# SECURITIES AND
EXCHANGE COMMISSION

# Washington, D. C.20549

# FORM 10-QSB

# QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

# For the quarterly period ended: September 30, 2004

# Commission File No.  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

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
as the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [  ]

# APPLICABLE ONLY TO
CORPORATE ISSUERS

State the number of shares
outstanding of each of the issuers classes of common equity, as of the latest
practicable date:36,136,631 as of November 3, 2004

Transitional Small
Business Format:No

# PART I. FINANCIAL
INFORMATION

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) CONSOLIDATED FINANCIAL
STATEMENTS September 30, 2004

F-1

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Consolidated Balance
Sheet

# ASSETS

|                                      | September 30,
2004
(Unaudited)
|------------------------------------- | ------------------------------
|CURRENT ASSETS                        |                               
|Cash                                  |                               
|Accounts receivable (Note 2)          |                               
|Prepaid expenses                      |                               
|                                      |                               
|Total Current Assets                  |                               
|                                      |                               
|Furniture, Fixtures and Software, Net |                               
|                                      |                               
|OTHER ASSETS                          |                               
|Deposits                              |                               
|                                      |                               
|Total Other Assets                    |                               
|                                      |                               
|TOTAL ASSETS                          |                               
|                                      |                               

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

F-2

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Consolidated Balance
Sheet (Continued)

|LIABILITIES AND STOCKHOLDERS' EQUITY           | September 30,
2004
(Unaudited)
|---------------------------------------------- | ------------------------------
|CURRENT LIABILITIES                            |                               
|Accounts payable and accrued expenses          |                               
|Deferred revenue (Note 2)                      |                               
|Capital leases payable                         |                               
|Note payable-related party (Note 3)            |                               
|                                               |                               
|Total Current Liabilities                      |                               
|                                               |                               
|Long Term Liabilities                          |                               
|Capital leases payable                         |                               
|                                               |                               
|Total Long Term Liabilities                    |                               
|                                               |                               
|TOTAL LIABILITIES                              |                               
|                                               |                               
|STOCKHOLDERS' EQUITY                           |                               
|Common stock authorized 100,000,000 shares at  |                               
|$0.001 par value; 36,136,631 shares issued and |                               
|outstanding                                    |                               
|Additional paid-in capital                     |                               
|Deferred consulting expense                    |                               
|Accumulated deficit                            |                               
|                                               |                               
|Total Stockholders' Equity                     |                               
|                                               |                               
|TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY      |                               
|                                               |                               

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

F-3

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY(Formerly Optical Concepts
of America Inc.)Consolidated Statements
of Operations (Unaudited)

|                                        | For the Nine Months Ended
September 30, | For the Three Months Ended
September 30, |   |           
|--------------------------------------- | --------------------------------------- | ---------------------------------------- | - | ----------
|
|REVENUES                                |                                         |                                          | $ | 1,855,221 
|                                        |                                         |                                          |   |           
|EXPENSES                                |                                         |                                         
|Cost of Sales                           |                                         |                                          |   | 15,368    
|Services paid for with common stock     |                                         |                                          |   | 3,635,603 
|Amortization and depreciation           |                                         |                                          |   | 294,539   
|General and administrative              |                                         |                                          |   | 1,022,443 
|                                        |                                         |                                          |   |           
|Total Expenses                          |                                         |                                          |   | 4,967,953 
|                                        |                                         |                                          |   |           
|Income (Loss) from operations           |                                         |                                          |   | (3,112,732
|                                        |                                         |                                          |   |           
|OTHER EXPENSES                          |                                         |                                         
|Loss on extinguishment of related party |                                         |                                         
|debt                                    |                                         |                                          |   | (156,765  
|Interest expense                        |                                         |                                          |   | (32,155   
|                                        |                                         |                                          |   |           
|Total Other Expenses                    |                                         |                                          |   | (188,920  
|                                        |                                         |                                          |   |           
|NET INCOME (LOSS)                       |                                         |                                          | $ | (3,301,652
|                                        |                                         |                                          |   |           
|BASIC INCOME (LOSS) PER SHARE           |                                         |                                          | $ | (0.09     
|                                        |                                         |                                          |   |           
|WEIGHTED AVERAGE NUMBER OF              |                                         |                                         
|SHARES OUTSTANDING                      |                                         |                                          |   | 36,098,130
|                                        |                                         |                                          |   |           

