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IBIN IBSG International Inc (CE)

0.000001
0.00 (0.00%)
14 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
IBSG International Inc (CE) USOTC:IBIN OTCMarkets Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 0.000001 0.00 01:00:00

Ibsg International Inc - Quarterly Report of Financial Condition (10QSB)

16/11/2007 3:34pm

Edgar (US Regulatory)


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-QSB
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2007
 
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 000-29587
 
 
IBSG INTERNATIONAL, INC.
(Name of small business issuer in its charter)
   
Florida     
65-0705328
(State or other jurisdiction of incorporation )
    (I.R.S. Employer identification No.)
 
1132 Celebration Blvd., Celebration, FL 34747
(Address and Zip Code of Principal Executive Offices)
 
Registrant’s Telephone Number: (321) 939-6321
 
Securities registered under Section 12(b) of the Exchange Act:
None
 
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
(Title of Class)
 
Check whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X|
 
As of November 8, 2007, there were 9,472,636 shares of the registrant's common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE: none

Transitional Small Business Disclosure Format    Yes |_| No |X|
 
-1-

IBSG INTERNATIONAL, INC.

Part I. Financial Information
 
Item 1. Condensed Consolidated Financial Statements and Notes to Consolidated Financial Statements

(a)  
Consolidated Balance Sheet as of September 30, 2007 (unaudited)

(b)  
Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2007 and 2006 (unaudited)

       (c)  
Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2007 and 2006 (unaudited)

(d)  
Notes to Consolidated Financial Statements (unaudited)
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of  Operations
 
Item 3. Controls and Procedures
 
Part II. Other Information

Item 1. Legal Proceedings      
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds      
 
Item 3. Defaults upon Senior Securities        
 
Item 4. Submission of Matters to a Vote of Security Holders      
 
Item 5. Other Information         
 
Item 6. Exhibits       
 
Signatures
 
-2-

PART I FINANCIAL INFORMATION
 
General
 
The accompanying reviewed financial statements have been prepared in accordance with the instructions to Form 10-QSB. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flow, and stockholders’ equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the company’s annual report on Form 10-KSB for the year ended December 31, 2006. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the quarter ended September 30, 2007 are not necessarily indicative of the results that can be expected for the year ended December 31, 2007.
 
 
-3-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
September 30, 2007
(Unaudited)

 
-4-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)


ASSETS
CURRENT ASSETS
 
September 30, 2007
 
 
 
 
 
    Cash
  $
3,281,388
 
    Accounts receivable net of allowance for bad debt
   
23,014,831
 
    Prepaid expenses
   
342,447
 
 
       
Total Current Assets
   
26,638,666
 
 
       
FURNITURE, FIXTURES AND SOFTWARE, NET
   
788,831
 
 
       
OTHER ASSETS
       
Account receivable - long term 
   
1,802,324
 
Deposits
   
4,164
 
Other assets
   
234,900
 
Deferred consulting services
   
2,648,040
 
 
       
Total Other Assets
   
4,689,428
 
 
       
TOTAL ASSETS
  $
32,116,925
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-5-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
(Unaudited)
 

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
 
September 30, 2007
 
 
 
 
 
Accounts payable and accrued expenses
  $
776,065
 
Accrued tax provision
   
1,769,912
 
Deferred revenue
   
7,726,561
 
    
       
Total Current Liabilities
   
10,272,538
 
 
       
 
       
COMMITMENTS AND CONTINGENCIES
       
 
       
STOCKHOLDERS’ EQUITY
       
 
       
Common stock authorized 100,000,000 shares at $0.001
       
par value; 9,456,636 shares issued and outstanding
   
9,455
 
Additional paid-in capital
   
19,809,563
 
Retained Earnings
    2,025,369  
Total Stockholders’ Equity
   
21,844,387
 
 
       
TOTAL LIABILTIES AND STOCKHOLDERS’ EQUITY
  $
32,116,925
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
-6-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
 
 
   
 
   
 
   
 
 
 
 
Three months ended
September 30,
   
Nine months ended
September 30,
 
 
 
2007
   
2006
   
2007
   
2006
 
 
 
 
   
(restated)
   
 
   
(restated)
 
 
 
 
   
 
   
 
   
 
 
Sales
  $
3,989,135
    $
2,776,811
    $
10,144,286
    $
4,819,086
 
 
                               
Cost of Sales
   
89,093
     
68,042
     
267,279
     
204,129
 
 
                               
Gross Profit
   
3,900,042
     
2,708,769
     
9,877,007
     
4,614,957
 
 
                               
