**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM10-QSB**

(Mark One)

                ý Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of 1934 for thequarterly period ended March 31, 2005.

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

 

Commission file number: **000-25523**

 

**PRIMARY BUSINESS SYSTEM INC.**

(Exact name 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**

(Address of principal executive office) (Zip Code)

 

**(210) 658-4675**

(Issuer’s telephone number)

 

 

 

Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 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)has been subject to such filing requirements for the past 90 days.

Yes ý                                             No o

 

 

 

 

The number of outstanding shares of the issuer’s common stock, $0.001par value (the only class of voting stock), as of May 17, 2005 was 86,278,297

Transitional Small Business Disclosure Format                                              Yes o                    No ý

 

 

----

 

Table of Contents

 

Part I

 
| Item 1. | FINANCIAL STATEMENTS               |   |   |
|---------|------------------------------------|--------|--------|
|    |                               |   |   |
| Item 2. | MANAGEMENT DISCUSSION AND ANALYSIS |   |   |
|    |                               |   |   |
| Item 3. | Controls and Procedures            |   |   |

 

 

Part II

 
| Item 1     | LEGAL PRECEEDINGS                                     |   |   |
|------------|-------------------------------------------------------|--------|--------|
| Item  2.   | Changes  in Securities and Purchases of Securities    |   |   |
| 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                     |   |   |
|       |                                                  |   |   |
| SIGNATURES |                                                  |   |

 

2

----

 

ITEM1.                                  FINANCIALSTATEMENTS

 

 

As used herein, the term “Company” refers toPrimary Business Systems Inc., a Nevada corporation, and its subsidiaries andpredecessors unless otherwise indicated. Unaudited consolidated condensed interim financial statements includinga balance sheet for the Company as of the quarter ended March 31, 2005 andstatements of operations, and statements of cash flows for the interim periodup to the date of such balance sheet and the comparable period of the precedingyear for the statement of operations are attached hereto as of Pages F-1through F-9 and are incorporated herein by this reference.

 

BASIS OF PRESENTATION

 

The accompanying unaudited consolidatedfinancial statements are presented in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and the instructions for Form 10-QSB and Item 310 under subpart Aof Regulation S-B.  Accordingly, they donot include all of the information and footnotes required by accountingprinciples generally accepted in the United States of America for completefinancial statements. The accompanying statements should be read in conjunctionwith the audited financial statements for the years ended December 31, 2004 andDecember 31, 2003. In the opinion of management, all adjustments (consistingonly of normal occurring accruals) considered necessary in order to make thefinancial statements not misleading have been included. Operating results forthe three months ended March 31, 2005 are not necessarily indicative of resultsthat may be expected for the year ended December 31, 2005. The financialstatements are presented on the accrual basis with significant intercompanytransactions and balances eliminated.

 

3

----

 

PrimaryBusiness Systems Inc.

&Subsidiaries

 

Index

 

UnauditedConsolidated Condensed Interim Financial Statements

Forthe Period Ended

March31, 2005

 

 

 
| Balance Sheet                                     |   |
|---------------------------------------------------|--------|
|                                              |   |
| Statement  of Operations-Three Months             |   |
|                                              |   |
| Statement of Stockholders’  Equity (Deficit) |   |
|                                              |   |
| Statement  of Cash Flows- Three Months            |   |
|                                              |   |
| Notes  to the Unaudited Financial Statements      |   |

 

4

----

 

PRIMARYBUSINESS SYSTEMS, INC.

&SUBSIDIARIES

Consolidated Balance Sheet

Asof December 31, 2004 (Audited) and March 31, 2005 (Unaudited)
| ASSETS                                | ** ** | **December 31, 2004** | ** ** | **March 31, 2005** | ** ** |
|---------------------------------------|------------|-----------------------|------------|--------------------|------------|
| Current assets                        |       |                  |       |               |       |
| Cash                                  |       | $                     | 185,484    |               | $          | 198,425 |   |
| Notes receivable                      |       | 107,949               |       | 53,799             |       |
| Client accounts receivable            |       | 64,435                |       | 159,779            |       |
| Prepaid Expenses                      |       | 1,051                 |       | 15,436             |       |
| Workers Compensation Prepaid Premiums |       | 96,097                |       | 96,097             |       |
| Employee Advances                     |       |                  |       | 3,246              |       |
|                                  |       |                  |       |               |       |
| Total Current Assets                  |       | 455,016               |       | 526,800            |       |
|                                  |       |                  |       |               |       |
| Property & Equipment              |       |                  |       |               |       |
| Furniture & Fixtures              |       | 54,454                |       | 54,454             |       |
| Computer equipment                    |       | 91,322                |       | 91,322             |       |
| Vehicles                              |       | 15,485                |       | 15,486             |       |
| Payroll software                      |       | 43,724                |       | 43,724             |       |
|                                  |       |                  |       |               |       |
| Less: accumulated depreciation        |       | 204,986               |       | 204,987            |       |
|                                  |       |                  |       |               |       |
|                                  |       | (149,213              | )          | (156,415           | )          |
| Total Property & Equipment        |       | 55,773                |       | 48,572             |       |
|                                  |       |                  |       |               |       |
| Other assets                          |       |                  |       |               |       |
| Security Deposits                     |       | 1,054                 |       | 1,200              |       |
| Customer list, net of amortization    |       | 9,000                 |       | 8,400              |       |
| Goodwill                              |       | 557,240               |       | 557,240            |       |
| Total Other Assets                    |       | 567,294               |       | 566,840            |       |
| Total Assets                          |       | $                     | 1,078,083  |               | $          | 1,142,212 |   |

 

The accompanying notesare an integral part of these financial statements.

 

5

----

 

PRIMARYBUSINESS SYSTEMS, INC.

