United eSystems 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-49745

UNITED ESYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Nevada	91-2150635
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)

15431 O’Neal Road

Gulfport, MS 39503

228-832-1597

(Address and telephone number of principal executive offices and principal place of business)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer      ¨           Accelerated filer    ¨

Non-accelerated filer        ¨           Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes ¨  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:  As of August 12, 2008, 18,291,667 shares of the registrant’s common stock, $0.001 par value, were issued and outstanding.

UNITED ESYSTEMS, INC.

FORM 10-Q

June 30, 2008

INDEX

Part I – Financial Information		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7 – 9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	14
Item 4(T).	Controls And Procedures	14
Part II – Other Information
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits	15
	Signatures	16

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INTRODUCTORY NOTE

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about United eSystems, Inc. (the “Company”) and our subsidiary, United Check Services, L.L.C., that are subject to risks and uncertainties.  Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives.  Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may increase,” “may fluctuate” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts.  Actual results may differ materially from those projected, implied, anticipated or expected in the forward-looking statements.  Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made.  The Company and United Check Services, L.L.C. (sometimes referred to herein as on a consolidated basis as the Company, we, us, or similar phrasing) undertakes no obligation to update any forward-looking statement.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates, financial condition, results of operations, future performance and business, including management's expectations and estimates with respect to revenues, expenses, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond the control of the Company. The following factors, among others, could cause the Company's results or financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:

· general economic and industry conditions;

· our capital requirements and dependence on the sale of our equity securities;

· the liquidity of the Company’s common stock will be affected by the lack of a trading market;

· intense industry competition;

· fluctuations in the prevailing industry prices of check processing services;

· shortages in availability of qualified personnel;

· legal and financial implications of unexpected catastrophic events;

· regulatory or legislative changes effecting check processing operations; and

· reliance on, and the ability to attract, key personnel.

For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s 2007 Annual Report filed on Form 10-KSB with the SEC, which is available on the SEC’s website at www.sec.gov.  All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.  New factors emerge from time to time, and it is not possible for us to predict which factors, if any, will arise.  In addition, the Company cannot assess the impact of each factor on the Company’s 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.

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PART I. — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

United eSystems, Inc. and Subsidiary

Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007

	June 30, 2008, (Unaudited)		December 31, 2007 (Audited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	274,463	$	283,988
Restricted Cash		448,868		531,343
Trade Receivables, net		98,127		81,490
Prepaid Expenses		17,829		24,476
Total Current Assets		839,287		921,297
PROPERTY AND EQUIPMENT, NET		52,725		60,735
OTHER ASSETS		80,542		62,620
Total Assets	$	972,554	$	1,044,652
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACH Settlements Payable	$	400,780	$	514,969
Notes Payable		70,000		70,000
Accounts Payable and Accrued Liabilities		35,295		34,036
Customers’ Deposits		48,087		16,374
Total Current Liabilities		554,162		635,379
Total Liabilities		554,162		635,379
STOCKHOLDERS' EQUITY
Common Stock - $.001 Par Value; 75,000,000 Shares Authorized, 18,291,667 Shares Issued and Outstanding in 2008 and 2007		18,292		18,292
Additional Paid-In Capital		49,440		49,440
Retained Earnings		350,660		341,541
Total Stockholders' Equity		418,392		409,273
Total Liabilities and Stockholders' Equity	$	972,554	$	1,044,652

The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements.

