UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________

FORM 10-QSB

^{______________}

(Mark One)

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

For the quarter ended June 30, 2007

OR

¨

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

For the transition period from                to

———————

INTERACTIVE BRAND DEVELOPMENT, INC.

(Name of small business issuer specified in its charter)

———————

Delaware	0-20958	86-0519152
(State or other jurisdiction of incorporation or organization)	Commission File No.	(I.R.S. Employer Identification Number)

5933 W. Hillsboro Blvd.

Parkland, FL 33067

(Address of principal executive offices, including zip code)

(954) 333-8747

(Issuer’s telephone number, including area code)

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 ý No ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 108,644,987 shares of common stock, par value $0.001 per share, at August 15, 2007

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheet at June 30, 2007 and 2006 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.	CONTROLS AND PROCEDURES	25
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
ITEM 6.	EXHIBITS	25
SIGNATURES		28

All references to “we,” “us,” or “our,” in this Quarterly Report on Form 10-QSB means Interactive Brand Development, Inc.

2

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

	June 30, 2007			December 31, 2006
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS:
Prepaid assets and other current assets	$	40,209		$	160,580
Assets of discontinued operations		47,446			47,746
TOTAL CURRENT ASSETS		87,655			208,326
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET		169,677			256,005
INVESTMENTS:
Animation Cel art		6,531,750			6,531,750
Penthouse Media Group, Inc.		13,230,418			13,230,418
Interactive Television Networks, Inc.		66,354			1,161,184
TOTAL ASSETS	$	20,085,855		$	21,387,683
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft	$	18,377		$	58,266
Accounts payable and accrued expenses		6,740,960			4,750,433
Long term debt, current portion		10,658,568			10,195,278
Due to related parties		1,556,641			1,641,038
Liabilities of discontinued operations		34,182,071			33,683,923
TOTAL CURRENT LIABILITIES		53,156,617			50,328,938
LONG TERM DEBT, NET OF CURRENT PORTION		4,431,549			4,247,607
OTHER LIABILITIES		14,576			37,779
TOTAL LIABILITIES		57,602,742			54,614,324
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred stock series D, $.001 par value, 330,000 shares authorized, 222,588 shares issued and outstanding		223			223
Preferred stock series G, $.001 par value, 45,000 shares authorized, 23,087 shares issued and outstanding		23			23
Common stock $.001 par value, 400,000,000 shares authorized, 108,644,987 shares issued and 104,691,263 shares outstanding		108,645			108,645
Treasury stock, 3,953,724 shares at cost		(328,682	)		(328,682	)
Additional paid-in capital		24,902,809			25,295,665
Accumulated deficit		(62,199,906	)		(58,302,515	)
TOTAL SHAREHOLDERS' DEFICIT		(37,516,888	)		(33,226,641	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	20,085,855		$	21,387,683

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

3

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
NET REVENUE	$	—		$	(0	)	$	—		$	328,993
OPERATING COSTS AND EXPENSES
Selling, general and administrative		694,865			1,380,621			1,307,188			1,746,203
Depreciation and amortization		45,587			3,996			95,747			7,992
Write down of investments		—			—			1,094,830			—
TOTAL COSTS AND EXPENSES		740,451			1,384,617			2,497,765			1,754,195
OPERATING LOSS		(740,451	)		(1,384,617	)		(2,497,765	)		(1,425,202	)
OTHER INCOME (EXPENSE)
Interest expense		(444,640	)		(461,556	)		(859,414	)		(1,078,977	)
Gain on remeasurment of derivatives		8,087			371,295			16,174			466,146
Other income		9,856			(74,462	)		28,311			(74,462	)
		(426,698	)		(164,723	)		(814,929	)		(687,293	)
NET LOSS
Continuing operations		(1,167,149	)		(1,549,340	)		(3,312,694	)		(2,112,495	)
Discontinued operations		(180,787	)		(1,412,725	)		(498,448	)		(4,173,923	)
		(1,347,936	)		(2,962,065	)		(3,811,142	)		(6,286,418	)
Dividends on preferred shares		—			(96,250	)		(86,250	)		(192,500	)
NET LOSS APPLICABLE TO COMMON SHARES	$	(1,347,936	)	$	(3,058,315	)	$	(3,897,392	)	$	(6,478,918	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		108,644,987			105,668,558			108,644,987			105,092,130
Diluted		289,648,658			286,561,700			285,694,934			285,957,940
NET LOSS PER COMMON SHARE - BASIC
Net loss from continuing operations	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
Net loss from discontinued operations	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.04	)
Net loss per common share - basic	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.06	)
NET LOSS PER COMMON SHARE - DILUTED
Net loss from continuing operations	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Net loss from discontinued operations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)
Net loss per common share - diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

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

4

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

(Unaudited)

	Six Months Ended June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,312,694	)	$	(2,115,289	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on remeasurement  of derivatives		(16,174	)		(466,146	)
Dividends declared		(86,250	)		(192,500	)
Amortization of unamortized discount		254,376			450,804
Depreciation		95,747			7,992
Write down of investment		1,094,830			—
Gain on termination of lease		—			(178,595	)
Stock issued for services		—			6,577
Changes in operating assets and liabilities:
Accounts receivable and processor reserves		—			519,319
Prepaid assets and other current assets		120,371			(283,367	)
Accounts payable and accrued expenses		1,990,528			1,399,203
Other liabilities		(7,029	)		(14,094,959	)
Client payouts		—			(66,019	)
Net cash used in operating activities		133,705			(15,012,980	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and improvements		(9,419	)		—
Net cash used in investing activities		(9,419	)		—
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable - related parties		(84,397	)		—
Net cash provided by investing activities		(84,397	)		—
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities		0			14,520,940
Net cash used in investing activities		—			(178,015	)
Net cash provided by financing activities		—			492,682
Net cash provided by discontinued operations		0			14,835,608
NET (DECREASE) INCREASE IN CASH AND EQUIVILANTS		39,889			(177,372	)
Cash and cash equiviliants at beginning of the period		(58,266	)		254,754
CASH AND CASH EQUIVILANTS AT END OF PERIOD	$	(18,377	)	$	77,382
Non-cash operating, investing and financing activities:
Discount on preferred stock	$	—		$	—
Supplemental disclosure of cash flow information:
Interest paid	$	—		$	—
Income taxes paid	$	—		$	—

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

5

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Interactive Brand Development, Inc. (“IBD”, “the Company” or “the Corporation”), a Delaware corporation, has discontinued its operations following a judgment against it by CMI II, LLC (CMI), an affiliate of Castlerigg Master Investments Limited and a holder of shares of IBD’s Series F Convertible Redeemable Secured Preferred stock (Series F Stock). The judgment was for $7 million. CMI brought suit against IBD and its wholly owned direct and indirect subsidiaries, Media Billing Company, LLC (Media Billing) and iBill, in the Supreme Court of the State of New York, New York County for damages arising out of alleged breaches (i) by IBD of various provisions of a Subscription Agreement pursuant to which CMI purchased the Series F Stock, (ii) by IBD of the IBD Certificate of Designation of Preferences and Rights of the Series F Stock, and (iii) by Media Billing and iBill of an Unconditional and Irrevocable Guaranty to guaranty both the payment and performance of all of IBD’s obligations to CMI. CMI also seeks redemption of the Series F Stock.

Additionally, the Company’s cel art, a significant asset, has been foreclosed upon by Note Holders that had filed Uniform Commercial Code statements in 2004, collateralizing their loans with the cel art.

The Company is authorized under its Articles of Incorporation to issue and have outstanding at any one time 400 million shares of common stock par value $0.001 per share.

