Ibsg International Inc - Amended Annual Report (Small Business Issuers) (10KSB/A)

Share Name	Share Symbol	Market	Type
IBSG International Inc (CE)	USOTC:IBIN	OTCMarkets	Common Stock

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

(Mark One)

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

For the fiscal year ended December 31, 2006

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

For the transition period from ___________________ to ______________________

Commission file number 000-29587

IBSG INTERNATIONAL, INC.

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

1132 Celebration Blvd., Celebration, FL 34747

(Address and Zip Code of Principal Executive Offices)

Registrant's Telephone Number: (321) 939-6321

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

None

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

Common Stock, $0.001 par value per share

(Title of Class)

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

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

The issuer's revenues for the fiscal year ended December 31, 2006 were $7,604,678.

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

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

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

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PART I

This Form 10-KSB/A (Amendment No. 1) amends the Company’s annual report on Form 10-KSB for fiscal years ended December 31, 2006 and 2005, as initially filed with the Securities and Exchange Commission on March 29, 2007 and is being filed to reflect certain adjustments to revenue, deferred revenue and the tax provision in the consolidated financial statements with clarifications to our significant accounting policies specific to revenue recognition. This amendment addresses certain revenue recognition adjustments required to be in compliance with generally accepted accounting standards. Additionally, the tax provisions for fiscal years ended December 31, 2006 and 2005 have been restated to reflect the adjustments related to revenue as well as to correct errors in the income tax note as originally filed. The significant effects of these revisions are presented in Note 8 to the consolidated financial statements. The restatements affect disclosures and tabular amounts in Item 6. Selected Financial Data; Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data. This amendment incorporates certain revisions to historical data but is not intended to update other information presented in this annual report as originally filed, except where specifically noted.

Item 1. Description of Business

Business Development

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

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

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

Our Business

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

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

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

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

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

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

Market for our products

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

Master License Customer Characteristics:

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

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

Small Business Development Centers (SBDCS):

Many states operate Small Business Development Centers funded by a combination of US Small Business Administration and state resources. The purpose of these centers is to provide a range of assistance and training to the small and mid-size business sector. We currently have license agreements with 9 state SBDC projects representing an estimated 90,000 small to mid size enterprises.

Fortune 1000 Corporations:

Intelligent Business Systems Group, Inc. suggests that Small Business Development Centers seek to sell Corporate Sponsor subscription licenses to Fortune 1000 corporations for an average of $75,000/year. This license would provide the sponsor with unlimited access to the constituent pool of the Small business development centers small-mid size businesses of which a significant percentage are minority owned in order to facilitate the large corporation's recruitment of small and minority owned businesses as vendors. The System platform permits end users to interact not only with these large corporations, but also among each other.

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Business Associations:

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

Banking Institutions

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

Economic Development Projects

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

Foreign Markets

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

Secure Blue Markets

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

Sales & Market Strategy

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

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

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

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

Marketing, Sales and Support

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

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

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

Customer Support

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

Secure Blue believes that effective and speedy customer support is crucial to the long-term success of SOX Pro. As a mission-critical application, SOX Pro must be totally reliable and the support available must be of the highest order. We will be including 24/7 support as an integral part of the SOX Pro package with an ongoing annual fee of 20% of the first years license cost. IBSD's technical teams in the US and India will provide 24X7 support and will alternate between time zones to ensure continuous support coverage for end users and channel partners

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Research and Development

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

Competition

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

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

Manufacturing

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

Patents, Trademarks and Licenses

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

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

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Personnel

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

Item 2. Description of Property

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

Item 3. Legal Proceedings

None.

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

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

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PART II

Item 5. Market For Common Equity And Related Stockholder Matters

Common Stock

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

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

*Post reverse split

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

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

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

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

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

Management's Discussion and Analysis of Consolidated Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements included herein. Further, this annually report on Form 10-KSB should be read in conjunction with the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in its 2006 Annual Report on Form 10-KSB. In addition, you are urged to read this report in conjunction with the risk factors described herein.

Overview

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

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

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

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

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

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

Critical Accounting Policies and Estimates

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

· Revenue recognition;

· Estimating sales returns and the allowance for doubtful accounts;

· Value of long lived assets including purchased software;

· Valuation of services paid for with common stock; and

· Accounting for derivatives

Revenue Recognition

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

Background

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

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Master License Customer Characteristics

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

the license element is recognized when the license becomes accessible;

the post-contract customer support element is recognized ratably over the support period; and

professional services are recognized as services are delivered.

General

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

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

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

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

The fee is fixed or determinable when we have a signed contract that states the agreed upon fee for our products and/or services, which specifies the related payment terms and conditions of the arrangement and it is not subject to refund or adjustment.

Delivery occurs:

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

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

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

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

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

License Revenue

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

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

Post-contract Customer Support (“PCS”) Revenue

Post-contract customer support includes technical support, maintenance, enhancements, upgrades and in some cases system access and is specified in the license arrangement. License arrangements are typically sold with the first year of PCS included. The customers can also purchase annual PCS renewals over their arrangement term, which are typically for each of years 2 through 5. Enhancements and upgrades are made available on a “when and if” basis and are rarely if ever based on specifically identified enhancements.

