U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-KSB




(Mark
      One)




|X|
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934


For
      the fiscal year ended **December
      31, 2006**




OR




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


For
      the transition period from ___________________ to
      ______________________




Commission
      file number **000-29587**




**IBSG
      INTERNATIONAL, INC.**




**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  |_|




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.  |_|




The
      issuer's revenues for the fiscal year ended December 31, 2006 were $10,301,970
      .




The
      number of shares outstanding of the issuer's common stock as of March 20, 2007
      was 7,274,598 shares. The aggregate market value of the common stock of
      6,203,598 shares held by non-affiliates, based on the closing price of the
      common stock on the over the counter market as of March 20, 2006 was
      $9,553,541.




Transitional
      Small Business Disclosure Format (Check one): Yes |_| No |X|


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







-1-


**PART
      I**





**Item
      1. Description of Business**




**Business
      Development**




The
      Company was originally incorporated on June 18, 1996, under the laws of the
      State of Florida under the name Celebrity Steakhouses, Inc. The Company changed
      its corporate name to Deerfield Financial Services, Inc. effective October
      28,
      1996. On January 31, 1998, Deerfield acquired all of the outstanding stock
      of
      Optical Concepts of America, Inc., a Delaware corporation, which was formed
      on
      April 30, 1996, under a Stock Purchase Agreement in exchange for 750,000 shares
      of common stock of Deerfield. Prior to the acquisition, the Company had not
      commenced any active business operations. The Company adopted the corporate
      name
      of Optical Concepts of America, Inc. on July 6, 1998 and was engaged in the
      development, design and marketing of a collection of fashionable prescription
      eyeglass frames as well as a line of upscale, ready-to-wear, non-prescription
      reading eyewear until the end of 2000 when it divested this business. Since
      that
      time until February 2004 the company redirected its efforts and limited
      resources to seeking potential new business opportunities or business
      transactions with other companies.




The
      Company signed a share exchange agreement to acquire Intelligent Business
      Systems Group, Inc. (Group) in November 2003 and changed its name to IBSG
      International, Inc. in November 2003. The share exchange agreement closed on
      February 13, 2004. In the share exchange we acquired 100% of the outstanding
      capital stock of Group, in exchange for 1,500,000 shares of our common stock.
      These shares were issued to the stockholders of Group in exchange for their
      wholly owned interest in Group. At the time of acquisition, the stockholders
      of
      Group acquired control of International and accordingly, for accounting
      purposes, Group was treated as the acquiring entity. International is the
      continuing entity for legal purposes. There was no adjustment to the carrying
      value of the assets or liabilities of Group. The Companies began planned
      principle operations as of the date of the reverse merger.




In
      June
      2004 we acquired certain assets of RedHand International, a UK based company,
      which included sophisticated security software and a channel partner agreement.
      We created a new company called Secure Blue, Inc. to own such assets. In
      February of 2006 the Company acquired A-Division IT Systems, Ltd., a UK based
      consultant company to expand the Company’s international business.






**Our
      Business**


IBSG
      International, Inc. is a holding company for four 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, and 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 subsidiary provides
      business development is engaged in international business development and
      consultancy in the technology sector and is, through association with a
      subcontractor, a provider for BAE System’s offset credit projects around the
      world. A-Division gives IBSGI participation in e-commerce platform (BizWorld
      Pro) projects for Small-Midsized Enterprises (SMEs) internationally in countries
      around the world. IBSGI’s relationship with A-Division and BAE has already
      brought the South African project and has developed opportunities with similar
      projects in Saudi Arabia, Malaysia, members of the EU and India.




IBSGroup
      offers BizWorld Pro as a solution 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
      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.





Secure
      Blue, Inc. provides, in management’s opinion, an economical Sarbanes-Oxley (SOX)
      compliance and security software suite, 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.




-2-


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





As
      software providers, system integrators and Application Service Providers, IBSG,
      Inc, A-Division Systems and . and Secure Blue, Inc. generate revenue from
      license sales, system modifications, systems support, and a percentage of
      monthly customer fees. The typical IBSG or A-Division license agreement has
      a
      five-year term (domestic) and 4 years (internationally), respectively, but,
      is
      updated on an annual basis, has historically been renewed upon expiration.




**Market
      for our products**





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





*Master
      License Customer Characteristics:*





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


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






**Small
      Business Development Centers (SBDCS):**


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 license agreements with 9 state SBDC projects
      representing an estimated 90,000 small to mid size enterprises.




**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


-3-


**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.





**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 (SMEs) and provide access to the
      same by larger corporations and government entities. By providing the ability
      to
      manage developing businesses on the internet while creating a robust internet
      presence, small to mid size businesses will be enabled for domestic and
      international business. In 2005, we signed the Republic of South Africa and
      a
      SME development and support platform in conjunction with the BAE Systems offset
      program. Additional business development efforts through A-Division IT Systems under
      this program and directly with various foreign governments are currently
      occurring in multiple other nations. No assurances can be given that any new
      business will materialize from these efforts.




**Secure
      Blue Markets**


Secure
      Blue technology is in a very competitive market. With the demand of BizWorld
      Pro
      increases both domestically and abroad management has decided that the SOX
      software will be added into Bizworld Pro as an enterprise solution to address
      the legislative requirements of working with a US publically traded company
      both
      domestically and internationally.




**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.





-4-


A-Division
      will be utilizing the various government and off set program relationships
      to
      market Biz World Pro internationally. In addition A-Division will be expanding
      its relationship network by utilizing senior consultants to expand the marketing
      reach.





A-Division
      will also expand its internal operations in preparation for supporting the
      numerous opportunities emerging globally. This will enhance visibility, improve
      customer service and provide for more responsively to inquiries regarding
      contracting and implementation of the platform.




**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.




A-Division
      maintains an internal sales team as well as a number of consultant agreements
      for business development. As stated above, the expansion of A-Divison will
      be
      dictated by its continued marketing success.






IBSD
      will
      employ several consultant services to secure independent programming contracts.
      The company will also employ a small force of business developers to develop
      direct business for the company. Most of IBSD's revenue will be derived from
      sub
      contracting opportunities in the areas of maintenance, hosting and support
      for
      IBIN's other subsidiaries. In the coming year this staff will be expanded as
      more business opportunities emerge as the result of the other subsidiaries
      contracts as well as the World Bank project managed by IBSD.




**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. and A-Divison It 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.This is
      combined with an on-line virtual trainer that guides the user through the
      system. This is a proactive solution to the most common request for on-line
      help.




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. IBSD's technical
      teams in the US and India will provide 24X7 support and will alternate between
      time zones to ensure continuous support coverage for end users and channel
      partners




-5-




**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 continue 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. 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.






**Manufacturing**


Our
      products are principally composed of user manuals and storage media, such as
      diskettes tapes, and/or CD-ROM. All coding and revisions are done at the central
      offices of the Company for all subsidiaries' products. All servers related
      to
      initial back up and developments are at the same location. The Company does
      very
      limited “hosting” which is done on-site. The Company follows the standard course
      for treatment of development software and storage with back up power supplies,
      redundant server farms and off site back up services.




**Patents,
      Trademarks and Licenses**


The
      Company currently relies upon a combination of trademark, copyright, and trade
      secret laws and contractual provisions to protect proprietary rights in its
      products. Both the intellectual property being sold by the Company's
      subsidiaries, IBS Group and Secure Blue, are copyright and Trade mark protected
      and owned by the Company. The source code for the Company's products is
      protected both as a trade secret and as an unpublished copyrighted work. Despite
      these precautions, it may be possible for a third party to copy or otherwise
      obtain and use the Company's products or technology without authorization.
      In
      addition, the laws of various countries in which the Company's products may
      be
      sold may not protect the Company's products and intellectual property rights
      to
      the same extent as the laws of the United States. Because the software industry
      is characterized by rapid technological change, the Company believes that
      factors such as the technological and creative skills of its personnel, new
      product developments, frequent product enhancements, name recognition and
      reliable product maintenance are more important to establishing and maintaining
      a technology leadership position than the various legal protections of its
      technology. There can be no assurance that the Company's competitors will not
      independently develop technologies that are substantially equivalent or superior
      to the Company's technology. There can also be no assurance that the measures
      taken by the Company to protect its proprietary rights will be adequate to
      prevent misappropriation of the technology or independent development by others
      of similar technology.




Although
      the Company believes that its products and other proprietary rights do not
      infringe upon the proprietary rights of third parties there can be no assurance
      that third parties will not assert intellectual property infringement claims
      against the Company in the future or that any such claims will not require
      the
      Company to enter into royalty or cross-license arrangements or result in costly
      litigation.


-6-


**Personnel**


As
      of
      March 15, 2007 the Company, including all subsidiaries had a total of 38
      employees, 7 of which were engaged in marketing, sales and related customer
      support services, 26 were in research and development, and 5 were in general
      and
      administrative functions. Our success depends in significant part upon the
      performance of our senior management and certain key employees. Competition
      for
      highly skilled employees, including sales, technical and management personnel
      is
      intense in the software industry. There can be no assurance that the Company
      will retain its key managerial and technical employees. The Company's failure
      to
      attract, assimilate or retain highly qualified sales, technical and managerial
      personnel could materially adversely affect the Company's business. None of
      the
      Company's employees are represented by a labor union. The Company has never
      experienced any work stoppages. None of our employees has a written employment
      agreement.






**Item
      2. Description of Property**




The
      Company leases offices in Celebration, Florida from an independent realtor.
      The
      square foot space leased is approximately 4,000 square feet. The term of the
      lease is 42 months and terminates May 18, 2007. The monthly rent is $5057.00
      per
      month. The Company also maintains a corporate office in London, United Kingdom
      on a month by month basis for approximately $490 per month. The company leases
      1900 square feet corporate office in Ahmedabad, India. The terms are of the
      lease is 60 months and terminates on February 2011. The monthly rent is $1,392.




**Item
      3. Legal Proceedings**




None.




**Item
      4. Submission Of Matters To A Vote Of Security Holders**




There
      were no submissions of matters to security holders in the fourth quarter
      2006.




-7-


**PART
      II**




**Item
      5. Market For Common Equity And Related Stockholder
      Matters**




Common
      Stock




Our
      common stock is quoted on the NASD OTC Bulletin Board under the symbol “IBIN”.
      The following is the range of high and low closing prices for our common stock
      for the periods indicated:


**PERIOD**
            
            
            **HIGH**
            
            
            **LOW**January
                1, 2005 - March 31, 2005
            
            $
            6.90*
            
            $
            2.00*April
                1, 2005 - June 30, 2005
            
            $
            2.80*
            
            $
            1.20*July
                1, 2005 - September 30, 2005
            
            $
            2.40*
            
            $
            0.70*October
                1, 2005 - December 31, 2005
            
            $
            2.90*
            
            $
            1.30*January
                1, 2006 - March 31, 2006
            
            $
            1.90*
            
            $
            1.30*April
                1, 2006 - June 30, 2006
            
            $
            2.70*
            
            $
            1.50*July
                1, 2006 - September 30, 2006
            
            $
            2.10*
            
            $
            1.50*October
                1, 2006 - December 31, 2006
            
            $
            1.75*
            
            $
            1.23*


*Post
      reverse split






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




As
      of
      March 20, 2007 there were approximately 299 holders of record of our common
      stock.




Holders
      of our common stock are entitled to cash dividends when, as may be declared
      by
      the board of directors. We do not intend to pay any dividends in the foreseeable
      future and investors should not rely on an investment in us if they require
      dividend income. We intend to retain earnings, if any, to finance the
      development and expansion of our business. Future dividend policy will be
      subject to the discretion of our board of directors and will be based upon
      future earnings, if any, our financial condition, capital requirements, general
      business conditions and other factors. There can be no assurance that cash
      dividends of any kind will ever be paid.




