# U.S. SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-KSB

# (Mark One)

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

# For the fiscal year
ended December 31, 2004

# 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, 2004 were $3,295,014.   The number of shares outstanding of the
issuers common stock as of March 31, 2005 was 42,413,848 shares. The aggregate
market value of the common stock 24,101,648 shares held by non-affiliates, based on the
closing price of the common stock on the over the counter market as of April 12, 2005 was
$5,543,379

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

DOCUMENTS INCORPORATED
BY REFERENCE:

None

# PART I

# Item 1. Description of
Business

Forward-Looking Statements

This Form 10-KSB contains
forward-looking statements. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and underlying
assumptions that are not statements of historical facts. This document and any other
written or oral statements made by us or on our behalf may include forward-looking
statements, which reflect our current views with respect to future events and financial
performance. The words believe, expect, anticipate,
intends, estimates, forecast, project and
similar expressions identify forward-looking statements.

The forward-looking statements in
this document are based upon various assumptions, many of which are based on
managements discussion and analysis or plan of operation and elsewhere in this
report. Although we believe that these assumptions were reasonable when made, these
statements are not guarantees of future performance and are subject to certain risks and
uncertainties, some of which are beyond our control, and are difficult to predict. Actual
results could differ materially from those expressed in forward-looking statements.
Readers are cautioned not to place undue reliance on any forward-looking statements, which
reflect managements view only as of the date of this report.

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 Febuarary 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

We are a holding company for two
subsidiaries that are technology companies in the software industry. Our Intelligent
Business Systems Group, Inc. subsidiary is in the business of selling enterprise solutions
that are designed to enhance the operating efficiency and create revenue for State Small
Business Development Centers, business associations such as Chambers of Commerce and
corporations through the licensing of its turn-key digital service center software, which
provides a broad range of digital budgetary, administrative and commercial services
applications on a single platform known as the NetPool Data System.

Groups original software
primarily emphasized Workforce and was substantially modified and revised to develop a
fully functioning business platform that would serve as a digital commerce center for the
development and support of small to mid-size businesses.

As a software provider, system
integrator and Application Service Provider, we generate revenue from license sales,
system modifications, system support, and in certain cases a percentage of monthly
customer fees.

The NetPool Data System provides our
licensees with the ability to operate a turnkey digital service center that is available
for use by a large number of end users on a single platform without requiring these
entities to have a pre-existing web site or individual software programs. Designed to be
branded and administered by our licensees, the system is installed on our licensees
server or may be hosted by Intelligent Business Systems Group, Inc. End users may access
the system via the licensees web site. Utilizing the NetPool Data System, the
licensees are able to offer to end users a broad spectrum of business-related software
applications including sales, sales management, bid management, sub-contracting and
strategic alliance searches, fiscal management, inventory control, regional market
analysis and employment services. Our licensees can generate revenue through offering
system services and sub-license sales to individual end users. Typically our licensees
charge their customers monthly usage and transaction-based fees. The host licensee may
also sell sub-licenses to other entities in their states or vertical markets and provide
those entities with the ability to offer similar services to their
customer/member/consumer base.

Our subsidiary, Secure Blue, Inc., is
developing security software that is designed to meet the computer system monitoring needs
required to implement internal control systems required by public companies by allowing
all sensitive digital files to be tracked and usage of the files to be monitored by
designated compliance officers within the organization. This software is currently in
development and has not been released for sale. No revenue was generated by Secure Blue in
2004.

Secure Blue will seek to generate
revenues from seat licenses, maintenance and monthly subscription fees related to global
monitoring across multiple locations. Secure Blues technology is based on security
software which monitors the key strokes of all users on a network and has had success in
the retail market under the name of Spyware. We do not sell this program and purchased the
technology underlying this program to expedite the development of the computer system
monitoring programs described herein.

Secure Blue expects to release two
versions of its software. The first version is referred to as the shrink wrap version and
is projected to be sold by bulk seat price for a single network at $6,000 per 25 seats.
The enterprise version includes multiple networks and is 100 seat licenses at $25,000. The
enterprise version comes with monthly maintenance for the first year and then is $5k per
year there after. Multi network wireless reporting is available at $100/network. The
shrink version monthly maintenance is an additional $1500 annually.

Market for our products

The
potential market for the NetPool Data System includes any entity that has a customer,
vendor or membership base comprised of small to mid size business enterprises (SMEs). The
potential markets for Secure Blue are public companies required to establish internal
control systems.

The
market for the NetPool Data System includes state operated Small Business Development
Centers, business organizations such as chambers of commerce, large corporations, and
other entities which seek to help small and medium size businesses succeed. When
Intelligent Business Systems Group, Inc. sells a master host license to a
state SBDC or chamber 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.

-2-

Small Business
Development Centers (SBDCS):

Many
states operate Small Business Development Centers (SBDC) funded by a combination of US
Small Business Administration and state resources. The purpose of the SBDCs 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 SBDC system which has fifty regional
offices.

Fortune 1000 Corporations:

Intelligent
Business Systems Group, Inc. suggests that SBDCs 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
SBDCs 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 NetPool Data System to these
organizations as a way of providing additional services and generate additional revenues.

Economic Development
Projects/Workforce Projects/Financial Institutions:

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

Foreign Markets

In 2004 we signed a license agreement
with an agency of the country of Nigeria.

Sales & Market
Strategy

Intelligent Business Systems Group Inc. currently has 2 active customers for its NetPool Data
System. We additionally have 6 other customers with whom we have signed agreements, but have not yet delivered the
software. These customers are not reflected in our results of operations.

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

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

-3-

Marketing, Sales and
Support

The
Company markets its 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
NetPool product to enable customers to act as channel partners through the ability to sell
sub-licenses of the system and provide a revenue generating digital service center to
their customers. 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.

Customer Support

The
Company 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.

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. The Company constantly requests and
receives comments on desired functionality or system changes from not only the
companys customers but the customers, customer. The Company 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

While
the Company believes it is the leading provider of digital commerce and small business
development management systems, the company, after exhaustive research, has not identified
any direct competitors. Rather, the competition in the NetPool markets is restricted to
the many individual software products sold to provide the functions offered in the NetPool
Data System as well as web-based application service providers and portals and stores
which offer assistance to small and medium size businesses.

Secure
Blue has a fairly dense competition pool for its base system but most of the competition
is focused on the Fortune 500 markets whereas Secure Blue is focused on the small cap
public market.

Manufacturing

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

-4-

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. 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.

The trademark Netpool Data System is
licensed from the its current owner and will be acquired by the Company with the final
payment of the note referenced above. The Copyright will be transferred in a similar
fashion at the same point in time as the Trademark. Secure Blue is a trademark and
copyrighted to the Company. None of these trademarks are registered with the US Patent and
Trademark Office.