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

Professional Services Revenue

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

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

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

Deferred Revenue

Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. Deferred revenue generally represents deferred maintenance, consulting and 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.

Deferred revenue at December 31, 2006 was $8,194,461 as compared to $3,979,130 of deferred revenue at December 31, 2005. The Company deferred revenues are as followed at December 31, 2006:

California	$	2,924,693
Kenya Drako Oil		994,768 1,225,000
Industrial Development Corporation -South Africa Initiative		3,050,000
	$	8,194,461

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Cost of Sales

Cost of Sales was $272,171 in 2006, approximately 3.6% of revenues. Cost of Sales was $410,726 in 2005, approximately 8.3% of revenues. Cost of sales is the amortization and depreciation of the software assets. The Company has determined that the amount of salaries responsible for the installation and maintenance which would be allocable into cost of sales would be approximately $1,500 for the year ended December 31, 2005. The Company has determined that this amount is immaterial.

Services paid for with common stock

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

Amortization and depreciation

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

Bad debt expense

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

General and Administrative Expense

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

Loss on extinguishment of related party debt

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

Interest Expense and Liquidated Damages

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

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

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Change in Fair Value of Embedded Conversion Option and Warrant Liabilities

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

Net Income

The Company reported a net income of $697,114 in 2006 and a net income of $1,243,780 in 2005. The primary reason for the decrease in net income is due to an income tax benefit of $1,304,100 for 2005 compared to a tax payable of $382,900 for 2006.

Liquidity and Capital Resources

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

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

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

Obligations and Commitments

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

Payments Due By Period as of December 31, 2006

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

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Off Balance Sheet Arrangements

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

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

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

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

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

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

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

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

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

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

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

FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS

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

BUSINESS RISKS

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

We incurred a net income of $697,114 in 2006 and a net income of $1,243,780 in 2005. Our revenues are currently greater than our expenses. The Company recorded tax benefit of $1,304,100 for the year ending December 31, 2005. Our ability to operate profitably depends on generating sales and achieving sufficient gross profit margins. We cannot assure you that we will achieve or maintain profitable operations in the future.

WE HAVE NO ARRANGEMENTS OR SOURCES OF ADDITIONAL CAPITAL AND MAY HAVE TO CURTAIL OUR OPERATIONS IF ADDITIONAL CAPITAL IS NEEDED BUT IS NOT AVAILABLE.

Our customers who are generally state government agencies or non-profit chambers of commerce can be exceedingly tardy in paying their obligations to us. We may have to curtail our operations if we do not have sufficient funds to pay for the expenses of operating our business.

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

We acquired our BizWorld Data System software and began servicing licensees of such software in 2003. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in relatively new and rapidly evolving markets. These risks include:

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

· technological obsolescence; and

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

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

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

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

OUR SOFTWARE PRODUCTS MAY NOT ACHIEVE SUFFICIENT MARKET ACCEPTANCE.

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

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

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

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

We rely on a combination of contracts, copyrights and other security measures in order to establish and protect our proprietary rights. We can offer no assurance that the measures we have taken or may take in the future will prevent misappropriation of our technology or that others will not independently develop similar products, design around our proprietary technology or duplicate our products.

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

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

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

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

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OUR INTERNATIONAL OPERATIONS EXPOSE OUR BUSINESS TO ADDITIONAL RISKS.

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

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

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

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

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

SECURITIES RISKS

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

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

Item 7. Financial Statements

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

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

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

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

Item 8A Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 for the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded as of December 31, 2006 that our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in reports that we filed or submit under the Securities Exchange Act of 1934 were recorded, processed, summarized and reported properly. As of the date of this amended filing (Amendment No. 1), the Company has addressed all weaknesses in its controls and believes its discolsure controls and procedures are adequate.

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

Item 8B Other Information

None.

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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
Jeffrey Willmott	Director

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

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

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

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

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Audit Committee Financial Expert

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

Code of Ethics

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

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

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE (1)

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

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

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

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EXECUTIVE EMPLOYMENT CONTRACTS

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

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

DIRECTOR COMPENSATION

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

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

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

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

Name of Shareholder	Shares Beneficially Owned		Percent of Class
M&K Trust (1)		901,000		12.9
Geoffrey Birch (2)		150,000		*
Jeffrey Willmott		20,000		*

All directors and executive		1,071,000		12.9
officers as a group (3 persons)

* Less than 2%

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

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

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

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

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

Item 12. Certain Relationships and Related Transactions

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

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Item 13. Exhibits

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

Exhibit Number Description

3.1

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

3.2

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

10.1

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

10.2

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

10.3

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

10.4

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

10.5

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

10.6

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

10.7

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

10.8

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

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

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

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Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

	2006		2005
Audit Fees (1)	$	34,318	$	42,159
Audit-Related Fees
Tax Fees (2)

All Other Fees (3)	$	8,741	$	3,430

Total	$	43,059	$	45,589

(1)

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

(2)

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

(3)

Other fees related to Registration Statement Reviews and Comments.