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

F-4

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Consolidated Statements
of Cash Flows (Unaudited)

|                                                  | For the Nine Months Ended
September 30, | 
|------------------------------------------------- | --------------------------------------- | 
|
|CASH FLOW FROM OPERATING ACTIVITIES:              |                                         | 
|Net loss                                          |                                         | 
|Adjustments to reconcile net loss to net          |                                         | 
|cash used by operating activities:                |                                         | 
|Common stock issued for services                  |                                         | 
|Bad debt expense                                  |                                         | 
|Amortization Depreciation expense                 |                                         | 
|Loss on extinguishment of Related party debt      |                                         | 
|Changes in operating assets and liabilities:      |                                         | 
|Accounts receivable                               |                                         | 
|Prepaid expenses                                  |                                         | 
|Increase in deposits                              |                                         | 
|Increase in accounts payable and accrued expenses |                                         | 
|Deferred revenue                                  |                                         | 
|                                                  |                                         | 
|Net Cash Used by Operating Activities             |                                         | 
|                                                  |                                         | 
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                         | 
|Loan to Commerce, Inc.                            |                                         | 
|Purchase of fixed assets                          |                                         | 
|Advances to IBSG Group prior to consolidation     |                                         | 
|                                                  |                                         | 
|Net Cash Used by Investing Activities             |                                         | 
|                                                  |                                         | 
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                         | 
|Common stock issued for cash                      |                                         | 
|Payments on notes payable                         |                                         | 
|Capital lease payments                            |                                         | 
|Stock offering costs                              |                                         | 
|                                                  |                                         | 
|Net Cash Provided by Financing Activities         |                                         | 
|                                                  |                                         | 
|NET INCREASE IN CASH                              |                                         | 
|CASH AT BEGINNING OF PERIOD                       |                                         | 
|                                                  |                                         | 
|CASH AT END OF PERIOD                             |                                         | 
|                                                  |                                         | 

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

F-5

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Consolidated Statements
of Cash Flows (Continued) (Unaudited)

|                                                     | For the Nine Months Ended
September 30, | 
|---------------------------------------------------- | --------------------------------------- | 
|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION     |                                         | 
|Interest paid                                        |                                         | 
|Income taxes paid                                    |                                         | 
|SCHEDULE OF NON-CASH FINANCING ACTIVITIES            |                                         | 
|Common stock issued for deferred consulting expenses |                                         | 
|Common stock issued for services                     |                                         | 
|Common stock issued for extinguishment of            |                                         | 
|Related party debt                                   |                                         | 
|Common stock issued for acquisition of software      |                                         | 

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

F-6

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

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, 2003 Annual Report on Form 10-KSB. Operating results for the nine months
ending September 30, 2004 as well as the three months ended September
30, 2004 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2004 and any future periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to a Share Exchange Agreement dated November 10, 2003, which was effective on February 13,
2004, the Company acquired 100% of the outstanding capital stock of Intelligent Business
Systems Group, Inc. a Delaware corporation, in exchange for 15,000,000 shares of its
common stock. These shares were issued to the stockholders of Intelligent Business Systems
Group, Inc. in exchange for their wholly owned interest in Intelligent Business Systems
Group, Inc. At the time of acquisition, the stockholders of Intelligent Business Systems
Group, Inc. acquired control of the Company and accordingly, for accounting purposes,
Intelligent Business Systems Group, Inc. was treated as the acquiring entity. There was no
adjustment to the carrying value of the assets or liabilities of Intelligent Business
Systems Group, Inc.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
at September 30, 2004 the consolidated financial statements include those of IBSG
International, Inc. (formerly Optical Concepts) (IBSG, Inc) and Intelligent Business
Systems Group, Inc. (Group) together are referred to as the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-7