Operating Expenses
                               
Amortization and Depreciation
   
6,792
     
8,829
     
21,611
     
28,647
 
Stock based compensation
   
805,698
     
595,292
     
1,515,840
     
1,243,213
 
Bonus
   
-
     
-
     
-
     
25,000
 
Bad debt expense
   
-
     
-
     
286,000
     
-
 
Professional Fees
   
207,010
     
165,003
     
470,140
     
643,979
 
Salary Expense
   
261,315
     
-
     
735,810
     
-
 
General and Administrative
   
1,109,650
     
1,008,144
     
1,426,013
     
1,913,267
 
Total Operating Expenses
   
2,390,465
     
1,777,268
     
4,455,414
     
3,854,106
 
 
                               
Income from Operations
   
1,509,577
     
931,501
     
5,421,593
     
760,851
 
 
                               
Other Income (Expense)
                               
Loss on debt settlement and warrants
   
-
     
-
     
-
      (470,897 )
Change in Fair Value of embedded options
   
-
     
-
     
-
      (18,683 )
Change in Fair Value of warrants
   
-
     
-
     
-
      (61,181 )
Liquidated damages expense
   
-
     
-
     
-
     
-
 
Interest Income
   
32,947
      -      
98,838
      -  
Tax Provision
    (722,195 )     (45,617
)
    ( 2,166,585 )     (136,852 )
Total Other Income (Expense), net
    (689,248 )    
(45,617
)
    (2,067,747 )     (687,613 )
 
                               
Net Income
  $
820,329
    $
885,884
    $
3,353,846
    $
73,238
 
 
                               
Net Income Per Share  Basic/Diluted
  $
0.10
    $
0.13
    $
0.43
    $
0.01
 
 
                               
Weighted average number of shares outstanding
 during the period – Basic/Diluted
   
7,845,131
     
6,865,880
     
7,740,306
     
6,720,714
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-7-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2007
   
2006
 
 
 
 
   
(restated)
 
CASH FLOW FROM OPERATING ACTIVITIES:
 
 
   
 
 
 
 
 
   
 
 
Net Income
  $
3,353,846
    $
73,238
 
Adjustments to reconcile net income (loss) to net
               
  cash used by operating activities:
               
    Recognition of deferred consulting fee
   
892,996
     
881,003
 
    Bad debt expense
   
286,000
     
-
 
    Amortization and depreciation expense  
   
288,890
     
232,775
 
    Amortization of deferred interest 
    (98,838 )    
-
 
    Amortization of debt discount costs
   
-
     
335,677
 
    Equity instruments
   
-
     
20,000
 
    Loss on settlement of debt 
   
-
     
470,897
 
    Stock issued for services 5
   
775,599
     
382,211
 
  Changes in operating assets and liabilities:
               
    Accounts receivable 
    (7,613,004 )    
(1,041,621
)
    Prepaids 
   
112,306
     
122,957
 
    Decrease (increase) in other assets  
    395,377       (2,232,722 )
    Increase (decrease) in accounts payable and accrued expenses
    (188,370 )     (663,336 )
    Accrued interest payable    
   
-
      (55,425 )
    Income tax provision  
   
1,769,912
     
1,901,602
 
    Deferred revenue  
    (467,900 )     414,402  
 
               
Net Cash Provided (Used) by Operating Activities 
   
(493,186
)    
841,658
 
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:  
               
 
               
Purchase of fixed assets  
    (15,554 )     (26,480 )
 
   
 
         
Net Cash (Used) by Investing Activities 
   
(15,554
)     (26,480 )
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
    Capital Contribution 
   
25,000
     
-
 
    Repurchase of stock from shareholders 
   
-
      (979,406 )
    Payment of investor 
   
-
      (125,000 )
    Payments on Note Payable 
   
-
      (250,000 )
    Payments on capital leases 
    (4,031 )     (8,712 )
    Proceeds from stock subscription payable 
           
353,270
 
    Common stock issued for cash 
   
2,805,513
     
18,533
 
 
               
Net Cash Provided (Used) by Financing Activities
   
2,826,482
      (991,315 )
 
               
NET INCREASE (DECREASE) IN CASH  
   
2,317,742
      (176,137 )
 
               
CASH AT BEGINNING OF PERIOD  
   
963,646
     
1,297,448
 
 
               
CASH AT END OF PERIOD  
  $
3,281,388
    $
1,121,311
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
-8-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)

 
 
For the Nine Months Ended
 
  
 
September 30,
 
 
 
2007
   
2006
 
 
 
 
   
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
   
 
 
 
 
 
   
 
 
    Interest paid
  $
-
    $
-
 
    Income taxes paid
  $
-
    $
104,500
 
 
               
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
               
Common stock issued for services
  $
758,810
    $
-
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
-9-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s most recent 8-K filings and audited financial statements and notes thereto included in its December 31, 2006 Annual Report on Form 10-KSB. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a.    Accounting Method
 
The consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a calendar year end.