Personnel

As
of March 15, 2005 the Company, including all subsidiaries had a total of 21 employees, 6
of which were engaged in marketing, sales and related customer support services, 10 were
in research and development, and 5 were in general and administrative functions. Our
success depends in significant part upon the performance of our senior management and
certain key employees. Competition for highly skilled employees, including sales,
technical and management personnel is intense in the software industry. There can be no
assurance that the Company will retain its key managerial and technical employees. The
Companys failure to attract, assimilate or retain highly qualified sales, technical
and managerial personnel could materially adversely affect the Companys business.
None of the Companys employees are represented by a labor union. The Company has
never experienced any work stoppages. None of our employees has a written employment
agreement.

# Item 2. Description of
Property

The Company leases offices in
Celebration, Florida from an independent realtor. The square foot space leased is
approximately 4,000 square feet. The term of the lease is 42 months and terminates May 18,
2007. The monthly rent is $5057.00 per month. The Company also maintains approximately
2,000 square feet of shared space in London, United Kingdom on a month by month basis for
approximately $1,100 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 2004.

-5-

# PART II

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

Common Stock

Our
common stock is traded on the over the counter market and is quoted on the OTC Bulletin
Board under the symbol IGII. On May 12, 2003 we effectuated a 4 to 1 reverse stock split.
On November 3, 2003 we effectuated a 50 to 1 reverse stock split. The following is the
range of high and low closing prices for our common stock for the periods indicated:

|PERIOD                              | HIGH       | LOW          
|----------------------------------- | ---------- | -------------
|January 1, 2003 - March 31, 2003    | $     2.00 | $     0.80** 
|April 1, 2003 - June 30, 2003       | $     6.50 | $     0.40** 
|July 1, 2003 - September 30, 2003   | $     6.50 | $     0.75** 
|October 1, 2003 - December 31, 2003 | $     5.62 | $       0.01*
|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*

*Post reverse split **Price adjusted
on reversal on stock

As
of March 31, 2005 there were approximately 173 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

The discussion in this report
contains forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those discussed below. Factors that could cause or
contribute to such differences include, but are not limited to, those identified below,
and those discussed in the section titled Factors that May Affect Our Business,
Future Operating Results and Financial Condition, included elsewhere in this Report.
You should also carefully review the risk factors set forth in other reports or documents
that we files from time to time with the Securities and Exchange Commission, particularly
Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-K. You should
also read the following discussion and analysis in conjunction with our consolidated
financial statements and related notes included in this report.

# Overview

The Company is a holding company for
two subsidiaries that are technology companies in the software industry. Our Intelligent
Business Systems Group, Inc. subsidiary is in the business of licensing enterprise
solutions that are designed to enhance the operating efficiency and create revenue for
State Small Business Development Centers, business associations and corporations through
the licensing of its turn-key digital service center software, which provides a broad
range of budgetary, administrative and commercial applications on a single platform known
as the NetPool Data System.

The NetPool Data System provides our
licensees with the ability to operate a turnkey digital service center that is available
for use by a large number of entities on a single platform without requiring these
entities to have a pre-existing web site or digital catalogue. Branded and administered by
our licensees, the system is installed on our licensees server or may be hosted by
Intelligent Business Systems Group, Inc. The end users may access the system via the
licensees web site. Utilizing the NetPool Data System, the licensees are able to
offer a broad spectrum of business-related software applications to their end users. Each
end user can create individualized business models through the systems comprehensive
on-line billing functions. Our licensees can generate revenue through system services and
sub-licenses to individual end users. Typically the licensees charge their end user
customers monthly usage and transaction-based fees. The host licensee may also sell
sub-licenses to other entities in their states or vertical markets and provide those
entities with the ability to offer similar services to their customer/member/consumer
base.

-6-

We receive revenue from the licensing
of the use of the NetPool Data System to our clients, fees for customizing the software
for our clients, fees for software maintenance, fees for hosting services and training. We
may also receive sublicense fees from the revenue received from the fees our customers
charge individual users of the system. We have agreed to waive our customary license and
maintenance fees and receive only a share of the revenue generated by two new customers
for use of the system. No revenue was received from this sharing arrangement in 2004.

Our subsidiary, Secure Blue, Inc., is
developing security software that is designed to meet the computer system monitoring needs
required to implement internal control systems required by public companies by allowing
all sensitive digital files to be tracked and usage of the files to be monitored by
designated compliance officers within the organization. This software is currently in
development and has not been released for sale. No revenue was generated by Secure Blue in
2004.

# Critical Accounting
Policies and Estimates

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


Revenue recognition;


 Estimating sales returns and the allowance for doubtful accounts;


 Value of long lived assets including purchased software;


Valuation of services paid for with common stock.

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 and can be delivered at any time after the license has been conveyed. A
portion of the year one license revenue and any subsequent years licenses are amortized on
an annual basis commensurate with the start of the license agreement and then each
subsequent anniversary date of the license and recognized generally in 12 periods (months)
per year. The revenue recognition policy is as follows; 65% of the year one license
recognized upfront to cover the costs related to the installation, testing, training and
the initial investment/purchase of the license of the System. This revenue is recognized
in month one. The original agreement on the purchase of the license of System was to be
paid within a payment schedule over a period of time in order to recoup implementation
costs. It was agreed that on an average taking 65% license fee would cover this cost, the
initial expenses of the employees time on business development which includes
assisting the customer with public awareness and providing initial marketing assistance
and guidance in developing a list of prospect sub-license candidates as well as
presentation assistance for the same and initial profit for the license sale. The balance
in deferred would be maintenance costs for the remainder of the first year and gross
profit. The average contract length is five years. As stated in paragraph 27 of SOP 97-2,
the customer intends to utilize the system over that period of time as an integral part of
their overall operation and as such can continue to be reflected as fixed or determinable.
The length of time that a customer is projected to bring invoices current is 12 months and
believed to be atypical for these types of contracts but is expected by management to
reduce in time to no more then 9 months to be brought current at such time as our
receivables become part of the customers accounts payable system. Based on paragraph
28 of SOP 97-2, our contracts are generally long term (greater then 12 months and payments
on invoices are not expected to be longer than 12 months, the fee is therefore recognized
as fixed and determinable as set forth in paragraph 28.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-

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

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

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

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

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

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

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

-8-

In 2004 we recognized revenue of
$3,295,014 based on the foregoing revenue recognition policies and deferred revenue of
$1,347,486.

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 2004.

