# 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:
                 
                 
                 
June 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 [ ] NO [X]

# 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:34,636,631 as of July 27, 2004

Transitional Small
Business Format:No

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

F-1

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

ASSETS

|                                      | June 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           | June 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; 35,803,499 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 Six Months Ended
June 30, | For the Three Months Ended
June 30, |   |           
|--------------------------------------- | --------------------------------- | ----------------------------------- | - | ----------
|
|REVENUES                                |                                   |                                     | $ | 838,074   
|                                        |                                   |                                     |   |           
|EXPENSES                                |                                   |                                    
|Cost of Sales                           |                                   |                                     |   | 10,980    
|Bad debt expense                        |                                   |                                     |   | 264,539   
|Services paid for with common stock     |                                   |                                     |   | 3,124,502 
|Amortization and depreciation           |                                   |                                     |   | 170,583   
|General and administrative              |                                   |                                     |   | 582,531   
|                                        |                                   |                                     |   |           
|Total Expenses                          |                                   |                                     |   | 4,153,135 
|                                        |                                   |                                     |   |           
|Income (Loss) from operations           |                                   |                                     |   | (3,315,061
|                                        |                                   |                                     |   |           
|OTHER EXPENSES                          |                                   |                                    
|Loss on extinguishment of related party |                                   |                                    
|debt                                    |                                   |                                     |   | (156,765  
|Interest expense                        |                                   |                                     |   | (28,250   
|                                        |                                   |                                     |   |           
|Total Other Expenses                    |                                   |                                     |   | (185,015  
|                                        |                                   |                                     |   |           
|NET LOSS                                |                                   |                                     | $ | (3,500,076
|                                        |                                   |                                     |   |           
|BASIC LOSS PER SHARE                    |                                   |                                     | $ | (0.13     
|                                        |                                   |                                     |   |           
|WEIGHTED AVERAGE NUMBER OF              |                                   |                                    
|SHARES OUTSTANDING                      |                                   |                                     |   | 27,795,623
|                                        |                                   |                                     |   |           

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 Six Months Ended
June 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 and 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:             |                                   | 
|Cash overdraft                                    |                                   | 
|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 Six Months Ended
June 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 June 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 six months
ending, June 2003 and June 30, 2004 as well as the three months ended June 30, 2004 and
2003 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 June 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 June 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 provide 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 seek to (1) market the acquired 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 assets consisted of 650,000 shares of
common stock valued at $0.56 per share totaling $364,000 and; $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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8

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

# NOTE 2  CRITICAL
ACCOUNTING POLICIES (Continued)

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

| | recognize
license revenues when all of the following criteria are met: persuasive evidence of an
arrangement exists, the fee is fixed or determinable, collection of the related
receivables is 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
(conveyance) 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 is 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

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

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

# NOTE 2  CRITICAL
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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

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

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

# NOTE 2  CRITICAL
ACCOUNTING POLICIES (Continued)

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

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

| | We
maintain an allowance for doubtful accounts and a sales return allowance to reduce amounts
to their estimated realizable value. A considerable amount of judgment is required when we
assess the realization of accounts receivables, including assessing the probability of
collection and the current credit-worthiness of each customer. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, an additional provision
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | for
doubtful accounts may be required. We initially record a provision for doubtful accounts
based on our historical experience, and then adjust this provision at the end of each
reporting period based on a detailed assessment of our accounts receivable and allowance
for doubtful accounts. In estimating the provision for doubtful accounts, we consider (i)
the type of entity (government, commercial, retail) and the aging of the accounts
receivable; (ii) trends within and ratios involving the age of the accounts receivable;
(iii) the customer mix in each of the aging categories and the nature of the receivable,
such as whether it derives from license, professional services or maintenance revenue;
(iv) our historical provision for doubtful accounts; (v) the credit worthiness of the
customer; and (vi) the economic conditions of the customers industry, whether the entity
is government, as well as general economic conditions, among other factors.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

F-11

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

| | During
the quarter ended June 30, 2004, the Company recognized $838,074 of revenue. These
licenses which were activated resulted in accounts receivable of $1,730,000 and deferred
revenue of $904,426 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.
| | -------------------------------------------------------------------------------------------------------------------

# 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12

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

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

# NOTE 3  EQUITY
ISSUANCES (Continued)

| | During
February 2004, the Company issued 880,966 shares of common stock for cash of $393,290
pursuant to private placements. The shares were valued at an average price of $0.45 per
share. During February 2004, the Company issued 250,000 shares of common stock as stock
offering costs. The shares were valued at $1.40 per share, which was the closing price on
the date of issue. The costs associated with the stock offering costs were deducted from
additional paid in capital.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

F-13

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

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

# 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, this was the closing price on the date of issue. Deferred consulting
expenses of $134.813 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 assets
of Redhand International. 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14

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

| | During
June 2004, the Company issued 475,724 shares of common stock for deferred consulting
services. The shares valued at $0.45. per share, this 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. The shares valued at $0.45. per share, this 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, this 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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
June 30, 2004 of $3.702,066. Revenues were sufficient to cover its operating costs and to
allow it to continue as a going concern. Loss was principally from issuance of common
stock in exchange for services. 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 through current and future business of the Company but can provide no
assurances of a continuing concern.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15

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

# NOTE 5  SUBSEQUENT
EVENTS

| | Subsequent
to June 30, 2004, the Company issued 324,132 shares of common stock for services rendered.
| | -----------------------------------------------------------------------------------------------------

