** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-QSB**

**(Mark One)**

**           ****ý Quarterly report under Section 13 or 15(d) ofthe Securities Exchange Act of 1934 for the quarterly period ended June 30,2003.**

**           ****o Transition report under Section 13 or 15(d)of the Securities Exchange Act of 1934 for the transition period from                 to                  .**

** **

**Commissionfile number: 0-25523**

**CUSIPnumber 74154U 102**

** **

**PRIMARY BUSINESS SYSTEMS INC.**

(Exactname of small business issuer as specified in its charter)

 

| **NEVADA**                       |   | **86-0857752**       |
|----------------------------------|--------|----------------------|
| (State  or other jurisdiction of |   | (I.R.S.  Employer    |
| incorporation  or organization)  |   | Identification  No.) |

 

**433 Kitty Hawk Drive # 226, Universal City, Texas 73148**

(Addressof principal executive office) (Zip Code)

 

**(210) 658-4675**

(Issuer’stelephone number)

 

 

 

 

Check whether the issuer: (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes ý                                    No o

 

 

 

 

The number of outstanding shares of theissuer’s common stock, $0.001 par value (the only class of voting stock), as ofJune 31 was 84,307,302

 

 

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Tableof Contents

 
| Part  I           |
|-------------------|
|              |   |   |   |   |
| Item 1.           |   | FINANCIAL STATEMENTS |   |   |
|              |   |   |   |   |
| Item 2.           |   | MANAGEMENT DISCUSSION AND ANALYSIS |   |   |
|              |   |   |   |   |
| Part II           |
|              |   |   |   |   |
| Item 1            |   | LEGAL  PRECEDING |   |   |
|              |   |   |   |   |
| Item 4.           |   | SUBMISSIONS OF MATTERS TOA VOTE OF SECURITY  HOLDERS |   |   |
| Item 5.           |   | OTHER INFORMATION |   |   |
| Item 6.           |   | EXHIBITS AND REPORTS ON FORM 8-K |   |   |
|              |   |   |   |   |
| SIGNATURES        |   |   |
|              |   |   |   |   |
| INDEX TO EXHIBITS |   |   |
|              |   |   |   |   |
|              |   | Certifications |   |   |

 

 

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ITEM1.                                  FINANCIALSTATEMENTS

 

As used herein, the term “Company” refers toPrimary Business Systems Inc., a Nevada corporation, and its subsidiaries and predecessorsunless otherwise indicated.  Unaudited,consolidated condensed interim financial statements including a balance sheetfor the Company as of the quarter ended June 30, 2003 and statements ofoperations, and statements of cash flows for the interim period up to the dateof such balance sheet and the comparable period of the preceding year for thestatement of operations are attached hereto as of Pages F-1 through F-9.

 

 

3

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PrimaryBusiness System, Inc.

 

FinancialStatements

 

June30, 2003

 

 

4

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PrimaryBusiness Systems, Inc.

 

Index

 

UnauditedInterim Financial Statements

Forthe Period Ended

June30, 2003

 
| Balance Sheet                                |   |   |
|----------------------------------------------|--------|--------|
|                                         |   |   |
| Statement  of Operations-Three Months        |   |   |
|                                         |   |   |
| Statement  of Cash Flows-Three Months        |   |   |
|                                         |   |   |
| Notes to the Unaudited  Financial Statements |   |   |

 

 

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PRIMARYBUSINESS SYSTEMS, INC. and SUBSIDIARIES

 

Unaudited Consolidated Condensed InterimBalance SheetAs of June 30, 2003

 
| ASSETS                         |   |     |    |
|--------------------------------|--------|----------|---------|
|                           |   |     |    |
| Current assets                 |   |     |    |
|                           |   |     |    |
| Cash                           |   | $        | 12,378  |   |
| Notes receivable               |   | 85,180   |    |
| Client accounts receivable     |   | 108,622  |    |
| Prepaid Business Promotion     |   | 80,097   |    |
|                           |   | 53,348   |    |
|                           |   |     |    |
| Total Current Assets           |   | 339,625  |    |
|                           |   |     |    |
| Property & Equipment       |   |     |    |
|                           |   |     |    |
| Furniture & Fixtures       |   | 10,548   |    |
| Computer equipment             |   | 82,003   |    |
| Payroll Software               |   | 43,724   |    |
|                           |   |     |    |
|                           |   | 136,275  |    |
| Less: accumulated depreciation |   | (104,284 | )       |
|                           |   |     |    |
| Total Property & Equipment |   | 31,991   |    |
|                           |   |     |    |
| Other Assets                   |   |     |    |
|                           |   |     |    |
| Security deposits              |   | 1,995    |    |
| Goodwill                       |   | 557,240  |    |
|                           |   |     |    |
| Total Other Assets             |   | 559,195  |    |
|                           |   |     |    |
| Total Assets                   |   | $        | 930,810 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

