SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
ý Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2003.
o Transition report under Section 13 or 15(d) of the Securities Exchange 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
incorporation or organization) | | (I.R.S. Employer
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 by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
The number of outstanding shares of the issuer’s common stock, $0.001 par value (the only class of voting stock), as of September was 85,675,747
Transitional Small Business Disclosure Format | | Yes o | No ý |
Table of Contents
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term “Company” refers to Primary Business Systems Inc., a Nevada corporation, and its subsidiaries and predecessors unless otherwise indicated. Unaudited, consolidated condensed interim financial statements including a balance sheet for the Company as of the quarter ended September 30, 2003 and statements of operations, and statements of cash flows for the interim period up to the date of such balance sheet and the comparable period of the preceding year for the statement of operations are attached hereto as of Pages F-1 through F-9.
F-1
Primary Business Systems, Inc.
Index
Unaudited Consolidated and Condensed Interim Financial Statements
For the Period Ended
September 30, 2003
F-2
PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Balance Sheet
As of September 30, 2003
ASSETS | | | |
| | | |
Current assets | | | |
| | | |
Cash | | $ | 13,364 | |
Notes receivable – Related Party | | 121,256 | |
Client accounts receivable | | 61,377 | |
Prepaid Expense | | 100,404 | |
Workers Compensation prepaid premiums | | 80,097 | |
Prepaid Business Promotion | | 33,340 | |
| | | |
Total Current Assets | | 409,837 | |
| | | |
Property & Equipment | | | |
| | | |
Furniture & Fixtures | | 48,548 | |
Computer equipment | | 84,300 | |
Payroll Software | | 43,724 | |
| | | |
| | 176,572 | |
Less: accumulated depreciation | | (112,738 | ) |
| | | |
Total Property & Equipment | | 63,834 | |
| | | |
Other Assets | | | |
| | | |
Security deposits | | 1,054 | |
Customer List | | 12,000 | |
Goodwill | | 557,240 | |
| | | |
Total Other Assets | | 570,240 | |
| | | |
Total Assets | | $ | 1,043,966 | |
The accompanying notes are an integral part of these financial statements.
F-3
PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Balance Sheet
As of September 30, 2003
LIABILITIES | | | |
| | | |
Current liabilities | | | |
| | | |
Accounts payable | | $ | 123,905 | |
Checks drawn on uncollected funds | | 128,259 | |
Client payroll tax payable | | 46,450 | |
Credit card payable | | 52,335 | |
Client payroll amount withheld | | 1,398 | |
Notes payable | | 26,973 | |
Line of credit from banks | | 48,921 | |
| | | |
Total Current Liabilities | | 428,243 | |
| | | |
Other Liabilities | | | |
| | | |
Due to shareholder/officer for stock yet to issue | | 628,032 | |
| | | |
Total Liabilities | | 1,056,275 | |
| | | |
Stockholders’ Equity (Deficiency) | | | |
| | | |
Common stock, -$.001 par value authorized - 750,000,000 shares Issued and outstanding 85,675,747 | | 85,675 | |
Paid in Capital excess of par value | | 954,445 | |
Accumulated (Deficit) | | (1,052,429 | ) |
| | | |
Total Stockholders’ Equity | | (12,309 | ) |
| | | |
Total Liabilities and Stockholders’ Equity | | $ | 1,043,966 | |
The accompanying notes are an integral part of these financial statements.
F-4
PRIMARY BUSINESS SYSTEMS INC and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Statement of Operations
For the Three Months and Nine Months Ended September, 2003 and 2002
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 | |
| | 2003 | | 2002 | | 2003 | | 2002 | |
Revenues | | $ | 748,326 | | 566,346 | | $ | 2,087,490 | | 1,909,492 | |
Cost of Revenues | | 510,436 | | 441,697 | | 1,486,399 | | 1,499,201 | |
Gross Profit | | 237,890 | | 124,667 | | 601,091 | | 410,291 | |
Operating Expenses | | | | | | | | | |
General & Administrative Wages, Commissions & Salaries | | 142,873 115,090 | | 117,382
38,299 | | 379,997 315,934 | | 244,806 157,677 | |
Consulting services for acquisition | | 0 | | 0 | | 75,000 | | 0 | |
| | 257,963 | | 155,681 | | 779,377 | | 402,483 | |
Income (Loss) from Operations | | (20,073 | ) | (31,014 | ) | (178,286 | ) | 7,808 | |
Other Income | | 184 | | 4,494 | | 2,621 | | 5,052 | |
Income (Loss) Before Provision For Income Tax | | (19,889 | ) | (26,520 | ) | (175,665 | ) | 12,860 | |
Provision for Income Taxes | | — | | — | | — | | — | |
Net Income (Loss) | | $ | (19,889 | ) | (26,520 | ) | $ | (175,665 | ) | 12,860 | |
Basic & Distributed Net Income Per Share | | $ | 0.00 | | — | | $ | (0.00 | ) | — | |
Basic & distributed Weighted Average Shares Outstanding | | 84,831,787 | | — | | 69,424,006 | | — | |
The accompanying notes are an integral part of these financial statements.