F-16

ITEM
2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS

| | 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 elect additional changes to revenue recognition to comply with the most conservative
SEC recognition on a forward going accrual basis as the model is replicated with other
similar markets (i.e. SBDC).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The 
Company 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 Mastered 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, regional market analysis and employment
services.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 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).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17

| | IBSG
currently markets the system to state operated Small Business Development Centers (SBDCs),
business organizations (business associations), Internet Service Providers, financial
institutions), Economic and Workforce Development projects (including local and state
government agencies), and educational institutions (i.e. community colleges,
universities). 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 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company completed a transaction for the assets of RedHand International which included
security software and a channel partner contract. The Company then formed a new
subsidiary, Secure Blue, Inc, The Company will make various technology adaptations
utilizing the identical programming methodology and technical staff from IBS Group, Inc
(the Companys other subsidiary) to provide a robust solution for Sarbaines-Oxley
Compliance. Secure Blue will market the software solution initially to small cap public
companies.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Both
subsidiaries will cross market their products into each others markets and will create
enterprise solutions which include functionality of both products. Additionally, the
companies will provide an internet based solution that will provide the market with the
ability to lease functionality form a central server on a file-user based fee.
This will produce another mechanism for market access to the Companys products and
create a continuous revenue stream through continuous use. Cost to deliver the various
solutions is projected to be less than 10% of the revenue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2004 the Company acquired from a related party the current license agreements with
business associations and SBDCs and has been fulfilling the obligations of licensor under
new agreements as well as 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 was 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18

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

| | Results
of Operations Quarter ended June 30, 2004 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 $830, 000 and
deferred revenues of $904,426 for total revenues of $1,730,000 (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 projected revenue recognition for the 3rd quarter
ending September 2004 of $860,061 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 the new subsidiary, Secure Blue.
The Company has also expanded its 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 the FY 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19

| | The
Company had operating expenses of $ 593,511 in the 2Q and a total of $4,338,150 in the
first six months of 2004. Expenses for the first six months of 2003 were $48,883 and
$43,883 in the 2003 2ndQ The expenses in 2004 were primarily services paid for with
issuance of common stock, amortization of consulting services,
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | depreciation,
general and administrative expenses, bad debt expense from the write off of a receivable
and extinguishment of related party debt. The payments for services paid with common
stock, amortization/depreciation were a non cash charge to the Companys operations,
totaling $3,295,085. For the six months ended June 30, 2004. 2003s expenses were
general and administrative. This reflects an operating profit for the 2nd
quarter of $311,000. The Company has incurred cumulative operating losses in
2nd Q of 2004 of $109,509, a net operating loss of $3,500,076 for the six month
period. In 2nd Q 2003, the operating loss was $43,883; the period ending June
30, 2003 was $48,883. The operating loss in 2004 is due to non recognition of some revenue
and non cash charges to the Companys operations of $3,295,085.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Liquidity
and Capital Resources
| | -------------------------------

| | The
Company undertook a private placement of its common stock from January to July 2004. As of
June 30, 2004 the company received cash of $1,746,555 and received additional proceeds
from the placement in July 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
of the loss is attributed to the 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 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-20

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

F-21

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

# 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22

# PART II. OTHER
INFORMATION

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

| | Recent
sales of unregistered securities from January 1 2004 to June 30, 2004. The Company
undertook a private placement of its common stock.  As a result the Company sold
3,674,299 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.  The
total offering price of the shares was $1,746,555 and the Company paid sales commissions
of $ 209,483 in connection with the offering.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the offering, the Company agreed to issue additional shares to investors if the
Companys common stock traded at a bid price of less than $1.00 per share on
March 31, 2004.  Since the Companys stock price did not maintain that level on
March 31, 2004 the Company was required to issue an additional 664,030 shares of its
common stock in the offering.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with such sales the Company issued 324,132 shares of its common stock to
finders and $_145,859_ for placement agent fees.  The Company engaged Westcap
Securities, Inc. as placement agent for a portion of sales and finders for the remainder.
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 January 2004, the
Company issued 50,000 shares of common stock for services relating to the reverse
merger.  During January 2004, the Company issued 5,895,000 shares of common stock to
several entities for deferred consulting services. During January 2004, the Company issued
840,000 shares of common stock to several individuals for services rendered.  During
February 2004, the Company issued 43,500 shares of common stock for the extinguishments of
debt valued at $43,065.  During February 2004, the Company issued 1,417,104 shares of
common stock to several individuals for services rendered. The foregoing shares were
exempt from registration under the Securities Act of 1933 pursuant to the exemption of
Section 4(2) for offerings not involving any public offering.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004 the Company issued 650,000 shares of common stock for the acquisition of assets
of Redhand International. During April 2004, the Company issued 2,068 shares of common
stock and June 2004 475,724 shares to several entities for deferred consulting services.
During the April 2004, the Company issued 20,000 shares of common stock to several
individuals for services rendered. The foregoing shares were exempt from registration
under the Securities Act of 1933 pursuant to the exemption of Section 4(2) for offerings
not involving any public offering.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the company went into an agreement with M&K Trust to issue in 1,500,000
shares of common stock for the extinguishment of related party debt.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2004, the company canceled 1,047,000 shares to one entity for deferred consulting
services; these shares may be reissued at a future date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

F-23

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

| |   
| | --
| | 31
| |   
| | 32
| |   
| | 32

(b)   Reports on Form 8-K:
Company filed a Report on Form 8K on April 12, 2004, reporting under items 7 and 12

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.BY: /s/ Michael Rivers Michael Rivers President (Principal
executive officer)BY: /s/ Geoffrey BirchGeoffrey BirchTreasurer (Principal
accounting officer)
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------