 

6

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**PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES**

 

UnauditedConsolidated Condensed InterimBalance SheetAs of June 30, 2003

 

 
| LIABILITIES                                                    |   |       |    |
|----------------------------------------------------------------|--------|------------|---------|
|                                                           |   |       |    |
| Current liabilities                                            |   |       |    |
|                                                           |   |       |    |
| Accounts payable                                               |   | $          | 140,705 |   |
| Checks drawn on uncollected funds                              |   | 145,585    |    |
| Client payroll tax payable                                     |   | 30,893     |    |
| Credit card payable                                            |   | 39,583     |    |
| Client payroll amount withheld                                 |   | 9,641      |    |
| Notes payable                                                  |   | 61,473     |    |
| Line of credit from banks                                      |   | 51,921     |    |
|                                                           |   |       |    |
| Total Current Liabilities                                      |   | 479,802    |    |
|                                                           |   |       |    |
| Other Liabilities                                              |   |       |    |
|                                                           |   |       |    |
| Due to shareholder/officer for stock yet to issue              |   | 590,299    |    |
|                                                           |   |       |    |
| Total Liabilities                                              |   | 1,070,101  |    |
|                                                           |   |       |    |
| Stockholders’ Equity                                      |   |       |    |
|                                                           |   |       |    |
| Common stock, -$.001 par value authorized - 750,000,000 shares |   |       |    |
| Issued and outstanding 84,397,392                              |   | 84,397     |    |
| Paid in excess of par                                          |   | 808,851    |    |
| Accumulated (Deficit)                                          |   | (1,032,540 | )       |
|                                                           |   |       |    |
| Total Stockholders’ Equity                                |   | (139,292   | )       |
|                                                           |   |       |    |
| Total Liabilities and Stockholders’ Equity                |   | $          | 930,810 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

 

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**PRIMARY BUSINESS SYSTEMS INC and SUBSIDIARIES**

Unaudited Consolidated Condensed InterimStatement of OperationsFor the Three Months and Six Months Ended June 30, 2003 and 2002

 
|                                                        |   | **Three  Months Ended June 30** |    | **Six Months  Ended June 30** |    |
|-------------------------------------------------------------|--------|---------------------------------|---------|-------------------------------|---------|
|                                                        |   | **2003**                        |    | **2002**                      |    | **2003** |   | **2002** |   |
| Revenues                                                    |   | $                               | 704,233 |                          | 538,148 |   | $ | 1,338,665 |   | 1,343,146 |   |
| Cost of Revenues                                            |   | 475,329                         |    | 425,385                       |    | 975,963 |   | 1,057,522 |   |
| Gross Profit                                                |   | 228,904                         |    | 112,763                       |    | 362,703 |   | 285,624 |   |
| Operating Expenses                                          |   |                            |    |                          |    |   |   |   |   |
| General & Administrative                                |   | 147,370                         |    | 65,678                        |    | 245,932 |   | 127,424 |   |
| Wages, Commissions & Salaries                           |   | 140,499                         |    | 39,776                        |    | 200,481 |   | 119,378 |   |
| Consulting services for acquisition                         |   | (110,000                        | )       | 0                             |    | 75,000 |   | 0 |   |
|                                                        |   | 177,869                         |    | 105,454                       |    | 521,412 |   | 246,802 |   |
| Income (Loss) from Operations                               |   | 51,035                          |    | 7,309                         |    | (158,710 | ) | 38,822 |   |
| Other Income                                                |   | 489                             |    | 279                           |    | 2,934 |   | 558 |   |
| Income (Loss) Before Provision For Income Tax               |   | 51,533                          |    | 7,588                         |    | (155,710 | ) | 39,380 |   |
| Provision for Income Taxes                                  |   | —                          |    | —                        |    | — |   | — |   |
| Net Income (Loss)                                           |   | $                               | 51,533  |                          | 7,588   |   | $ | (155,776 | ) | — |   |
| Basic & Distributed Net Income Per Share                |   | $                               | 0.00    |                          | —  |   | $ | (0.00 | ) | — |   |
| Basic & distributed Weighted Average Shares Outstanding |   | 62,196,587                      |    | —                        |    | 62,196,587 |   | — |   |

 

Theaccompanying notes are an intergral part of these financial statements.