AndSUBSIDIARIES

 

ConsolidatedBalance Sheet Continued

Asof December 31, 2004 (audited) and March 31, 2005 (unaudited)

 

 

 
| LIABILITIES                                                                                               | ** ** | **December 31, 2004** | ** ** | **March 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| Current liabilities                                                                                       |       |                  |       |               |       |
| Accounts payable                                                                                          |       | $                     | 109,812    |               | $          | 154,603 |   |
| Checks drawn on uncollected payrolls                                                                      |       | 177,532               |       | 196,016            |       |
| Deferred revenue on payrolls                                                                              |       | 0                     |       | 94,657             |       |
| Client Payroll Tax payable                                                                                |       | 259,260               |       | 251,103            |       |
| Workers Comp payable                                                                                      |       | 60,953                |       | 67,497             |       |
| Client payroll amount withheld                                                                            |       | 1,532                 |       | 2,794              |       |
| Line of credit from banks                                                                                 |       | 38,522                |       | 30,718             |       |
| Total Current Liabilities                                                                                 |       | 647,611               |       | 797,388            |       |
|                                                                                                      |       |                  |       |               |       |
| Other liabilities                                                                                         |       |                  |       |               |       |
| Due to shareholder/officer                                                                                |       | 622,496               |       | 622,451            |       |
| Total Liabilities                                                                                         |       | 1,270,107             |       | 1,419,839          |       |
|                                                                                                      |       |                  |       |               |       |
| Stockholders’ Equity (Deficiency)                                                                    |       |                  |       |               |       |
| Common stock, - $.001 par value authorized - 750,000,000 shares  Issued and outstanding 86,278,297 shares |       | 86,278                |       | 86,278             |       |
| Additional paid-in capital                                                                                |       | 976,342               |       | 976,342            |       |
| accumulated (deficit)                                                                                     |       | (1,254,644            | )          | (1,340,247         | )          |
| Total Stockholders’ Equity (Deficiency)                                                              |       | (192,024              | )          | (277,627           | )          |
| Total liabilities and Stockholders’s Equity (Deficiency)                                             |       | $                     | 1,078,083  |               | $          | 1,142,212 |   |

 

Theaccompanying notes are an integral part of theses financial statements.

 

6

----

 

PRIMARYBUSINESS SYSTEMS, INC.

AndSUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)
| ** **                                   | ** ** | **For the three months ending March 31** | ** ** |
|----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                   | ** ** | **2004**                                 | ** ** | **2005** | ** ** |
| Revenues                                     |       | $                                        | 548,268    |   | $ | 1,022,404 |   |
| Cost of revenues                             |       | 373,022                                  |       | 749,616 |   |
| Gross Profit                                 |       | 175,246                                  |       | 272,788 |   |
| Operating Expenses                           |       |                                     |       |   |   |
| General and Administrative                   |       | 183,887                                  |       | 173,057 |   |
| Wages, commissions & salaries            |       | 126,556                                  |       | 185,334 |   |
| Consulting services for acquisition          |       | 0                                        |       | 0 |   |
| Total Operating Expenses                     |       | 310,443                                  |       | 258,391 |   |
| (Loss) from Operations                       |       | (135,197                                 | )          | (85,603 | ) |
| Other Income                                 |       | 1,930                                    |       | 0 |   |
| (Loss Before Prevision For Income Tax)       |       | (133,267                                 | )          | (85,603 | ) |
| Provision for Income Taxes                   |       | -                                        |       | — |   |
| Net (Loss)                                   |       | $                                        | (133,267   | ) | $ | (85,603 | ) |
|                                         |       |                                     |       |   |   |
| Basic & Distributed Net (Loss) Per Share |       | $                                        | (.0016     | ) | $ | (0.000 | ) |
| Basic and Distributed Weighted Average       |       |                                     |       |   |   |
|                                         |       |                                     |       |   |   |
| Shares Outstanding                           |       | 85,750,747                               |       | 86,278,297 |   |

 

The Accompanying notesare an integral part of these financial statements.

 

7

----

 

