PBS Holdings 10 KSB

10KSB 1 pbs10kb.htm 10-KSB FOR PERIOD ENDED DECEMBER 31, 2006 PBS Holdings 10 KSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE FISCAL YEAR ENDED DECEMBER 31, 2006.

Commission File Number 0-25523


	PBS Holding, Inc.
	(Name of Small Business Issuer in Its Charter)

NEVADA

86-0857752

(State or Other Jurisdiction of

Incorporation )

(I.R.S. Employer Identification No.)

433 Kitty Hawk Dr. Suite 226

Universal City, TX 78148

(210) 658-4675

(Address of Principal Executive Offices)

(Issuer’s Telephone Number,

Including Area Code)

Securities registered under Section 12(b) of the Act: NONE

Securities registered under Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.001 PER SHARE

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [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]

The issuer’s revenues for the fiscal year ended December 31, 2006 were $5,637,845

The number of shares of Common Stock of the issuer outstanding as of December 31, 2006 was 11,769,539

The aggregate market value of the registrant’s common stock held by non-affiliates, based upon the average of the bid and asked prices on May 01, 2007 was $338,851 based upon 1,882,508 shares held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format: Yes [ ] No [X]

TABLE OF CONTENTS


		Page
	Cautionary Note Regarding Forward-Looking Statements	3

	Part I

Item 1	Description of Business	5
Item 2	Description of Properties	13
Item 3	Legal Proceedings	14
Item 4	Submission of Matters to a Vote of Security-Holders	14

	Part II

Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	15
Item 6	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7	Financial Statements and Supplementary Data	F-1
Item 8	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 8a	Controls and Procedures	44
Item 8b	Other Information	44

	Part III

Item 9	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	45
Item 10	Executive Compensation	47
Item 11	Security Ownership of Certain Beneficial Owners and Management	48
Item 12	Certain Relationships and Related Transactions	48
Item 13	Exhibits and Reports on Form 8-K	48
Items 14	Principal Accounting Fees and Services	49

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), PBS Holding, Inc. (the “Company”) is hereby providing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the Company herein, in other filings made by the Company with the Securities and Exchange Commission, in press releases or other writings, or orally, whether in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will result,” “are expected to,” “anticipate,” “plans,” “intends,” “will continue,” “estimate,” and “projection”) are not historical facts and may be forward-looking and, accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such known and unknown risks, uncertainties and other factors include, but are not limited to, the following:


	(i)		volatility of costs of workers’ compensation insurance coverage and profits generated from the workers’ compensation component of the Company’s and it’s subsidiaries’ service offering under its loss sensitive workers’ compensation programs;
	(ii)		volatility of state unemployment taxes;
	(iii)		the uncertainties relating to the collateralization requirements as well as availability and renewal of the Company’s and it’s subsidiaries’ medical benefit plans, general insurance and workers’ compensation insurance programs for the worksite employees;
	(iv)		uncertainties as to the amount the Company will pay to subsidize the costs of medical benefit plans;
	(v)		possible adverse application of certain federal and state laws and the possible enactment of unfavorable laws or regulation;
	(vi)		litigation and other claims against the Company and its clients including the impact of such claims on the cost, availability and retention of the Company’s and it’s subsidiaries’ insurance coverage programs;
	(vii)		impact of competition from existing and new businesses offering human resources outsourcing services;
	(viii)		risks associated with expansion into additional markets where the Company does not have a presence or significant market penetration;
	(ix)		risks associated with the Company’s dependence on key vendors and the ability to obtain or renew benefit contracts and general insurance policies at rates and with retention amounts acceptable to the Company;
	(x)		an unfavorable determination by the Internal Revenue Service or Department of Labor regarding the status of the Company’s and it’s subsidiaries’ as an “employer”;
	(xi)		the possibility of client attrition due to the Company’s and it’s subsidiaries’ decision to increase the price of its services, including medical benefits;
	(xii)		risks associated with geographic market concentration;
	(xiii)		the financial condition of clients;


	(xiv)		the effect of economic conditions in the United States generally on the Company’s and it’s subsidiaries’ business;
	(xv)		the failure to properly manage growth and successfully integrate acquired companies and operations;


		(xvi)	risks associated with providing new service offerings to clients;
	(xvii)		the ability to secure outside financing at rates acceptable to the Company;
(xviii)				risks associated with third party claims related to the acts, errors or omissions of the worksite employees; and
		(xix)	other factors which are described in further detail in this Annual Report on Form 10-KSB and in other filings by the Company with the Securities and Exchange Commission.