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United eSystems, Inc. and Subsidiary

Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2008 and 2007

		Three Months Ended June 30,						Six Months Ended June 30,
		2008			2007			2008			2007
Revenues	$	314,996		$	332,657		$	575,499		$	636,764
Cost of Revenues		184,406			195,929			303,150			377,890
Gross Profit		130,591			136,728			272,349			258,873
Expenses:
Operating
Personnel costs		33,105			33,273			61,392			58,328
Travel		2,292			2,666			14,214			9,478
Other		25,706			25,711			54,384			53,862
Total Operating Expenses		61,103			61,650			129,990			121,668
Selling, General & Administrative
Personnel costs		18,750			18,762			35,481			47,551
Legal and accounting		26,127			19,085			35,837			30,905
Marketing		7,450			9,100			19,150			22,650
Consulting		6,500			--			32,500			--
Other		3,569			5,290			4,221			6,640
Total Selling, General & Administrative		62,396			52,237			127,189			107,746
Total Expenses		123,499			113,887			257,179			229,414
Income from operations	$	7,092		$	22,841		$	15,170		$	29,459
Other Income (expense):
Interest Expense		(1,786	)		(1,931	)		(3,536	)		(4,564	)
Other Expense		--			(14,500	)		--			(14,500	)
Net Income before income taxes		5,306			6,410			11,634			10,395
Income tax expense		935			1,331			2,514			2,346
Net Income	$	4,371		$	5,079		$	9,120		$	8,049
Net Income per Share	$	.01		$	.01		$	.01		$	.01
Weighted Average Common Shares Outstanding		18,291,667			18,291,667			18,291,667			18,291,667

The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements.

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United eSystems, Inc. and Subsidiary

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007

		Six Months Ended June 30,
		2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	9,120		$	8,049
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization		14,841			13,386
(Increase) Decrease in Trade Receivables		(16,637	)		28,913
Decrease (Increase) in Prepaid Expenses and Other Assets		6,647			(5,681	)
Decrease in Restricted Cash		82,475			20,695
Decrease in ACH Settlements Payable		(114,189	)		(21,695	)
Increase (Decrease) in Accounts Payable and Accrued Liabilities		1,259			(26,946	)
Increase in Customer Deposits		31,713			1,000
Net Cash Provided by Operating Activities		15,229			17,721
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment		(6,832	)		(25,243	)
Increase in Other Assets		(17,922	)		(50,000	)
Net Cash Used in Investing Activities		(24,754	)		(75,243	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal  Paid on Notes Payable		--			(46,000	)
Net Cash Used in Financing Activities		--			(46,000	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(9,525	)		(103,522	)
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD		283,988			384,830
CASH AND CASH EQUIVALENTS – END OF PERIOD	$	274,463		$	281,308
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period for Interest	$	3,536		$	4,564
Cash Paid During the Period for Income Taxes	$	2,500		$	25,822

The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements.

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UNITED ESYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — PLAN OF REORGANIZATION AND CONTRIBUTION AGREEMENT

On March 30, 2005, Riverbend Telecom, Inc. (Riverbend) entered into an Agreement and Plan of Reorganization (the “Spin-Off Agreement”) between Riverbend and Riverbend Holdings, Inc. (Holdings), its wholly owned subsidiary, pursuant to which Riverbend transferred all of its assets, liabilities and other obligations to Holdings in consideration for Holdings common stock.  In addition, Riverbend distributed all of Holdings common stock to the then-existing four Riverbend stockholders (the “Spin-Off”), on a pro rata basis, one share of Holdings common stock for each Riverbend share held by the stockholders.  Holdings was formed for the purpose of effecting the reorganization of Riverbend and the subsequent distribution of all of the Holdings common stock to Riverbend’s current stockholders.  Holdings had previously filed a Form 10-SB with the Securities and Exchange Commission regarding its common stock under Section 12(g) of the Securities Exchange Act of 1934.

Upon consummation of the Spin-Off, Riverbend completed the contribution transaction with United Check Services, L.L.C. (United), a Louisiana limited liability company, according to the terms of a Contribution Agreement entered into on July 14, 2004, as amended by a Letter Agreement dated August 5, 2004 (collectively, the “Contribution Agreement”).  Pursuant to the Contribution Agreement, the equity owners of United contributed all of their limited liability membership interests in United to Riverbend in exchange for 15,315,000 shares of Riverbend’s common stock.  As a result of this transaction, United became a wholly-owned subsidiary of Riverbend, and the members of United became the majority stockholders of Riverbend, and the transaction was accounted for as a reverse acquisition.  As a result of the Spin-Off, the current telecommunications business of Riverbend is now carried on by Holdings, and the automated clearing house services business of United is now carried on by Riverbend, through its 100% ownership interest of United.

