U. S. SECURITIES & EXCHANGE COMMISSION
 **WASHINGTON, D.C. 20549**
 
 FORM 10-QSB
 
 x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 AND EXCHANGE ACT OF 1934
 
 For the quarterly period ended March 31, 2003
 
 o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
 ACT OF 1934
 
 Commission file Number 0-29711
  
 
 Subjex Corporation
 *(Exact name of small business issuer)*
 
 Minnesota
41-1596056*(State of incorporation)*
*IRS Employer Identification number*
 
 5720 Smetana Dr, Suite 325, Minnetonka, MN 55343
 *(Address of principal executive offices)*
 
 (952) 931-0501
 *(Registrant's telephone number)*
 Check whether the issuer (1) filed all reports required to be filed by
 
 Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x   NO o
 
 The number of shares outstanding of each of the registrant's classes of capital stock, as of March 31, 2003: Common Stock, no par value was 25,217,616 shares.
 
 -1-
 SUBJEX CORPORATION INDEX
 
 PART I.
 
 ITEM 1.FINANCIAL STATEMENTS
PageBalance Sheet -
3Statements of Operations -
4Statements of Cash Flows -
5 
 ITEM 2. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
 ITEM 3. DISCRIPTION OF BUSINESS
 
 ITEM 4. DISCRIPTION OF PROPERTY
 
 ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PART II.
 
 ITEM 1. LEGAL PROCEEDINGS
 
 ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 ITEM 5. OTHER INFORMATION
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
 ITEM 7. ATTACHED EXHIBIT:
 
 CEO/CFO CERTIFICATION OF FINANCIAL STATEMENTS
 
 SIGNATURES
 
 -2-
 
 PART I  ITEM 1.  . FINANCIAL STATEMENTS
 
 BALANCE SHEET
 **ASSETS**
****
****
********
****
**DECEMBER 31,**
**MARCH 31,******
****
**2002**
**2003****CURRENT ASSETS**Cash

$
28,842

$
4,439Accounts Receivable


0


0Prepaid expenses


4,630


500Total current assets


33,472


4,939**PROPERTY AND EQUIPMENT, NET**


5,330


5,330**INTANGIBLES, NET**


0


0**TOTAL ASSETS**

$
38,802

$
10,269**LIABILITIES AND STOCKHOLDERS' EQUITY****CURRENT LIABILITIES**Subordinated Convertible Notes Payable

$
23,000

$
23,000Demand Notes Payable


20,000


30,000Current Maturities of Notes Payable- Related Party


51,002


47,202Accounts Payable


129,469


117,221Accrued Expenses:Accrued Payroll & Payroll Taxes


167,081


205,075Other


80,584


78,663Subscribed Stock


133,100


10,500Total Current Liabilities


604,236


511,661**LONG TERM DEBT:**Notes Payable  Related Party


11,529


11,529Total Liabilities


615,765


523,190**STOCKHOLDERS' EQUITY** (Deficit):Common Stock, 40,000,000 shares authorized;no par or stated value


3,243,760


3,397,685Accumulated deficit

$
(3,820,723
)
$
(3,910,606
)**TOTAL EQUITY**

$
(576,963
)
$
(512,921
)**TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY**

$
38,802

$
10,269  -3-
 STATEMENT OF OPERATIONS
 
 **THREE MONTHS ENDED****DECEMBER 31,**

**MARCH 31,****2002**
****
****
**2003****REVENUES**

$
23,812

$
487**COSTS AND EXPENSES**Selling, general and administrative


783,422


82,067Asset Impairment


4,745


0Total Costs and Expenses


788,167


82,067**OPERATION INCOME (LOSS)**

$
(764,355
)
$
(81,580
)**OTHER INCOME (EXPENSE)**Interest expense

$
(13,954
)
$
(8,303
)**NET LOSS/INCOME**

$
(778,309
)
$
(89,883
)**WEIGHTED AVERAGE SHARES OUTSTANDING**


17,551,684


25,217,616**EARNINGS PER SHARE**

$
(0.04
)
$
0.00  -4-
 STATEMENT OF CASH FLOWS
 
  **THREE MONTHS**
**THREE MONTHS******
****
**ENDED**
**ENDED******
****
**DECEMBER 31,**
**MARCH 31,******
****
************
****
**2002**
**2003****CASH FLOWS FROM OPERATING ACTIVITIES**Net Loss