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

c.    Cash and Cash Equivalents
 
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

d.    Revenue Recognition

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”) or their profit making equivalents, Fortune 1000 Corporations, Business Associations, Banking Institutions and International Economic Development Projects. These organizations represent our current domestic customer base, and focus on servicing or supporting small and medium sized enterprises (SME). Internationally the Company focuses its marketing efforts in offering the solution on a federal level and expands projects through the same types of entities with additional expansion through other federal government agencies in the area of procurement.   Satellite license are sold through the master license customers for a term of five (5) years domestically, four (4) years internationally. The first year is structured like the master license fee in that it is larger then the subsequent years license maintenance fees.  These licenses fall under the master license but, the company generally receives 90 to 95% of the year.  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. License arrangements currently produce the majority of our revenue. We utilize written contracts in the form of master satellite license arrangements as the means to establish the terms and conditions upon which our products and services are sold.

Master/Satellite License Customer Characteristics

As discussed above, Licensee’s represent our current customer base and generate the majority of our current revenue.  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. Satellite licenses typically are less then a Master license.  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.
 
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.
 
 
-10-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
We recognize revenue on software related transactions on single element arrangements and on each element of a multiple element arrangement, when all of the following criteria are met:
 
1.  
Persuasive evidence of an arrangement exists, which consists of a written, non-cancelable contract signed by both the customer and us.

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

3.  
Delivery occurs,

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

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

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

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 (or their profit making equivalents) and other potential master licensees. License arrangements are typically sold with the first year of Post-contract Customer Support included. As such, the combination of these products and services represent a “multiple-element” arrangement for revenue recognition purposes.

Our revenue recognition policy for multiple-element arrangements, as described above, generally results in 65% of the first year arrangement fee being allocated to license revenue, the delivered element. Recognition of license revenue occurs in the first month, once all the recognition criteria discussed above are met. Subsequent years are treated in a similar manner.  License revenue is intended to cover the initial development cost and testing of the software and the System.
 
 
-11-

IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

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. License arrangements are typically sold with the first year of PCS included. The customers can also purchase annual PCS renewals over their arrangement term, which is typically 5 years domestically, 4 years internationally. Enhancements and upgrades are made available on a “when and if” basis and are rarely if ever based on specifically identified enhancements.

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

Professional Services Revenue

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

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

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

Most of our current customers are government or quasi-government agencies and are considered a low collection risk. However, due to the “slow pay” nature of these entities, payments could take as long as 12 months to be brought current, although management expects to reduce that time to no more than 9 months. As more fully discussed in SOP 97-2, the fees are determined to be fixed and determinable because;
 
·
our software is not subject to obsolescence, any more than is typical for comparable software and we have not made concessions to effect collections,
·
our software is integral to the fundamental mission of our master license customers,
·
our contracts are long term, generally greater then 12 months and collections on invoices are expected to be less than 12 months,
·
our contracts provide for normal collection terms which are substantially less than the term of our agreements and further permit the assessment of late fees and interest on delinquent balances,
·
our contracts are with government entities, and by law, these entities are precluded from not disbursing funds that have been approved and allocated for the license agreement,
·
our contracts do not include any Fiscal Funding Clauses,
·
our contracts do not include any Rights of Return or Cancellation Clauses, and
·
payment is not dependant on the number of SME’s engaged.
 
 
-12-

 
IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

d. Revenue Recognition (Continued)

Deferred Revenue

Deferred revenue results from fees billed to customers for which revenue has not yet been recognized. Deferred revenue generally represents PCS and training services not yet rendered and deferred until all requirements under SOP 97-2 are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under SOP 97-2 are satisfied.
 
Allowance for Doubtful Accounts and Sales Returns
 
A considerable amount of judgment is required when we assessed 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 might be required. A provision for doubtful accounts would initially be recorded based on our historical experience, and then adjusted 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 a national government, as well as general economic conditions, among other factors. National governments accounts are characterized as fully collectible but slow payers. The bulk of our historic client base is primarily composed of national governments; our periodic valuations do not indicate that an allowance for doubtful accounts was necessary at this time.
 
In the first quarter of 2007, the Company has expanded its customer base outside of national governmental account. Due to this expansion, management has currently reevaluated its policies for establishing an allowance for doubtful accounts and sales return allowance specific to this new customer. This new customer base includes state sponsored economic development councils and other quasi-governmental agencies along with corporate based SBDC’s and SME’s. The addition of these new customer types generally represents a higher level of business risk than do national government customers. Management is changing its estimates specific to this new customer base to use a percentage of sales revenue as the basis for its allowance. Management believes that this change better addresses the diverse nature of its future customer base. This allowance is not established for any particular customer but will be applied to the new customer types. The percentage will be applied consistently among all contracts generated from new customer types. Management has determined that 5% of sales should provide an adequate allowance. For the nine months ending September 30, 2007 the amount was $286,000.
 
