5 billion annually. No assurances can be
          made
          that such market shall be realized or result in profitability.
  The
          market for the BizWorld Data System includes state operated Small Business
          Development Centers, business organizations such as chambers of commerce,
          large
          corporations, and other entities which seek to help small and medium size
          businesses succeed. When Intelligent Business Systems Group, Inc. sells
          a master
“host” license to a state Small Business Development Center or business
          associations (i.e. chambers of commerce), that entity can sell “sub-licenses' to
          the other vertical markets in their respective states or markets, from
          which
          Intelligent Business Systems Group, Inc. may receive incremental revenue.
          This
          market represents a projected $2.5-$3.5 billion NOT including international
          application. No assurances can be made that such market shall be realized
          or
          result in profitability.
  -24-
 **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.
  -25-
 **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.
  **Secure
          Blue Markets**
  Secure
          Blue will be targeting small to mid size cap public companies. Because
          of the
          broad encompassing nature of the SOX legislation, any private company doing
          business with a public company must be SOX compliant for those records
          dealing
          with that business. This market represents a projected value of $3-$4 billion.
          The market for SOX solutions in the US is projected to grow to $6.9 billion
          in
          2006. Secure Blue is currently targeting sales activity at small and mid-cap
          public companies with a market valuation of less than $75 million. This
          is a
          market sector largely ignored by other vendors. Also, in order for many
          public
          companies to ensure that they stay SOX compliant they are demanding that
          private
          companies doing business with them are also compliant with many of the
          major SOX
          requirements and in particular Sections 404 and 302 relating to internal
          controls on financial reporting. Currently in the US there are an estimated
          10,000 small cap companies and over 100,000 private companies doing business
          with public companies. No assurances can be made that such market shall
          be
          realized or result in profitability.
  **International
          Markets**
 
 Many
          aspects of the Sarbanes-Oxley Act are to be incorporated into new European
          legislation later in 2005 and this will lead to rapid growth and a huge
          global
          market for SOX solutions well in excess of the US projection. Additionally,
          foreign companies doing business with US public companies will be required
          to be
          SOX compliant as well. It is our objective to establish Secure Blue in
          the US
          before expanding into European and Asian markets.
  -26-
 **Sales
          & Market Strategy**
  Intelligent
          Business Systems Group, Inc. current marketing effort primarily consists
          of
“word of mouth” referrals from existing or potential customers, targeted
          prospect awareness campaigns, various conventions and trade shows and cold
          calling entities with resources and marketing research. The most effective
          and
          powerful marketing tool is the demonstration of the system and its comprehensive
          features. Demonstrations and contract negotiations are handled on a personal
          basis.
  To
          achieve our growth plans Intelligent Business Systems Group, Inc. needs
          to
          employ more business developers, present a more visible presence at conventions
          and accelerate contract implementation. We also anticipate the need to
          provide
          enhanced training and marketing services to its customers, which can best
          be
          achieved by acquiring existing service companies with expertise in that
          field.
          The addition of more technical staff will accelerate contract implementation
          and
          add-on work (system modifications) as the customer base is extended. There
          can
          be no assurance that we will be able to meet our growth plans or have sufficient
          financial resources to provide the enhanced services.
 Secure
          Blue was launched in mid-April of 2005 and in May 2005 we began a series
          of
          online, live demos to potential channel partners (i.e. accounting and law
          firms,
          brokerage firms and potential end users). Our distribution strategy is
          to
          develop third-party channels through professional advisors to small/mid
          cap
          companies. These include investor relations firms, law firms, accountancy
          firms,
          compliance consultancies, corporate finance advisors, venture capital companies
          and other strategically important organizations. We are approaching these
          potential channel partners individually and demonstrating SOX Pro live
          online to
          create a dialogue leading to long-term business partnerships. We will continue
          to focus our sales activity on third-party channels until we are satisfied
          we
          can achieve significant traction in the market place. Our third-party channels
          will attack the end-user market through their existing client base.
 
 In
          addition we will continue to promote and demonstrate SOX Pro to potential
          end-users where appropriate. In the longer term we will build a specialist
          direct sales team focused on specific target sectors within the small/mid
          cap
          market selling direct or providing qualified leads to our channel
          partners.
 