On June 13, 2005, Riverbend effected a name change from Riverbend Telecom, Inc. to United eSystems, Inc. to better reflect the change in business operations as a result of the consummation of the Plan of Reorganization and the Contribution.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

As described in Note A, UNITED ESYSTEMS, INC. (Company) serves as the holding company for United Check Services, L.L.C. (United).  United provides automated clearing house (ACH) services to businesses throughout the United States.  The Company’s operations center is located in Gulfport, Mississippi.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, United Check Services, L.L.C.  All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of financial information for the interim periods presented.  These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Use of Estimates

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.

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Revenue Recognition

United charges customers a fee on a transaction by transaction basis for its ACH services.  For these transactions, United recognizes only the fees generated as revenue.  United recognizes these fees as revenue when United has provided the service to its customers.

Fees for ACH services are based on contractually determined rates with each individual customer.  Settlements paid to customers for ACH transactions are submitted to the customer net of fees due to United.

Basis of Accounting

The books and records of the Company are kept on the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.  Depreciation is computed using primarily straight-line methods over the estimated useful lives of the related assets, which ranges from three to seven years.

Income Taxes

Since United is a single-member limited liability company, it is treated as a disregarded entity for federal income tax reporting purposes.  As such, the Company includes the revenues and expenses of United in its Federal income tax return.

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to change in tax rates and laws.

Advertising

Advertising costs are charged to operations when incurred.

Statement of Cash Flow Information

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

NOTE C — RESTRICTED CASH

Restricted cash consists primarily of funds maintained in United’s primary bank account to facilitate ACH transactions.  The Company has restricted this cash from operations in order to ensure that sufficient funds are maintained to process and settle customer’s ACH transactions.

NOTE D — NOTES PAYABLE

In September of 2004, the two existing members of United agreed to take a distribution for the amount of undistributed earnings accumulated by United through June 30, 2004, which amounted to $156,000.  In order to ease the cash flow requirements on United, the members agreed to accept a note for the amount of the distribution.  The amount of the distribution was combined with the amount of advances due to United’s members of $100,000, and notes payable due to United’s members for the total amount of $256,000 were established.  The notes are unsecured, due on demand and require interest-only payments, at an annual percentage rate of 10%.  As of June 30, 2008, and December 31, 2007, the outstanding principal balance of these notes was $70,000.

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NOTE E — STOCK OPTIONS

On March 30, 2005, the Company entered into a non-qualified stock option agreement, whereby the Company granted 312,000 options to its CFO.  On February 15, 2006, the Company entered into non-qualified stock option agreements with four key employees, granting a total of 90,000 options, which included 32,500 options to its CFO.  All of the options have an exercise price of $.03 per share, and were fully vested as of the date of the grant.  The option agreements terminate five years from the date they were granted.  No options were exercised in 2008 nor in 2007.

NOTE F — SIGNIFICANT CONCENTRATIONS

Cash

At June 30, 2008 and December 31, 2007, the Company maintained balances with financial institutions in excess of FDIC insured limits.

Major Customers

During the three months and six months ended June 30, 2008, United had transactions with one customer that amounted to approximately 41.3% and 43.6% of the United’s ACH processing revenue, respectively.  This customer was not affiliated with the Company through common ownership.

NOTE G — COMMITMENTS

Operating Leases

On April 1, 2008, United extended its prior three year agreement to lease office facilities at its present location for an additional twelve months at $2,400 per month, with an option to further extend its lease for an additional two years.