In summary, estimates for establishing an allowance for doubtful accounts and sales returns applicable to national government account will be based on our existing method referred to above. Estimates for allowance for doubtful accounts and sales returns applicable to the new customer types will be based on the percentage of sales method.
 
 
-13-

 
IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Should any of these factors change, the estimates that we make may also change, which could impact our future provision for doubtful accounts. For example, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional provision for doubtful accounts could be required.

Our accounts receivable are as follows at September 30, 2007:

Current – Account Receivable
 
 
 
 
Department of Trade and Industry  
 
$
11,291,993
 
Kenya
 
 
7,800,000
 
 
 
 
 
 
 
 
$
19,091,993
 
Other Receivables
 
 
4,208,838
 
 Less Allowance for Bad Debts
 
 
(286,000)
 
 Total Current Account Receivable
 
$
23,014,831
 
 
 
 
 
 
Accounts Receivable - Long term
Long term account receivable  (net of discount)
 
$
1,802,324
 
Total Long term receivable
 
$
1,802,324
 
 
We recognized revenue of the following amounts for the three months ended September 30, 2007:
 
 Revenue
 
 
 
 
Department of Trade and Industry
 
$
1,058,748
 
Kenya
 
 
2,772,732
 
Other Revenue
 
 
157,655
 
Total Recognized Revenue 
 
$
3,989,135
 

Deferred revenue consisted of the following at September 30, 2007:
 
Department of Trade and Industry
 
$
3,373,236
 
Kenya
 
 
 1,312,502
 
 Other Deferred Revenue       
 
 
3,040,823
 
Total Deferred Revenue
 
$
7,726,561
 


Listed below is an example of the future values of some of the master agreements.

Sample Contracts Table

Contract
Number of Satellites
Total Value (4 or 5 years)**
Number of SMEs in Database
Department of Trade and Industry
3
US $13.65 million
2.1 million
Kenya
5
US $8.75 million
1.1 million
** Total estimated value for licenses and license maintenance for four years internationally, five years domestically.  No subscription revenue included in figures.

 
-14-

 
IBSG INTERNATIONAL, INC. AND SUBSIDIARIES
 
Notes to the Consolidated Financial Statements
September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
e.  Equity Transactions

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

f. Depreciation and Amortization

The Company is depreciating its furniture on a straight-line basis over 5 years and equipment on a straight-line basis over a three-year period. The software acquired is being amortized on a straight line over a five-year period.
 
NOTE 3 - EQUITY ISSUANCES

In February 2007, the Company retired 17,864 shares of common stock valued at $0.18.

In May 2007 the Company issued 20,000 shares of common stock for cash valued at $1.50.

In May 2007 the Company issued 12,500 shares of common stock for service valued at $2.18.

In May 2007 the Company issued 2,000 shares of common stock for service valued at $2.18.

In May 2007 the Company issued 1,562,500 shares of common stock for cash investment valued at $1.40.

In June 2007 the Company issued 12,000 shares of common stock valued at $1.40.

In June 2007 the Company issued 50,284 shares of common stock valued at $1.75.

In June 2007 the Company issued 20,000 shares of common stock for service valued at $1.79.

In June 2007 the Company issued 357,143 shares of common stock for cash investment valued at $1.40.

In July 2007 the Company issued 384,111 shares of stock for the members of the board of directors and officers valued at $1.80.

NOTE 4  – RESTATEMENT
 
As discussed below, certain restatements for filing with the SEC are in process for the quarters ended March 31, 2007, June 30, 2007 and for the year ended December 31, 2006 and December 31, 2005. The net effect of the restatements is being recorded as of September 30, 2007 other assets, deferred revenue, accrued tax provision, tax expense and revenue.
 
These amendments will reflect certain adjustments to revenue and deferred revenue. 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 effect at September 30, 2007 is to change beginning balances at January 1, 2007 of the following accounts:
 
   
For the 9 months ended    September 30, 2006
   
For the 3 months ended     September 30, 2006
             
   
As Originally Reported
   
As Restated
   
Difference
   
As Originally Reported
   
As Restated
   
Difference
 
                                     
Revenue
  $
7,516,378
    $
4,819,086
    $ (2,697,292 )   $
2,798,686
    $
2,776,811
    $ (21,875 )
Net Income
  $
1,749,180
     
73,238
    $ (1,675,942 )    
484,918
     
885,884
    $
400,966
 
Income Per Share
  $
0.26
    $
0.01
    $ (0.25 )   $
0.07
    $
0.13
    $
0.06
 
 
 
-15-

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-QSB, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management’s discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC in terms of recognition of software licenses and recurring revenue. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.
 
Management’s Discussion and Analysis of Consolidated Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements included herein. Further, this quarterly report on Form 10-QSB should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in its 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 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; IBSGI UK, LTD (formally A-Division IT), a consultant company focused on development of IT projects for multi-national corporations.

