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


**Washington,
      D.C. 20549**









**FORM
      10-QSB**




**(Mark
      One)**


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






**OR**




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




**Commission
      file number 000-29587**




**IBSG
      INTERNATIONAL, INC.**


**(Name
      of small business issuer in its charter)**




****


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






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


**(Address
      and Zip Code of Principal Executive Offices)**




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




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


**None**




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


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


**(Title
      of Class)**




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


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




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













**IBSG
      INTERNATIONAL, INC.**


**Part
        I. Financial Information**
  Item
        1. Condensed
        Consolidated Financial Statements and Notes to Consolidated
        Financial Statements
 (a)
        Consolidated Balance Sheets as of June 30, 2006
        (unaudited)
 (b)
            Consolidated
                Statements of Operations for the Three Months, and
                Six Months Ended June 30, 2006 and 2005
                (unaudited) (c)
            Consolidated
                Statement of Cash Flow for the Six Months Ended
                June 30, 2006 and 2005 (unaudited) (d)
            Notes
              to Consolidated Financial Statements
              (unaudited)  Item
        2. Management's Discussion and Analysis of Financial
        Condition and Results of
 Operations
  Item
        3. Controls and Procedures
 
 
 **Part
        II. Other Information**
 
 Item
        1. Legal Proceedings
 Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds
 Item
        3. Defaults upon Senior Securities
 Item
        4. Submission of Matters to a Vote of Security
        Holders
 Item
        5. Other Information
 Item
        6.
        Exhibits
  Signatures





PART
      I FINANCIAL INFORMATION





General





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



















**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




**June
      30, 2006**


**(Unaudited)**













**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Balance Sheet


(Unaudited)








ASSETS




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


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














**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Balance Sheet (Continued)


(Unaudited)







LIABILITIES
      AND STOCKHOLDERS’ EQUITY




CURRENT
                LIABILITIES
            
            
            June
                30, 2006Accounts
                payable and accrued expenses
            
            $
            387,266Accrued
                tax provision
            
            
            794,244Deferred
                revenue
            
            
            660,858Capital
                leases payable
            
            
            6,718Total
                Current Liabilities
            
            
            1,849,086COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS’
                EQUITYCommon
                stock authorized 100,000,000 shares at $0.001par
                value; 68,325,193 shares issued and outstanding
            
            
            68,325Additional
                paid-in capital
            
            
            15,751,447Retained
                Earnings
            
            
            873,068Total
                Stockholders’ Equity
            
            
            16,692,840TOTAL
                LIABILTIES AND STOCKHOLDERS’ EQUITY
            
            $
            18,541,926 The
      accompanying notes are an integral part of these consolidated financial
      statements.







**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Statements of Operations


(Unaudited)





**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****Sales**
            
            $
            2,894,817
            
            $
            1,330,937
            
            $
            5,020,563
            
            $
            2,439,481**Cost
                of Sales**
            
            
            68,042
            
            
            137,691
            
            
            136,085
            
            
            226,575**Gross
                Profit**
            
            
            2,826,775
            
            
            1,193,246
            
            
            4,884,478
            
            
            2,212,906**Operating
                Expenses**Amortization
                and Depreciation
            
            
            9,425
            
            
            148,256
            
            
            19,819
            
            
            149,278Stock
                based compensation
            
            
            301,332
            
            
            316,948
            
            
            647,921
            
            
            798,895Bonus
                shares expense
            
            
            -
            
            
            -
            
            
            **-**
            
            
            19,200Bonus
            
            
            -
            
            
            -
            
            
            25,000
            
            
            -Bad
                debt expense - related party
            
            
            -
            
            
            3,998
            
            
            -
            
            
            9,007Professional
                Fees
            
            
            406,616
            
            
            245,284
            
            
            478,976
            
            
            319,123General
                and Administrative
            
            
            490,716
            
            
            222,686
            
            
            887,015
            
            
            479,626**Total
                Operating Expenses**
            
            
            1,208,089
            
            
            937,172
            
            
            2,058,731
            
            
            1,775,129**Income
                from Operations**
            
            
            1,618,686
            
            
            256,074
            
            
            2,825,747
            
            
            437,777**Other
                Income (Expense)**Gain
                on debt settlement
            
            
            -
            
            
            -
            
            
            -
            
            
            52,317Loss
                on debt settlement and warrants
            
            
            -
            
            
            -
            
            
            (470,897
            )
            
            -Change
                in Fair Value of embedded options
            
            
            -
            
            
            170,869
            
            
            (18,683
            )
            
            (187,422
            )Change
                in Fair Value of warrants
            
            
            -
            
            
            195,634
            
            
            (61,181
            )
            
            490,158Loss
                on asset sale
            
            
            -
            
            
            -
            
            
            (531,729
            )
            
            -Liquidated
                damages expense
            
            
            -
            
            
            (40,000
            )
            
            -
            
            
            (40,000
            )Interest
                expense
            
            
            
            
            
            (146,537
            )
            
            -
            
            
            (167,074
            )Tax
                Provision
            
            
            (677,556)
            )
            
            -
            
            
            (689,744)
            )
            