 

 

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PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIESUnaudited Consolidated Condensed InterimStatements Of Cash FlowFor the Six Months Ended June 30, 2003 and 2002

 
|                                                                                                |   | **2003** |     | **2002** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
| Net (Loss) Income                                                                                   |   | $        | (155,776 | )        | $      | 39,380 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used by) operating activities: |   |     |     |     |   |
| Depreciation and amortization                                                                       |   | 16,908   |     | 8,833    |   |
| (Increase) decrease in accounts receivable                                                          |   | (45,348  | )        | (92,672  | )      |
| (Increase) decrease in prepaid expense                                                              |   | (53,348  | )        |     |   |
| (Increase) decrease in other current assets                                                         |   | (31,382  | )        | (2,970   | )      |
| Increase (decrease) in accounts payable                                                             |   | 50,259   |     | (43,829  | )      |
| Increase (decrease) in client payroll tax liability                                                 |   | 30,893   |     |     |   |
| Increase(decrease) in other current liabilities                                                     |   | 9,641    |     |     |   |
| Increase (decrease) in other assets                                                                 |   | (1,955   | )        |     |   |
| Adjustment to consulting expense on return of stock                                                 |   | 75,000   |     |     |   |
| Checks drawn on uncollected payrolls                                                                |   | 34,336   |     |     |   |
|                                                                                                |   |     |     |     |   |
| Total Adjustments                                                                                   |   | 85,004   |     | (130,638 | )      |
| Net cash provided by (used in) operating activities                                                 |   | (70,772  | )        | (91,258  | )      |
| Cash flows from investing activities                                                                |   |     |     |     |   |
| Payments for the purchase of property                                                               |   | 0        |     | (11,116  | )      |
| Net cash provided by (used in) investing activities                                                 |   | 0        |     | (11,116  | )      |
| Cash flows from financing activities                                                                |   |     |     |     |   |
| Net borrowing under line of credit                                                                  |   | (3,886   | )        | 11,213   |   |
| Net borrowing on notes payable                                                                      |   | 61,473   |     |     |   |
| Principal payments on short-term debt                                                               |   | (2,310   | )        | (538     | )      |
| Due to shareholders/officers                                                                        |   | (2,995   | )        | (19,846  | )      |
| Net cash provided by (used in) financing activities                                                 |   | 52,282   |     | (9,171   | )      |
| Net increase (decrease) in cash and cash equivalents                                                |   | (18,490  | )        | (111,545 | )      |
| Cash and cash equivalents at beginning of year                                                      |   | 30,868   |     | 127,889  |   |
| Cash and Cash equivalents at end of quarter                                                         |   | $        | 12,378   |     | $      | 16,344 |   |

 

Theaccompanying notes are an integral part of these financial statements

 

 

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**PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES**

 

UnauditedConsolidated Condensed InterimStatement of Cash Flows (continued)For the Six Months Ended June 30, 2003 and 2002

 
|                                                                       |   | **2003** |   | **2002** |   |
|----------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Supplemental Information                                                   |   |     |   |     |   |
| Cash Payments for Income Taxes                                             |   | $        |   |     | $      |   |   |
| Non Cash Items                                                             |   |     |   |     |   |
| Stock for goodwill                                                         |   | $        | 7,240  |     | $      | — |   |
| Stock for consulting services                                              |   | 235,000  |   | —   |   |
| Stock returned for nonperformance of services regarding prepaid  marketing |   | (270,000 | )      |     |   |
| Stock returned for nonperformance of consulting services                   |   | (160,000 | )      |     |   |

 

 

(THIS SPACE HAS BEEN LEFT BLANKINTENTIONALLY)

 

Theaccompanying notes are an integral part of these financial statements.

 

 

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PRIMARY BUSINESS SYSTEMS INC

2003 SECOND QUARTER DISCLOSURES

FOR THE THREE MONTHS ENDED

June 30, 2003

 

 

NOTE 1 — BASIS OF PRESENTATION

 

The interim financial statements at June 30,2003 and for the current quarter and year to date ended June 30, 2003 and 2002are unaudited, but include all adjustments which the Company considersnecessary for a fair presentation.

 

The accompanying unaudited financialstatements are for the interim periods and do not include all disclosuresnormally provided in annual financial statements, and should be read inconjunction with the Company’s Form 10-KSB for the year ended December 31,2002. The accompanying unaudited interim financial statements for the currentquarter and year to date ended June 30, 2003, are not necessarily indicative ofthe results which can be expected for the entire year.