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 $1,647,466 of expense in 2004 for the shares issued to the
consultants and expect to recognize the balance of the expense, amounting to $5,729,143,
over the remaining life of the consulting agreements. We recognized $2,445,843 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.

# Results of operations
 Year ended December 31, 2004 and 2003

# Revenue

No revenue was realized in 2003. We achieved revenue of $3,295,014 in 2004. Such revenue
consisted of license fees, subscription fees and customization fees related to our NetPool
Data System software from two customers. We defer revenue from our other customers for the
NetPool Data System until cash is received in accordance with our revenue recognition
policies. Three of our chamber of commerce clients terminated use of the NetPool Data
System during 2004 due to insolvency or management changes.

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, 2004
we activated 33 licenses for regional offices.

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.

-9-

# 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, 2004 was $1,347,486.

# Cost of Sales

Cost
of Sales was $223,293 in 2004 or less than 7% of revenues. Cost of sales is the
amortization and depreciation of the software assets.

# Services paid for with
common stock

Stock-based
compensation was $4,093,309 in 2004 arising out of the issuance of common stock as
compensation for services received and to be received, along with Bonus Shares.

# Amortization and
depreciation

Amortization and depreciation expense was $30,757 for 2004. We recognized amortization
and depreciation expense on our furniture, fixtures and equipment.

# Bad debt expense

Bad debt expense was $172,072 in 2004 and $115,231 in 2003.

# General and
Administrative Expense

General and administrative expenses were $1,139,555 in
2004 and $202,368 in 2003. General and administrative expenses consist primarily of
salaries, related personnel costs, fees for professional services and other general
corporate costs. General and administrative expenses increased in 2004 primarily due to
staff size and time period (in 2003 the company had general expenses for only two months
while 2004 was a 12 month period.

# Loss on extinguishment
of related party debt

In
2004 we had a loss of $156,765 from extinguishment of related party debt.

# Interest

Interest expense was $38,876 in 2004
and $59,249 in 2003.

Net Income (Loss)

As a result, we reported a net loss
of $2,558,613 in 2004 and a net loss of $376,848 in 2003.

Liquidity and Capital
Resources

We
have not had earnings or positive cash flow in 2004 or 2003. Net cash used by operating
activities was $974,221 in 2004. Net cash used by operating activities was $92,963 in
2003. Our net loss cumulative operating losses through December 31, 2004 were $2,935,461.
As a result, our independent auditors have stated that our losses from operations raise
doubt about our ability to continue as a going concern. We made up our cash shortfall in
2004 primarily by sale of common stock. We further addressed our capital requirements in
March 2005 by sale of $1,000,000 of Senior Secured Convertible Notes. We believe the
proceeds of the notes as well as the cash we expect to generate from operations will
enable us to meet our capital needs for at least the next twelve months.

-10-

Net
cash used in investing activities in 2004 was $1,842,656. Net cash used in investing
activities was $123,032 in 2003. Net cash used in investing activities in 2004 was
primarily due to the acquisition of fixed assets, a loan to Commerce, Inc. in the amount
of $171,072 and advances to our IBSG Group subsidiary prior to consolidation.

Net
cash provided by financing activities was $2,819,739 in 2004 and $221,554 in 2003. Net
cash provided by financing activities in 2004 was due primarily to the net proceeds from
the sale of our common stock and the amount we borrowed from a related party in connection
with the purchase of fixed assets.

We
currently expect to incur substantial expenditures in 2005 for the commercial introduction
of Secure Blues software products, to revise our NetPool Data System software to add
additional functions and improve ease of use, and implementation and compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The ultimate costs and
benefits of these additional expenditures are not fully known. We may seek to raise
additional funds through public or private equity financing, or through other sources such
as credit facilities. The sale of additional equity securities could result in dilution to
our shareholders. In addition, in the future, we may enter into cash or stock acquisition
transactions or other strategic transactions that could reduce cash available to fund our
operations or result in dilution to shareholders.

# Obligations and
Commitments

The following table reflects our contractual
obligations and other commercial commitments as of December 31, 2004. This table does not
include trade payables and other operating expenses not subject to written commitments
such as salaries.

Payments Due By Period
as of December 31, 2004

|Total                         | Less Than
1 Year | 1-3 Years | 4-5 Years
|----------------------------- | ---------------- | --------- | ---------
|Debt                          |                  |           | $        
|                              |                  |           |          
|                              |                  |           |          
|Capital Leases                |                  |           | $        
|                              |                  |           |          
|Total Contractual Obligations |                  |           | $        

Does not 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 $327,766 which is included in
the foregoing table of obligations and commitments.

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

You should carefully consider the
risks described below together with all of the other information included in this annual
report on Form 10-KSB. The risks and uncertainties described below are not the only
ones facing our company. If any of the following risks actually occurs, our business,
financial condition or operating results could be harmed. In such case, the trading price
of our common stock could decline, and investors in our common stock could lose all or
part of their investment.

# BUSINESS RISKS

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

We incurred a net loss of $2,558,613
in 2004 and a net loss of $376,848 in 2003. Our expenses are currently greater than our
revenues. 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.

-11-

OUR INDEPENDENT AUDITORS
HAVE EXPRESSED DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our financial statements have been
prepared assuming we will continue as a going concern. Due to our losses to date, our
independent auditors have expressed doubt as to our ability to continue as a going
concern. The financial statements included elsewhere herein do not include any adjustments
that might result from the outcome of this uncertainty.

We believe that the additional
funding we received in March 2005 along with the cash we expect to generate from our
business will be sufficient to enable us to meet our capital needs for at least the next
twelve months. However, there can be no assurances that we will be able to successfully
achieve profitable operations and positive cash flows from operations and obtaining
additional capital to meet present and future working capital demands.

WE HAVE NO ARRANGEMENTS
OR SOURCES OF ADDITIONAL CAPITAL AND MAY HAVE TO CURTAIL OUR OPERATIONS IF ADDITIONAL
CAPITAL IS NEEDED BUTIS 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 NetPool 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.

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

Substantially all of our revenue
comes from two customers, both of which 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 NetPool 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.

-12-

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 NetPool 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 OR POTENTIAL USERS DO NOT HAVE ADEQUATE ACCESS TO OUR
PRODUCTS OVER THE INTERNET.

Our NetPool 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 2004 revenue was derived from a customer in Nigeria. 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.

# 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.

-13-

# Item 7. Financial
Statements

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

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

On January 12, 2004, we dismissed
Robert C. Seiwell, Jr., CPA as our principal accountant. This decision was approved by our
Board of Directors. On March 19, 2004, we engaged HJ & Associates, LLC to serve as
independent auditors for the fiscal year ended December 31, 2003.