F-5
PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Statement of Stockholders’ Equity (Deficiency)
For the Period Ended September 30, 2003
| | | | Additional
Paid-In
Capital | | Accumulated
(Deficit) | | Total Equity
(Deficiency) | |
Common Stock |
Shares | | Amount |
Balance 12/31/02 | | | | | | | | $ | (876,764 | ) | $ | (876, 764 | ) |
| | | | | | | | | | | |
Net Loss | | | | | | | | (155,776 | ) | (155,776 | ) |
| | | | | | | | | | | | | |
Balance June 30, 2003 | | 84,397,392 | | $ | 84,397 | | $ | 808,851 | | (1,032,540 | ) | (139,292 | ) |
| | | | | | | | | | | |
Issuance of restricted stock for prepaid services | | 876,355 | | 876 | | 82,996 | | | | 83,872 | |
Issuance of restricted stock for purchase of assets | | 152,000 | | 152 | | 37,848 | | | | 38,000 | |
| | | | | | | | | | | |
Issuance of restricted stock for prepaid services | | 250,000 | | 250 | | 24,750 | | | | 25,000 | |
| | | | | | | | | | | |
Net Income (Loss) | | | | | | | | (19,889 | ) | (19,889 | ) |
| | | | | | | | | | | |
Balance June 30, 2003 | | 85,675,747 | | $ | 85,675 | | $ | 954,445 | | $ | (1,052,429 | ) | $ | (12,309 | ) |
The accompanying notes are an integral part of these financial statements
F-6
PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Statements Of Cash Flow
For the Nine Months Ended September 30, 2003 and 2002
| | 2003 | | 2002 | |
Net (Loss) Income | | $ | (175,665 | ) | $ | 12,860 | |
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: | | | | | |
Depreciation and amortization | | 25,362 | | 35,333 | |
(Increase) decrease in accounts receivable | | 2,097 | | (20,190 | ) |
(Increase) decrease in prepaid expense | | (133,744 | ) | | |
(Increase) decrease in other current assets | | 67,457 | | 5,790 | |
Increase (decrease) in accounts payable | | 33,276 | | (11,389 | ) |
Increase (decrease) in client payroll tax liability | | 46,450 | | | |
Increase(decrease) in other current liabilities | | 57,733 | | | |
Increase (decrease) in other assets | | (1,054 | ) | | |
Adjustment to consulting expense on return of stock | | 75,000 | | | |
Checks drawn on uncollected payrolls | | 17,010 | | | |
| | | | | |
Total Adjustments | | 185,587 | | (90,456 | ) |
Net cash provided by (used in) operating activities | | 9,922 | | (77,596 | ) |
Cash flows from investing activities | | | | | |
Payments for the purchase of property | | (40,297 | ) | (14,381 | ) |
Net cash provided by (used in) investing activities | | (40,297 | ) | (14,381 | ) |
Cash flows from financing activities | | | | | |
Net borrowing under line of credit | | (6,886 | ) | 27,939 | |
Net borrowing on notes payable | | 26,973 | | | |
Principal payments on short-term debt | | (41,893 | ) | 3,097 | |
Due to shareholders/officers | | 34,677 | | (41,508 | ) |
Net cash provided by (used in) financing activities | | 12,871 | | (10,472 | ) |
Net increase (decrease) in cash and cash equivalents | | (17,504 | ) | (102,449 | ) |
Cash and cash equivalents at beginning of year | | 30,868 | | 127,889 | |
Cash and Cash equivalents at end of quarter | | $ | 13,364 | | $ | 25,440 | |
The accompanying notes are an integral part of these financial statements
F-7
PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES
Unaudited Consolidated Condensed Interim
Statement of Cash Flows (continued)
For the Nine Months Ended September 30, 2003 and 2002
| | 2003 | | 2002 | |
Supplemental Information | | | | | |
Cash Payments for Income Taxes | | $ | | | $ | | |
Non Cash Items | | | | | |
Stock for consulting services | | $ | 108,872 | | $ | — | |
The accompanying notes are an integral part of these financial statements.