-8-


**Item
      6. Management's Discussion And Analysis Or Plan Of
      Operation**




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-KSB, 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. Management will elect additional changes
      to
      revenue recognition to comply with any future changes in GAAP regarding
      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 annually report
      on Form 10-KSB should be read in conjunction with the Company's Consolidated
      Financial Statements and Notes to Consolidated Financial Statements included
      in
      its 2006 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 subsidiary and provides
      business development support in IBSG International’s (IBSGI) South African
      project. A-Division is a subcontractor to BAE Systems and provides IT projects
      for BAE’s offset programs by establishing IT Hubs. A-Division is engaged in
      international business development and consultancy in the Technology sector
      and
      is a subcontractor for BAE System’s offset credit projects around the world. The
      purchase gives IBSGI participation in e-commerce platform (BizWorld Pro,
      copyrighted and trade mark protected) projects for Small-Midsize Enterprises
      [SMEs] internationally in countries beyond South Africa. IBSGI’s relationship
      with A-Division and BAE has already brought the South African project and
      opportunities with similar projects in Saudi Arabia, Malaysia, members of the
      EU
      and India.




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




-9-


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





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





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




**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.


**·** Accounting for Derivatives




**Revenue
      Recognition**





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





*Background*





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


-10-


*Master
      License Customer Characteristics*





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




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


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


o
            professional
                services are recognized as services are
                delivered.






*General*





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





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





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


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


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


3.
            Delivery
                occurs,


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


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


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




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





-11-


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





*License
      Revenue*





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





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






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





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





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





*Professional
      Services Revenue*





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





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





-12-


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




*Factors
      for Government or Quasi-Government Agency Customers*





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




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


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


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


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


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


·
            our
                contracts do not include any Fiscal Funding Clauses,


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


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





*Deferred
      Revenue*





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




Deferred
      revenue at December 31, 2006 was $3,199,461 as compared to $1,681,422 of
      deferred revenue at December 31, 2005. The Company deferred revenues are as
      followed at December 31, 2006:




California
            
            $
            292,193Industrial
                Development Corporation -South Africa Initiative
            
            
            687,500Kenya
              Drako
                Oil
            
            
            994,768
              1,225,000$
            3,199,461





-13-


**Cost
      of Sales**




Cost
      of
      Sales was $410,726 in 2005 approximately 5% of revenues. Cost of Sales was
      $272,171 in 2006.Cost of sales is the amortization and depreciation of the
      software assets. The Company has determined that the amount of salaries
      responsible for the installation and maintenance which would be allocable into
      cost of sales would be approximately $1,500 for the year ended December 31,
      2005. The Company has determined that this amount is immaterial.




**Services
      paid for with common stock**




Stock-based
      compensation was $1,474,661 in 2006 arising out of the issuance of common stock
      as compensation for services received and to be received. The Company at
      December 31, 2006 had $3,541,036 of prepaid expenses on its books relating
      to
      the stock-based compensation.




**Amortization
      and depreciation**




Amortization
      and depreciation expense was $35,153 for 2006. We recognized amortization and
      depreciation expense on our furniture, fixtures and equipment.




**Bad
      debt expense**




**** The
      Company did not incur any bad debt expense for 2006.




**General
      and Administrative Expense**




General
      and administrative expenses were $2,489,885 in 2006 and $1,120,575 in 2005.
      General and administrative expenses consist primarily of related personnel
      costs, and other general corporate costs. General and administrative expenses
      show an increase in 2006 primarily due to the additional of the ISBD India,
      the
      South Africa office and the A-1 Division office as well as an increase in travel
      expenses.




**Loss
      on extinguishment of related party debt**




The
      company had no loss relating to extinguishment of related party debt in 2006.






**Interest
      Expense and Liquidated Damages**




Interest
      expense was $58,877 for 2006 and $456,251 was recorded in 2005. This reduction
      in cost was due to the settlement of the $1,000,000 convertible promissory
      note
      interest incurred since March 2005 and the related amortization of debt
      discounts.





We
      incurred liquidated damages of $160,000 in 2005 since we did not file the
      required registration statement relating to the shares underlying the
      convertible promissory note and warrants. This debt was paid off in the first
      quarter of 2006 and $11,613 liquidating damages were expensed.





-14-


**Change
      in Fair Value of Embedded Conversion Option and Warrant
      Liabilities**





As
      discussed under “critical accounting policies” the embedded conversion option
      and warrants issued with the convertible debt were determined to be derivative
      liabilities. We recorded the derivative liabilities at the funding date of
      March
      17, 2005 and changes in the fair value were recorded at each reporting date
      during 2005 as other expenses or income. The net effect was other income of
      $212,692 in the three months ending in December 31, 2005. The change in fair
      value of embedded conversion option and warrants created other expenses of
      $79,864 for the year
      endingDecember 31, 2006.




**Net
      Income (Loss)**




The
      Company reported a net income of $1,827,766 in 2006 and a net income of
      $2,132,888 in 2005. The primary reason for the decrease in net income
      is due to $1,949,540 of income tax expense recorded in 2006. The
      increase in general and administrative expenses during 2006, primarily
      resulting from the opening of international offices, also added to the
      decrease in net income.




**Liquidity
      and Capital Resources**




The
      company paid off the $1,000,000 of Senior Secured Convertible Notes in the
      first
      quarter of 2006. In the second quarter of 2006, the company purchased 461,400
      of
      common stock from shareholders. The company expanded its operations to two
      international offices in 2006. One of the office is in South Africa and the
      other operation is located in India. 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 acquire new
      investments to provide for further research and development capital and
      assisting further acquisitions over the next twelve months.





We
      currently have four (4) major customers, Industrial Development Corporation
      - South Africa Initiative, Drako Oil, California,
      and Kenya. Our accounts receivables from the customers are as follows at
      December 31, 2006:





Other
                Receivables
            
            $
            520,000California
            
            
            2,973,120Drako
                Oil
            
            
            3,500,000Kenya
            
            
            3,800,000Industrial
                Development Corporation - South Africa Initiative
            
            
            4,546,430$
            15,339,550,




**Obligations
      and Commitments**


The
      following table reflects our contractual obligations and other commercial
      commitments as of December 31, 2006. This table does not include trade payables,
      derivative liabilities and other operating expenses not subject to written
      commitments such as salaries.




Payments
      Due By Period as of December 31, 2006


**Total**
            
            **Less
                Than**
              **1
                Year**
            
            **1-3
                Years**
            
            **4-5
                Years**Debt
            
            $
            0.0
            
            $
            0.0
            
            $
            0.0Capital
                Leases
            
            $
            4,030
            
            $
            0.0
            
            $
            0.0Total
                Contractual Obligations
            
            $
            4,030
            
            $
            0.0
            
            $
            0.0






-15-


**Off
      Balance Sheet Arrangements**




The
      company does not have significant off-balance sheet arrangements.




**Factors
      That May Affect Our Business, Future Operating Results and Financial
      Condition**


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. Due to the tardiness, the company would end up financing the account
      receivables. 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.


-16-




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.




FORWARD
      LOOKING STATEMENTS - CAUTIONARY FACTORS





This
      annual report on Form 10-KSB contains forward-looking statements within the
      meaning of that term in Section 27A of the Securities Act of 1933, as amended,
      and in Section 21F of the Securities Exchange Act of 1934 as amended. The
      statements relate to future events or our future financial performance. In
      some
      cases, you can identify forward-looking statements by terminology such as "may,"
      "will," "should," "expect," "plan," "intend," "anticipate," "believe,"
      "estimate," "predict," "potential" or "continue," the negative of these terms
      or
      other similar terminology. These forward-looking statements involve risks and
      uncertainties and other factors that may cause the actual results, performance
      or achievements to differ from any future results, performance or achievements
      expressed or implied by such forward-looking statements. Except for the
      historical information and statements contained in this Report, the matters
      and
      items set forth in this Report are forward looking statements that involve
      uncertainties and risks some of which are discussed at appropriate points in
      the
      Report and are also summarized as follows:




**BUSINESS
      RISKS**




**WE
      HAVE ACHIEVED PROFITABLE OPERATIONS BUT MAY NOT BE PROFITABLE IN THE
      FUTURE.**




We
      incurred a net income of $1,827,766 in 2006 and a net income of $2,132,888
      in
      2005. Our revenues are currently greater than our expenses. The Company recorded
      $1,949,540 of taxes for the year ending December 31, 2006. Our ability to
      operate profitably depends on generating sales and achieving sufficient gross
      profit margins. We cannot assure you that we will achieve or maintain profitable
      operations in the future.




**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 non-profit chambers
      of
      commerce 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.




**WE
      HAVE A LIMITED OPERATING HISTORY WHICH MAKES YOUR EVALUATION OF OUR BUSINESS
      DIFFICULT.**




We
      acquired our BizWorld Data System software and began servicing licensees of
      such
      software in 2003. 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 include:




**·** uncertain commercial acceptance of our products, including our Secure Blue
      product which we expect to introduce into the commercial marketplace in
      2005;


**·** technological obsolescence; and


**·** competition, including competition from other software products which may enable
      users to achieve the same results as our software.




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.


-17-




**LOSS
      OF A MAJOR CUSTOMER WOULD SUBSTANTIALLY HARM OUR OPERATING
      RESULTS.**




Substantially
      all of our revenue comes from three customers, all of whom are governmental
      entities. Loss of either of such customers would substantially harm our
      operating results.




**OUR
      SOFTWARE PRODUCTS MAY NOT ACHIEVE SUFFICIENT MARKET
      ACCEPTANCE.**




We
      cannot
      assure you that our current or new products will prove sufficiently attractive
      to our clients and potential clients to enable us to reach a sufficient level
      of
      sales to generate net income and positive cash flows.




**REDUCED
      FUNDING OF SMALL BUSINESS DEVELOPMENT CENTERS MAY ADVERSELY AFFECT OUR
      REVENUES**




Our
      BizWorld Data System product is designed to enhance the operating efficiency
      and
      create revenue for State Small Business Development Centers (SBDCs). The SBDCs
      represent a core potential customer market for the System. These organizations
      are dependent upon funding from state and Federal governmental sources. Reduced
      funding to these organizations may force them to cease being our customers
      or
      reduce the possibility of our acquiring additional small business development
      centers in the future.




**OUR
      FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD ADVERSELY AFFECT
      OUR
      ABILITY TO COMPETE EFFECTIVELY.**




We
      rely
      on a combination of contracts, copyrights 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.





**OUR
      BUSINESS IS DEPENDENT IN PART ON THIRD PARTY LICENSEES WHOM WE DO NOT
      CONTROL.**




We
      provide our BizWorld Data System to certain licensees on a revenue sharing
      basis
      whereby we receive a percentage of the revenue generated by our licensees from
      end users of the product. If these licensees are not successful in developing
      end users who pay for use of the product then we will not receive the revenues
      we expect from these arrangements.




**OUR
      BUSINESS AND OPERATING RESULTS WILL SUFFER IF OUR SYSTEMS OR THE INTERNET FAIL,
      BECOME UNAVAILABLE OR PERFORM POORLY SO THAT CURRENT** **OR
      POTENTIAL USERS DO NOT HAVE ADEQUATE ACCESS TO OUR PRODUCTS OVER THE
      INTERNET.**




Our
      BizWorld Data System software is generally accessed by end users over the
      internet. Our ability to provide our products and services to our customers
      and
      operate our business depends on the continued operation of our information
      systems and the internet. A significant or repeated reduction in the
      performance, reliability or availability of our information systems or the
      internet could harm our ability to conduct our business, and harm our reputation
      and ability to attract and retain customers.