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 1 -     BASIS OF
FINANCIAL STATEMENT PRESENTATION (Continued)

| | represent
actual cash which were paid to the previous company by the Trust for the development and
commercialization of the software. At the time that the assets were sold to the IBSG, Inc.
the accounts receivable balance was approximately $3,983,000. Of this amount, $2,500,000
was deemed to be deferred revenue. The balance of $1,483,000 of revenue would have been
recognized by either the previous company or the Trust during the time that these entities
owned the contracts. Since the Trust had no basis in the generation of the accounts
receivable or the ability to prefect service, they have not been recorded. The Company
completed an acquisition of assets of RedHand International, a UK based company, which
included sophisticated security software and a channel partner agreement. The Company
created a new company called Secure Blue and will (1) market the aquired software as a
comprehensive solution for Sarbanes-Oxley compliance; (2) integrate the software into
its other subsidiary IBS Group, Incs digital commerce platform with the
benefits of adding monitoring capabilities as well as position businesses utilizing the
platform to be Sarbanes-Oxley compliant and: (3) to cross market the products into
receptive vertical markets. The purchase of RedHand consisted of 650,000 shares of common
stock valued at $0.56 per share totaling $364,000 plus $46,088 of amounts due to be paid
in cash. The entire purchase price of $410,088 was allocated to the software purchased
which will be amortized over a 3 year period on a straight line basis.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
noted in previous filings, when the Company receives any cash for the $1,483,000 portion
of the accounts receivable, the Company has decided to recognize an addition to paid in
capital. Because of the slow pay nature of these contracts, the sporadic nature of the
prior cash collections of both the previous company and the Trust, the Company originally
decided to recognize this revenue as the cash is collected. A number of current contract
assets assumed by IBSG, Inc. have written confirmation from the customer acknowledging the
contract and outstanding payables. The Company has since made substantial progress in
contacting customers and has developed a higher degree of confidence related to
collectability of some of the receivables. See Note 2, revenue recognition policy for
further information.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2 -     CRITICAL
ACCOUNTING POLICIES

a.
Revenue Recognition

| | Our
license agreements typically run for five years. A first year license fee, inclusive of
installation, integration and training, is payable at the initiation of the license.
License maintenance is payable on the second through fifth anniversary date of the
license. Each fee covers the license/maintenance fee for one year. Such fees are accounted
as unearned revenue and recognized as revenue ratably over each annual period. We
recognize revenue in accordance with Statement of Position, or SOP 97-2, Software
Revenue Recognition, as amended, by Staff Accounting Bulletin No. 104, Revenue
Recognition. The Company adopted Emerging Issues Task Force Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. We recognize license
revenues when all of the following criteria are met: persuasive evidence of an arrangement
exists, the fee is fixed or determinable, collection of the
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 2 -     CRITICAL
ACCOUNTING POLICIES (Continued)

a.                 Revenue
Recognition (Continued)

| | related
receivables is reasonably assured, delivery of the license has occurred and the customer
has accepted the license (including the expiration of an acceptance period) if the terms
of the contract include an acceptance requirement. Licenses are considered delivered once
a license agreement has been entered into between the customer and the Company. Actual
access to the software, due to the web nature of the software, is provided upon a mutually
agreed schedule but the license fee due at time of conveyance and is not contingent upon
the customer providing the hardware, staff for training or scheduling conflicts in
general. Training and installation are included in the license fee and can be delivered at
any time after the license has been conveyed. A portion of the year one license revenue
and any subsequent years licenses are amortized on an annual basis commensurate with the
start of the license agreement and then each subsequent anniversary date of the license
and recognized generally in 12 periods (months) per year. In the event that we grant a
customer the right to specified upgrades and vendor-specific objective evidence of fair
value exists for such upgrades, value to the customer is determined on a stand-alone basis
and there is objective and reliable evidence of fair value of the undelivered elements.
Professional services and other revenues, when sold with subscription and support
offerings, are accounted for separately until we have delivered the specified upgrade or
additional service. If professional services are essential to the functionality of the
other elements of the arrangement, we defer recognition of revenue until we have satisfied
our professional services obligations. To date, professional services have not been
essential to the functionality of the other elements, and thus have been accounted for
separately.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
consider a non-cancelable agreement signed by the customer and us to be evidence of an
arrangement. Delivery is considered to occur when media containing the licensed programs
is provided to a common carrier, or the customer is given electronic access to the
licensed software. Our typical end user license agreements do not contain acceptance
clauses. We consider the fee to be fixed or determinable if the fee is not subject to
refund or adjustment. If the fee is not fixed or determinable, we recognize revenue as the
amounts become due and payable. Reasonable assurance of collection is based upon our
assessment of the customers financial condition through review of their current
financial statements or credit reports. Additional consideration is given to the type of
customer. Most of our customers are government or quasi-government agencies and are thus
considered low collection risk although payments could take as long as 12 months to be
brought current by the customer due to the slow pay nature of such entities. Late payments
and interest are assessed based on unpaid balances on a monthly basis. A number of current
contract assets assumed by IBSG have written confirmation from the customer acknowledging
the contract and outstanding payables. Further due diligence has increased the confidence
of receiving payment for several contracts previously not recognized that are on-going
projects with new licenses being implemented and we have accounted for recognition as
current and deferred revenue based on the above stated policy.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 2 -     ACCOUNTING POLICIES (Continued)