F-8
PRIMARY BUSINESS SYSTEMS INC., and SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Interim Financial Statements
September 30, 2003
NOTE 1 – BASIS OF PRESENTATION
The condensed interim financial statements at September 30, 2003 and are unaudited, but include all adjustments which the Company considers necessary for a fair presentation.
The accompanying unaudited financial statements are for the interim periods and do not include all disclosures normally provided in annual financial statements, and should be read in conjunction with the Company’s Form 10-KSB for the year ended December 31, 2002. The accompanying unaudited interim financial statements for the current quarter and year to date ended September 30, 2003, are not necessarily indicative of the results which can be expected for the entire year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In February 2003 the Company incurred a prepaid business promotion expense of $80,016 that is amortized over a twelve month period. Management has elected to record monthly amortization expense of $6,668 to accurately match the expense with the revenues it generates. The portion of the business promotion expense for the three months ended September 30, 2003 is $20,004.
The Company has consolidated the financial statements of its wholly owned subsidiaries, Primary Business Systems, LLC and AHJR Inc., (dba/Concord Staffing Services) in these financial statements. All significant intercompany transactions have been eliminated. The Company acquired all of the outstanding capital stock of AHJR Inc., in the first quarter ended March 31, 2003.
In accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” the Company recognizes amounts billed to clients for administrative fees, health insurance, workers’ compensation and unemployment insurance because revenues as the Company acts as a principal with regard to these matters. Amounts billed for gross payrolls (less employee health insurance contributions), employer taxes and 401(k) matching contributions are recorded net of corresponding payments as the Company is deemed to act only as an agent in these transactions. The Company recognizes
in its balance sheet the entire amounts billed to clients for gross payroll and related taxes, health insurance, workers’ compensation, unemployment insurance and administrative fees as unbilled receivables, on an accrual basis, any such amounts that relate to services performed by worksite employees that have not yet been billed to the client at the end of an accounting period. The related gross payroll and related taxes and costs of health insurance, workers’ compensation and unemployment insurance are recorded as accrued compensation at the end of an accounting period.
NOTE 3 – CHANGE IN STOCKHOLDERS’ EQUITY
The statement of changes in stockholders’ equity is reported in these financial statements and discloses the transactions as they were incurred in the three months ended September 30, 2003.
In the current quarter, the Company, through AHJR Inc., purchased the assets of a staff leasing company for a total purchase price of $50,000 by the issuance of a promissory note in the principal amount of $12,000 and the issuance of 152,000 restricted shares of stock of the Company for the remaining $38,000 of the purchase price. During the current quarter, The Company issued a total of 1,126,355 restricted shares for consulting services from third parties valued at $108,872, based upon the market price of the stock. These shares are a prepayment for services to be rendered by the consultants over a twelve month period. The consulting expense amortized and reported in the current quarter is $8,468, leaving a current asset of prepaid expense at $100,404.
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NOTE 4 – RELATED PARTY TRANSACTIONS
The Company has reported a Note Receivable as a current asset of $121,256. The note is payable by Consumers Insurance Agency, LLC (CIA). The primary member of (CIA) is Patrick Matthews who is also the majority shareholder in the Company and the President and Chief Executive Officer and a director. .. The note dated May 2002 was issued by Consumers to Primary Business Systems LLC reflect payment by Primary Business Systems LLC of certain expenses on Consumer’s behalf.