PRIMARYBUSINESS SYSTEMS, INC.  & SUBSIDUARIES

CONSOLIDATEDSTATEMENTS OF CASH FLOW (Unaudited)
| ** **                                                                                          | ** ** | **For the three months ending March 31** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                          | ** ** | **2004**                                 | ** ** | **2005** | ** ** |
| Net Income                                                                                          |       | $                                        | (133,267   | ) | $ | (85,603 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  (used by) operating activities: |       |                                     |       |   |   |
|                                                                                                |       |                                     |       |   |   |
| Depreciation and amortization                                                                       |       | 7,697                                    |       | 7,802 |   |
| (Increase) decrease in accounts receivable                                                          |       | 32,474                                   |       | (41,193 | ) |
| (Increase) decrease in prepaid expense                                                              |       | 27,218                                   |       | (14,385 | ) |
| (Increase) decrease in other current assets                                                         |       | (7,025                                   | )          | (3,264 | ) |
| (Increase) decrease in other assets                                                                 |       | 0                                        |       | (146 | ) |
| Increase (decrease) in accounts payable                                                             |       | (73,304                                  | )          | 44,789 |   |
| Increase (decrease) in client payroll tax liability                                                 |       | 30,588                                   |       | (8,157 | ) |
| Deferred revenue on payrolls                                                                        |       | 36,076                                   |       | 94,657 |   |
| Increase (decrease) in other current liabilities                                                    |       | (13,721                                  | )          | 7,806 |   |
| Checks drawn on uncollected payrolls                                                                |       | 98,589                                   |       | 18,484 |   |
| Total Adjustments                                                                                   |       | 138,596                                  |       | 106,393 |   |
| Net cash provided by (used in) operating activities                                                 |       | 5,329                                    |       | 20,790 |   |
|                                                                                                |       |                                     |       |   |   |
| Cash flows from investing activities                                                                |       |                                     |       |   |   |
|                                                                                                |       |                                     |       |   |   |
| Payments for the purchase of property                                                               |       | 0                                        |       | 0 |   |
| Net cash provided by (used in) investing activities                                                 |       | 0                                        |       | 0 |   |
| Cash flows from financing activities                                                                |       |                                     |       |   |   |
| Net borrowing under line of credit                                                                  |       | 13,488                                   |       | (7,804 | ) |
| Principal payments on short-term debt                                                               |       | (3,000                                   | )          | (3,000 | ) |
| Due to shareholders/officers                                                                        |       | (173                                     | )          | (45 | ) |
| Net cash provided by (used in) financing activities                                                 |       | 10,315                                   |       | (7,849 | ) |
| Net increase (decrease) in cash and cash equivalents                                                |       | 15,644                                   |       | 12,941 |   |
|                                                                                                |       |                                     |       |   |   |
| Cash and cash equivalents at beginning of year                                                      |       | 19,845                                   |       | 185,484 |   |
|                                                                                                |       |                                     |       |   |   |
| Cash and Cash equivalents at end of quarter                                                         |       | $                                        | 35,489     |   | $ | 198,425 |   |
|                                                                                                |       |                                     |       |   |   |
| Supplemental information                                                                            |       |                                     |       |   |   |
| Cash payments for interest expense                                                                  |       | $                                        | 4,666      |   | $ | 754 |   |
| Cash payments for income taxes                                                                      |       | —                                   |       | — |   |
|                                                                                                |       |                                     |       | $ | — |   |
| Non Cash Items (None)                                                                               |       |                                     |       |   |   |

 

The accompanying notesare an integral part of these financial statements

 

8

----

 

PRIMARY BUSINESS SYSTEMS,INC. and SUBSIDIARIES

Notes to UnauditedConsolidated Condensed Interim Financial Statements

March 31, 2005

 

 

NOTE 1 — BASIS OF PRESENTATION

 

The condensed interim financial statements at March 31, 2005 areunaudited, but include all adjustments which the Company considers necessaryfor a fair presentation.

 

The accompanying unaudited financial statements are for the interimperiods and do not include all disclosures normally provided in annualfinancial statements, and should be read in conjunction with the Company’s Form10-KSB for the year ended December 31, 2004. The accompanying unaudited interimfinancial statements for the current quarter and year to date ended March 31,2005, are not necessarily indicative of the results which can be expected forthe entire year.  The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

 

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 

The Company has consolidated the financial statements of its whollyowned subsidiaries, Primary Business Systems, LLC, Primary HR Services LLC andAHJR Inc., dba/Concord Staffing Services in these financial statements.  All significant intercompany transactionshave been eliminated.

 

All significant accounting policies as previously disclosed with theannual financial statements for the years ended December 31, 2004 and 2003remain unchanged.

 

 

NOTE 3 — CHANGE IN STOCKHOLDERS’ EQUITY

 

The statement of changes in stockholders’ equity is reported in thesefinancial statements and discloses the transactions as they were incurred inthe three months ended March 31, 2005.

 

 

NOTE 4 — RELATED PARTY TRANSACTIONS

 

Notes Receivable reported as a current asset of $53,799 is due fromConsumers Insurance Agency, LLC.  Theprimary member of the LLC is Patrick Matthews who is the majority shareholderin the Company.  The notes receivablemake up revolving cash advances to the LLC and expenses paid on behalf of theLLC by the Company.

 

These revolving notes receivable were part of the 2002 acquisition ofthe present operations of the Company. At the time of acquisition, these revolving notes receivable were for anamount equal to what is presently reported in the financial statements as ofMarch 31, 2005.

 

9

----

 

NOTE 5 — ACCOUNTSRECEIVABLE FACTORED

 

Concord, the Company’s subsidiary, factorsits accounts receivable.  As of March 31,2005 it had $13,138 accounts receivable factored, all with recourse, none ofwhich have ever returned to the Company for lack of payment.  The Company has made no provision for loss onreceivables factored as it believes the risk exposure is minimal.

 

 

 

NOTE 6 — PENDING CHANGE IN MAJORITY OWNERSHIP ANDLIQUIDATION OF THE OPERATIONS 

 

in January 2005 the Company along with its majorityshareholder group (jointly referred to as “Matthews Family”) finalized aSettlement Agreement (“Agreement”) with the former majority shareholder groupand a former consultant (jointly referred to as the “Former Owners”). Themembers of the Matthews Family also constitute the Company’s officers  and directors.

 

The Settlement Agreement provides that all parties involved essentiallyunwind the initial transactions that occurred on or about November 2002 andwhich resulted in the Company entering into its current lines of business andthe Matthews Family obtaining control of the Company. It also settles severallawsuits among the Matthews Family, the Company and the Former Owners..  This entailsMatthews surrendering their controlling interest in the Company to the FormerOwners and returning a significant number of shares to the Company.  In exchange Matthews will receive all of thecapital stock of all of the subsidiaries of the Company.  In addition, Matthews will receive from theFormer Owners $200,000 payable in installments, of which $50,000 has been paidto date.  Matthews will forgive all debtowed it by the Company in the amount of approximately $ 622,451.

 

The Settlement Agreement is subject to numerous closing conditions;consequently, there can be no assurance that the transaction will be completedas described or at all. The Company has filed a Form 14C Information Statementwith respect to the transaction and have mailed a copyto shareholders of record as of April 22, 2005. 

 

The Company has evaluated the Settlement Agreement and has determinedto not accrue or recognize any potential financial obligation or exposure thatmay or may not arise from this matter.