-18-


**OUR
      INTERNATIONAL OPERATIONS EXPOSE OUR BUSINESS TO ADDITIONAL
      RISKS.**




A
      significant portion of our 2006 revenue was derived from a customer in Kenya
      and
      in South Africa. This may involve risks inherent in doing business on an
      international level, including difficulties in managing operations due to
      distance, language and cultural differences, different or conflicting laws
      and
      regulations, political instability and difficulty in collection of
      receivables.




**WE
      MAY HAVE DIFFICULTY IN MEETING THE DEMANDS WHICH MAY ARISE IN THE EVENT OF
      SIGNIFICANT GROWTH IN OUR OPERATIONS.**




In
      the
      event we are successful in developing significant additional demand for our
      products we may experience significant pressure on the Company's managerial,
      operational, and financial resources. We may be required to rapidly add to
      our
      staff and facilities which may require additional financing. We cannot assure
      you that we will be successful in meeting the challenges of managing the growth
      of our business.




**WE
      MAY HAVE SOME CASH FLOW PROBLEMS IF THE ACCOUNTS RECEIVABLE ARE NOT PAID IN
      A
      TIMELY MANNER.**




The
      majority of our clients are governmental entities. The funds for these projects
      have been allocated for all invoices. However, governmental entities can be
      slow
      in making their payments. Although the Company maintains the position that
      these
      revenues are fixed and determinable due to the legal requirements of government
      entities, this may involve risks of providing for additional capital to operate
      the Company until the payments are received. The Company reserved the option
      to
      finance the receivable until payment is received.




**SECURITIES
      RISKS**




*“PENNY
      STOCK” RULES MAY MAKE BUYING OR SELLING OUR SECURITIES
      DIFFICULT.*




Trading
      in our securities will be subject to the “penny stock” rules for the foreseeable
      future. The Securities and Exchange Commission has adopted regulations that
      generally define a penny stock to be any equity security that has a market
      price
      of less than $5.00 per share, subject to certain exceptions. These rules require
      that any broker-dealer who recommends our securities to persons other than
      prior
      customers and accredited investors must, prior to the sale, make a special
      written suitability determination for the purchaser and receive the purchaser's
      written agreement to execute the transaction. Unless an exception is available,
      the regulations require the delivery, prior to any transactions involving a
      penny stock, of a disclosure schedule explaining the penny stock market and
      the
      risks associated with trading in the penny stock market. In addition,
      broker-dealers must disclose commissions payable to both the broker-dealer
      and
      the registered representative and current quotations for the securities they
      offer. The additional burdens imposed upon broker-dealers by such requirements
      may discourage broker-dealers from recommending transactions in our securities,
      which could severely limit the liquidity of our securities and consequently
      adversely affect the market price for our securities.






**Item
      7. Financial Statements**




See
      the
      Company's consolidated financial statements beginning on page F-1.




-19-


**Item
      8. Changes In And Disagreements With Accountants On Accounting And Financial
      Disclosure**




We
      have
      had no disagreements on any matter of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedures with any of
      our
      accountants for the year ended December 31, 2006 or any interim
      period.




We
      have
      not had any other changes in nor have we had any disagreements, whether or
      not
      resolved, with our accountants on accounting and financial disclosures during
      our two recent fiscal years or any later interim period.




**Item
      8A 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 December 31, 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.





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





Changes
      in Internal Control over Financial Reporting




There
      has
      been no change 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 December
      31,
      2006.




**Item
      8B Other Information**




None.




-20-


**Part
      III**






**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT**




The
      following table sets forth the directors and officers of the
      Company.


**NAME**
            **POSITION**Michael
                Rivers, PhD
            President,
                CEO and DirectorGeoffrey
                Birch
            Director
                TreasurerJeffrey
                Willmott
            Director




Dr.
      Michael Rivers is the founder of IBSG and has over twenty-one years experience
      in the field of business development, support and human services. His areas
      of
      expertise include supporting the development of small to mid size businesses,
      establishing digital business services with a diverse group of business
      community entities and remote vocational relationships within One-Stop Career
      Center processes through technology. Michael has served as an expert and guest
      speaker for several organizations. Of note, the U.S. Dept. of Commerce, the
      Social Security Administration, the Dept. of Labor, the Association for
      Community Colleges and a number of state and national organizations. Michael
      holds a doctorate through the Washington D.C. consortium of universities, and
      an
      undergraduate degree in the diversified studies of Chemistry, Biology and
      Psychology.





Mr.
      Jeffrey Willmott is a senior level executive with over 35 years experience
      in
      diverse industries, both domestic and international in scope. He started his
      career in 1977 at Avon Products, spending 5 years in the South American
      marketing group, and then 3 years as Division Manager for a $25million dollar
      New England sales group. Recruited to Westinghouse in 1983 into their nascent
      cable television unit, Group W, Mr. Willmott spent 8 years in all phases of
      sales and marketing, rising to run the effort in the southeast region of the
      U.S. After the sale of that business, Mr. Willmott joined the venerable
      investment banking firm of Dillon Read & Company (now UBS) in 1991, spending
      the next 8 years in financial services business development and marketing.
      In
      2002, he joined the board of RCG Companies, a public travel/technology holding
      company. He was immediately made Chairman of the Board, and through various
      travel related mergers/acquisitions, the business grew to over $300 million
      in
      bookings. Mr. Willmott retired the Chair in 2005, and remained a director until
      the company was acquired by private equity. Mr. Willmott joined the board of
      IBSG International in June 2005. He is currently also advising several private
      early stage companies with their development. Also, he serves on the Adjunct
      faculty of both New York University Graduate Management Program and Fordham
      University Graduate School of Business. He holds a Bachelors and an MBA in
      marketing.





Mr.
      Geoffrey Birch was in plastics and pharmaceuticals for over 30 years which
      included manufacturing and distribution. Mr. Birch developed a specialist
      European facility for medicated over-the-counter hair treatments and eventually
      it was purchased by SSL International, a UK publicly quoted company in the
      late
      1990s. Mr. Birch was a board member of several UK Venture capital firms
      investing in young UK companies with identifiable growth potential in the areas
      of technology. He is currently chairman of Sylvrey Ltd, an investment company.
      Mr. Birch brings in-depth knowledge into the development of businesses in bear
      and bull markets.





Our
      directors are elected for a one-year term at our annual shareholders' meeting.
      Vacancies may be filled by the Board of Directors until the next annual
      meeting.




SECTION
      16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's directors
      and executive officers, and persons who own more than 10% of a registered class
      of the Company's equity securities, to file with the Securities and Exchange
      Commission (the “Commission”) initial reports of ownership and reports of
      changes in ownership of Common Stock and other equity securities of the Company.
      Officers, directors and greater-than 10% shareholders are required by the
      Commission's regulations to furnish the Company with copies of all Section
      16(a)
      forms they file. Based solely on its review of Forms 3, 4 and 5 received by
      the
      Company, transactions involving the Company and review of stockholder records,
      the Company believes, during the fiscal year ended December 31, 2004, all filing
      requirements under Section 16(a) of the Securities Exchange Act of 1934
      applicable to officers, directors and 10% shareholders were
      satisfied.


-21-




Audit
      Committee Financial Expert




The
      Board
      has determined that Director Geoffrey Birch has the expertise to be financial
      expert as defined by Item 401(e)(2) of Regulation S-B of the Securities exchange
      Act of 1934. Mr. Birch is not independent within the meaning of Item 7(d)(iv)
      of
      Schedule 14A under the Exchange Act. The board anticipates when an audit
      committee is impaneled, Mr. Birch will serve on that committee in that
      capacity.




Code
      of
      Ethics




The
      Company has adopted a code of business conduct and ethics for its directors,
      officers and management employees. Such code was filed as Exhibit 14 to Form
      10-KSB filed March 21, 2004 and is available to shareholders at no charge from
      the Company at, 1132 Celebration Blvd., Celebration, FL 34747.




The
      Board of Directors accepted the proposal of HJ & Associates, LLC for the
      2006 audit and elected to continue to retain their services.




**ITEM
      10. EXECUTIVE COMPENSATION**




SUMMARY
      COMPENSATION TABLE (1)




The
      following table summarizes compensation paid to the Company's president/chief
      executive officer in 2005 (the “named executive officers”) as well as his
      compensation in 2004. No other officer received compensation of $100,000 in
      any
      such year.


**Annual
                Compensation**
            **Long
                Term Compensation Awards****Awards**
            
            **Payouts****Year**
            
            
            **Salary**
              **($)**
            
            
            **Bonus**
              **($)**
            
            
            **Other**
              **Annual**
              **Compen-**
              **sation**
              **($)**
            
            
            **Restricted**
              **Stock**
              **Award(s)**
              **($)**
            
            
            **Securities**
              **Underlying**
              **Options/**
              **SARs**
              **(#)**
            
            
            **LTIP**
              **Payouts**
              **($)**
            
            
            **All**
              **Other**
              **Compen-**
              **sation**
              **($)**Michael
                Rivers,
            
            
            2006
            
            $
            198,000President,
                CEO
            
            
            2005
            
            $
            193,770
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




Dr.
      Rivers was appointed CEO of IBSG International as of November 17, 2003. All
      of
      Dr. Rivers's salary is currently deferred and $120,000 of his 2005 salary was
      waived and contributed to the capital of the Company.


-22-




EXECUTIVE
      EMPLOYMENT CONTRACTS




The
      named
      executive officer set forth in the Summary Compensation Table is an “at will”
employee and does not have written employment agreement. The Board of Directors
      has established the 2006 current base annual salary of the named executive
      officers as $198,000. Currently 2006's salary is being deferred.




The
      Company has no stock option, SAR or other compensation plans.





DIRECTOR
      COMPENSATION




Directors
      are not paid for meetings attended at our corporate headquarters or for
      telephonic meetings. All travel and lodging expenses associated with directors'
      meeting(s) are reimbursed by the Company.




On
      July
      18, 2006, the Company issued 165,000 shares of common stock to the directors.
      A
      consulting company controlled or represented by Geoffrey Birch's wife, the
      Company's Chief Financial Officer and a director was issued 50,000 shares.
      Jeffrey Willmott was issued 15,000 shares. A trust account was issued 100,000
      of
      shares for Dr. Michael Rivers.




**Item
      11. Security Ownership Of Certain Beneficial Owners And Management and Related
      Stockholder Matters**




The
      following table sets forth certain information regarding the beneficial
      ownership of Common Stock as of March 31, 2006 by (i) each stockholder who
      is
      known by the Company to own beneficially more than five percent of the Company's
      outstanding Common Stock, (ii) each director of the Company, (iii) the Company's
      executive officer named in the Summary Compensation Table, and (iv) by all
      executive officers and directors of the Company as a group.


**Name
                of Shareholder**
            
            **Shares
                Beneficially Owned**
            
            **Percent
                of**
              **Class**M&K
                Trust (1)
            
            
            901,000
            
            
            12.9Geoffrey
                Birch (2)
            
            
            150,000
            
            
            *Jeffrey
                Willmott
            
            
            20,000
            
            
            *All
                directors and executive
            
            
            1,071,000
            
            
            12.9officers
                as a group (3 persons)




*
      Less
      than 2%


-23-




(1)       
      Represents shares owned in the name of M&K Trust, a trust established in
      April of 2001 for the benefit of Michael Rivers' children and wife, Kim Rivers.
      Kim Rivers is the trustee of the trust and exercises sole voting and investment
      power with respect to such shares. Dr. Rivers disclaims any beneficial interest
      in such shares.