 There
          can
          be no assurance that Secure Blue will be able to establish satisfactory
          channels
          of distribution for its product or that the product will generate success
          in the
          marketplace.
  **Marketing,
          Sales and Support**
  We
          market our products primarily through direct contact of potential customers,
          referrals from existing customers or potential customers and conferences
          that
          are market specific. The key to the marketing of the various products is
          the
          ability under the BizWorld product to enable customers to act as channel
          partners through the ability to sell sub-licenses of the system and provide
          revenue generating digital service center to their customers. This makes
          us
          dependent on the efforts of our customers since we have no direct way to
          communicate with those parties which may be potential ultimate users of
          the
          BizWorld product.
  -27-
 Secure
          Blue has direct market application focusing primarily on the small cap
          public
          companies. Secure Blue is currently seeking to establish channel partner
          arrangements with Investor Relation firms that primarily target the small
          cap
          market. Secure Blue will also seek to expand its marketing efforts to include
          telemarketing and direct target contact through telemarketing firms that
          specializes in software sales. There can be no assurance that Secure Blue
          will
          be able to establish satisfactory channels of distribution for its product
          or
          that the product will generate success in the marketplace.
 Secure
          Blue will also seek to expand its marketing efforts to include marketing
          support
          for both channel partners and direct sales using PR, advertising, and direct
          marketing techniques, once the basic distribution infrastructure is in
          place.
          Our aims are to make SOX Pro the preferred SOX solution within the small/mid
          cap
          market, to prepare the marketplace for our channel partners and to generate
          good
          quality, qualified leads for the sales teams.
  **Customer
          Support**
  Our
          management believes that strong customer support is crucial to both the
          initial
          marketing of its products and maintenance of customer satisfaction, which
          in
          turn will enhance our reputation and generate repeat orders. In addition,
          we
          believe that customer interaction and feedback involved in our ongoing
          support
          functions provide us with information on market trends and customer requirements
          that is critical to future product development efforts. Intelligent Business
          Systems Group, Inc. provides toll free and web site support. However, the
          first
          line of support is built into the systems through a self diagnostic feature
          which is enhanced by the system being capable of providing instructions
          to
          navigate a user error or auto report a potential system “bug” which is directed
          to the technical center's program team which can correct the anomaly on-line
          and
          auto down load the correction to all systems.
  Secure
          Blue believes that effective and speedy customer support is crucial to
          the
          long-term success of SOX Pro. As a mission-critical application, SOX Pro
          must be
          totally reliable and the support available must be of the highest order.
          We will
          be including 24/7 support as an integral part of the SOX Pro package with
          an
          ongoing annual fee of 20% of the first years license cost. Our team based
          in
          Florida will provide technical support for end users and channel
          partners
  **Research
          and Development**
  We
          believe that our success will depend in large part on our ability to maintain
          and enhance our current product lines, develop new products, maintain
          technological competitiveness and meet an expanding range of customer
          requirements. Our management constantly requests and receives comments
          on
          desired functionality or system changes from not only the company's customers
          but the customer's, customer. Our management also intends to hold focus
          groups
          taking a sample population of customers and discussing in an open forum
          the
          potential revisions of the various systems.
  -28-
 **Competition**
  Our
          management believes that we are the leading provider of digital commerce
          and
          management systems for small and medium businesses provided over the internet.
          However our products compete against a variety of individual software programs
          designed to provide similar functions for small and medium sized business
          users.
          Additionally, many digital commerce solutions are available to small businesses
          through established internet portals such as Yahoo. Many internet hosting
          providers help their customers set up e-commerce sites and provide software
          for
          such sites. Internet based service providers are increasingly targeting
          the
          small and medium business market. A wide variety of consultants market
          e-commerce solutions to small businesses and offer a more personalized
          service
          than are available through small business development centers.
 The
          marketplace is full of so-called point products offering solutions to various
          elements of Sarbanes-Oxley compliance. Virtually all of these solutions
          are
          heavily biased in price and complexity toward the larger corporation. Secure
          Blue has a major cost advantage over the competition and is a more comprehensive
          SOX solution. We have built the solution on a comprehensive and proven
          security
          software solution and added sophisticated enhancements such as the PDA
          access
          for compliant and sub compliant officers to have access to data on activity
          of
          sensitive information. This provides our customer with the required base
          criteria of SOX which is a secure network with sophisticated functionality
          of
          SOX specific monitoring. The majority of the competition has established
          distribution infrastructures built on a range of existing and complementary
          products. We are confident that we can leverage the success of the other
          subsidiary, IBS Group, and their network. Once our third-party channel
          network
          is established we will focus on attempting take a significant share of
          the
          small-mid cap company market.
  **Results
          of Operations for the Three and Six Months ended June 30, 2005 and
          2004**
  The
          Company maintained a conservative revenue recognition policy related to
          previously held contracts but has recognized new business or new licenses
          activated under previous contracts according to conservative recognition
          policies under GAAP. The Company reflected an increase in sales revenues
          for the
          three months ended June 30, 2005 to $1,330,937 compared to sales revenues
          for
          the three months ended June 30, 2004 of $838,074, an increase of $492,863.
          The
          Company reflected an increase in sales revenues for the six months ended
          June
          30, 2005 to $2,439,481 compared to sales revenues for the six months ended
          June
          30, 2004 of $838,074, an increase of $1,601,407. The Company had deferred
          revenues for the six months ended June 30, 2005 of $940,505 (deferred pending
          recognition based on amortization policies previously stated; See Note
          2 of the
          Financial Statements).
  -29-
 **Operating
          Expenses for the Three and Six Months ended June 30, 2005 and
          2004**
  The
          Company had operating expenses of $937,172 for the three months ended June
          30,
          2005 compared to operating expenses of $767,333 for the three months ended
          June
          30, 2004, an increase of $169,839, primarily as a result of the increase
          of
          general and administrative expenses. The Company had operating expenses
          of
          $1,775,129 for the six months ended June 30, 2005 compared to operating
          expenses
          of $4,142,155 for the six months ended June 30, 2004, a decrease of $2,367,026,
          primarily as a result of a decrease in stock based compensation and bad
          debt
          expense to a related party (Commerce, Inc.; see Note 3), offset by an increase
          of general and administrative expenses. The expenses we incurred in the
          quarter
          ended June 30, 2005, were primarily amortization of consulting services,
          stock
          based compensation, depreciation, bad debt expense and general and
          administrative expenses.
  The
          Company had other income of a net $366,503 and $302,736 relating to the
          change
          in fair value of warrant liabilities and embedded conversion options liability
          and had other expenses of $40,000 for liquidated damages for the three
          and six
          months ended June 30, 2005. The Company also incurred interest expense
          of
          $146,537 and $167,074 for the three and six months ended June 30, 2005
          relating
          primarily to the new convertible debt and amortization of debt
          discounts.
 