 

 

NOTE 7 — CONTINGENT LIABILITIES & LITIGATION

 

The Company presently has two separate lawsuits filed against itpending resolution.  Limited discoveryhas occurred in both cases.  The Companyintends to vigorously defend itself against both of these lawsuits and topursue what remedies it may have against the plaintiffs.  Management believes the contingent liabilityof these lawsuits is minimal, and therefore, it has concluded to accrue nocontingency in the financial statements for them.

 

On August 2, 2004, AMS Staff Leasing, LTD. filed a lawsuit in the 298thJudicial District Court, Dallas County, Texas (Cause No. 04-07448-M) againstPatrick Dey Matthews CEO of the Company, the Company, and Primary BusinessSystems LLC (the “Defendants”).  Italleges, among other claims, breach of fiduciary duty, breach of contract andconversion.  On September 13, 2004, theDefendants filed a motion to transfer venue and answer.

 

On or about September 13, 2004, Primary Business Systems L.L.C. (“PBSLLC”), a wholly owned subsidiary of the Company, was served with a suit filedin the 341st Judicial District Court, Webb County, Texas, by Laredo Cal-Tex,Inc. (Cause No. 2004- CV F 001296 D3), alleging breach of contract.  On September 30, 2004, PBS LLC filed a motionto transfer venue and answer.

 

10

----

 

**ITEM2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

**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 discussedbelow and elsewhere in this Form 10-Q. 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 ourForm 10-K including risk factors stated therein. Historical results are notnecessarily indicative of trends in operating results for any future period.

 

**CriticalAccounting Policies and Estimates**

Primary believes itssignificant critical accounting policies have not changed since fiscal year endDecember 31, 2003. See Note 2 of Primary’s annual report on Form 10-K as wellas “Critical Accounting Policies” contained therein for a detailed discussionon the application of these and other accounting policies.

 

***Revenue Recognition****.*    The gross billings that Primary LLC, Primary HR andConcord Staffing (the Subsidiaries) charges its clients under its CustomerServices Agreement include 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, isintended to yield a profit to 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, and safety, human resources,and regulatory compliance consultation. The component of the service feerelated 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.

 

Primary 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. TheCompany reports as revenues, on a gross basis, the total amount billed toclients for service fees, health and welfare benefit plan fees, workers’compensation and unemployment insurance fees. Primary reports revenues on agross basis for these fees because Primary Business Systems LLC and Primary HRServices LLC are the primary obligor and deemed to bethe principal in these transactions under EITF No. 99-19. Primary reportsrevenues on a net basis for the amount billed to clients for worksite employeesalaries, wages and certain payroll-related taxes less amounts paid to worksiteemployees and taxing authorities for these salaries, wages and taxes. Primaryaccounts for its revenues using the accrual method of accounting. Under theaccrual method of accounting, Primary recognizes its revenues in the period inwhich the worksite employee performs work.

 

11

----

 

Primary accrues revenuesand unbilled receivables for service fees relating to work performed byworksite employees but unpaid at the end of each period. In addition, therelated costs of services are accrued as a liability for the same period.Subsequent to the end of each period, such costs are paid and the related PEOservice fees are billed.

 

 

 

 

**Overview**

The business of PrimaryBusiness Systems Inc. is to operate in the Professional Employer Organizationindustry and the Temporary Staffing Services Industry and operates through itssubsidiaries Primary Buisness Systems LLC, Primary HR Services LLC and ConcordStaffing Services (Subsidiaries) and as economies of scale can be realizedcombine the individual entities in each sector.

 

Primary LLC and PrimaryHR Services LLC are regional Professional Employer Organizations (PEO)committed providing human capital management solutions.  We offer our clients, which are typicallysmall to medium-sized business with between five and fifty employees, a broadrange of product and services that provide a complete solution for the clients’human resources outsourcing needs. Primary LLC’s products and services include benefits administration,payroll administration, governmental compliance, risk- management, unemployment administration, and health, welfare andretirement benefits.

 

Concord Staffing Serviceis a regional temporary staffing services company helping business meet theirstaffing needs while minimizing there employee acquirement cost.  We offer qualified screened employees to ourclients that meet their employment needs on temporary biases. Concord providesall payroll administration, unemployment administration and assignmentadministration of the temporary staff.

 

***Revenues.***    Revenues consist of service fees charged by PrimaryLLC, Primary HR Services LLC and Concord (Subsidiaries) to cover the costs ofcertain employment-related taxes, workers’ compensation insurance coverage andadministrative and field services provided to their clients. The service feecharged is invoiced along with each periodic payroll delivered to the client.The client’s portion of health plan costs is charged separately and is notincluded in the service fee. Service revenues are recognized in the period inwhich the worksite employee works. Under this accrual method of accounting,service fees relating to worksite employees with earned but unpaid wages at theend of each period are recognized as unbilled revenues and the related payrollcosts for such wages are accrued as a liability during the period in which theworksite employee earns wages. Subsequent to the end of each period, such wagesare paid and the related service fees are billed.

 

***Cost of Services****.*    Cost of services includes all direct costs associatedwith revenue generating activities as well as employee benefit costs, workers’compensation insurance and state unemployment taxes.

 

Employee benefitcosts are comprised primarily of medical benefit costs, but also include costsof other employee benefits such as dental, disability and group life insurance.Benefit claims incurred by worksite employees under the benefit plans areexpensed as incurred according to the terms of each contract.

 

In certaininstances, Primary LLC opts to make a contribution toward the cost of theworksite employees’ medical benefit costs. In most small group health markets,medical benefit plan rates vary based on the medical participants’ demographics.In order to offer a competitively priced business solution, Primary LLC mayoffer reduced medical benefit plan rates to worksite employees with positiverisk characteristics.