IBSGI UK, LTD. (IBSGI UK), a United Kingdom based subsidiary, provides business development and support to IBSG International’s (IBSGI) international projects.  IBSGI UK maintains relationships with several international government officials at the ministry/secretary level as well as international corporations’ offset programs and provides IT projects for these corporations.  IBSGI UK is engaged in international business development and consultancy in the Technology sector. IBSGI UK’s participation in e-commerce platform (BizWorld Pro, copyrighted and trade mark protected) projects for Small-Midsized Enterprises [SMEs] internationally in countries beyond South Africa.  IBSGI’s relationship with IBSGI UK has already brought the South African project and opportunities with similar projects in Africa and Europe (EU and UK) and India.

IBS Group offers BizWorld Pro as a solution to enhance the operating efficiency and create revenue for State Small Business Development Centers (or their profit making equivalents), 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.

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.

IBSD, Inc. provides ongoing support of our other subsidiaries, IBS Group, Secure Blue, and IBSGI UK. 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. and Secure Blue, Inc. generate revenue from license sales, system modifications, systems support, and a percentage of monthly customer fees if and when a license is sold.. 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).
 
 
-16-

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.
 
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”) or their profit making equivalents, Fortune 1000 Corporations, Business Associations, Banking Institutions and International Economic Development Projects. These organizations represent our current domestic customer base, and focus on servicing or supporting small and medium sized enterprises (SME). Internationally the Company focuses its marketing efforts in offering the solution on a federal level and expands projects through the same types of entities with additional expansion through other federal government agencies in the area of procurement.   Satellite license are sold through the master license customers for a term of five (5) years domestically, four (4) years internationally. The first year is structured like the master license fee in that it is larger then the subsequent years license maintenance fees.  These licenses fall under the master license but, the company generally receives 90 to 95% of the fees in the first year.  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. License arrangements currently produce the majority of our revenue. We utilize written contracts in the form of master/satellite license arrangements as the means to establish the terms and conditions upon which our products and services are sold.
 
Master/Satellite License Customer Characteristics

As discussed above, Licensee’s represent our current customer base and generate the majority of our current revenue.  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. Satellite licenses typically cost less then a Master license.  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.
 
 
 
 
 
-17-

 
General

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

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

We recognize revenue on software related transactions on single element arrangements and on each element of a multiple element arrangement, when all of the following criteria are met:
 
 
1.  
Persuasive evidence of an arrangement exists, which consists of a written, non-cancelable contract signed by both the customer and us.

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

3.  
Delivery occurs,

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

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

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

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 (or their profit making equivalents) 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 arrangement, as described above, generally results in 65% of the first year arrangement fee being allocated to license revenue, the delivered element. Subsequent years are treated in a similar manner.  Recognition of license revenue occurs in the first month, once all the recognition criteria discussed above are met.
 
 
-18-

 
  Post-contract Customer Support (“PCS”) Revenue

Post-contract customer support includes technical support, maintenance, enhancements, upgrades and in some cases system access. License arrangements are typically sold with the first year of PCS included. The customers can also purchase annual PCS renewals over their arrangement term, which is typically 5 years domestically, 4 years internationally. Enhancements and upgrades are made available on a “when and if” basis and are rarely if ever based on specifically identified enhancements.

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

Professional Services Revenue

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

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

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

Factors for Government or Quasi-Government Agency Customers

Most of our current customers are government or quasi-government agencies and are considered a low collection risk and irrevocable due to the budgetary nature of governments. However, due to the “slow pay” nature of these entities, payments could take as long as 12 months to be brought current, although management expects to reduce that time to no more than 9 months. As more fully discussed in SOP 97-2, the fees are determined to be fixed and determinable because;
 
·
our software is not subject to obsolescence, any more than is typical for comparable software and we have not made concessions to effect collections,
·
our software is integral to the fundamental mission of our master and their satellite license customers,
·
our contracts are long term, greater then 12 months, and collections on invoices are expected to be less than 12 months,
·
our contracts provide for normal collection terms which are substantially less than the term of our agreements and further permit the assessment of late fees and interest on delinquent balances,
·
our contracts are with government entities, and by law, these entities are precluded from not disbursing funds that have been approved and allocated for the license agreement,
·
our contracts do not include any Fiscal Funding Clauses,
·
our contracts do not include any Rights of Return or Cancellation Clauses, and
·
payment is not dependant on the number of SME’s engaged.
 
Deferred Revenue
 
Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. Deferred revenue generally represents PCS and training services not yet rendered and deferred until all requirements under SOP 97-2 are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under SOP 97-2 are satisfied.
 