Robert C. Seiwell, Jr., CPA issued no
reports on our financial statements. During our two most recently completed fiscal years
and the subsequent interim period preceding the determination to change our principal
accountants, there were no disagreements with Robert C. Seiwell, Jr.,CPA on any matter of
accounting principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Robert C. Seiwell, Jr., CPA,
would have caused it to make reference to the subject matter of the disagreement in
connection with any reports it would have prepared on our financial statements. During our
two most recently completed fiscal years and the subsequent interim period preceding the
decision to change principal accountants, there were no reportable events as defined in
Regulation S-K Item 304(a)(1)(v).

During our two most recent fiscal
years and the subsequent interim period prior to engaging HJ & Associates, LLC,
neither the Registrant nor anyone on its behalf consulted with HJ & Associates, LLC
regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our
financial statements, and neither a written report nor oral advice was provided to the
Registrant by HJ & Associates, LLC that was an important factor considered by the
Registrant in reaching a decision as to any accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement or a reportable
event.

# Item 8a. Controls and
Procedures

An evaluation was carried out under
the supervision and with the participation of our management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures as of December 31, 2004.
Disclosure controls and procedures are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, such as this Form 10-KSB, is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Based on that evaluation, our CEO and CFO have
concluded that our disclosure controls and procedures are effective to satisfy the
objectives for which they are intended. Subsequent to the date of our managements
evaluation, there were no significant changes in our internal controls or in other factors
that could significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

-14-

# Part III

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

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

|NAME                | POSITION                   
|------------------- | ---------------------------
|Michael Rivers, PhD | President, CEO and Director
|Geoffrey Birch      | Director/Treasurer         
|Robert Jolly        | Director                   

Dr.
          Michael Rivers, 43, 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, 60, 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.Robert Jolly, 44, has been a director since November of 2003. Mr. Jolly has been
          a Certified Public Accountant for nearly 30 years. Mr. Jolly has served as the
          Chief Financial Officer of Wiginton Fire Protection Engineering, Inc. of Lake
          Mary, Florida. 18 years.

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 other than the
following:

Kim Rivers, Trustee  of M&K
Trust, 10% holder, did not report acquisition of 1,500,000 shares of common stock from the
Company in partial satisfaction of a loan which had been previously reported in the
Companys second quarter filing of 2004 and disposition of 1,500,000 shares gifted, not filed as of yet.

Geoffrey
Birch, director, did not report acquisition of affiliates beneficial ownership of
3,075,000 shares of common stock acquired from the Company in connection with consulting
agreements.

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.

-15-

Code of Ethics

The
Company has adopted a code of business conduct and ethics for its directors, officers and
management employees. Such code is filed as Exhibit 14 to this Form 10-KSB and is
available to shareholders at no charge from Michael Rivers, CEO, 1132 Celebration Blvd.,
Celebration, FL 34747.  Audit Committee Approval of Auditor

The
Board of Directors accepted the proposal of HJ & Associates, LLC for the 2004 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 2004 (the named executive officers) as well as his
compensation in 2003. No other officer received compensation of $100,000 in any such year.

|Annual Compensation | Long Term Compensation Awards |          |   |   |   |   |   |  
|------------------- | ----------------------------- | -------- | - | - | - | - | - | -
|
|
|Michael Rivers,     | 2004                          | $150,000 |   |   |   |   |   |  
|President, CEO      | 2003                          | $17,307  | 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.

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 5 years
based on the consulting contracts.

-16-

# 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
|------------------------------- | ------------------------- | ----------------
|Michael Rivers (1)              | 14,998,096                | 35.4            
|Geoffrey Birch (2)              | 3,167,104                 | 8.4             
|Robert Jolly                    | 147,000                   | *               
|Kim Rivers (1)                  | 14,998,096                | 35.4            
|All directors and executive     | 18,312,200                | 43.2            
|officers as a group (3 persons)
|                                |                           |                 

* Less than 2%

(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. Address of Kim Rivers
and Michael Rivers is 14035 Sierra Vista Drive, Orlando, Florida 32837.

(2)
    Represents shares owned in the name of Mr. Birchs shares are owned by Sylvrey, LTD.
And GPR Holding. Holding companies 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 by  |                                                                                     |                                                                       |                                                                                                                                                
|security holders                       | 0                                                                                   | --                                                                    | 0                                                                                                                                              
|                                       |                                                                                     |                                                                       |                                                                                                                                                
|Equity compensation plans not approved
|by security holders(1)                 | 1,475,000                                                                           | $     1.10                                                            | 0                                                                                                                                              
|Total                                  | 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

-17-

Individual equity compensation
arrangements not approved by shareholders

The following issuances of common
stock in 2004 were not approved by the Companys shareholders. 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 stock offering costs                     | 843,132  
|Shares issued for services                                 | 333,000  
|Shares issued for bonuses                                  | 2,267,104
|Shares issued for consultants compensation (1)             | 6,372,792
|Shares issued for extinguishment of related party debt (2) | 1,500,000
|Shares issued for assets                                   | 650,000  

(1)    
          Includes 3,075,000 shares of common stock issued to consulting companies
          controlled by Geoffrey Birch, 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 5 years based on the consulting contracts.
          (2) The Company issued 1,500,000 shares of its common stock to the M&K Trust
          as a partial payment on a note payable by the Company. 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 Company loaned $171,072 and
$115,231 to Commerce, Inc. in 2004 and 2003 respectively. These amounts were deemed to be
uncollectible due to Commerces insolvency. Accordingly the Company recorded a bad
debt expense of $171,072 and $115,231 for the years ended December 31, 2004 and 2003,
respectively. Michael Rivers, the Companys President and a director 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.