 

12

----

 

The additions ofthese selected worksite employees’ offsets potential adverse selection andhelps to stabilize the overall medical benefit plan risk to Primary LLC.

 

Primary LLC offersits medical benefit plans through partnerships with premier health carecompanies. These companies have extensive provider networks and strongreputations in the markets in which Primary LLC operates.

 

All of Primary LLC’shealth care providers offer preferred provider organization (“PPO”) coverage.

 

Primary LLC’s workers’compensation program from January 1, 2002 through December 31, 2003 was withTexas Mutual Insurance Company.  November2003 Primary LLC renewed its workers’ compensation program which is aguaranteed cost program where the company has no liability beyond the premiumsof the policy. The current policy term expires in November 2004.

 

Primary HR obtainedworker’s compensation from the AMFED Companies LLC effective July, 2004 throughJuly 2005; the program is a guaranteed cost program where the company has noliability beyond the premiums of the policy.

 

State unemploymenttax rates vary from state to state and are based upon the employer’s claimshistory. Primary LLC aggressively manages its state unemployment tax exposureby contesting unwarranted claims.

 

***OperatingExpenses****.*    Operating expenses consist primarily of salaries,wages and commissions associated with the Subsidiaries internal employees, andgeneral and administrative expenses. Sales and marketing commissions and clientreferral fees are expensed as incurred. Primary expects that future revenuegrowth will result in increased operating leverage, as the Subsidiaries fixedoperating expenses are leveraged over a larger revenue base.

 

***Income Taxes.***    Primary records income tax expense using the asset andliability method of accounting for deferred income taxes. Primary’s effectivetax rate for 2003 was 0%.

 

***Profitability.***    Profitability is largely dependent upon theSubsidiaries success in generating revenues for their services and managing thecosts that are within its control. Revenues and costs of service primarilyrelate to workers’ compensation coverage, health benefit plans and stateunemployment taxes. Subsidiaries seek to manage these costs through the use of:(i) workers’ compensation arrangements with carriers who efficiently manageclaims administration, internal risk assessment and client risk managementprograms; (ii) appropriately designed health benefit plans that encourageworksite employee participation, and, (iii) aggressive management of its stateunemployment tax exposure.

 

 

**RESULTSOF OPERATIONS**

 

Thefollowing discussion should be read in conjunction with the Company’s AnnualReport on Form 10-K for the year ended December 31, 2004, including allamendments thereto, as well as the consolidated financial statements and notesthereto included in this Quarterly Report on Form 10-QSB.

 

The following table presents Primary’sresults of operations for the quarter ending March 31, 2005 and 2004, expressedas a percentage of revenues:

 

13

----

 
| ** **                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Revenues                           |       | 100.0    | %          | 100.0    | %          |
| Cost of Services                   |       | 73.33    |       | 68.04    |       |
|                               |       |     |       |     |       |
| Gross Profit                       |       | 26.68    |       | 31.96    |       |
| Operating Expenses:                |       |     |       |     |       |
| General and administrative         |       | 16.92    |       | 33.53    |       |
| Salaries, wages and  commissions   |       | 18.13    |       | 23.08    |       |
| Consulting Services                |       | 0        |       | 0        |       |
|                               |       |     |       |     |       |
| Total operating costs              |       | 35.05    |       | 56.62    |       |
|                               |       |     |       |     |       |
| Operating (loss) income            |       | (8.37    | )          | 24.3     |       |
| Other income                       |       | 0.0      |       | 0.0      |       |
| Interest expense                   |       | 0.0      |       | 0.0      |       |
| Other non-operating  expense       |       | 0.0      |       | 0.0      |       |
|                               |       |     |       |     |       |
| (Loss) income before  income taxes |       | (8.37    | )          | (24.30   | )          |
| Income tax (benefit)  provision    |       | 0        |       | 0        |       |
|                               |       |     |       |     |       |
| Net income (loss)                  |       | (8.37    | )          | (24.30   | )          |

 

*Quarter ending March 31, 2005 compared to March 31, 2004*

 

For the threemonths ended March 31, 2005, revenues increased $474,136, or 86.48% from 2004,totaling $1,022,404 in 2005 compared to $548,268, for 2004.  The three month increase reflects our focuson sales and the addition of a number of new clients.  The change is reflective of the gains madeduring the period with our focus on new business and increased fees.

 

Cost of services,which includes the cost of medical benefit plans, workers’ compensationinsurance, 410K administration cost, state unemployment taxes and other costsfor the three months ended March 31, 2005, increased $376,594 from 2004,totaling $749,616, or 73.33% of revenues for 2005, compared to $373,022 or68.03% for 2003.  The increase in cost isconsistent with the addition of new clients and leased employees that are affectedby an increase of our state unemployment rate which is realized through thefirst $7,000 of employee wages.

 

Gross profit forthe three months ended March 31, 2005 increased $95,542 or 55.66% from 2004,totaling $272,788 or 26.68% for 2005, compared to $175,246, or 31.96% for2004.  While gross profit dollarsincreased for the quarter gross profit margin decreased primarily due toworkers’ compensation cost increases resulting from new clients and the initialhigher cost realized when new clients are acquired.

 

 

Operating expensesfor the three months ended March 31, 2005, were $358,391 for 2005, or 35.05 %of revenues compared to $310,443, or 56.62% of revenues for the period endingMarch 2004 resenting an increase of $47,948. Operation expense increases are a result of our investment in our staffas discussed below.

 

Salaries, wagesand commissions for the three months ended March 31, 2005, were $185,334 for2005, or 18.13 % of revenues compared to $126,556 or 23.08% for 2004,representing an increase of $58,778.  Payroll costs increased as Primary LLC expanded staff to facilitate bestservices to our customers, increased its sales staff and the addition of stafffor Primary HR Services LLC our Mississippi subsidiary.  At the end of March 2004 the combinedSubsidiaries employed eleven, for the same period ending March 2005 thecombined subsidiaries employed fifteen.