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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
General
Primary Business Systems Inc. (the “Company”), a Nevada corporation, is a Business Process Outsourcing (“BPO”) company specializing in human resources. The Company, through its subsidiary Primary Business Systems LLC, is a provider of Professional Employer Organization (“PEO”) services in Texas and offers its services to small to medium-sized businesses. These services include payroll processing, benefits administration, on-site and online employee and employer communications and self-service, employment practices and human resources risk management, and workforce compliance administration. The Company through its subsidiary AHJR Inc (d/b/a/ Concord Staffing Services), is a provider of Temporary Employment Services (Staff Leasing) services in Texas and offers its services to small to medium-sized businesses. These services include applicant screening and qualification prior to placement and HR administration of placed employees.
The Company’s current operations were commenced in November 2003 when the Company (formerly named Sharecom, Inc.), acquired all of the ownership interests of Primary Business Systems LLC., a privately owned entity. The transaction was, for accounting purposes, accounted for under the purchase method of accounting as a reverse acquisition. Primary Business Systems LLC was treated as the acquiring company for accounting purposes because its shareholders acquired more than 50% of the post-transaction outstanding shares of stock of the Company. The shareholders of Primary Business Systems LLC received an approximate aggregate of 3,070,000 shares of the Company in the transaction, and management of the Company was changed to reflect the new ownership. On or about March 2003 the Company changed its name from ShareCom Inc to Primary Business Systems Inc.
The following discussion examines the Company’s financial condition as a result of the operations for the Third quarter ending September 30, 2003 and compares those results with comparable periods from last year.
Operations
Though our subsidiary Primary Business Systems LLC (PBS), PEO revenue is recognized as service is rendered. The PEO revenue consists of charges by the Company for the administrative service fees, health insurance, workers’ compensation charges and employer paid unemployment insurance. These charges, along with gross payroll, payroll taxes and retirement benefits are invoiced to the client at the time of each periodic payroll. The Company negotiates the pricing for its various services on a client-by-client basis based on factors such as market conditions, client needs and services requested, the client’s workers’ compensation experience, credit exposure and the required resources to service the account. Because the pricing is negotiated separately with each client and varies according to circumstances, the Company’s revenue, and therefore its gross margin, will fluctuate based on the Company’s client mix. Our objective is to sell PEO services to business with from five (5) to one hundred employees (100). Becoming the employer of record for our clients we relieve them of many of the burdens and risks of the business of employment (which is our business) and allow them to “focus on the business of business” (their core competencies).
Through our subsidiary AHJR Inc. DBA Concord Staffing Services (CSS), we operate the temporary staffing operations. Our objective is to sell temporary staffing services to companies in with in the county of our office locations. CSS began by acquiring the assets of a temporary staffing company with three offices, Bexar County, Guadalupe County and Comal County during the quarter we closed the Guadalupe and Comal offices and centralized operations out of our Bexar office. The streamlining of operations has resulted in savings by reducing the overhead of the additional offices.
The Company believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of its consolidated financial statements:
Revenue Recognition.
The Company bills its clients on each payroll date for (i) the actual gross salaries and wages, related employment taxes and employee benefits of the Company’s worksite employees, (ii) actual advertising costs associated with recruitment, (iii) workers’ compensation and unemployment service fees and (iv) an administrative fee. The Company’s administrative fee is computed based
F-11
upon either a fixed fee per worksite employee or an established percentage of gross salaries and wages (subject to a guaranteed minimum fee per worksite employee), negotiated at the time the client service agreement is executed. The Company’s administrative fee varies by client based primarily upon the nature and size of the client’s business and the Company’s assessment of the costs and risks associated with the employment of the client’s worksite employees. Accordingly, the Company’s administrative fee income will fluctuate based on the number and gross salaries and wages of worksite employees, and the mix of client fee income will fluctuate based on the mix of total client fee arrangements and terms. Although most contracts are for one year and renew automatically, the Company and its clients generally have the ability to terminate the relationship with 30 days’ notice.
The Company bills its clients for workers’ compensation and unemployment costs at rates that vary by client based upon the client’s claims and rate history. The amount billed is intended (i) to cover payments made by the Company for insurance premiums and unemployment taxes, (ii) to cover the Company’s cost of contesting workers’ compensation and unemployment claims, and other related administrative costs and (iii) to compensate the Company for providing such services. The Company has an incentive to minimize its workers’ compensation and unemployment costs because the Company bears the risk that its actual costs will exceed those billed to its clients, and conversely, the Company profits in the event that it effectively manages such costs. The Company believes that this risk is mitigated by the fact that its typical standard client agreement provides that the Company, at its discretion, may adjust the amount billed to the client to reflect changes in the Company’s direct costs, including, without limitation, statutory increases in employment taxes and insurance. Any such adjustment that relates to changes in direct costs is effective as of the date of the changes, and all changes require 30 days’ prior notice.