            --
            
            
            -**Total
                Other Income (Expense), net**
            
            
            (677,556)
            )
            
            179,966
            
            
            (1,772,234
            )
            
            147,979**Net
                Income**
            
            **$**
            **941,130**
            
            **$**
            **436,040**
            
            **$**
            **1,053,513**
            
            **$**
            **585,756****Net
                Income Per Share - Basic**
            
            **$**
            **0.01**
            
            **$**
            **0.01**
            
            **$**
            **0.02**
            
            **$**
            **0.01****Net
                Income Per Share - Diluted**
            
            **$**
            **0.01**
            
            **$**
            **0.01**
            
            **$**
            **0.02**
            
            **$**
            **0.01****Weighted
                average number of shares outstanding during the period -
                Basic**
            
            
            **68,271,544**
            
            
            **45,690,919**
            
            
            **67,207,138**
            
            
            **41,520,539****Weighted
                average number of shares outstanding during the period -
                Diluted**
            
            
            **68,271,544**
            
            
            **49,241,726**
            
            
            **67,207,138**
            
            
            **43,458,443**




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







**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Consolidated
      Statements of Cash Flows


(Unaudited)




For
                the Six Months EndedJune
                30,2006
            
            
            2005CASH
                FLOW FROM OPERATING ACTIVITIES:Net
                Income
            
            $
            1,053,513
            
            $
            585,756Adjustments
                to reconcile net income (loss) to netcash
                used by
                operating activities:Recognition
                of
                deferred consulting fee
            
            
            587,334
            
            
            693,894Bad
                debt expense - related party
            
            
            -
            
            
            9,007Amortization
                and depreciation expense
            
            
            155,906
            
            
            149,278Amortization
                of
                debt discount
            
            
            -
            
            
            143,835Amortization
                of
                debt issue costs
            
            
            -
            
            
            2,166Change
                in fair value of warrants
            
            
            
            
            
            (302,736
            )Change
                in fair value of embedded opt
            
            
            -Loss
                on
                settlement of debt
            
            
            470,897
            
            
            -Gain
                on
                debt settlement
            
            
            -
            
            
            (52,317
            )Reduction
                of
                stock subscription payable
            
            
            -
            
            
            (59,500
            )Stock
                issued for services
            
            
            20,000
            
            
            703,700Changes
                in
                operating assets and liabilities:Accounts
                receivable
            
            
            1,745,879
            
            
            (1,170,500
            )Prepaids
            
            
            88,238
            
            
            (966,796
            )Decrease
                (increase) in other assets
            
            
            (3,004,164
            )
            
            (1,400
            )Increase
                (decrease) in accounts payable & accrued expenses
            
            
            (270,616
            )
            
            (127,543
            )Accrued
                interest payable
            
            
            (55,425
            )
            
            31,802Accrued
                liquidated damages
            
            
            11,613
            
            
            40,000Accrued
                tax provision
            
            
            689,744
            
            
            -Deferred
                revenue
            
            
            (595,564
            )
            
            (406,981
            )Net
                Cash Provided (Used) by Operating Activities
            
            
            897,355
            
            
            (728,335
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Disbursement
                for loan - related party
            
            
            -
            
            
            (9,007
            )Purchase
                of
                fixed assets
            
            
            (17,824
            )
            
            (3,111
            )Net
                Cash Provided (Used) by Investing Activities
            
            
            (17,824
            )
            
            (12,118
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from
                Investment
            
            
            -
            
            
            965,225Costs
                related to Investment
            
            
            -
            
            
            -Repurchase
                of
                stock from shareholders
            
            
            (979,406
            )
            
            -Payment
                of investor
            
            
            (125,000
            )
            
            -Payments
                of
                related party borrowings
            
            
            -
            
            
            (238,803
            )Payments
                on
                Note Payable
            
            
            (250,000
            )
            
            -Payments
                on
                capital leases
            
            
            (7,368
            )
            
            (4,756
            )Proceeds
                from
                stock subscription payable
            
            
            353,270
            
            
            -Stock
                offering costs
            
            
            (1,300
            )
            
            -Common
                stock issued for cash
            
            
            19,833
            
            
            319,575Net
                Cash Provided (Used) by Financing Activities
            
            
            (989,971
            )
            
            1,041,241NET
                INCREASE (DECREASE) IN CASH
            
            
            (110,440
            )
            
            300,788CASH
                AT BEGINNING OF PERIOD
            
            
            1,297,448
            
            
            8,421CASH
                AT END OF PERIOD
            
            $
            1,187,008
            
            $
            309,209








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










IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES


Consolidated
      Statements of Cash Flows (Continued)


(Unaudited)





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




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









**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006





NOTE
      1
      -  BASIS
      OF
      FINANCIAL STATEMENT PRESENTATION





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





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





a.  Accounting
      Method




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





b.  Estimates




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





c.  Cash
      and
      Cash Equivalents




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




NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





d.  Revenue
      Recognition





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
















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




Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





d.  Revenue
      Recognition (Continued)





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





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





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












**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





d.  Revenue
      Recognition (Continued)