The Company cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of 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 statement.

Part I

ITEM 1. DESCRIPTION OF BUSINESS

Development of Business

PBS Holding, Inc. (the “Company”) was organized under the laws of the State of Nevada in November 1996. The Company is a holding company with wholly owned subsidiaries operating in the Professional Employer Organization industry and the Temporary Staffing Services industry.

In September 2002, Primary Business Systems, LLC (“PBS LLC”), a privately held Texas limited liability company, whose members were Patrick D. Matthews, Connie Matthews (wife of Mr. Matthews) and Amanda Sinclair (daughter of Mr. and Mrs. Matthews), entered into an agreement to purchase 58% of the outstanding shares of common stock of the Company from Pine Services, Inc.

In November 2002, the Company acquired 100% of the members’ interests of PBS LLC, thereby making PBS LLC a wholly owned subsidiary of the Company. As a result of this transaction, the former members of PBS LLC became the majority shareholders of the Company and replaced the management of the Company.

In March 2003, the Company acquired 100% of the outstanding stock of AHJR, Inc. (“AHJR”), a Texas corporation controlled by Connie Matthews thereby making AHJR a wholly-owned subsidiary of the Company. In June 2003, AHJR acquired the assets of a temporary staffing services company and began doing business under the tradename Concord Staffing Services.

In June 2004, the Company established Primary HR Services, LLC (“Primary HR”) a Delaware limited liability company operating in Mississippi, thereby making Primary HR a wholly-owned subdidiary of the Company.

On or about October 4, 2005, the Company effected a 1 for 8 reverse stock split with respect to its outstanding shares of Common Stock and changed its name from Primary Business Systems Inc., to PBS Holding, Inc.

Business of Issuer

General

The Company is engaged in providing human resource outsourcing services through its subsisiaries, PBS LLC, Primary HR and AHJR (sometimes hereinafter collectively referred to as the “Subsidiaries”).

PBS LLC and Primary HR are regional Professional Employer Organizations (PEO) committed to providing human capital management solutions. PBS LLC is licensed as a Staff Leasing Services Company in Texas and Primary HR provides similar services in Mississippi. The two PEO subsidiaries focus on serving small to medium-sized businesses with between five and fifty employees. As of December 31, 2006, PBS LLC and Primary HR served more than 100 clients, and provided over 2500 W-2 forms.

AHJR is a regional temporary staffing services company helping businesses meet their staffing needs while minimizing employee acquirement cost. AHJR offers qualified and screened employees to clients that meet their employment needs on temporary bases. AHJR provides all payroll administration, unemployment administration and assignment administration of the temporary staff. As of December 31, 2006 AHJR had 9 employees on assignment.

Products and Services: PBS LLC and Primary HR

Our PEO subsidiaries provide a broad range of products and services to their clients. These products and services are primarily offered to the Company’s clients on a “bundled” or all inclusive basis. Health, welfare and retirement programs may be elected to be offered to worksite employees at the option of each client. The Company through the PEO subsidiaries provides these products and services to its clients through the following core activities:

Retain the Best Employees. PBS LLC and Primary HR assist clients in retaining the best employees for their businesses by providing:

Health benefits (medical, dental, vision)

Retirement plans (401(k))

Welfare benefits (voluntary life insurance, AD&D, short-term and long-term disability)

Employee assistance programs

Employee retention best practices

Employee discounts

Reward and recognition programs

Manage the Paperwork. PBS LLC and Primary HR assist clients in managing employment and related paperwork by providing the following services:

401 (k) plan administration

Section 125, FMLA and COBRA administration

Time and attendance systems

Payroll processing, employment related tax filings and administration

Form W-2 preparation

Unemployment claims administration

Benefits annual enrollment administration

Benefits claims processing (health, disability and workers’ compensation)

Protect our Clients’ Business. PBS LLC and Primary HR assist clients in protecting their businesses by providing:

HR policies, forms and best practices

Regulatory compliance and guidance

Wage and hour compliance

Employee hiring and termination guidelines

Employee exit interview guidelines and forms

Workers’ compensation insurance

Workplace safety guidance

Insuring our Clients’ Business. PBS LLC and Primary HR assist clients in insuring their business by bringing in our alliance with insurance providers.

General Liability insurance procurement

Commercial auto liability procurement

Property and equipment insruance procurement

Other commercial insruance needs

Assist in audit processes

Assist in determining necessary levels of insurance

Assist in shopping the market fo rhte best price to coverage

Client Selection and Retention Strategy

As part of their current client selection strategy, PBS LLC and Primary HR offer their services to businesses within specific industry classification codes. All prospective clients are also evaluated individually on the basis of total predicted profitability. This analysis takes into account workers’ compensation risk and claims history, unemployment claims history, payroll adequacy, and credit status. With respect to potential clients operating in certain industries believed to present a level of risk exceeding industry norms, more rigorous approval requirements must be met before agreeing to provide services to the client. This process may include an on-site inspection and review of workers’ compensation and unemployment claims experience for the last three years. In addition, under the terms of workers’ compensation agreement, prospective clients operating in certain industries or with historically high workers’ compensation insurance claims experience must also be approved by the insurance carrier before PBS LLC or Primary HR enters into a contract to provide services.

PBS LLC and Primary HR maintain a client review program that includes a detailed profitability and risk analysis of all their clients. Based on the results of these analyses, we may modify our pricing, or if necessary, terminate certain clients that we believe would otherwise be detrimental or not contribute to long-term profitability.

Our client retention rate for 2006 was 89.05%. PBS LLC uses the NAPEO standard for measuring client retention, which is computed by dividing the number of clients at the end of the period by the sum of the number of clients at the beginning of the period plus the number of clients added during the period. The client retention rate is affected by a number of factors including the natural instability of the small to medium-sized business market and clients that were terminated by PBS LLC for reasons that include unacceptable risk and low profitability to PBS LLC.

All clients are required to enter into the Client Services Agreement. The Client Services Agreement provides for an initial one-year term. After the initial term the contract may be renewed or terminated. Following the initial term, most contracts are renewed for a one year term. Based on the results of a financial review, PBS LLC and Primary HR may require the owners of client companies to personally guarantee the client’s obligations under the Client Services Agreement.

PBS LLC and Primary HR retain the ability to terminate the Client Services Agreement as well as their co-employment relationship with the worksite employees immediately upon non-payment by a client. PBS LLC and Primary HR manage their credit risk through the periodic nature of payroll, client credit checks, owner guarantees, client selection process and their right to terminate the Client Services Agreement and the co-employment relationship with the worksite employees.

Employment-related liabilities are generally allocated between PBS LLC or Primary HR and the clientpursuant to the Client Services Agreement with PBS LLC or Primary HR assuming responsibility for worksite employees, payroll obligations and for compliance with certain employment-related government regulations. On the other hand, the client remains responsible for compliance with the employment-related government regulations that are more closely associated woth the daily supervision, direction and control of worksite employees. In some cases, employment-related liabilities are shared between PBS LLC or Primary HR and the client. The following table summarizes the general division of responsibilities for employment-related regulatory compliance under the Client Services Agreement:


PBS		CLIENT

PBS LLC/Primary HR Responsibilities:

Client Responsibilities:

• All rules and regulations governing the reporting, collection and payment of federal and state payroll taxes on wages, including: (i) federal income tax withholding provisions of the Internal Revenue Code; (ii) state and/or local income tax withholding provisions; (iii) FICA; (iv) FUTA; and (v) applicable state unemployment tax provisions, including managing claims;

• Applicable workers’ compensation laws that cover: (i) procuring workers’ compensation insurance; (ii) completing and filing all required reports; (iii) claims processing;

• COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986) continuation coverage for employees covered under health plans sponsored by the Company;

• Laws governing the garnishment of wages, including Title III of the Consumer Credit Protection Act;

• All rules and regulations governing administration, procurement and payment of all Company sponsored employee benefit plans elected by the client or worksite employee; and

• Fair Labor Standards Act and the Family and Medical Leave Act of 1993*.

