U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


FORM
      10-KSB/A




(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, 2005**




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, 2005 were $7,651,064.




The
      number of shares outstanding of the issuer's common stock as of April 5, 2006
      was 69,056,194 shares. The aggregate market value of the common stock of
      59,996,194 shares held by non-affiliates, based on the closing price of the
      common stock on the over the counter market as of April 6, 2006 was
      $8,699,448.




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]





**PART
      I**





This
      Form
      10-KSB is being amended to restate the accompanying consolidated financial
      statements. In April 2006, management determined that the embedded conversion
      options in the $1 million senior secured convertible note, and the related
      warrants should have been recorded as derivative liabilities as of March 17,
      2005 with changes in fair value charged to other income (expense) through
      December 31, 2005. See the consolidated financial statements Note 9 for further
      information.





**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 15,000,000 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.




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
      the
      Company 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.




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.


-1-


**Our
      Business**


IBSG
      International, Inc. is a holding company for three 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.





IBSG
      offers enterprise solutions designed to enhance the operating efficiency and
      create revenue for State Small Business Development Centers, business
      associations (e.g., Chambers of Commerce) and Fortune 1000 corporations by
      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 known as the Biz World Pro (copyrighted).





Secure
      Blue, Inc. provides a robust economical Sarbanes-Oxley (SOX) compliance and
      security software suite, Secure Blue SOX Pro. It is targeted at small and mid
      cap public companies as well as private companies requiring SOX compliance
      to
      enable them to continue working with public companies.





As
      software providers, system integrators and Application Service Providers, IBSG,
      Inc. and Secure Blue, Inc. generate revenue from license sales, system
      modifications, systems support, and a percentage of monthly customer fees.
      The
      typical IBSG/Secure Blue license agreement has a five-year term which is updated
      on an annual basis and almost invariably renewed upon expiration; to date the
      company has had only one licensee not renew, due to the expiration of the
      licensee's contract with another party.





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 maintains offices in the US and India.




**Market
      for our products**


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




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


-2-


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


All
      states operate Small Business Development Centers funded by a combination of
      US
      Small Business Administration and state resources. The purpose of these centers
      is to provide a range of assistance and training to the small and mid-size
      business sector. We currently have a license agreement with California's small
      business development center system which has fifty regional offices, and an
      agreement with the state of Connecticut to install such a system for their
      12
      regional offices. There are an additional 11 states processing proposals or
      Letters of Intent.




**Fortune
      1000 Corporations:**


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




**Business
      Associations:**


Other
      business associations such as local chambers of commerce have membership or
      offer services to small and medium size businesses. We seek to license the
      BizWorld Data System to these organizations as a way of providing additional
      services and generate additional revenues.





**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.


-3-


**Foreign
      Markets**


In
      2005
      we signed a license agreement with IDC of South Africa. 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. The IDC license was signed in conjunction with BAE Systems, who agreed
      through their “off set”program to provide funds to the IDC for the license fees.
      BizWorld Pro provides an economic development platform for the SME market and
      qualifies as an “off set” program. Similar projects are under consideration in
      several other regions around the world where BAE Systems is fulfilling it's
“off
      set” contract requirements. Other multi national corporations have similar
      requirements and the Company intends to position itself as a preferred vendor
      for off set programs world wide. Additionally, the Company intends to develop
      an
      international digital commerce platform for the SME markets globally and open
      trade between the United States and other regions of the world.





**Secure
      Blue Markets**


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




**International
      Markets**


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




**Sales
      & Market Strategy**


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


-4-


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





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





In
      addition we will continue to promote and demonstrate SOX Pro to potential
      end-users where appropriate. In the longer term we will build a specialist
      direct sales team focused on specific target sectors within the small/mid cap
      market selling direct or providing qualified leads to our channel partners.
      There can be no assurance that Secure Blue will be able to establish
      satisfactory channels of distribution for its product or that the product will
      generate success in the marketplace.





IBSD
      is
      currently developing a range of sub contracting opportunities to develop
      customized business solutions. Work will be conducted in the US as well as
      India
      on a range of projects. Some of the projects are customization orders projected
      to come from existing clients of IBSG and Secure Blue.




**Marketing,
      Sales and Support**


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




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




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


-5-


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
      IGII's other subsidiaries.




**Customer
      Support**


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




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




**Research
      and Development**


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




**Competition**


Our
      management believes that we are the leading provider of digital commerce and
      management systems for small and medium businesses provided over the internet.
      However our products compete against a variety of individual “niche” competitors
      that offer software programs designed to provide parts of the digital platform
      functions for small and medium sized business users. Examples are packages
      that
      provide the ability to create a web site or a package that provides RFP
      assistance. NONE of the niche competitors offer a single platform with the
      extensive functionality of the Platform . Attempts at integrating these separate
      softwares are in operable at times, expensive and fall far short of the
      integrated platform of BizWorld Pro. Additionally, many digital commerce
      solutions are available to small businesses through established internet portals
      such as Yahoo. Many internet hosting providers help their customers set up
      e-commerce sites and provide software for such sites. Internet based service
      providers are increasingly targeting the small and medium business market.
      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.


-6-


**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.




**Personnel**


As
      of
      March 15, 2006 the Company, including all subsidiaries had a total of 26
      employees, 6 of which were engaged in marketing, sales and related customer
      support services, 15 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.


-7-


**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 approximately 2,000 square feet of shared
      space in London, United Kingdom on a month by month basis for approximately
      $1,100 per month. The company leases a corporate office in Las Vegas. The terms
      are a month to month lease. The monthly rent is $595 per month.





**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
      2005.





**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 “IGII”.
      The following is the range of high and low closing prices for our common stock
      for the periods indicated:


**PERIOD**
            
            
            **HIGH**
            
            
            **LOW**January
                1, 2004 - March 31, 2004
            
            $
            1.70
            
            $
            0.62*April
                1, 2004 - June 30, 2004
            
            $
            1.01
            
            $
            0.34*July
                1, 2004 - September 30, 2004
            
            $
            0.65
            
            $
            0.28*October
                1, 2004 - December 31, 2004
            
            $
            0.75
            
            $
            0.36*January
                1, 2005 - March 31, 2005
            
            $
            0
                .69
            
            $
            0.20April
                1, 2005 - June 30, 2005
            
            $
            0..28
            
            $
            0.12July
                1, 2005 - September 30, 2005
            
            $
            0.24
            
            $
            0.07October
                1, 2005 - December 31, 2005
            
            $
            0.29
            
            $
            0.13


*Post
      reverse split


-8-


As
      of
      March 15, 2006 there were approximately 331 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.





**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. The Company adopted at management's
      discretion, the recognition of revenue based on the most astringent guidelines
      of GAAP in terms of recognition of software licenses and recurring revenue.
      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 2005 Annual Report on Form 10-KSB. In addition, you are urged to read this
      report in conjunction with the risk factors described herein.




**Overview**


IBSG
      International, Inc. ("IBSGI" or the "Company") is a holding company for two
      software subsidiaries and one system development subsidiary: Intelligent
      Business Systems Group, Inc. ("IBSG"), a provider of turn-key digital service
      center software; and Secure Blue, Inc., a Sarbanes-Oxley and security software,
      Intelligent Business Systems Development, Inc. (IBSD) a provider of IT
      services




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


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


This
      software is currently in development and has not been released for sale. No
      revenue was generated by Secure Blue in 2005.





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 maintains offices in the US and India.




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




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


-10-


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




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





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




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




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




-11-


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




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





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




In
      2005
      we recognized revenue of $7,651,064 based on the foregoing revenue recognition
      policies and deferred revenue of $1,256,422.




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




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




Value
      of
      long lived assets including purchased software. We capitalize and amortize
      the
      costs incurred in acquiring and developing our software products. 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. We are required
      to
      evaluate the carrying values of our long lived assets and may be required to
      reduce the value in the event we determine that the value is impaired from
      the
      current carrying amount based on our estimate as to whether or not the carrying
      amount of a long-lived asset is recoverable from our estimate of its
      undiscounted cash flows. The estimates that we make regarding the future revenue
      we will receive from such assets will impact the whether we will be required
      to
      recognize an impairment of such assets and the amount of any impairment. There
      were no impairment charges in 2005.


