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 March 31, 2005.

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		(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 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.

Yes ý No o

The number of outstanding shares of the issuer’s common stock, $0.001 par 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

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 March 31, 2005 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 and are incorporated herein by this reference.

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-QSB and Item 310 under subpart A of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements for the years ended December 31, 2004 and December 31, 2003. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of results that may be expected for the year ended December 31, 2005. The financial statements are presented on the accrual basis with significant intercompany transactions and balances eliminated.

Primary Business Systems Inc.

& Subsidiaries

Index

Unaudited Consolidated Condensed Interim Financial Statements

For the Period Ended

March 31, 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

PRIMARY BUSINESS SYSTEMS, INC.

& SUBSIDIARIES

Consolidated Balance Sheet

As of 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 notes are an integral part of these financial statements.

PRIMARY BUSINESS SYSTEMS, INC.

And SUBSIDIARIES

Consolidated Balance Sheet Continued

As of 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

The accompanying notes are an integral part of theses financial statements.

PRIMARY BUSINESS SYSTEMS, INC.

And SUBSIDIARIES

CONSOLIDATED STATEMENTS 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 notes are an integral part of these financial statements.

PRIMARY BUSINESS SYSTEMS, INC. & SUBSIDUARIES

CONSOLIDATED STATEMENTS 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 notes are an integral part of these financial statements

PRIMARY BUSINESS SYSTEMS, INC. and SUBSIDIARIES

Notes to Unaudited Consolidated Condensed Interim Financial Statements

March 31, 2005

NOTE 1 — BASIS OF PRESENTATION

The condensed interim financial statements at March 31, 2005 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, 2004. The accompanying unaudited interim financial statements for the current quarter and year to date ended March 31, 2005, 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

The Company has consolidated the financial statements of its wholly owned subsidiaries, Primary Business Systems, LLC, Primary HR Services LLC and AHJR Inc., dba/Concord Staffing Services in these financial statements. All significant intercompany transactions have been eliminated.

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

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 March 31, 2005.

NOTE 4 — RELATED PARTY TRANSACTIONS

Notes Receivable reported as a current asset of $53,799 is due from Consumers Insurance Agency, LLC. The primary member of the LLC is Patrick Matthews who is the majority shareholder in the Company. The notes receivable make up revolving cash advances to the LLC and expenses paid on behalf of the LLC by the Company.

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

NOTE 5 — ACCOUNTS RECEIVABLE FACTORED

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

NOTE 6 — PENDING CHANGE IN MAJORITY OWNERSHIP AND LIQUIDATION OF THE OPERATIONS

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

The Settlement Agreement provides that all parties involved essentially unwind the initial transactions that occurred on or about November 2002 and which resulted in the Company entering into its current lines of business and the Matthews Family obtaining control of the Company. It also settles several lawsuits among the Matthews Family, the Company and the Former Owners.. This entails Matthews surrendering their controlling interest in the Company to the Former Owners and returning a significant number of shares to the Company. In exchange Matthews will receive all of the capital stock of all of the subsidiaries of the Company. In addition, Matthews will receive from the Former Owners $200,000 payable in installments, of which $50,000 has been paid to date. Matthews will forgive all debt owed 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 completed as described or at all. The Company has filed a Form 14C Information Statement with respect to the transaction and have mailed a copy to shareholders of record as of April 22, 2005.

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

NOTE 7 — CONTINGENT LIABILITIES & LITIGATION

The Company presently has two separate lawsuits filed against it pending resolution. Limited discovery has occurred in both cases. The Company intends to vigorously defend itself against both of these lawsuits and to pursue what remedies it may have against the plaintiffs. Management believes the contingent liability of these lawsuits is minimal, and therefore, it has concluded to accrue no contingency in the financial statements for them.

On August 2, 2004, AMS Staff Leasing, LTD. filed a lawsuit in the 298th Judicial District Court, Dallas County, Texas (Cause No. 04-07448-M) against Patrick Dey Matthews CEO of the Company, the Company, and Primary Business Systems LLC (the “Defendants”). It alleges, among other claims, breach of fiduciary duty, breach of contract and conversion. On September 13, 2004, the Defendants filed a motion to transfer venue and answer.

On or about September 13, 2004, Primary Business Systems L.L.C. (“PBS LLC”), a wholly owned subsidiary of the Company, was served with a suit filed in 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 motion to transfer venue and answer.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking and Cautionary Statements

The following discussion contains forward-looking statements. The Company’s actual results could differ materially from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Form 10-Q. See “Cautionary Note Regarding Forward-Looking Statements”. The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and notes thereto included elsewhere in this filing and in conjunction with our Form 10-K including risk factors stated therein. Historical results are not necessarily indicative of trends in operating results for any future period.

