**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**(Mark One)**

| **ý**                                                                        | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|
| ** **                                                                        | ** ** | ** **                                                                                        |
| **For the quarterly period ended March 31,  2006**                           |
| ** **                                                                        | ** ** | ** **                                                                                        |
| **o**                                                                             | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                    |
| ** **                                                                        | ** ** | ** **                                                                                        |
| **For the transition period from          to** |
| ** **                                                                        | ** ** | ** **                                                                                        |
| **Commission file number:  000-25523**                                            |

 

**PBS Holding, Inc.**

(Exact name of small business issuer asspecified in its charter)

 

| **NEVADA**                                                             | ** ** | **86-0857752**                     |
|------------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation of organization)        |       | (IRS Employer  Identification No.) |
|                                                                   |       |                               |
| **433 Kitty Hawk Drive, Suite 226,  Universal City, Texas 78148** |
| (Address of principal  executive office)                               |
|                                                                   |       |                               |
| **(210) 658-4675**                                                     |
| (Issuer’s telephone  number)                                      |

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

Yes ý                                                             No o

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

Yes o                                                             No ý

 

Thenumber of outstanding shares of the issuer’s common stock, $0.001 par value(the only class of voting stock), as of March 31, 2006 was 11,389,539.

 
| Transitional Small Business Disclosure Format |   | Yes o                    No  ý |
|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|

 

 

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**PBS HOLDING, INC.**

**TABLE OF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION** |
|----------------------------------------------|
| ** **                                   | ** ** | ** ** |   |   |
| **Item  1.**                                 | ** ** | **Financial  Statements** |   |   |
|                                         |   |   |   |   |
|                                         |   | a. | Basis of Presentation |   |   |
|                                         |   |   |   |   |   |
|                                         |   | b. | Balance Sheet |   |   |
|                                         |   |   |   |   |   |
|                                         |   | c. | Statements of Operations and  Comprehensive Income |   |   |
|                                         |   |   |   |   |   |
|                                         |   | d. | Interim Statement  of Stockholder’s Equity |   |   |
|                                         |   |   |   |   |   |
|                                         |   | e. | Statements of Cash Flows |   |   |
|                                         |   |   |   |   |   |
|                                         |   | f. | Notes to Interim  Financial Statements |   |   |
|                                         |   |   |   |   |
| **Item 2.**                                  | ** ** | **Management’s Discussion and  Analysis or Plan or Operations** |   |   |
|                                         |   |   |   |   |
| **Item  3.**                                 | ** ** | **Controls  and Procedures** |   |   |
|                                         |   |   |   |   |
| **PART II – OTHER INFORMATION**    |
|                                         |   |   |   |   |
| **Item 1.**                                  | ** ** | **Legal  Proceedings** |   |   |
|                                         |   |   |   |   |
| **Item 2.**                                  | ** ** | **Unregistered Sales of Equity  Securities and Use of Proceeds** |   |   |
|                                         |   |   |   |   |
| **Item 3.**                                  | ** ** | **Defaults upon Senior  Securities** |   |   |
|                                         |   |   |   |   |
| **Item 4.**                                  | ** ** | **Submissions of Matters to a  Vote of Security Holders** |   |   |
|                                         |   |   |   |   |
| **Item 5.**                                  | ** ** | **Other  Information** |   |   |
|                                         |   |   |   |   |
| **Item 6.**                                  | ** ** | **Exhibits and Reports on Form 8-K** |   |   |

 

2

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**PART I - FINANCIALINFORMATION**

 

**ITEM 1.****                                                    ****FINANCIAL STATEMENTS**

 

**Basis of Presentation**

 

Asused herein, the term the “Company” refers to PBS Holding, Inc., a Nevadacorporation, its subsidiaries and predecessors unless otherwise indicated. Unauditedconsolidated condensed interim financial statements including a ConsolidatedBalance Sheet for the Company as of the quarter ending March 31, 2006 andConsolidated Statements of Operations and Comprehensive Income, and ConsolidatedStatements of Cash Flows for the interim period up to the date of such balancesheet and the comparable period of the preceding year for the statement ofoperations are attached hereto and are incorporated herein by this reference.

 

Theaccompanying unaudited Consolidated Financial Statements are presented inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and the instructions for Form 10-QSBand Item 310(b) of Regulation S-B. Accordingly, they do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States of America for complete financial statements. Theaccompanying statements should be read in conjunction with the auditedfinancial statements for the years ended December 31, 2005 and December 31,2004. In the opinion of management, all adjustments (consisting only of normaloccurring accruals) considered necessary in order to make the financialstatements not misleading have been included. Operating results for the threemonths ended March 31, 2006 are not necessarily indicative of results thatmay be expected for the year ended December 31, 2006. The financialstatements are presented on the accrual basis with significant inter-companytransactions and balances eliminated.

 

3

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**PBS HoldingInc. & Subsidiaries**

Unaudited Consolidated Condensed Interim

Balance Sheet

As of March 31, 2006

 

ASSETS

 
| Current assets                   |   |     |    |
|---------------------------------------|--------|----------|---------|
|                                  |   |     |    |
| Cash                                  |   | $        | 128,179 |   |
| Notes  receivable - related party     |   | 141,028  |    |
| Client  accounts receivable           |   | 153,008  |    |
| Deposit -  pending Heart acquisition  |   | 50,000   |    |
| Worker  compensation prepaid premiums |   | 167,986  |    |
| Employee  Advances                    |   | 1,007    |    |
| Prepaid  expenses                     |   | 2,841    |    |
|                                  |   |     |    |
| Total  Current Assets                 |   | 644,048  |    |
|                                  |   |     |    |
| Property &  Equipment        |   |     |    |
|                                  |   |     |    |
| Furniture &  Fixtures        |   | 55,472   |    |
| Computer  equipment                   |   | 103,116  |    |
| Vehicles                              |   | 15,486   |    |
| Payroll  software                     |   | 43,724   |    |
|                                  |   |     |    |
|                                  |   | 217,797  |    |
| (Less)  accumulated depreciation      |   | (167,215 | )       |
|                                  |   |     |    |
| Total Property &  Equipment  |   | 50,583   |    |
|                                  |   |     |    |
| Other assets                          |   |     |    |
|                                  |   |     |    |
| Security  deposits                    |   | 1,560    |    |
| Customer  list, net of amortization   |   | 6,000    |    |
|                                  |   |     |    |
| Total Other  Assets                   |   | 7,560    |    |
|                                  |   |     |    |
| Total Assets                          |   | $        | 702,191 |   |

 