In connection with the Company’s revised business plan during the fourth quarter of 2004, the Company discontinued operations of its online auctions and sports talk show and in 2005 began to focus on building a presence as a sales, marketing and media holding company in the adult entertainment industry. Several strategic investments were made in connection with the revised business plan. These investments included:

·

On October 19, 2004, we purchased 347,138 Class B shares of PMG (formerly, General Media, Inc.), representing a 27% non-voting interest in PMG, an established global adult media, entertainment and licensing company.

·

On January 21, 2005, we acquired all of the membership interests in Media Billing, LLC, which owns 100% of the membership interests in iBill, from PHSL Worldwide, Inc. (“PHSL”), in exchange for 330,000 shares of our Series D convertible preferred stock, the conversion of which would result in PHSL owning 49.9% of our fully diluted common stock outstanding. In July 2005, Media Billing LLC and iBill were amalgamated into iBill Corporation.

·

On March 31, 2005 the Company purchased a 22% minority interest in Interactive Television Networks, Inc. (“ITVN”). ITVN is an emerging provider of Internet Protocol Television (“IPTV”) hardware, programming software and interactive networks.

The Company’s operations in 2005 consisted of providing payment processing and client portfolio management services primarily to domestic and international clients in the adult entertainment industry through its wholly owned subsidiary Internet Billing Company, LLC (iBill). iBill offerings the following services:

·

Credit card and stored value card payment processing services to Internet merchants and as an intermediary “aggregator” that aggregates the consumer credit card transactions of thousands of such merchants and arranges for the processing of the aggregated transactions.

·

Online check payment processing services to Internet merchants. iBill’s Web Merchants offer consumers the ability to purchase online goods and services by authorizing a direct debit, via the Automated Clearing House System, (referred to as ACH) to the consumer’s checking account.

·

Telephone billing payment services to Internet merchants. iBill’s Web Merchants offer consumers the ability to purchase online goods and services by authorizing a charge on their telephone bill.

6

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Organization (Cont’d)

On March 27, 2006, we outsourced our payment processing operations to Etelegate, however, a dispute concerning processing volume arose between the parties in June 2006. By December 2006, both Companies had abandoned the agreement and lacking an outsourced payment processing service provider, iBill’s operations were discontinued.

On August 13, 2007, a public auction was held after note holders of the Company foreclosed on collateral securing notes they held. The notes were collateralized by the Company’s cel art, totaling $6,531,750. The note holders filed information statements in 2004, pursuant to compliance with the Uniform Commercial Code of Florida.

On August 15, 2007, the Company received notice that CMI was granted a judgment of $7 million against the Company.

The Company’s strategy, going forward, had been to maintain passive investments but to discontinue all operations associated with the adult entertainment industry. The Company intended to seek business opportunities through a business combination with one or more private companies, which would have been promoted and restored to sustained profitability. However, in light of the recent judgment against it by CMI, the Company has ceased operations. The Company has had no material operations since June 2006. In August 2007, an asset of the Company, its cel art, was foreclosed upon by note holders who conducted a public auction to reduce the debt.

Summary of Significant Accounting Policies

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, iBill Corp., Media Billing Company LLC (“Media Billing”), a wholly-owned subsidiary of iBill Corp., Internet Billing Company LLC, a wholly-owned subsidiary of Media Billing, XTV Investments LLC, a Delaware limited liability company and Card Stream, Inc., a Florida corporation. All material intercompany accounts and transactions have been eliminated.

Interim Reporting

While the information presented in the accompanying interim three months financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the

financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the December 31, 2006 audited annual financial statements of Interactive Brand Development, Inc. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 2006 annual financial statements.

Operating results for the six months ended June 30, 2007 are not necessarily indicative of the results that can be expected for the year ended December 31, 2007.

7

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Going Concern

In connection with their audit report on the Company’s consolidated financial statements as of December 31, 2006, the Company’s independent certified public accountants, expressed substantial doubt about the Company’s ability to continue as a going concern as such continuance is dependent upon the Company’s ability to raise sufficient capital. Management’s plans regarding these matters, with the objective of improving liquidity and sustaining profitability in future years encompass the following:

·

locating appropriate target acquisitions and securing the necessary capital to acquire and revitalize the target company;

·

providing strategic marketing services to clients;

·

settling legacy outstanding obligations;

·

continued review of all expenditures in order to minimize costs; and

·

raise additional working capital as necessary.

In the absence of additional financing the Company may be unable to satisfy past due obligations. Management believes that the actions presently being taken provide the opportunity to improve liquidity and sustain profitability. However, there are no assurances that management’s plans will be achieved. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Ultimately, the Company must achieve profitable operations if it is are to be a viable entity.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments having original maturities of three months or less. At various times during the year, the Company will maintain cash balances in excess of the maximum amount insured by the Federal Deposit Insurance Corporation.

Marketable Securities

The Company accounts for investments under the provisions of the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS 115”). Investment securities are classified into one of three categories: held-to-maturity, available-for-sale, or trading. Securities are considered held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. These securities are recorded as either short-term investments or long-term marketable securities on the balance sheet depending upon their original contractual maturity dates. Held-to-maturity securities are stated at amortized cost, including adjustments for amortization of premiums and accretion of discounts. Securities are considered trading when bought principally for the purpose of selling in the near term. Trading securities are recorded as short-term investments and are carried at market value.

Unrealized holding gains and losses on trading securities are included in operating income. Securities not classified as held-to-maturity or as trading are considered available-for-sale. Available-for-sale securities are recorded as either short-term investments or long-term marketable securities and are carried at market value with unrealized gains and losses included in other comprehensive income in stockholders’ equity.

8

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Property, Plant and Equipment

Furniture and fixtures are stated at cost, net of accumulated depreciation. Depreciation of property, plant and equipment is computed using the straight-line method based on the estimated useful lives of the related assets. Furniture is usually depreciated over seven years, computer equipment over five years, software over three years and leasehold improvements are amortized over their estimated useful lives, or the term of the lease, whichever is shorter. Maintenance and repair costs are expensed as incurred.

Impairment of Long-Lived Assets

The Company follows SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (“SFAS 121”). The carrying value of long-lived assets (tangible, identifiable intangible, and goodwill) is reviewed if the facts and circumstances suggest that they may be impaired. For purposes of this review, assets are grouped at the lowest levels for which there are identifiable cash flows. If this review indicates that an asset’s carrying value will not be recoverable, as determined based on future expected, undiscounted cash flows, the carrying value is reduced to fair market value. At December 31, 2006, the Company’s management believes there is no impairment of its long-lived assets, other than the aforementioned impairment for goodwill and intangible assets recorded in connection with iBill’s discontinued operations. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company reviews the terms of convertible debt and equity instruments that we issue to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. When the risks and rewards of any embedded derivative instrument are not “clearly and closely” related to the risks and rewards of the host instrument, the embedded derivative instrument is generally required to be bifurcated and accounted for separately. If the convertible instrument is debt, or has debt-like characteristics, the risks and rewards associated with the embedded conversion option are not “clearly and closely” related to that debt host instrument.

The conversion option has the risks and rewards associated with an equity instrument, not a debt instrument, because its value is related to the value of our common stock. Nonetheless, if the host instrument is considered to be “conventional convertible debt” (or “conventional convertible preferred stock”), bifurcation of the embedded conversion option is generally not required. However, if the instrument is not considered to be conventional convertible debt (or conventional convertible preferred stock), bifurcation of the embedded conversion option may be required in certain circumstances. Generally, where the ability to physical or net-share settle the conversion option is deemed to be not within the control of the Company, the embedded conversion option is required to be bifurcated and accounted for as a derivative financial instrument liability.