a.                 Revenue
Recognition (Continued)

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

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

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

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

| |  | Allowance
for Doubtful Accounts and Sales Returns
| |  | -------------------------------------------------

F-10

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 2 -     CRITICAL
ACCOUNTING POLICIES (Continued)

a.                 Revenue
Recognition (Continued)

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

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

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

| | During
the quarter ended September 30, 2004, the Company recognized $315,948 of revenue relating
to 9 licenses which were activated on one contract and subscription revenue from another.
The licenses which have been activated resulted in accounts receivable of $3,005,075 and
deferred revenue of $1,177,280 which were in accounts recognized over the remaining lives
of the licenses which range from three months to a year.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

b. 
      Equity Transactions

Equity
transactions for consideration other than cash are valued at the closing price on the date
of authorization.

F-11

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 2 -     
CRITICAL
ACCOUNTING POLICIES (Continued)

c.       Acquisitions

| | The
Company estimates the value of acquisitions based on inventory value on-hand, development
costs incurred on intellectual property, history market performance and projected market
size and likelihood of success over a specific period of time. In cases of a new market,
best estimates are based on the closest comparable in the market.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

d.       Depreciation and
Amortization

| | The
Company is depreciating its furniture and equipment on a straight-line basis over a 5-year
period. Licenses and pre-defined (guaranteed) subscription revenue is recognized on a
monthly basis for each reciprocating year generally over a 5 year period of time. The
software acquired (Note 1) is being amortized on a straight line over a 3-year period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 3 -     EQUITY
ISSUANCES

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

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

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

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

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

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

F-12

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 3 -     EQUITY
ISSUANCES (Continued)

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

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

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

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

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

| | Pursuant
to the private placements for cash mentioned previously, the Company was required to issue
additional shares of common stock to the various parties because the closing bid price of
the Companys stock was not $1.00 at March 31, 2004. Accordingly, the Company issued
an additional 664,032 shares of common stock to the private placement investors for their
cash purchases. These individuals did not contribute any services or other items to the
Company. These shares were valued at $0.00 per share.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

F-13

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 3 -      EQUITY
ISSUANCES (Continued)

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

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

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

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

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

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

| | During
June 2004, the Company issued 1,500,000 shares of common stock to M&K Trust for the
Note owed on NetPool. The shares valued at $0.45. per share, which was the closing price
on the date of issue. The transaction was recorded reducing the liability to M&K Trust
by $675,000 as of June 30, 2004. There is a balance outstanding of $250,000 at June 30,
2004 which is due in two equal installments of $125,000 by January 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F-14

# IBSG INTERNATIONAL,
INC. AND SUBSIDIARY (Formerly Optical Concepts
of America Inc.) Notes to the
Consolidated Financial Statements September 30, 2004

NOTE 3 -     EQUITY
ISSUANCES (Continued)

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

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

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

NOTE 4 -     GOING
CONCERN

| | The
Companys condensed consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a going
concern which contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred cumulative operating losses through
September 30, 2004 of $3,678,500. Revenues had not been sufficient to cover its operating
costs and to allow it to continue as a going concern. The potential proceeds from the sale
of common stock, other contemplated debt and equity financing, and increases in operating
revenues from new development would enable the Company to continue as a going concern.
There can be no assurance that the Company can or will be able to complete any debt or
equity financing. If these are not successful, management is committed to meeting the
operational cash flow needs of the Company.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15