NOTE H — RELATED PARTY TRANSACTIONS

As disclosed in Note D, the Company has notes payable totaling $70,000 at June 30, 2008 and December 31, 2007, due to majority stockholders of the Company for funds advanced to United in prior years and for the amount of the distributions due to the former members of United.

NOTE I — EARNINGS PER SHARE

For earnings per share calculations, the weighted average common shares outstanding amounted to 18,291,667 for the three months and six months ended June 30, 2008 and 2007.  Options to purchase 402,000 shares at $.03 per share were outstanding during the three months ended June 30, 2008, and 2007, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the estimated market price of the common shares.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Executive Summary

The Company is an electronic payments service provider headquartered in Gulfport, Mississippi, that caters mostly to small and medium size businesses who handle significant volumes of electronic transactions as an integral part of their business.  Since 1998, we have provided electronic ACH (Automated Clearing House) payments via our internet-based, encrypted systems, to assist merchants in the collection of their sales and accounts receivables.  Our processing systems may also be used to transmit payments such as loan proceeds, customer refunds, travel expenses, commission payments, and payroll direct deposits. We act as the merchant’s ACH processor and clear transactions electronically through the Federal Reserve Banking System.  We are paid based on a fee per each ACH transaction we process, and typically receive our fees at the time we are settling collected proceeds electronically to each of our merchants.

The ACH Network has been in use for in excess of 30 years, serving a variety of customers, including over 20,000 financial institutions, 3.5 million businesses, and 135 million individuals.  According to the National ACH Association (NACHA), in 2006, there were nearly 16 billion ACH payments made, an increase of approximately 15.4% over the prior year, and valued at approximately $30.3 trillion.  It also estimated that for 2006 in excess of 7.5 billion consumer bills were collected via the ACH Network which included 3.3 billion pre-authorized debits, 1.8 billion internet payments, and 2.8 billion checks converted into ACH payments, representing increases of 6.1%, 35%, and 32% respectively, compared to 2005.  Overall, ACH payment volume continues to double every five years as merchants and financial service providers recognize the value and efficiencies that ACH payments provide.

The ACH business is divided between traditional banks, large “in-house” processors, and independent processors.  We currently concentrate on independent processors service customers that utilize electronic commerce but find that outsourcing to be a more cost effective solution.  The independent processors find they are able to provide custom tailored solutions and better transaction pricing than the merchants could individually obtain from traditional banks.  We have established ourselves as a quality provider of ACH processing services with proven results utilizing state of-the-art technology.

In addition, the Company has recently begun offering to our customers additional services including credit and debit card processing, real-time account verification, and identity verification services.  Such services are complimentary to our ACH payment services and with their addition it allows us to provide a more comprehensive line of services to our existing and prospective business customers.

Results of Operations

In this section, we provide more detailed information about our operating results and changes in financial position.  This section should be read in conjunction with the financial statements and related notes include in this Form 10-Q, and in conjunction with our Form 10-KSB previously filed for the year ended December 31, 2007.

Three Months and Six Months Ended June 30, 2008 compared to the Three Months and Six Months Ended June 30, 2007.

Our revenue is mostly generated by providing Automated Clearing House (ACH) processing services for business customers.  We also provide electronic account verification services.  The majority of our customers utilize our services to collect their gross receipts or accounts receivable electronically.  However, ACH processing services may also be utilized for other purposes, including direct deposit of employee payroll, employee travel advances, and intercompany transfers.  We recognize revenue upon completion of the service being provided.

For the three months ended June 30, 2008, revenues were $314,996, compared to $332,657 for the three months ended June 30, 2007, representing a decrease of $17,661, or approximately 5.3%.  For the six months ended June 30, 2008, revenues were $575,499, compared to $636,764 for the six months ended June 30, 2007, representing a decrease of $61,265, or approximately 9.6%.  Such decreases are related to a discontinuance of processing for several accounts at the end of 2007 that were marginally profitable and were only partially offset by new accounts added during the three months and six months ended June 30, 2008.