(2)       Represents shares owned in
      the name of Mr. Birch's shares are owned by Sylvrey, LTD and Tamarinada Ventures
      LTD of in Guernsey, UK.






The
      following issuances of common stock in 2006 were approved by the Company's
      Board
      of Directors. Except as indicated, these issuances were not to directors,
      officers or 10% holders. Reference is made to Note 5 to the Financial Statements
      included in this report for further information concerning these
      issuances.




Shares
                issued for cash
            369,300Shares
                issued for services
            20,000Shares
                issued for acquisition of a business
            20,000Shares
                issued for board member services
            165,000Shares
                purchased for treasury stock
            (461,400)Shares
                issued for debt extinguishment
            834,733Shares
              issued in private offering
            82,500




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





**Item
      12. Certain Relationships and Related Transactions**




The
      President of the Company waived the right to receive $120,000 of his 2005 salary
      which has been accounted for as a contribution to the Company's capital. The
      President of the Company also contributed $26,500 to the Company in
      2005.







-24-


**Item
      13. Exhibits**




The
      Company shall furnish copies of exhibits for a reasonable fee (covering the
      expense of furnishing copies) upon request to Michael Rivers, IBSG
      International, 1132 Celebration Blvd., Celebration, FL 34747




**Exhibit
      Number      
    Description**


3.1
            Articles
                of Incorporation, as amended. Incorporated by reference to exhibit
                3(i) to
                the Company's Form 10-SB/12g filed on March 27,
                2002.




3.2
            By-laws,
                as amended. Incorporated by reference to exhibit 3(ii) to the Company's
                Form 10-SB/12g filed on March 27,
                2002.




10.1
            Stock
                Purchase Agreement. Incorporated by reference to Exhibit 1.1 to Form
                8-K
                filed on November 21, 2003.




10.2
            Promissory
                Note dated November 10, 2003. Incorporated by reference to Exhibit
                10.2 to
                Registration Statement on Form SB-2 (file no.
                333-119903).




10.3
            Note
                Modification Agreement dated June 2004. Incorporated by reference
                to
                Exhibit 10.3 to Registration Statement on Form SB-2 (file no.
                333-119903).




10.4
            Subscription
                Agreement dated March 17, 2005 for purchase of senior secured convertible
                notes and common stock purchase warrants. Incorporated by reference
                to
                Exhibit 10.1 to Form 8-K filed on March 31,
                2005




10.5
            Form
                of Senior Secured Convertible Promissory Note. Incorporated by reference
                to Exhibit 10.2 to Form 8-K filed on March 31,
                2005




10.6
            Form
                of Class A Common Stock Purchase Warrant. Incorporated by reference
                to
                Exhibit 10.3 to Form 8-K filed on March 31,
                2005




10.7
            Form
                of Class B Common Stock Purchase Warrant. Incorporated by reference
                to
                Exhibit 10.4 to Form 8-K filed on March 31,
                2005




10.8
            Form
                of Security Agreement. Incorporated by reference to Exhibit 10.5
                to Form
                8-K filed on March 31, 2005






14
            Code
                of Ethics (Incorporated by reference to Exhibit 14 to the Registrant's
                Form 10-KSB, filed March 21, 2004.)




21
            Subsidiaries
                of the Small Business
                Issuer.




16.1
            Letter
                from Robert C. Seiwell, CPA. Incorporated by reference to Exhibit
                16. to
                the Company's Form 8-K/A, filed on March 31,
                2004.




31.1
            Rule
                13a-14(a)/15d-14(a) Certifications of the Chief
                Executive Officer and Chief Financial
                Officer




31.2
            Rule
                13a-14(a)/15d-14(a) Certifications of the Chief
                Executive Officer and Chief Financial
                Officer




32.1
            Section
                1350 Certification of the Chief Executive
                Officer




32.2
            Section
                1350 Certification of the Chief Financial
                Officer


-25-


**Item
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




HJ
      & Associates, LLC (“HJ&A”) has audited the Company's financial
      statements annually since 2003.   Fees related to services performed by
      HJ&A in 2006 and 2005 were as follows:


**2006**
            
            **2005**Audit
                Fees (1)
            
            $
            34,318
            
            $
            42,159Audit-Related
                FeesTax
                Fees (2)All
                Other Fees (3)
            
            $
            8,741
            
            $
            3,430Total
            
            $
            43,059
            
            $
            45,589




(1)
            Audit
                fees represent fees for professional services provided in connection
                with
                the audit of our financial statements and review of our quarterly
                financial statements.




(2)
            Tax
                fees principally included tax advice, tax planning and tax return
                preparation.




(3)
            Other
                fees related to Registration Statement Reviews and
                Comments.




The
      Board
      of Directors has reviewed and discussed with the Company's management and
      auditors the audited consolidated financial statements of the Company contained
      in the Company's Annual Report on Form 10-KSB for the Company's 2006 fiscal
      year. The Board has also discussed with the auditors the matters required to
      be
      discussed pursuant to SAS No. 61 (Codification of Statements on Auditing
      Standards, AU Section 380), which includes, among other items, matters related
      to the conduct of the audit of the Company's consolidated financial
      statements.




The
      Board
      has received and reviewed the written disclosures and the letter from HJ&A
      required by Independence Standards Board Standard No. 1 (Independence
      Discussions with Audit Committees), and has discussed with its auditors its
      independence from the Company. The Board has considered whether the provision
      of
      services other than audit services is compatible with maintaining auditor
      independence.






Based
      on
      the review and discussions referred to above, the Board approved the inclusion
      of the audited consolidated financial statements be included in the Company's
      Annual Report on Form 10-KSB for its 2006 fiscal year for filing with the
      SEC.




Audit
      Committee's Pre-Approval Policies




The
      Board's policy is now to pre-approve all audit services and all permitted
      non-audit services (including the fees and terms thereof) to be provided by
      the
      Company's independent auditor; provided, however, pre-approval requirements
      for
      non-audit services are not required if all such services (1) do not aggregate
      to
      more than five percent of total revenues paid by the Company to its accountant
      in the fiscal year when services are provided; (2) were not recognized as
      non-audit services at the time of the engagement; and (3) are promptly brought
      to the attention of the Board and approved prior to the completion of the
      audit.




The
      Board
      pre-approved all fees described above.





-26-


**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
      March 29, 2007.


**IBSG
                INTERNATIONAL, INC**Date: March
                29, 2007
            By:
            /s/
                Michael RiversMichael
                RiversPresident




In
      accordance with the requirements of the Exchange Act, this report has been
      signed by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated:


**Signature**
            **Title**
            **Date**/s/
                Michael Rivers
            President
                and Director ( Principal
            March
                29, 2007Michael
                Rivers
            Executive
                Officer)/s/
                Jeffery Willmott
            Director
            March
                29, 2007Jeffery
                Willmott/s/
                Geoffrey Birch
            Director,
                Treasurer (Principal
            March
                29, 2007Geoffrey
                Birch
            Accounting
                Officer)






-27-












**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




December
      31, 2006


**C
      O N T E N T S**


Report
                of Independent Registered Public Accounting FirmConsolidated
                Balance Sheet
            3-4Consolidated
                Statements of Operations
            5Consolidated
                Statements of Changes in Stockholders' Equity
            6Consolidated
                Statements of Cash Flows
            7Notes
                to the Consolidated Financial Statements
            9




F-1-






REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
 
 To
          the
          Board of Directors of
 IBSG
          International, Inc. and Subsidiaries
 Celebration,
          Florida
 
 
 We
          have
          audited the accompanying consolidated balance sheet of IBSG International,
          Inc.
          and Subsidiaries at December 31, 2006, and the related statements of operations,
          stockholders’ equity and cash flows for the years ended December 31, 2006 and
          2005. These consolidated financial statements are the responsibility of
          the
          Company’s management. Our responsibility is to express an opinion on these
          consolidated financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. An
          audit
          includes examining, on a test basis, evidence supporting the amounts and
          disclosures in the consolidated financial statements. An audit also includes
          assessing the accounting principles used and significant estimates made
          by
          management, as well as evaluating the overall consolidated financial statement
          presentation. We believe that our audits provide a reasonable basis for
          our
          opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of IBSG International,
          Inc. and
          Subsidiaries at December 31, 2006, and the results of their operations
          and their
          cash flows for the years ended December 31, 2006 and 2005 in conformity
          with
          United States generally accepted accounting principles.
 
 
 
 HJ
&
          Associates, LLC
 Salt
          Lake
          City, Utah
 March
          27,
          2007
 F-2-
  **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Balance Sheet
  **ASSETS**
 **December
                  31,**
                **2006**CURRENT
                  ASSETSCash
              
              $
              963,646Accounts
                  receivable
              
              
              15,339,550Prepaid expenses
              
              
              454,753Total
                  Current Assets
              
              
              16,757,949FURNITURE,
                  FIXTURES AND SOFTWARE, NET (Note 3)
              
              
              641,167OTHER
                  ASSETSDeposits
              
              
              4,164Account receivable - long term, net of discount of
                  $428,296
              
              
              2,571,704Other assets
              
              
              170,805Goodwill
                Deferred consulting services
              
              
              38,000
                3,541,036Total
                  Other Assets
              
              
              6,325,709TOTAL
                  ASSETS
              
              $
              23,724,825
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
   
 F-3-
 **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Balance Sheet (Continued)
  LIABILITIES
        AND STOCKHOLDERS' EQUITY
   **December
                  31,**
                **2006**CURRENT
                  LIABILITIESAccounts
                  payable and accrued expenses
              
              
              
              
              $
              964,463Accrued
                  tax provision
              
              
              
              
              
              2,121,640Deferred
                  revenue (Note 2)
              
              
              
              
              
              3,199,461Capital
                  leases payable
              
              
              
              
              
              4,031Total
                  Current Liabilities
              
              
              
              
              
              6,289,595TOTAL
                  LIABILITIES
              
              
              
              
              
              6,289,595COMMITMENTS
                  AND CONTINGENCIES (Note 6)STOCKHOLDERS'
                  EQUITYCommon
                  stock authorized 100,000,000 shares at$0.001
                  par value; 7,017,519 shares issued and outstanding
              
              
              
              
              
              7,071Additional
                  paid-in capital
              
              
              
              
              
              16,205,838Retained
                  Earnings
              
              
              
              
              
              1,222,321Total
                  Stockholders' Equity
              
              
              
              
              
              17,435,230TOTAL
                  LIABILTIES AND STOCKHOLDERS' EQUITY
              
              
              
              
              $
              23,724,825
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
   F-4-
  **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Statements of Operations
 **For
                  the years ended**
                **December
                  31,****2006**
              
              
              **2005**REVENUES
              
              $
              10,301,970
              
              $
              7,226,064EXPENSESCost
                  of Sales
              
              
              272,171
              
              
              410,726Services
                  paid for with common stock
              
              
              1,474,661
              
              
              1,802,581Amortization
                  and depreciation
              
              
              35,153
              
              
              39,685Salary
              
              
              914,064
              
              
              538,549Professional Fees
              
              
              827,929
              
              
              717,052General
                and administrative
                expenses
              
              
              2,489,885
              
              
              1,120,575Total
                  Expenses
              
              
              6,013,863
              
              
              4,629,168Income
                  from operations
              
              
              4,288,107
              
              
              2,596,896OTHER
                  EXPENSESLoss
                  on asset sale
              
              
              --
              
              
              (8,266)Interest
                  expense
              
              
              (58,877)
              
              
              (456,251
              )Interest
                  income
              
              
              98,837
              
              
              --Liquidated
                  damages option liability
              
              
              --
              
              
              (160,000)Change
                  in fair value of embedded conversion
              
              
              (18,683)
              