 This
          reflects a net income for the three months ended June 30, 2005 of $436,040
          and a
          net income for the six months ended June 30, 2005 of $585,756.
  **Liquidity
          and Capital Resources**
 We
          incurred cumulative net losses through June 30, 2005 of $2,349,807. Revenues
          had
          not been sufficient to cover its operating costs and to allow it to continue
          as
          a going concern. The notes in the unaudited financial statements at and
          for the
          quarter ended June 30, 2005, contain an explanatory paragraph raising
          substantial doubt of the Company's ability to continue as a going concern.
          Note
          7 to the unaudited financial statements at and for the quarter ended June
          30,
          2005 describe the conditions which raise this doubt and management's
          plans.
  We
          addressed our capital requirements in March 2005 by sale of $1,000,000
          of Senior
          Secured Convertible Notes (See Note 8 of the unaudited financial statement).
          We
          believe the proceeds of the notes as well as the cash we expect to generate
          from
          operations will enable us to meet our capital needs for at least the next
          twelve
          months except as disclosed below..
  We
          currently expect to incur substantial expenditures in 2005 for the commercial
          introduction of Secure Blue's software products, to revise our BizWorld
          Pro
          software to add additional functions and improve ease of use, and implementation
          and compliance with the requirements of Section 404 of the Sarbanes-Oxley
          Act of
          2002. The ultimate costs and benefits of these additional expenditures
          are not
          fully known. We may seek to raise additional funds through public or private
          equity financing, or through other sources such as credit facilities. The
          sale
          of additional equity securities could result in dilution to our shareholders.
          In
          addition, in the future, we may enter into cash or stock acquisition
          transactions or other strategic transactions that could reduce cash available
          to
          fund our operations or result in dilution to shareholders.
  -30-
 **FACTORS
          THAT COULD AFFECT FUTURE RESULTS**
  Because
          of the following factors, as well as other variables affecting our operating
          results, past financial performance may not be a reliable indicator of
          future
          performance, and historical trends should not be used to anticipate results
          or
          trends in future periods. We have no arrangements or sources of additional
          capital and may have to curtail our operations if additional capital is
          needed
          but is not available
  Our
          customers who are generally state government agencies or quasi government
          business associations can be exceedingly tardy in paying their obligations
          to
          us.  We may have to curtail our operations if we do not have sufficient
          funds to pay for the expenses of operating our business. The Company will
          use
          additional commercial market opportunities to offset the slow pay nature
          of the
          lucrative government contract market. The Company's current and projected
          acquisitions will expand the Company's retail and private sector markets
          which
          should create a blend of payment cycles between the secured government
          markets
          and the commercial markets.
  We
          acquired our enterprise software and began servicing licensees of such
          software
          in 2004.   Prior financial information reflects a profitable
          operation. Our prospects must be considered in light of the risks, expenses
          and
          difficulties frequently encountered by companies in relatively new and
          rapidly
          evolving markets. These risks may include:
 ·
                  uncertain
                        commercial acceptance of our
                        products;
 