• Worksite and employee safety under the Occupational Safety and Health Act (“OSHA”) and related or similar Federal, state or local regulations;

• Government contracting requirements as regulated by, including, but not limited to: (i) Executive Order 11246; (ii) Vocational Rehabilitation Act of 1973; (iii) Vietnam Era Veteran’s Readjustment Assistance Act of 1974; (iv) Walsh-Healy Public Contracts Act; (v) Davis-Bacon Act; (vi) the Service Contract Act of 1965; and (vii) any and all similar, related or like federal, state or local laws, regulations, ordinances and statutes;

• Professional licensing and liability;

• Internal Revenue Code Sections 414(m), (n) and (o) relating to client maintained benefit plans;

• Laws affecting the assignment and ownership of intellectual property rights including, but not limited to, inventions, whether patentable or not, any patents resulting therefrom, copyrights and trade secrets;

• Worker Adjustment and Retraining Notification Act;

• Laws affecting the maintenance, storage and disposal of hazardous materials;

• Title VII (Civil Rights Act of 1964, as amended), Immigration Reform and Control Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, Older Workers Benefit Protection Act (including provisions hereunder relating to client’s premises);

• All other federal, state, county or local laws, regulations, ordinances and statutes which regulate employees’ wage and hour matters, prohibit discrimination in the workplace or govern the employer/employee relationship; and

• Fair Labor Standards Act and the Family and Medical Leave Act of 1993*.


*		PBS LLC/ Primary HR and the client are each responsible for certain provisions under the terms of each Act.

Sales and Marketing

PBS LLC and Primary HR market their services through a direct sales force. In order to exercise more control over the client selection process, we use a direct sales force rather than selling through agents. PBS LLC and Primary HR plan to expand their regional coverage and add sales offices in major metropolitan areas over the next few years as it accomplishes its expansion program. The sales associates of PBS LLC and Primary HR are compensated by a combination of salary and commission which, for top producers, will generate total compensation in the moderate six figure range.

PBS LLC and Primary HR generate sales leads from various sources as well as from direct sales efforts and inquiries. Each sales associate visits his or her clients periodically in order to maintain an ongoing relationship and to seek new business referrals. PBS LLC and Primary HR also generate sales leads from referral relationship partners and an information database of small businesses.

Clients

Our clients represent a cross-section of the industrial sector, of which only one clients currently represents more than 5% individualy of our total revenues. We attempt to maintain diversity within our client base in order to decrease our exposure to downturns or volatility in any particular industry, but we cannot assure you that we will be able to maintain such diversity or decrease our eposure to such volatility. All prospective clients fill out a questionnaire to help us evaluate workers’ compensation risk, creditworthiness, unemployment history, and operating stability.

Vendor Relationships

PBS LLC and Primary HR provide benefits to its worksite employees under arrangements with a number of vendors. The maintenance of insurance plans including workers’ compensation plans and health benefit plans that cover worksite employees is a significant part of PBS LLC and Primary HR’s business. If PBS LLC and Primary HR were required to obtain replacement contracts, such replacement could cause a significant disruption to business and possible dissatisfaction with the PBS LLC and Primary HR’s service offering, leading to a decrease in client retention and an adverse effect on future results of operations or financial condition.

Workers’ Compensation Plans

Beginning in 2000, Texas Mutual Insurance Company (“Texas Mutual”) was the provider of workers’ compensation insurance for worksite employees based in Texas. The Texas Mutual program is a guaranteed cost insurance arrangement that is up for renewal each November. The agreement with Texas Mutual has been renewed each of the subsequent years up to and including November 2006 for an additional one-year term. The Company has no workers’ compensation liability with respect to claims by Texas based employees that arose in each of the policy years for amounts in excess of those paid to Texas Mutual.