In connection with the sale of convertible debt and equity instruments, the Company may also issue freestanding options or warrants. Additionally, the Company may issue options or warrants to non-employees in connection with consulting or other services they provide. Although the terms of the options and warrants may not provide for net-cash settlement, in certain circumstances, physical or net-share settlement may be deemed to not be within the control of the Company and, accordingly, the Company may be required to account for these freestanding options and warrants as derivative financial instrument liabilities, rather than as equity.

Derivative financial instruments are required to be initially measured at their fair value. For derivative financial instruments that shall be accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

9

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Derivative Financial Instruments (Cont’d)

In circumstances where the embedded conversion option in a convertible instrument may be required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

If the embedded derivative instrument is to be bifurcated and accounted for as a liability, the total proceeds received will be first allocated to the fair value of the bifurcated derivative instrument. If freestanding options or warrants were also issued and are to be accounted for as derivative instrument liabilities (rather than as equity), the proceeds are next allocated to the fair value of those instruments. The remaining proceeds, if any, are then allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from its face amount. In circumstances where a freestanding derivative instrument is to be accounted for as an equity instrument, the proceeds are allocated between the convertible instrument and the derivative equity instrument, based on their relative fair values.

Warrants

The Company issues warrants to purchase the Company’s common stock in conjunction with debt and some preferred stock issues. Warrants are accounted for in accordance with the provisions of Accounting Principles Bulletin (“APB”) No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (“APB No.14”) and Emerging Issues Task Force (“EITF”) No. 00-19, Accounting for Derivative Financial Instruments Accounting for Derivative Financial Instruments Indexed to or Potentially Settled in Indexed to or Potentially Settled in a Company’s Own Stock (“EITF 00-19”). The fair value of warrants granted in conjunction with debt and equity issuances is estimated on the grant date using the Black-Scholes option pricing model. The value of warrants is separated from the total consideration of each issue and included as an element of additional paid-in capital – warrants.

Revenue Recognition

Prior to discontinuing operations, the Company’s service revenues primarily represent service fees charged to its clients that are based on a percentage of the gross value of the transactions processed (less any refunds or credits) by the Company on its clients’ behalf. The Company manages the collection process for the gross amount of the transactions processed on its clients’ websites, but the Company is not responsible for fulfilling the obligation of the transaction and does not have any credit risk associated with the end consumer. In determining our revenue reporting the Company follows the requirements of the FASB’s EITF No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (“EITF 99-19”). The Company has concluded that it should report revenue net for the fee earned in the transactions processed because of the near absence of gross reporting indicators and the presence of persuasive net reporting indicators as specified in EITF No. 99-19. The webmaster, and not the Company, is the primary obligor to the customer, a strong indicator that revenue should be reported net. The Company has no fulfillment or customer service role with respect to delivery of the products ordered or their acceptability. The Company has no latitude or control over the prices charged to the customers and earns a fixed amount from each transaction. The sole indicator of gross reporting is that the Company assumes credit risk for the amounts billed on customer credit cards and that risk is mitigated by controls in place that allow the webmaster to provide access to the product ordered only after approval of the credit card charge, delayed remittance of sale proceeds to the webmaster and the 10% hold-back reserves held for a six-month period. The Company recognizes service fee revenue when the transactions are processed and approved by the credit card and other payment processors. The Company’s other revenues primarily represent additional fees charged to its clients for chargebacks and other processing costs.

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin No. 104, Revenue Recognition, (“SAB 104”), which establishes criteria that must be satisfied before revenue is realized or realizable and earned. The Company recognizes revenue when persuasive evidence of a sales arrangement exists, delivery has occurred, the sales price is fixed and determinable and collectibility is probable.

10

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, processor reserves and prepaid expenses, as well as accounts payable, accrued expenses and client funds held, as reflected in the consolidated financial statements, approximate fair value because of the short-term maturity of these instruments.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Basic and Diluted Net Loss Per Share

The Company computes basic and diluted loss per share in accordance with SFAS No. 128, Earnings Per Share (“SFAS 128”). Basic EPS excludes the dilutive effects of options, warrants and other convertible securities. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company. All convertible debt and equities were excluded from the computations of diluted net loss per common share for the three months ended March 31, 2007 and 2006, as their effect is anti-dilutive.

Segment Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”), established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. The Company operates in one segment for management reporting purposes.

Reclassifications

Certain amounts in the March 31, 2006 consolidated financial statements have been reclassified for comparative purposes to conform to the presentation used in the March 31, 2007 consolidated financial statements.

2.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Changes and Error Corrections

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS 15”), which replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 retained accounting guidance related to changes in estimates, changes in a reporting entity and error corrections. However, changes in accounting principles must be accounted for retrospectively by modifying the financial statements of prior periods unless it is impracticable to do so. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The Company does not believe adoption of SFAS 154 will have a material impact on our consolidated financial condition, results of operations or cash flows.

Fair Value Option for Financial Assets

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 allows companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 will become effective for the Company beginning in fiscal 2009. The Company is currently evaluating what effects the adoption of SFAS 159 will have on the Company’s future results of operations and financial condition.

11

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

3.

DISCONTINUED OPERATIONS - iBill

In December, 2006, the Company announced plans to exit the credit card processing business and discontinue the operations of its iBill subsidiary. The Company intended to sell the business along with any of its associated intellectual property rights, the customer database and the assumption of all remaining outstanding debt obligations. To date, no such sale has materialized. All intangible assets were fully impaired during the third quarter of 2006 and accordingly their carrying value was $0 at December 31, 2006. The decision to exit this business was intended to stem sustained losses associated with a number of lawsuits originating prior to the Companies acquisition of the subsidiary in 2004 and as a result of the Company’s new focus to discontinue all operations associated with the adult entertainment industry. The Company’s intent to return to a traditional focus on acquiring, promoting and restoring troubled enterprises to sustained profitability did not materialize as anticipated, and all operations have been discontinued subsequent to a $7 million judgment being entered against the Company, and the seizure and sale of the cel art, a material asset that had collateralized Notes on which the Company defaulted.

Assets and liabilities to be sold or extinguished were reclassified to current assets and liabilities from discontinued operations, respectively, and consisted of the following as of March 31, 2007:

	2007
Current assets from discontinued operations:
Cash	$	47,446
Intellectual property (fully impaired)		—
	$	47,446
Current liabilities from discontinued operations:
Accounts payable and accrued expenses	$	5,711,917
Notes payable		9,360,053
Client payouts and other liabilities		19,110,101
	$	34,182,071

The notes payable amount of $9,360,053 is related primarily to a Letter of Credit (“LOC”) of $3,974,987, Client Settlement Notes (“Client Notes”) of $4,928,476 and a revolving promissory note (“Takeley Note”) of $456,889.

LOC - On December 31, 2004, iBill obtained a letter of credit (LOC) from IIG Trade Opportunities Fund (IIG) in the amount of $2.1 million to be used for working capital. Effective December 5, 2005, the Company executed an amended and restated promissory note with IIG. The amended note increases the Company’s line of credit with IIG from $2.1 million to $6 million. The amended note changed the interest rate from 12% per annum to a rate per annum equal to 6.75% plus the Prime Rate provided, however, that the interest rate shall at no time be less than 12% per annum. As of June 30, 2007, the Company had made no further draws on the LOC.

As security for the line of credit, IBD and its wholly-owned subsidiaries, Media Billing and XTV Investments LLC (XTV LLC) have guaranteed the repayment of the line of credit. Pursuant to the guarantees, IBD, Media Billing and XTV LLC have entered into security agreements with IIG which provides IIG with a security interest in IBD’s, Media Billing’s and XTV LLC’s accounts receivable, processor reserves, investment in PMG and ITVN, inventory, equipment, property and other collateral.