 ·
                technological
                    obsolescence; and
 ·
                  competition
 We
          cannot
          assure you that we will succeed in addressing these risks. If we fail to
          do so,
          our revenue and operating results could be materially harmed.
 
 Our
          software products are subject to rapid technological change and to compete,
          we
          must offer products that achieve market acceptance.
 
 The
          software industry is characterized by rapid technological change.  To
          remain competitive, we must continue to improve our existing products to
          meet
          the needs of our customers.  We cannot assure you that new products offered
          by our competitors may not prove attractive to our clients and potential
          clients
          and adversely affect our future revenues.  Our failure to adequately
          protect our proprietary rights could adversely affect our ability to compete
          effectively. We rely on a combination of contracts, copyrights, continued
          evolution of our core product (s) and other security measures in order
          to
          establish and protect our proprietary rights. We can offer no assurance
          that the
          measures we have taken or may take in the future will prevent misappropriation
          of our technology or that others will not independently develop similar
          products, design around our proprietary technology or duplicate our
          products.
  -31-
 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.
 
 We
          currently have four (4) customers, the State of California, the Government
          of
          Nigeria, BuzGate, and the state of Connecticut. Our accounts receivable
          are as
          follows at June 30, 2005:
 
 Corporate
                    Affairs Commission (Nigeria)
                
                $
                3,340,575State
                    of California
                
                
                2,295,000BuzGate
                
                
                100,000Connecticut
                
                
                50,000$
                5,785,575
  ***ITEM
          3. CONTROLS AND PROCEDURES***
  We
          carried out an evaluation, under the supervision and with the participation
          of
          our management, including our Chief Executive Officer and Principal Financial
          Officer, of the effectiveness of our disclosure controls and procedures,
          as
          defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
          of 1934
          as of the end of the period covered by this report. Based on that evaluation,
          our Chief Executive Officer and Principal Financial Officer have concluded
          that
          our disclosure controls and procedures as of June 30, 2005were effective
          to
          ensure that information required to be disclosed by us in reports that
          we file
          or submit under the Securities Exchange Act of 1934 is recorded, processed,
          summarized and reported within the time periods specified in the Securities
          and
          Exchange Commission's rules and forms.
  There
          have been no material changes in our internal controls over financial reporting
          or in other factors that could materially affect, or are reasonably likely
          to
          affect, our internal controls over financial reporting during the quarter
          ended
          March 31, 2005.
 -32-
 PART
          II OTHER INFORMATION
 
 
 Item
          1. Legal
          Proceedings
  Not
          applicable
 
 Item
          2. Changes in Securities And Small Business Issuer Purchases Of Equity
          Securities
 
 In
          May
          2005, the Company issued 2,000,000 shares of common stock for Board of
          Directors
          compensation for services for the entire year of 2005, part was recorded
          as an
          expense and part was deferred, valued at $0.20 per share, which was the
          closing
          price on the date of issue.
 