-18-

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

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

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

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

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

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

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

| | 21 | Subsidiaries
of the Small Business Issuer.
| | -- | ------------------------------------------

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

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

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

| | 32.1 | Section
1350 Certification of the Chief Executive Officer
| | ---- | ---------------------------------------------------------

| | 32.2 | Section
1350 Certification of the Chief Financial Officer
| | ---- | ---------------------------------------------------------

(b)    
          Reports on Form 8-K:

The following report on Form 8-K were
filed during the quarterly period ended December 31, 2004.

| |  | On October
21, 2004 registrant filed a Form 8-K/A to file the following financial statements of
Intelligent Business Systems Group, Inc. under Item 9.01:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Report of
Independent Registered Public Accounting Firm
| |  | -------------------------------------------------------

| |  | Balance Sheet
as of December 31, 2003
| |  | -------------------------------------

| |  | Statement of
Operations From Inception on January 9, 2003 through December 31, 2003
| |  | -----------------------------------------------------------------------------------

| |  | Statement of
StockholdersEquity (Deficit) From Inception on January 9, 2003 through December 31,
2003
| |  | ------------------------------------------------------------------------------------------------------

| |  | Statement of
Cash Flows From Inception on January 9, 2003 through December 31, 2003
| |  | -----------------------------------------------------------------------------------

| |  | Notes to
the Financial Statements
| |  | ---------------------------------

| |  | Pro-forma  financial
information concerning its acquisition of Intelligent Business Systems Group, Inc.
| |  | -------------------------------------------------------------------------------------------------------

-19-

# 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
2004 and 2003 were as follows:

|                   | 2004     | 2003   
|------------------ | -------- | -------
|Audit Fees (1)     | $59,500  | $4,400 
|Audit-Related Fees
|Tax Fees (2)      
|                   |          |        
|All Other Fees (3) | $  8,995 | $   654
|                   |          |        
|Total              | $68,495  | $5,054 

| | (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s2004 fiscal year. The Board has also discussed with the
auditors the matters required to be discussed pursuant to SAS No. 61 (Codification of
Statements on Auditing Standards, AU Section 380), which includes, among other items,
matters related to the conduct of the audit of the Companys consolidated financial
statements.

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

Based on the review and discussions
referred to above, the Board approved the inclusion of the audited consolidated financial
statements be included in the Companys Annual Report on Form 10-KSB for its 2004
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.

-20-

# 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 April 13, 2005.

| |  | IBSG INTERNATIONAL, INCBY: /S/ Michael Rivers
Michael 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 | April 13, 2005
|                   | Executive Officer)                
|                  
|/s/ Robert Jolly   | Director                           | April 13, 2005
|                  
|/s/ Geoffrey Birch | Director, Treasurer (Principal     | April 13, 2005
|                   | Accounting Officer)               

-21-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESCONSOLIDATED FINANCIAL
STATEMENTSDecember 31, 2004

-F-1-

---

# C O N T E N T S

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

-F-2-

---

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
ofIBSG International, Inc. and SubsidiariesCelebration, Florida

We have audited the accompanying
consolidated balance sheet of IBSG International, Inc. and Subsidiaries at December 31,
2004, and the related statements of operations, stockholders equity and cash flows
for the years ended December 31, 2004 and 2003. 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, 2004, and
the results of their operations and their cash flows for the years ended December 31, 2004
and 2003 in conformity with United States generally accepted accounting principles.

The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 8 to the consolidated financial statements, the Company has
recorded significant losses from operations, and has insufficient revenues to support
operational cash flows, which together raise substantial doubt about its ability to
continue as a going concern. Managements plans in regard to these matters are also
described in Note 8. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

|April 8, 2005 |  | HJ & Associates, LLCBY: /S/ HJ & Associates, LLC
HJ & Associates, LLCSalt Lake City, Utah
|------------- |  | -------------------------------------------------------------------------------------------------------

-F-3-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESConsolidated Balance
Sheet

# ASSETS

|                                               | December 31,
2004
|---------------------------------------------- | -----------------
|CURRENT ASSETS                                 |                  
|Cash                                           |                  
|Accounts receivable (Note 2)                   |                  
|Prepaid expenses                               |                  
|                                               |                  
|Total Current Assets                           |                  
|                                               |                  
|FURNITURE, FIXTURES AND SOFTWARE, NET (Note 3) |                  
|                                               |                  
|OTHER ASSETS                                   |                  
|Deposits                                       |                  
|                                               |                  
|Total Other Assets                             |                  
|                                               |                  
|TOTAL ASSETS                                   |                  
|                                               |                  

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,
2004
|---------------------------------------------- | -----------------
|CURRENT LIABILITIES                            |                  
|Accounts payable and accrued expenses          |                  
|Deferred revenue (Note 2)                      |                  
|Capital leases payable                         |                  
|Note payable-related party (Note 3)            |                  
|                                               |                  
|Total Current Liabilities                      |                  
|                                               |                  
|TOTAL LIABILITIES                              |                  
|                                               |                  
|COMMITMENTS AND CONTINGENCIES (Note 6)         |                  
|STOCKHOLDERS' EQUITY                           |                  
|Common stock authorized 100,000,000 shares at  |                  
|$0.001 par value; 37,605,202 shares issued and |                  
|outstanding                                    |                  
|Additional paid-in capital                     |                  
|Stock subscription payable                     |                  
|Deferred consulting expense                    |                  
|Accumulated deficit                            |                  
|                                               |                  
|Total Stockholders' Equity                     |                  
|                                               |                  
|TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY      |                  
|                                               |                  

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

-F-5-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESConsolidated Statements
of Operations

|                                             | For the years ended
December 31, | 
|-------------------------------------------- | -------------------------------- | 
|
|REVENUES                                     |                                  | 
|                                             |                                  | 
|EXPENSES                                     |                                  | 
|Cost of Sales                                |                                  | 
|Services paid for with common stock          |                                  | 
|Amortization and depreciation                |                                  | 
|Bonus shares expense                         |                                  | 
|Bad debt expense - related party             |                                  | 
|General and administrative expenses          |                                  | 
|                                             |                                  | 
|Total Expenses                               |                                  | 
|                                             |                                  | 
|Loss from operations                         |                                  | 
|                                             |                                  | 
|OTHER EXPENSES                               |                                  | 
|Loss on extinguishment of related party debt |                                  | 
|Interest expense                             |                                  | 
|                                             |                                  | 
|Total Other Expenses                         |                                  | 
|                                             |                                  | 
|NET LOSS                                     |                                  | 
|                                             |                                  | 
|BASIC LOSS PER SHARE                         |                                  | 
|                                             |                                  | 
|WEIGHTED AVERAGE NUMBER OF                   |                                  | 
|SHARES OUTSTANDING                           |                                  | 
|                                             |                                  | 