Client Notes - During the second quarter of 2005, the Company issued notes payables to various iBill clients, to settle past due amounts owed. The Client Notes are subject to reduction related to chargebacks or other adjustments related to payout transactions, with an annual interest rate of 3%, and are payable in full with accrued interest in two years. The Client Notes can be paid, at the Company’s sole discretion at any time following ninety (90) days from the execution of the note, either 100% in cash or 50% in cash and 50% in restricted stock. The Company had an outstanding balance of $4,928,476 and accrued unpaid interest of $288,909 on Client Notes at June 30, 2007.

12

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

3.

DISCONTINUED OPERATIONS – iBill (CONT’D)

Takeley Note - On July 14, 2005, IBD’s wholly-owned subsidiary, iBill entered into a credit and security agreement with Takeley Investments Ltd.(“Takeley”). Pursuant to the agreement, Takeley loaned iBill approximately $1,000,000 pursuant to a revolving promissory note, of which $456,889 is outstanding as of June 30, 2007. The note bears interest at 15% per annum and is due July 31, 2006. The note is currently being extended. The Company had accrued unpaid interest on the note of approximately $125,006 at June 30, 2007.

As security for the loan, IBD and its wholly-owned subsidiary, Media Billing LLC (Media Billing) has guaranteed the repayment. Pursuant to the guarantees, IBD and Media Billing have entered into security agreements with Takeley which provide Takeley with a security interest in IBD’s and Media Billing’s inventory, equipment, property and other collateral.

As additional consideration for entering into the credit and security agreement, IBD issued Takeley a common stock purchase warrant to purchase 1,000,000 shares of common stock of IBD, exercisable at $0.33 per share at any time prior to July 14, 2010. Takeley has been provided with “piggy back” registration rights covering the shares of common stock issuable upon exercise of the warrant. The warrant issued to Takeley was issued pursuant to an exemption from registration under the 1933 Securities Act provided by Section 4(2). The warrant contains a legend restricting its transferability absent registration or applicable exemption. Takeley is an accredited investor and had access to information concerning IBD at the time of the loan.

The carrying value of assets from discontinued operations was adjusted by non-cash impairment charges in fiscal 2006 and 2005. Operating results of these businesses, including impairment charges, are classified as discontinued operations for all periods presented. Discontinued operations, net for three months ended March 31, 2007 and 2006, consist of the following:

	2007			2006
Revenues	$	0		$	909,607
Net loss before impairment charges:
Loss from operations	$	(99,463	)	$	(2,592,330	)
Other income (expense) and impairment charges:
Gain on remeasurement of derivatives
Fixed asset write-down, net		(0	)		—
Interest expense, net		(222,280	)		(171,681	)
Other income		4,082			2,813
Severance costs		—			—
One-time termination benefits		—			—
Loss from discontinued operations, net	$	(317,661	)	$	(2,761,198	)

No tax provision (benefit) was recorded on discontinued operations in the three months ended March 31, 2007 or 2006. The Company expects to incur minor ongoing operating losses but these are not expected to be material to the results of operations or to the Company’s financial position.

4.

INVESTMENTS IN PMG AND ITVN

Investment in PMG

In connection with its investment in PMG, the Company issued 10% convertible notes, Series E, F and G preferred stocks. The investment in PMG was recorded at $22,214,945 which is its fair value at the date of acquisition. The Company has recorded the Series E and F preferred stocks as long-term debt, net of the amounts allocated to the derivative financial instruments and the warrants attached thereto. In addition, a portion of the value of the 10% notes representing was included in the derivative financial instruments and the value attributable to the warrants attached to the 10% notes was recorded to equity.

13

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

4.

INVESTMENTS IN PMG AND ITVN (CONT’D)

Investment in PMG (Cont’d)

The Series E preferred stock is convertible into an indeterminate number of shares of the Company’s common stock based on the price of the stock near the conversion date. The conversion of the Series F preferred stock is at the option of the holder, not the Company, and is redeemable at the holder’s request in cash. The Series G preferred stock is not considered a derivative financial instrument as it is convertible into a specific, determinable number of common shares.

As the Company’s investment in PMG is a significant percentage of its total assets, the Company requested but was unable to obtain PMG’s audited financial statements for the years ended December 31, 2006 or 2005or other relevant information. The Company was provided with PMG’s unaudited interim financial statements for the three months ended March 31, 2006, which indicates continued operating losses. The Company has based its carrying value for its investment in PMG on recent stock based transactions entered into or proposed by PMG. Accordingly, the Company has revalued the carrying value of its investment in PMG to $13,230,418 at December 31, 2006 and correspondingly recorded an impairment charge of $8,984,527 in fiscal year ended December 31, 2006. As of June 30, 2007 the carrying value of  the investment in PMG was $13,230,418.

All of the shares of PMG common stock currently are pledged as collateral to secure the Company’s obligations to the holders of the 10% Notes and the Series F preferred stock. Specifically, 254,834 shares of PMG common stock serve as collateral for the obligations under the 10% Notes, and 92,304 shares of PMG common stock serve as collateral for the obligations under the Series F preferred stock. As disclosed in the “Litigation” section of Footnote 16, a significant holder of the Series F preferred stock has brought suit against the Company alleging an array of breaches by IBD, Media Billing and iBill of the agreements governing its rights as a holder of the Series F Preferred Stock and is seeking money damages and foreclosure on the shares of PMG common stock that serve as collateral. In addition, certain holders of the 10% Notes sent a notice of default to the Company on December 20, 2005. Although the Company is pursuing settlement with all such parties, the Company anticipates that it may have to relinquish a significant number of shares of PMG common stock in connection with the foregoing actions or settlement of such actions.

Investment in ITVN

In connection with its investment in ITVN, the Company issued Series H preferred stock. The investment in ITVN was recorded at $4,852,224 which is its fair value at the date of acquisition. The Company has recorded the Series H as long-term debt, net of the amount allocated to the warrants attached thereto.

The Series H preferred stock is redeemable five years after issuance for 40 million shares of the Company’s common stock. The Series H preferred stock can be converted at the option of the holder, for two shares of common stock for each share of Series H preferred stock. The Series H preferred stock is not considered a derivative financial instrument as it is convertible into a specific, determinable number of common shares.

ITVN shares are a thinly traded security, over the counter under the symbol, “ITTV”. Management has determined that there has been a permanent erosion in the market value of this investment and accordingly has charged $3,691,040 to operations resulting in a carrying value of $1,161,184 at December 31, 2006. The share price of ITVN continued to erode during the first quarter of 2007 and accordingly, the Company has charged an additional $1,094,830 to operations resulting in a carrying value of $66,354 at June 30, 2007.

14

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

4.

INVESTMENTS IN PMG AND ITVN (CONT’D)

General

The Company reports its investments in PMG and ITVN under the cost method of accounting. Accordingly, the investments in PMG and ITVN are reflected on the consolidated balance sheet at their initial costs, and the Company will recognize income only to the extent it receives cash distributions. Temporary unrealized decreases in the value of the individual investments would be reported as other comprehensive income or loss, and other-than-temporary unrealized decreases in value would be expensed as incurred. The Company performs an annual impairment review, unless circumstances or events arise in the interim that would indicate the investment might be impaired. When such circumstances or events arise, the Company performs an abbreviated impairment review quarterly. Based on the 2007 quarterly impairment review, as discussed above, the Company determined that its investment in ITVN was impaired by $1,094,830, resulting in a carrying value of $66,354 at June 30, 2007.

5.