Critical Accounting Policies and Estimates

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

Revenue Recognition. The gross billings that Primary LLC, Primary HR and Concord Staffing (the Subsidiaries) charges its clients under its Customer Services Agreement include each worksite employee’s gross wages, a service fee and, to the extent elected by the clients, health and welfare benefit plan costs. The service fees, which are computed as a percentage of gross wages, is intended to yield a profit to Subsidiaries and cover the cost of certain employment-related taxes, workers’ compensation insurance coverage, and administrative 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 fee related to administration varies according to the size of the client, the amount and frequency of payroll payments and the method of delivery of such payments. The component of the service fee related to workers’ compensation and unemployment insurance is based, in part, on the client’s historical claims experience. All charges by the Subsidiaries are invoiced along with each periodic payroll delivered to the client.

Primary reports revenues from service fees in accordance with Emerging Issues Task Force (“EITF”) No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company reports as revenues, on a gross basis, the total amount billed to clients for service fees, health and welfare benefit plan fees, workers’ compensation and unemployment insurance fees. Primary reports revenues on a gross basis for these fees because Primary Business Systems LLC and Primary HR Services LLC are the primary obligor and deemed to be the principal in these transactions under EITF No. 99-19. Primary reports revenues on a net basis for the amount billed to clients for worksite employee salaries, wages and certain payroll-related taxes less amounts paid to worksite employees and taxing authorities for these salaries, wages and taxes. Primary accounts for its revenues using the accrual method of accounting. Under the accrual method of accounting, Primary recognizes its revenues in the period in which the worksite employee performs work.

Primary accrues revenues and unbilled receivables for service fees relating to work performed by worksite employees but unpaid at the end of each period. In addition, the related 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 PEO service fees are billed.

Overview

The business of Primary Business Systems Inc. is to operate in the Professional Employer Organization industry and the Temporary Staffing Services Industry and operates through its subsidiaries Primary Buisness Systems LLC, Primary HR Services LLC and Concord Staffing Services (Subsidiaries) and as economies of scale can be realized combine the individual entities in each sector.

Primary LLC and Primary HR Services LLC are regional Professional Employer Organizations (PEO) committed providing human capital management solutions. We offer our clients, which are typically small to medium-sized business with between five and fifty employees, a broad range 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 and retirement benefits.

Concord Staffing Service is a regional temporary staffing services company helping business meet their staffing needs while minimizing there employee acquirement cost. We offer qualified screened employees to our clients that meet their employment needs on temporary biases. Concord provides all payroll administration, unemployment administration and assignment administration of the temporary staff.

Revenues. Revenues consist of service fees charged by Primary LLC, Primary HR Services LLC and Concord (Subsidiaries) to cover the costs of certain employment-related taxes, workers’ compensation insurance coverage and administrative and field services provided to their clients. The service fee charged is invoiced along with each periodic payroll delivered to the client. The client’s portion of health plan costs is charged separately and is not included in the service fee. Service revenues are recognized in the period in which the worksite employee works. Under this accrual method of accounting, service fees relating to worksite employees with earned but unpaid wages at the end of each period are recognized as unbilled revenues and the related payroll costs for such wages are accrued as a liability during the period in which the worksite employee earns wages. Subsequent to the end of each period, such wages are paid and the related service fees are billed.

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

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

In certain instances, Primary LLC opts to make a contribution toward the cost of the worksite 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 may offer reduced medical benefit plan rates to worksite employees with positive risk characteristics.

The additions of these selected worksite employees’ offsets potential adverse selection and helps to stabilize the overall medical benefit plan risk to Primary LLC.

Primary LLC offers its medical benefit plans through partnerships with premier health care companies. These companies have extensive provider networks and strong reputations in the markets in which Primary LLC operates.

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

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

Primary HR obtained worker’s compensation from the AMFED Companies LLC effective July, 2004 through July 2005; the program is a guaranteed cost program where the company has no liability beyond the premiums of the policy.

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

Operating Expenses. Operating expenses consist primarily of salaries, wages and commissions associated with the Subsidiaries internal employees, and general and administrative expenses. Sales and marketing commissions and client referral fees are expensed as incurred. Primary expects that future revenue growth will result in increased operating leverage, as the Subsidiaries fixed operating expenses are leveraged over a larger revenue base.

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

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

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 31, 2004, including all amendments thereto, as well as the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-QSB.

The following table presents Primary’s results of operations for the quarter ending March 31, 2005 and 2004, expressed as a percentage of revenues:

	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 three months 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 focus on sales and the addition of a number of new clients. The change is reflective of the gains made during the period with our focus on new business and increased fees.