4

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LIABILITIES

 
| Current  liabilities                                             |   |       |    |
|------------------------------------------------------------------|--------|------------|---------|
|                                                             |   |       |    |
| Accounts  payable                                                |   | $          | 184,397 |   |
| Checks drawn  on uncollected payroll                             |   | 90,392     |    |
| Deferred  revenue on payrolls                                    |   | 7,350      |    |
| Client  payroll tax payable                                      |   | 657,068    |    |
| Client  payroll amount withheld                                  |   | 8,743      |    |
| Workers comp  payable                                            |   | 87,704     |    |
| Current  maturities on long term debt                            |   | 18,750     |    |
| Due to  shareholder/officer                                      |   | 117,501    |    |
|                                                             |   |       |    |
| Total  Current Liabilities                                       |   | 1,171,906  |    |
|                                                             |   |       |    |
| Other  liabilities                                               |   |       |    |
|                                                             |   |       |    |
| Note  payable, net of current portion                            |   | 16,667     |    |
|                                                             |   |       |    |
| Total  Liabilities                                               |   | 1,188,573  |    |
|                                                             |   |       |    |
| Stockholders’  Equity (Deficiency)                          |   |       |    |
|                                                             |   |       |    |
| Common  stock, - $.001 par value authorized - 750,000,000 shares |   |       |    |
| Issued and  outstanding 11,389,539 shares                        |   | 11,390     |    |
| Paid in  excess of par                                           |   | 1,359,743  |    |
| Accumulated  (deficit)                                           |   | (1,857,515 | )       |
|                                                             |   |       |    |
| Total  Stockholders’ Equity (Deficiency)                    |   | (486,382   | )       |
|                                                             |   |       |    |
| Total  Liabilities and Stockholders’ Equity (Deficiency)    |   | $          | 702,191 |   |

 

5

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**PBS HoldingInc. & Subsidiaries**

Unaudited Consolidated Condensed Interim

Statement of Operations

For the Three Months Ended March 31,2006 and 2005

 
| ** **                                             | ** ** | **Current Quarter** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|
| ** **                                             | ** ** | **2006**                 | ** ** | **2005** | ** ** |
|                                                   |       |                     |       |   |   |
| Revenues                                               |       | $                        | 1,229,840  |   | $ | 1,022,404 |   |
| Cost Of  Revenues                                      |       | 836,969                  |       | 749,616 |   |
| Gross Profit                                           |       | 392,871                  |       | 272,788 |   |
|                                                   |       |                     |       |   |   |
| Operating  Expenses                                    |       |                     |       |   |   |
| General and  Administrative                            |       | 333,423                  |       | 165,557 |   |
| Wages,  commissions & salaries                |       | 146,304                  |       | 145,940 |   |
| Officers’  compensation                           |       | 80,553                   |       | 39,394 |   |
|                                                   |       | 560,280                  |       | 350,891 |   |
|                                                   |       |                     |       |   |   |
| (Loss) from  Operations                                |       | (167,409                 | )          | (78,103 | ) |
|                                                   |       |                     |       |   |   |
| Other Income &  Expense                       |       |                     |       |   |   |
| Consulting  expenses                                   |       | (21,600                  | )          | (7,500 | ) |
| Acquisition  costs                                     |       | (28,800                  | )          |   |   |
| Employee  services paid with stock options             |       | (7,480                   | )          |   |   |
| Non employee  services paid with stock warrants        |       | (36,706                  | )          |   |   |
| Non employee  services paid with stock                 |       | (136,176                 | )          |   |   |
|                                                   |       |                     |       |   |   |
| Total Other  Income & (Expenses)              |       | (230,762                 | )          | (7,500 | ) |
|                                                   |       |                     |       |   |   |
| (Loss)  Before Provision For Income Tax                |       | (398,171                 | )          | (85,603 | ) |
|                                                   |       |                     |       |   |   |
| Provision  For Income Taxes                            |       | —                   |       | — |   |
|                                                   |       |                     |       |   |   |
| Net (Loss)                                             |       | $                        | (398,171   | ) | $ | (85,603 | ) |
|                                                   |       |                     |       |   |   |
| Basic &  Diluted Net (loss) Per Share         |       | $                        | (0.0359    | ) | $ | (0.0080 | ) |
|                                                   |       |                     |       |   |   |
| Basic and  Diluted Weighted Average Shares Outstanding |       | 11,092,540               |       | 10,718,843 |   |

 

6

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**PBS HoldingInc. & Subsidiaries**

Unaudited Consolidated Condensed Interim

Statement of Stockholders’Equity (Deficiency)

For the Period Ended March 31, 2006

 
| ** **                             | ** ** | ** **            | ** ** | ** **   | ** ** | **Additional**  | ** ** | ** **    | ** ** | **Total**        | ** ** |
|----------------------------------------|------------|-----------------------|------------|--------------|------------|-----------------|------------|---------------|------------|------------------|------------|
| ** **                             | ** ** | **Common Stock** | ** ** | **Paid-In-** | ** ** | **Accumulated** | ** ** | **Equity**    | ** ** |
| ** **                             | ** ** | **Shares**            | ** ** | **Amount**   | ** ** | **Capital**     | ** ** | **(Deficit)** | ** ** | **(Deficiency)** | ** ** |
|                                   |       |                  |       |         |       |            |       |          |       |             |       |
| Balance December 31,  2005        |       | 10,922,253            |       | $            | 10,922     |            | $          | 1,139,849     |       | $                | (1,459,344 | ) | $ | (308,573 | ) |
|                                   |       |                  |       |         |       |            |       |          |       |             |       |
| Sale of  stock                         |       | 100,000               |       | 100          |       | 39,900          |       |          |       |             |       |
| Warrants  exercised in current quarter |       | 167,286               |       | 168          |       | 15,508          |       |          |       |             |       |
| Stock issued  for consulting services  |       | 200,000               |       | 200          |       | 120,300         |       |          |       |             |       |
| Stock  warrants granted:               |       |                  |       |         |       |            |       |          |       |             |       |
| Stock  warrants and options provided:  |       |                  |       |         |       |            |       |          |       |             |       |
| Non employee  services                 |       |                  |       |         |       | 36,706          |       |          |       |             |       |
|                                   |       |                  |       |         |       |            |       |          |       |             |       |
| Employee  services                     |       |                  |       |         |       | 7,480           |       |          |       |             |       |
| Net (Loss)                             |       |                  |       |         |       |            |       | (398,171      | )          | (398,171         | )          |
|                                   |       |                  |       |         |       |            |       |          |       |             |       |
| Balance March 31,  2006           |       | 11,389,539            |       | $            | 11,390     |            | $          | 1,359,743     |       | $                | (1,857,515 | ) | $ | (706,744 | ) |

 

7

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**PBS HoldingInc. & Subsidiaries**