INVESTMENT IN CEL ART

Over the past several years, the Company has invested in animation art, other wise known as cel art. Cel is short for celluloid, which refers to the acetate material on which the animated figure is painted. This venue of collectible art was legitimized in 1984 when a former Disney Studio employee auctioned his private collection of cel art at Christies. The Company has acquired a portion of its animation cel art and related intellectual property through the issuance of common stock. Paragraph 8 of SFAS 123(R) states that when goods or services are received for the issuance of equity instruments they should be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Management determined that the fair value of the inventory was more reliably measure of value. During 2006, the Company distributed approximately $317,200 in samples that were never returned. Accordingly the Company has written down its investment in cel art at December 31, 2006 to $6,531,750, which remained the carrying value at June 30, 2007. However, on August 2, 2007, Note Holders of the Company, in compliance with Uniform Commercial Code practices, notified the Company that they would conduct a public sale of the art, which was pledged as collateral on the Notes. The art is currently in the possession of the Note Holders. The sale was conducted on August 13, 2007.

6.

PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment consist of the following:

	June 30, 2007
Computer equipment	$	123,802
Office equipment		13,963
Software		5,272
Furniture and fixtures		118,796
Leasehold improvements		25,625
		287,457
Less accumulated depreciation		(117,780	)
	$	169,677

Depreciation expense for the six months ended June 30, 2007 and 2006 was $95,747 and $7,992, respectively. A substantial portion of the fixed assets reported in prior years have been disposed of as part of the discontinued operations of iBill.

15

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

7.

LONG-TERM DEBT

As of June 30, 2007, long-term debt consisted of the following:

10% Convertible Notes	$	9,525,000
Series E preferred stock		3,500,000
Series F preferred stock		3,450,000
Series H preferred stock		400,000
Total long-term debt		16,875,000
Less: current maturities		(10,658,568	)
Less: unamortized discount, net		(1,784,883	)
Total long-term debt, net of current portion	$	4,431,549

The unamortized discount, net, of $1,784,883 is comprised of the following and will be amortized over the periods indicated:

10% Convertible Notes (5 years)	$	1,271,872
Series E preferred stock (3 years)		342,951
Series F preferred stock (5 years)		1,044,560
Series H preferred stock (5 years)		(874,500	)
Unamortized discount	$	1,784,883

Scheduled maturities of long-term debt as of June 30, 2007 are as follows:

2007	$	9,525,000
2008		0
2009		7,350,000
2010		0
2011 and thereafter		0
Total	$	16,875,000

10% Convertible Notes, Series E, F & H Preferred Stock

In 2004, The Company issued an aggregate of $9,525,000 of 10% Convertible Notes (10% Notes) to 18 investors (the Note Holders), none of whom were previously affiliated with the Company. The Note Holders also received warrants to purchase 3,175,000 additional shares of common stock at an exercise price of $3.00 per share. Interest is payable semi-annually on June 30th and December 31st, at the rate of 10% per annum, payable at the option of the Company of either 100% in cash or 50% in cash and the balance in common stock. The 10% Notes are convertible, at the option of the holder, into common stock at the lesser of $3.00 (Floor Price) or 50% of the average of the closing bid price in the over the counter market during the five business days ending on the day before the holder gives notice of conversion. In the event the 10% Notes conversion price is less than the Floor Price, the Note Holders are entitled to receive additional shares of common stock equal to an adjusted floor price of $0.50. The 10% Notes are secured by (i) a lien on the assets of iBill subordinated to the lien granted to holders of the Series F preferred stock, and (ii) the pledge by the Company of a portion (pro rated with the Series F senior preferred stock) of its approximately 27% non-voting interest in PMG. The 10% Notes convert to a maximum of 19,050,000 shares of common stock plus any unpaid interest or accrued stock.

16

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

7.

LONG-TERM DEBT (CONT’D)

On December 20, 2005, the Company received notice from a representative of 15 of the 17 holders of the 10% Notes, of default by the Company related to the terms of the Company’s 10% Notes in the total principal amount of $8.0 million. The Company has tendered a settlement offer to the Note Holders. The Company intends to use its best efforts to negotiate settlement with the Note Holders and emphatically denies the allegation of misrepresentation and reconfirms that the collateral was available at all times, as was represented to the Note Holders. As the Company was notified that it was in default, per the terms of the 10% Notes, the Company was required to pay additional interest during the default period. As of December 31, 2006, the Company had accrued unpaid interest on the 10% Notes of approximately $1,116,539 and it was recorded in accounts payable and accrued expenses on the consolidated balance sheet.

The Series E, F and H preferred stocks have been classified as long-term debt, net of the amounts allocated to the derivative financial instruments and the warrants attached thereto. The Series E preferred stock is convertible into an indeterminate number of shares of the Company’s common stock based on the price of the stock near the conversion date. The conversion of the Series F preferred stock is at the option of the holder, not the Company, and is redeemable at the holder’s request in cash. The Series H preferred stock is not considered a derivative financial instrument as it is convertible into a specific, determinable number of common shares. Due to embedded conversion features, the Company initially bifurcated $1,831,862, $1,898,559 and $2,044,720 of the 10% notes, Series E preferred stock and Series F preferred stock, respectively, and changes in the fair value are being charged or credited to income on a quarterly basis. During the six months ended June 30, 2007, the Company recorded a gain from the remeasurement of derivatives of $8,087.

As of June 30, 2007, convertible features of financial instruments is comprised of the following:

10% Convertible Notes	$	8,459
Series E preferred stock		3,053
Series F preferred stock		3,064
Convertible features of financial instruments	$	14,576

8.

PREFERRED STOCK

Series D - The Company issued Series D convertible preferred stock (“Series D”) in connection with its acquisition of iBill. The Series D shares are senior to common shares and are not entitled to receive dividends. Series D shares convert to 49.9% of the fully diluted common stock shares at the date of conversion. During 2005, 107,412 shares of Series D were converted into 32,706,065 shares of common stock. During first quarter of 2007 no shares were converted.

Series E - The Company raised $3.5 million from the sale of 35,000 shares of its Series E 6% convertible preferred stock (“Series E”) to Monarch Pointe Fund LP (“Monarch”). The Series E stock holders were also issued warrants to purchase approximately 430,504 shares of common stock at an exercise price equal of $3.00 per share. The Series E shares rank senior to the Company’s common shares, Series C preferred stock and Series G preferred stock; and are entitled to 6% dividends when and as declared by the Board of Directors. Series E are convertible, at the option of the holder, into common stock at the lesser of $3.00 (“Floor Price”) or 50% of the average of the closing bid price in the over the counter market during the five business days ending on the day before the holder gives notice of conversion. In the event the Series E Conversion Price is less than the Floor Price, the holders are entitled to receive additional shares of common stock equal to an adjusted floor price of $0.50. Series E convert to a maximum of 7,000,000 shares of common stock. Series E is classified as long-term debt (see Note 11), net of the amounts allocated to the derivative financial instrument and warrants attached thereto. The amortization of the discount on Series E is charged to additional paid-in-capital – stock.

17

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

8.

PREFERRED STOCK (CONT’D)

Series F - The Company raised $3.45 million from the sale of 34,500 shares of its Series F 10% convertible preferred stock (“Series F”) to Castlerigg Master Investments Limited (“Castlerigg”). The Series F stock holders were also issued warrants to purchase approximately 610,776 shares of common stock at an exercise price equal of $3.00 per share. The Series F shares rank senior to the Company’s common shares, Series C preferred stock, Series D preferred stock, Series E preferred stock and Series G preferred stock; and are entitled to 10% dividends payable semi-annually on June 30th and December 31st, payable at the option of the Company of either 100% in cash, 50% in cash and the balance in common stock. Series F are convertible, at the option of the holder, into common stock at the lesser of $3.00 (Floor Price) or 50% of the average of the closing bid price in the over the counter market during the five business days ending on the day before the holder gives notice of conversion. In the event the Series F Conversion Price is less than the Floor Price, the holders are entitled to receive additional shares of common stock equal to an adjusted floor price of $0.50. Series F are secured by (i) a lien on the assets of iBill subordinated only to a first priority lien that may be granted to one or more senior lender providing up to $10.0 million of working capital financing to iBill and (ii) the pledge by the Company of a portion (pro rated with the 10% Notes) of its approximately 27% non-voting interest in PMG. Series F convert to a maximum of 6,900,000 shares of common stock plus any unpaid interest accrued in stock. Series F is classified as long-term debt (see Note 11), net of the amounts allocated to the derivative financial instrument and warrants attached thereto. The amortization of the discount on Series F is charged to additional paid-in-capital – stock.