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





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





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





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














**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




**Notes
      to the Consolidated Financial Statements**


**June
      30, 2006**





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Allowance
      for Doubtful Accounts and Sales Returns





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














**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006





NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




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





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







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




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




State
                of California
            
            $
            267,420Industrial
                Development Corporation
            
            
            2,362,500$
            2,629,920





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




Industrial
                Development Corporation
            
            $
            535,616State
                of California
            
            
            125,242$
            660,858












**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006








NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




e.  Equity
      Transactions





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





f.  Depreciation
      and Amortization





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




NOTE
      3
      -  EQUITY
      ISSUANCES





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





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





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





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





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





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















**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


June
      30,
      2006







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





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





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




NOTE
        5
        -SUBSEQUENT EVENTS
  In
        July 2006, the Company issued 1,650,000 shares of
        stock for the members of the board of directors.
  In
        July 2006, the Company issued 200,000 shares of
        stock for the aquistion of A-Division Systems IT, LTD.
  In
        the third quarter, the Company expects to close an
        offering to raise 2.5 million in investments.









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





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





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


****


**Overview**




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





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




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




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





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





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





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











**Critical
      Accounting Policies and Estimates**




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





•
      Revenue recognition;


•
      Estimating sales returns and the allowance for doubtful accounts;


•
      Value of long lived assets including purchased software;


•
      Valuation of services paid for with common stock.




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




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




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




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














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




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




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




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




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


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
















**Market
      for our products**




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




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




**Small
      Business Development Centers**




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




**Fortune
      1000 Corporations**




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




**Business
      Associations**




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




**Banking
      Institutions**




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




**Economic
      Development Projects**




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













**Foreign
      Markets**




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




**Secure
      Blue Markets**




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




**International
      Markets**





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




**Sales
      & Market Strategy**




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




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


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





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





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









**Marketing,
      Sales and Support**




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




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


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




**Customer
      Support**




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




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




**Research
      and Development**




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




**Competition**




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


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












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




The
      Company reflected an increase in sales revenues for the three months ended
      June
      30, 2006 to $2,894,817 compared to sales revenues for the three months ended
      June 30, 2005 of $1,330,937, an increase of $1,563,880. The majority of this
      additional revenue was from Industrial Development Corporation who signed up
      additional satellite licenses for $2,362,500. The Company also recorded higher
      sales revenues for the six months ended June 30, 2006 of $5,020,563 compared
      to
      June 30, 2005 sale revenues of $2,439,481. The Company had deferred revenues
      for
      the six months ended June 30, 2006 of $660,858 (deferred pending recognition
      based on amortization policies previously stated; See Note 2 of the Financial
      Statements).




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




The
      Company had operating expenses of $1,208,089 for the three months ended June
      30,
      2006 compared to operating expenses of $937,172 for the three months ended
      June
      30, 2005, an increase of $270,917. The primary reason for the increase was
      due
      to an increase in professional fees of $161,032 and also an increase in salary
      of $138,831, The salary increase was due to the staff located in India as well
      as an
      increase in staff due to increase of sales.The professional
      services expense was increase due to the contract obtained in South Africa.
      This
      reflects an operating profit for the three months ended June 30, 2006 of
      $941,130, as compared to $436,040 for the three months ending June 30,
      2005.




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





The
      company had other expenses of $1,772,234 for the six months ended June 30,
      2006
      compared to other net income of $147,979 for the six months ended June
      30, 2005. The 2005 figures were restated to reflect the change in fair value
      of
      the embedded conventional options and in the fair value of the warrants. The
      increase of other expenses for 2006 was due to the settlement of the debt and
      warrants outstanding, the sale of an asset and a provision for taxes. The loss
      associated with the settlement of the debt and warrants were $470,897. The
      Company recorded a $531,729 loss associated with the sale of the CAC asset.
      The
      Company had recognized a total of $3.5 million at the time of the sale. The
      sale
      was for $4 million of which $1 million is due in 2006 and the balance is due
      for
      each subsequent year over the next 3 years. This figure is reflected in the
      long
      term receivable category on the balance sheet under assets. The Company has
      allocated $689,744 for proposed taxes. The Company accrued $12,188 of taxes
      for
      the first quarter and an additional $677,556 for the second quarter. The Net
      Income reported for the six months ending June 30, 2006 was $1,053,513.





**Liquidity
      and Capital Resources**




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




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


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





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












**FACTORS
      THAT COULD AFFECT FUTURE RESULTS**




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




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




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




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


·
            Competition





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





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





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
















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




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




**ITEM
      3. CONTROLS AND PROCEDURES**




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







PART
      II OTHER INFORMATION








Item
      1.Legal
      Proceedings




Not
      applicable





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





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


Item
      3. Defaults upon Senior Securities





Not
      applicable





Item
      4.
      Submission of Matters to aVote of SecurityHolders





None.





Item
      5.
Other Information





Not
      applicable





Item
      6. Exhibits







A.
              Exhibits:




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


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


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


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





















**SIGNATURES**





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






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


**IBSG
              INTERNATIONAL, INC.**Date: August
              14, 2006
            By:
            /s/ Geoffrey
              BirchGeoffrey
              BirchPrincipal
              Accounting Officer