Statements Of Cash Flow

For The Quarter Ended March 31, 2006 and2005

 
| ** **                                                                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net Income                                                                                      |       | $        | (398,171   | )        | $          | (85,603 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used by) operating  activities: |       |     |       |     |       |
| Depreciation  and amortization                                                                       |       | 8,846    |       | 7,802    |       |
| (Increase)  decrease in accounts receivable                                                          |       | 13,219   |       | (41,193  | )          |
| (Increase)  decrease in prepaid expense                                                              |       | 174      |       | (14,385  | )          |
| (Increase)  decrease in other current assets                                                         |       | 43,712   |       | (3,264   | )          |
| (Increase)  decrease in other assets                                                                 |       | 0        |       | (146     | )          |
| Increase  (decrease) in accounts payable                                                             |       | 82,935   |       | 44,789   |       |
| Increase  (decrease) in client payroll tax liability                                                 |       | 153,390  |       | (8,157   | )          |
| Deferred  revenue on payrolls                                                                        |       | 229      |       | 94,657   |       |
| Increase  (decrease) in other current liabilities                                                    |       | (34,052  | )          | 7,806    |       |
| Checks drawn  on uncollected payrolls                                                                |       | (29,635  | )          | 18,484   |       |
| Non cash  expense for consulting services                                                            |       | 172,882  |       | 0        |       |
| Non cash  expense for employee services                                                              |       | 7,480    |       | 0        |       |
|                                                                                                 |       |     |       |     |       |
| Total  Adjustments                                                                                   |       | 419,180  |       | 106,393  |       |
|                                                                                                 |       |     |       |     |       |
| Net cash  provided by (used in) operating activities                                                 |       | 21,009   |       | 20,790   |       |
|                                                                                                 |       |     |       |     |       |
| Cash flows  from investing activities                                                                |       |     |       |     |       |
| Payments for  the purchase of property                                                               |       | (3,394   | )          | —   |       |
|                                                                                                 |       |     |       |     |       |
| Net cash  provided by (used in) investing activities                                                 |       | (3,394   | )          | —   |       |
|                                                                                                 |       |     |       |     |       |
| Cash flows  provided by (used in) from financing activities                                          |       |     |       |     |       |
| Net borrowings  under line of credit                                                                 |       | (7,898   | )          | (7,804   | )          |
| Principal  payments on short-term debt                                                               |       | (6,250   | )          | 0        |       |
| Due to  shareholders/officers                                                                        |       | 0        |       | (45      | )          |
| Stock sales                                                                                          |       | 40,000   |       | 0        |       |
|                                                                                                 |       |     |       |     |       |
| Net cash  provided by (used in) financing activities                                                 |       | 25,852   |       | (7,849   | )          |
|                                                                                                 |       |     |       |     |       |
| Net increase  (decrease) in cash and cash equivalents                                                |       | 43,467   |       | 12,941   |       |
| Cash and  cash equivalents at beginning of year                                                      |       | 84,712   |       | 185,484  |       |
|                                                                                                 |       |     |       |     |       |
| Cash and  Cash equivalents at end of quarter                                                         |       | $        | 128,179    |     | $          | 198,425 |   |

 

8

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| ** **                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |
| Supplemental  Information              |       |     |       |     |       |
|                                   |       |     |       |     |       |
| Cash  payments for interest expense    |       | $        | 3,048      |     | $          | 754 |   |
| Cash  payments for income taxes        |       | —   |       | —   |       |
|                                   |       |     |       |     |       |
| Non cash  items                        |       |     |       |     |       |
|                                   |       |     |       |     |       |
| Warrants  exercised in current quarter |       | $        | 15,676     |     | $          | — |   |
| Stock issued  for consulting services  |       | 120,500  |       |     |       |
|                                   |       |     |       |     |       |
| Stock  warrants granted:               |       |     |       |     |       |
| For  non-employee services             |       | 36,706   |       |     |       |
| Stock  options awarded:                |       |     |       |     |       |
| For employee  services                 |       | 7,480    |       |     |       |
|                                   |       |     |       |     |       |
| Total Non  Cash Items                  |       | $        | 180,362    |     | $          | — |   |

 

9

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**PBS Holding Inc. and Subsidiaries**

**Notes to Unaudited Consolidated CondensedInterim Financial Statements**

**March 31, 2006**

 

#### **NOTE 1 – BASIS OF PRESENTATION**

 

The condensed interimfinancial statements at March 31, 2006 are unaudited, but include alladjustments that the Company considers necessary for a fair presentation.

 

The accompanying unauditedfinancial statements are for the interim periods and do not include alldisclosures normally provided in annual financial statements, and should beread in conjunction with the Company’s Form 10-KSB for the year ended December 31,2005. The accompanying unaudited interim financial statements for the currentquarter and year to date ended March 31, 2006, are not necessarilyindicative of the results that can be expected for the entire year. Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

#### **NOTE 2 – SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

The Company has consolidatedthe financial statements of its wholly owned subsidiaries, Primary BusinessSystems, LLC, Primary HR Services, LLC and AHJR Inc., dba/Concord StaffingServices in these financial statements. All significant intercompanytransactions have been eliminated.

 

All significant accountingpolicies as previously disclosed with the annual financial statements for theyears ended December 31, 2005 and 2004 remain unchanged.

 

#### **NOTE 3 – CHANGE IN STOCKHOLDERS’EQUITY**

 

The statement of changes instockholders’ equity is reported in these financial statements and disclosesthe transactions as they were incurred in the three months ended March 31,2006. These warrants and stock transactions are issued in reliance upon theexemption provided by Section 4(2) of the Securities Act and/or Rule 506of Regulation D.

 

The fair values of thewarrants granted are reported as equity grants using the guidance of SFAS 123Rand are computed using the Black-Scholes Model. The fair values of therestricted stock issued are reported using the guidance of SFAS 123R and arecomputed using the fair market value of non restricted common stock at thetimes of issue reduced by what management recognizes as a fair considerationbased on the nature of the restriction placed on the stocks issued.

 

**WarrantsGranted**

 

On January 1, 2006 theCompany entered into a contract with a non-employee consultant to provideservices in which the consultant receives warrants with a cashless option topurchase 70,000 shares of common stock each month for three months ending March 31,2006 for a total of 210,000 shares of common stock. The exercise price of thewarrants is $0.43 with a term of two years from the date of each issuance. Theholder may, at its option, affect a cashless exercise by exchanging warrantsfor shares of common stock pursuant to the formula set forth in the terms ofthe warrants.

 

10

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On February 8, 2006 theCompany agreed to issue warrants with a cashless option to purchase anaggregate of 450,000 shares of common stock to the Company’s legal firm inexchange for legal services. The exercise price of such warrants is $0.60 andsuch warrants are immediately exercisable for a five-year term. The holder may,at its option, affect a cashless exercise by exchanging warrants for shares ofcommon stock pursuant to the formula set forth in the terms of the warrants.

 

On March 8, 2006 theCompany agreed to issue warrants with a cashless option to purchase 75,000shares of common stock to a company providing public relation services to theCompany. The warrants are exercisable at a per share price of $0.67 for aperiod of four years. The holder may, at its option, affect a cashless exerciseby exchanging warrants for shares of common stock pursuant to the formula setforth in the terms of the warrants.

 

StockIssued for Warrants Exercised

 

During the quarter ended March 31,2006 the holders of warrants exercised their rights to acquire 167,286 sharesof common stock, which were valued at $15,676 in excess of the amountrecognized in the prior year when the warrants were granted.

 

The remaining warrantsgranted and outstanding as of March 31, 2006 are for 899,375 shares ofcommon stock.

 

StockIssued for Services

 

On March 7, 2006 theCompany issued 50,000 shares of restricted common stock valued at the closingprice of the stock on the same day, which was $0.65 per share, or $32,500, to anon-employee. The stock was issued pursuant to a placement agency agreementwith a broker-dealer with a private placement for financing.

 

On March 20, 2006 theCompany issued 150,000 shares of restricted common stock valued at the closingprice of the stock on the same day of issued and reduced for the nature ofrestriction placed on the stock, or $0.587 per share totaling $88,000, to anon-employee. The stock was issued pursuant to a placement agency agreementwith a broker-dealer with a private placement for financing

 

StockOptions Awarded

 

On March 29, 2006 theCompany entered into a five year contract with Patrick Matthews, President andChief Executive Officer of the Company, effective January 2006. The stockoptions are made available on a monthly basis in a value equal to thedifference of the base salary and monies actually paid. Mr. Matthewsearned 7032 shares of common stock each month for three months ended March 31,2006 for a total of 21,095 shares of common stock. None of these options havebeen exercised as of March 31, 2006.

 

On March 29, 2006 theCompany entered into a five year contract with Amanda Sinclair, Executive VicePresident and Chief Operating Officer of the Company, effective January 2006.The stock options are made available on a monthly basis in a value equal to thedifference of the base salary and monies actually paid. Mrs. Sinclairearned 1,549 shares of common stock each month for three months ended March 31,2006 for a total of 4,647 shares of common stock.

 

The Company recognized andadditional officer compensation expense of $7,480 as result of the optionsearned for the quarter ended March 31, 2006.

 

11

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StockIssued for Cash

 

During February 2006,the Company sold 100,000 shares of common stock to investors at $0.40 per sharewith warrants to purchase an additional 25,000 shares at a purchase price of$0.40. The warrants are immediately exercisable for a two year period at a pershare exercise price of $0.40. The Company received the full $40,000 for theshares of stock sold. The fair value of these warrants granted with the issueof this common stock sold is equal the purchase price of $0.40. Therefore, nofair value has been recognized for these stock warrants granted to buy anadditional 25,000 shares of common stock.

 

#### **NOTE 4 – RELATED PARTYTRANSACTIONS**

 

Receivable – related partyreported as a current asset of $141,028 is due from Consumers Insurance Agency,LLC. The primary member of the LLC is Patrick Matthews who is the majorityshareholder in the Company. The receivable is made up of cash advances to theLLC and expenses paid on behalf of the LLC by the Company with ongoing amountspaid back to the Company.

 

This receivable was part ofthe 2002 acquisition of the present operations of the Company. At the time ofacquisition the receivable was for an amount greater than what is presentlyreported in the financial statements as of March 31, 2006.

 

#### **NOTE 5 – CLIENT PAYROLL TAXPAYABLE**

 

Timing differences occurbetween when the client pays the related invoices for payroll services and whenthe related payroll tax deposits are due, which can result in payroll taxdeposit penalties. Besides this, the Company incurred significant litigationcosts and costs associated with the letter of intent to purchase Heart EmployeeLeasing Services, Inc. This contributed to the Company’s lack ofsufficient working capital to cover all of its obligations.

 

Consequently, certainpayroll tax liabilities have not been paid timely and the Company has incurredpayroll tax penalties. The total penalties paid during 2005 were $81,419penalties paid during the first quarter of 2006 total $44,506.

 

The Company sees thiscondition as temporary and has taken measures to curtail additional increasesin delinquent payroll tax liabilities.

 

#### **NOTE 6 – RECLASSIFICATIONS**

 

Certain amounts in 2004 havebeen reclassified and represented to conform to the current financialstatement presentation

 

**NOTE 7 – GOING CONCERN ISSUES**

 

The Company continuessuffering losses and working capital reflects more current liabilities thancurrent assets. Unless sufficient additional cash flows come into the Company,either through equity financing, profits, or a reduction of cash expenses, theCompany could be in jeopardy of continuing operations. Management has developeda strategy, which it believes will accomplish this objective through additionallong and short-term loans and sale of Common Stock of the Company.

 

12

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**NOTE 7 – CORRECTION OF AN ERROR**

 

As discussed in the Company’sForm 10-KSB for the year ended December 31, 2005, the Companyre-evaluated the accounting treatment of its goodwill. Although the value ofthe goodwill was and still is there, management determined the accountingtreatment was in error and needed to be corrected.

 

The correction of the errorsresulted in the reduction in the balances reported for Goodwill, Due toShareholder and Additional paid in capital for the reporting periods from 2002through 2005. There is no impact on the statement of operations, retained earnings(accumulated deficit), or cash flows relating to these corrections for any ofthe reporting periods involved.

 

**NOTE 8 – CONTINGENCIES AND PENDING ACQUISITION**

 

As discussed in the Company’sForm 10-KSB for the year ended December 31, 2005, the Company enteredinto a non-binding letter of intent on December 21, 2005 to acquire all ofthe outstanding capital stock of Heart Employee Leasing, Inc. (Heart). Heartis a privately held company engaged in the human resources outsourcingbusiness. The letter of intent provided for a purchase price of $5,000,000consisting of $3,500,000 in cash and the issuance of $1,500,000 in shares of anew class of preferred stock of the Company with a guaranteed dividend of5% per annum. In connection with the transaction, certain employees of Heart wererequested to enter into non-competition and employment agreements with theCompany. Concurrently with the execution of the non-binding letter of intent,the Company deposited $50,000.00 with Heart in connection with the proposedtransaction.

 

The closing was expected totake place on or about April 26, 2006. The closing of the transaction wassubject to numerous conditions, including, among others, the negotiation andexecution of a definitive acquisition agreement between the Company and Heart.

 

On April 25, 2006, theCompany notified Heart that it was terminating negotiations and the letter ofintent, effective immediately. The Company also notified Heart and the escrowagent that it was demanding return of the $50,000 deposit. Management is of theopinion that the $50,000 deposit will be returned to the Company.

 

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**ITEM 2.****                                                    ****MANAGEMENT’S DISCUSSION ANDANALYSIS OR PLAN OF OPERATION**

 

**ForwardLooking and Cautionary Statements**

 

The following discussioncontains forward-looking statements. The Company’s actual results could differmaterially from those discussed in such forward-looking statements. Factorsthat could cause or contribute to such differences include those discussed belowand elsewhere in this Form 10-QSB. See “Cautionary Note RegardingForward-Looking Statements”. The following discussion should be read inconjunction with the Company’s condensed consolidated financial statements andnotes thereto included elsewhere in this filing and in conjunction with Form 10-KSBincluding risk factors stated therein. Historical results are not necessarilyindicative of trends in operating results for any future period.

 

**CriticalAccounting Policies and Estimates**

 

The Company believes itssignificant critical accounting policies have not changed since fiscal yearended December 31, 2005. See Note 2 of the Company’s annual report on Form 10-KSBas well as “Critical Accounting Policies” contained therein for a detaileddiscussion on the application of these and other accounting policies.

 

**RevenueRecognition**

 

The gross billings of each ofPBS LLC, Primary HR, and AHJR (sometimes hereinafter collectively referred toas the “Subsidiaries”) consists of charges to its clients under its ClientService Agreement including each worksite employee’s gross wages, a service feeand, to the extent elected by the clients, health and welfare benefit plancosts. The service fees, which are computed as a percentage of gross wages, areintended to yield a profit to the Subsidiaries and cover the cost of certainemployment-related taxes, workers’ compensation insurance coverage, andadministrative and field services provided by the Subsidiaries to the client,including payroll administration, record keeping, safety/risk management, humanresources, and regulatory compliance consultation. The component of the servicefee related to administration varies according to the size of the client, theamount and frequency of payroll payments and the method of delivery of suchpayments. The component of the service fee related to workers’ compensation andunemployment insurance is based, in part, on the client’s historical claimsexperience. All charges by the Subsidiaries are invoiced along with eachperiodic payroll delivered to the client.

 

The Company reports revenuesfrom service fees in accordance with Emerging Issues Task Force (“EITF”) No. 99-19,reporting revenue gross as a principal versus net as an agent. The Companyreports as revenues, on a gross basis, the total amount billed to clients forservice fees, health and welfare benefit plan fees, workers’ compensation andunemployment insurance fees. The Company reports revenues on a gross basis forthese fees because PBS LLC and Primary HR are the primary obligors and deemedto be the principal in these transactions under EITF No. 99-19. TheCompany reports revenues on a net basis for the amount billed to clients forworksite employee salaries, wages and certain payroll-related taxes lessamounts paid to worksite employees and taxing authorities for these salaries,wages and taxes. The Company accounts for its revenues using the accrual methodof accounting. Under the accrual method of accounting, the Company recognizesits revenues in the period in which the worksite employee performs work. TheCompany accrues revenues and unbilled receivables for service fees relating towork performed by worksite employees but unpaid at the end of each period. Inaddition, the related costs of services are accrued as a liability for the sameperiod. Subsequent to the end of each period, such costs are paid and therelated Professional Employer Organization service fees are billed.

 

**Overview**

 

Thebusiness of the Company is to operate in the Professional Employer Organizationindustry and the Temporary Staffing Services industry and operates through theSubsidiaries and as economies of scale can be realized, combine the individualentities in each sector.

 

PBS LLC and Primary HR areregional Professional Employer Organizations committed to providing humancapital management solutions. PBS LLC and Primary HR offer clients, which aretypically small to

 

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medium-sized businesses withbetween five and fifty employees, a broad range of products and services thatprovide a complete solution for the clients’ human resources outsourcing needs.PBS LLC’s products and services include benefits administration, payrolladministration, governmental compliance, risk-management, unemployment administration,health, and welfare and retirement benefits.

 

AHJR is a regional temporarystaffing service company helping business meet their staffing needs whileminimizing their employee acquirement cost. AHJR offers qualified screenedemployees to clients that meet their employment needs on temporary bases. AHJRprovides all payroll administration, unemployment administration and assignmentadministration of the temporary staff.

 

**Revenues**

 

Revenuesconsist of service fees charged by the Subsidiaries to cover the costs ofcertain employment-related taxes, workers’ compensation insurance coverage andadministrative and field services provided to clients. The service fee chargedis invoiced along with each periodic payroll delivered to the client. Theclient’s portion of health plan costs is charged separately and is not includedin the service fee. Service revenues are recognized in the period in which theworksite employee works. Under this accrual method of accounting, service feesrelating to worksite employees with earned but unpaid wages at the end of eachperiod are recognized as unbilled revenues and the related payroll costs forsuch wages are accrued as a liability during the period in which the worksiteemployee earns wages. Subsequent to the end of each period, such wages are paidand the related service fees are billed.

 

**Cost of Services**

 

Costof services includes all direct costs associated with revenue generatingactivities as well as employee benefit costs, workers’ compensation insuranceand state unemployment taxes.

 

Employeebenefit costs are comprised primarily of medical benefit costs, but alsoinclude costs of other employee benefits such as dental, disability and grouplife insurance. Benefit claims incurred by worksite employees under the benefitplans are expensed as incurred according to the terms of each contract.

 

Incertain instances, PBS LLC chooses to make a contribution toward the cost ofthe worksite employees’ medical benefit costs. In most small group healthmarkets, medical benefit plan rates vary based on the medical participants’demographics. In order to offer a competitively priced business solution, PBSLLC may offer reduced medical benefit plan rates to worksite employeeswith positive risk characteristics. The additions of these selected worksiteemployees’ offsets potential adverse selection and helps to stabilize theoverall medical benefit plan risk to PBS LLC.

 

PBSLLC offers its medical benefit plans through partnerships with premier healthcare companies. These companies have extensive provider networks and strongreputations in the markets in which PBS LLC operates.

 

All of PBS LLC’s healthcare providers offerpreferred provider organization (PPO) coverage.

 

PBSLLC’s workers’ compensation program since November 18, 2000 is with TexasMutual Insurance Company. In November 2005 PBS LLC renewed its workers’compensation program which is a guaranteed cost program. Under this program PBSLLC has no liability beyond the premiums of the policy. The current policy termexpires in November 2006.

 

PrimaryHR obtained workers’ compensation from the AMFED Companies LLC effective July 2005through July 2006. The program is a guaranteed cost program where thecompany has no liability beyond the premiums of the policy.

 

Stateunemployment tax rates vary from state to state and are based upon the employer’sclaims history. PBS LLC aggressively manages its state unemployment taxexposure by contesting unwarranted claims.

 

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**Operating Expenses**

 

Operatingexpenses consist primarily of salaries, wages and commissions associated withthe Subsidiaries’ internal employees, and general and administrative expenses. Salesand marketing commissions and client referral fees are expensed as incurred. TheCompany expects that future revenue growth will result in increased operatingleverage, as the Subsidiaries’ fixed operating expenses are leveraged over alarger revenue base.

 

**Income Taxes**

 

TheCompany records income tax expense using the asset and liability method ofaccounting for deferred income taxes. The Company’s effective tax rate for 2005was 0%.

 

**Profitability**

 

Profitabilityis largely dependent upon the Subsidiaries’ success in generating revenues fortheir services and managing the costs that are within its control. Revenues andcosts of service primarily relate to workers’ compensation coverage, healthbenefit plans and state unemployment taxes. The Subsidiaries seek to managethese costs through the use of (a) workers’ compensation arrangements withcarriers who efficiently manage claims administration, internal risk assessmentand client risk management programs, (b) appropriately designed health benefitplans that encourage worksite employee participation, and (c) aggressivemanagement of its state unemployment tax exposure.

 

**Results of Operations**

 

The following discussion should be read inconjunction with the Company’s Annual Report on Form 10-KSB for the yearended December 31, 2005, including all amendments thereto, as well as theconsolidated financial statements and notes thereto included in this QuarterlyReport on Form 10-QSB.

 

Thefollowing table presents the Company’s results of operations for the threemonths ended March 31, 2006 and 2005, expressed as a percentage ofrevenues:

 
| ** **                         | ** ** | **Three Months Ended  March 31** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Revenues                           |       |                                            | 100.0      |   | 100.00 | % |
| Cost of Services                   |       |                                            | 68.06      |   | 73.32 |   |
| Gross Profit                       |       |                                            | 31.94      |   | 26.68 |   |
| Operating Expenses:                |       |                                            |       |   |   |   |
| General and administrative         |       |                                            | 27.11      |   | 16.19 |   |
| Salaries, wages and commissions    |       |                                            | 11.90      |   | 14.27 |   |
| Officers’ compensation        |       |                                            | 6.55       |   | 3.85 |   |
| Total operating costs              |       |                                            | 45.56      |   | 34.32 |   |
| Operations (loss) income           |       |                                            | (13.61     | ) | (7.64 | ) |
| Other income & (expenses) |       |                                            | (18.76     | ) | (0.73 | ) |
| (Loss) income before income taxes  |       |                                            | (32.38     | ) | (8.37 | ) |
| Income tax (benefit) provision     |       |                                            | 0.0        |   | 0.0 |   |
| Net income (loss)                  |       |                                            | (32.38     | ) | (8.37 | ) |

 

**Quarter ended March 31, 2006 compared to March 31, 2005**

 

Forthe quarter ended March 31, 2006, net revenues increased $207,436, or20.29% from 2005, totaling $1,229,840 in 2006 compared to $1,022,404, for 2005.The three-month increase reflects our focus on sales and the addition of anumber of new clients. The change is reflective of the gains made during theperiod with our focus on new business and increased fees.

 

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Costof services, which includes the cost of medical benefit plans, workers’compensation insurance, 401K administration cost, state unemployment taxes andother costs for the quarter ended March 31, 2006 totaled $836,969 or 68.06%of net revenues for 2006, compared to $749,616 or 73.32% for 2005. The increasein cost is consistent with the addition of new clients and leased employeesthat are affected by an increase of our state unemployment rate which isrealized through the first $7,000 of employee wages. As revenues increase costmeasured as a percentage of revenues decreased 5.26%.

 

Grossprofit for the quarter ended March 31, 2006 was $392,871 or 31.94% of netrevenue compared to $272,788 or 26.68% for 2005. Gross profit dollars increasedfor the quarter $120,083 or 44.02% over the same quarter of 2005.

 

Operatingexpenses for the quarter ended March 31, 2006 was $560,280 or 45.56 % ofnet revenue compared to $350,891 or 34.32% of net revenues for 2004 the breakout of expenses is as follows.

 

Salaries,wages and commissions for the quarter ended March 31, 2006, were $146,304or 11.90% of net revenue compared to $145,940 or 14.27% for 2005. At the end ofMarch 2006 the Subsidiaries employed 23 individuals, for the same periodending March 2005 the Subsidiaries employed 19 individuals.

 

Officers’compensation for the quarter ended March 31, 2006 was $80,553 or 6.55% ofnet revenue compared to $39,394 or 3.85% for 2005.

 

Generaland administrative expenses for the quarter ended March 31, 2006 was$333,423, or 27.11% of net revenue compared to $165,557, or 16.19 % of netrevenue in 2005, representing an increase of $167,866 in general andadministrative expenses. The addition of public relations firms, increasedfiling fees and increases in legal and accounting fees accounted for theincreases in general and administrative expenses.

 

Theresults of operations excluding other income and expenses for the quarter endedMarch 31, 2006 resulted in a loss of $(167,409) or 13.61% as compared to aloss of $(78,103) or 7.64% for 2005. The operating losses are largelyattributed to increases in the general and administrative expenses.

 

Asdiscussed in the Annual Report on Form 10-KSB for the year ended December 31,2005, we modified the presentation of the Company’s financial statements in aneffort to more clearly illustrate the various costs associated with our goalsof expanding the Company through acquisitions. Furthermore, in accordance withthe Financial Accounting Standards Board (FASB) Statement No. 123Rdiscussed in the Annual Report on form 10-KSB for the year ended December 31,2005, we have included in the presentation of the Company’s financialstatements costs including employee services paid with common stock warrants,non-employee services paid with common stock warrants and non-employee servicespaid with shares of common stock.

 

Totalother income and expenses for the quarter ended March 31, 2006 was$(230,762) or 18.76% of net revenue compared to $(7,500) or 0.73% for 2005.

 

Consultingexpenses for the quarter ended March 31, 2006 was $21,600 compared to$7,500 for the same period in 2005.

 

Acquisitioncosts for the quarter ended March 31, 2006 were $28,800. There were nocorrelating costs in 2005.

 

Employeeservices paid with common stock options for the quarter ended March 31,2006 were $7,480. There were no correlating costs in 2005.

 

Non-employeeservices paid with common stock warrants for the quarter ended March 31,2006 were $28,800. There were no correlating cost is 2005.

 

Non-employeeservices paid with stock for the quarter ended March 31, 2006 were$136,176. There were no correlating costs in 2005.

 

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Weexperienced a net loss from operations for the quarter ended March 31,2006 of $(398,171) or 32.38% of net revenue as compared to a net loss of$(85,603) or 7.64% of net revenue for 2005. The operating losses are largelyattributed to increases in general and administrative expenses.

 

**Liquidity and Capital Resources**

 

TheCompany had $128,179 in cash and cash equivalents March 31, 2006.Additionally the Company had $217,986 in restricted cash and restricteddeposits. The Company is required to collateralize its obligations under itsworkers’ compensation coverage. The Company uses its cash as well ascertificates of deposits to collateralize these obligations as more fullydescribed below.

 

OnNovember 18, 2005, PBS LLC had deposited $167,986, as collateral with PBSLLC’s workers’ compensation plans upon renewal of its plan for 2005/2006. PBSLLC’s workers’ compensation programs for the November 2000 through November 2005program years are subject to no further collateral adjustments. In December 2005,the Company deposited with an escrow agent $50,000 as a deposit in conjunctionwith a letter of intent regarding the purchase of Heart Employee Leasing, Inc.a Texas PEO. At the end of the quarter ended March 31, 2006 theacquisition was not consummated and the money remained with the escrow agent.

 

TheCompany has two long-term debt items as of March 31, 2006: $117,501 to itslargest shareholder, who is an officer and director of the Company, and theother for $18,750 representing a note to a former vendor of the Company. This vendordebt of $18,750 is being paid out at the rate of $2,083 per month includingprincipal and interest and will be paid in full by November 2006.

 

Thecharges to clients by PBS LLC, Primary HR and AHJR derived from salaries, wagesand payroll taxes is managed from a cash flow perspective so that a matchingexists between the time that the funds are received from a client to the timethat the funds are paid to the worksite employees and to the appropriate taxjurisdictions. As co-employers, and under the terms of their Client ServiceAgreements, PBS LLC, Primary HR and AHJR are obligated to make certain wage,tax and regulatory payments. Because of this requirement, the objective of eachSubsidiary is to minimize the credit risk associated with remitting the payrolland associated taxes before receiving from the client the service fees chargedby PBS LLC.