Series F preferred stock has accrued dividends paid one half in cash and one half in common stock. In 2006, the Company accrued unpaid dividends of $763,792 on Series F Preferred stock. In computing net income applicable to common stock, the Company has incorporated the preferred stock dividend declared in fiscal year 2006 of $418,792.

Series G - The Company issued Series G convertible preferred stock (“Series G”) in connection with its acquisition of PMG. Series G is junior on liquidation and sale of control of the Company to the Series E and Series F; does not pay any dividends and is not secured by any assets or securities; and is not subject to mandatory redemption. Series G shall convert into the aggregate number of shares of Company common stock as shall equal 68.0 million shares, less a maximum of 27,458,333 Conversion Shares issuable at the adjusted Floor conversion price of $0.50 applicable to 10% Notes, Series E, and Series F Securities. During 2005, 21,913 shares of Series G were converted into 29,225,009 shares of common stock. No shares were converted during 2006. This conversion provision represents a beneficial conversion feature, the value of which is calculated by subtracting the conversion price of $0.50 from the market price of the common stock on the date the preferred shares were issued.

Series H - The Company issued Series H convertible preferred stock (“Series H”) in connection with its acquisition of ITVN. The Series H shares are senior to common shares and are entitled to 10% dividends that will accrue until conversion date. The dividends may be paid in cash or in common stock at the option of the Company. The Series H shares are redeemable five years after issuance for 40 million shares of the Company’s common stock. Series H can be converted at the option of the holder, for two shares of common stock for each share of Series H. The Company has recorded Series H as long-term debt, net of the amount allocated to the warrants attached thereto.

Series H preferred stock has accrued unpaid dividends of $50,000. In computing net income applicable to common stock, the Company has incorporated the preferred stock dividend declared in fiscal year 2006 of $20,000.

18

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

9.

COMMITMENTS AND CONTINGENCIES

Litigation

On February 15, 2005, CMI II, LLC (CMI), an affiliate of Castlerigg Master Investments Limited and a holder of shares of IBD’s Series F Convertible Redeemable Secured Preferred stock (Series F Stock), brought suit against IBD and its wholly owned direct and indirect subsidiaries, Media Billing Company, LLC (Media Billing) and iBill, in the Supreme Court of the State of New York, New York County for damages arising out of alleged breaches (i) by IBD of various provisions of a Subscription Agreement pursuant to which CMI purchased the Series F Stock, (ii) by IBD of the IBD Certificate of Designation of Preferences and Rights of the Series F Stock, and (iii) by Media Billing and iBill of an Unconditional and Irrevocable Guaranty to guaranty both the payment and performance of all of IBD’s obligations to CMI. CMI also seeks redemption of the Series F Stock.

CMI amended its complaint on May 19, 2005 and again on August 19, 2005. The Second Amended Complaint added the following parties as defendants:  Elliott Bruce Weiner, as Trustee of the H. Robert Wiener Trust of 1983, Stanley B. Weiner, as Trustee of the Blanche Weiner Trust of 1982, Gerald Horst, Edward Arnold, Shalva Morris, Steven Noel, Greg Mudwilder, Hal Cook, Anton Parisi, James Sanchez, Robert Henderson, Dan Selznick, Gulalai Mayar, Chris Woodruff, George Morris, and IIG Capital LLC. In addition to the claims made in the initial complaint, the Second Amended Complaint filed by CMI seeks damages arising out of alleged breaches by IBD of a Registration Rights Agreement and alleged breaches by Media Billing and iBill of a Security Agreement that allegedly granted CMI a first priority lien and security interest in certain collateral.

CMI alleges an array of breaches by IBD, Media Billing, and iBill of the agreements governing its rights as a holder of the Series F Stock. Specifically, CMI alleges that IBD breached the Subscription Agreement by (i) failing to obtain a commitment for up to $10 million in financing for iBill on or before October 15, 2004; (ii) failing on or before January 21, 2005 to withdraw from the American Stock Exchange and to seek to re-list its common stock on one of the other national securities exchanges specified in the Subscription Agreement; (iii) failing to amend its Certificate of Incorporation by December 31, 2004 to increase the number of authorized shares of IBD common stock to 250 million shares; and (iv) failing to make the semi-annual dividend payment allegedly owed to CMI on June 30, 2005. CMI alleges that IBD breached the Registration Rights Agreement by failing to maintain a listing of its shares on one of the national securities exchanges specified in the agreement. CMI alleges that IBD breached the Pledge Agreement by failing to deliver the membership interest in iBill to the collateral agent designated in the Pledge Agreement. CMI alleges that Media Billing and iBill breached the Security Agreement and converted assets belonging to CMI by transferring collateral posted under the Security Agreement without the consent of the designated collateral agent. CMI alleges that Media Billing and iBill breached the Guaranty by failing to pay CMI amounts allegedly owed to CMI by IBD. CMI alleges that IBD breached the Series F Certificate by failing to redeem the Series F Stock.

In its Answer to the Second Amended Complaint, the Company has denied the essential allegations of wrongdoing and has asserted 13 affirmative defenses to the Second Amended Complaint, including that CMI is barred from enforcing any of the agreements with the Company because CMI fraudulently or negligently induced the Company to enter into the agreements, and that any obligations by the Company to perform under the agreements are excused by CMI’s material breaches of the agreements. In addition, the Company is investigating the availability of counterclaims relating to the circumstances surrounding CMI’s investment in the Company.

CMI seeks damages of $5.25 million, plus liquidated damages in the amount of $65,000 for each month, or portion thereof, that IBD allegedly failed to amend its Certificate of Incorporation after December 31, 2004, plus accrued and unpaid dividends on the Series F Stock, reimbursement for the costs and expenses incurred by CMI in seeking to enforce its alleged rights as a holder of the Series F Stock, interest, foreclosure on the shares of Penthouse Media Group, Inc. common stock that are held as collateral pursuant to the Pledge Agreement, and an accounting of all collateral alleged to have been improperly transferred by Media Billing and iBill. Currently, the Company is continuing its negotiations with CMI to reach a settlement of this matter, although no assurances can be made that a settlement will be reached. On March 27, 2006, CMI II moved for summary judgment with respect to its causes of action against the Company. The Court granted the Motion for Summary Judgment, which was later overturned on appeal. Settlement negotiations continue, and no further legal action has been filed.

19

INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

9.

COMMITMENTS AND CONTINGENCIES (CONT’D)

Litigation (Cont’d)

However, CMI  obtained a judgment against the Company, in which the courts found the Company liable to CMI for $7 million. The Company does not intend to appeal the judgment.

On March 16, 2005, DeluxePass, L.L.C. and DLX Ideas, L.L.C. filed suit against iBill and Intercept, Inc. (a former owner of iBill before PHSL acquired it from Intercept) in the United States District Court for the Southern District of Florida. The Complaint alleges ten counts against iBill --two counts of conversion, two counts of breach of contract, two counts of breach of fiduciary duty, two counts of violation of the Florida Unfair and Deceptive Trade Practices Act, and two counts of civil theft. The factual assertion underlying all of these claims is that iBill collected funds on behalf of the plaintiffs pursuant to a service agreement but has failed to release to plaintiffs funds required to be released under the agreement. iBill answered the Complaint on April 15, 2005. Trial was set for August 28, 2006. However, on May 16, 2006, the parties agreed to a joint stipulation with prejudice in the amount of $1,067,097.