 

14

----

 

Other general andadministrative expenses for the three months ended March 31, 2005, were$173,057, or 16.93% of revenue for 2005, compared to $183,887, or 33.54 % ofrevenue in 2004, representing a decrease of $10,830.

 

We experienced anet loss for the three months ending March 31, 2005 of ($85,603), or 8.37% ofrevenue as compared to a net loss of ($135,197), or 24.30% of revenue for2004.  The decrease in operating lossesis attributed to our increased in sales.

 

 

Liquidity andCapital Resources

 

Primary had $198,425 in cash and cash equivalents and restricted certificates of deposit atMarch 31, 2005. Primary 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.

 

At November 18,2003, Primary LLC had deposited $96,097, as collateral with the Company’sworkers’ compensation plans upon renewal of its plan for 2003/2004 which wasthen carried forward for the 2004/2005 policy year. Primary LLC’s workers’compensation programs for the 2001 through November 2004 program years aresubject to no further collateral adjustments.

 

The Company had nolong-term debt as of March 31, 2005 other than to its major shareholder, who isan officer and director. The principal amount of this outstanding debt at March30, 2005 is $622,451.This debt is intended to be forgiven in consideration ofthe pending transaction described in Note 6 above and also in Item 4 below.

 

The charges toclients by Primary LLC, Primary HR and Concord derived from salaries, wages andpayroll taxes is managed from a cash flow perspective so that a matching existsbetween the time that the funds are received from a client to the time that thefunds are paid to the worksite employees and to the appropriate taxjurisdictions. As a co-employer, and under the terms of the Client ServicesAgreement, Primary LLC, Primary HR and Concord isobligated to make certain wage, tax and regulatory payments. Because of this,the objective of Primary LLC is to minimize the credit risk associated withremitting the payroll and associated taxes before receiving from the client theservice fees charged by Primary LLC.

 

Primary LLC’sprimary 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***

 

Weexpect to spend significant amounts to expand domestic sales and operationsthrough mergers and acquisitions. As a result, we will need to generatesignificant additional revenue to achieve profitability based on such plannedexpenditures and expansion. Even if we do achieve profitability, we may not beable to sustain or increase profitability on a quarterly or annual basis. If wedo not achieve and maintain profitability, the market price for our commonstock may decline.

 

Ifwe do not receive additional capital when and in the amounts needed in the nearfuture, our ability to continue as a going concern is in substantial doubt. We havelimited revenue and limited cash assets, and will require additional equity orcapital investments.

 

Obtainingfuture financing may be costly and will likely be dilutive to existingstockholders. If we are not able to obtain financing when and in the amountsneeded, and on terms that are acceptable, our operations, financial conditionand prospects could be materially and adversely affected, and we could beforced to curtail our operations or sell part or all of our assets. Managementcontinually is seeking additional sources of capitol to maintain the ongoingoperations of the company.

 

15

----

 

**MATERIAL COMMITTEMENTS FOR CAPITAL EXPENDITURES**

 

Neither the Board norManagement has made any commitments for capital expenditures.

 

***Inflation***

 

Primary believes thatinflation in salaries and wages of worksite employees has a positive impact onits results of operations as its service fee is proportional to such changes insalaries and wages.

 

**Off-balanceSheet Arrangements**

 

Primary does notcurrently have any off-balance sheet arrangements

 

**Purchase of Registrant’sSecurities**

 

**Primary did not purchaseany of its securities during the quarter ended March 31, 2005.**

 

 

***ITEM 3CONTROLS AND PROCEDURES***

 

 

Our management, under the supervision and with theparticipation of our chief executive officer and chief financial officer,conducted an evaluation of our “disclosure controls and procedures” (as definedin the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-14 (c))within 90 days of the filing date of this Quarterly Report on Form 10-Q (the “EvaluationDate”).  Based on their evaluation, ourchief executive officer and chief financial officer (who serves as ourprincipal accounting officer) have concluded that as of the Evaluation Date,our disclosure controls and procedures are effective to ensure that allmaterial information required to be filed in this Quarterly Report on Form 10-Qhas been made known to them in a timely fashion.  Disclosure controls and procedures aredesigned to ensure that information required to be disclosed in our reportsfiled or submitted under the Securities Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed in our reports filed under the ExchangeAct is accumulated and communicated to management, including our ChiefExecutiveOfficer andChief Financial Officer, to allow timely decisions regarding requireddisclosure.

 

 

***CHANGES IN INTERNAL CONTROLS***

 

 

There have been nochanges (including corrective actions with regard to significant deficienciesor material weaknesses) in our internal controls or in other factors that couldsignificantly or materially, or have materially or are reasonably likely tomaterially effect these controls over financial reporting subsequent to theEvaluation Date set forth above.