Costs of services include health insurance, workers’ compensation insurance and unemployment insurance costs. The Company maintained a workers’ compensation program for all of its employees from November 2000 and intends to renew the program with Texas Mutual Insurance Company on or about November 18, 2003, which is a fully insured program, under this program, the Company’s maximum cost is represented by the premiums paid to the insurer. The Company’s clients are billed at fixed rates determined when the contract is negotiated with the client. The fixed rates include charges for workers’ compensation based upon the Company’s assessment of the costs of providing workers’ compensation to the client. If the Company’s costs for workers’ compensation are greater than the costs included in the client’s contractual rate, the Company may be unable to recover these excess charges from the clients. The Company reserves the right in its contracts to increase the workers’ compensation charges on a prospective basis only.
In accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” the Company recognizes amounts billed to clients for administrative fees, health insurance, workers’ compensation and unemployment insurance because revenues as the Company acts as a principal with regard to these matters. Amounts billed for gross payrolls (less employee health insurance contributions), employer taxes and 401(k) matching contributions are recorded net of corresponding payments as the Company is deemed to act only as an agent in these transactions. The Company recognizes in its balance sheet the entire amounts billed to clients for gross payroll and related taxes, health insurance, workers’ compensation, unemployment insurance and administrative fees as unbilled receivables, on an accrual basis, any such amounts that relate to services performed by worksite employees that have not yet been billed to the client at the end of an accounting period. The related gross payroll and related taxes and costs of health insurance, workers’ compensation and unemployment insurance are recorded as accrued compensation at the end of an accounting period.
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RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 30, 2002, including all amendments thereto, as well as the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
THREE MONTHS ENDED JUNE 28, 2003 COMPARED TO THREE MONTHS ENDED JUNE 29, 2002
The following table presents certain information related to the Company’s results of operations for the three months ending September 30, 2003 and September 30, 2002:
| | September
30, 2003 | | September
30, 2002 | | %
Change | |
| | Unaudited | | Unaudited | | | |
Revenues | | $ | 748,326 | | $ | 566,346 | | 32.13 | |
Gross Profit | | 237,890 | | 124,667 | | 90.82 | |
Operating Expenses | | 257,963 | | 155,681 | | 65.70 | |
Operating Loss | | (19,889 | ) | (26,520 | ) | | |
Net Loss Attributable to Common Shareholders | | — | | — | | — | |
Net Loss Per Share Attributable to Common Shareholders | | — | | — | | — | |
| | | | | | | | | |
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002
The following table presents certain information related to the Company’s results of operations for the nine months ended September 30, 2003 and September 30, 2002:
| | September
30, 2003 | | September
30, 2002 | | %
Change | |
| | Unaudited | | Unaudited | | | |
Revenues | | $ | 2,087,490 | | $ | 1,909,492 | | 9.32 | |
Gross Profit | | 601,091 | | 410,291 | | 46.50 | |
Operating Expenses | | 779,377 | | 402,483 | | 93.64 | |
Operating Loss | | (175,665 | ) | 12,860 | | | |
Net Loss Attributable to Common Shareholders | | — | | — | | — | |
Net Loss Per Share Attributable to Common Shareholders | | — | | — | | — | |
| | | | | | | | | |
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REVENUES
Company consolidated net revenues were $748,326 compared to $566,346 for the third quarter 2003 to 2002 respectively, an increase of $181,980 or 32.13%. This is the second quarter with revenue increases in excess of 30%, offsetting our first quarter decreases resulting in our year to date net revenue for nine months of $2,087,490 compared to $1,909,492 an increase of $177,998 or 9.32%.