Subsequent to our January 21, 2005 acquisition of iBill, the Company anticipated extensive litigation by former iBill clients pursuant to payments owed for credit card processing at the time FirstData terminated its banking and processing relationship with iBill. Numerous lawsuits have been filed against iBill in both federal and state circuit court. In the aggregate, current pending claims are approximately $450,000. The Company is aggressively negotiating settlement agreements for all lawsuits filed and anticipated. At December 31, 2005, we had negotiated approximately $9,700,000 in 627 settlements, with approximately $300,000 pursuant to 36 settlements occurring in the fourth quarter of 2005. The Company has failed to comply with the settlement terms of several of the settlement agreements due to its lack of working capital and has failed to provide answers to certain claims filed by webmasters. The failure to answer was not an intentional refusal to respond, rather it was from the Company’s inability to comply with financial terms of the subject settlement agreements and the Company had no defense to the creditors request for judgment. The failure to provide answers has resulted in default judgments and the failure to comply with settlement agreements resulted in confessions of judgments. As of June 30, 2007, approximately 116 lawsuits were pending against the Company, principally within Broward County federal and circuit courts, in an aggregate amount of approximately $52,426,931. Judgments at June 30, 2007 were $8,990,942. The Company is unable to satisfy these judgments, and has subsequently ceased its operations.

On December 20, 2005, the Company received notice from a representative of 15 of the 17 holders of the 10% Notes (Note Holders), of its default related to the terms of our 10% Notes in the total principal amount of $8.0 million. The Company has tendered a settlement offer to the Note Holders. The Company intends to use its best efforts to negotiate a settlement with the Note Holders and emphatically deny the allegation of misrepresentation and reconfirm that the collateral was available at all times, as was represented to the Note Holders. In April 2007, the Note Holders verbally agreed to accept PMG stock in full settlement of this dispute. Currently, we are negotiating the release of the PMG stock from escrow, but there can be no assurances that the escrow agent will comply.

On April 5, 2006, the Superior Court of Fulton County State of Georgia issued an order confirming InterCept, Inc.’s arbitration award against Media Billing, Inc. and iBill in the amount of $5,201,023. The Company appealed the award.

The order arose from a matter relating to Media Billing and iBill operations prior to our acquisition of Media Billing and iBill and related to the original purchase agreement between PHSL and InterCept. Pursuant to the iBill acquisition agreement, PHSL agreed to indemnify us for any claims relating to arising from or in connection with any and all transactions arising out of the membership interest purchase agreement between Media Billing, iBill and InterCept. The Company believes this matter is covered by the indemnification provision and has notified PHSL. The Company will consider the termination of the Series D preferred stock held by PHSL in the event PHSL fails to indemnify the Company for the losses under the order. Upon recording the initial purchase transaction of Media Billing and iBill, the opening balance sheet included a $4 million liability related to this matter. The

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INTERACTIVE BRAND DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

9.

COMMITMENTS AND CONTINGENCIES (CONT’D)

Litigation (Cont’d)

$4 million appears in accounts payable and accrued expenses on the December 31, 2005 consolidated balance sheet. InterCept has indicated that they will not accept the Series D preferred stock in lieu of payment so the Company could still be financially responsible. However, InterCept notified the Company’s counsel that it would accept a lump-sum payment of $600,000 to settle the case. On May 30, 2006, InterCept filed a motion to require iBill to post a supersedes bond for the arbitration award amount pending the decision in the appeals process. On August 3, 2006, the Court issued an order granting Intercept’s motion to require the Company to post a supersedeas bond. The Company has appealed the decision, and on February 28, 2007, Intercept filed a motion to dismiss our Notice of Appeal.

10.

RELATED PARTY TRANSACTIONS

The amount due to shareholders at June 30, 2007 and 2006 was $1,750,301 and $667,938, respectively. These amounts represented advances from shareholders and corporate expenses paid personally by shareholders. The majority of the reduction was due to the Company making certain payments on behalf of these shareholders. The Company accrued interest at 18%, the contractual default rate, for the outstanding balances owed to the shareholders. On August 13, 2007, these shareholders foreclosed on the Company’s cel art, which had been pledged as collateral for the advances. For the six months ended June 30, 2007, the Company recorded expense on these advances of approximately $414,774.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to our condensed consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:

·

Overview. This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we believe are important in understanding our financial condition and results of operations.

·

Caution concerning forward-looking statements. This section discusses how certain forward-looking statements made by us throughout this discussion and analysis are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.

·

Recent accounting pronouncements. This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and the effect of those pronouncements.

·

Critical accounting policies. This section discusses those accounting policies that are both considered important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application.

·

Results of operations. This section provides an analysis of our results of operations for the year ended December 31, 2005 relative to the comparative prior year period presented in the accompanying consolidated statements of operations.

·

Liquidity and capital resources. This section provides an analysis of our cash flows, capital resources and off-balance sheet arrangements as of June 30, 2007 and our contractual obligations as of December 31, 2005.

Overview

The Company suspended its operations of iBill in December 2006. The Company’s strategy going forward had been to maintain passive investments but to discontinue all operations associated with the adult entertainment industry. The Company intended to seek business opportunities through a business combination with one or more private companies. The Company has had no material operations since June 2006, and subsequent to a $7 million judgment against it and the seizure and sale of a material asset, has discontinued operations.

Although the Company forfeited its investment in the cel art, it continues to maintain the following strategic investments:

·

A minority non-voting interest in Penthouse Media Group, Inc. (PMG), an established global adult media, entertainment and licensing company founded in 1965 that publishes Penthouse Magazine, and owns and licenses the PENTHOUSE trademarks and other intellectual property.

·

A minority interest in Interactive Television Networks, Inc., formerly XTV, Inc. Interactive Television Networks (ITVN) is an emerging provider of Internet Protocol Television (IPTV) hardware, programming software and interactive networks.

Caution Concerning Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This document contains such “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, operating income and cash flow. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “will,” “estimates,” and similar expressions are forward-looking

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statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, history of operating losses and accumulated deficit; possible need for additional financing; competition; dependence on management; risks related to proprietary rights; government regulation; and other factors discussed in this report and our other filings with the SEC.

Recent Accounting Pronouncements

Contingently Convertible Instruments

In September 2004, the EITF reached a consensus on Issue No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share (EITF No. 04-08), which is effective for reporting periods ending after December 15, 2004. EITF No. 04-08 requires companies to include shares issuable under convertible instruments in diluted earnings per share computations (if dilutive) regardless of whether the market price trigger (or other contingent feature) has been met. In addition, prior period earnings per share amounts presented for comparative purposes must be restated. EITF No. 04-08 did not impact earnings per share in 2005.

Share-Based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS No. 123(R) supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Additionally, SFAS No. 123(R) amends the presentation of the statement of cash flows and requires additional annual disclosures. SFAS No. 123(R) is effective for public companies beginning with the first interim period that begins after June 15, 2005. In April 2005, the SEC adopted a new rule that postponed the effective date for SFAS No. 123(R) to the fiscal year beginning after June 15, 2005. We adopted SFAS No. 123(R) on January 1, 2006, and as we do not have an option plan, there was no effect upon implementation.

Accounting Changes and Error Corrections

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS No. 154), which replaces APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 retained accounting guidance related to changes in estimates, changes in a reporting entity and error corrections. However, changes in accounting principles must be accounted for retrospectively by modifying the financial statements of prior periods unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. We do not believe adoption of SFAS No. 154 will have a material impact on our consolidated financial condition, results of operations or cash flows.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or condition are used.