-12-


Valuation
      of services paid for with common stock. Issuances of common stock for services
      are accounted for based on the fair value of the consideration received or
      the
      fair value of the shares issued, whichever is a more reliable measure. We valued
      such issuances on the market value of our common stock at the time of
      authorizing such share issuances which we considered to be the more reliable
      measure. We recognized $1,802,581 of expense in 2005 for the shares issued
      to
      the consultants and expect to recognize the balance of the expense, amounting
      to
      $4,731,697 over the remaining life of the consulting agreements. We recognized
      $1,647,466 in compensation expense in 2004 for the 2,267,104 shares issued
      for
      services already received. We will review our estimates of the value of the
      future services to be received under such consulting arrangements against the
      unamortized value of the shares and may accelerate the recognition of
      compensation expense if indicated.





Accounting
      for Derivatives - The Company evaluates its convertible debt, options, warrants
      or other contracts to determine if those contracts or embedded components of
      those contracts qualify as derivatives to be separately accounted for under
      Statement of Financial Accounting Standards 133 “Accounting for Derivative
      Instruments and Hedging Activities” and related interpretations including EITF
      00-19 “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company’s Own Stock”.





The
      result of this accounting treatment is that the fair value of the embedded
      derivative is marked-to-market each balance sheet date and recorded as a
      liability. In the event that the fair value is recorded as a liability, the
      change in fair value is recorded in the consolidated statement of operations
      as
      an other income or expense. Upon conversion or exercise of a derivative
      instrument, the instrument is marked to fair value at the conversion date and
      then that fair value is reclassified to equity. Equity instruments that are
      initially classified as equity that become subject to reclassification under
      SFAS 133 are reclassified to liability at the fair value of the instrument
      on
      the reclassification date.




**Results
      of operations - Year ended December 31, 2005 and 2004**




**Revenue**




We
      achieved revenue of $3,295,014 in 2004. We recorded revenue of $7,651,064 in
      2005. Such revenue consisted of license fees, subscription fees and
      customization fees related to our BizWorld Data System software from three
      customers. We deferred revenue from our other customers for the BizWorld Data
      System until cash is received in accordance with our revenue recognition
      policies. The increase of revenue for 2005 was due primarily to an additional
      contract with Industrial Development Corporation a South Africa Initiative.
      This
      revenue was achieved in the last quarter of 2005. The Company had listed revenue
      from three other clients in prior quarters 2005. However, the revenue on these
      contracts was later determined that it could not be recognized in 2005. The
      revenue was therefore reversed out for the year 2005.




Our
      licenses for the state of California for each regional office are sold for
      $50,000 each for the first year. The Company recognizes 65% of the license
      fee
      or $32,500 as revenue upon the activation of the license by a regional office.
      The balance of 35% is amortized on a straight line basis over a one year period.
      During the year ended December 31, 2005 we activated 55 licenses for regional
      offices as compared to 2004 of which 33 licenses were activated. The Company
      recognized $2,999,840 of revenue in 2005.




Our
      licenses for the Government of Nigeria consisted of the following: 1) 1st year
      license fee of a 5 year term effective from June 1, 2004 to June 1, 2005 for
      $250,000. Of this amount $162,500 was recognized upon the activation of the
      license and the balance of $87,500 is being amortized on a straight line basis
      over the 1 year period. 2) A subscription fee for 35,000 businesses at $6.00
      per
      business per month for a period of three (3) months total invoice of $630,000.
      All of this revenue was recognized in the period of June 1, 2004 to September
      1,
      2004. 3) A subscription fee for 35,000 businesses for the next three months
      which is being recognized on a straight line basis for the period from September
      2004 to November 1, 2004 total invoice of $840,000, and 4) a subscription fee
      for 35,000 businesses for the six months ended June 1, 2005. The invoice was
      for
      $1,260,000 of which $210,000 was recognized for December 2004 and the balance
      of
      $1,020,000 is deferred for 2005. 5) Second year license maintenance fees from
      June 1, 2005 through June 1, 2006 was $62,500 of which $53,641 was recognized
      through December 2005 and the balance of $8,859 was deferred for 2006. 6) A
      subscription fee for 35,000 businesses for the next nine months which is being
      recognized on a straight line basis for the period from of March 1, 2005 through
      December 2005. See subsequent events regarding sale of CAC asset.


-13-


**Deferred
      Revenue**




Deferred
      revenue is comprised of the unrecognized revenue related to unearned license
      fees, support contracts and other prepayments for which the earnings process
      has
      not been completed. Deferred revenue at December 31, 2005 was $1,256,422 as
      compared to $1,347,486 of deferred revenue at December 31, 2004. The Company
      deferred revenues are as followed at December 31, 2005:




Corporate
                Affairs Commission (Nigeria)
            
            $
            8,859State
                of California
            
            
            185,063Industrial
                Development Corporation -South Africa Initiative
            
            
            1,062,500$
            1,256,422




**Cost
      of Sales**




Cost
      of
      Sales was $410,726 in 2005 approximately 5% of revenues. Cost of Sales was
      $223,293 in 2004.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. The reason
      for
      the increase of cost is due to Secure Blue software was amortized over the
      entire year for 2005, whereas in 2004 it was only amortized over half of the
      year.




**Services
      paid for with common stock**




Stock-based
      compensation was $1,802,581 in 2005 arising out of the issuance of common stock
      as compensation for services received and to be received, along with Bonus
      Shares. The Company at the December 31, 2005 had $4,731,697 of prepaid expenses
      on its books relating to the stock-based compensation.




**Amortization
      and depreciation**




Amortization
      and depreciation expense was $39,685 for 2005. We recognized amortization and
      depreciation expense on our furniture, fixtures and equipment.




**Bad
      debt expense**




**** Bad
      debt
      expense was $9,007 in 2005 and $171,072 in 2004.




**General
      and Administrative Expense**




General
      and administrative expenses were $1,630,917 in 2005 and $1,139,555 in 2004.
      General and administrative expenses consist primarily of salaries, related
      personnel costs, fees for professional services and other general corporate
      costs. General and administrative expenses show an increase in 2005 primarily
      due to staff size.




**Loss
      on extinguishment of related party debt**




The
      company had no loss relating to extinguishment of related party debt in 2005.
       In 2004 we had a loss of $156,765 from extinguishment of related party
      debt.


-14-


**Interest
      Expense and Liquidated Damages**




Interest
      expense was $456,251 in 2005 and $38,876 in 2004. The increase was due to the
      $1,000,000 convertible promissory note interest incurred since March 2005 and
      the related amortization gf 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. There was no similar requirement
      in
      2004.





**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 2005. There were no derivatives in 2004.




**Net
      Income (Loss)**




The
      Company reported a net income of $2,557,888 in 2005 and a net loss of $2,361,485
      in 2004.




**Liquidity
      and Capital Resources**




We
      incurred cumulative operating losses through December 31, 2005 of $180,445.
      In
      2005 revenues were sufficient to cover the Company's operating costs and to
      allow it to continue as a going concern in future periods. The Company was
      able
      to increase its current assets from $4,630,471 in 2004 to $12,552,268 in 2005.
      Accounts receivable accounted for part of this increase. The cash position
      of
      the Company also improved in 2005 to $1,297,449 from $8,421 in 2004.





We
      currently have four (4) major customers, Knowledge Institute, the State of
      California, the Government of Nigeria, and IDC of Johannesburg. Our accounts
      receivables from these major customers are as follows at December 31,
      2005:





Corporate
                Affairs Commission (Nigeria)
            
            $
            3,731,729State
                of California
            
            
            2,632,500Industrial
                Development Corporation - South Africa Initiative
            
            
            4,250,000Knowledge
                Institute
            
            
            1,550$
            10,615,779




-15-


**Obligations
      and Commitments**




The
      following table reflects our contractual obligations and other commercial
      commitments as of December 31, 2005. 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, 2005


**Total**
            
            **Less
                Than**
              **1
                Year**
            
            **1-3
                Years**
            
            **4-5
                Years**Debt
            
            $
            337,819
            
            $
            337,819
            
            $
            0.0Capital
                Leases
            
            $
            14,086
            
            $
            10,086
            
            $
            4,000Total
                Contractual Obligations
            
            $
            351,905
            
            $
            347,905
            
            $
            4,000




This
      does
      include the Company's Senior Secured Convertible Notes in the amount of
      $1,000,000 issued in March 2005.




**Off
      Balance Sheet Arrangements**




Our
      only
      significant off-balance sheet arrangements relate to operating lease obligations
      for $351,905 which is included in the foregoing table of obligations and
      commitments.




**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






-16-





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





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




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


·
            Competition





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





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





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




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




-17-


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 $2,505,196 in 2005 and a net loss of $2,361,485 in
      2004. Our revenues are currently greater than our expenses. 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.




-18-


**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 THATCURRENT**




-19-


**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.




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




A
      significant portion of our 2005 revenue was derived from a customer in Nigeria
      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.