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

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

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

Audit Committee's Pre-Approval Policies

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

The Board pre-approved all fees described above.

-26-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Celebration, Florida, on January 4, 2008.


	IBSG INTERNATIONAL, INC

Date: January 4, 2008	By:	/s/ Michael Rivers
		Michael Rivers
		President

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	January 4, 2008
Michael Rivers	Executive Officer)

/s/ Jeffery Willmott	Director	January 4, 2008
Jeffery Willmott

/s/ Geoffrey Birch	Director, Treasurer (Principal	January 4, 2008
Geoffrey Birch	Accounting Officer)

-27-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2006

C O N T E N T S


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

F-1-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

IBSG International, Inc. and Subsidiaries

Celebration, Florida

We have audited the accompanying consolidated balance sheet of IBSG International, Inc. and Subsidiaries at December 31, 2006, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IBSG International, Inc. and Subsidiaries at December 31, 2006, and the results of their operations and their cash flows for the years ended December 31, 2006 and 2005 in conformity with United States generally accepted accounting principles.

As discussed in Note 8 to the consolidated financial statements, the Company has restated its financial statements for the years ended December 31, 2006 and 2005. This action was taken to correct errors relating to revenue recognition. Adjustments have been made to correct revenue, deferred revenue and the tax provision.

HJ & Associates, LLC

Salt Lake City, Utah

March 27, 2007, except for note 8 for which the date is December 31, 2007

F-2-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet

ASSETS

	December 31, 2006
		(Restated)
CURRENT ASSETS
Cash	$	963,646
Accounts receivable		15,339,550
Prepaid expenses		454,753
Other assets		103,205

Total Current Assets		16,861,154

FURNITURE, FIXTURES AND SOFTWARE, NET (Note 3)		641,167

OTHER ASSETS
Deposits		4,164
Account receivable - long term, net of discount of $428,296		2,571,704
Goodwill		38,000
Deferred tax assets, net		2,253,300
Deferred consulting services		3,541,036
Total Other Assets		8,408,204

TOTAL ASSETS	$	25,910,525

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

F-3-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY

		December 31, 2006
		(Restated)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	964,463
Deferred revenue (Note 2)		8,194,461
Capital leases payable		4,031
Deferred tax liabilities, net		1,332,100

Total Current Liabilities		10,495,055

TOTAL LIABILITIES		10,495,055

COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock authorized 100,000,000 shares at
$0.001 par value; 7,070,019 shares issued and outstanding		7,071
Additional paid-in capital		16,205,838
Accumulated deficit		(797,439	)

Total Stockholders' Equity		15,415,470

TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY	$	25,910,525

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

F-4-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

		For the years ended December 31,
		2006			2005
		(Restated)			(Restated)
REVENUES	$	7,604,678		$	4,928,356

EXPENSES
Cost of Sales		272,171			410,726
Services paid for with common stock		1,474,661			1,802,581
Amortization and depreciation		35,153			39,685
Salary		914,064			538,549
Professional Fees		827,929			717,052
General and administrative expenses		2,489,885			1,120,575

Total Expenses		6,013,863			4,629,168

Income From Operations		1,590,815			299,188

OTHER EXPENSES
Loss on asset sale		--			(8,266	)
Interest expense		(58,877	)		(456,251	)
Interest income		98,837			--
Liquidated damages option liability		--			(160,000	)
Change in fair value of embedded conversion		(18,683	)		388,870
Change in far value of warrant liability		(61,181	)		(176,178	)
Loss on debt settlement		(470,897	)		--
Gain on debt		--			52,317
Total Other Expenses		(510,801	)		(359,508	)
Net income (loss) before provision (benefit) for income taxes		1,080,014			(60,320	)
provision (benefit) for income taxes		382,900			(1,304,100	)
Net Income	$	697,114		$	1,243,780
INCOME/LOSS PER SHARE - Basic	$	0.10		$	0.28
INCOME/LOSS PER SHARE - Diluted	$	0.10		$	0.26
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Basic		7,023,831			4,484,161
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - Diluted		7,023,831			4,837,061

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

F-5-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

	Common Stock				Additional Paid-in			Stock Subscription			Accumulated
	Shares		Amount		Capital			Payable			Deficit
Balance, December 31, 2004	3,760,520	$	3,761	$	12,525,206		$	59,500		$	(2,738,333	)
Common stock issued for cash	1,677,928		1,678		1,807,988			--			--
Common stock issued for (restricted) for commissions/services	58,826		59		226,339			(59,500	)		--
Price guarantee	319,612		320		2,878			--			--
Common stock issued for bonus shares	7,000		7		18,193			--			--
Common stock issued
for fundraising	--		--		(131,398	)		--			--
Common stock issued board member services	209,500		210		412,240			--			--
Officer contribution of salary M. Rivers	--		--		146,500			--			--
Common stock issued for debt ext	4,000		4		4,396			--			--
Amortization of deferred costs	--		--		--			--			--
Payment of stock offering costs	--		--		(147,950	)		--			--
Common stock issued for services	2,500		2		3,748			--			--
Net income, December 31, 2005 (restated)	--		--		--			--			1,243,780