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Cost of revenues include the costs incurred in conjunction with the items processed.  These costs include the direct transactional costs incurred for ACH processing and account verification services, plus the direct costs associated with client activation and the utilization of our ACH processing software.

For the three months ended June 30, 2008 cost of revenues was $184,406, compared to $195,929 for the three months ended June 30, 2007, representing a decrease of $11,523, or approximately 5.9%.  For the six months ended June 30, 2008, cost of revenues was $303,150, compared to $377,890 for the six months ended June 30, 2007, representing a decrease of $74,740, or approximately 19.8%.  The decrease in cost of revenues in the three months and six months ended June 30, 2008, reflect the positive effect of the elimination of several marginally profitable accounts described above.  During the current quarter we continued to increase our volume of business while at the same time eliminating certain accounts which were not contributing significantly to our gross margins.  We continued to utilize independent sales organizations (ISO’s) during 2008, together with our website marketing to obtain most of our business.

For the three months ended June 30, 2008, gross profit was $130,591, compared to $136,728 for the three months ended June 30, 2007, representing a decrease of $6,137, or approximately 4.5%.  For the six months ended June 30, 2008, gross profit was $272,349, compared to $258,873 for the six months ended June 30, 2007, representing an increase of $13,476, or approximately 5.2%.  The decrease in gross profit during the current quarter compared to the same quarter in the prior year is mostly attributable to the decreases in revenues previously described.  The increase in gross profits for the current six months compared to the same period in the prior year is mostly attributable to the discontinuance in late 2007 of several marginally profitable accounts as previously described.

Operating expenses include costs of personnel, computers, supplies, internet services, delivery charges, telecommunications expenses, travel, and other costs associated with our ACH processing operations.  For the three months ended June 30, 2008, operating expenses were $61,103, compared to $61,650 for the three months ended June 30, 2007, representing a decrease of $547, or approximately 1%.  The decreases in operating costs related mostly to a decrease in personnel costs of $168 and a decrease in travel costs of $374.  These decreases were relatively insignificant and only represent slight variations in our personnel and travel costs compared to the same quarter a year ago.

For the six months ended June 30, 2008, operating expenses were $129,990, compared to $121,668 for the six months ended June 30, 2007, representing an increase of $8,322, or approximately 6.8%.  This increase was mostly attributable to increases in personnel costs of $3,064, and travel expenses of $4,736.  The increase in personnel costs represents the addition of an ACH processing employee during the first quarter of the current year.  The increase in travel costs is associated with enhancements made during the first quarter of 2008 related to our payment processing hardware and software assets at out-of-state locations where we maintain redundant systems as well as reimbursable travel costs incurred by consultants providing professional services to the Company.

For the three months ended June 30, 2008, our selling, general, and administrative expenses were $62,396, compared to $52,237 for the three months ended June 30, 2007, representing an increase of $10,159, or approximately 19.4%.  This increase is mostly attributable to increases in legal and accounting costs of $7,042, and consulting costs of $6,500, partially offset by decreases in marketing costs of $1,650 and other costs of $1,721.  The increase in legal and accounting, together with the increases in consulting costs, reflect our continued efforts to obtain suitable acquisitions of payment processing account portfolios as means of accelerating our growth.  The decreases in marketing costs reflect adjustments made during the current year to our subscriptions for internet marketing services compared to the prior year.  We also reduced advertising costs compared to the prior year’s quarter by utilizing more cost effective joint advertising programs with one of our most preferred ISO’s compared to similar costs for the same period in the prior year.