**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.


-20-


**Item
      7. Financial Statements**




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





**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, 2005 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, 2005 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.




There
      have been no material changes in our internal controls over financial reporting
      or in other factors that could materially affect, or are reasonably likely
      to
      affect, our internal controls over financial reporting during the year ended
      December 31, 2005.





**Item
      8B Other Information**




None.





**Part
      III**





-21-


**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 has been our CEO and director since November 15, 2003. Dr. Rivers
      has served as CEO and Director of Intelligent Business Systems Group, Inc.
      since
      May of 2003. He was President and director of Commerce, Inc. from August 1997
      to
      March 2003 (on leave from September of 2002).




Mr.
      Geoffrey Birch has been Treasurer and a director of the Company since November
      2003. Mr. Birch was in pharmaceuticals for over 30 years which included
      manufacturing and distribution. Mr. Birch grew his company until it was
      purchased by Pfizer in the mid 1990s. Mr. Birch is a board member for several
      UK
      Venture capital firms including one he is chairman of, Sylvrey Ltd. These firms
      primarily invest in young companies with growth potential in the areas of
      technology.




Mr.
      Jeffrey Wilmott has been a director of the Company since July 2005. Mr. Wilmott
      is a versatile senior executive successful in diverse industries and cultures,
      both domestic and international, with an emphasis on large-scale business
      development. Leadership responsibility for directing businesses and staff while
      maintaining focus on top-line growth and paths to profitability. Broad exposure
      to both services and products in Fortune 500 and fast-growing mid-tier
      companies. Known for creating and maintaining high-level client
      networks.





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.




-22-


Audit
      Committee Financial Expert




The
      Board
      has determined that Director Robert Jolly 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. Jolly 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. Jolly 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.  Audit
      Committee Approval of Auditor




The
      Board of Directors accepted the proposal of HJ & Associates, LLC for the
      2005 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,
            
            
            2005
            
            $
            193,770President,
                CEO
            
            
            2004
            
            $
            150,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




Dr.
      Rivers was appointed CEO of IBSG International as of November 17, 2003 and
      the
      salary reported is prorated through December 31, 2003. All of Dr. Rivers's
      salary is currently deferred and $100,000 of his 2004 salary was waived and
      contributed to the capital of the Company. 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.




-23-


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 2005 current base annual salary of the named executive
      officers as $180,000. Currently 2005'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
      January 15, 2004, the Company issued 3,075,000 shares of common stock to
      consulting companies controlled or represented by Geoffrey Birch's wife, the
      Company's Chief Financial Officer and a director. These shares were valued
      at
      $1.28 per share and were set up as deferred compensation. The deferred
      compensation of $3,936,000 is being amortized on a straight line basis of 6
      years based on the consulting contracts.





**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, 2005 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)
            
            
            8,010,000
            
            
            12.4Geoffrey
                Birch (2)
            
            
            3,167,104
            
            
            5.9Jeffrey
                Wilmott
            
            
            50,000
            
            
            *All
                directors and executive
            
            
            11,227,104
            
            
            18.3officers
                as a group (3 persons)




*
      Less
      than 2%




-24-


(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.





EQUITY
      COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2004




The
      Company issues common stock and warrants to purchase common stock to pay
      employees, consultants and advisors for services, to pay compensation for
      services in connection with securities offerings and to satisfy indebtedness.
      The following table summarizes information about outstanding equity compensation
      plans as of December 31, 2004.


**Plan
                Category**
            
            **Number
                of**
              **securities
                to be**
              **issued
                upon**
              **exercise
                of**
              **outstanding**
              **options/warrants**
              **(a)**
            
            **Weighted-**
              **average
                exercise**
              **price
                of**
              **outstanding**
              **options/warrants**
              **(b)**
            
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuance under equity**
              **compensation
                plans**
              **(excluding
                securities**
              **reflected
                in column (a))**
              **(c)**Equity
                compensation plans approved bysecurity
                holders
            
            
            0
            
            
            --
            
            
            0Equity
                compensation plans not approvedby
                security holders(1)
            
            
            1,475,000
            
            $
            1.10
            
            
            0Total
            
            
            1,475,000
            
            $
            1.10
            
            
            0






(1)
            Represents
                warrants to purchase our common stock issued to a consultant for
                financial
                public relations services valued at
                $216,366.




Individual
      equity compensation arrangements approved by board of directors.


-25-


The
      following issuances of common stock in 2005 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
            16,779,284Shares
                issued for services
            588,249Shares
                issued for bonuses
            70,000Shares
                issued for board member services
            2,095,000Shares
                issued for price guarantee
            3,196,123Shares
                issued for debt ext
            40,000





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




On
      February 13, 2004 the Company purchased a software license and other assets
      from
      M&K Trust, a Trust controlled by the wife of the President and a controlling
      shareholder, in exchange for a note payable in the amount of $958,659 payable
      in
      one hundred twenty (120) equal installments of $12,132.76 on the last day of
      each month commencing December 1, 2003, with the final installment due and
      payable on November 30, 2015, which payments include interest at the rate of
      8%
      per annum. The note is secured by a security agreement covering all of the
      Company's tangible and intangible assets. 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 and accounts receivable generated under such license/maintenance
      agreements. In June 2004, the Company and the Trust agreed to partially satisfy
      the note and modify the remaining payment terms. The Company agreed to issue
      1,500,000 shares of its common stock to the M&K Trust and pay $125,000 to
      the Trust as a partial payment on the note payable. The shares were valued
      at
      the closing price on the date of issuance of $0.45 per share. Pursuant to the
      agreement, the balance on the note payable to the M&K Trust was to be
      $125,000 after the share issuance and $125,000 payment which was to be paid
      on
      January 2, 2005 without further interest. As a result of the share valuation,
      the Company recognized a loss on extinguishment of debt of $156,765 because
      the
      shares valued of $675,000 exceeded the amount of the debt being extinguished
      which was $518,235. During the year ended December 31, 2004, the Company made
      cash payments of $243,815 on the note payable.




During
      the year ended December 31, 2004, the M&K Trust loaned an additional $42,351
      to the Company in addition to the above-referenced note. At December 31, 2004,
      the Company owed the M&K Trust $238,960.




The
      President of the Company waived the right to receive $100,000 of his 2004 salary
      which has been accounted for as a contribution to the Company's capital. On
      January 15, 2004, the Company issued 3,075,000 shares of common stock to
      consulting companies controlled or represented by Geoffrey Birch's wife, the
      Company's Chief Financial Officer. These shares were valued at $1.28 per share
      and were set up as deferred compensation. The deferred compensation of
      $3,936,000 is being amortized on a straight line basis of 5 years based on
      the
      consulting contracts.




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.


-26-


**Item
      13. Exhibits and Reports on Form 8-K**




(a)    
      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




-27-


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
                ChiefFinancial Officer




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




32.1
            Section
                1350 Certification of the Chief Executive
                Officer




32.2
            Section
                1350 Certification of the Chief Financial
                Officer




-28-


**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 2005 and 2004 were as follows:


**2005**
            
            **2004**Audit
                Fees (1)
            
            $
            42,159
            
            $
            59,500Audit-Related
                FeesTax
                Fees (2)All
                Other Fees (3)
            
            $
            3,430
            
            $
            8,995Total
            
            $
            45,589
            
            $
            68,495




(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 2005 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.




-29-


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 2005 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.






-30-


**SIGNATURES**




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


**IBSG
                INTERNATIONAL, INC**Date: June
                13, 2006
            By:
            /s/
                Michael RiversMichael
              RiversPresident




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
            June
                13, 2006Michael
                Rivers
            Executive
                Officer)/s/
                Jeffery Wilmont
            Director
            June
                13, 2006Jeffery
                Wilmont/s/
                Geoffrey Birch
            Director,
                Treasurer (Principal
            June
                13, 2006Geoffrey
                Birch
            Accounting
                Officer)






-31-







**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




December
      31, 2005










F-1-


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


Report
                of Independent Registered Public Accounting Firm
            3Consolidated
                Balance Sheet
            4Consolidated
                Statements of Operations
            6Consolidated
                Statements of Changes in Stockholders' Equity
            7Consolidated
                Statements of Cash Flows
            8Notes
                to the Consolidated Financial Statements
            10


F-2-


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, 2005, and the related statements of operations,
          stockholders’ equity and cash flows for the years ended December 31, 2005 and
          2004. 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 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, 2005, and the results of their operations
          and their
          cash flows for the years ended December 31, 2005 and 2004 in conformity
          with
          United States generally accepted accounting principles.
  As
            discussed in Note 9 to the consolidated financial statements, the Company
            has
            restated its financial statements for the years ended December 31, 2004
            and
            2005. This action was taken as a result of an incorrect amortization
            time for
            the deferred consulting services
            contracts in 2004 and an embedded derivative in 2005. Adjustments have been made to correct these errors.
 