              
              388,870Change
                  in far value of warrant liability
              
              
              (61,181)
              
              
              (176,178)Loss
                  on debt settlement
              
              
              (470,897)
              
              
              --Gain
                  on debt
              
              
              --
              
              
              52,317Income
                  tax expense
              
              
              (1,949,540
              )
              
              (104,500)Total
                  Other Expenses
              
              
              (2,460,341
              )
              
              (464,008
              )Net
                  Income
              
              $
              1,827,766
              
              $
              2,132,888Income PER
                  SHARE - Basic
              
              $
              .25
              
              $
              0.48Income PER
                  SHARE - Diluted
              
              $
              .
                  25
              
              $
              0.44WEIGHTED
                  AVERAGE NUMBER OFSHARES
                  OUTSTANDING -
                  Basic
              
              
              7,023,831
              
              
              4,484,161WEIGHTED
                  AVERAGE NUMBER OFSHARES
                  OUTSTANDING - Diluted
              
              
              7,023,831
              
              
              4,837,061
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
  F-5-
   **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Statements of Changes in Stockholders' Equity
   **Common
                  Stock**
              
              
              **Additional**
                **Paid-in**
              
              
              **Stock**
                **Subscription**
              
              
              **Retained****Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Payable**
              
              
              **Earnings**Balance,
                  December 31, 2004
              
              
              3,760,520
              
              $
              3,760
              
              $
              12,525,206
              
              $
              59,500
              
              $
              (2,738,333
              )Common
                  Stock issued for cash
              
              
              1,677,928
              
              
              1,678
              
              
              1,807,988
              
              
              --
              
              
              --Common
                  stock issued for (Restricted) for Commissions/Services
              
              
              58,826
              
              
              59
              
              
              226,339
              
              
              (59,500
              )
              
              --Price
                  Guarantee
              
              
              319,612
              
              
              320
              
              
              2,878
              
              
              --
              
              
              --Common
                  stock issued for Bonus Shares
              
              
              7,000
              
              
              7
              
              
              18,193
              
              
              --
              
              
              --Common
                  stock issuedfor
                  fundraising
              
              
              
              
              
              
              
              
              (131,398
              )
              
              --
              
              
              --Common
                  stock issued Board Member Services
              
              
              209,500
              
              
              210
              
              
              412,240
              
              
              --
              
              
              --Officer
                  Contribution of Salary M. Rivers
              
              
              
              
              
              
              
              
              146,500
              
              
              --
              
              
              --Common
                  Stock issued for Debt ext
              
              
              4,000
              
              
              4
              
              
              4,396
              
              
              
              
              
              --Amortization
                  of Deferred Costs
              
              
              --
              
              
              --
              
              
              
              
              
              --
              
              
              --Payment
                  of stock offering costs
              
              
              --
              
              
              --
              
              
              (147,950
              )
              
              --
              
              
              --Common
                  stock issued for services
              
              
              2,500
              
              
              2
              
              
              3,748
              
              
              --
              
              
              --Net
                  Income, December 31, 2005
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              2,132,888
 Balance,
                  December 31, 2005
              
              
              6,039,886
              
              
              6,040
              
              
              14,868,140
              
              
              --
              
              
              (
                  605,445
              )Common
                  stock issued Board Member Services
              
              
              165,000
              
              
              165
              
              
              263,835
              
              
              --
              
              
              --Common
                  stock issued for (purchased of company)
              
              
              20,000
              
              
              20
              
              
              37,980
              
              
              
              
              
              --Common
                  stock issued for cash
              
              
              369,300
              
              
              369
              
              
              333,901
              
              
              --
              
              
              --Common
                  stock issued for Settlement debt
              
              
              834,733
              
              
              835
              
              
              1,429,643
              
              
              --
              
              
              --Purchase
                  of treasury stock
              
              
              (461,400
              )
              
              (461
              )
              
              (830,059
              )
              
              --
              
              
              --Common
                  stock issued for services
              
              
              20,000
              
              
              20
              
              
              19,980
              
              
              --
              
              
              --Common
                  stock issued for private offering
              
              
              82,500
              
              
              82
              
              
              82,418
              
              
              --
              
              
              --Net
                Income, December
                31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,827,766Balance,
                  December 31, 2006
              
              
              7,070,019
              
              $
              7,070
              
              $
              16,205,838
              
              
              --
              
              $
              1,222,321
 The
            accompanying notes are an integral part of these consolidated financial
            statements.
  F-6-
  **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Statements of Cash Flows
  **For
                  the Years Ended**
                **December
                  31,****2006**
              
              **2005**CASH
                  FLOW FROM OPERATING ACTIVITIES:Net
                  Income
              
              $
              1,827,766
              
              $
              2,132,888Adjustments
                  to reconcile net income to netcash
                  used by operating activities:Amortization
                  of deferred consulting expense
              
              
              1,190,661
              
              
              629,438Bad
                  debt expense
              
              
              --
              
              
              9,007Amortization
                  and depreciation expense
              
              
              307,098
              
              
              331,857Change
                  in fair value of warrant and embedded conversion option
                  liabilities
              
              
              --
              
              
              (212,692
              )Amortization
                  of debt discount costs
              
              
              --
              
              
              390,063Loss
                  on settlement of debt
              
              
              470,897
              
              
              --Stock
                  issued for services and contributed for services
              
              
              284,000
              
              
              1,539,227Accounts
                  receivable
              
              
              (4,701,171
              )
              
              (6,023,304
              )Prepaid
                  expenses
              
              
              161,687
              
              
              (609,465
              )Long
                  term receivable
              
              
              (2,571,704
              )
              
              --Deposits
              
              
              (2,764
              )
              
              (20
              )Other
                  assets
              
              
              (170,804
              )
              
              --Increase
                  (decrease) in:
                Accounts
                  payable and accrued expenses
              
              
              358,200
              
              
              524,682Income
                  tax payable
              
              
              2,017,140
              
              
              --Accrued
                  liquidated damages
              
              
              11,613
              
              
              160,000Accrued
                  Interest payable
              
              
              (55,425
              )
              
              55,425Deferred
                  revenue
              
              
              1,518,039
              
              
              333,936Net
                  Cash Provided (Used) by Operating Activities
              
              
              645,234
              
              
              (738,958
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of fixed assets
              
              
              (25,893
              )
              
              (12,326
              )Net
                  Cash Used by Investing Activities
              
              
              (25,893
              )
              
              (12,326
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Repurchase
                  of stock
              
              
              (983,559
              )
              
              --Payments
                  of related party borrowings
              
              
              --
              
              
              (243,648
              )Proceeds
                  from convertible note
              
              
              --
              
              
              980,275Payments
                  on capital leases
              
              
              (10,055
              )
              
              (11,993
              )Payments
                  on notes payable
              
              
              (250,000
              )
              
              --Proceeds
                  from issuance of common stock, net of offering costs
              
              
              290,471
              
              
              1,315,678Net
                  Cash Provided (used)by Financing Activities
              
              
              (953,143
              )
              
              2,040,312NET
                  INCREASE (DECREASE) IN CASH
              
              
              (333,802
              )
              
              1,289,028CASH
                  AT BEGINNING OF PERIOD
              
              
              1,297,449
              
              
              8,421CASH
                  AT END OF PERIOD
              
              $
              963,646
              
              $
              1,297,449
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
  F-7-
   **IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Consolidated
        Statements of Cash Flows
 (Continued)
  **For
                  the Years Ended**
                **December
                  31,****2006**
              
              **2005**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONInterest
                  paid
              
              $
              58,877
              
              $
              --Income
                  taxes paid
              
              $
              104,500
              
              $
              --SCHEDULE
                  OF NON-CASH FINANCING ACTIVITIESCommon
                  stock issued for deferred consulting expenses
              
              $
              --
              
              $
              --Equity
                  instruments
              
              $
              284,000
              
              $
              1,539,227Common
                  stock issued for extinguishment of  debt
              
              $
              834,733
              
              $
              4,360Initial
                  recording of debt discounts from issue costs and
                  derivatives
              
              $
              -
              
              $
              1,000,000Repurchase
                  of common stock
              
              $
              (830,520
              )
              $
              --
   The
        accompanying notes are an integral part of these consolidated financial
        statements.
 F-8-
  **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
          to
          the Consolidated Financial Statements
 December
          31, 2006 and 2005
  NOTE
          1 -
          ORGANIZATION
 a.
                    Organization
  The
                    consolidated financial statements presented include those of
                    IBSG
                    International, Inc. (International) and its wholly owned subsidiaries
                    Intelligent Business Systems Group, Inc. (Group) and Secure Blue,
                    Inc.
                    (Secure Blue). Collectively they are referred to as `the Company'.
                    All
                    material intercompany accounts have been eliminated in
                    consolidation.
  International
                    was incorporated under the laws of the State of Florida in June
                    1996 as
                    Celebrity Steakhouses, Inc. It changed it name to Deerfield Financial
                    Services, then to Optical Concepts of America, Inc. and then
                    in November
                    2003, it changed its name to IBSG International, Inc. International
                    has
                    not conducted any meaningful business activities and prior to
                    the reverse
                    merger with Group was a shell
                    company.
  Group
                    was incorporated in the State of Delaware on January 9, 2003.
                    Group was
                    incorporated for the purpose of providing software solutions
                    to small
                    business development and banking and business association
                    markets.
  Secure
                    Blue was established as a new subsidiary in June 2004 to utilize
                    acquired
                    security technology in addressing the digital monitoring of records
                    for
                    purposes of satisfaction of certain accounting control requirements
                    of
                    public companies.
  Pursuant
                    to a Share Exchange Agreement dated November 10, 2003, which
                    was effective
                    on February 13, 2004, International acquired 100% of the outstanding
                    capital stock of Group, in exchange for 15,000,000 shares of
                    its common
                    stock. These shares were issued to the stockholders of Group
                    in exchange
                    for their wholly owned interest in Group. At the time of acquisition,
                    the
                    stockholders of Group acquired control of International and accordingly,
                    for accounting purposes, Group was treated as the acquiring entity.
                    International is the continuing entity for legal purposes. There
                    was no
                    adjustment to the carrying value of the assets or liabilities
                    of Group.
                    The Companies began planned principle operations as of the date
                    of the
                    reverse merger.
  Concurrent
                    with the Share Exchange Agreement, M&K Trust (a trust controlled by
                    the wife of the president and chairman of the Company) (Trust)
                    sold
                    certain assets to International in exchange for a note payable
                    of
                    $958,659. The note bears interest at 8.00% per annum and is secured
                    by a
                    security agreement naming all of the tangible and intangible
                    assets of
                    International. The assets sold to the Company include the exclusive
                    license of software and source codes for the Company's proprietary
                    software as well as various license/maintenance agreements with
                    the users
                    of such software. Group assumed the obligations of a previous
                    company as
                    licensor under such agreements. The trust obtained these assets
                    from a
                    company that was controlled by the president and chairman of
                    the Company.
                    Because of the related party nature of this transaction, the
                    assets were
                    valued at predecessor costs and represent actual cash which were
                    paid to
                    the previous company by the Trust for the development and
                    commercialization of the software.
  F-9-
   **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
          to
          the Consolidated Financial Statements
 December
          31, 2006 and 2005
 
  NOTE
          1 -
          ORGANIZATION (Continued)
 a.
                    Organization (Continued)
  International
                    completed an acquisition of certain assets of RedHand International,
                    a UK
                    based company, which included sophisticated security software
                    and a
                    channel partner agreement. International created a new company
                    called
                    Secure Blue which will (1) market the acquired software as a
                    comprehensive
                    solution for Sarbanes-Oxley compliance; (2) integrate the software
                    into
                    it's other subsidiary Group's digital commerce platform with
                    the benefits
                    of adding monitoring capabilities as well as position businesses
                    utilizing
                    the platform to be Sarbanes-Oxley compliant and: (3) to cross
                    market the
                    products into receptive vertical markets. The purchase of RedHand
                    consisted of 650,000 shares of common stock valued at $0.56 per
                    share
                    totaling $364,000 plus $46,088 of amounts due to be paid in cash.
                    The
                    entire purchase price of $410,088 was allocated to the software
                    purchased
                    which will be amortized over a 5 year period on a straight line
                    basis.
  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
  
  F-10-
  **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
          to
          the Consolidated Financial Statements
 December
          31, 2006 and 2005
   NOTE
          2 -
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 **d.****Revenue
                    Recognition**
                  
                  We
                    derive our revenue from the sale of products and services that
                    we classify
                    into the following sources: (1) licenses, (2) post-contract customer
                    support, (3) professional services.
                  