 

PBSLLC’s primary short-term capital requirements relate to the payment of accruedpayroll and payroll taxes of its internal and worksite employees, accountspayable for capital expenditures and the payment of accrued workers’compensation expense and health benefit plan premiums.

 

**Going Concern Issues**

 

We expect to spend significant amounts to expanddomestic sales and operations through mergers and acquisitions. As a result, wewill need to generate significant additional revenue to achieve profitabilitybased on such planned expenditures and expansion. Even if we do achieveprofitability, we may not be able to sustain or increase profitability ona quarterly or annual basis. If we do not achieve and maintain profitability,the market price for our common stock may decline.

 

If we do not receive additional capital when andin the amounts needed in the near future, our ability to continue as a goingconcern is in substantial doubt. We have limited revenue and limited cashassets, and will require additional equity or capital investments.

 

Obtaining future financing may be costlyand will likely be dilutive to existing stockholders. If we are not able toobtain financing when and in the amounts needed, and on terms that areacceptable, our operations, financial condition and prospects could bematerially and adversely affected, and we could be forced to curtail ouroperations or sell part or all of our assets. Management continually isseeking additional sources of capital to maintain the ongoing operations of theCompany.

 

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**Material Commitments for Capital Expenditures**

 

Neitherthe Company’s Board of Directors nor Management has made any commitments forcapital expenditures.

 

**Inflation**

 

TheCompany believes that inflation in salaries and wages of worksite employeeshave a positive impact on its results of operations, as its service fee isproportional to such changes in salaries and wages.

 

**Off-balance Sheet Arrangements**

 

TheCompany does not currently have any off-balance sheet arrangements.

 

**Purchase of Registrant’s Securities**

 

TheCompany did not purchase any of its securities during the quarter ended March 31,2006.

 

**ITEM 3.****                                                    ****CONTROLS AND PROCEDURES**

 

Ourmanagement, under the supervision and with the participation of our ChiefExecutive Officer and Controller, conducted an evaluation of our “disclosurecontrols and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c))as of the end of the period covered by this Report on Form 10-QSB. Basedon their evaluation, our Chief Executive Officer and Chief Financial Officer(who is also our controller and principal accounting officer) have concludedthat as of the date of the end of the period covered by this Report on Form 10-QSB,our disclosure controls and procedures are effective to ensure that allinformation required to be filed in this Report on Form 10-QSB isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.

 

**Changes in Internal Controls**

 

Therehave been no changes (including corrective actions with regard to significantdeficiencies or material weaknesses) in our internal controls or in other factorsthat could significantly or materially, or have materially or are reasonablylikely to materially affect these controls over financial reporting.

 

**Cautionary Note Regarding Forward Looking Statements**

 

Thestatements contained in this filing, including under the section titled “Management’sDiscussion and Analysis or Plan or Operations,” and other sections of thefiling that are not purely historical are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934, including without limitation,statements regarding the Company’s expectations, hopes, beliefs, intentions orstrategies regarding the future. Words such as “may”, “will”, “should”, “could”,“would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”,“intends”, “plans”, “believes”, “estimates”, and similar expressions, as wellas statements in future tense, identify forward-looking statements. Theseforward-looking statements are based on the Company’s current expectations andbeliefs concerning future developments and their potential effects on theCompany. There can be no assurance that future developments affecting theCompany will be those that the Company has anticipated. These forward-lookingstatements involve a number of risks, uncertainties (some of which are beyondthe Company’s control) or other assumptions that may cause actual resultsor performance to be materially different from those expressed or implied bysuch forward-looking statements. These risks and uncertainties include, but arenot limited to, those factors listed below:

 

•                  Potentialliability as a co-employer as a result of acts or omissions by the Company’sclients or client employees;

•                  Exposureto client credit risk as a result of the Company’s obligation to make certainpayments in respect of client employees;

•                  Unfavorabledeterminations under certain laws and regulations regarding the Company’sstatus as an “employer” of client employees;

•                  Inadequacyof the Company’s insurance-related loss reserves to cover its ultimateliability for losses;

 

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•                  Unavailabilityof insurance coverage for workers’ compensation, medical benefits and generalliability on financial terms and premium rates acceptable to the Company;

•                  Significantcollateral requirements in respect to the Company’s obligations to itsinsurance carriers and the potential for those requirements to increase in thefuture;

•                  TheCompany’s failure to comply with applicable laws and regulations in a complexregulatory environment;

•                  Inexperienceof a large portion of the Company’s sales staff;

•                  TheCompany’s failure to properly manage its growth and to successfully integrateacquired companies, including risks of client attrition and the risksassociated with assumed employee benefit plans;

•                  Risksassociated with geographic market concentration;

•                  Risksassociated with expansion into additional states with varying state regulatoryrequirements;

•                  Theimpact of competition from existing and new businesses offering human resourceoutsourcing services;

•                  Theability of the Company’s clients to terminate their relationship with theCompany upon 30 days notice;

•                  Errorsor omissions by the Company in performing its services;

•                  TheCompany’s dependency on key personnel and potential difficulties and expensesin the recruitment and retention of key employees;

•                  TheCompany’s inability to attract and retain qualified human resource consultants;

•                  Risksassociated with the Company’s dependency on technology services and third partylicenses of technology;

•                  TheCompany’s inability to use the Internet as a means of delivering human resourceservices;

•                  Fluctuationin interest rates and the associated effect on the Company’s investments;

•                  TheCompany’s failure to adequately protect its proprietary rights;

•                  TheCompany’s reliance on one financial institution to transfer its payroll funds;

•                  Otherfactors which are described in further detail in the Company’s Form 10-KSB,and in other filings with the Securities and Exchange Commission; and

•                  TheCompany’s need for capital.

 

TheCompany undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise except as may be required under applicable securitieslaws. The Company cautions that the factors described above could cause actualresults or outcomes to differ materially from those expressed in anyforward-looking statement made by or on behalf of the Company. Anyforward-looking statement speaks only as of the date on which such statement ismade, and the Company undertakes no obligation to update any forward-lookingstatement or statements to reflect events or circumstances after the date on whichsuch statement is made or to reflect the occurrence of unanticipated events. Newfactors emerge from time to time, and it is not possible for management topredict all of such factors. Further, management cannot assess the impact ofeach such factor on the business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially fromthose contained in any forward-looking statements.

 

**PART II – OTHERINFORMATION**

 

**ITEM 1.****                                                    ****LEGAL PROCEEDINGS**

 

TheCompany currently is not engaged in any legal proceedings.

 

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**Changes in Securities and Purchases of Securities**

 

TheCompany has not undertaken any purchases of its securities in the last fiscalquarter or the current fiscal quarter as of the date of this Report. Ourtransfer agent is Registrar and Transfer Company located at 10 Commerce Drive,Cranford, New Jersey 07016. The telephone number of Registrar and Transfer is800-866-1340.