For the six months ended June 30, 2008, our selling, general, and administrative expenses were $127,189, compared to $107,746 for the six months ended June 30, 2007, representing an increase of $19,443, or approximately 18.1%.  This increase is mostly due to an increase in consulting fees of $32,500 together with legal and accounting costs of $4,932, partially offset by decreases in personnel costs of $12,070, marketing costs of $3,500, and other costs of $2,419.  The increases in consulting fees as well as legal and accounting fees represent costs associated with our efforts to obtain suitable acquisitions of payment processing account portfolios as a means of accelerating our growth.  The decrease in personnel costs reflect the absence of salaries paid during the first quarter of 2007 for a

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marketing employee that was terminated by the second quarter of 2007.  We also reduced certain marketing costs in the current six months by utilizing more cost effective joint advertising programs with one of our most preferred ISO’s compared to the same period in the prior year.

Net income for the three months ended June 30, 2008, was $4,371 compared to $5,079 for the three months ended June 30, 2007, representing a decrease of $708, or approximately 13.9%.  For the six months ended June 30, 2008, our net income was $9,120 compared to net income of $8,049 for the six months ended June 30, 2007, representing an increase of $1,071, or approximately 13.3%.  The increase in net income is mostly attributable to the improvements we made by eliminating marginally profitable accounts and partially replacing them with new business at more acceptable gross profit margins.  However, during the current quarter and current six months we expended $6,500 and $32,500 respectively, for consulting fees included in our selling, general and administrative expenses related to our efforts to obtain suitable payment processing account portfolios.  These costs were not critical to our ongoing operations and are not of a recurring nature.  Accordingly, after adjusting for these non-recurring items, our net profit for the current quarter ended June 30, 2008, and for the six months ended June 30, 2008, would increase by $4,875 and $24,375, net of tax, respectively, resulting in a net profit for the quarter ended June 30, 2008, of $9,246, and a net profit for the six months ended June 30, 2008, of $33,495.

Liquidity and Capital Resources

Per our Consolidated Statements of Cash Flows, net cash provided by operating activities for the six months ended June 30, 2008, was $15,229, compared to $17,721 for the six months ended June 30, 2007, or a decrease of $2,492.  This reduction of cash provided by operating activities is due to the increase in net income of $1,071, offset by various adjustments necessary to reconcile net income to net cash provided by operations for each of the respective periods reported.

For the six months ended June 30, 2008, adjustments increasing our net income of $9,120 included the decrease in prepaid expenses of $6,647 and the increase in customers’ deposits of $31,713, offset by adjustments that decreased our net income, such as the increase in trade receivables of $16,637 and the decrease in ACH settlements payable of $114,189.  The increase in net income was mostly attributable to improvement we made by replacing marginally profitable accounts with more profitable new business compared to the same period in the prior year, as previously described.  The decrease in prepaid expenses relate mostly to prepaid insurance.  The reduction in ACH settlements payable relates to normal timing differences between the ending date of our accounting period and when the settlement of collected funds back to certain merchants occur.

For the six months ended June 30, 2007, adjustments increasing our net income of $8,049 included the decrease in trade receivables of $28,913, offset by adjustments that decreased our net income, such as the increase in prepaid expenses of $5,681, the decrease in ACH settlements payable of $21,695, and the decrease in accounts payable and accrued liabilities of $26,946.  The decrease in trade receivables was mostly attributable to a decrease in our overall volume of business during that period.  The increase in prepaid expenses relate mostly to prepaid insurance.  The reductions in ACH settlements payable relates to timing differences between when certain settlements of collected funds are made to our merchants near the close of each accounting period.  The decrease in accounts payable and accrued liabilities related mostly to payments for income taxes.

Net cash used in investing activities was $24,754 for the six months ended June 30, 2008, and $75,243 for the six months ended June 30, 2007.  This represents cash utilized for purchases of ACH processing hardware and software of $6,832 and other assets of $17,168 during the current quarter, compared to similar purchases of ACH processing hardware and other assets of $25,243 and $50,000 respectively in the same period in the prior year.

Net cash used in financing activities was $0 for the six months ended June 30, 2008, compared to $46,000 for the six months ended June 30, 2007, representing the repayment of principal amounts on notes payable to the majority shareholders in the first six months of the prior year compared to no such principal payments during the current six months ended June 30, 2008.  We elected not to make further reductions in the principal balance of these notes as we began expending funds in our search to obtain suitable processing payment portfolios as a means to accelerate our growth.