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Results of Operations

Comparison of Three Months Ended June 30, 2007 (“Q2 2007”) to the Three Months Ended June  30, 2006 (“Q2 2006”) and the Six Months Ended June 30, 2007 (“6Mos 2007”) to the Six Months Ended June 30, 2006 (6Mos 2006”)

Revenues. There were no revenues from continuing operations for either Q2 2007 or Q2 2006. Revenues from continuing operations decreased $328,993 (100.0%) to $0 for 6Mos 2007 compared to $328,993 for 6Mos 2006. As described above we discontinued operations. iBill’s revenues of $0 for 6Mos 2007 and $909,607 for 6Mos 2006 are reported as discontinued operations for both reporting periods. Revenues from continuing operations for consisted primarily of service fees.

Operating costs and expenses. Operating costs expenses from continuing operations decreased $644,166 (46.5%) to $740,451 for Q2 2007 compared to $1,384,617 for Q2 2006. As described above we discontinued our credit card processing subsidiary iBill operations. In addition, we incurred a significant write down of assets 6Mos 2007. Operating costs expenses increased $743,570 (42.4%) to $2,497,765 for 6Mos 2007 compared to $1,754,195 for 6Mos 2006.

Other income (expense). Other income (expense) from continuing operations decreased $261,975 (159.1%) to $426,698 expense for Q2 2007 compared to $164,723 expense for Q2 2006. The decrease is primarily due to a reduction in the gain recognized from revaluing derivatives. Other income (expense) $124,843 (18.1%) to $814,929 expense for the 6Mos 2007 compared to $690,087 for the 6Mos 2006.

Net loss from continuing operations. Net loss from continuing operations decreased  $382,191 (24.7%) to $1,167,149 for Q2 2007 compared to $1,549,340 for Q2 2006, primarily for the reasons discussed above, the most significant of which was reducing costs associated with selling, general and administrative expenses. Net loss for the 6Mos 2007 decreased $2,584,320 (39.9%) to  $3,897,392 compared to $6,481,712 for the 6Mos 2006.

Net loss applicable to common shares. Net loss applicable to common shares decreased  $1,710,380 (55.9%) to $1,347,936 for Q2 2007 compared to $3,058,315 for Q2 2006, primarily for the reasons discussed above, the most significant of which was reducing the losses associated with discontinued operations. Net loss for the 6Mos 2007 decreased $2,584,320 (39.9%) to  $3,897,392 compared to $6,481,712 for the 6Mos 2006.

Liquidity and Capital Resources

Discussion on Liquidity and Capital Resources

At June 30, 2007, we had a bank overdraft of $18,377 and a working capital deficit of $53,068,962. The Company was unsuccessful in implementing a strategy that would allow it to continue its operations, and discontinued operations in August 2007, after a $7 million judgment was entered against us, and a material asset, our cel art, was foreclosed upon by note holders who held it as collateral for notes on which we defaulted.

During Q2 2007, we did not meet our financing needs.

On July 14, 2005, iBill entered into a credit and security agreement with Takeley Investments Ltd. (Takeley). Pursuant to the agreement, Takeley loaned iBill approximately $1,000,000 pursuant to a revolving promissory note, of which $456,889 is outstanding as of March 31, 2007. The note bears interest at 15% per annum and was due July 31, 2006. The Company has reached a verbal agreement to extend the note until July 31, 2007  As additional consideration for entering into the credit and security agreement, we issued Takeley a common stock purchase warrant to purchase 1,000,000 shares of common stock of IBD, exercisable at $0.33 per share at any time prior to July 14, 2010.

During the fourth quarter of 2005, we executed an amended and restated promissory note with IIG Trade Opportunities Fund (IIG). The amended note increases the Company’s line of credit with IIG from $2.1 million to $6 million. The amended note changed the interest rate from 12% per annum to a rate per annum equal to 6.75% plus the Prime Rate provided, however, that the interest rate shall at no time be less than 12% per annum. On May 1, 2006, the Company received notice from IIG that a default occurred related to the amended note. IIG terminated its commitment to fund and accelerated and demanded payment in full on the outstanding amount of approximately $3.8 million (approximately $4.0 million borrowed offset by $144,000 in cash held in escrow by IIG.) The Company

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disputed that a default had occurred. In April 2007, IIG verbally agreed to accept a combination of PMG stock and $5 million in cel art owned by the Company as satisfaction of the promissory note.

Going Concern

In connection with their audit report on our consolidated financial statements as of December 31, 2006, our independent certified public accountants, expressed substantial doubt about our ability to continue as a going concern as such continuance is dependent upon our ability to raise sufficient capital. We have been unable to raise sufficient capital to continue operations, and at August 2007 have ceased all operations. The Company does not have the resources to satisfy substantial judgments against it, and a material asset, the cel art, has been foreclosed upon by shareholders holding notes collateralized with the art.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

Contractual Obligations

The following table reflects our contractual obligations as of June 30, 2007:

	Payments due by Period
				Less than		2-3		4-5		After
	Total		1 year		Years		years		5 years
Long-term debt obligations	$	14,698,352	$	10,195,278	$	3,923,991	$	—	$	—
Operating leases		1,158,491		281,180		579,083		298,228		—
Contractual obligations	$	15,856,843	$	10,476,458	$	4,503,074	$	298,228	$	—

Item 3.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC.

In connection with the review of our condensed consolidated financial statements for the three months ended March 31, 2006, we discovered certain significant internal control deficiencies that we consider to be reportable conditions. These consist of the lack of policies and procedures to adequately store and retrieve financial information.

A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level of risk that material misstatements in our financial statements will not be prevented or detected on a timely basis.

As required by the SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. This evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our controls and procedures were not effective as of the end of the period covered by this report due to the deficiencies discussed above.

Our restructuring and financial position has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and proper procedures within our internal control system. We will use our best efforts to implement necessary policies and procedures within the Company to provide adequate disclosure controls and procedures.

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Inherent Limitations on Effectiveness of Controls

We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goal under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks.

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Controls

Gary Spaniak Jr. resigned as the Company’s President effective April 17, 2007. No other changes in the Company’s internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

During the period covered by this report there have been no material developments under the legal proceedings disclosed under Item 3 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

On December 20, 2005, the Company received notice from a representative of 15 of the 17 holders of the 10% Notes (Note Holders), of its default related to the terms of our 10% Notes in the total principal amount of $8.0 million. The Company has tendered a settlement offer to the Note Holders. The Company has negotiated a verbal settlement with the Note Holders and emphatically denies the allegation of misrepresentation and reconfirm that the collateral was available at all times, as was represented to the Note Holders.

On May 1, 2006, the Company received notice from IIG, of default by the Company related to the terms of the Company’s amended note in the total outstanding amount of approximately $3.8 million (approximately $4.0 million in borrowings offset by $144,000 in cash held in escrow by IIG). The Company disputes that a default has occurred, as it believes that the alleged breaches of the credit agreement (if any) do not give rise to the acceleration of the amounts owed under the amended note. Further, the Company believes that IIG has violated terms of the LOC in that among other things it failed to fully fund its obligation under the LOC. At March 31, 2007, the Company had negotiated a verbal agreement to settle with IIG for PMG stock and cel art.

Item 6.

EXHIBITS

Exhibit No.	Description
10.17	Reseller and Transfer of Accounts Agreement dated March 27, 2006 between the Company and Etelegate Arizona, LLC for the outsourcing of the Company’s on-line payment processing operations. (incorporated by reference to Form 8-K filed on March 31, 2006)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Interactive Brand Development, Inc.
Dated: August 20, 2007	By:	/s/ STEVE MARKLEY
		Steve Markley
		Chairman of the Board of Directors, Chief Executive Officer, Chief Financial Officer

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