$
(778,309
)
$
(89,883
)Adjustments required to reconcile net loss tonet cash required by operating activities:Depreciation and amortization


26,893Loss on Asset Impairment


4,745Compensation Expense for Issuance of CommonStock Options


263,160Service Fees Paid in Common Stock


28,000Bad Debt Expense


2,000(Increase) decrease in:Accounts receivable


(2,000
)Prepaid Expenses


(4,629
)

4,130Other Assets


600Accounts Payable


122,682


(12,248
)Accrued other expenses


(33,674
)**NET CASH USED IN OPERATIONS**

$
(370,532
)
$
(61,928
)**CASH FLOWS FROM INVESTING ACTIVITIES**Purchase of property and equipment


(9,208
)Sale of property and equipment


0Purchase of intangibles


0Net Cash Used in Investing activities


(9,208
)

0**CASH FLOWS FROM FINANCING ACTIVITIES**Proceeds from issuance of common stock and warrants


322,635


20,825Proceeds from stock subscriptions


133,100


10,500Proceeds from notes from stockholder


250


10,000Payments on stockholder notes


(47,473
)

(3,800
)Payments on notes payable


0Net Cash Provided by Financing Activities


408,512


37,525**DECREASE IN CASH AND CASH EQUIVALENTS**


28,772


24,403**BEGINNING CASH BALANCE**


70


28,842**ENDING CASH BALANCE**


28,842


4,439
 
 -5-
 
 **ITEM 2.   CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**
 
 Statements in this discussion which are not historical facts may be considered "forward looking statements" within the meaning of Section 21E of the Securities Act of 1934, as amended. The words "believe", "expect", "anticipate", "estimate", and similar expressions identify forward looking statements. Any forward looking statement involves risks and uncertainties that could cause actual events or results to differ, perhaps materially, from the events described in the forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise. The risks associated with the Company's forward looking statements include, but are not limited to, risks associated with the Company's history of losses and uncertain profitability, sales and marketing strategies, competition, general economic conditions, reliance on key management and production people, current and future capital needs, dilution, effects of outstanding notes and convertible debentures, limited public market for the Companys capital Stock, low stock price, and lack of liquidity.
 
 The following discussion and analysis should be read in conjunction with the
 Financial Statements, related notes and other information included in this annual report on Form 10-KSB.
 
 
 **ITEM 3.**    **Description of Business**
 
 Overview
 
 Subjex Corporation is an innovative provider of intelligent communications solutions for the Internet and Intranet environments. It is a publicly traded Minneapolis based software services company that has developed an artificial intelligence-based next generation dialogue communication platform called Subjex Exchange.
 The Subjex Exchange dialogue engine is a software application that is licensable to business and industry. For web-connected organizations, Subjex offers tools and solutions to support website operations with fully automated, online customer service, knowledge management and marketing. Our solutions allow clients to improve online sales, service and communication with their customers, transforming a web site into an automated full-service destination for customer, employee and partner communication.
 
 During the first quarter 2003, the Company focused on expanding and marketing its software while keeping costs low. With very little operation costs the company launched a new direct mail campaign to directly sell its technology. During this time the Company was able to bring in small revenues and venture capital to sustain itself.
 
 -6-
 Principal Products and Services
 
 Subjex Exchange is an artificial intelligence software platform that conducts dialogue with users (through text) to dynamically converse with a normal, human-like conversation interaction. Its application can lower costs dramatically for companies who have a lot of after-sale customer contact. The Virtual Sales Rep software can converse eloquently with hundreds of simultaneous users for less than the cost of one live operator. The Virtual Sales Rep can drastically increase sales (closing ratios) by recommending ideal products for that specific individual. This is done very quickly using a short interview conversation. The key to these products is the iterative "back and forth" methodology. The system is able to learn users needs in a way user s are already familiar with - by "talking".
 Subjex Exchange is a solution that meets all the demands of making web-based contact centers (websites) fast, easy, accurate and profitable, utilizing dialogue and iteration (a Virtual Customer Service Rep.). The companys Subjex Exchange software product suite supports each function of customer service.
 The company has gained enough expertise to market the software effectively on a mid level scale. The Company has successfully made sales with smaller companies as a result of its direct mail campaign. This campaign has seen a dramatic increase in the interest level and sales of the software. This new sales strategy in conjunction with placing the software (to sell itself) on our own web site has demonstrated to potential buyers what the potential for it can be in their own situation. With the new direct mail campaign focused on our own op-in e-mail list of 800,000 web site owners management expects to bring the company profitable in 2003.
 