-19-

 
Market for our products
The potential market for the BizWorld Data System includes any entity that has a customer, vendor or membership base comprised of small to mid size business enterprises. The potential markets for Secure Blue are public companies required to establish internal control systems or companies that require tracking of sensitive files.  All current and projected revenues for the Company are associated with the digital commerce platform, BizWorld Pro and the recurring revenues projected from both license revenues and on going monthly subscription fees from small to mid sized enterprises.  The projected market size for BizWorld Pro is greater than $15 billion annually.  No assurances can be made that such market shall be realized or result in profitability.
 
 The market for the BizWorld Data System includes state operated Small Business Development Centers (or their profit making equivalents), business organizations such as chambers of commerce, large corporations, and other entities which seek to help small and medium size businesses succeed. When Intelligent Business Systems Group, Inc. sells a master “host” license to a state Small Business Development Center or business associations (i.e. chambers of commerce), that entity can sell “sub-licenses' to the other vertical markets in their respective states or markets, from which Intelligent Business Systems Group, Inc. may receive incremental revenue. This market represents a projected $2.5-$3.5 billion NOT including international application. No assurances can be made that such market shall be realized or result in profitability.
 
Small Business Development Centers (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. Many of the SBDCs have a profit making equivalent or are partners in a profit making entity.  We currently have a license agreement with 11 such entities.
 
Fortune 1000 Corporations:
The Company’s subsidiaries suggests that Master license holders seek to sell Corporate Sponsor satellite licenses to Fortune 1000 corporations for procurement purposes (i.e. RFPs or Tenders thru award of a bid).  The license price is dependent on the size of the corporation and the number of RFPs/Tenders issued.  This license would provide the Corporation with unlimited access to the constituent pool of the SMEs in order to facilitate the large corporation's recruitment of small businesses as vendors. The System platform permits end users to interact not only with these large corporations, but also among each other.
 
Government Agencies
Other government agencies are routinely approached to purchase a satellite license to use the system for procurement purposes.  When these licenses are sold they are primarily for use of the Bid Management functions of the system.  This is/has been viewed by many local government municipalities and ministries (internationally) as a means of centralizing all procurements activities.  As such, any government vendor or vendor of a municipality would be compelled to join the platform as a subscriber in order to be positioned for future government RFPs/tenders.

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.
 
 
-20-

 
Foreign Markets
In 2004 we signed a license agreement with an agency of the country of Nigeria. We have since positioned the product as a national solution for the support and development of the small to mid size business community (SMEs), as a centralized procurement center not only for government but large corporations 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. Additional business development efforts through IBSGI UK are underway with various foreign governments although no assurances can be given that any new business will materialize from these efforts.

Secure Blue Markets
Secure Blue will be targeting small to mid size cap public companies. Because of the broad encompassing nature of the SOX legislation, any private company doing business with a public company, both in the US and abroad, must be SOX compliant for those records dealing with that business. This market represents a projected value of $3-$4 billion.  Currently in the US there are an estimated 10,000 small cap companies and over 10,000 private companies doing business with public companies.  No assurances can be made that such market shall be realized or result in profitability. 

International Markets
Many aspects of the Sarbanes-Oxley Act have been incorporated into new European legislation which led to rapid growth and a huge global market for SOX solutions well in excess of the US projection. Additionally, foreign companies doing business with US public companies will be required to be SOX compliant as well. It is our objective to establish Secure Blue in the US before expanding into European and Asian markets.
 
Sales & Market Strategy
Intelligent Business Systems Group, Inc. is focused on the US markets and it’s current marketing efforts primarily consists of “word of mouth” referrals from existing or potential customers, targeted prospect awareness campaigns, various conventions and trade shows and cold calling entities with resources and marketing research. The most effective and powerful marketing tool is the demonstration of the system and its comprehensive features. Demonstrations and contract negotiations are handled on a personal basis.
  
To achieve our growth plans Intelligent Business Systems Group, Inc. needs to employ more business developers, present a more visible presence at conventions and accelerate contract implementation. We also anticipate the need to provide enhanced training and marketing services to its customers, which can best be achieved by acquiring existing service companies with expertise in that field. The addition of more technical staff will accelerate contract implementation and add-on work (system modifications) as the customer base is extended. There can be no assurance that we will be able to meet our growth plans or have sufficient financial resources to provide the enhanced services.

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

In addition we will continue to promote and demonstrate SOX Pro to potential end-users where appropriate. In the longer term we will build a specialist direct sales team focused on specific target sectors within the small/mid cap market selling direct or providing qualified leads to our channel partners. There can be no assurance that Secure Blue will be able to establish satisfactory channels of distribution for its product or that the product will generate success in the marketplace.
 
Marketing, Sales and Support
We market our products primarily through direct contact of potential customers, referrals from existing customers or potential customers and conferences that are market specific. The key to the marketing of the various products is the ability under the BizWorld product to enable customers to act as channel partners through the ability to sell sub-licenses of the system and provide revenue generating digital service center to their customers. This makes us dependent on the efforts of our customers since we have no direct way to communicate with those parties which may be potential ultimate users of the BizWorld product.
 