Cost of services, which includes the cost of medical benefit plans, workers’ compensation insurance, 410K administration cost, state unemployment taxes and other costs for 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 or 68.03% for 2003. The increase in cost is consistent with the addition of new clients and leased employees that are affected by an increase of our state unemployment rate which is realized through the first $7,000 of employee wages.

Gross profit for the 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% for 2004. While gross profit dollars increased for the quarter gross profit margin decreased primarily due to workers’ compensation cost increases resulting from new clients and the initial higher cost realized when new clients are acquired.

Operating expenses for 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 ending March 2004 resenting an increase of $47,948. Operation expense increases are a result of our investment in our staff as discussed below.

Salaries, wages and commissions for the three months ended March 31, 2005, were $185,334 for 2005, 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 best services to our customers, increased its sales staff and the addition of staff for Primary HR Services LLC our Mississippi subsidiary. At the end of March 2004 the combined Subsidiaries employed eleven, for the same period ending March 2005 the combined subsidiaries employed fifteen.

Other general and administrative 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 % of revenue in 2004, representing a decrease of $10,830.

We experienced a net loss for the three months ending March 31, 2005 of ($85,603), or 8.37% of revenue as compared to a net loss of ($135,197), or 24.30% of revenue for 2004. The decrease in operating losses is attributed to our increased in sales.

Liquidity and Capital Resources

Primary had $ 198,425 in cash and cash equivalents and restricted certificates of deposit at March 31, 2005. Primary is required to collateralize its obligations under its workers compensation coverage. The Company uses its cash as well as certificates of deposits to collateralize these obligations as more fully described below.

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

The Company had no long-term debt as of March 31, 2005 other than to its major shareholder, who is an officer and director. The principal amount of this outstanding debt at March 30, 2005 is $622,451.This debt is intended to be forgiven in consideration of the pending transaction described in Note 6 above and also in Item 4 below.

The charges to clients by Primary LLC, Primary HR and Concord derived from salaries, wages and payroll taxes is managed from a cash flow perspective so that a matching exists between the time that the funds are received from a client to the time that the funds are paid to the worksite employees and to the appropriate tax jurisdictions. As a co-employer, and under the terms of the Client Services Agreement, Primary LLC, Primary HR and Concord is obligated to make certain wage, tax and regulatory payments. Because of this, the objective of Primary LLC is to minimize the credit risk associated with remitting the payroll and associated taxes before receiving from the client the service fees charged by Primary LLC.

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

Going Concern Issues

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

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

Obtaining future financing may be costly and will likely be dilutive to existing stockholders. If we are not able to obtain financing when and in the amounts needed, and on terms that are acceptable, our operations, financial condition and prospects could be materially and adversely affected, and we could be forced to curtail our operations or sell part or all of our assets. Management continually is seeking additional sources of capitol to maintain the ongoing operations of the company.

MATERIAL COMMITTEMENTS FOR CAPITAL EXPENDITURES

Neither the Board nor Management has made any commitments for capital expenditures.

Inflation

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

Off-balance Sheet Arrangements

Primary does not currently have any off-balance sheet arrangements

Purchase of Registrant’s Securities

Primary did not purchase any of its securities during the quarter ended March 31, 2005.

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 (who serves as our principal accounting officer) have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that all material information required to be filed in this Quarterly Report on Form 10-Q has been made known to them in a timely fashion. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROLS

There have been no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly or materially, or have materially or are reasonably likely to materially effect these controls over financial reporting subsequent to the Evaluation Date set forth above.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this filing, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of the filing that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of

1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company’s expectations, 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 based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those factors listed below:

• potential liability as a co-employer as a result of acts or omissions by the Company’s clients or client employees;

• exposure to client credit risk as a result of the Company’s obligation to make certain payments in respect of client employees;

• unfavorable determinations under certain laws and regulations regarding the Company’s status as an “employer” of client employees;

• inadequacy of the Company’s insurance-related loss reserves to cover its ultimate liability for losses;

• unavailability of insurance coverage for workers’ compensation, medical benefits and general liability on financial terms and premium rates acceptable to the Company;

• significant collateral requirements in respect of the Company’s obligations to its insurance carriers and the potential for those requirements to increase in the future;

• the Company’s failure to comply with applicable laws and regulations in a complex regulatory environment;

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

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

• risks associated with geographic market concentration;

• risks associated with expansion into additional states with varying state regulatory requirements;

• the impact of competition from existing and new businesses offering human resource outsourcing services;

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

• errors or omissions by the Company in performing its services;

• the Company’s dependency on key personnel and potential difficulties and expenses in the recruitment and retention of key employees;

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

• risks associated with the Company’s dependency on technology services and third party licenses of technology;

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

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

• the Company’s failure to adequately protect its proprietary rights;

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

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

• our need for capital

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as may be required under applicable securities laws.