 Employees
 
 The Company currently has 1 part time, and 4 full-time employees. Of the Company's full-time employees, 4 are involved in sales, marketing and administrative functions and all are involved in engineering, research and development. The Company's employees are not represented by any labor unions. The Company considers its relations with its employees to be very good.
  **ITEM 4.   Description of Property**
 
 The Company's principal office is located at 5720 Smetana Dr. Suite 325, Minnetonka, MN 55343, occupying approximately 1100 square feet and utilized entirely for office space. The lease is month to month. The space is rented under a written lease, which provides for a monthly payment of rent and a pro-rata share of annual operating expenses. Management believes that comparable office space is readily available if the Company were to lose its lease.
 
 -7-
 **ITEM 5:   Market for Common Equity and Related Stockholder Matters**
 
 (a) Market Information
 
 The Companys Common Stock is traded on the Over the Counter Bulletin Board since January 2000 under the symbol PGBN. Since the commencement of trading, the company has changed it ticker symbol in 2003 to SBJX. Its high and low sales prices of common stock were $0.40 and $.015, respectively. Since the Company is not NASDAQ qualified, these prices are inter-dealer prices and may not reflect actual value or transactions.
 
 (b) Dividends
 
 The Company has not paid dividends on its common stock and does not expect to in 2003. Although it is the company intention to pay dividends at a future date, there is no assurance that any dividends will be paid in the future, as dividends are dependent upon earnings. Any earnings, for the foreseeable future, will be utilized to invest in projects intended to build the Companys economic base.
 
 
 
 ITEM 6:   Management's Discussion & Analysis of Financial Condition and Results of Operations
 
 The company has generated immaterial revenues in the quarter ended March 31, 2003. However the percentages of increases in sales is significant. More importantly the company has discovered a marketing approach that will scale up according to the same percentages. The results of our direct mail campaign have given us a method of growing the business that management feels is predictable. Now that the company knows how to increase the market it is in a better position to better make prediction of our future sales results of operations. The company has 795,000 people who have submitted their web site, which we are now using for our e-mail campaign. This List is growing by an average of 30,000 submissions per month. Although we have now seen significant growth in our marketing efforts and sales results we do not know exactly when this will bring profitable operations. Profitable operations are however expected sometime in 2003. In addition the company still needs some additional capital investment. Despite the slight difficulties the company has had in raising funds over the years, the company continues to obtain adequate funding to not just survive but improve and make sales. The Company expects to experience significant fluctuations in its future earnings, but very little reduction in revenue levels once attained. The reason for this is that all sales of its software are based upon a monthly leasing plan (ASP model) and one sale will generate ongoing revenues every month. Factors that may affect the Company's operating results include the continued success of marketing, continued market acceptance of the Company's products, and managements ability to continue without spending much of its resources.
 
 -8-
 PART II.
 
 Item 1. - Legal Proceedings
 
 There were two judgments put in place against the company in this quarter for less than $15,000 total. Management has made payment arrangements with these people and has no reason to believe that these judgments will adversely affect the companys ability to execute its business plan. In addition the company has worked out a compromise with the Internal Revenue service for all of its tax debts of approximately 90,000 dollars. The terms of this arrangement are an initial payment of $5,000 (already paid) and 36 monthly payments of $2,433.33. Most of this debt was picked us as a result of the companies staff increases in the later part of 2002, which the company rectified in December 2002. With a replacement of our full time internal accounting, and an outsourcing with more experienced accounting personnel and payroll services, all future payroll taxes are expected to be paid on time as a normal part of operations. To the Company's knowledge there are no other items that would be material to the financial position of the Company.
 
 Item 2 - Changes in Securities and Use of Proceeds
 
 None.
 
 Item 3 - Defaults on Senior Securities
 
 None.
 
 Item 4 - Submission of Matters to a Vote of Security Holders
 
 It is acknowledged that any sale or substantial restructuring of the Company will require a shareholders vote. No matters were submitted to the vote of the Companys stockholders in this quarter.
 
 Item 5 - Other Information
 
 None.
 
 Item 6  Exhibits and reports on form 8-K
 
 None
 
 -9-
 SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned hereunto duly authorized.
 **Subjex Corporation**
****(registrant)

********
**By:**
**/s/ Andrew Hyder******
**Andrew Hyder, CEO**
 -10-