Secure Blue has direct market application focusing primarily on the small cap public companies. Secure Blue is currently seeking to establish channel partner arrangements with Investor Relation firms that primarily target the small cap market. Secure Blue will also seek to expand its marketing efforts to include telemarketing and direct target contact through telemarketing firms that specializes in software sales. There can be no assurance that Secure Blue will be able to establish satisfactory channels of distribution for its product or that the product will generate success in the marketplace. Secure Blue will also seek to expand its marketing efforts to include marketing support for both channel partners and direct sales using PR, advertising, and direct marketing techniques, once the basic distribution infrastructure is in place. Our aims are to make SOX Pro the preferred SOX solution within the small/mid cap market, to prepare the marketplace for our channel partners and to generate good quality, qualified leads for the sales teams 

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.

Customer Support  
Our management believes that strong customer support is crucial to both the initial marketing of its products and maintenance of customer satisfaction, which in turn will enhance our reputation and generate repeat orders. In addition, we believe that customer interaction and feedback involved in our ongoing support functions provide us with information on market trends and customer requirements that is critical to future product development efforts. Intelligent Business Systems Group, Inc. provides toll free and web site support. However, the first line of support is built into the systems through a virtual trainer and 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. The virtual trainer describes the purpose of each page to the end user, how to complete the page by animating the page as a window in a window and makes suggestions on where to go to next in the system.  This should provide for minimum end user confusion which statistically makes up the majority of on-line help calls (Microsoft 2005; Oracle 2006).
 
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 35% of the first years license cost. Our team based in Florida will provide technical support for end users and channel partners
 
 
-21-

 
Research and Development
We believe that our success will depend in large part on our ability to maintain and enhance our current product lines, develop new products, maintain technological competitiveness and meet an expanding range of customer requirements. Our management constantly requests and receives comments on desired functionality or system changes from not only the company's customers but the customer's, customer. Our management also intends to hold focus groups taking a sample population of customers and discussing in an open forum the potential revisions of the various systems.
 
Competition
Our management believes that we are the leading provider of digital commerce and management systems for small and medium businesses provided over the internet. However our products compete against a variety of individual software programs designed to provide similar functions for small and medium sized business users.  Additionally, many digital commerce solutions are available to small businesses through established internet portals such as Yahoo.  Many internet hosting providers’ help their customers set up e-commerce sites and provide software for such sites.  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.

Results of Operations for the Three and Nine Months ended September 30, 2007 and 2006
 
The Company reflected an increase in sales revenues for the three months ended September 30, 2007 to $3,989,135 compared to sales revenues for the three months ended September 30, 2006 of $2,776,811, an increase of $1,212,324. The company also recorded higher sales revenues for the nine months ended September 30, 2007 of $10,144,286 compared to September 30, 2006 sales revenues of $4,819,086. The contract values were higher in 2007. The Company had deferred revenues for the nine months ended September 30, 2007 of $7,726,561(deferred pending recognition based on revenue recognition policies previously stated; See Note 2 of the Financial Statements).
 
Operating Expenses for the Three and Nine Months ended September 30, 2007 and 2006
 
The Company had operating expenses of $2,390,465 for the three months ended September 30, 2007 compared to operating expenses of $1,777,268 for the three months ended September 30, 2006, an increase of $613,197.  This increase is a reflection of stock based compensation for the three months ended September 30,2007. The Company had an operating profit for the three months ended September 30, 2007 of $1,509,577 as compared to $931,501 for the three months ending September 30, 2006.   Operating profits for the nine months ended September 30, 2007 was $5,421,593 as compared to operating profits of $760,851 for the nine months ended September 30, 2006.  This increase of $4,660,742 was due primary from the additional sales for 2007.
 
Other Expense for the Three and Nine Months ended September 30, 2007 and 2006

The company had other expenses for the three months ended September 30, 2007 of $689,248 compared to other expenses of 45,617 for the three months ended September 30, 2006. The increase in other expenses for 2007 was the accrual of additional taxes.  The Net Income reported for the three months ending September 30, 2007 was $820,329 as compared to net income of $885,884 for the three months ending September 30, 2006.  The company Net Income for the nine months ended September 30, 2007 was $3,353,846 as compared to $73,238 for September 30, 2006.
 
 
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Liquidity and Capital Resources
 
We believe the proceeds from the receivables and the reserves will generate sufficient cash in assisting with the operating needs of the company. The company is continuing to inquire into new investments to provide for further research and development capital and assisting further acquisitions over the next twelve months.
 