 /s/
HJ
&
          Associates, LLC HJ
&
          Associates, LLC
 Salt
          Lake
          City, Utah
 April
          1,
          2006 except for Note 9 which is June 5, 2006  F-3-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Consolidated
      Balance Sheet




**ASSETS**


**December
                31,**
              **2005**
              As
                Restated
              (Note
                9)CURRENT
                ASSETSCash
            
            
            $
            1,297,449Accounts
                receivable
            
            
            
            10,638,379Prepaid
                expenses
            
            
            
            616,440Total
                Current Assets
            
            
            
            12,552,268FURNITURE,
                FIXTURES AND SOFTWARE, NET (Note 3)
            
            
            
            922,371OTHER
                ASSETSDeposits
            
            
            
            1,400Debt
                Issue Costs
            
            
            
            9,091Deferred
                Consulting Services
            
            
            
            4,731,697Total
                Other Assets
            
            
            
            4,742,188TOTAL
                ASSETS
            
            
            $
            18,216,827







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







F-4-










**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Consolidated
      Balance Sheet (Continued)




LIABILITIES
      AND STOCKHOLDERS' EQUITY


**December
                31,**
              **2005**
              **(As
                Restated Note 9)**CURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            
            
            
            $
            873,687Accrued
                Interest Payable
            
            
            
            
            
            55,425Deferred
                revenue (Note 2)
            
            
            
            
            
            1,256,422Capital
                leases payable
            
            
            
            
            
            14,086Convertible
                promissory note payable, net
            
            
            
            
            
            395,890Accrued
                liquidated damages
            
            
            
            
            
            160,000Embedded
                conversion option liability
            
            
            
            
            
            273,350Warrant
                liability
            
            
            
            
            
            494,233Total
                Current Liabilities
            
            
            
            
            
            3,523,093TOTAL
                LIABILITIES
            
            
            
            
            
            3,523,093COMMITMENTS
                AND CONTINGENCIES (Note 6)
            
            
            
            
            
            --STOCKHOLDERS'
                EQUITYCommon
                stock authorized 100,000,000 shares at$0.001
                par value; 60,398,858 shares issued andOutstanding
            
            
            
            
            
            60,399Additional
                paid-in capital
            
            
            
            
            
            14,813,780Accumulated
                deficit
            
            
            
            
            
            (180,445
            )Total
                Stockholders' Equity
            
            
            
            
            
            14,693,734TOTAL
                LIABILTIES AND STOCKHOLDERS' EQUITY
            
            
            
            
            $
            18,216,827




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




F-5-


**IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 Consolidated
        Statements of Operations
 
  **For
                  the years ended**
                **December
                  31,****2005**
                **As
                  Restated(Note 9)**
              
              
              **2004**
                **(Restated**)****REVENUES
              
              $
              7,651,064
              
              $
              3,295,014EXPENSESCost
                  of Sales
              
              
              410,726
              
              
              223,293Services
                  paid for with common stock
              
              
              1,802,581
              
              
              1,450,338Amortization
                  and depreciation
              
              
              39,685
              
              
              30,757Bonus
                  shares expense
              
              
              19,200
              
              
              2,445,843Bad
                  debt expense - related party
              
              
              9,007
              
              
              171,072Professional
                  Fees
                General
                  and administrative expenses
              
              
              717,052
                1,630,917
              
              
              --
                1,139,555Total
                  Expenses
              
              
              4,629,168
              
              
              5,460,858Income
                  (Loss) from operations
              
              
              3,021,896
              
              
              (2,165,844
              )OTHER
                  EXPENSESLoss on extinguishment of related party debt
              
              
              --
              
              
              (156,765
              )Interest
                  expense
              
              
              (456,251
              )
              
              (38,876
              )Liquidated damagesoption
                  liability
              
              
              (160,000
              )
              
              --Change
                  in fair value of embedded conversion
              
              
              388,870
              
              
              --Change
                  in far value of warrant liability
              
              
              (176,178
              )
              
              --Loss
                  on extinguishment of an asset
              
              
              (8,266
              )
              
              --Gain
                  on debt
              
              
              52,
                  317
              
              
              --Tax
                  provision
              
              
              (104,500
              )
              
              --Total
                  Other Expenses
              
              
              (464,008
              )
              
              (195,641
              )Income
                  (Loss)
              
              $
              2,557,888
              
              $
              (2,361,485
              )BASIC
                  Income (Loss) PER SHARE
              
              $.
              .06
              
              $
              (0.07
              )BASIC
                  Income (Loss) PERSHARE
                  Diluted
              
              $
              .
                  05
              
              
              --WEIGHTED
                  AVERAGE NUMBER OFSHARES
                  OUTSTANDING
              
              
              44,841,613
              
              
              32,399,692WEIGHTED
                  AVERAGE NUMBER OFSHARES
                  OUTSTANDING Diluted
              
              
              48,370,611
              
              
              --
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 F-6-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**





Consolidated
      Statements of Changes in Stockholders' Equity


As
      Restated (Note 9)




**Common
                Stock**
            **Additional**
              **Paid-in**
            **Stock**
              **Subscription**
            **Accumulated****Shares**
            **Amount**
            **Capital**
            **Payable**
            **Deficit**Balance,
                December 31, 2003
            
            
            
            15,000,000
            
            
            15,000
            
            (5,000)
            
            
            
            
            --
            
            
            (376,848)Recapitalization
            
            
            
            5,978,772
            
            
            5,979
            
            67,531
            
            
            
            
            112,000
            
            
            --Common
                stock issued for cash
            
            
            
            4,660,402
            
            
            4,660
            
            1,825,794
            
            
            
            
            (112,000)
            
            
            --Common
                stock issued for stock offering costs
            
            
            
            843,132
            
            
            843
            
            823,566
            
            
            
            
            --
            
            
            --Stock
                offering costs
            
            
            
            --
            
            
            --
            
            (824,406)
            
            
            
            
            --
            
            
            --Common
                stock issued for services
            
            
            
            333,000
            
            
            333
            
            172,497
            
            
            
            
            --
            
            
            --Common
                stock issued for bonus shares
            
            
            
            2,267,104
            
            
            2,267
            
            2,443,576
            
            
            
            
            --
            
            
            --Common
                stock issued for deferred compensation
            
            
            
            6,372,792
            
            
            6,373
            
            6,981,040
            
            
            
            
            --
            
            
            --Common
                stock issued for extinguishment of related party debt
            
            
            
            1,500,000
            
            
            1,500
            
            673,500
            
            
            
            
            --
            
            
            --Common
                stock issued for assets
            
            
            
            650,000
            
            
            650
            
            363,350
            
            
            
            
            --
            
            
            --Cash
                received for shares issued in 2005
            
            
            
            --
            
            
            --
            
            --
            
            
            
            
            59,500
            
            
            --Fair
                value of warrants granted for services rendered
            
            
            
            --
            
            
            --
            
            216,366
            
            
            
            
            --
            
            
            --Officer
                contribution of salary
            
            
            
            --
            
            
            --
            
            100,000
            
            
            
            
            --
            
            
            ----
            
            
            --Stock
                offering costs paid
            
            
            
            --
            
            
            --
            
            (346,453)
            
            
            
            
            --
            
            
            --Amortization
                of deferred costs
            
            
            
            --
            
            
            --
            
            --
            
            
            
            
            --
            
            
            --Net
                loss for the year ended December 31, 2004
            
            
            
            --
            
            
            --
            
            --
            
            
            
            
            --
            
            
            (2,361,485)Balance,
                December 31, 2004
            
            
            
            37,605,202
            
            
            $37,605
            
            $12,491,361
            
            
            
            
            $59,500
            
            
            $(2,738,333)Common
                Stock issued for cash
            
            
            
            16,779,284
            
            
            16,779
            
            1,792,887
            
            
            
            
            --
            
            
            --Common
                stock issued for (Restricted) for Commissions/Services
            
            
            
            588,249
            
            
            588
            
            225,810
            
            
            
            
            (59,500)
            
            
            --Price
                Guarantee
            
            
            
            3,196,123
            
            
            3,198
            
            
            
            
            
            
            --
            
            
            --Common
                stock issued for Bonus Shares
            
            
            
            70,000
            
            
            70
            
            18,130
            
            
            