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

-F-6-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESConsolidated Statements of Stockholders' Equity

|                                                                     | Common Stock | Additional
Paid-in | Deferred | Stock
Subscription | Accumulated |  
|-------------------------------------------------------------------- | ------------ | ------------------ | -------- | ------------------ | ----------- | -
|
|Balance at inception on January 9, 2003                              |              |                    |          | --                 |             | $
|Common stock issued for cash                                         |              |                    |          | 15,000,000         |             |  
|Net loss from inception on January 9, 2003 through December 31, 2003 |              |                    |          | --                 |             |  
|                                                                     |              |                    |          |                    |             |  
|Balance, December 31, 2003                                           |              |                    |          | 15,000,000         |             |  
|Recapitalization                                                     |              |                    |          | 5,978,772          |             |  
|Common stock issued for cash                                         |              |                    |          | 4,660,402          |             |  
|Common stock issued for stock offering costs                         |              |                    |          | 843,132            |             |  
|Stock offering costs                                                 |              |                    |          | --                 |             |  
|Common stock issued                                                  |              |                   
|for services                                                         |              |                    |          | 333,000            |             |  
|Common stock issued for bonus shares                                 |              |                    |          | 2,267,104          |             |  
|Common stock issued for deferred compensation                        |              |                    |          | 6,372,792          |             |  
|Common stock issued for extinguishment of related party debt         |              |                    |          | 1,500,000          |             |  
|Common stock issued for assets                                       |              |                    |          | 650,000            |             |  
|Cash received for shares issued in 2005                              |              |                    |          | --                 |             |  
|Fair value of warrants granted for services rendered                 |              |                    |          | --                 |             |  
|Officer contribution of salary                                       |              |                    |          | --                 |             |  
|Stock offering costs paid                                            |              |                    |          | --                 |             |  
|Amortization of deferred costs                                       |              |                    |          | --                 |             |  
|Net loss for the year ended December 31, 2004                        |              |                    |          | --                 |             |  
|                                                                     |              |                    |          |                    |             |  
|Balance, December 31, 2004                                           |              |                    |          | 37,605,202         |             | $
|                                                                     |              |                    |          |                    |             |  

Theaccompanying notes
are an integral part of these consolidated financial statements.

-F-7-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESConsolidated Statements
of Cash Flows

|                                                  | For the Years Ended
December 31, | 
|------------------------------------------------- | -------------------------------- | 
|
|CASH FLOW FROM OPERATING ACTIVITIES:              |                                  | 
|Net loss                                          |                                  | 
|Adjustments to reconcile net loss to net          |                                  | 
|cash used by operating activities:                |                                  | 
|Equity instruments                                |                                  | 
|Amortization of deferred consulting expense       |                                  | 
|Bad debt expense                                  |                                  | 
|Amortization and depreciation expense             |                                  | 
|Loss on extinguishment of Related party debt      |                                  | 
|Changes in operating assets and liabilities:      |                                  | 
|Accounts receivable                               |                                  | 
|Prepaid expenses                                  |                                  | 
|Decrease (Increase) in deposits                   |                                  | 
|Increase in accounts payable and accrued expenses |                                  | 
|Deferred revenue                                  |                                  | 
|                                                  |                                  | 
|Net Cash Used by Operating Activities             |                                  | 
|                                                  |                                  | 
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                  | 
|Loan to Commerce, Inc.                            |                                  | 
|Purchase of fixed assets                          |                                  | 
|                                                  |                                  | 
|Net Cash Used by Investing Activities             |                                  | 
|                                                  |                                  | 
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                  | 
|Proceeds from related party borrowings            |                                  | 
|Payments of related party borrowings              |                                  | 
|Proceeds from capital lease                       |                                  | 
|Payments on capital leases                        |                                  | 
|Proceeds from stock subscription payable          |                                  | 
|Stock offering costs                              |                                  | 
|Common stock issued for cash                      |                                  | 
|                                                  |                                  | 
|Net Cash Provided by Financing Activities         |                                  | 
|                                                  |                                  | 
|NET INCREASE IN CASH                              |                                  | 
|CASH AT BEGINNING OF PERIOD                       |                                  | 
|                                                  |                                  | 
|CASH AT END OF PERIOD                             |                                  | 
|                                                  |                                  | 

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, | 
|---------------------------------------------------- | -------------------------------- | 
|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION     |                                  | 
|Interest paid                                        |                                  | 
|Income taxes paid                                    |                                  | 
|SCHEDULE OF NON-CASH FINANCING ACTIVITIES            |                                  | 
|Common stock issued for deferred consulting expenses |                                  | 
|Equity instruments                                   |                                  | 
|Common stock issued for extinguishment of            |                                  | 
|related party debt                                   |                                  | 
|Common stock issued for acquisition of software      |                                  | 
|Recapitalization                                     |                                  | 

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

-F-9-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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 SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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 aquired
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 SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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,
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-12-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 2 -      SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

| | d.          Revenue
Recognition (Continued)
| | -------------------------------------------

| | we
recognize revenue as the amounts become due and payable. Probable assurance of collection
is based upon our assessment of the customers financial condition through review of
their current financial statements or credit reports. Additional consideration is given to
the type of customer. Most of our customers are government or quasi-government agencies
and are thus considered low collection risk although payments could take as long as 12
months to be brought current by the customer due to the slow pay nature of such entities.
Late payments and interest can be assessed based on unpaid balances on a monthly basis.
Contracts do not include Rights of Return. They do include cancellation clauses available
to both parties for material breaches of contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | 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 SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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, 2004
we activated 33 licenses for regional offices.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Our
licenses for the corporate affairs commission (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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
currently have two (2) customers, the State of California and the Government of Nigeria.
Our accounts receivable are as follows at December 31, 2004:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 
|-------------------------------------- | 
|Corporate Affairs Commission (Nigeria) | 
|State of California                    | 
|                                       | 
|                                       | 
|                                       | 

| | We
recognized revenue of the following amounts for the year ended December 31, 2004:
| | ------------------------------------------------------------------------------------

|                                       | 
|-------------------------------------- | 
|Corporate Affairs Commission (Nigeria) | 
|State of California                    | 
|                                       | 
|                                       | 
|                                       | 

| | Deferred
revenue consisted of the following at December 31, 2004:
| | -----------------------------------------------------------------

|                                       | 
|-------------------------------------- | 
|Corporate Affairs Commission (Nigeria) | 
|State of California                    | 
|                                       | 
|                                       | 
|                                       | 

| | e.
Equity Transactions
| | ----------------------

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

-F-15-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 2 -      SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

| | f.
Depreciation and Amortization
| | --------------------------------

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

| | g.
Basis 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,
|-------------------- | --------------------------------
|
|Loss (numerator)     |                                 
|Shares (denominator) |                                 
|                     |                                 
|Loss per share       |                                 
|                     |                                 

| | The
Company has excluded 1,475,000 warrants because their effect is antidilutive.
| | ---------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
deferred tax assets consist of the following components as of December 31, 2004 and 2003:
| | ---------------------------------------------------------------------------------------------

|                          | 2004 | 2003
|------------------------- | ---- | ----
|Deferred tax assets:      |      |     
|NOL Carryover             |      |     
|Deferred tax liabilities: |      |     
|Depreciation              |      |     
|Valuation allowance       |      |     
|                          |      |     
|Net deferred tax asset    |      |     
|                          |      |     