                  *Background*
                  
                  We
                    sell our services and license our products thru master licensee
                    arrangements with state operated Small Business Development Centers
                    (“SBDC”), Fortune 1000 Corporations, Business Associations, Banking
                    Institutions and International Economic Development Projects.
                    These
                    organizations represent our current customer base, and focus
                    on servicing
                    or supporting small and medium sized enterprises (SME). Our target
                    market
                    is comprised of emerging enterprises in need of a suite of
                    Business-to-Business products or Web enabled capabilities, but
                    lack the
                    resources required for internal development or are focusing their
                    resources on growth by outsourcing these capabilities. Master
                    license
                    arrangements currently produce all of our revenue. We utilize
                    written
                    contracts in the form of master license arrangements as the means
                    to
                    establish the terms and conditions upon which our products and
                    services
                    are sold.
 *Master
            License Customer Characteristics*
 
 Master
            licenses produce the bulk of our revenue. Master license customers are
            typically
            government operated Small Business Development Centers (“SBDC”), Fortune 1000
            Corporations, Business Associations, Banking Institutions and International
            Economic Development Projects. Most of our current master license customers
            are
            government or quasi-government agencies and are considered a low collection
            risk. However, since some are foreign, their normal business practices
            may
            result in the unauthorized delay of timely collection.
 
 Master
            License arrangements typically represent larger value “multiple element”
arrangements where a multi-year term license is delivered bundled with
            the first
            year of post contract support and certain professional services. Professional
            services are accounted for separately and are not considered essential
            to the
            functionality of the software. Master license holders can accept delivery
            either
            by electronic download to their system or by accessing their software
            residing
            on our system through the Internet. Only minimal installation and training
            are
            required. Revenue is recognized on master license or similar arrangements
            in
            accordance with the policies discussed below;
 o
                the
                    license element is recognized when the license becomes
                    accessible, o
                the
                    post-contract customer support element is recognized ratably
                    over the
                    support period, o
                professional
                    services are recognized as services are
                    delivered.
  F-11-
   **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
          to
          the Consolidated Financial Statements
 December
          31, 2006 and 2005
  NOTE
          2 -
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 d.
                    Revenue Recognition (Continued)
  *General*
                  
                  We
                    recognize revenue in accordance with the American Institute of
                    Certified
                    Public Accountants Statement of Position (“SOP”) 97-2, “Software Revenue
                    Recognition,” as modified by SOP 98-9 “Modifications of SOP 97-2, Software
                    Revenue Recognition, With Respect to Certain Transactions,” and
                    interpreted by the Securities and Exchange Commission Staff Accounting
                    Bulletin (“SAB”) No. 104 - Revenue Recognition. The Company adopted
                    Emerging Issues Task Force (“EITF”) Issue No. 00-21, Accounting for
                    Revenue Arrangements with Multiple Deliverables.
                  
                  As
                    described below, significant management judgments and estimates
                    are made
                    and used to determine the revenue recognized in any accounting
                    period.
                    Material differences may result in the amount and timing of our
                    revenue
                    for any period if our management made different judgments or
                    utilized
                    different estimates.
                  
                  We
                    recognize revenue on software related transactions on single
                    element
                    arrangements and on each element of a multiple element arrangement,
                    when
                    all of the following criteria are met:
                  1.Persuasive
                    evidence of an arrangement exists, which consists of a written,
                    non-cancelable contract signed by both the customer and us.
                  2.The
                    fee is fixed or determinable when we have a signed contract that
                    states
                    the agreed upon fee for our products and/or services, which specifies
                    the
                    related payment terms and conditions of the arrangement and it
                    is not
                    subject to refund or adjustment. We have standard payment terms,
                    typically
                    net 60 days, included in our contracts.
                  3.Delivery
                    occurs,
                  a.For
                    licenses-
                    due to the Web nature of our software, when access to the software
                    is made
                    available to our customer through the Internet or the software
                    is
                    delivered electronically. Our arrangements are typically not
                    contingent
                    upon the customer providing the hardware, staff for training
                    or scheduling
                    conflicts in general nor do our arrangements contain acceptance
                    clauses.
                    If they did, delivery occurs after the customer has accepted
                    the
                    software.
                  b.For
                    post-contract customer support-
                    ratably over the annual service period.
                  c.For
                    professional services-
                    as the services are performed for time and materials contracts
                    or upon
                    achievement of milestones on fixed price contracts.
                  d.
                  4.Collection
                    is probable as determined by a credit evaluation, the customer’s payment
                    history (either with other vendors or with us in the case of
                    follow-on
                    sales and renewals) and financial position.
                  
                  For
                    “multiple-element” arrangements we recognize revenue using the residual
                    method in accordance with SOP 98-9. Under the residual method,
                    a portion
                    of the arrangement fee is allocated to the undelivered elements
                    based on
                    vendor specific objective evidence (“VSOE”) of the fair value of such
                    undelivered elements, deferred and recognized over the initial
                    service
                    period, typically one year. The remaining portion of the arrangement
                    fee
                    is allocated to the delivered elements and recognized as revenue,
                    provided
                    all other revenue recognition criteria have been met. The undelivered
                    elements in these arrangements typically consist of Post-contract
                    Customer
                    Support services and Professional Services. The VSOE for Post-contract
                    Customer Support is based on the stated renewal rate in the license
                    arrangements. The VSOE for Professional Services is based on
                    the published
                    rates for time and materials associated with such projects.
                  
                  *License
                    Revenue*
                  
                  License
                    revenues are primarily generated from the sale of master license
                    agreements to SBDC’s and other potential master licensees. License
                    arrangements are typically sold with the first year of Post-contract
                    Customer Support included. As such, the combination of these
                    products and
                    services represent a “multiple-element” arrangement for revenue
                    recognition purposes.
                  
                  Our
                    revenue recognition policy for multiple-element arrangements,
                    as described
                    above, generally results in 65% of the first year arrangement
                    fee being
                    allocated to license revenue, the delivered element. Recognition
                    of
                    license revenue occurs in the first month, once all the recognition
                    criteria discussed above are met. License revenue is intended
                    to cover the
                    initial development cost and testing of the software and the
                    System.
    F-12-
  **IBSG
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
          to
          the Consolidated Financial Statements
 December
          31, 2006 and 2005
  NOTE
          2 -
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 d.
                    Revenue Recognition (Continued)
  *Post-contract
                    Customer Support (“PCS”) Revenue*
                  
                  Post-contract
                    customer support includes technical support, maintenance, enhancements,
                    upgrades and in some cases system access and is specified in
                    the license
                    arrangement. License arrangements are typically sold with the
                    first year
                    of PCS included. Only the initial year (year one) of PCS is bundled
                    with
                    the license fee, which results in the need to utilize the 65%
                    - 35%
                    revenue allocation split, to identify that portion of the initial
                    years
                    revenue to be allocated between license fees and PCS.
                  
                  The
                    customers can also purchase annual PCS renewals over their arrangement
                    term, which is typically for
                    each of years 2 through 5. PCS renewals are separately and distinctly
                    identified from the license fee. Our customers are free to choose
                    whether
                    to purchase annual renewal maintenance subsequent to the initial
                    year, or
                    not and that decision is reaffirmed in each individual renewal
                    year. Each
                    PCS renewal is separately invoiced in the year the renewal decision
                    is
                    made. If customers choose not to purchase the annual renewal
                    maintenance,
                    our software continues to work and their right to use it remains
                    intact
                    under their original license agreement.Enhancements
                    and upgrades are made available on a “when and if” basis and are rarely if
                    ever based on specifically identified enhancements.
                  
                  Our
                    revenue recognition policy for multiple-element arrangements,
                    as described
                    above, generally results in 35% of the initial arrangement fee
                    being
                    allocated to PCS, the undelivered element at the time the license
                    arrangement is entered into. The customers can also acquire additional
                    annual PCS renewal contracts. The PCS renewal rate utilized in
                    subsequent
                    years is consistent with the 35% allocation to PCS in the initial
                    year.
                    Recognition of PCS revenue occurs ratably over the PCS service
                    period,
                    once all the recognition criteria discussed above are met.
                  
                  *Professional
                    Services Revenue*
                  
                  Professional
                    services include training and installation services. Training
                    and
                    installation are separately described and priced in the license
                    arrangement and can be delivered at any time after the license
                    has been
                    conveyed.
                  
                  Because
                    of the Web nature of product delivery, little installation support
                    is
                    required. The System also includes extensive on-line training
                    capabilities
                    (Virtual Trainer) at the time the license is conveyed and is
                    available for
                    every page in the System. No additional formal training on System
                    use is
                    required or provided. Supplemental training, if required, is
                    generally
                    restricted to System administration training. Training revenues
                    are
                    recognized as the services are performed.
                  
                  Professional
                    services are not considered essential to the functionality of
                    the other
                    elements of the arrangement and are accounted for as a separate
                    element.
                    Professional services are recognized as the services are performed
                    for
                    time and materials contracts or upon achievement of milestones
                    on fixed
                    price contracts. A provision for estimated losses on fixed-price
                    professional services contracts is recognized in the period in
                    which the
                    loss becomes known. No losses have been recorded to date.
                  
                  *Factors
                    for Government or Quasi-Government Agency Customers*
                  
                  Most
                    of our current customers are government or quasi-government agencies
                    and
                    are considered a low collection risk. However, due to the “slow pay”
                    nature of these entities, payments could take as long as 12 months
                    to be
                    brought current, although management expects to reduce that time
                    to no
                    more than 9 months. As more fully discussed in SOP 97-2, the
                    fees are
                    determined to be fixed and determinable because;
                  ·our
                    software is not subject to obsolescence, any more than is typical
                    for
                    comparable software and we have not made concessions to effect
                    collections,
                  ·our
                    software is integral to the fundamental mission of our master
                    license
                    customers,
                  ·our
                    contracts are long term, generally greater then 12 months and
                    collections
                    on invoices are expected to be less than 12 months,
                  ·our
                    contracts provide for normal collection terms which are substantially
                    less
                    than the term of our agreements and further permit the assessment
                    of late
                    fees and interest on delinquent balances,
                  ·our
                    contracts are with government entities, and by law, these entities
                    are
                    precluded from not disbursing funds that have been approved and
                    allocated
                    for the license agreement,
                  ·our
                    contracts do not include any Fiscal Funding Clauses,
                  ·our
                    contracts do not include any Rights of Return or Cancellation
                    Clauses, and
                  ·payment
                    is not dependant on the number of SME’s engaged.
                  