Balance, December 31, 2005	6,039,886			6,041			14,868,140		--		(1,494,553	)
Common stock issued board member services	165,000			165			263,835		--		--
Common stock issued for (purchased of company)	20,000			20			37,980		--		--
Common stock issued for cash	369,300			369			333,901		--		--
Common stock issued for settlement debt	834,733			835			1,429,643		--		--
Purchase of treasury stock	(461,400	)		(461	)		(830,059	)	--		--
Common stock issued for services	20,000			20			19,980		--		--
Common stock issued for private offering	82,500			82			82,418		--		--
Net income, December 31, 2006 (restated)	--			--			--		--		697,114
Balance, December 31, 2006	7,070,019		$	7,071		$	16,205,838		--	$	(797,439	)

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

F-6-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2006			2005
CASH FLOW FROM OPERATING ACTIVITIES:	(Restated)			(Restated)
Net income (loss)	$	697,114		$	1,243,780
Adjustments to reconcile net income to net
cash used by operating activities:
Amortization of deferred consulting expense		1,190,661			629,438
Bad debt expense		--			9,007
Amortization and depreciation expense		307,098			331,857
Change in fair value of warrant and embedded conversion option liabilities		--			(212,692	)
Amortization of debt discount costs		--			390,063
Loss on settlement of debt		470,897			--
Stock issued for services and contributed for services		284,000			1,539,227
Changes in assets and liabilities:
Accounts receivable		(4,701,171	)		(6,023,304	)
Prepaid expenses		161,688			(609,465	)
Other assets		(103,204	)		--
Long term receivable		(2,571,704	)		--
Deposits		(2,764	)		(20	)
Deferred tax assets, net		768,900			(3,022,200	)
Accounts payable and accrued expenses		358,200			420,182
Accrued liquidated damages		11,613			160,000
Accrued Interest payable		(55,426	)		55,425
Deferred revenue		4,215,331			2,631,644
Deferred tax liabilities, net		(386,000	)		1,718,100

Net Cash Provided by (Used in) Operating Activities		645,233			(738,958	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(25,893	)		(12,326	)

Net Cash Used in Investing Activities		(25,893	)		(12,326	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of stock		(983,559	)		--
Payments of related party borrowings		--			(243,648	)
Proceeds from convertible note		--			980,275
Payments on capital leases		(10,055	)		(11,993	)
Payments on notes payable		(250,000	)		--
Proceeds from issuance of common stock, net of offering costs		290,471			1,315,678

Net Cash Provided by (used in) Financing Activities		(953,143	)		2,040,312

NET INCREASE (DECREASE) IN CASH		(333,803	)		1,289,028
CASH AT BEGINNING OF PERIOD		1,297,449			8,421

CASH AT END OF PERIOD	$	963,646		$	1,297,449

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

F-7-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Continued)

	For the Years Ended December 31,
	2006			2005
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	(Restated)			(Restated)
Interest paid	$	58,877		$	--
Income taxes paid	$	(104,500	)	$	--
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock issued for deferred consulting expenses	$	--		$	--
Equity instruments	$	284,000		$	1,539,227

Common stock issued for extinguishment of debt	$	834,733		$	4,360
Initial recording of debt discounts from issue costs and derivatives	$	-		$	1,000,000
Repurchase of common stock	$	(830,520	)	$	--

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

F-8-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 1 - ORGANIZATION

a. Organization

The consolidated financial statements presented include those of IBSG International, Inc. (International) and its wholly owned subsidiaries Intelligent Business Systems Group, Inc. (Group) and Secure Blue, Inc. (Secure Blue). Collectively they are referred to as `the Company'. All material intercompany accounts have been eliminated in consolidation.

International was incorporated under the laws of the State of Florida in June 1996 as Celebrity Steakhouses, Inc. It changed it name to Deerfield Financial Services, then to Optical Concepts of America, Inc. and then in November 2003, it changed its name to IBSG International, Inc. International has not conducted any meaningful business activities and prior to the reverse merger with Group was a shell company.

Group was incorporated in the State of Delaware on January 9, 2003. Group was incorporated for the purpose of providing software solutions to small business development and banking and business association markets.

Secure Blue was established as a new subsidiary in June 2004 to utilize acquired security technology in addressing the digital monitoring of records for purposes of satisfaction of certain accounting control requirements of public companies.