# ITEM 2.    MANAGEMENT'S
DISCUSSION AND ANALYSIS OF OPERATIONS AND FINCNCIAL CONDITIONS

| | The
following discussion of our results of operations and liquidity and capital resources
should be read in conjunction with our Financial Statements and related Notes thereto
appearing elsewhere in this report. 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 select additional changes to revenue recognition to comply with the most conservative
SEC recognition of on a forward going accrual basis as the model is replicated with other
similar markets (i.e. SBDC).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 
Company (IBSG or the Company), through Intelligent Business
Systems Group, Inc. which became a wholly owned subsidiary of the company on February 13,
2004, is in the business of selling enterprise solutions that enhance the operating
efficiency and create revenue for State Small Business Development Centers, business
associations (e.g. Business associations) and other organizations through the licensing of
its unique turn-key digital service center software, which provides a broad range of
digital budgetary, administrative and commercial services (B2B, e-commerce, government to
business and enterprise business services) on a single platform known as the NetPool Data
System.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a software provider, system integrator and Application Service Provider, IBSG generates
its revenue from license sales, system modifications, system support, and a percentage of
monthly customer fees.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
NetPool Data System provides IBSGs licensees with the ability to operate a
turnkey digital service center that integrates a number of vertical market entities
(clients or sub-licensees) on a single platform without requiring the business to have a
pre-existing web site or digital catalogue.  Branded and administered by the
customer, the system is installed on a customers server or hosted by IBSG and
accessed via their web site. Utilizing the NetPool Data System, the licensees are able to
offer a broad spectrum of services, including sales (services and products), sales
management, formal bid management (B2B/G2B), sub-contracting & strategic alliance
searches, fiscal management, inventory control and regional market analysis. The
Systems name comes from a previous system which primarily emphasized workforce
related services. Substantial business services from modification, revision and
development efforts were added to the system begining in mid 2003 and have continued
through 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each
license holder can create individualized business models through the systems
comprehensive on-line billing functions and generate revenue through system services and
sub-license sales. Typically the licensees charge their customers monthly usage
(subscription fees) and transaction-based fees. The master licensee may also sell
sub-licenses to other entities in their states or vertical markets and provide those
entities with the ability to offer similar services to their customer/member/consumer
base. The market for the NetPool Data System includes any entity that has a customer,
vendor or membership base comprised of small to mid size business enterprises (SMEs).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | IBSG
currently markets the system to state operated Small Business Development Centers (SBDCs),
business organizations (business associations), Internet Service Providers, banking
institutions) and Economic Development projects (including local and state government
agencies).These entities share a common goal to enhance SME growth, secure cost effective
vendor management, and offer a wide range of business services and opportunities to their
business constituents and to generate revenue or recover costs from the provision of such
services. In practice, IBSGs contracts have the opportunity to grow exponentially
over time due to the interrelationships that exist within the foregoing market areas. When
IBSG sells a master license to a state SBDC or state chamber, that entity can sell
sub-licenses to the other vertical markets in their respective states or
markets, from which the Company receives incremental revenue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-2-

| | Each
license holder can create individualized business models through the systems
comprehensive on-line billing functions and generate revenue through system services and
sub-license sales. Typically the licensees charge their customers monthly usage and
transaction-based fees. The master licensee may also sell sub-licenses to other entities
in their states or vertical markets and provide those entities with the ability to offer
similar services to their customer/member/consumer base.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2004 the Company acquired from a related party a current license agreement with business
associations and SBDCs and has been fulfilling the obligations of licensor under new
agreements based on providing substantial business services from modification, revision
and development efforts to the system in mid 2003 through 2004. The Company has also
developed new accounts receivable generated on such licenses.  At the time that the
assets were acquired the accounts receivable balance was approximately $3,983,000. 
Of this amount, $2,500,000 would have been deemed to be deferred revenue of which $1, 100,
000 of revenue would have been recognized for the first quarter of 2004 as deferred
revenue. The balance of $1,483,000 of revenue would have been recognized prior to the time
that the Company acquired these contracts. Due the acquisition from a related party that
had no basis in the generation of the accounts receivable, they have not been recorded.
The Companys position for the quarter ending March 31, 2004 was when or if the
Company receives any cash for the $1,483,000 portion of the accounts receivable, the
Company will recognize an addition to paid in capital. Due to the nature of
government contracts paying slowly, and the largest receivable represented by a state that
has gone through a substantial restructuring, the Company anticipates that payments will
continue to be slow paid over the next 6-8 months. As the result of the majority of the
contract being paid by allocated federal funds, the 5 year contract being paid current on
its maintenance fees and the written commitment by the customer to continue to make
payments as contracted, management feels this contract will be on an accrual basis before
the end of the 3rd quarter of 2004. The Company had determined to recognize
revenue on the remaining lives of the contracts of $2,500,000 in accordance with the
revenue recognition policy in Note 2 of the financial statements filed in the quarter
ending March 31, 2004s quarterly report.  This includes $671,000 of
receivables for the first quarter of 2004 (customization work completed, additional
licenses billed to customer and deferred revenue) which were also not
reflected.   Because of the slow pay nature of these contracts, the sporadic
nature of the prior cash collections since their initiation, the Company had decided to
recognize this revenue as the cash if any is collected.  A number of current contract
assets assumed by IBSG, Inc. have written confirmation from the customer acknowledging the
contract and outstanding payables. Since the period ending March 31, 2004, the Company has
developed a continuous contact with several of the previous customers and through these
contacts as well as the conveyance (implementation) of new licenses by several of the
existing customers through new relationships, or conformation of implementation of new
licenses in 2004, to recognize a portion of the revenue as deferred revenue until such
time as new licenses are conveyed or payments are received. New business with new
customers, qualified as stated in the revenue recognition policy, will be recognized based
on the revenue recognition policies previously stated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-3-