            
            --
            
            
            --Common
                stock issuedfor
                fundraising
            
            
            
            
            
            
            
            
            (121,398)
            
            
            
            
            --
            
            
            --Common
                stock issued Board Member Services
            
            
            
            2,095,000
            
            
            2,095
            
            410,355
            
            
            
            
            --
            
            
            --Officer
                Contribution of Salary M. Rivers
            
            
            
            
            
            
            
            
            146,500
            
            
            
            
            --
            
            
            --Common
                Stock issued for Debt ext
            
            
            
            40,000
            
            
            40
            
            4,360
            
            
            
            
            
            
            
            --Amortization
                of Deferred Costs
            
            
            
            --
            
            
            --
            
            
            
            
            
            
            --
            
            
            --Payment
                of stock offering costs
            
            
            
            --
            
            
            --
            
            (147,950)
            
            
            
            
            --
            
            
            --Common
                stock issued for services
            
            
            
            25,000
            
            
            25
            
            3,725
            
            
            
            
            --
            
            
            --Net
                Income, December 31, 2005
            
            
            
            --
            
            
            --
            
            --
            
            
            
            
            --
            
            
            2,557,888Balance,
                December 31, 2005
            
            
            
            60,398,858
            
            $
            60,400
            $
            14,813,780
            
            
            
            $
            --
            
            
            $(
                180,445)




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


F-7-


**IBSG
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 Consolidated
        Statements of Cash Flows
  **For
                  the Years Ended**
                **December
                  31,****2005**
                **As
                  Restated**
                **(Note
                  9)**
              
              
              **2004**CASH
                  FLOW FROM OPERATING ACTIVITIES:Net
                  loss
              $
              2,557,888
              
              $
              (2,361,485)Adjustments
                  to reconcile net loss to netcash
                  used by operating activities:Equity
                  instruments
              
              1,392,727
              
              
              2,835,039Amortization
                  of deferred consulting expense
              
              629,438
              
              
              1,061,142Bad
                  debt expense
              
              9,007
              
              
              171,072Amortization
                  and depreciation expense
              
              331,857
              
              
              254,050Change
                  in fair value of warrant and embedded conversion option
                  liabilities
              
              (212,692)
              
              
              --Amortization
                  of debt discount costs
              
              390,063
              
              
              --Loss
                  on extinguishment of Related party debt
              
              --
              
              
              156,765Contributed
                  services by officers
                Changes
                  in operating assets and liabilities:
              
              146,500
              
              
              --Accounts
                  receivable
              
              (6,023,304
              )
              
              (4,615,075)Prepaid
                  expenses
              
              (609,465
              )
              
              (6,975)Decrease
                  (Increase) in deposits
              
              (20)
              
              
              3,667Increase
                  in accounts payableand accrued expenses
              
              524,682
              
              
              249,642Accrued
                  liquidated damages
              
              160,000
              
              
              --Accrued
                  Interest payable
              
              55,425
              
              
              --Deferred
                  revenue
              
              (91,064
              )
              
              1,347,486Net
                  Cash Used by
                           Operating
                  Activities
              
              (738,958
              )
              
              (904,672
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Loan
                  to Commerce, Inc.
              
              --
              
              
              (171,072
              )Purchase
                  of fixed assets
              
              (12,326
              )
              
              (163,411
              )Net
                  Cash Used by Investing Activities
              
              (12,326
              )
              
              (334,483
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from related party     borrowings
              
              --
              
              
              42,351Payments
                  of related party     borrowings
              
              (243,648)
              
              
              (243,815)Proceeds
                  from convertible     note
              
              980,275
              
              
              --Payments
                  on capital leases
              
              (11,993
              )
              
              11,980Proceeds
                  from stock     subscription payable
              
              
              
              
              59,500Stock
                  offering costs
              
              --
              
              
              (346,453)Common
                  stock issued for      cash
              
              1,315,678
              
              
              1,718,454Net
                  Cash Provided by         Financing
                  Activities
              
              2,040,312
              
              
              1,242,017NET
                  INCREASE IN CASH
              
              1,289,028
              
              
              2,862CASH
                  AT BEGINNING OF PERIOD
              
              8,421
              
              
              5,559CASH
                  AT END OF PERIOD
              $
              1,297,449
              
              $
              8,421
  The
        accompanying notes are an integral part of these consolidated financial
        statements.


F-8-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Consolidated
      Statements of Cash Flows


(Continued)




**For
                the Years Ended**
              **December
                31,****2005**
            
            
            **2004**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONInterest
                paid
            
            $
            --
            
            $
            33,291Income
                taxes paid
            
            $
            --
            
            $
            --SCHEDULE
                OF NON-CASH FINANCING ACTIVITIESCommon
                stock issued for deferred     consulting
                expenses
            
            $
            --
            
            $
            6,987,413Equity
                instruments
            
            $
            428,485
            
            $
            2,835,039Common
                stock issued for extinguishment     ofrelated
                party debt
            
            $
            --
            
            $
            675,000Initial
                recording of debt discounts from     issue costs and
                derivatives
            
            $
            1,000,000
            
            $
            --Common
                stock issued for acquisition of
                    software
            
            $
            --
            
            $
            364,000Recapitalization
            
            $
            --
            
            $
            73,513Common
                stock issued for extinguishment
                       of Debt
            
            $
            4,360
            
            $
            --Common
                stock issued for service
            
            $
            3,725
            
            $
            --






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







F-9-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**





Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




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-10-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004







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-11-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004






NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


d.
                Revenue Recognition




Our
                license agreements typically run for five years. A first year license
                fee,
                inclusive of installation, integration and training, is payable at
                the
                initiation of the license. However, neither of our customers paid
                at the
                initiation of the license. License maintenance is payable on the
                second
                through fifth anniversary date of the license. Each fee covers the
                license/maintenance fee for one year. Such fees are accounted as
                unearned
                revenue and recognized as revenue ratably over each annual period.
                We
                recognize revenue in accordance with Statement of Position, or SOP
                97-2,
                “Software Revenue Recognition,” as amended, by Staff Accounting Bulletin
                No. 104,*Revenue Recognition*.
                The Company adopted Emerging Issues Task Force Issue No.
                00-21,*Revenue Arrangements with Multiple Deliverables*.
                We recognize license revenues when all of the following criteria
                are met:
                persuasive evidence of an arrangement exists, the fee is fixed or
                determinable, collection of the related receivables is probable,
                delivery
                of the license has occurred and the customer has accepted the license
                (including the expiration of an acceptance period) if the terms of
                the
                contract include an acceptance requirement. Licenses are considered
                delivered once a license agreement has been entered into between
                the
                customer and the Company. Actual access to the software, due to the
                web
                nature of the software, is provided upon a mutually agreed schedule
                but
                the license fee due at time of conveyance and is not contingent upon
                the
                customer providing the hardware, staff for training or scheduling
                conflicts in general. Training and installation are included in the
                license fee and can be delivered at any time after the license has
                been
                conveyed. A portion of the year one license revenue and any subsequent
                years licenses are amortized on an annual basis commensurate with
                the
                start of the license agreement and then each subsequent anniversary
                date
                of the license and recognized generally in 12 periods (months) per
                year.
                In the event that we grant a customer the right to specified upgrades
                and
                vendor-specific objective evidence of fair value exists for such
                upgrades,
                value to the customer is determined on a stand-alone basis and there
                is
                objective and reliable evidence of fair value of the undelivered
                elements.
                Professional services and other revenues, when sold with subscription
                and
                support offerings, are accounted for separately until we have delivered
                the specified upgrade or additional service. If professional services
                are
                essential to the functionality of the other elements of the arrangement,
                we defer recognition of revenue until we have satisfied our professional
                services obligations. To date, professional services have not been
                essential to the functionality of the other elements, and thus have
                been
                accounted for separately.




We
                consider a non-cancelable agreement signed by the customer and us
                to be
                evidence of an arrangement. Delivery is considered to occur when
                media
                containing the licensed programs is provided to a common carrier,
                or the
                customer is given electronic access to the licensed software. Our
                typical
                end user license agreements do not contain acceptance clauses. We
                consider
                the fee to be fixed or determinable if the fee is not subject to
                refund or
                adjustment. If the fee is not fixed or determinable, we recognize
                revenue
                as the amounts become due and payable. Probable assurance of collection
                is
                based upon our assessment of the customer's financial condition through
                review of their current financial statements or credit
                reports.