 

 

# **CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

                Thestatements contained in this filing, including under the section titled “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” andother sections of the filing that are not purely historical are forward-lookingstatements within the meaning of Section 27A of the Securities Act of

 

16

----

 

1933 and Section 21E of the Securities Exchange Act of1934, including without limitation, statements regarding the Company’sexpectations, hopes, beliefs, intentions or strategies 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 well as statements in future tense,identify forward-looking statements. These forward-looking statements are basedon the Company’s current expectations and beliefs concerning futuredevelopments and their potential effects on the Company. There can be noassurance that future developments affecting the Company will be those that theCompany has anticipated. These forward-looking statements involve a number ofrisks, uncertainties (some of which are beyond the Company’s control) or otherassumptions that may cause actual results or performance to be materiallydifferent from those expressed or implied by such forward-looking statements.These risks and uncertainties include, but are not limited to, those factorslisted below:

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

•        exposure toclient 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;

•        inadequacy ofthe Company’s insurance-related loss reserves to cover its ultimate liabilityfor losses;

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

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

•        the Company’sfailure to comply with applicable laws and regulations in a complex regulatoryenvironment; 

•        inexperience ofa large portion of the Company’s sales staff;

•        the Company’s failure to properly manageits growth and to successfully integrate acquired companies, including risks ofclient attrition and the risks associated with assumed employee benefit plans; 

•        risksassociated with geographic market concentration;

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

•        the impact ofcompetition from existing and new businesses offering human resourceoutsourcing services;

•        the ability ofthe Company’s clients to terminate their relationship with the Company upon 30days notice;

•        errors oromissions by the Company in performing its services;

•        the Company’sdependency on key personnel and potential difficulties and expenses in the recruitmentand retention of key employees;

•        the Company’sinability to attract and retain qualified human resource consultants;

 

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

 

•        the Company’sinability to use the Internet as a means of delivering human resource services;

 

•        fluctuations ininterest rates and the associated effect on the Company’s investments;

 

•        the Company’sfailure to adequately protect its proprietary rights;

 

•        the Company’sreliance on one financial institution to transfer its payroll funds; and

 

•        other factorswhich are described in further detail in the Company’s Form 10-K, and in ourother filings with the Securities and Exchange Commission (the “SEC”).

 

17

----

 

•        our need forcapital

 

          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 securities laws.

 

Primary cautions that the factors described abovecould cause actual results or outcomes to differ materially from thoseexpressed in any forward-looking statements made by or on behalf of Primary.Any forward-looking statement speaks only as of the date on which suchstatement is made, and Primary undertakes no obligation to update anyforward-looking statement or statements to reflect events or circumstancesafter the date on which such statement is made or to reflect the occurrence ofunanticipated events. New factors emerge from time to time, and it is notpossible for management to predict all of such factors. Further, managementcannot assess the impact of each such factor on the business or the extent towhich any factor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements.

 

 

PART II

 

OTHER INFORMATION

 

**Item 1.****                     LegalProceedings**

 

On or about June 12, 2003, the Company  was served with a suit commenced inthe circuit court of Cook County, Illinois by Suburban Capital Corporation (“Suburban”)as plaintiff in a suit entitled Suburban Capitol Corporation v Primary BusinessSystems, LLC Primary Business Systems, Inc., f/k/a Sharecom, Inc and Ed Wellsas Escrow Agent.  An attorney who workedwith the Company, Ed Wells, is also named as a defendant in the suit.  The Company removed the lawsuit to the UnitedStates District Court for the Northern District of Illinois, Eastern Divisionon or about June 20, 2003.  In summary,the suit seeks damages for the Company’s alleged failure to make full paymentto Suburban for consulting work allegedly performed by Suburban for the benefitof the Company and for alleged breach of an Advisory Agreement and a StockPurchase Agreement pursuant to which Pine Services, Inc., a company related toSuburban, sold a controlling interest in the Company (then named Sharecom) to  Primary BusinessSystems LLC, .  The Company contends thatSuburban breached the Advisory Agreement by not providing the services requiredby the Agreement.  The Company alsoalleges that Suburban made material misrepresentations to the Company.  The Company is  vigorously defending itself againstthis lawsuit and to oppose any effort to reinstate it.

 

On or about December 3, 2003, Primary BusinessSystems, L.L.C. (“PBS LLC”), a wholly owned subsidiary of the Company, wasserved with a suit commenced in the United States District Court for theNorthern District of Illinois, Eastern Division by Pine Services, Inc. in asuit entitled Pine Service, Inc., a Costa Rican corporation v Primary BusinessSystems LLC, a Texas limited Partnership In summary, the suit claims that PBS LLC owes Pine Services, Inc.approximately $5550,000 for the sale of Pine’s majority interest in Sharecom,Inc. which was completed in September 2002. At the time the suit was commencedthe amount claimed was not due under the terms of the note issued by PBS LLC toPine for the amount claimed.

 

On or about December 23, 2003, the Company filed alawsuit in 285th District Court, Bexar County, Texas against Pine Services,Inc. and Frank Custable, Jr. alleging, among other claims, common law fraud,violation of the Texas Securities Act, violation of the Texas Deceptive Tradesand Practices Act and

 

18

----

 

fraudulent inducement in connection with theAdvisory Agreement referred to above. The defendants were served with this lawsuit but failed to appear in thecase or file an answer.  On February 6,2004, upon motion of the Company, the Court entered a default judgment againstthe defendants in the amount of approximately $4,700,000.00 in actual andpunitive damages.  Finally, on February12, 2004, the Company filed a lawsuit in the 37th District Court, Bexar County,Texas against Suburban Capital Corporation alleging, among other claims, commonlaw fraud and violation of the Texas Deceptive Trades and Practices Act inconnection with the Advisory Agreement. 

 

Werecently entered into a settlement agreement (“Settlement Agreement”) withseveral parties which will, if consummated, have the effect of unwinding thetransactions by which Primary Business entered the Professional EmployerOrganization and Staffing Businesses. In addition, the Settlement Agreementwill settle the aforementioned lawsuits. The Settlement Agreement will, if consummated, result in a change ofcontrol of Primary Business and a distribution of the significant businessassets of the Company to Patrick Matthews and his family (the “Mathews Family”).In effect, the terms and conditions of the Settlement Agreement will “unwind”the transactions entered into by Primary Business Systems Inc and a formermajority shareholder, Pine Services, Inc. consummated with the Matthews Familyin September and November 2002.  Prior to these transactions, PrimaryBusiness had no significant operations and assuming completion of thetransaction described herein, will have no significant operations. See the Description in Item 4 and in Note 6 to the Financial Statementsabove.