COSTS OF SERVICES/GROSS PROFIT
Consolidated cost of revenue was $510,436 compared to $441,679 for the same period 2003 and 2002, an increase in cost of revenue $68,757 or 15.57%. Our nine month cost of revenue is $ 1,486,399 compared to $1,499,201 a decrease in cost of $12,808. Consolidated gross profits were $ 237,890 compared to $124,667 for the third quarter 2003 to 2002 respectively an increase of $113,233 or 90.82%. Our nine month results are $601,091 compared to $410,291 an increase of $190,800 or 46.50%. Gross profit increased as a result of controlling the cost of insurance losses, unemployment taxes and increased fees attributed to new lower risk clients.
OPERATING EXPENSES
Consolidated General & Administrative expenses for the quarter were $142,873 compared to $117,382, 2003 to 2002 respectively this was an increase of $25,491. For the nine months G & A expenses were $388,443 compared to $244,806 an increase of $143,637. Cost increases for the nine months are largely related to increases in legal fees and accounting cost increases over the previous year. It is important to note the G & A expenses have leveled and will become less of a factor as the Company increases sales.
Consolidated wages, commissions & salaries were $115,090 compared to $38,299 for the quarter 2003 to 2002 respectively, an increase of $76,791. Nine month results are $315,934 compared to $157,677 2003 to 2002 respectively an increase of $158,257. The nine month increase is due largely to additions of sales salary and commissions, the addition of an accounting department and accounting for CEO salary. Payroll cost has leveled off and we expect to operate with existing personnel through the first quarter of 2004, at that time we expect to add additional sales personnel for both operating subsidiaries.
OPERATING LOSS
Third quarter operations resulted in a net loss before taxes of $19,889 in the current quarter compared to a loss of $26,520 in the same quarter of fiscal 2002, a reduction in loss of $ 6,631 or 25%. Year to date for the nine months ending September are a loss of $175,665 compared to a gain of $12,860 for the same nine months in fiscal 2002 To summarize the reduction in profit is contributive to increases in the infrastructure of the Company for growth, increases in legal and accounting expenses as a result of being a reporting company and the addition of new operating subsidiaries. We expect as increases in sales continue at the pace of the past two quarters.
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INCOME TAX EXPENSE
For the three months ended September 30, 2003 and September 30, 2002, respectively, no provision for federal income taxes has been recorded.
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
The net income (loss) for the three months ended September 30, 2003 was $ 00 compared to a net income (loss) of $00 for the three months ended June 30, 2002.
The weighted average number of shares used in the calculation of income (loss) attributable to common shareholders for the three months ended September 30, 2003 and June 30, 2002 excludes options, warrants, as their inclusion would be anti-dilutive.
CAPITOL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $9,922 for the nine months ended September 30, 2003 compared to net cash used in operating activities of $77,596 for the nine months ended September 30, 2002. The increase in cash provided by operating activities was primarily due to the increase of liabilities timing of which deals with the timing of client payrolls.
Net cash used in investing activities was $40,297 for the nine months ended September 30, 2003 compared to $14,381 for the nine months ended September 30, 2002. The primary use of cash for investing activities during the nine months ended September 30, 2003 was $38,000 for the acquisition of customer relationship rights and property from The Job Market Inc. (TJM).
Net cash provided in financing activities during the nine months ended September 30, 2003 was $12,871 compared to net cash used by financing activities during the nine months ended September 30, 2002 of $10,472. The Company’s subsidiary Primary Business Systems LLC has a Bank line of credit the principal amount is $60,000.00 as of September 30, 2003 the outstanding balance was $48,921.00. The note matures December 30, 2003 it carries a 9% APR, payments of $6,886 were made on the note during the quarter.
On September 30, 2003 Primary Business Systems Inc, had current assets of $409,837 and $1,043,966 in total assets compared to $228,238 of current assets and $1,097,136 in total assets at the year ended December 31, 2002.. The Company had net working capital of $13,364 compared to $25,440 for the nine months 2003 to 2002 respectively
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material effect upon its business.
ITEM 3 CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, conducted an evaluation of our “disclosure controls and procedures” (as defined in 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 “Evaluation Date”). Based on their evaluation, our chief executive officer and chief financial officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that all material
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information required to be filed in this Quarterly Report on Form 10-Q has been made known to them in a timely fashion.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date set forth above.