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

For the three months ended March 31, 2003 theCompany incurred a prepaid business promotion expense of $80,016 that will beamortized over a twelve month period. The prepaid expense will recur in February on an annual basis andbenefits the company throughout the year, therefore, management has elected torecord monthly amortization expense of $6.668 to accurately match the expensewith the revenues is generates.  Thecurrent business promotion expense for the three months ended June 30, 2003 is$20,004.

 

 

The Company has consolidated the financialstatements of its wholly owned subsidiary, AHJR Inc. DBA Concord StaffingServices, Inc. in these financial statements. The disclosure related to the purchase of AHJR Inc DBA Concord StaffingServices, Inc. were included in the first quarter financial statements.

 

No other significant accounting policies thatwere disclosed with the annual financial statements for the year ended December31, 2002 and 2001 have changed.

 

Management has indicated a suit was filed inJune 2003, the Company intends to defend the complaint vigorously and expectsto prevail in the outcome.

 

 

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Item 2.                    MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATION

 

General

 

Primary Business Systems Inc., is a holdingcompany with subsidiaries that operate in two primary areas of business:Professional Employer Organization (PEO), providing HR, Risk Management, andadministrative employer responsibilities as the employer of record for ClientCompanies; and, Temporary Employment Services (Staff Leasing) for businesses.These business models are operated through wholly owned subsidiaries of theCompany.

 

The following discussion examines theCompany’s financial condition as a result of the operations for the Secondquarter ending June 30, 2003 and compares those results with comparable periodsfrom last year. It will be useful to read this in conjunction with Form 10-KSBpresented 04/15/03.

 

Operations

 

Though our subsidiary Primary BusinessSystems LLC (PBS), we operate the PEO operations. Our objective is to sell PEOservices to business with from five (5) to one hundred employees (100). Webecoming the employer of record for out clients we relieve them of many of theburdens and risks of the business of employment (which is our business) andallow them to “focus on the business of business” (their core competencies).Much of the discussion regarding the particular activities of a PEO can befound in our 10-KSB filing 4-15-03.

 

Through our subsidiary AHJR Inc. DBA ConcordStaffing Services (CSS), we operate the temporary staffing operations.  Our objective is to sell temporary staffingservices to companies in with in the county of our office locations. CSS beganwith three offices, Bexar County, Guadalupe County and Comal County.  Each office was staffed with an officemanager and a receptionist additionally we had two sales persons and onedirector of operations.

 

REVENUES

 

Company consolidated net revenues were$704,233, compared to $538,148 for the second quarter 2003 to 2002respectively, an increase of $166,085 or 30.86%.  Consolidated cost of revenue was $475,329 compared to $425,385for the same period 2003 and 2002, an increase in cost of revenue $49,994 or11.74%. The increase can be attributed to the normal cycle of increases inunemployment taxes, state and federal, that occurs at the beginning of eachcontract year for the client, and addition of new clients.  As the year progress and the cutoffs are metthey will result in a reduction of cost. It is our practice to absorb theunemployment tax burden and not pass the cost or cutoff to our clients as thesecost are a direct result of our efficiency regarding unemployment claimmanagement and a core benefit to our client. Other cost increases are a resultof increases in revenue.

 

OPERATING EXPENSES

Consolidated General & Administrativeexpenses for the quarter were $147,370 compared to $65,678; 2003 to 2002respectively this was an increase of $81,692. Of the increase $17,693 wasattributed to NSF payments from clients who experience terminal cash flowproblems and are no longer clients of the Company.  Of the total G & A CSS had an expense of $16,161 which didnot exist prior to this quarter.  Theremaining $47,838 increase in G & A expense for the quarter can be attributedto legal and accounting fees associated to the public entity.

 

 

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Consolidated wages, commissions &salaries were $140,499 compared to $39,776 for the quarter 2003 to 2002respectively, an increase of $100,726. Of the increase CSS wages, commissions & salaries  for the quarter was $65,992 and PBS had anincrease of $34,734 from the addition of a sales person and accounting for theofficers income.

 

We had a credit of $110,000 in ConsultingService for Acquisition resulted in the return to treasury of stock fromSuburban Capitol.  This action was takenby the Board once it was learned that Suburban Capitol Corporation came underthe scrutiny of the SEC for fraudulent use of S 8 stock during their tenure asthe consultant for ShareCom, Inc., prior to our acquisition of the company inNovember.  We had no expenses for thequarter in 2002 for consulting services.