-F-16-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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, 2004 and 2003 due to the following:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 2004 | 2003
|------------------------------ | ---- | ----
|Book income                    |      |     
|Meals & entertainment          |      |     
|Loss on extinguishment of debt |      |     
|Other                          |      |     
|Valuation allowance            |      |     
|                               |      |     
|                               |      |     
|                               |      |     

| | At
December 31, 2004, the Company had net operating loss carryforwards of approximately
$3,200,000 that may be offset against future taxable income from the year 2004 through
2024. No tax benefit has been reported in the December 31, 2004 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
| | -----------------------------------

| | On
December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based Payment, which is an
amendment to SFAS No. 123, Accounting for Stock-Based Compensation. This new
standard eliminates the ability to account for share-based compensation transactions using
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees,and generally requires such transactions to be accounted
for using a fair-value-based method and the resulting cost recognized in our financial
statements. This new standard is effective for awards that are granted, modified or
settled in cash in interim and annual periods beginning after June 15, 2005. In addition,
this new standard will apply to unvested options granted prior to the effective date. We
will adopt this new standard effective for the fourth fiscal quarter of 2005, and have not
yet determined what impact this standard will have on our financial position or results of
operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-17-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 2 -      SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

| | i.
          Recent Accounting Pronouncements (Continued)
| | ---------------------------------------------------------

| | In
December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary Assets. This
Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in
APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle
that exchanges of nonmonetary assets should be measured based on the fair value of the
assets exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetrary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. This Statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges incurred during fiscal years
beginning after the date of this statement is issued. Management believes the adoption of
this Statement will have no impact on the financial statements of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 in 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, 2004 and 2003 the Company expense $0, and $0, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-18-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

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                  |             
|Furniture & fixtures |             
|Office equipment     |             
|Software             |             

| | Furniture,
fixtures and software consisted of the following:
| | ------------------------------------------------------------

|                                     | For the year ended
December 31,
2004
|------------------------------------ | ------------------------------------
|Art                                  |                                     
|Furniture & fixtures                 |                                     
|Office Equipment                     |                                     
|Software                             |                                     
|                                     |                                     
|                                     |                                     
|Accumulated depreciation             |                                     
|                                     |                                     
|Net furniture, fixtures and software |                                     
|                                     |                                     

Depreciation
and amortization expense for the years ended December 31, 2004 and 2003 was $254,050 and
$379, respectively.

NOTE 4 -      RELATED
PARTY TRANSACTIONS

| | Sale
of software and license to Company by M&K Trust on February 13, 2004, a Trust
controlled by the wife of the President for $958,659.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | 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 note from the sale of the software.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

-F-19-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 4 -      RELATED
PARTY TRANSACTIONS (Continued)

| | On
June 26, 2004, the Company issued 1,500,000 shares of common stock to the M&K 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 $250,000 after the share issuance. As a result of
the share valuation, the Company recognized a loss on extinguishment of debt of $156,765
because the share value of $675,000 exceeded the amount of the debt being extinguished
which was $518,235.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2004, the Company owed the M&K Trust $238,960, the Company expects to pay
this amount off in 2005. The amount bears interest at 8% per annum and is secured by the
NetPool software rights and title.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
President of the Company contributed $100,000 of his salary payable to capital for the
year ended December 31, 2004.
| | ------------------------------------------------------------------------------------------------------------------------

| | The
President of the Company is being compensated at $150,000 per year. No formal employment
agreement exists.
| | --------------------------------------------------------------------------------------------------------------

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company loaned $171,072 and $115,231 to Commerce, Inc. These amounts were deemed to be
uncollectible due to Commerces bankruptcy filing. Accordingly the Company recorded a
bad debt expenses of $171,072 and $115,231 for the years ended December 31, 2004 and 2003,
respectively. 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 5 -      EQUITY
ISSUANCES

| | During
January 2004, the Company issued 415,333 shares of common stock for cash of $121,200
pursuant to private placements. The shares were valued at an average price of $0.29 per
share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
January 2004, the Company issued 250,000 shares of common stock as stock offering costs.
The shares were valued at $1.28 per share, which was the closing price on the date of
issue. The costs associated with the stock offering costs were deducted from additional
paid in capital.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
January 2004, the Company issued 50,000 shares of common stock for services relating to
the reverse merger. The shares were valued at $1.28 per share, which was the closing price
on the date of issue.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-20-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 5 -      EQUITY
ISSUANCES (Continued)

| | During
January 2004, the Company issued 5,895,000 (3,075,000 to related parties) shares of
common stock to several entities for deferred consulting services. The shares were valued
at $1.28 per share, which was the closing price on the date of issue. Deferred consulting
expenses of $7,545,600 were established and are being amortized over a 60-month period,
which is the expected term of the services.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
January 2004, the Company issued 840,000 shares of common stock to several individuals for
services rendered. The shares were valued at $1.28 per share, which was the closing price
on the date of issue. The Company recorded service expense of $1,074,360.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2004, the Company issued 880,966 shares of common stock for cash of $393,290
pursuant to private placements. The shares were valued at an average price of $0.45 per
share.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2004, the Company issued 250,000 shares of common stock as stock offering costs.
The shares were valued at $1.40 per share, which was the closing price on the date of
issue. The costs associated with the stock offering costs were deducted from additional
paid in capital.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2004, the Company issued 15,000,000 shares of common stock for the reverse merger
between IBSG International, Inc. and IBSG Group, Inc.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2004, the Company issued 43,500 shares of common stock for the extinguishments of
debt valued at $43,065. The shares were valued at $0.99 per share, which was the closing
price on the date of issue.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2004, the Company issued 1,417,104 shares of common stock to several individuals
for services rendered. The shares were valued at $0.99 per share, which was the closing
price on the date of issue. The Company recorded service expense of $1,402,933.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
March 2004, the Company issued 430,000 shares of common stock for cash of $215,000
pursuant to private placements. The shares were valued at an average price of $0.50 per
share. The Company received $185,000 of the cash prior to the March 31, 2004, and the
remaining $30,000 was received in April 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 March 31, 2004. Accordingly, the Company issued
an additional 664,032 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-21-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 5 -      EQUITY
ISSUANCES  (Continued)

| | Subsequent
to March 31, 2004, the Company collected the $30,000 stock subscription receivable.
| | ----------------------------------------------------------------------------------------------

| | During
April 2004, the Company issued 920,000 shares of common stock for cash of $460,000
pursuant to private placements. The shares were valued at a price of $0.50 per share.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
April 2004, the Company issued 20,000 shares of common stock to an individuals for
services rendered. The shares were valued at $0.84 per share, which was the closing price
on the date of issue. The Company recorded service expense of $16,800.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
May 2004, the Company issued 598,000 shares of common stock for cash of $299,000 pursuant
to private placements. The shares were valued at a price of $0.50 per share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
May 2004, the Company issued 2,068 shares of common stock to individuals for deferred
consulting services and along with an adjustment in June 2004 for 295,724 shares valued at
$0.45. per share, which was the closing price on the date of issue. Deferred consulting
expenses of $1,737 were established and are being amortized over a 60-month period, which
is the expected term of the services.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company issued 430,000 shares of common stock for cash of $215,000 pursuant
to private placements. The shares were valued at a price of $0.50 per share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company issued 90,000 shares of common stock to an individuals for services
rendered. The shares were valued at $0.56 per share, which was the closing price on the
date of issue. The Company recorded service expense of $50,400.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company issued 650,000 shares of common stock for the Acquisition of
Redhand. The shares were valued at $0.56 per share, which was the closing price on the
date of issue. The Company recorded $364,000 for this purchase.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company issued 50,000 shares of common stock to employees as Bonuses. The
shares were valued at $0.56 per share, which was the closing price on the date of issue.
The Company recorded $28,000 as an expense.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company issued 475,724 shares of common stock for deferred consulting
services. The shares valued at $0.45. per share, which was the closing price on the date
of issue. Deferred consulting expenses of $214,076 were established.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-22-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 5 -      EQUITY
ISSUANCES  (Continued)

| | During
June 2004, the Company issued 1,500,000 shares of common stock to M&K Trust for the
Note owed on NetPool. The shares valued at $0.45. per share, which was the closing price
on the date of issue. The transaction was recorded reducing the liability to M&K Trust
by $675,000 as of June 30, 2004. There is a balance outstanding of $250,000 at June 30,
2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company canceled 900,000 shares of common stock for Deferred Consulting
Services from the first quarter. The shares valued at $1.28. per share, which was the
closing price on the date of issue. Deferred consulting expenses of $1,152,000 were
adjusted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the Company canceled 147,000 shares of common stock for services rendered. The
shares valued at $0.99 per share, which was the closing price on the date of issue.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2004, the Company cancelled 90,000 shares which had been previously issued for
services. The shares were cancelled at $0.45 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2004, the Company issued 343,132 shares of common stock for commissions rendered
valued at $0.45 per share.
| | -------------------------------------------------------------------------------------------------------------------

| | In
July 2004, the Company issued 80,000 shares of common stock for cash valued at $0.50 per
share.
| | --------------------------------------------------------------------------------------------------

| | In
November 2004, the Company issued 237,000 shares of common stock for services rendered
valued at $0.42 per share, which was the closing price on the date of issue.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2004, the Company issued 900,000 shares of common stock for deferred consulting
services valued at $0.42 per share, which was the closing price on the date of issue.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2004, the Company issued 120,000 shares of common stock for cash valued at $0.25
per share.
| | -------------------------------------------------------------------------------------------------------

| | In
December 2004, the Company issued 30,000 shares of common stock for cash valued at $0.18
per share.
| | ------------------------------------------------------------------------------------------------------

| | In
December 2004, the Company issued 48,751 shares of common stock for cash valued at $0.175
per share.
| | -------------------------------------------------------------------------------------------------------

| | In
December 2004, the Company issued 133,000 shares of common stock for services rendered
valued at $0.51 per share, which was the closing price on the date of issue.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-23-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 6 -      COMMITMENTS
AND CONTINGENCIES

| | 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: | 
|2005: | 
|2006: | 
|2007: | 
|      | 
|Total | 
|      | 

| | Rent
expense for the years ended December 31, 2004 and 2003 was $43,768 and $0, respectively.
| | ---------------------------------------------------------------------------------------------

| | The
Company currently has a claim asserted against it by American Express of approximately
$105,000. The Company has accrued this amount as part of its accounts payable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 8 -      GOING
CONCERN

| | The
Companys condensed consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a going
concern which contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred cumulative operating losses through
December 31, 2004 of $2,935,461. Revenues had not been sufficient to cover its operating
costs and to allow it to continue as a going concern. The potential proceeds from the sale
of common stock, other contemplated debt and equity financing, and increases in operating
revenues from new development would enable the Company to continue as a going concern.
There can be no assurance that the Company can or will be able to complete any debt or
equity financing. If these are not successful, management is committed to meeting the
operational cash flow needs of the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-24-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 9 -      SUBSEQUENT
EVENTS

| | Subsequent
to December 31, 2004, the Company issued 2,463,333 shares of common stock for cash valued
at $0.15 per share. The cash on 330,000 shares was recorded under Stock Subscription
Payable in 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 114,285 shares of common stock for cash valued at
$0.175 per share. The cash on 28,571 shares was recorded under Stock Subscription Payable
in 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 125,000 shares of common stock for commissions,
valued at $0.51 per share, which was the closing price on the date of issue.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 2,222,779 shares of common stock for price
protection/guarantee valued at $0.00 per share, which was the closing price on date of
SB-2. The shares were issued because the Companys shares were not trading at $1.00
per share at the date the SB-2 was filed.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 30,149 shares of common stock for commissions
valued at $0.33 per share which was the closing price on date of issue.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 300,000 shares for services rendered valued at
$0.35 per share, which was the closing price on date of issue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 130,000 shares of common stock for commissions
valued at $0.36 per share, which was the closing price on date of issue.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequent
to December 31, 2004, the Company issued 3,100 shares of common stock for commissions
valued at $0.29 per share, which was the closing price on date of issue.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 17, 2005 The Company entered into a financing transaction with four accredited
investors pursuant to which The Company received $1,000,000 in gross cash proceeds from
the issuance of senior secured convertible notes in a principal amount of $1,000,000 and
warrants to purchase 3,548,388 shares of Common Stock.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following is a summary of certain terms of the financing transaction. This summary is
qualified In its entirety by reference to the full text of the underlying documents
governing the transaction which are filed as exhibits to an 8-K dated March 31, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-F-25-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 9 -      SUBSEQUENT
EVENTS (Continued)

| | 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 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-26-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 9 -      SUBSEQUENT
EVENTS (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% discountedLess than $15m  30% discountedLess 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-27-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 9 -      SUBSEQUENT
EVENTS (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-28-

---

IBSG INTERNATIONAL,
INC. AND SUBSIDIARIESNotes to the
Consolidated Financial Statements December 31, 2004 and
2003

NOTE 9 -      SUBSEQUENT
EVENTS (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.
| | ------------------- | ------------------------------------------------------------------------------------------------------------------------

-F-29-

---