 

**ITEM 2.****                                                    ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

Therehave been no unregistered sales of equity securities other than those indicatedon Form 8-K filed March 8, 2006.

 

**ITEM 3.****                                                    ****DEFAULTS UPON SENIOR SECURITIES**

 

None

 

**ITEM 4.****                                                    ****SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

 

None

 

**ITEM 5.****                                                    ****OTHER INFORMATION**

 

OnMarch 29, 2006, the Company entered into employment agreements withPatrick D. Matthews who currently serves as the President, Chief ExecutiveOfficer, Chief Financial Officer and Controller of the Company, and AmandaSinclair, who currently serves as Executive Vice President and Chief OperatingOfficer of the Company. Each agreement sets forth the terms and conditionsunder which each officer will continued to be employed as an executive officerof the Company. Previously, the Company had no written employment agreements.

 

Bothagreements became effective as of January 1, 2006 and expire on December 31,2011. A copy of Mr. Matthews’ employment agreement is being filed as Exhibit 10.1to this Quarterly Report on Form 10-QSB, and a copy of Ms. Sinclair’semployment agreement is being filed as Exhibit 10.2 to this QuarterlyReport on Form 10-QSB.

 

Thefollowing is a description of Mr. Matthews’ employment agreement.

 

Underthe agreement, Mr. Matthews’s annual base salary will be the greater of$250,000 or 1.2% of the total gross revenues of the Company for the previousfiscal year ending December 31, not to exceed $400,000 in any year. At thebeginning of each fiscal year, the Board of Directors of the Company will determinethe fiscal strength and budgetary needs of the Company and determine whatportion of the annual base salary will be payable in cash and what portion willbe payable in options to purchase the Company’s common stock pursuant to theCompany’s option plan, provided that in no event will the cash portion of thebase salary be less than $150,000 in any fiscal year. Mr. Matthews’ annualbase salary for the fiscal year ending December 31, 2006 was fixed by theBoard at $288,000 with $211,763.24 payable in cash in accordance with theCompany’s regular payroll practices, and $76,236.76 payable in qualified stockoptions pursuant to the Company’s 2004 Option Plan.

 

Mr. Matthewswill also be eligible to receive an annual bonus determined in the discretionof the Board based upon increases in gross revenues and net income of theCompany for the fiscal year compared to the previous fiscal year, subject tocertain limitations on the aggregate bonus for each factor. He will also beeligible to receive an additional bonus upon the closing of an acquisition bythe Company equal to 10% of the gross revenues of the acquired entity basedupon the last annual audited financial statements of the acquired entity. Eachof the foregoing bonuses may be paid by the Company, in the solediscretion of the Board of Directors, in grants of options to purchase stockpursuant to the Company’s option plan.

 

Theemployment agreement contains confidentiality obligations that surviveindefinitely and non-competition and non-solicitation obligations that end onthe first anniversary of the date of cessation of Mr. Matthews’employment.

 

Inthe event of the termination of Mr. Matthews’ employment for “cause,” heis not entitled to any further compensation or benefits other than his accruedand unpaid compensation. In the event that he is terminated “without cause,” hewould be entitled to (i) all compensation accrued but not paid as of thetermination date; (b) the greater of (i) his base salary to theexpiration date of the agreement or (ii) a severance payment

 

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equalto 12 months of his base salary in effect as of the termination date; and (c) continuedparticipation in the Company’s benefits or comparable plans for the longer ofthe natural term of the agreement or the end of the month of the one-yearanniversary of the termination of employment.

 

Thefollowing is a description of Ms. Sinclair’s employment agreement.

 

Underthe agreement, Ms. Sinclair’s annual base salary will be $90,000. At thebeginning of each fiscal year, the Board of Directors of the Company willdetermine the fiscal strength and budgetary needs of the Company and determinewhat portion of the annual base salary will be payable in cash and what portionwill be payable in options to purchase the Company’s common stock pursuant tothe Company’s option plan, provided that in no event will the cash portion ofthe base salary be less than $90,000 in any fiscal year. Ms. Sinclair’sannual base salary for the fiscal year ending December 31, 2006 was fixedby the Board at $150,000 with $136,471.40 payable in cash in accordance withthe Company’s regular payroll practices, and $13,528.60 payable in qualifiedstock options pursuant to the Company’s 2004 Option Plan.

 

Shewill also be eligible to receive an annual bonus determined in the discretionof the Board. The bonus may be paid by the Company, in the sole discretionof the Board of Directors, in grants of options to purchase stock pursuant tothe Company’s option plan.

 

Theemployment agreement contains confidentiality obligations that surviveindefinitely and non-competition and non-solicitation obligations that end onthe first anniversary of the date of cessation of Ms. Sinclair’semployment.

 

Inthe event of the termination of Ms. Sinclair’s employment for “cause,” sheis not entitled to any further compensation or benefits other than her accruedand unpaid compensation. In the event that she is terminated “without cause,”she would be entitled to (i) all compensation accrued but not paid as ofthe termination date; (b) the greater of (i) her base salary to theexpiration date of the agreement or (ii) a severance payment equal to 12months of her base salary in effect as of the termination date; and (c) continuedparticipation in the Company’s benefits or comparable plans for the longer ofthe natural term of the agreement or the end of the month of the one-yearanniversary of the termination of employment.

 

**ITEM 6.****                                                    ****EXHIBITS AND REPORTS ON FORM 8-K**

 
| a)     | Exhibits                                     |
|--------|----------------------------------------------|
|   | i.                                           |   | Exhibit 10.1 Employment Agreement between PBS Holding, Inc.  and Patrick D. Matthews |
|   | ii.                                          |   | Exhibit 10.2 Employment Agreement between PBS Holding, Inc.  and Amanda Sinclair |
|   | iii.                                         |   | Exhibit 31 Certification of Chief Executive Officer and Chief  Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a),  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   | iv.                                          |   | Exhibit 32.1 Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                         |   |   |
| b)     | Reports on Form 8-K during the quarter: |
|   | i.                                           |   | Form 8-K filed March 7, 2006, announcing entering into a  non-binding letter of intent with Heart Employee Leasing, Inc. |
|   | ii.                                          |   | Form 8-K filed March 8, 2006, announcing unregistered sales  of securities |
|   | iii.                                         |   | Form 8-K filed March 15, 2006, announcing presentations at  investor meetings by the Registrant. |

 

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SIGNATURES

 

Inaccordance with the requirements of Section 13 or 15 (d) of theExchange Act, the Registrant caused this Report to be on its behalf by theundersigned, thereunto dully authorized, this 19th day of May, 2006.

 

 
| /s/ Patrick Matthews                                     |   |
|----------------------------------------------------------|--------|
| Patrick Matthews                                         |
| President, Chief Executive Officer and                   |
| Chief Financial Officer and Principal Accounting Officer |
| PBS Holding, Inc.                                   |

 

 

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