Primary cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of Primary. Any forward-looking statement speaks only as of the date on which such statement is made, and Primary undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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”) as plaintiff in a suit entitled Suburban Capitol Corporation v Primary Business Systems, LLC Primary Business Systems, Inc., f/k/a Sharecom, Inc and Ed Wells as Escrow Agent. 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 and for alleged breach of an Advisory Agreement and a Stock Purchase Agreement pursuant to which Pine Services, Inc., a company related to Suburban, sold a controlling interest in the Company (then named Sharecom) to Primary Business Systems LLC, . The Company contends that Suburban breached the Advisory Agreement by not providing the services required by the Agreement. The Company also alleges that Suburban made material misrepresentations to the Company. The Company is vigorously defending itself against this lawsuit and to oppose any effort to reinstate it.

On or about December 3, 2003, Primary Business Systems, L.L.C. (“PBS LLC”), a wholly owned subsidiary of the Company, was served with a suit commenced in the United States District Court for the Northern District of Illinois, Eastern Division by Pine Services, Inc. in a suit entitled Pine Service, Inc., a Costa Rican corporation v Primary Business Systems 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 commenced the amount claimed was not due under the terms of the note issued by PBS LLC to Pine for the amount claimed.

On or about December 23, 2003, the Company filed a lawsuit 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 Trades and Practices Act and

fraudulent inducement in connection with the Advisory Agreement referred to above. The defendants were served with this lawsuit but failed to appear in the case or file an answer. On February 6, 2004, upon motion of the Company, the Court entered a default judgment against the defendants in the amount of approximately $4,700,000.00 in actual and punitive damages. Finally, on February 12, 2004, the Company filed a lawsuit in the 37th District Court, Bexar County, Texas against Suburban Capital Corporation alleging, among other claims, common law fraud and violation of the Texas Deceptive Trades and Practices Act in connection with the Advisory Agreement.

We recently entered into a settlement agreement (“Settlement Agreement”) with several parties which will, if consummated, have the effect of unwinding the transactions by which Primary Business entered the Professional Employer Organization and Staffing Businesses. In addition, the Settlement Agreement will settle the aforementioned lawsuits. The Settlement Agreement will, if consummated, result in a change of control of Primary Business and a distribution of the significant business assets 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 former majority shareholder, Pine Services, Inc. consummated with the Matthews Family in September and November 2002. Prior to these transactions, Primary Business had no significant operations and assuming completion of the transaction described herein, will have no significant operations. See the Description in Item 4 and in Note 6 to the Financial Statements above.

As a commercial enterprise and employer and with respect to its employment-related businesses in particular, we are engaged in litigation from time to time during the ordinary course of business in connection with employment-relations issues, workers’ compensation and other matters. Generally, we are entitled to indemnification or repayment from our PEO clients for claims brought by worksite employees related to their employment. However, there can be no assurance that the client employer will have funds or insurance in amounts to cover any damages or awards, and as co-employer, we may be subject to liability. No allowance for this contingency is recognized on the financial statements of the company.

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

Item 2. Changes in Securities and Purchases of Securities

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

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

Item 3. Defaults Upon Senior Securities

None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Settlement Agreement will, if consummated, result in a change of control of Primary Business and a distribution of the significant business assets 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 former majority shareholder, Pine Services, Inc. consummated with the Matthews Family in September and November 2002. Prior to these transactions, Primary Business had no significant operations and assuming completion of the transaction described herein, will have no significant operations.

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

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

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

2. The Matthews Family will receive all of the capital stock of the three subsidiaries of Primary Business Systems Inc, namely, Primary LLC., Primary HR Services LLC and AHJR, Inc. and Primary Business Systems Inc. will no longer have any interest in such companies.

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

4. All members of the Mathews Family will resign as officers and directors of Primary Business Systems Inc and new officers and directors will be appointed by Pine Services Inc as the majority shareholder

5. The Matthews Family will forgive all debt, in the amount of approximately $622,496 owed to it by Primary Business Systems Inc.

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

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

(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.

31*	Certification pursuant to Rule 13a-14(a)/15d-14(a)

32*	Certification pursuant to 18 U.S.C. Section 1350

Reports on form 8-K

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

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 19^th 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)

PBS Holding (PBHG) Inactive 10QSB2005 Q1 Quarterly report (small business)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS