PBS Holding 10-QSB

10QSB 1 filing_226.htm PBS HOLDING 10-QSB PBS Holding 10-QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended September 30, 2006

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

For the transition period from _______ to _______

Commission file number: 000-25523

PBS Holding, Inc.

(Exact name of small business issuer as specified in its charter)

NEVADA

86-0857752

(State or other jurisdiction of incorporation of organization)

(IRS Employer Identification No.)

433 Kitty Hawk Drive, Suite 226, Universal City, Texas 78148

(Address of principal executive office)

(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 X No __

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

Yes __ No X

The number of outstanding shares of the issuer's common stock, $0.001 par value (the only class of voting stock), as of September 30, 2006 was 11,769,539

Transitional Small Business Disclosure Format

Yes __ No X

PBS Holding, Inc.

Table of Contents


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited September 30, 2006 and 2005; Audited December 31, 2005)
a. Basis of Presentation	3
b. Consolidated Condensed Balance Sheets	4
c. Unaudited Consolidated Condensed Interim Statements of Operations	6
d. Unaudited Consolidated Condensed Interim Statement of Stockholders’ Equity	7
e. Unaudited Consolidated Condensed Interim Statement of Cash Flows	8
f. Notes to Unaudited Consolidated Condensed Interim Financial Statements	10
Item 2. Management’s Discussion and Analysis or Plan of Operation	14
Item 3. Controls and Procedures	20

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3. Defaults upon Senior Securities	22
Item 4. Submissions of Matters to a Vote of Security Holders	22
Item 5. Other Information	22
Exhibits and Reports on Form 8-K	23

Item 6.

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Basis of Presentation

As used herein, the term the “Company” refers to PBS Holding, Inc., a Nevada corporation, its subsidiaries and predecessors unless otherwise indicated. Unaudited consolidated condensed interim financial statements including a Consolidated Balance Sheet for the Company as of the quarter ending September 30, 2006, and Consolidated Statements of Operations, and Comprehensive Income, and Consolidated 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 and are incorporated herein by this reference.

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(b) 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, 2005. 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 ending September 30, 2006 are not necessarily indicative of results that may be expected for the year ending December 31, 2006. The financial statements are presented on the accrual basis with significant inter-company transactions and balances eliminated.

PBS Holding, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

As of September 30, 2006 (Unaudited) and December 31, 2005 (Audited)


ASSETS	September 30,2006		December 31, 2005
Current assets

Cash	$	81,141	$	84,712
Notes receivable (Related Party)		174,201		184,890
Client accounts receivable		66,818		158,877
Acquisition deposit - Heart		50,000		50,000
Prepaid Expenses		-		3,014
Employee Advances		2,063		858
Workers’ Compensation Prepaid Premiums		167,986		167,986

Total Current Assets		542,209		650,337

Property & Equipment

Furniture & Fixtures		60,111		55,472
Computer equipment		103,116		99,722
Vehicles		103,319		15,486
Payroll software		43,724		43,724
		310,270
Less: accumulated depreciation		(180,478)		(158,969)

Total Property and Equipment		129,792		55,435

Other assets

Security Deposits		1,415		1,560
Customer list, net of amortization		4,800		6,600

Total Other Assets		6,125		8,160

Total Assets		678,216		$713,932

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

PBS Holding, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets (Continued)

As of September 30, 2006 (Unaudited) and December 31, 2005 (Audited)


LIABILITIES	September 30, 2006		December 31, 2005
Current liabilities

Accounts payable	$	155,377	$	101,462
Checks drawn on uncollected payrolls		194,188		120,027
Deferred revenue		13,904		7,121
Client Payroll tax payable		619,094		503,678
Workers Comp payable		109,971		113,676
Client Deposits		-		1,000
Client payroll amount withheld		28,772		8,475
Current maturities on long-term debt		31,462		25,000
Line of credit from banks		-		7,898
Due to shareholder/officer		117,501		117,501

Total Current Liabilities		1,270,269		1,005,838

Long Term Debt

Note payable, net of current portion		62,972		16,667

Total Liabilities		1,333,241		1,022,505

Stockholders’ (Deficiency)

Common stock - $0.001 par value; authorized - 750,000,000 shares; Issued and outstanding 11,769,539 and 10,922,253 shares, respectively		11,769		10,922
Additional Paid in Capital		1,446,884		1,139,847
Accumulated (Deficit)		(2,113,678)		(1,459,342)

Total Stockholders’ Deficiency		(655,025)		(308,573)

Total liabilities and Stockholders’ Deficiency	$	678,216	$	713,932

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

PBS Holding, Inc. and Subsidiaries

Unaudited Consolidated Condensed Interim

Statements of Operations

For the Three Months and Nine Months Ended September 30, 2006 and 2005


	Three months ended September 30				Nine months ended September 30
		2006		2005		2006		2005

Net Revenues	$	1,487,284	$	1,359,633	$	4,280,199	$	3,625,634
Cost of revenues		945,366		794,490	2,755,514		2,233,827
Gross Profit		541,918		565,144		1,542,685		1,391,807

Operating Expenses
General and Administrative		202,928		254,629	941,541		713,414
Wages, commissions & salaries		276,560		227,433	654,477		509,308
Officer Salaries		61,210		108,540		235,519		179,184

Total Operating Expenses		540,698		590,602		1,831,537		1,401,906

Income (Loss) from Operations		1,220		(25,459)		(306,852)		(10,099)

Other Income & (Expenses)
Consulting expenses		(12,200)		(12,800)	(42,800)		(29,900)
Acquisition costs		(8,000)		-	(36,8000		-
Employee services paid with stock options		-		-	-		-
Employee services paid with stock		-		-	(62,500)		-
Non employee services paid with stock warrants		-		-	(36,706)		-
Non employee services paid with stock		-		-		(168,676)		-

Net Other Income & (Expense)		(20,200)		(12,800)	(347,482)		(29,900)

Income (Loss) Before Prevision For Income Tax		(18,980)		(38.259)		(654,334)		(39,999)

Provision for Income Taxes		-		-		-		-

Net Income (Loss)	$	(18,980)	$	(38,259)	$	(654,334)	$	(39,999)

Basic & Diluted Net Income (Loss) Per Share	$	(0.00)	$	(0)	$	(0.06)	$	(0)
Basic & Diluted Weighted Average Shares Outstanding		11,769,539		10,784,787		11,419,586		10,784,787

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

PBS Holding, Inc and Subsidiaries

Unaudited Consolidated Condensed Interim

Statement of Stockholders’ Equity (Deficiency)

For the Period Ended September 30, 2006


	Common Stock							Total
	Shares	Amount		Paid-in-capital		Additional Accumulated Deficit		Equity (Deficiency)
Balance December 31, 2005	10,922,253	$	10,922	$	1,139,849	$	(1,459,344)	$	(308,573)
Sale of stock	100,000	100		39,900				40,000
Warrants exercised	167,286	167		15,509				15,676
Stock Issued for consulting services	330,000	330		152,670				153,000
Stock warrants granted:								0
For non employee services				36,706				36,706
Stock issued for employee compensation	250,000	250		62,250				62,500
Net Income (Loss)						(654,334)		(654,334)
Balance September 30, 2006	11,769,539	$	11,769	$	1,446,884	$	(2,113,678)	$	(655,025)

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

PBS Holding, Inc. and Subsidiaries

Unaudited Consolidated Condensed Interim

Statement of Cash Flows

For the Nine Months Ended September 30, 2006 and 2005


	For the Nine months ended September 30
	2006	2005
Net (Loss)	$ (654,334)	$ (39,999)
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
Depreciation and amortization	23,309	18,636
Non cash – non employee services for stock warrants	36,706
Non cash – non employee services for stock	168,676
Non cash – employee services for stock	62,500
(Increase) decrease in accounts receivable	92,059	(46,572)
(Increase) decrease in prepaid expense	3,014	(149)
(Increase) decrease in other current assets	9,483	(37,708)
(Increase) decrease in other assets	145
Increase (decrease) in accounts payable	53,915	19,585
Increase (decrease) in client payroll tax liability	115,593	13,868
Increase (decrease) in deferred revenue	6,783	8,094
Increase (decrease) in other current liabilities	15,593	(7,748)
Checks drawn on uncollected payrolls	74,161	(79,472)

Total Adjustments	661,760

Net cash provided by (used in) operating activities	7,426	(151,465)

Cash flows from investing activities Payments for the purchase of property	(95,866)	(1,665)

Net cash provided by (used in) investing activities	(95,866)	(1,665)

Cash flows from financing activities
Net borrowing (paybacks) under line of credit	(7,898)	(24,555)
Net borrowing on notes payable	52,767	50,000
Principal payment on short-term debt		(2,083)
Stock sales	40,000	0
Due to shareholders/officers	0	(45)

Net cash provided by (used in) financing activities	84,869	23,317

Net increase (decrease) in cash and cash equivalents	(3,571)	(129,813)
Cash and cash equivalents at beginning of year	84,712	185,484
Cash and cash equivalents at end of period	81,141	$ 55,671

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

PBS Holding, Inc. and Subsidiaries

Unaudited Consolidated Condensed Interim

Statement of Cash Flows

For the Nine Months Ended September 30, 2006 and 2005


			2006		2005
Supplemental information:

Cash payments

	Interest expense		4,444		4,969
	Income taxes	$	0	$	0
			4,444		4,969
Non cash items

	Stock issued for employee services		62,500		0
	Stock issued for non employee services		168,676		0
	Warrants issued for non employee services		36,706		0
	Total non cash items	$	267,882		0

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

PBS Holding Inc. and Subsidiaries

Notes to Unaudited Consolidated Condensed Interim Financial Statements

September 30, 2006

NOTE 1 – BASIS OF PRESENTATION

The condensed interim financial statements at September 30, 2006 are unaudited, but include all adjustments that 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, 2005. The accompanying unaudited interim financial statements for the current quarter and year to date ended September 30, 2006, are not necessarily indicative of the results that 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 (“PBS LLC”), Primary HR Services, LLC (“Primary HR”) and AHJR Inc., dba/Concord Staffing Services (“AHJR”) 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, 2005 and 2004 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 nine months ended September 30, 2006. These warrants and stock transactions are issued in reliance upon the exemption provided by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D.

The fair values of the warrants granted are reported as equity grants using the guidance of SFAS 123R and are computed using the Black-Scholes Model. The fair values of the restricted stock issued are reported using the guidance of SFAS 123R and are computed using the fair market value of non restricted common stock at the times of issue reduced by what management recognizes as a fair consideration based on the nature of the restriction placed on the stocks issued.

Warrants Granted

On January 1, 2006, the Company entered into a contract with a non-employee consultant to provide services in which the consultant receives warrants with a cashless option to purchase 70,000 shares of common stock each month for nine months ended September 30, 2006 for a total of 630,000 shares of common stock. The exercise price of the warrants is $0.435 with a term of two years from the date of each issuance. The holder may, at its option, effect a cashless exercise by exchanging warrants for shares of common stock pursuant to the formula set forth in the terms of the warrants. The warrant option price is in excess of the fair market value of the stock and therefore no value is assigned to the warrants and no expense has been recognized in the financial statements.

On February 8, 2006, the Company issued warrants with a cashless option to purchase an aggregate of 450,000 shares of common stock to the Company’s legal firm in exchange for legal services. The exercise price of such warrants is $0.60 and such warrants are immediately exercisable for a five-year term. The holder may, at its option, effect a cashless exercise by exchanging warrants for shares of common stock pursuant to the formula set forth in the terms of the warrants. The warrant option price is in excess of the fair market value of the stock and therefore no value is assigned to the warrants and no expense has been recognized in the financial statements.

On March 8, 2006, the Company issued warrants with a cashless option to purchase 75,000 shares of common stock to a company providing public relation services to the Company. The warrants are exercisable at a per share price of $0.67 for a period of four years. The holder may, at its option, effect a cashless exercise by exchanging warrants for shares of common stock pursuant to the formula set forth in the terms of the warrants. The warrant option price is in excess of the fair market value of the stock and therefore no value is assigned to the warrants and no expense has been recognized in the financial statements.

On June 5, 2006, the Company issued warrants with a cashless option to purchase 100,000 shares of common stock to a company providing consulting services. The warrants are exercisable at a per share price of $.50 per share for a period of 3 years. The holder may, at its option, effect a cashless exercise by exchanging warrants for shares of common stock pursuant to the formula set forth in the terms of the warrants. The warrant option price is in excess of the fair market value of the stock and therefore no value is assigned to the warrants and no expense has been recognized in the financial statements.

Stock Issued for Warrants Exercised

During the quarter ended March 31, 2006 the holders of warrants exercised their rights to acquire 167,286 shares of common stock, which were valued at $15,676 in excess of the amount recognized in the prior year when the warrants were granted.

The remaining warrants granted, unexercised and outstanding as of September 30, 2006 are for 1,419,375 shares of common stock.

Stock Issued for Services

On March 7, 2006, the Company issued 50,000 shares of restricted common stock valued at the closing price of the stock on the same day, which was $0.65 per share, or $32,500, to a non-employee. The stock was issued pursuant to a placement agency agreement in connection with a broker-dealer with a private placement for financing.

On March 20, 2006, the Company issued 150,000 shares of restricted common stock valued at the closing price of the stock on the same day of issued and reduced for the nature of restriction placed on the stock, or $0.587 per share totaling $88,000, to a non-employee. The stock was issued pursuant to a placement agency agreement with a broker-dealer in connection with a private placement for financing.

On June 14, 2006, the Company issued 130,000 shares of restricted common stock valued at the closing price of the stock on the same day of issued and reduced for the nature of restriction placed on the stock, or $0.25 per share totaling $32,500, to a non-employee. The stock was issued pursuant to a placement agency agreement with a broker-dealer in connection with a private placement for financing.

On June 21, 2006, the Company issued to an employee 250,000 shares of restricted common stock valued at the closing price of the stock on the same day of issued and reduced for the nature of restriction placed on the stock, or $0.25 per share totaling $62,500.

Stock Options Awarded

On March 29, 2006, the Company entered into a five-year contract with Patrick Matthews, President and Chief Executive Officer of the Company, effective as of January 2006. Pursuant to such contract the stock options are granted on a monthly basis in a value equal to the difference of the base salary and salary actually paid. Mr. Matthews earned 7,032 shares of common stock each month for nine months ended September 30, 2006 for a total of 63,288 shares of common stock. None of these options have been exercised as of September 30, 2006. The option price is in excess of the fair market value of the stock and therefore no value is assigned to the options and no expense has been recognized in the financial statements.

On March 29, 2006, the Company entered into a five-year contract with Amanda Sinclair, Executive Vice President and Chief Operating Officer, effective as of January 2006. Pursuant to such contract, the stock options are granted on a monthly basis in a value equal to the difference of the base salary and salary actually paid. Mrs. Sinclair earned 1,549 shares of common stock each month for nine months ended September 30, 2006 for a total of 13,941 shares of common stock. None of these options have been exercised as of September 30, 2006. The option price is in excess of the fair market value of the stock and therefore no value is assigned to the options and no expense has been recognized in the financial statements.

The cost of the stock option based compensation will be reevaluated at the end of each reporting period and any changes in the fair market value of the compensation will be reported in the period in which the change occurs.

Stock Issued for Cash

During February 2006, the Company sold 100,000 shares of common stock to investors at $0.40 per share with warrants to purchase an additional 25,000 shares at a purchase price of $0.40. The warrants are immediately exercisable for a two-year period at a per share exercise price of $0.40. The Company received the full $40,000 in cash for the shares of stock sold. The fair value of these warrants granted with the issue of this common stock sold is equal the purchase price of $0.40. Therefore, no fair value has been recognized for these stock warrants granted to buy an additional 25,000 shares of common stock.

Stock Options Granted

On July 26, 2006, the Company approved bonuses to certain eligible employees payable in the form of incentive stock options granted pursuant to the Company’s 2004 Stock Option Plan. The options are exercisable at a price of $0.40 per share and shall expire five years from the date of grant. The total number of options issued to employees other than executive officers was for 320,000 shares of common stock.

NOTE 4 – RELATED PARTY TRANSACTIONS

The note receivable reported as a current asset of $174,201 is due from Consumers Insurance Agency, LLC (“Consumers LLC”). The primary member of Consumer LLC is Patrick Matthews who is the majority shareholder in the Company. The note receivable is made up of cash advances to Consumers LLC and expenses paid on behalf of Consumers LLC by the Company with ongoing amounts paid back to the Company.

This note receivable was part of the 2002 acquisition of the present operations of the Company. At the time of acquisition the note receivable was for an amount greater than what is presently reported in the financial statements as of September 30, 2006.

NOTE 5 – CLIENT PAYROLL TAX PAYABLE

Timing differences occur between when a client of the Company pays the related invoices for payroll services and when the related payroll tax deposits are due, which can result in payroll tax deposit penalties. This contributed to the Company’s lack of sufficient working capital to cover all of its obligations.

Consequently, certain payroll tax liabilities have not been paid timely and the Company has incurred payroll tax penalties. The total penalties paid during 2005 were $81,419 while the penalties paid for the nine months ended September 30, 2006 totaled $114,028.

The Company sees this condition as temporary and has taken measures to curtail additional increases in delinquent payroll tax liabilities.

NOTE 6 – RECLASSIFICATIONS

Certain amounts in 2004 have been reclassified and represented to conform to the current financial statement presentation.

The September 30, 2005 Statement of Cash Flows – Supplemental information inadvertently omitted the interest paid amount of $4,949. That amount has been included in this presentation of the financial statements.

NOTE 7 – GOING CONCERN ISSUES

The Company continues suffering losses and working capital reflects more current liabilities than current assets. Unless sufficient additional cash flows come into the Company, either through equity financing, profits, or a reduction of cash expenses, the Company may not be able to continue operations. Management has developed a strategy, which it believes will accomplish the objective of increasing cash flow and attaining positive working capital through additional long and short-term loans and the sale of Common Stock of the Company.

NOTE 8 – CORRECTION OF AN ERROR

As discussed in the Company’s Form 10-KSB for the year ended December 31, 2005, the Company re-evaluated the accounting treatment of its goodwill. Although the value of the goodwill was and still is there, management determined the accounting treatment was in error and needed to be corrected.

The correction of the errors resulted in the reduction in the balances reported for Goodwill, Due to Shareholder and Additional Paid in Capital for the reporting periods from 2002 through 2005. There is no impact on the statement of operations, retained earnings (accumulated deficit), or cash flows relating to these corrections for any of the reporting periods involved.

NOTE 9 – CONTINGENCIES AND PENDING ACQUISITION

As discussed in the Company’s Form 10-KSB for the year ended December 31, 2005, the Company entered into a non-binding letter of intent on December 21, 2005 to acquire all of the outstanding capital stock of Heart Employee Leasing, Inc. (Heart). Heart is a privately held company engaged in the human resources outsourcing business. The letter of intent provided for a purchase price of $5,000,000 consisting of $3,500,000 in cash and the issuance of $1,500,000 in shares of a new class of preferred stock of the Company with a guaranteed dividend of 5% per annum. In connection with the transaction, certain employees of Heart were to enter into non-competition and employment agreements with the Company. Concurrently with the execution of the non-binding letter of intent, the Company deposited $50,000 with Heart in connection with the proposed transaction.

The closing was expected to take place on or about April 26, 2006. The closing of the transaction was subject to numerous conditions, including, among others, the negotiation and execution of a definitive acquisition agreement between the Company and Heart.

On April 25, 2006, the Company notified Heart that it was terminating negotiations and the letter of intent, effective immediately. The Company also notified Heart and the escrow agent that it was demanding return of the $50,000 deposit. To date, the $50,000 deposit has not been returned to the Company. The Company has retained Texas litigation counsel to assist the Company in its efforts to obtain the return of the $50,000 deposit which remains held by an escrow agent. On May 26, 2006, Heart commenced an action against the Company with respect to the $50,000 deposit in the 98^th Judicial District Court in Travis County, Texas. On June 23, 2006, the Company filed counterclaims to obtain return of the $50,000 deposit to the Company. Management is of the opinion that the $50,000 deposit will be returned to the Company. To date, the Company has incurred significant litigation costs and costs associated with the letter of intent to purchase Heart Employee Leasing Services, Inc.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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-QSB. 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 Form 10-KSB 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

The Company believes its significant critical accounting policies have not changed since fiscal year ended December 31, 2005. See Note 2 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005 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 of each of PBS LLC, Primary HR, and AHJR (sometimes hereinafter collectively referred to as the “Subsidiaries”) consist of charges to its clients under its Client Service Agreement including 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, are intended to yield a profit to the 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, safety/risk management, 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.

The Company 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. The Company reports revenues on a gross basis for these fees because PBS LLC and Primary HR are the primary obligors and deemed to be the principal in these transactions under EITF No. 99-19. The Company 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. The Company accounts for

its revenues using the accrual method of accounting. Under the accrual method of accounting, the Company recognizes its revenues in the period in which the worksite employee performs work. The Company 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 Professional Employer Organization service fees are billed.

Overview

The business of the Company is to operate in the Professional Employer Organization industry and the Temporary Staffing Services industry and operates through the Subsidiaries and as economies of scale can be realized, combine the individual entities in each sector.

PBS LLC and Primary HR are regional Professional Employer Organizations committed to providing human capital management solutions. PBS LLC and Primary HR offer clients, which are typically small to medium-sized businesses with between five and fifty employees, a broad range of products and services that provide a complete solution for the clients’ human resources outsourcing needs. PBS LLC’s products and services include benefits administration, payroll administration, governmental compliance, risk-management, unemployment administration, health, and welfare and retirement benefits.

AHJR is a regional temporary staffing service company helping businesses meet their staffing needs while minimizing their employee acquirement cost. AHJR offers qualified screened employees to clients that meet their employment needs on temporary basis. AHJR provides all payroll administration, unemployment administration and assignment administration of the temporary staff.

Revenues

Revenues consist of service fees charged by the Subsidiaries to cover the costs of certain employment-related taxes, workers’ compensation insurance coverage and administrative and field services provided to 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, PBS LLC chooses 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, PBS 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 PBS LLC.

PBS 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 PBS LLC operates.

All of PBS LLC’s healthcare providers offer preferred provider organization (PPO) coverage.

PBS LLC’s workers’ compensation program, since November 18, 2000, is with Texas Mutual Insurance Company. In November 2005 PBS LLC renewed its workers’ compensation program which is a guaranteed cost program. Under this program PBS LLC has no liability beyond the premiums of the policy. The current policy term expires November 18, 2006, the Company has received a renewal proposal from the carrier and will renew the policy on November 18, 2006 for an additional year.

Primary HR obtained workers’ compensation from the AMFED Companies LLC effective July 2005 through July 2006 and was renewed for an additional 12 month period. 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. PBS 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. The Company 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

The Company records income tax expense using the asset and liability method of accounting for deferred income taxes. The Company’s effective tax rate for 2005 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. The Subsidiaries seek to manage these costs through the use of (a) workers’ compensation arrangements with carriers who efficiently manage claims administration, internal risk assessment and client risk management programs, (b) appropriately designed health benefit plans that encourage worksite employee participation, and (c) 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-KSB for the year ended December 31, 2005, 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 the Company’s results of operations for the three and nine months ended September 30, 2006 and 2005, expressed as a percentage of revenues:


		Three Months Ended September 30			Nine Months Ended September 30
		2006	2005		2006	2005
Net Revenues	%	100.00	100.00	%	100.00	100.00
Cost of Services		63.56	58.43		64.38	61.61

Gross Profit		36.44	41.57		35.62	38.39
Operating Expenses:
General and administrative		13.64	18.73		22.00	19.68
Salaries, wages and commissions		18.59	16.73		15.29	14.05
Officers’ compensation		4.12	7.98		5.50	4.94

Total operating expenses		36.35	43.44		42.79	38.67

Operations (loss) income		0.08	(1.87)		(7.17)	(0.28)


Other income & (expenses)	(1.36)	(0.94)	(8.12)	(0.82)

(Loss) income before income taxes	(1.28)	(2.81)	(15.29)	(1.10)
Income tax (benefit) provision	0.00	0.00	0.00	0.00
		(0.94)		(1.10)
Net income (loss)	(1.28)	(2.81)	(15.29)	(1.10)

Quarter ended September 30, 2006 compared to September 30, 2005

For the quarter ended September 30, 2006, net revenues increased $127,651, or 9.39% from 2005, totaling $1,487,284 in 2006 compared to $1,359.633 for 2005. The 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, 401K administration cost, state unemployment taxes and other costs for the quarter ended September 30, 2006 totaled $945,366 or 63.56% of net revenues for 2006, compared to $794,490 or 58.43% for 2005. 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 quarter ended September 30, 2006 was $541,918 or 36.44% of net revenues compared to $565,143 or 41.57% for the same period in 2005.

Total operating expenses for the quarter ended September 30, 2006 was $540,698 or 36.35% of net revenues compared to $590,602 or 43.44% of net revenues for the same period in 2005. The break out of expenses is as follows:

Salaries, wages and commissions for the quarter ended September 30, 2006 were $276,560 or 18.59% of net revenues compared to $227,433 or 16.73% for the same period in 2005. For the quarter ended September 30, 2006, the Subsidiaries employed 21 individuals, while for the same period ending September 2005 the Subsidiaries employed 16 individuals.

Officers’ compensation for the quarter ended September 30, 2006 was $61,210 or 4.12% of net revenues compared to $108,540 or 7.98% for the same period in 2005.

Total combined compensation of all corporate staff and officers of the corporation for the three months ended September 30, 2006 was $337,770 or 22.71% of net revenues compared to $335,973 or 24.71% for the same period in 2005.

General and administrative expenses for the quarter ended September 30, 2006 was $202,928 or 13.64% of net revenues compared to $254,629 or 18.73% of net revenues for the same period in 2005, representing a decrease of $51,701.

The results of operations excluding other income and expenses for the quarter ended September 30, 2006 resulted in operating income of $1,220 or 0.08% as compared to a loss of $(25,459) or (1.87)% for the same period in 2005.

As discussed in the Annual Report on Form 10-KSB for the year ended December 31, 2005, we modified the presentation of the Company’s financial statements in an effort to more clearly illustrate the various costs associated with our goals of expanding the Company through acquisitions. Furthermore, in accordance with the Financial Accounting Standards Board (FASB) Statement No. 123R discussed in the Annual Report on form 10-KSB for the year ended December 31, 2005, we have included in the presentation of the Company’s financial statements costs including employee services paid with common stock warrants, non-employee services paid with common stock warrants and non-employee services paid with shares of common stock.