| | The
other subsidiary is called Secure Blue, Inc. Secure Blue markets security software that
meets or exceeds the monitoring needs required by Sarbanes-Oxley legislation. As a result
of the software all sensitive digital files can be tracked and usage of the files can be
monitored by designated compliance officers with in a public company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Secure
Blue seeks to generate revenues from seat licenses, maintenance and monthly subscription
fees related to global monitoring across multiple locations. Secure Blues technology
is based on security software which monitors the key strokes of all users on a network and
has had success in the retail market under the name of Spyware.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Secure
Blue Technology is a revision of the Redland Intl. Technology. The software is under
revision to be dot net capable and the system admin more intuitive. Secure Blue has 2
versions of its software. The first version is referred to as the shrink wrap version and
is projected to be sold by bulk seat price for a single network at $6k / 25 seats. The
enterprise version includes multiple networks and is 100 seat licenses at $25k. The
enterprise version comes with monthly maintenance for the first year and then is $5k per
year there after. Multi network wireless reporting is available at $100/network. The
shrink version monthly maintenance is an additional $1500 annually. Secure Blue is
projecting to make its first shrink wrap sale as Secure Blue of 150 seat license in the UK
before the end of 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Results
of Operations Quarter ended September 30, 2004 and 2003 the Company maintained a
conservative revenue recognition policy related to previously held contracts but has
recognized new business or new licenses activated under previous contracts according to
conservative recognition policies under GAAP. The Company reflected revenues for the
Quarter at $1,017,147 and deferred revenues of $1,177,280, for total revenues of
$1,855,221(deferred pending recognition based on amortization policies previously stated).
There was no revenue recognized in the 2003 quarter. The Company has a revenue back log
built through the deferral of revenue and has a projection for the 4th quarter
ending December 31, 2004 of $1,025,000 BEFORE any new business is recorded or expansion of
existing contracts through current customer sub-license and subscription sales. The
deferred revenue back log is projected to continue to build do to the nature of the
Companys business and the aggressive start up of new subsidiary, Secure Blue. The
Company has also expanded its market exposure to include the European market. The
Company projects to close its first contract in the United Kingdom (UK) before the
end of FY 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company had operating expenses of $814,818 in the 3rd Q and a total of
$4,967,953 in the first nine months of 2004. The expenses for the first nine months of
2003 were 113,925.00 and $65,042 in the 3rdquarter of 2003.  The expenses
we incurred in 2004, were primarily services paid for with issuance of common stock,
amortization of consulting services, depreciation, general and administrative expenses and
bad debt expense from the write off of a receivable and extinguishment of related party
debt. The payment of services paid with common stock, amortization/depreciation and
extinguishment of related party debt were a non cash charge to the Companys
operations, totaling $4,073,988, for the nine months ended September 2004. 2003s
expenses were general and administrative. This reflects an operating profit for the
3rd quarter of $814,467. The Company has incurred cumulative operating gain in
3rd Q of 2004 of $198,424, a net operating loss of $3,301,652 for the nine
month period. In 3rd Q 2003, the operating loss was $65,042; the nine month
period ending September 30, 2003 was $113,925. The operating loss in 2004 is due to non
recognition of some revenue and non cash charges to the Companys operations of
$4.967,953.. Cash flow was dramatically affected primarily due to the Companys main
headquarters being affected by three major hurricanes. This negatively affected the
ability of personnel to collect on receivables due to substantial loss of operational days
during the quarter.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-4-

Liquidity
and Capital Resources

| | The
Company undertook a private placement of its common stock from January to September 2004.
As of September 30, 2004 the company received cash of $1,786,555.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
of the accumulated loss is attributed to payment of stock in exchange for services in
building the Company, and management does not anticipate that this will negatively impact
the Companys year-end projections of operating earnings.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that it will begin to collect the substantial receivables from its
customers and will have sufficient other capital resources available to continue as a
going concern. However, it has no agreements for additional capital and may have to
curtail its operations if sufficient capital is not received from its operations or
otherwise.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

| | The
SEC has recently issued Financial Reporting Release No. 60, Cautionary Advice
Regarding Disclosure About Critical Accounting Policies (FRR 60),
suggesting companies provide additional disclosure and commentary on those accounting
policies considered most critical. 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 as
contemplated by FRR 60. Revenue Recognition, Recognition of revenue on the Companys
software licenses requires estimates of the amounts to be recognized in the current period
and estimates as set forth in Note 2 to the financial statements filed with this quarterly
report. Allowance for Doubtful Accounts and Sales Returns We maintain an allowance for
doubtful accounts and a sales return allowance to reduce amounts to their estimated
realizable value. A considerable amount of judgment is required when we assess the
realization of accounts receivables, including assessing the probability of collection and
the current credit-worthiness of each customer.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RELATED
PARTY TRANSACTIONS

| | The
Companys enterprise solutions software is owned by M & K Trust, the
Companys largest shareholder, and is provided to the Company pursuant to an
agreement to pay M & K Trust $1,000,000 in 120 monthly installments of $12,132.76
until November 30, 2015.  Such obligation is secured by substantially all of the
Companys assets. M&K Trust is a trust controlled by the wife of the president of
the Company. The Company also acquired from M & K Trust the rights as licensor under
certain license agreements which provide substantially all of the Companys
revenues.  The Company also acquired certain accounts receivable generated under such
license agreements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-5-

| | In
June of 2004, the note of the Trust was settled for 1,500,000 of restricted stock and a
substantially reduced cash payment to be paid in 2 payments in 2004 and 2005 of $125,000
per payment. This retired $800,000 (approx.) of debt.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | uncertain
commercial acceptance of our products;
| | - | ------------------------------------------------

| | o | technological
obsolescence; and
| | - | -------------------------------

| | o | competition
| | - | -----------

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

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

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

-6-

ITEM 3.  CONTROLS
AND PROCEDURES

| | The
Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to
the Companys management, including its Chief Executive Officer and Executive and
Accounting Officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of disclosure controls and
procedures in Rule 13a-14(c). In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of the end of the period covered in this report, the Company carried out an evaluation,
under the supervision and with the participation of the Companys Executive and
Accounting Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on the foregoing, the Companys Executive
and Accounting Officer concluded that the Companys disclosure controls and
procedures were effective.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
have been no significant changes in the Companys internal controls or in other
factors that could significantly affect the internal controls subsequent to the date the
Company completed its evaluation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-

# PART II. OTHER
INFORMATION

# ITEM 2. CHANGES IN
SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Recent
sales of unregistered securities  from July 1, 2004 to September 30, 2004 the
Company issued 80,000 to four investors in a private
placement
of its common stock.  As a result the Company sold 3,754,299 shares in the offering
for $.25 to $.50 per share.  The offering was limited to persons who are Accredited
Investors as defined in SEC Regulation D.

| | In
connection with such sales the Company issued 343,132 shares of its common stock to
Westcap Securities, Inc. as placement agent compensation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K   (a) Exhibits:

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

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

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

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

| | (b) | Reports
on Form 8-K:None
| | --- | ------------------------

| |  | 
| |  | 

-8-

SIGNATURES

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

IBSG INTERNATIONAL, INC.

/s/ Michael Rivers President (Principal
executive officer)

/s/Geoffrey Birch  Treasurer (Principal
accounting officer)