FORWARD LOOKING STATEMENTS
The information herein contains certain forward looking statements within the meaning of Section 27A of the Securities Act 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 created thereby. Investors are cautioned that all forward looking statements involve risks and uncertainly including, without limitation, the ability of Primary Business Systems Inc., to continue its expansion strategy, changes in the PEO markets, labor and employee benefits, changes in the Insurance markets, changes in government regulations as well as general market conditions, competition, and pricing. Although Primary Business Systems Inc., believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward looking statement included in the Form 10-QSB will prove to be accurate. In view of the significant uncertainties inherent in the forward looking statements included herein, the inclusion of such information should not be regarded as a representation by Primary Business Systems Inc., or any other person that the objectives and plans of Primary Business Systems, Inc., will be achieved.
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PART II
OTHER INFORMATION
Item 1 Legal Proceedings
Summary of the matter styled Suburban Capital Corporation v. Primary Business Systems, L.L.C, Primary Business Systems, Inc. and Ed Wells in the United States District Court, Northern District of Illinois, Eastern Division, Case No. 03-CV-4194.
On or about June 12, 2003, the Company was served with a suit commenced in the circuit court of Cook County, Illinois by Suburban Capital Corporation (“Suburban”). An attorney who worked with the Company, Ed Wells, is also named as a defendant in the suit. The Company removed the lawsuit to the United States District Court for the Northern District of Illinois, Eastern Division on or about June 20, 2003. In summary, the suit seeks damages for the Company’s alleged failure to make full payment to Suburban for consulting work allegedly performed by Suburban for the benefit of the Company pursuant to an Advisory Agreement (the “Agreement”). The suit also seeks damages pursuant to a Stock Purchase Agreement in which Pine Services, Inc., a company related to Suburban, sold a controlling interest in the publicly-held Sharecom, Inc. to the Company. Based upon its preliminary review of this lawsuit and the discovery produced by all parties to date, the Company and its counsel believe this suit to be without merit. The Company believes that Suburban is in breach of the Advisory Agreement by not providing any of the services required by the Agreement and therefore the Company is not obligated to pay Suburban under the Agreement. The Company also believes that Suburban made material misrepresentations to the Company regarding the terms, scope and effect of the Agreement and therefore may have committed fraud. The Company also believes that the demand for payment pursuant to the Stock Purchase
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Agreement is untimely and further believes that Suburban made material misrepresentations regarding the quality and characteristics of Sharecom, Inc. in order to induce the Company to enter into the Stock Purchase Agreement, and therefore may have again committed fraud. The Company intends to vigorously defend itself against this lawsuit and pursue any and all remedies it may have against Suburban.
Other than as described above the Company is not involved in any legal proceedings which may have a material effect upon the Company, its financial condition or operations.
Item 2. Changes in Securities and Use or Proceeds
During the current quarter, The Company issued 152,000 restricted shares for the remaining purchase price of $38,000 for the customer lists and physical assets of The Job Market. During the current quarter, The Company issued a total of 1,126,355 restricted shares for consulting services from third parties valued at $108,872, based upon the market price of the stock. These shares are a prepayment for services to be rendered by the consultants over a twelve month period.
With respect to these issuances, the Company relied upon Section 4(2) of the Securities Act of 1933. All of such issuances were completed with private individuals or entities providing services to the Company and were not the result of any general solicitation.
Item 3. Defaults Upon Senior Securities
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
The Company previously announced on October 7, 2003 that it had entered into a letter of intent to acquire a privately held professional employer organization located in Texas. The Company and the proposed target did not enter into a final agreement and the letter of intent has expired. The Company and the target are continuing discussions, although there can be no assurance that any transaction will be consummated
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be attached by Item 601 of Regulation S-B are listed in the index to Exhibits on page 11 of this Form 10-QSB, and are incorporated herein by this reference.
(b) Reports on Form 8-K. The Company did not file 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 the Exchange Act, the registrant caused this report to be singed on its behalf by the under singed, there unto dully authorized, this 13th day of November 2003.
Primary Business Systems Inc. | |
| |
S/ Patrick D Matthews | | |
Patrick D. Matthews | |
President, Chief Executive Officer and Chairman | November 13, 2003 |
| | |
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INDEX TO EXHIBITS
Exhibit
No. | | Description |
| | |
31.1 | | 302 Certification CEO |
31.2 | | 302 Certification CFO |
32.1 | | 902 Certification CEO |
32.2 | | 902 Certification CFO |
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