                  *Deferred
                    Revenue*
                  
                  Deferred
                    revenue result from fees billed to customers for which revenue
                    has not yet
                    been recognized. Deferred revenue generally represents PCS and
                    training
                    services not yet rendered and deferred until all requirements
                    under SOP
                    97-2 are met. Deferred revenue is recognized upon delivery of
                    our
                    products, as services are rendered, or as other requirements
                    requiring
                    deferral under SOP 97-2 are satisfied.
                  
                  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.
 
 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.
  The
            Company has a long term receivable to Galaxy5 for three million dollars
            recorded
            from the sale of the CAC contract in March 2006. This receivable has
            a term of
            three years. An interest discount on this receivable was recorded at
            $428,296.
  F-13-
   **IBSG
              INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
              to
              the Consolidated Financial Statements
 December
              31, 2006 and 2005
 NOTE
            2 -
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Allowance
            for Doubtful Accounts and Sales Returns (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
            ol our customers were to deteriorate, affecting their ability to make
            payments,
            an additional provision lor doubtful accounts
            could be required.
  We
            currently have four (4) major customers, Industrial Development Corporation
            - South Africa Initiative, Kenya, California and
            Drako. Our accounts receivables from the
            customers are as follows at December
            31,2006:
  California
                  
                  2,973,120Drako
                      Oil
                  $
                  3,500,000Kenya
                  
                  3,800,000Industrial
                      Development Corporation-South Africa Initiative
                  
                  4,546,430$
                  
                  14,819,550Other
                      Receivables
                  
                  
                  520,000Total
                      Receivables
                  
                  
                  15,339,550
   We
              recognized revenue of the following amounts for the year ended December
              31,2006:
 California
                    
                    494,506Drako
                        oil
                    $
                    2,275,000Kenya
                    
                    2,805,232Industrial
                        Development Corporation - South Africa Initiative
                    
                    4,612,500Other
                        Revenue
                    
                    84,732$
                    
                    10,301,970
 Deferred
                revenue consisted of the following at December 31, 2006:
 California
                
                $
                292,193Kenya
                
                
                994,768Drako
                    Oil
                
                
                1,225,000Industrial
                    Development Corporation - South Africa Initiative
                
                $
                687,5003,199,461
 F-14-
 **IBSG
              INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
              to
              the Consolidated Financial Statements
 December
              31, 2006 and 2005
  NOTE
              2 -
              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 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 arc 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 arc 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 7
            years and
            equipment on a straight-line basis over a three year period. The software
            acquired (Note 1) is being amortized on a straight
            line over a five year period.
  h.
            Basis
            Income per Share
  Income per
            share has been calculated based on the weighted average number of shares
            of
            common stock outstanding during the period.
 
 **For
                      the years ended December 31,**
                  ********
                  ****
                  ****
                  **2006**
                  ****
                  ****
                  **2005**Income
                      / (numerator)
                  
                  $
                  1,827,766
                  
                  $
                  2,132,888Shares
                      / (denominator) -
                      Basic
                  
                  
                  7,023,831
                  
                  
                  4,484,161Shares
                    / (denominator) - Diluted
                  
                  
                  7,023,831
                  
                  
                  4,837,061Income
                      per share - Basic
                  
                  $
                  0.25
                  
                  $
                  0.48Income
                    per share - Diluted
                  
                  
                  .25
                  
                  
                  .44


The
              reference to common stock and income pershare have been retroactively
              restated.i.
                Income Taxes




Deferred
                taxes are provided on a liability method whereby deferred tax assets
                are
                recognized for deductible temporary differences and operating loss
                and tax
                credit carryforwards and deferred tax liabilities are recognized
                for
                taxable temporary differences. Temporary differences are the differences
                between the reported amount of assets and liabilities and their tax
                bases.
                Deferred tax assets are reduced by a valuation allowance when, in
                the
                opinion of management, it is more likely then not that some portion
                or all
                of the deferred tax assets will not be realized. Deferred tax assets
                and
                liabilities are adjusted for the effects of changes in tax laws and
                rates
                on the date of enactment.





The
      provision (benefit) for income taxes for the years ended December 31, 2006
      and
      2005 consist of the following:





**2006**
            
            **2005****Federal:**Current
            
            $
            1,834,320
            
            $
            98,751Deferred
            
            
            (25,143
            )
            
            --State:Current
            
            
            313,998
            
            
            --Deferred
            
            
            (146,957
            )
            
            5,749$
            1,976,218
            
            $
            104,500




Net
                deferred tax assets consist of the following components as of December
                31,
                2006 and 2005:




**2006**
            
            
            **2005**Deferred
                tax assets:NOL
                Carryover
            
            $
            --
            
            $
            48,100Accrued
                Expenses
            
            
            36,000
            
            
            63,400Depreciation
            
            
            136,100Deferred
              tax
              liabilities:Valuation
                    allowance
            
            
            
            
            
            (216,000
            )Net
                deferred tax asset/liability
            
            $
            172,100
            
            $
            (104,500
            )






F-15-





**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


December
      31, 2006 and 2005




NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




i.
                Income Taxes (Continued)




The
                income tax provision differs from the amount of income tax determined
                by
                applying the U.S. federal and state income tax rates of 37.62% to
                pretax
                income from continuing operations for the years ended December 31,
                2006
                and 2005 due to the following:






**2006**
            
            
            **2005**Book
                income
            
            $
            1,421,020
            
            $
            1,017,528NOL
              Meals
                & entertainment
            
            
            3,545
            
            
            (1,113,297
              2,465
            )Loss
                on extinguishment of debt
            
            
            177,151
            
            
            3,224Deferred
                Consulting
            
            
            453,943
            
            
            --Depreciation
              Accrued
                expenses
              State
                tax expense
            
            
            17,980
              74,106
              (118,126
            )
            
            25,
                805
              64,275
              --$
            2,029,619
            
            $
            --




The
                amount of deferred income tax expense (benefit) is impacted by the
                difference between the estimated Federal and State statutory income
                tax
                rates used to estimate deferred tax assets and liabilities and actual
                rates utilized when determining incomes taxes due or the application
                of
                net operating losses which are impacted by lower rates for taxable
                income
                less than $100,000 along with differences in state tax rates. In
                addition,
                other estimates utilized in determining deferred income tax expense
                (benefit) resulting from anticipated timing differences may differ
                from
                amounts initially determined when the timing differences are
                realized.




Due
                to the change in ownership provision of the Tax Reform Act of 1986,
                net
                operating loss carryforwards for Federal income tax reporting purposes
                are
                subject to annual limitations. Should a change in ownership occur,
                net
                operating loss carryforwards may be limited to use in future
                years.




j.
                Recent Accounting Pronouncements


In
      November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
      of
      ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      materials (spoilage) should be recognized as current-period charges and require
      the allocation of fixed production overheads to inventory based on the normal
      capacity of the production facilities. The guidance is effective for inventory
      costs incurred during fiscal years beginning after June 15, 2005. Earlier
      application is permitted for inventory costs incurred during fiscal years
      beginning after November 23, 2004. The Company has evaluated the impact of
      the
      adoption of SFAS 151, and does not believe the impact will be significant to
      the
      Company's overall results of operations or financial position.




F-16-


**IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
        to
        the Consolidated Financial Statements
 December
        31, 2006 and 2005
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  j.
        Recent Accounting Pronouncements
        (cont.)
  In
        December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
        Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
        ("SFAS
        152) The amendments made by Statement 152 This Statement amends FASB Statement
        No. 66, Accounting for Sales of Real Estate, to reference the financial
        accounting and reporting guidance for real estate time-sharing transactions
        that
        is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
        Estate Time-Sharing Transactions. This Statement also amends FASB Statement
        No.
        67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
        to state that the guidance for (a) incidental operations and (b) costs incurred
        to sell real estate projects does not apply to real estate time-sharing
        transactions. The accounting for those operations and costs is subject to
        the
        guidance in SOP 04-2. This Statement is effective for financial statements
        for
        fiscal years beginning after June 15, 2005. The Company has evaluated the
        impact
        of the adoption of SFAS 152, and does not believe the impact will be significant
        to the Company's overall results of operations or financial
        position.




In
      December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
      an
      amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
      The
      amendments made by Statement 153 are based on the principle that exchanges
      of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. Previously, Opinion 29 required that the accounting for an exchange
      of a productive asset for a similar productive asset or an equivalent interest
      in the same or similar productive asset should be based on the recorded amount
      of the asset relinquished. Opinion 29 provided an exception to its basic
      measurement principle (fair value) for exchanges of similar productive assets.
      The Board believes that exception required that some nonmonetary exchanges,
      although commercially substantive, be recorded on a carryover basis. By focusing
      the exception on exchanges that lack commercial substance, the Board believes
      this Statement produces financial reporting that more faithfully represents
      the
      economics of the transactions. The Statement is effective for nonmonetary asset
      exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
      application is permitted for nonmonetary asset exchanges occurring in fiscal
      periods beginning after the date of issuance. The provisions of this Statement
      shall be applied prospectively. The Company has evaluated the impact of the
      adoption of SFAS 153, and does not believe the impact will be significant to
      the
      Company's overall results of operations or financial position.




In
      December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
      Payment". Statement 123(R) will provide investors and other users of financial
      statements with more complete and neutral financial information by requiring
      that the compensation cost relating to share-based payment transactions be
      recognized in financial statements. That cost will be measured based on the
      fair
      value of the equity or liability instruments issued. Statement 123(R) covers
      a
      wide range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. Statement 123(R) replaces FASB Statement No.
      123,
      Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees. Statement 123, as originally issued
      in
      1995, established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that Statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net income
      would
      have been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small business issuers) will be required to apply
      Statement 123(R) as of the first interim or annual reporting period that begins
      after June 15, 2005. The Company adopted Statement 123(R) in December of
      2005.






In
      December 2004, the Financial Accounting Standards Board issued two FASB Staff
      Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
      Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
      by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
      Disclosure Guidance for the Foreign Earnings Repatriation Provision within
      the
      American Jobs Creation Act of 2004. Neither of these affected the Company as
      it
      does not participate in the related activities.




In
      March
      2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment”
(“SAB 107”), which provides interpretive guidance related to the interaction
      between SFAS 123(R) and certain SEC rules and regulations. It also provides
      the
      SEC staff's views regarding valuation of share-based payment arrangements.
      In
      April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow
      companies to implement the standard at the beginning of their next fiscal year,
      instead of the next reporting period beginning after June 15, 2005. Management
      is currently evaluating the impact SAB 107 will have on our consolidated
      financial statements.






F-17-


**IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 Notes
        to
        the Consolidated Financial Statements
 December
        31, 2006 and 2005
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  j.
          Recent
          Accounting Pronouncements (Continued)
 In
        March
        2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
        Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to
        the identification of and financial reporting for legal obligations to perform
        an asset retirement activity. The Interpretation requires recognition of
        a
        liability for the fair value of a conditional asset retirement obligation
        when
        incurred if the liability's fair value can be reasonably estimated. FIN 47
        also
        defines when an entity would have sufficient information to reasonably estimate
        the fair value of an asset retirement obligation. The provision is effective
        no
        later than the end of fiscal years ending after December 15, 2005. The Company
        will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does
        not
        believe the adoption will have a material impact on its consolidated financial
        position or results of operations or cash flows.