 

PROFITS

Second quarter operations resulted in a netincome of $51,035 compared to $7,309, 2003 to 2002. This resulted in Net incomeper share of $.00.

 

CAPITOL RESOURCES AND LIQUIDITY

 

On June 30, 2003 the Primary Business SystemsInc, had current assents of $339,625 and $930,810 in total assets compared to$228,238 of current assets and $1,097,136 in total assets at the year endedDecember 31, 2002. The Company had net working capital of $12,378 on comparedto $16,334 for the six months 2003 to 2002 respectively.

 

 

 

FORWARD LOOKING STATEMENTS

 

The information herein contains certainforward looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,as amended, which are intended to be covered by the safe harbors createdthereby. Investors are cautioned that all forward looking statements involverisks and uncertainly including, without limitation, the ability of PrimaryBusiness Systems Inc., to continue its expansion strategy, changes in the PEOmarkets, labor and employee benefits, changes in the Insurance markets, changesin government regulations as well as general market conditions, competition,and pricing. Although Primary Business Systems Inc., believes that theassumptions underlying the forward looking statements contained herein arereasonable, any of the assumptions could be inaccurate, and therefore, therecan be no assurance that the forward looking statement included in the Form10-QSB will prove to be accurate. In view of the significant uncertaintiesinherent in the forward looking statements included herein, the inclusion ofsuch information should not be regarded as a representation by Primary BusinessSystems Inc., or any other person that the objectives and plans of PrimaryBusiness Systems, Inc., will be achieved.

 

PART II

 

Item 1.                    LEGAL PROCEEDINGS

On or about June 12th a complaint was filed against the Company byits previous consultant Suburban Capitol Corporation.  While management has no way of knowing the final outcome we areconfident the Company will prevail in the matter.

 

 

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Item4.                    SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None

Item5.                    OTHERINFORMATION

None

Item6.                    EXHIBITS ANDREPORTS ON FORM 8-K

 

(a) Exhibits required to be attached by Item601 of Regulation S-B are listed in the index to Exhibits on page 11 of thisForm 10-QSB, and are incorporated herein by this reference.

 

(b) Reports on Form 8-K. The Company did notfile a report on Form 8-K during the quarter for which this report is filed.

 

 

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SIGNATURES

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be singed on its behalf byth under singed, there unto dully authorized, this 14th day of August 2003.

 

Primary Business Systems Inc.

 
| S/ Patrick D Matthews                            |   |            |
|--------------------------------------------------|--------|-----------------|
| Patrick D. Matthews                              |   |            |
| President, Chief Executive  Officer and Chairman |   | August 14, 2003 |
|                                                  |        |                 |  |

 

 

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INDEX TO EXHIBITS

 
| **Exhibit No.** |   | **Page No.** |   | **Description**                                                                                                                                                                                                                                                          |
|-----------------|--------|--------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 2(i)            |   | *            |   | Articles of Incorporation  of the Company dated May 7, 1997.                                                                                                                                                                                                             |
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 2(ii)           |   | *            |   | Amended Articles of  Incorporation of the Company dated April 26, 1999.                                                                                                                                                                                                  |
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 2(iv)           |   | *            |   | By-laws of the Company.                                                                                                                                                                                                                                                  |
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 10              |   | **           |   | Stock Acquisition  Agreement dated November 29, 2002, betweenPatrick D. Matthews; Connie L.  Matthews; and Amanda M. Sinclair; the shareholders of Primary Business  Systems L.L.C., a Texas Limited Liability Corporation (“Shareholders”); and  the Company. |
| 10              |   | **           |   | Addendum to Stock Purchase  Agreement dated September 27, 2002.                                                                                                                                                                                                          |
| 10              |   | **           |   | Stock Purchase Agreement  dated September 27, 2002.                                                                                                                                                                                                                      |
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 31.1            |   |         |   | 302 Certification CEO                                                                                                                                                                                                                                                    |
| 31.2            |   |         |   | 302 Certification CFO                                                                                                                                                                                                                                                    |
|            |   |         |   |                                                                                                                                                                                                                                                                     |
| 32.1            |   |         |   | 902 Certification CEO                                                                                                                                                                                                                                                    |
| 32.2            |   |         |   | 902 Certification CFO                                                                                                                                                                                                                                                    |

 

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* Incorporated by reference form Form 10-SBfiled March 10, 1999

 

** Incorporated by reference from Form 8-Kfiled December 19, 2002

 

                (THISSPACE HAS BEEN LEFT BLANK INTENTIONALLY)

 

 

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