As described in Note A of our financial statements included in this report, and in our Form 10-KSB for the year ended December 31, 2007, on July 14, 2004, United executed a Contribution Agreement to effect a reverse

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acquisition with Riverbend Telecom, Inc., a reporting company under the Securities and Exchange Act of 1934, for the purpose of becoming a public company to enhance the planned expansion of our operations.  On this date, the members of United agreed to take a distribution for the amount of undistributed earnings accumulated by us through July 14, 2004, which amounted to $156,000.  In order to ease our cash flow requirements, the members agreed to accept a note for the amount of the distribution.  The amount of the distribution was combined with the amount of advances due to the members of $100,000, and notes payable due to the members, and now our principal shareholders, for the total amount of $256,000 were established.  The notes require monthly interest-only payments at an annual percentage rate of 10% and are due on demand.  As of June 30, 2008, and December 31, 2007, the principal balance of these notes was $70,000.  Interest paid for the six months ended June 30, 2008, of $3,536, relates to these notes payable.

To date, we have financed our capital expenditure needs from cash flows generated from our operations.  At this time, we believe we have sufficient operations and existing non-restricted cash to fund our needs for at least the next twelve months.

Our future expansion is planned from two sources.  First, we plan to continue to expand our use of independent sales organizations (ISO’s) to assist in the growth of our ACH and verification service business.  While there are costs associated with this increase, the majority of additional sales costs will be funded through the additional sales produced from these selling activities.  We have and plan to continue to structure our sales compensation plans based on commissions only, and employ the use of independent sales representatives already engaged in selling financial products and/or services that are complementary to ACH services.

Second, we believe we will also expand future operations through acquisitions which are accretive to our current earnings.  During the current quarter we began to actively search for suitable acquisitions of payment processing account portfolios and expect our public company status to enhance our ability to obtain additional working capital and facilitate such acquisitions more effectively than could be accomplished by remaining a private, closely-held entity.  At this time, however, we have not completed any such acquisitions.

As disclosed in Note F of our financial statements included with this report, we have disclosed certain concentrations with significant customers, indicating that we had one customer accounting for approximately 41.3% and 43.6% of our ACH revenue for the three months and six months ended June 30, 2008, respectively.  This customer was not affiliated to us through common ownership.  We plan to continue to reduce our concentrations with significant customers through our marketing efforts as previously described.

Inflation

Inflation has not had a material effect on our operations in the past.  At the present time there is a substantial doubt that such conditions will adversely affect us for the foreseeable future.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, the Company is not required to provide the information required by this Item.

ITEM 4(T). CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Management is responsible for maintaining effective disclosure controls and procedures.  As of the end of the period covered by this Quarterly Report on Form 10-Q, management evaluated the effectiveness and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based on that evaluation, both the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and reported to management within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in internal controls over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Not Applicable

ITEM 1A.  RISK FACTORS.

As a smaller reporting company, the Company is not required to provide the information required by this Item.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not Applicable

ITEM 3.  DEFAULT UPON SENIOR SECURITIES.

Not Applicable

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

Not Applicable

ITEM 5.  OTHER INFORMATION.

Not Applicable

ITEM 6.  EXHIBITS.

10.1              Real Estate Lease Renewal dated March 17, 2008.*

31.1             Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.*

31.2             Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.*

32.1             Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act and 18 U.S.C. §1350.*

_______________

* Filed herewith.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	UNITED ESYSTEMS, INC.
Date:   August 13, 2008	By: /s/ Jeffery C. Swank
	Jeffery C. Swank
	Chief Executive Officer and President
	(Principal Executive Officer)
Date:   August 13, 2008	By: /s/ Walter Reid Green, Jr.
	Walter Reid Green, Jr.
	Chief Financial Officer
	(Principal Financial Officer)

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