Pursuant to a Share Exchange Agreement dated November 10, 2003, which was effective on February 13, 2004, International acquired 100% of the outstanding capital stock of Group, in exchange for 15,000,000 shares of its common stock. These shares were issued to the stockholders of Group in exchange for their wholly owned interest in Group. At the time of acquisition, the stockholders of Group acquired control of International and accordingly, for accounting purposes, Group was treated as the acquiring entity. International is the continuing entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities of Group. The Companies began planned principle operations as of the date of the reverse merger.

Concurrent with the Share Exchange Agreement, M&K Trust (a trust controlled by the wife of the president and chairman of the Company) (Trust) sold certain assets to International in exchange for a note payable of $958,659. The note bears interest at 8.00% per annum and is secured by a security agreement naming all of the tangible and intangible assets of International. The assets sold to the Company include the exclusive license of software and source codes for the Company's proprietary software as well as various license/maintenance agreements with the users of such software. Group assumed the obligations of a previous company as licensor under such agreements. The trust obtained these assets from a company that was controlled by the president and chairman of the Company. Because of the related party nature of this transaction, the assets were valued at predecessor costs and represent actual cash which were paid to the previous company by the Trust for the development and commercialization of the software.

F-9-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 1 - ORGANIZATION (Continued)

a. Organization (Continued)

International completed an acquisition of certain assets of RedHand International, a UK based company, which included sophisticated security software and a channel partner agreement. International created a new company called Secure Blue which will (1) market the acquired software as a comprehensive solution for Sarbanes-Oxley compliance; (2) integrate the software into it's other subsidiary Group's digital commerce platform with the benefits of adding monitoring capabilities as well as position businesses utilizing the platform to be Sarbanes-Oxley compliant and: (3) to cross market the products into receptive vertical markets. The purchase of RedHand consisted of 650,000 shares of common stock valued at $0.56 per share totaling $364,000 plus $46,088 of amounts due to be paid in cash. The entire purchase price of $410,088 was allocated to the software purchased which will be amortized over a 5 year period on a straight line basis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Accounting Method

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

b. Estimates

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

c. Cash and Cash Equivalents

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

F-10-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition

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

Background

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

Master License Customer Characteristics

Master licenses produce the bulk of our revenue. Master license customers are typically government operated Small Business Development Centers (“SBDC”), Fortune 1000 Corporations, Business Associations, Banking Institutions and International Economic Development Projects. Most of our current master license customers are government or quasi-government agencies and are considered a low credit risk.

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

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

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

o	professional services are recognized as services are delivered.

F-11-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition (Continued)

General

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

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

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

3. Delivery occurs:

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

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

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

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

License Revenue

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

F-12-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d. Revenue Recognition (Continued)

Post-contract Customer Support (“PCS”) Revenue

Post-contract customer support includes technical support, maintenance, enhancements, upgrades and in some cases system access and is specified in the license arrangement. License arrangements are typically sold with the first year of PCS included. Only the initial year (year one) of PCS is bundled with the license fee, which results in the need to utilize the 65% - 35% revenue allocation split, to identify that portion of the initial years revenue to be allocated between license fees and PCS.

The customers can also purchase annual PCS renewals over their arrangement term, which are typically for each of years 2 through 5. PCS renewals are separately and distinctly identified from the license fee. Our customers are free to choose whether to purchase annual renewal maintenance subsequent to the initial year, or not, and that decision is reaffirmed in each individual renewal year. Each annual PCS renewal is separately invoiced in the year the renewal decision is made. If customers choose not to purchase the annual renewal maintenance, our software continues to work and their right to use it remains intact under their original license agreement. Enhancements and upgrades are made available on a “when and if” basis and are rarely if ever based on specifically identified enhancements.

Professional Services Revenue

Factors for Government or Quasi-Government Agency Customers

Most of our current customers are government or quasi-government agencies and are considered a low credit risk. Our contacts reflect terms and conditions that take into consideration the nature of these entities. As more fully discussed in SOP 97-2, the fees are determined to be fixed and determinable because:

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

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

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

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

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

· our contracts do not include any Fiscal Funding Clauses,

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

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

Deferred Revenue

Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. Deferred revenue generally represents deferred maintenance, consulting or training services not yet rendered and license revenue 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.

The Company has amended its annual report to reflect certain adjustments to revenue and deferred revenue in the consolidated financial statements for fiscal years ended December 31, 2006 and 2005 along with clarification specific to the Company’s revenue recognition policies. Previously recognized revenues associated with certain older contracts have been restated and will be deferred until such time as all SOP 97-2 requirements have been satisfied. The effects of this restatement are presented in Note 8.

Accounts Receivable, Allowance for Doubtful Accounts and Sales Returns

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

The Company has a long term receivable to Galaxy5 for three million dollars recorded from the sale of the CAC contract in March 2006. This receivable has a term of three years. An interest discount on this receivable was recorded at $428,296.

F-13-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable, Allowance for Doubtful Accounts and Sales Returns (Continued)

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

California	$	2,973,120
Drako Oil		3,500,000
Kenya		3,800,000
Industrial Development Corporation-South Africa Initiative		4,546,430
			14,819,550
Other Receivables			520,000
Total Receivables	$		15,339,550

We recognized revenue of the following amounts for the year ended December 31, 2006:

California	$	159,714
Drako oil		2,275,000
Kenya		2,805,232
Industrial Development Corporation - South Africa Initiative		2,250,000
Other Revenue		114,732
	$		7,604,678

Deferred revenue consisted of the following at December 31, 2006:

California	$	2,924,693
Kenya		994,768
Drako Oil		1,225,000
Industrial Development Corporation - South Africa Initiative		3,050,000
	$	8,194,461

F-14-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

e. Equity Transactions

The Company records the values for the common stock issuances based on the closing prices of the common stock on the date of authorization for services, extinguishments of debt, or any other consideration other than cash. From time to time, the Company will enter the equity market and raise cash from unaffiliated 3rd party investors. These issuances arc valued at the cash prices that the Company is able to sell the stock for.

f. Accounting for Derivatives

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

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

g. Depreciation and Amortization

The Company is depreciating its furniture on a straight-line basis over 7 years and equipment on a straight-line basis over a three year period. The software acquired (Note 1) is being amortized on a straight line over a five year period.

h. Basis Income per Share

Income per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.

		For the years ended December 31,
		2006		2005
Income (loss) / (numerator)	$	697,114	$	1,243,780
Shares / (denominator) - Basic		7,023,831		4,484,161
Shares / (denominator) - Diluted		7,023,831		4,837,061
Income (loss) per share - Basic	$	0.10	$	0.28
Income (loss) per share - Diluted	$	0.10	$	0.26

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

	i. Income Taxes

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

The information in this footnote has been restated for 2006 and 2005, respectively, to reflect certain adjustments related to revenue as well as to correct errors in the income tax note as originally filed with the SEC on March 29, 2007. The most significant corrections to this note are related to the reversal in 2005 of a valuation allowance of approximately $1.1 million for deferred taxes and the recognition of deferred tax liabilities related to deferred consulting. It was determined in 2005 that the deferred tax assets were realizable. The effects of this restatement are presented in Note 8.

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

	2006		2005
Federal:
Current	$	--	$	--
Deferred		326,614		(1,113,400	)

State:
Current		--		--
Deferred		56,286		(190,700	)
	$	382,900	$	(1,304,100	)

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

		2006			2005
Deferred tax assets:
NOL carryover	$	2,076,600		$	3,238,100
Accrued expenses		139,500			62,000
Depreciation		37,200			--
Deferred tax liabilities:
Depreciation		--			(215,900	)
Deferred consulting		(1,332,100	)		(1,780,100	)

Net deferred tax assets	$	921,200		$	1,304,100

The company has a net operating loss carry forward of approximately $5,500,000 available of offset future taxable income through 2028.

F-15-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

i. Income Taxes (Continued)

Deferred tax assets and liabilities are reflected on the Company’s consolidated balance sheets at December 31, 2006 and 2005 as follows:

	2006			2005

Non-current deferred tax assets, net	$	2,113,800		$	3,022,200
Current deferred tax liability, net		(1,192,600	)		(1,718,100	)
Net deferred tax assets	$	921,200		$	1,304,100

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

		2006			2005
Book income (loss)	$	406,300		$	(22,700	)
NOL		(1,161,500	)		(444,900	)
Meals & entertainment		3,500			2,400
Loss on extinguishment of debt		177,100			3,100
Deferred consulting		448,000			447,900
Depreciation		19,100			32,200
Options/warrents		30,000			(80,000	)
Related party accruals		77,500			62,000
	$	--		$	--

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

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

	j. Recent Accounting Pronouncements

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

F-16-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

j. Recent Accounting Pronouncements (cont.)

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

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

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

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

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

F-17-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

j. Recent Accounting Pronouncements (Continued)

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

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

In February of 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, which is intended to simplify the accounting and improve the financial reporting of certain hybrid financial instruments (i.e., derivatives embedded in other financial instruments). The statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125.” SFAS No. 155 is effective for all financial instruments issued or acquired after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact SFAS No. 155 will have on its consolidated financial statements, if any.

In March of 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140” (SFAS 156). SFAS 156 amends SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement No. 125," with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: (a) a transfer of the servicer’s financial assets that meets the requirements for sale accounting, (b) a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities, and (c) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. SFAS 156 is effective for all servicing assets and liabilities as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The effect of adoption of SFAS 156 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (FIN 48) – an interpretation of FASB Statement No. 109, Accounting for Income Taxes (SFAS No. 109)” (FIN 48) . FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return. Guidance is also provided on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The effect of adoption of FIN 48 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Where applicable, SFAS 157 clarifies and codifies related guidance within other generally accepted accounting principles. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The effect of adoption of SFAS 157 is not anticipated to have a material impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, " Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also eliminates the option in SFAS 87 to measure plan assets and obligations up to three months prior to the financial statement date. SFAS 158 is effective for fiscal years ending after December 15, 2006. The adoption of SFAS 158 did not have an impact to the Company's overall results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment to SFAS No. 115” (SFAS 159). SFAS 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at initial recognition of the asset or liability or upon a remeasurement event that gives rise to new-basis accounting. The decision about whether to elect the fair value option is applied on an instrument-by-instrument basis, is irrevocable and is applied only to an entire instrument and not only to specified risks, cash flows or portions of that instrument. SFAS 159 does not affect any existing accounting standards that require certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159 on its consolidated financial position and results of operations.

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

k. Cost of Sales

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

l. Long Lived Assets

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

F-18-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

m. Research and Development Expenses

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

NOTE 3 - FURNITURE, FIXTURES AND SOFTWARE

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

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

Description			Useful lives
Art			Not depreciated
Furniture & fixtures			5 years
Office equipment			3 years
Software			5 years

Furniture, fixtures and software consisted of the following:

	For the year ended December 31, 2006
Art	$	5,472
Furniture & fixtures		28,865
Office Equipment		93,907
Software		1,367,002

		1,495,246
Accumulated depreciation		(854,079	)

Net furniture, fixtures and software	$	641,167

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

F-19-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 4 - RELATED PARTY TRANSACTIONS

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

Note 5 - EQUITY ISSUANCES

In January 2005, the Company issued 99,667 shares of common stock for cash valued at $1.50 per share.

In January 2005, the Company issued 2,857 shares of common stock for cash valued at $1.75 per share.

In January 2005, the Company issued 12,500 shares of common stock for fund raising valued at $5.10 per share, which was the closing price on the date of issue.

Pursuant to the private placements for cash mentioned previously, the Company was required to issue additional shares of common stock to the various parties because the closing bid price of the Company's stock was not $1.00 at the time of the SB-2 filing. Accordingly, the Company issued an additional 222,278 shares of common stock to the private placement investors for their cash purchases. These individuals did not contribute any services or other items to the Company. These shares were valued at $0.10 per share.

In February 2005, the Company issued 146,667 shares of common stock for cash valued at $1.50 per share.

In February 2005, the Company issued 3,014 shares of common stock for fund raising valued at $3.30 per share, which was the closing price on the date of issue.

In February 2005, the Company issued 30,000 shares of common stock for fund raising valued at $3.50 per share, which was the closing price on the date of issue.

In February 2005, the Company issued 10,000 shares of common stock under Bonus Shares, valued at $3.60 per share, which was the closing price on the date of issue.

In February 2005, the Company issued 8,571 shares of common stock for cash valued at $1.75 per share.

In March 2005, the Company issued 13,000 shares of common stock for services rendered valued at $3.60 per share, which was the closing price on the date of issue.

In March 2005, the Company issued 310 shares of common stock for fund raising valued $2.90 per share, which was the closing price on the date of issue.

In March 2005, the Company canceled (3,000) shares of common stock, which was originally issued on June 10, 2004 as Bonus Shares valued at $5.60 per share, which was the closing price on the date of issue.

In May 2005, the Company issued 200,000 shares of common stock for Board of Directors compensation for services for the entire year of 2006, part was recorded as an expense and part was deferred, valued at $2.00 per share, which was the closing price on the date of issue.

In June 2005, additional shares were issued due to a calculation error on the original shares issued in January 2005 for the pursuant to private placement for cash mentioned previously, the Company was required to issue additional shares of common stock to various parties because the closing price of the Company's stock was not $1.00 at time of original SB2 filing. Accordingly, the Company issued an additional 61,901 shares of common stock to the private placement investors for their cash purchases. These individuals did not contribute any services or other items to the Company. These shares were valued at $0.10 per share.

In August 2005, the Company issued 4,000 shares of common stock for services rendered valued at $1.24 per share which was the closing price on the date of issue.

In August 2005, the Company issued 4,500 shares of common stock for services, valued at $1.10 per share, which was the closing price on the date of issue.

In October 2005, the Company issued Board Members 5,000 shares of common stock for services, valued at $0.15 per share which was the closing price on the date of issue.

In October 2005, the Company issued 2,500 shares of common stock for services, valued at $0.15 per share which was the closing price on the date of issue.

In December 2005, the Company issued 1,420,167 shares of common stock for cash.

In January 2006, the Company issued 834,734 shares of common stock as part of a settlement of debt and outstanding warrants valued at $1.00 per share (see note 7).

In January 2006, the Company issued 10,000 shares of common stock for services valued at $1.00 per share.

In January 2006, the Company issued 11,000 shares of common stock for cash valued at $1.00 per share.

In February 2006, the Company issued 10,000 shares of common stock for services valued at $1.00 per share.

In March 2006, the Company issued 363,300 shares of common stock for cash valued at $1.00 per share.

In April 2006, the Company re-purchased 461,400 shares of common stock at $1.80 per share.

In July 2006, the Company issued 165,000 shares of common stock for services valued at $1.60 per share.

In July 2006, the Company issued 20,000 shares of common stock for acquisition of a business valued at $1.90 per share.

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

F-20-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2006 and 2005

NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company in April 2005 made a settlement agreement with American Express for payment of $52,317 of the $105,000 owed, which has been paid and forgiveness of the balance, recorded under “Gain on Debt Settlement”.

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

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

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

On January 18, 2006 (the “Settlement Date”) the Company paid $150,000 in cash and issued 834,733 common shares to settle the outstanding principal, accrued interest and accrued liquidated damages relating to the $1 million senior secured convertible note and the related outstanding warrants. Of this amount, 101,400 was restricted stock was settled in January 2006 for all Class A and B warrants (approximately 4 million shares in warrants) at a ration or approximately four to one. A loss on settlement of $470,897 was recorded. At the time of the settlement, accrued interest payable was $55,425, accrued liquidated damages was $171,613, discount warrant value was $533,491, discount lender fee was $11,916, discount BCF was $58,703, and debt issue cost was $9,092. The shares were valued at $1.00 per share. This created an administrative loss for the period of approximately $470,897 [$533,490 (debt discounts) - $171,613 (liquidated damages)] for this transaction. The SEC position follows the AICPA position as delineated in the AICPA Practice Alert 2000-1. It is that contractually negotiated prices or values are not representative of fair value. Although the Company carried a market value on the warrants of $533,490 until the point of settlement and the Company settled the debt for less than approximately 25% of that value, regulations prevent the Company from adjusting the value to the lower value.

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

F-21-

NOTE 8 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has amended its annual report for fiscal years ended December 31, 2006 and 2005 to reflect certain adjustments to revenue and deferred revenue as well as the tax provision in the consolidated financial statements along with clarification specific to the Company’s revenue recognition policies. The Company’s annual report on Form 10-KSB for fiscal year ended December 31, 2006, was initially filed with the SEC on March 29, 2006.

The Company has amended its annual report to reflect certain adjustments to revenue and deferred revenue in the consolidated financial statements along with clarification specific to the Company's revenue recognition policies required to be in compliance with generally accepted accounting standards. Previously recognized revenues associated with certain older contracts are required to be restated and deferred until such time as all SOP 97-2 requirements have been satisfied.

The tax provision has been restated to reflect the adjustments related to revenue, as mentioned above, as well as to correct errors in the income taxes note as orginally filed with the SEC.

The following table reflects the effects of the restatements.


		Year				Year
		Ended				Ended
		December 31, 2006				December 31, 2005
Other Assets
As Previously Reported	$	--			$	--
As Restated		103,205				--
Difference	$	103,205			$	--

Deferred Tax Assets, Net
As Previously Reported	$	170,805				$	--
As Restated		2,253,300					3,022,200
Difference	$	2,082,495				$	3,022,200

Deferred Revenue
As Previously Reported		$	3,199,461			$	1,681,422
As Restated			8,194,461				3,979,130
Difference		$	4,995,000			$	2,297,708

Deferred Tax Liabilities, Net
As Previously Reported		$	--			$	--
As Restated			1,332,100				1,718,100
Difference		$	1,332,100			$	1,718,100


Income Tax Payable
As Previously		$	2,121,640			$	104,500
Reported
As Restated		--					--
Difference		$	(2,121,640	)		$	(104,500	)

Retained Earnings
(Accumulated Deficit)
As Previously Reported		$	1,222,321			$	(605,445	)
As Restated			(797,439	)			(1,494,553	)
Difference		$	(2,019,760	)		$	(889,108	)

Revenue
As Previously Reported		$	10,301,970			$	7,226,064
As Restated			7,604,678				4,928,356
Difference		$	(2,697,292	)		$	(2,297,708	)

Net Income (Loss) Before Provision
(Benefit) for Income Taxes
As Previously Reported		$	3,777,306			$	2,237,388
As Restated			1,080,014				(60,320	)
Difference		$	(2,697,292	)		$	(2,297,708	)

Provision (Benefit) for
Income Taxes
As Previously Reported		$	1,949,540			$	104,500
As Restated			382,900				(1,304,100	)
Difference		$	(1,566,640	)		$	(1,408,600	)

Net Income
As Previously Reported		$	1,827,766			$	2,132,888
As Restated			697,114				1,243,780
Difference		$	(1,130,652	)		$	(889,108	)

Earning per Share - Basic
As Previously Reported		$	0.26			$	0.48
As Restated			0.10				0.28
Difference		$	(0.16	)		$	(0.20	)

Earning per Share - Diluted
As Previously Reported		$	0.26			$	0.44
As Restated			0.10				0.26
Difference		$	(0.16	)		$	(0.18	)

Weighted Average Shares
Outstanding - Basic			7,023,831				4,484,161

Weighted Average Shares
Outstanding - Diluted			7,023,831				4,837,061

F-22-

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IBIN IBSG International Inc (CE)