 

As a commercial enterprise and employer and withrespect to its employment-related businesses in particular, we are engaged inlitigation from time to time during the ordinary course of business inconnection with employment-relations issues, workers’ compensation and othermatters.  Generally, we are entitled toindemnification or repayment from our PEO clients for claims brought byworksite employees related to their employment. However, there can be no assurance that the client employer will havefunds or insurance in amounts to cover any damages or awards, and asco-employer, we may be subject to liability. No allowance for this contingencyis recognized on the financial statements of the company.

 

We are engaged in no other litigation, the effect ofwhich would be anticipated to have a material adverse impact on our financialconditions or results of operations.

 

**Item 2.****                   Changes in Securities and Purchases of Securities**

 

We have not undertaken any stock purchases of oursecurities in the last fiscal quarter or the current fiscal quarter as of thedate of this Report. Additionally, we have not issued any securities in themost recent fiscal quarter or in the current fiscal quarter.

 

Our registrar and transfer agent is Registrar andTransfer Corp.  10 Commerce Drive,Cranford, New Jersey 07016.  Thetelephone number of Registrar and Transfer is 800-866-1340

 

 

**Item 3.****   Defaults UponSenior Securities**

 

                                                             None

 

**Item 4.****            SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

 

Werecently entered into a settlement agreement (“Settlement Agreement”) withseveral parties which will, if consummated, have the effect of unwinding thetransactions by which Primary Business entered the Professional Employer Organizationand Staffing Businesses. The

 

19

----

 

Settlement Agreement will,if consummated, result in a change of control of Primary Business and adistribution of the significant business assets of the Company to PatrickMatthews and his family (the “Mathews Family”). In effect, the terms andconditions of the Settlement Agreement will “unwind” the transactions enteredinto by Primary Business Systems Inc and a former majority shareholder, PineServices, Inc. consummated with the Matthews Family in September and November2002.  Prior to these transactions, Primary Business had no significantoperations and assuming completion of the transaction described herein, willhave no significant operations.

 

Asdescribed above in September and November 2002, Primary, Pine Services and theMatthews Family consummated a series of transactions (i) which resulted in theMatthews Family selling their family owned business, Primary LCC to Primary ina stock exchange; (ii) resulted in Primary changing its name from Sharecom,Inc. to its current name; and (iii) whereby Primary LLC acquired from PineServices a majority (approximately 59.7%) of then outstanding common stock ofthe Company in exchange for a note from the Primary LLC in the principal amountof $550,000. Further, members of the Matthews Family then became the officersand directors of Primary Business Systems Inc.

 

Theparties to these various actions decided it was in their mutual best intereststo settle the actions. Under the terms of Settlement Agreement, dated as ofJanuary 31, 2005, the following transactions will occur:

 

1.                                       The MatthewsFamily will surrender all of their shares of Primary Business Systems Inc toPrimary Business Systems Inc or Pine Services Inc, with Pine Services Increceiving shares equal to 59% of the outstanding shares of Primary BusinessSystems Inc and the outstanding note will be forgiven;

 

2.                                       The MatthewsFamily will receive all of the capital stock of the three subsidiaries ofPrimary Business Systems Inc, namely, Primary LLC., Primary HR Services LLC andAHJR, Inc. and Primary Business Systems Inc. will no longer have any interestin such companies.

 

3.                                       The MatthewsFamily will receive an aggregate of $200,000 from Custable and Pine, payable ininstallments, of which $50,000 has been paid to date; and

 

4.                                       All members ofthe Mathews Family will resign as officers and directors of Primary BusinessSystems Inc and new officers and directors will be appointed by Pine ServicesInc as the majority shareholder

 

5.                                       The MatthewsFamily will forgive all debt, in the amount of approximately $622,496 owed toit by Primary Business Systems Inc.

 

 

TheMatthews Family have delivered to Primary writtenvotes in favor of the Settlement Agreement.  As of April 1, 2005, theMatthews Family owns approximately 91 % of our outstanding shares of CommonStock.  The Company has mailed to all shareholders of Primary as of recordof April 22, 2005 an Information Statement to reflect that we have received theconsent from the Matthews Family and that Primary expects to complete thetransaction within a date which is not more than 25 days after mailing.

 

20

----

 

**Item 5.****                    OTHERINFORMATION**

 

**                                        **None

 

 

**Item 6.****                   EXHIBITSAND REPORTS ON FORM 8-K**

 

Exhibits

(a)Exhibits required to be attached by Item 601 of Regulation S-B are listed inthe index to Exhibits on page 11 of this Form 10-QSB, and are incorporatedherein by this reference.

 

 
| 31*    | Certification  pursuant to Rule 13a-14(a)/15d-14(a) |
|--------|-----------------------------------------------------|
|   |                                                |
| 32*    | Certification  pursuant to 18 U.S.C. Section 1350   |

 

Reportson form 8-K

 

 

Form8-K filed on February 3. 2005 reflecting the Registrant’s entry into materialagreements under Item 1.01 of Form 8-k

 

SIGNATURES

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be singed on its behalf by the under singed, there unto dullyauthorized, this 19th day of May, 2005..

 
| Primary  Business Systems Inc.                   |   |          |
|--------------------------------------------------|--------|---------------|
|                                             |   |          |
| S/  Patrick D Matthews                           |   |          |
| Patrick  D. Matthews                             |   |          |
| President,  Chief Executive Officer and Chairman |   | May  19, 2005 |
| And  Principal Accounting Officer                |   |          |
|                                                  |        |               |  |

 

 

 

 

 

 

 

 

(THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY)

 

21

----