In
      May
      2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error
      Corrections.” This new standard replaces APB Opinion No. 20, “Accounting
      Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
      Financial Statements,” and represents another step in the FASB's goal to
      converge its standards with those issued by the IASB. Among other changes,
      Statement 154 requires that a voluntary change in accounting principle be
      applied retrospectively with all prior period financial statements presented
      on
      the new accounting principle, unless it is impracticable to do so. Statement
      154
      also provides that (1) a change in method of depreciating or amortizing a
      long-lived non-financial asset be accounted for as a change in estimate
      (prospectively) that was effected by a change in accounting principle, and
      (2)
      correction of errors in previously issued financial statements should be termed
      a “restatement.” The new standard is effective for accounting changes and
      correction of errors made in fiscal years beginning after December 15, 2005.
      Early adoption of this standard is permitted for accounting changes and
      correction of errors made in fiscal years beginning after June 1, 2005 . The
      Company has evaluated the impact of the adoption of Statement 154 and does
      not
      believe the impact will be significant to the Company's overall results of
      operations or financial position.




In
        February of 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”, which is intended to simplify the accounting and improve
        the financial reporting of certain hybrid financial instruments (i.e.,
        derivatives embedded in other financial instruments). The statement amends
        SFAS
        No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and
        SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities—a replacement of FASB Statement No. 125.” SFAS
        No. 155 is effective for all financial instruments issued or acquired after
        the
        beginning of an entity's first fiscal year that begins after September 15,
        2006.
        The Company is currently evaluating the impact SFAS No. 155 will have on
        its
        consolidated financial statements, if any.
  In
        March
        of 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial
        Assets, an amendment of FASB Statement No. 140” (SFAS 156). SFAS 156 amends SFAS
        140, "Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities a replacement of FASB Statement No. 125,"
        with
        respect to the accounting for separately recognized servicing assets and
        servicing liabilities. SFAS 156 requires an entity to recognize a servicing
        asset or servicing liability each time it undertakes an obligation to service
        a
        financial asset by entering into a servicing contract in any of the following
        situations: (a) a transfer of the servicer’s financial assets that meets the
        requirements for sale accounting, (b) a transfer of the servicer’s financial
        assets to a qualifying special-purpose entity in a guaranteed mortgage
        securitization in which the transferor retains all of the resulting securities
        and classifies them as either available-for-sale securities or trading
        securities, and (c) an acquisition or assumption of an obligation to service
        a
        financial asset that does not relate to financial assets of the servicer
        or its
        consolidated affiliates. SFAS 156 is effective for all servicing assets and
        liabilities as of the beginning of an entity's first fiscal year that begins
        after September 15, 2006. The effect of adoption of SFAS 156 is not anticipated
        to have a material impact on the Company’s consolidated financial
        statements.
  In
        July
        2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes (FIN 48) – an interpretation of FASB Statement No. 109, Accounting
        for Income Taxes (SFAS No. 109)” (FIN 48) . FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in
        accordance with SFAS No. 109 and prescribes a recognition threshold and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a return. Guidance is also
        provided on de-recognition, classification, interest and penalties, accounting
        in interim periods, disclosure and transition. FIN 48 is effective for fiscal
        years beginning after December 15, 2006. The effect of adoption of FIN 48
        is not
        anticipated to have a material impact on the Company’s consolidated financial
        statements.
  In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements” (SFAS
        157). SFAS 157 defines fair value, establishes a framework for measuring
        fair
        value and expands disclosures about fair value measurements. Where applicable,
        SFAS 157 clarifies and codifies related guidance within other generally accepted
        accounting principles. SFAS 157 is effective for fiscal years beginning after
        November 15, 2007. The effect of adoption of SFAS 157 is not anticipated
        to have
        a material impact on the Company’s consolidated financial
        statements.
  In
        September 2006, the FASB issued SFAS No. 158, " Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB
        Statements No. 87, 88, 106, and 132(R)” (SFAS 158). SFAS 158 requires an
        employer to recognize the overfunded or underfunded status of a defined benefit
        postretirement plan as an asset or liability in its statement of financial
        position and to recognize changes in that funded status in the year in which
        the
        changes occur through comprehensive income. SFAS 158 also eliminates the
        option
        in SFAS 87 to measure plan assets and obligations up to three months prior
        to
        the financial statement date. SFAS 158 is effective for fiscal years ending
        after December 15, 2006. The adoption of SFAS 158 did not have an impact
        to the
        Company's overall results of operations or financial position.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities, Including an Amendment to SFAS
        No.
        115” (SFAS 159). SFAS 159 permits entities to elect to measure many financial
        instruments and certain other items at fair value. Upon adoption of SFAS
        159, an
        entity may elect the fair value option for eligible items that exist at the
        adoption date. Subsequent to the initial adoption, the election of the fair
        value option should only be made at initial recognition of the asset or
        liability or upon a remeasurement event that gives rise to new-basis accounting.
        The decision about whether to elect the fair value option is applied on an
        instrument-by-instrument basis, is irrevocable and is applied only to an
        entire
        instrument and not only to specified risks, cash flows or portions of that
        instrument. SFAS 159 does not affect any existing accounting standards that
        require certain assets and liabilities to be carried at fair value nor does
        it
        eliminate disclosure requirements included in other accounting standards.
        SFAS
        159 is effective for fiscal years beginning after November 15, 2007. The
        Company
        is currently evaluating the impact of adopting SFAS 159 on its consolidated
        financial position and results of operations.


The
                implementation of the provisions of these pronouncements are not
                expected
                to have a significant effect on the Company's consolidated financial
                statement presentation.




k.
                Cost of Sales




Cost
                of sales is comprised of the amortization of the capitalized software
                costs.




l.
                Long Lived Assets




The
                Company follows the provisions of SFAS No. 142 and reviews long-lived
                assets and identifiable tangibles whenever events or circumstances
                indicate that the carrying amounts of such assets may not be fully
                recoverable. The Company evaluates the recoverability of long-lived
                assets
                by measuring the carrying amounts of the assets against the estimated
                undiscounted cash flows associated with these assets. At the time
                such
                evaluation indicates that the future undiscounted cash flows of certain
                long-lived assets are not sufficient to recover the assets' carrying
                value, the assets are adjusted to their fair values (based upon discounted
                cash flows).




F-18-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


December
      31, 2006 and 2005




NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)




m.
                Research and Development Expenses




The
                Company expenses Research and Development expenses as incurred. During
                the
                years ended December 31, 2006 and 2005 the Company expense $0, and
                $0,
                respectively.




NOTE
      3 -
      FURNITURE, FIXTURES AND SOFTWARE




Fixed
                assets are recorded at cost, major additions and improvements are
                capitalized and minor repairs are expensed when
                incurred.




Depreciation
                of furniture, fixtures, and software is determined using the straight-line
                method over the expected useful lives of the assets as
                follows:







**Description**
            **Useful
                lives**Art
            
            
            Not
                depreciatedFurniture
                & fixtures
            
            
            5
                yearsOffice
                equipment
            
            
            3
                yearsSoftware
            
            
            5
                years




Furniture,
                fixtures and software consisted of the
                following:




**For
                the year ended**
              **December
                31,**
              **2006**Art
            
            $
            5,472Furniture
                & fixtures
            
            
            28,865Office
                Equipment
            
            
            93,907Software
            
            
            1,367,0021,495,246Accumulated
                depreciation
            
            
            (854,079
            )Net
                furniture, fixtures and software
            
            $
            641,167




Depreciation
      and amortization expense for the years ended December 31, 2006 and 2005 was
      $35,153 and $39,685, respectively.








F-19-






**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


December
      31, 2006 and 2005


NOTE
      4 -
      RELATED PARTY TRANSACTIONS


The
                President of the Company is being compensated at $193,000 per the
                year
                ended December 31, 2005 and $198,000 for 2006. No formal employment
                agreement exists.




Note
      5 -
      EQUITY ISSUANCES


In
        January 2005, the Company issued 99,667 shares of common stock for cash valued
        at $1.50 per share.
 
 In
        January 2005, the Company issued 2,857 shares of common stock for cash valued
        at
        $1.75 per share.
 
 In
        January 2005, the Company issued 12,500 shares of common stock for fund raising
        valued at $5.10 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 222,278
        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 $0.10 per share.
 
 In
        February 2005, the Company issued 146,667 shares of common stock for cash
        valued
        at $1.50 per share.
 
 In
        February 2005, the Company issued 3,014 shares of common stock for fund raising
        valued at $3.30 per share, which was the closing price on the date of
        issue.
 
 In
        February 2005, the Company issued 30,000 shares of common stock for fund
        raising
        valued at $3.50 per share, which was the closing price on the date of
        issue.
 
 In
        February 2005, the Company issued 10,000 shares of common stock under Bonus
        Shares, valued at $3.60 per share, which was the closing price on the date
        of
        issue.
 
 In
        February 2005, the Company issued 8,571 shares of common stock for cash valued
        at $1.75 per share.
 
 In
        March
        2005, the Company issued 13,000 shares of common stock for services rendered
        valued at $3.60 per share, which was the closing price on the date of
        issue.
 
 In
        March
        2005, the Company issued 310 shares of common stock for fund raising valued
        $2.90 per share, which was the closing price on the date of issue.
 
 In
        March
        2005, the Company canceled (3,000) shares of common stock, which was originally
        issued on June 10, 2004 as Bonus Shares valued at $5.60 per share, which
        was the
        closing price on the date of issue.
 
 In
        May
        2005, the Company issued 200,000 shares of common stock for Board of Directors
        compensation for services for the entire year of 2006, part was recorded
        as an
        expense and part was deferred, valued at $2.00 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 61,901 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 $0.10 per share.
 
 In
        August
        2005, the Company issued 4,000 shares of common stock for services rendered
        valued at $1.24 per share which was the closing price on the date of
        issue.
 
 In
        August
        2005, the Company issued 4,500 shares of common stock for services, valued
        at
        $1.10 per share, which was the closing price on the date of issue.
 
 In
        October 2005, the Company issued Board Members 5,000 shares of common stock
        for
        services, valued at $0.15 per share which was the closing price on the date
        of
        issue.
 
 In
        October 2005, the Company issued 2,500 shares of common stock for services,
        valued at $0.15 per share which was the closing price on the date of
        issue.
 
 In
        December 2005, the Company issued 1,420,167 shares of common stock for
        cash.
  In
          January 2006, the Company issued 834,734 shares of common stock as part
          of a
          settlement of debt and outstanding warrants valued at $1.00 per share (see
          note
          7).
  In
          January 2006, the Company issued 10,000 shares of common stock for services
          valued at $1.00 per share.
  In
          January 2006, the Company issued 11,000 shares of common stock for cash
          valued
          at $1.00 per share.
  In
          February 2006, the Company issued 10,000 shares of common stock for services
          valued at $1.00 per share.
  In
          March
          2006, the Company issued 363,300 shares of common stock for cash valued
          at $1.00
          per share.
  In
          April
          2006, the Company re-purchased 461,400 shares of common stock at $1.80
          per
          share.
  In
          July
          2006, the Company issued 165,000 shares of common stock for services valued
          at
          $1.60 per share.
  In
          July
          2006, the Company issued 20,000 shares of common stock for acquisition
          of a
          business valued at $1.90 per share.
  In
          September 2006, the Company processed a ten for one stock split all references
          to common stock have been retroactively restated.




F-20-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


December
      31, 2006 and 2005




NOTE
      6 -
      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”.




During
      November of 2003 the Company entered into a forty-two month agreement to lease
      commercial real estate in Celebration, Florida. Rent was abated for December
      2003. This lease expires May 2007. The Company entered into a sixty month
      agreement to lease commercial real estate in Ahmedabad, India. Annual minimum
      rental fees are as follows




Rent
                expense for the years ended December 31, 2006 and 2005 was $99,530
                and
                $74,340, respectively.


F-21-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**


Notes
      to
      the Consolidated Financial Statements


December
      31, 2006 and 2005





NOTE
      7 -
      SETTLEMENT OF $1 MILLION SENIOR SECURED CONVERTIBLE NOTE AND RELATED WARRANTS





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





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







F-22-