Total other income (expenses) for the quarter ended September 30, 2006 was $(20,200) or (1.36)% of net revenues compared to $(12,800) or (0.94)% for the same period in 2005.

Consulting expenses for the quarter ended September 30, 2006 was $12,200 compared to $12,800 for the same period in 2005.

Employee services paid with common stock warrants for the quarter ended September 30, 2006 were $8,000. There were no correlating costs in 2005.

We experienced a net loss from operations for the quarter ended September 30, 2006 of $(18,980) or (1.28)% of net revenues as compared to a loss of $(38,259) or (2.81)% of net revenues for the same period in 2005.

Nine months ended September 30, 2006 compared to September 30, 2005

For the nine months ended September 30, 2006, net revenues increased $654,565, or 18.05% from 2005, totaling $4,280,199 in 2006 compared to $3,625,634 for 2005. Net revenues for the nine month period ended September 30, 2006 increased $654,565 or 18.05% over the same period 2005.

Cost of services for the nine months ended September 30, 2006 totaled $2,755,514 or 64.38 % of net revenues for 2006, compared to $2,233,827or 61.61% for 2005 an increase of $521,687.

Gross profit for the nine months ended September 30, 2006 was $1,524,685 or 35.62% of net revenues compared to $1,391,807 or 38.39% for the same period in 2005. Gross profit dollars for the nine month period ended September 30, 2006 increased $132,878 or 9.55% over the same period 2005.

Total operating expenses for nine months ended September 30, 2006 was $1,831,537 or 42.79% of net revenues compared to $1,401,906 or 38.67% of net revenues for the same period in 2005. The break out of expenses is as follows:

Salaries, wages and commissions for the nine months ended September 30, 2006, were $654,477 or 15.29% of net revenues compared to $509,308 or 14.05% for the same period in 2005.

Officers’ compensation for the nine months ended September 30, 2006 was $235,519 or 5.50% of net revenues compared to $179,184 or 4.94% for the same period in 2005.

Total combined compensation of all corporate staff and officers of the corporation for the nine months ended September 30, 2006 was $889,996 or 20.79% of net revenues compared to $688,492 or 18.98% for the same period in 2005.

General and administrative expenses for the nine months ended September 30, 2006 was $941,541 or 22.00% of net revenues compared to $713,414, or 19.68% of net revenues for the same period in 2005, representing an increase of $228,127 in general and administrative expenses for the period.

The results of operations excluding other income and expenses for the nine months ended September 30, 2006 resulted in a loss of $(306,852) or (7.17)% of net revenues as compared to an operating loss of $(10,099) or (0.28)% of net revenues for the same period in 2005.

As discussed in the Annual Report on Form 10-KSB for the year ended December 31, 2005, we modified the presentation of the Company’s financial statements in an effort to more clearly illustrate the various costs associated with our goals of expanding the Company through acquisitions. Furthermore, in accordance with the Financial Accounting Standards Board (FASB) Statement No. 123R discussed in the Annual Report on Form 10-KSB for the year ended December 31, 2005, we have included in the presentation of the Company’s financial statements costs including employee services paid with common stock warrants, non-employee services paid with common stock warrants and non-employee services paid with shares of common stock.

Total other income (expenses) for the nine months ended September 30, 2006 was $(347,482) or (8.12)% of net revenues compared to $(29,900) or (0.82)% for the same period in 2005.

Consulting expenses for the nine months ended September 30, 2006 was $42,800 compared to $29,900 for the same period in 2005.

Acquisition costs for the nine months ended September 30, 2006 were $36,800. There were no correlating costs in 2005.

Employee services paid with common stock warrants for the nine months ended September 30, 2006 were $0. There were no correlating costs in 2005.

Employee services paid with common stock for the nine months ended September 30, 2006 were $62,500. There were no correlating costs in 2005.

Non-employee services paid with common stock warrants for the nine months ended September 30, 2006 were $36,706. There were no correlating cost is 2005.

Non-employee services paid with stock for the nine months ended September 30, 2006 were $168,676. There were no correlating costs in 2005.

We experienced a net loss from operations for the nine months ended September 30, 2006 of $(654,334) or (15.29)% of net revenues as compared to a net loss of $(39,999) or (1.10)% of net revenues for the same period in 2005.

Liquidity and Capital Resources

The Company had $81,141 in cash and cash equivalents September 30, 2006. Additionally the Company had $217,986 in restricted cash and restricted deposits. The Company 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.

On November 18, 2005, for the purposes of renewing its workers’ compensation plan for the 2005/2006 plan year, PBS LLC deposited $167,986 as collateral. PBS LLC’s workers’ compensation programs for the November 2000 through November 2005 program years are subject to no further collateral adjustments.

In December 2005, the Company deposited, with an escrow agent, $50,000 as a deposit in conjunction with a letter of intent to purchase Heart Employee Leasing, Inc., a Texas PEO. On April 25, 2006, the Company notified Heart that it was terminating negotiations and the letter of intent, effective immediately. The Company also notified Heart and the escrow agent that it was demanding return of the $50,000 deposit. To date, the $50,000 deposit has not been returned to the Company. The Company has retained Texas litigation counsel to assist the Company in its efforts to obtain the return of the $50,000 deposit which remains held by an escrow agent. On May 26, 2006, Heart commenced an action against the Company with respect to the $50,000 deposit in the 98^th Judicial District Court in Travis County, Texas. On June 23, 2006, the Company filed counterclaims to obtain return of the $50,000 deposit to the Company. Management is of the opinion that the $50,000 deposit will be returned to the Company.

The Company has long-term debt as of September 30, 2006 of $62,972.

The charges to clients by the Subsidiaries 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 co-employers and under the terms of their Client Service Agreements, each of the Subsidiaries is obligated to make certain wage, tax and regulatory payments. Because of this requirement, the objective of each Subsidiary is to minimize the credit risk associated with remitting the payroll and associated taxes before receiving from the client the service fees charged by the Subsidiary.

PBS 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 capital to maintain the ongoing operations of the Company.

Material Commitments for Capital Expenditures

Neither the Company’s Board of Directors nor Management has made any commitments for capital expenditures.

Inflation

The Company believes that inflation in salaries and wages of worksite employees have 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

The Company does not currently have any off-balance sheet arrangements.

Purchase of Registrant’s Securities

The Company did not purchase any of its securities during the quarter ended September 30, 2006.

ITEM 3.

CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of our Chief Executive Officer and Controller, conducted an evaluation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)) as of the end of the period covered by this Report on Form 10-QSB. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer (who is also our principal accounting officer) have concluded that as of the date of the end of the period covered by this Report on Form 10-QSB, our disclosure controls and procedures are effective to ensure that all information required to be filed in this Report on Form 10-QSB is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.

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 have or are likely to significantly or materially affect these controls over financial reporting.

Cautionary Note Regarding Forward Looking Statements

The statements contained in this filing, including under the section titled “Management’s Discussion and Analysis or Plan 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 to 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;

Fluctuation 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;

Other factors which are described in further detail in the Company’s Form 10-KSB, and in other filings with the Securities and Exchange Commission; and

The Company’s 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. The Company cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such

statement is made, and the Company 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

As a commercial enterprise and employer 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 company 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.

On April 25, 2006, the Company terminated its proposed acquisition of Heart Employee Leasing, Inc. effective immediately. The Company also notified Heart and the escrow agent that it was demanding the immediate return of the $50,000 deposit pursuant to the terms of the letter of intent, dated December 21, 2005, executed by the Company and Heart. To date, the $50,000 deposit has not been returned to the Company. The Company has retained Texas litigation counsel to assist the Company in its efforts to obtain the return of the $50,000 deposit which remains held by an escrow agent. On May 26, 2006, Heart commenced an action against the Company with respect to the $50,000 deposit in the 98^th Judicial District Court in Travis County, Texas. On June 23, 2006, the Company filed counterclaims to obtain return of the $50,000 deposit to the Company. To date there have been no additional developments.

Changes in Securities and Purchases of Securities

The Company has not undertaken any purchases of its securities in the last fiscal quarter or the current fiscal quarter as of the date of this Report. Our transfer agent is Registrar and Transfer Company located at 10 Commerce Drive, Cranford, New Jersey 07016. The telephone number of Registrar and Transfer is 800-866-1340.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There have been no unregistered sales of equity securities during the quarter ended September 30, 2006.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit 31.1, Certification of Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

ii.

Exhibit 32.1, Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K during the quarter:

Report of unscheduled material events or corporate changes filed on August 25, 2006

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be on its behalf by the undersigned, thereunto dully authorized this 14^th day of November, 2006.

/s/ Patrick Matthews
Patrick Matthews

President, Chief Executive Officer and

Chief Financial Officer and Principal Accounting Officer

PBS Holding, Inc.