F-12-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


d.
                Revenue Recognition (Continued)




Additional
                consideration is given to the type of customer. Most of our customers
                are
                government or quasi-government agencies and are thus considered low
                collection risk although payments could take as long as 12 months
                to be
                brought current by the customer due to the slow pay nature of such
                entities. Late payments and interest can be assessed based on unpaid
                balances on a monthly basis. Contracts do not include Rights of Return.
                They do include cancellation clauses available to both parties for
                material breaches of contracts.




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




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




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




F-13-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


d.
                Revenue Recognition (Continued)




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




Our
                licenses for the state of California for each regional office are
                sold for
                $50,000 each for the first year. The Company recognizes 65% of the
                license
                fee or $32,500 as revenue upon the activation of the license by a
                regional
                office. The balance of 35% is amortized on a straight line basis
                over a
                one year period. During the year ended December 31, 2005 we activated
                55
                licenses for regional offices as compared to 2004 of which 33 licenses
                were activated. The Company recognized $2,999,840 of revenue in
                2005.




Our
                licenses for the corporate affairs commission (Government of Nigeria)
                consisted of the following: 1) 1styear license fee of a 5 year term effective from June 1, 2004 to
                June 1,
                2005 for $250,000. Of this amount $162,500 was recognized upon the
                activation of the license and the balance of $87,500 is being amortized
                on
                a straight line basis over the 1 year period. 2) A subscription fee
                for
                35,000 businesses at $6.00 per business per month for a period of
                three
                (3) months total invoice of $630,000. All of this revenue was recognized
                in the period of June 1, 2004 to September 1, 2004. 3) A subscription
                fee
                for 35,000 businesses for the next three months which is being recognized
                on a straight line basis for the period from September 2004 to November
                1,
                2004 total invoice of $840,000, and 4) a subscription fee for 35,000
                businesses for the six months ended June 1, 2005. The invoice was
                for
                $1,260,000 of which $210,000 was recognized for December 2004 and
                the
                balance of $1,020,000 is deferred for 2005. 5) Second year license
                maintenance fees from June 1, 2005 through June 1, 2006 was $62,500
                of
                which $53,641 was recognized through December 2005 and the balance
                of
                $8,859 was deferred for 2006. 6) A subscription fee for 35,000 businesses
                for the next nine months which is being recognized on a straight
                line
                basis for the period from of March 1, 2005 through December
                2005.
              
              Our
                licenses for Industrial Development Corporation of South Africa Initiative
                were sold for $4.25 million dollars for the first year of license.
                The
                Company recognizes 75% of the license fee or $3,187,500 as revenue
                upon
                the activation of the license. The balance of 25% is amortized on
                a
                straight line basis over a one year
                period.




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.




F-14-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


d.
                Revenue Recognition (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 of our customers were to deteriorate,
                affecting their ability to make payments, an additional provision
                for
                doubtful accounts could be
                required.




We
                currently have three (4) major customers, the State of California,
                the
                Government of Nigeria, Knowledge Institute and IDC. Our accounts
                receivables from these major customers are as follows at December
                31,
                2005:




Corporate
                Affairs Commission (Nigeria)
            
            
            $
            3,731,729State
                of California
            
            
            
            2,632,500Industrial
                Development Corporation -South Africa Initiative
            4,250,000$
            10,614,229Other
                Receivables
            24,150Total
                Receivables
            $                                   
                10,638,379




We
                recognized revenue of the following amounts for the year ended December
                31, 2005:




Corporate
                Affairs Commission (Nigeria)
            
            
            $
            2,999,840State
                of California
            
            
            
            1,463,724Industrial
                Development Corporation -South Africa Initiative
            3,187,500$
            7,561,064




Deferred
                revenue consisted of the following at December 31,
                2005:




Corporate
                Affairs Commission (Nigeria)
            
            
            $
            8,859State
                of California
            
            
            
            185,063Industrial
                Development Corporation -South Africa Initiative
            $
            1,062,5001,256,422





e.
                Equity Transactions




The
                Company records the values for the common stock issuances based on
                the
                closing prices of the common stock on the date of authorization for
                services, extinguishments of debt, or any other consideration other
                than
                cash. From time to time, the Company will enter the equity market
                and
                raise cash from unaffiliated 3rd party investors. These issuances
                are
                valued at the cash prices that the Company is able to sell the stock
                for.f.
                Accounting for DerivativesThe
                Company evaluates its convertible debt, options, warrants or other
                contracts to determine if those contracts or embedded components
                of those
                contracts qualify as derivatives to be separately accounted for under
                Statement of Financial Accounting Standards 133 “Accounting for Derivative
                Instruments and Hedging Activities” and related interpretations including
                EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to,
                and Potentially Settled in, a Company’s Own Stock”.
              
              The
                result of this accounting treatment is that the fair value of the
                embedded
                derivative is marked-to-market each balance sheet date and recorded
                as a
                liability. In the event that the fair value is recorded as a liability,
                the change in fair value is recorded in the consolidated statement
                of
                operations as an other income or expense. Upon conversion or exercise
                of a
                derivative instrument, the instrument is marked to fair value at
                the
                conversion date and then that fair value is reclassified to equity.
                Equity
                instruments that are initially classified as equity that become subject
                to
                reclassification under SFAS 133 are reclassified to liability at
                the fair
                value of the instrument on the reclassification
                date.






F-15-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


g.
                Depreciation and Amortization




The
                Company is depreciating its furniture on a straight-line basis over
                5
                years and equipment on a straight-line basis over a three year period.
                The
                software acquired (Note 1) is being amortized on a straight line
                over a
                five year period.




g.
                Basis Income (Loss) per Share




Loss
                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,****2005**
            **2004**Income
                / Loss (numerator)
            
            
            $
            2,557,888
            
            $
            (2,361,485
            )Shares
                (denominator)
            
            
            
            60,398,858
            
            
            32,399,962Income
                (Loss) per share
            
            
            $
            .06
            
            $
            (0.07
            )





h.
                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, 2005
      and
      2004 consist of the following:





**2005**
            
            
            **2004****Federal:**CurrentDeferred
            
            $
            98,188
            
            $
            --$
            --
            
            $
            --State:CurrentDeferred
            
            $
            5,749
            
            $
            --$
            104,537
            
            $
            --




Net
                deferred tax assets consist of the following components as of December
                31,
                2005 and 2004:




**2005**
            **2004**Deferred
                tax assets:NOL
                Carryover
            
            
            $
            48,100
            
            $
            1,265,500Accrued
                Expenses
            
            
            
            63,400Deferred
                tax liabilities:
              
              Depreciation
            
            
            
            (216,037)
            
            
            (241,800
            )Valuation
                allowance
            
            
            
            --
            
            
            (1,023,700
            )Net
                deferred tax asset/liability
            
            
            $
            (104,537)
            
            $
            --




F-16-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004


NOTE
      2 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


h.
                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 39% to pretax
                income from continuing operations for the years ended December 31,
                2005
                and 2004 due to the following:





**2005**
            **2004**Book
                income
            
            
            $
            1,017,528
            
            $
            (1,009,559
            )NOL
              Meals
                & entertainment
            
            
            
            (1,113,297)
              2,465
            
            
            975Loss
                on extinguishment of debt
            
            
            
            3,224
            
            
            61,140Other
            
            
            
            
            
            
            (39)Depreciation
              Accrued
                expenses
              Valuation
                allowance
            
            
            
            25,805
              64,275
              (138,151)
            
            
            947,483$
            --
            
            $
            --




At
                December 31, 2005, the Company had net operating loss carryforwards
                of
                approximately $288,066 that may be offset against future taxable
                income
                from the year 2006 through 2024. No tax benefit has been reported
                in the
                December 31, 2005 financial statements since the potential tax benefit
                is
                offset by a valuation allowance of the same
                amount.




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.




i.
                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.




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.


F-17-


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.




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.




F-18-





i.
                Recent Accounting Pronouncements (Continued)The
                implementation of the provisions of these pronouncements are not
                expected
                to have a significant effect on the Company's consolidated financial
                statement presentation.




j.
                Cost of Sales




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




k.
                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).




l.
                Research and Development Expenses




The
                Company expenses Research and Development expenses as incurred. During
                the
                years ended December 31, 2005 and 2004 the Company expense $0, and
                $0,
                respectively.


F-19-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




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,**
              **2005**Art
            
            
            $
            5,472Furniture
                & fixtures
            
            
            
            28,383Office
                Equipment
            
            
            
            35,729Software
            
            
            
            1,376,4021,417,603Accumulated
                depreciation
            
            
            
            (546,981
            )Net
                furniture, fixtures and software
            
            
            $
            922,371




Depreciation
      and amortization expense for the years ended December 31, 2005 and 2004 was
      $39,685 and $30,757, respectively.




NOTE
      4 -
      RELATED PARTY TRANSACTIONS


During
                the period ended September 30, 2004, the Company made cash payments
                of
                $243,648 on the notes payable to related parties.
              
              The
                President of the Company is being compensated at $150,000 per the
                year
                ended December 31, 2004 and $180,000 for 2005. No formal employment
                agreement exists. The President of the Company contributed accrued
                salary
                of $120,000 to capital as of June 30, 2005. The President of the
                Company
                contributed $26,500 to additional paid in capital as of September
                30,2005.
              
              The
                Company loaned $9,007 in the period ended June 30, 2005, $171,072
                in the
                year ended December 31, 2004. to Commerce, Inc. These amounts were
                deemed
                to be uncollectible due to Commerce's bankruptcy filing. Accordingly
                the
                Company recorded a bad debt expenses of $171,072 and $115,231 for
                the
                years ended December 31, 2004 and , respectively. In the period ended
                June
                30, 2005 the Company will record a bad debt of $9,007. The company's
                president is a former officer and director of Commerce. He served
                as
                Commerce's president and as a director for seven years prior to his
                extended personal leave in September of 2002 and resignation in February
                2003.
              
              
              On
                January 15, 2004, the Company issued 3,075,000 shares of common stock
                to
                consulting companies controlled by the Chief Financial Officer of
                the
                Company. These shares were valued at $1.28 per share and were set
                up as
                deferred compensation. The deferred compensation of $3,936,000 is
                being
                amortized on a straight line basis of 5 years based on the consulting
                contracts.




F-20-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004


Note
      5 -
      EQUITY ISSUANCES





In
      January 2005, the Company issued 996,667 shares of common stock for cash valued
      at $0.15 per share.





In
      January 2005, the Company issued 28,571 shares of common stock for cash valued
      at $0.175 per share.





In
      January 2005, the Company issued 125,000 shares of common stock for fund raising
      valued at $0.51 per share, which was the closing price on the date of
      issue.





Pursuant
      to the private placements for cash mentioned previously, the Company was
      required to issue additional shares of common stock to the various parties
      because the closing bid price of the Company's stock was not $1.00 at the time
      of the SB-2 filing. Accordingly, the Company issued an additional 2,222,779
      shares of common stock to the private placement investors for their cash
      purchases. These individuals did not contribute any services or other items
      to
      the Company. These shares were valued at $0.00 per share.





In
      February 2005, the Company issued 1,466,666 shares of common stock for cash
      valued at $0.15 per share.





In
      February 2005, the Company issued 30,149 shares of common stock for fund raising
      valued at $0.33 per share, which was the closing price on the date of
      issue.





In
      February 2005, the Company issued 300,000 shares of common stock for fund
      raising valued at $0.35 per share, which was the closing price on the date
      of
      issue.





In
      February 2005, the Company issued 100,000 shares of common stock under Bonus
      Shares, valued at $0.36 per share, which was the closing price on the date
      of
      issue.





In
      February 2005, the Company issued 85,714 shares of common stock for cash valued
      at $0.175 per share.





In
      March
      2005, the Company issued 130,000 shares of common stock for services rendered
      valued at $0.36 per share, which was the closing price on the date of
      issue.





In
      March
      2005, the Company issued 3,100 shares of common stock for fund raising valued
      $0.29 per share, which was the closing price on the date of issue.





In
      March
      2005, the Company canceled (30,000) shares of common stock, which was originally
      issued on June 10, 2004 as Bonus Shares valued at $0.56 per share, which was
      the
      closing price on the date of issue.





In
      May
      2005, the Company issued 2,000,000 shares of common stock for Board of Directors
      compensation for services for the entire year of 2005, part was recorded as
      an
      expense and part was deferred, valued at $0.20 per share, which was the closing
      price on the date of issue.





In
      June
      2005, additional shares were issued due to a calculation error on the original
      shares issued in January 2005 for the pursuant to private placement for cash
      mentioned previously, the Company was required to issue additional shares of
      common stock to various parties because the closing price of the Company's
      stock
      was not $1.00 at time of original SB2 filing. Accordingly, the Company issued
      an
      additional 619,009 shares of common stock to the private placement investors
      for
      their cash purchases. These individuals did not contribute any services or
      other
      items to the Company. These shares were valued at $0.01 per share.





In
      August
      2005, the Company issued 40,000 shares of common stock for services rendered
      valued at $.124 per share which was the closing price on the date of
      issue.





In
      August
      2005, the Company issued 45,000 shares of common stock for services, valued
      at
      $0.11 per share, which was the closing price on the date of issue.





In
      October 2005, the Company issued Board Members 50,000 shares of common stock
      for
      services, valued at $.015 per share which was the closing price on the date
      of
      issue.





In
      October 2005, the Company issued 25,000 shares of common stock for services,
      valued at $.015 per share which was the closing price on the date of
      issue.





In
      December 2005, the Company issued 14,201,666 shares of common stock for
      cash.


F-21-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




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. Annual minimum rental fees are as follows:


Rent:2006:
            
            
            
            46,2762007:
            
            
            
            19,282Total
            
            
            $
            65,558





Rent
                expense for the years ended December 31, 2005 and 2004 was $74,340
                and
                $43,768, respectively.




NOTE
      7 -
      WARRANTS


On
                September 7, 2004 the Company entered into a consulting agreement
                with
                Redwood Consultants, LLC. As consideration for the consulting agreement,
                the Company granted 325,000 warrants exercisable at $0.55 per warrant,
                325,000 warrants exercisable at $0.75 per warrant, 325,000 warrants
                exercisable at $1.00 per warrant and 500,000 warrants exercisable
                at $1.75
                per warrant. The Company calculated the fair value of the warrants
                using
                the Black-Scholes fair value model and determined that the fair value
                of
                the warrants was $216,366. The Company expensed the warrants immediately
                because the warrants are non-refundable and are not a prepayment
                for
                future services.


F-22-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      8 -
      NOTE PAYABLE: LH ASSOCIATES


Securities
                Issued:
            **·**$1
                million Senior Secured Convertible Notes (the “Notes”) and
              **·**Class A and Class B common stock purchase
                warrants.




Coupon:
            7%
                annual, payable semiannually in cash or at the option of the investor
                in
                common stock. If an event of default occurs at any time after the
                Issue
                Date and is not cured within 20 days, the Default Rate of 15% per
                annum
                applies.




Principal
              Repayments:
            On
                the 12th month anniversary of the Closing Date, the Company shall
                be
                required to make principal repayments based on the following schedule:
                o
                Equal monthly installments for the remainder of the note in cash
                or at the
                option of the Company in stock at a price equal to a 15% discount
                of the
                company's common stock price at time of repayment with a maximum
                price of
                a discount of 15% off the company's common stock price at the Issue
                Date.




Maturity:
            The
                Notes will mature 24 months after the Issue
                Date.




Seniority
                and Security:
            The
                Notes will be senior to any and all indebtedness of The Company except
                for
                a bank line currently being negotiated for up to $500,000 and will
                be
                secured substantially by all assets of the Company and its subsidiaries.
                At the option of the investor this may be waived. Notwithstanding
                the
                foregoing, Investor agrees to sign the appropriate subordination
                documents
                requested by the bank.




Conversion
                Price:
            The
                Notes issued will be convertible at the option of the holder, at
                a fixed
                price of Price $.29, however, if the Company's revenues for fiscal
                2004
                were not at least $5,000,000 and revenue results for the first quarter
                of
                fiscal 2005 are not at least $2,000,000 then the conversion price
                will be
                reduced by one third. For the purposes of this transaction only,
                revenue
                is defined as both recognized and deferred
                revenue.




Effective
                Date:
            The
                day the Registration Statement is declared
                effective.




F-23-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      8 -
      NOTE PAYABLE:LH ASSOCIATES (Continued)


Class
                A Warrants:
            The
                investors received Class A Warrants to purchase 3,225,807 shares.
                The
                Class A Warrants: warrants shall have a 5-year life and an exercise
                price
                of $.312. The warrants shall be re-priced if the Company does not
                have
                revenues of at least $20 million for 2005 based on the following
                schedule:
              
              Less
                than $20m -- 15% discounted
              Less
                than $15m - 30% discounted
              Less
                than $10m - 45% discounted




Forced
                Conversion Feature:
            If,
                following the Effective Date, all of the Milestones specified below
                are
                satisfied on each trading day occurring during any period of ten
                consecutive trading days, then the Company may force conversion of
                the
                Notes by delivering to the Investors written notice thereof (a “Forced
                Conversion Notice”) on the business day immediately following the last day
                of such period (the “Forced Conversion Date”). The Forced Conversion
                Notice will specify the aggregate principal amount of the Notes that
                is
                subject to the forced conversion, which amount (i) shall not exceed
                35% of
                the aggregate dollar volume traded on the Company's principal market
                during the seven (7) trading days immediately preceding the Forced
                Conversion Date and (ii) shall be allocated among the Investors on
                a pro
                rata basis. On the Forced Conversion Date, each Investor will be
                deemed to
                have converted an amount of principal of its Debenture equal to (A)
                its
                pro rata share of the aggregate principal amount specified in the
                Forced
                Conversion Notice minus (B) the amount of principal converted by
                such
                Investor during the twenty trading days immediately preceding the
                Forced
                Conversion Date.




Milestones:
            (a)
                The Registration Statement must be effective and available for resale
                of
                the Conversion Shares and Warrant Shares by the Investors. (b) The
                closing
                bid price for the common stock must be above $.60. (c) No event of
                default, or event that could become an event of default, shall have
                occurred. (d) The issuance pursuant to the Forced Conversion does
                not
                cause (i) the number of shares beneficially owned by any Investor
                to
                exceed 4.9% of the number of shares then
                outstanding.




F-24-


**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      8 -
      NOTE PAYABLE:LH ASSOCIATES (Continued)


Anti-dilution
                Rights:
            Should
                the company sell any Common shares or any instrument convertible
                into
                such, at a price per share that is less than the conversion price,
                then
                the conversion price shall automatically be lowered to that new
                price.




Restrictions
                on other financing:
            The
                Company will be restricted from borrowing money or issuing debt securities
                in the public or private markets until the Effective Date except
                for the
                Bank line disclosed in Seniority.




Insider
                Lock -up:
            The
                insiders will be locked up to sell their shares in the company unless
                the
                stock price is over $.65 and then subject to Regulation 144 selling
                rules,
                However, they may sell if the stock is below $.65 only after 9 months
                of
                the registration being effective, subject to rule
                144.




Future
                Offerings:
            For
                a period of up to 1 year from the Effective Date, the investor will
                retain
                the right to participate in public or private offerings of The Company's
                equity and equity linked securities (including anything convertible
                into
                equity) and will be eligible to participate in up to at least
                20%.




Fundamental
                Change:
            Upon
                a Fundamental Change, the Investor(s) will have the right to put
                the
                security to The Company at 105% of outstanding principal, plus unpaid
                accrued unpaid interest. A merger or other change of control transaction
                shall constitute a Fundamental
                Change.




Registration
                Rights:
            Registrant
                shall file a registration statement with the SEC covering the resale
                and
                distribution by the investors of all shares which may be received
                by the
                investors upon conversion of Notes and exercise of the Warrants within
                40
                days of the Closing Date, which Registration Statement shall be declared
                effective within 135 days of such Closing Date. Penalties: If the
                Registration Statement is not effective within 135 days from the
                Issue
                Date or if the Company does not respond to an SEC comment within
                10
                business days or if the effective registration is unavailable to
                the
                Investors for more than twenty (20) days during a 365-day period,
                a 2%
                penalty per month will be assessed until the Registration Statement
                is
                declared effective or becomes available. The penalty will be payable
                monthly in cash.




F-25-




**IBSG
      INTERNATIONAL, INC. AND SUBSIDIARIES**




Notes
      to
      the Consolidated Financial Statements


December
      31, 2005 and 2004




NOTE
      8 -
      NOTE PAYABLE:LH ASSOCIATES (Continued)


Class
                B Warrants:
            The
                investors received Class B Warrants to purchase 322,581 shares. The
                Class
                B Warrants have a 180-day life post effective registration and an
                exercise
                price of $.26 per share.




Due
                Diligence Fee:
            2%
                (two percent) of investment payable out of the escrow account upon
                closing.





The
      Company evaluated whether or not the senior secured convertible notes contain
      embedded conversion options which meet the definition of derivatives under
      SFAS
      133 “Accounting for Derivative Instruments and Hedging Activities” and related
      interpretations. The Company concluded that since the secured convertible
      debentures were subject to liquidated damages requiring potential cash payments
      in the event the Company does not meet registration statement filing or
      effectiveness deadlines, pursuant to the criteria of EITF 00-19, the embedded
      conversion option must be accounted for as a derivative liability. In addition,
      the Class A and B warrants must be classified as liabilities for the same
      reason. The Company recorded an embedded conversion options liability of
      $716,652 and warrant liability relating to the warrants of $883,102 at
      the March 17, 2005 funding date and recorded a debt discount $980,275 along
      with debt discounts for other issue costs to the lender of $19,726 and a charge
      to change in fair value of embedded conversion option and warrants of of
      $619,480 The debt discount is being amortized over the term of the notes. The
      change in fair value recorded as other income for the year ended December 31,
      2005 was a credit of $212,692 . The embedded conversion option and warrants
      were
      valued using a black-scholes option pricing model with the following
      assumptions:





**Warrants****3/17/05**
            
            **12/31/05**Expected
                volatility
            
            111%
                to 148%
            
            111%
                to 181%Expected
                term
            
            0.5
                to 5 years
            
            0.5
                to 4.25 yearsAnnual
                rate of dividends
            
            0
            
            0Discount
                rate
            
            4.14%
            
            4.35%





**Embedded
                Conversion Options******
            ****
            **3/17/05**
            ****
            **12/31/05**Expected
                volatility
            
            148%
            
            138%Expected
                term
            
            2
                years
            
            1.25
                yearsAnnual
                rate of dividends
            
            0
            
            0Discount
                rate
            
            4.14%
            
            4.38


F-26-


Secured
      Convertible Notes payable at December 31, 2005 were as follows:





Secured
      convertible
      notes                     $1,000,000


Debt
      discount 604,110





Secured
      convertible note,
      net                $ 395,890





Amortization
      recorded as interest expense for the year ended December 31, 2005 was
      $395,890.




Note
      9 -
      RESTATEMENT





The
      Company has restated its financial statements for the year ended December 31,
      2004. This action was taken as a result of an incorrect amortization time for
      the deferred consulting services contracts. The amortization was calculated
      over
      five years and it should have been over six years. Adjustments have been made
      to
      correct this error.




******As
                Reported**
            
            ******As
                Adjusted**
            
            ******Differences**Compensation
                Expense
            
            $
            1,647,466
            
            $
            1,450,338
            
            $
            197,128Retained
                Deficit
            
            $
            (2,558,613
            )
            $
            (2,361,485
            )
            $
            (197,128
            )







The
      Company is restating its financial statements for the year ended December 31,
      2005. In April 2006 management determined that the embedded conversion options
      in the $1 million senior secured convertible note, and the related warrants
      should have been recorded as derivative liabilities as of March 17, 2005 with
      changes in fair value charged to other income (expense). In addition the Company
      should have accrued certain liquidated damages.





The
      effect as of December 31, 2005 and for the year then ended is as
      follows:





(a) Increase
      in warrant liability to $494,233


(b) Increase
      embedded conversion option liability to $273,350


(c) Increase
      in change in fair value net other income of $212,692


(d) Decrease
      to additional paid-in capital of $980,275


(e)
      Increase in liquidated damages liability and expense of $160,000





The
      effect on net income and earnings per share for the year ended December 31,
      2005
      was an increase in net income of $52,692 with no change in basic or diluted
      earnings per share.




F-27-


NOTE
      10 -
      SUBSEQUENT EVENTS:





On
      March
      17, 2006, IBSG International, Inc. (the “Company”) executed an agreement And Plan Of Merger
      And Reorganization with A-Division IT, Ltd. a corporation incorporated under
      the
      laws of the United Kingdom, London (primarily an IT International Technology
      Consultant). A-Division IT, Ltd. 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.





Effective
      March 18, 2006, Galaxy Five (PTY) Ltd, a South African entity which operates
      as
      a business consultant firm designed to improve vendor capabilities and produce
      vendor opportunities for the South African market with multi-national firms
      in
      specific vertical industries beginning with the mining industry of South Africa,
      acquired selected Company assets, specifically the Company's right, title and
      interest in and to the asset known as the CAC contract in Nigeria and all
      associated assets (the “Asset”) as disclosed on the Asset Purchase Agreement
      between the parties.





On
      January 11, 2006 the Company issued 8,347,336 common stock for
      debt.





On
      January 6, 2006 the Company issued 110,000 common stock for cash.





On
      January 27, 2006 the Company issued 100,000 common stock for
      services





On
      February 7, 2006 the Company issued 100,000 common stock for
      services







F-28-