 In
          June
          2005, additional shares were issued due to a calculation error on the original
          shares issued in January 2005 for the pursuant to private placement for
          cash
          mentioned previously, the Company was required to issue additional shares
          of
          common stock to various parties because the closing price of the Company's
          stock
          was not $1.00 at time of original SB2 filing. Accordingly, the Company
          issued an
          additional 619,009 shares of common stock to the private placement investors
          for
          their cash purchases. These individuals did not contribute any services
          or other
          items to the Company. These shares were valued at $0.00 per share. These
          shares
          were issued in a private placement transaction pursuant to Section 4(2)
          and
          Regulation D under the Securities Act of 1933, as amended. No underwriters
          were
          involved in this transaction.
  
 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 and
          Reports on Form 8-K
  A.
          Exhibits:
  31.1
                Certification
                    of Chief Executive Officer Pursuant to
                    Section 302 of the Sarbanes-Oxley Act.31.2
                Certification
                    of Principal Financial and Accounting
                    Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act.32.1
                Certification
                    of Chief Executive Officer Pursuant to
                    Section 906 of the Sarbanes-Oxley Act.32.2
                Certification
                    of Principal Financial and Accounting
                    Officer Pursuant to Section 906 of the Sarbanes-Oxley
                    Act.
  -33-
 B.
 
          Reports on Form 8-K
 
 On
          February 13, 2004, the Company issued a press release and filed a Current
          Report
          on Form 8-K announcing the acquisition of its subsidiary, Intelligent Business
          Systems Group, Inc. In such press release and Form 8-K the Company stated
          that
          Intelligent Business Systems Group, Inc. "...commenced business in 1997,
          and is
          now in its sixth straight year of profitable operations..." On April 14,
          2005,
          the announced that it had determined that this statement did not correctly
          report historic facts concerning its Intelligent Business Systems Group,
          Inc.
          subsidiary and filed an amendment to its Current Report on Form 8-K filed
          on
          February 13, 2004 to correct such statement. Intelligent Business Systems
          Group,
          Inc. was incorporated on January 9, 2003.
  On
          April
          14, 2005, the Company filed an Amendment dated April 14, 2005 to Subscription
          Agreement dated March 17, 2005 and Class A Stock Purchase Warrants in which
          the
          Company and the investors have agreed that 2005 gross revenues will include
          the
          Company's reported sales and deferred revenues for such period in the
          calculation of any such discounted purchase price for the Class A Warrants.
          The
          Company and the investors have also agreed that the Closing Date of the
          transaction was March 25, 2005.
 On
          April
          14, 2005, the Company issued a press release reporting announcing the filing
          of
          its Annual Report on Form 10-KSB for the fiscal year ended December 31,
          2004 and
          certain results of its operations for such fiscal year.
  On
          May
          10, 2005, the Company announced that its subsidiary Secure Blue, Inc.,
          will be
          launching online demonstrations of the latest version of its revolutionary
          Sarbanes-Oxley solution, SOX Pro, to potential resellers, brokers, small
          caps
          and medium caps commencing May 9, 2005.
  On
          May
          20, 2005, the Company announced an investor conference call that will take
          place
          at 4:15 PM Eastern Daylight Time, on May 23, 2005, where key management
          will
          discuss the results for this reported quarter, revenue and earnings guidance
          for
          the second quarter and the rest of the year, and the introduction of the
          Secure
          Blue.
  On
          June
          29, 2005, the Company announced certain material facts that were disclosed
          on
          its investor conference call, which was held on May 23, 2005.
  On
          June
          29, 2005, the Company announced that it has appointed Mr. Jeffery F.
          Willmott as a new board member, bringing the current board to four
          members.
  -34-
 **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
          June 13, 2006.
 
  **IBSG
                    INTERNATIONAL, INC.**Date: June
                    13, 2006
                By:
                /s/ Michael
                    RiversMichael
                    RiversPresident,
                    Chief Executive Officer
 
 
 
 
 **IBSG
                    INTERNATIONAL, INC.**Date: June
                      13, 2006
                By:
                /s/ Geoffrey
                    BirchGeoffrey
                    BirchPrincipal
                    Accounting Officer
  -35-