Our current accounts receivable are as follows at September 30, 2007:

Department of Trade and Industry
 
$
11,291,993
 
Kenya
   
7,800,000
 
Other Receivables
   
4,208,838
 
   
$
23,300,831
 
 
 
 
 
 
Allowance for bad debt
   
(286,000)
 
  Current Accounts Receivable, net of bad debt
 
$
23,014,831
 
 
 
 
 
 
         
 
Management expects to close an offering of $2,500,000 securities in which the Company shall use the proceeds to fund its business plan. All funds raised will go into operation.
 
FACTORS THAT COULD AFFECT FUTURE RESULTS
 
Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. We have no arrangements or sources of additional capital and may have to curtail our operations if additional capital is needed but is not available.
 
Our customers who are generally state government agencies or quasi government business associations can be exceedingly tardy in paying their obligations to us.  We may have to curtail our operations if we do not have sufficient funds to pay for the expenses of operating our business. The Company will use additional commercial market opportunities to offset the slow pay nature of the lucrative government contract market. The Company’s current and projected acquisitions will expand the Company’s retail and private sector markets which should create a blend of payment cycles between the secured government markets and the commercial markets.
 
We acquired our enterprise software and began servicing licensees of such software in 2004.   Prior financial information reflects a profitable operation. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in relatively new and rapidly evolving markets. These risks may include:
 
 
 Uncertain commercial acceptance of our products;
 
 Technological obsolescence; and
 
 Competition

 
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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.
 
A considerable amount of judgment is required when we assessed 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 might be required. A provision for doubtful accounts would initially be recorded based on our historical experience, and then adjusted 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 a national government, as well as general economic conditions, among other factors. National governments accounts are characterized as fully collectible but slow payers. The bulk of our historic client base is primarily composed of national governments; our periodic valuations do not indicate that an allowance for doubtful accounts was necessary at this time.

Licenses held by satellite license holders that are non-government entities are mandated to adhere to a wide range of government compliance regulations.  As such, payments may, without previous knowledge or forewarning be interrupted, should a satellite license holder of a government master license holder, fall into a non compliance state.  The myriad of possible domestic or international compliance regulations makes it impossible to determine if a satellite license holder is compliant or sufficiently compliant.  As such, if a satellite license holder falls into a non compliance status with their respective governments, it could affect payments due to the Company.
 
In the first quarter of 2007, the Company has expanded its customer base outside of national governmental accounts. Due to this expansion, management has currently reevaluated its policies for establishing an allowance for doubtful accounts and sales return allowance specific to this new customer. This new customer base includes state sponsored economic development councils and other quasi-governmental agencies along with corporate based SBDC’s and SME’s. The addition of these new customer types generally represents a higher level of business risk than do national government customers. Management is changing its estimates specific to this new customer base to use a percentage of sales revenue as the basis for its allowance. Management believes that this change better addresses the diverse nature of its future customer base. This allowance is not established for any particular customer but will be applied to the new customer types. The percentage will be applied consistently among all contracts generated from new customer types. Management has determined that 5% of sales should provide an adequate allowance. As of September 30, 2007 that amount was $286,000.
 
In summary, estimates for establishing an allowance for doubtful accounts and sales returns applicable to national government account will be based on our existing method referred to above. Estimates for allowance for doubtful accounts and sales returns applicable to the new customer types will be based on the percentage of sales method.
 
Should any of these factors change, the estimates that we make may also change, which could impact our future provision for doubtful accounts. For example, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional provision for doubtful accounts could be required.
 
 
 
ITEM 3. CONTROLS AND PROCEDURES
 
a)  
Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the Securities and Exchange Commission under the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

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.

b)  
Changes in Internal Control over Financial Reporting
 
During the Quarter ended September 30, 2007, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II
 
OTHER INFORMATION
 

Item 1.                      Legal Proceedings

There are no material currently pending legal proceedings to which the Company is a party and, to the Company's knowledge, no proceedings are contemplated against the Company.

Item 2.                      Unregistered Sales of Securities and Use of Proceeds

There were no changes in securities or purchase or sales of securities   during the period ended September 30, 2007.

Item 3.                      Defaults upon Senior Securities

There were no defaults upon senior securities during the period ended September 30, 2007.
 
Item 4.                      Submission of Matters to a Vote of Security Holders
 
There were no matters submitted to the vote of securities holders during the period ended September 30, 2007.

Item 5.                      Other Information:

There is no information with respect to which information is not otherwise called for by this form.
 
Item 6.               Exhibits
        
A. Exhibits:  
 
 
 
 
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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 November 16, 2007.
 
 
 
 
 
 
IBSG INTERNATIONAL, INC.
 
 
 
 
 
 
Date: November 16, 2007
By:  
/s/ Michael Rivers
 
Michael Rivers
 
President, Chief Executive Officer 

 
 
 
 
IBSG INTERNATIONAL, INC.
 
 
 
 
 
 
Date: November 16, 2007
By:  
/s/ Geoffrey Birch
 
Geoffrey Birch
 
Principal Accounting Officer
 

 
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