Primary HR began operations in 2004 and secured worker’s compensation through the risk pool in Mississippi. The policy is a guaranteed cost policy and poses no liability to Primary HR other than the premiums for coverage.

Information Technology

The Company has invested and is continuing to invest capital resources in the development and enhancement of its information and technology infrastructure, including computer hardware, software and telephony. This investment is intended to better serve the client base, achieve a high level of client satisfaction and to allow the subsidiaries to improve efficiencies in its operations.

These computer systems provide the Subsidiaries with the capability to promptly and accurately deliver payroll and related services and generate comprehensive management reports. The Subsidiaries’ information systems manage all data relating to worksite employee enrollment, payroll processing, benefits administration, management information and other requirements of the Subsidiaries’ operations. The current systems have high-volume payroll processing capabilities that allow the Subsidiaries to produce and deliver payrolls to its clients, each customized to the specific needs of such client.

The Company is developing and deploying an online client and employee portal. PBS Online HR Management System (“PBS Online”) allows clients to input their payroll data directly into the Company’s payroll applications via the Internet. Clients can regularly add or delete employees, view reports, and change payroll information. PBS Online provides real time access to the Subsidiaries’ entire suite of human resource products and services. PBS Online is fully integrated with the Company’s human resource management systems and payroll engines. This full integration results in improved client satisfaction, as well as improved operating margins. Summit software provides the foundation, enabling a robust, client configurable portal, while the Subsidiaries’ custom developed software provides additional ease of use and service capabilities.

PBS Online allows the Company to service its clients 24 hours a day with increased accuracy and efficiency. PBS Online is updated regularly to increase its functionality and is intended to serve as a human resource information portal for clients providing a variety of payroll and human resource tools, templates and information.

The combination of the systems, Summit and PBS Online, create a comprehensive solution able to grow and adapt to the evolving needs of clients for access and functionality.

Competition

The PEO industry is highly fragmented. We consider our primary competition to be other PEOs, ASOs (Administrative Services Organizations), insurance agents, and fee-for-service providers, such as payroll processors and human resource consultants. The market for human resource consulting services is expected to become increasingly competitive as larger companies, some of which have greater financial resources than PBS LLC and Primary HR and which have not traditionally operated in this industry, enter the market. There are numerous companies operating in the PEO segment which compete with PBS LLC and Primary HR, including several larger publicly held entities such as Gevity HR, Inc (NASDAQ;GVHR), ADP (NYSE: ADP) and Administaff, Inc (NYSE;ASI).

The key competitive factors in the human resource consulting industry are breadth and quality of services, price, reputation, financial stability, and choice, quality and cost of benefits. PBS LLC seeks to compete through its ability to provide full-service human resource solutions to its clients through its advanced information technology solutions. PBS LLC believes that some smaller PEOs are exiting the PEO industry due to increased collateral required by providers of workers’ compensation and health insurance benefits. In addition, an increase in costs and a lack of available workers’ compensation and health insurance benefit programs is impacting these PEOs providing excellent opportunities for consolidation in the PEO market place which the Company expects to exploit.

Products and Services: AHJR

Staffing companies like AHJR provide one or more of three basic services to clients: (i) flexible staffing; (ii) placement and search; and (iii) outplacement services. The temporary staffing industry consists of a number of sectors focusing on business needs that vary widely in duration of assignment and level of technical specialization. We operate primarily within the short-term, light industrial and clerical area of the temporary staffing industry.

AHJR focuses on meeting our clients’ flexible staffing needs, targeting opportunities in a fragmented growing market that we believe has been under-served by large, full-service staffing companies. Significant benefits to clients include providing the ability to outsource the recruiting and many logistical aspects of their staffing needs, as well as converting their fixed cost of employees to the variable cost of outsourced services. A summary of our payroll administration services and aggregation of statutory and non-statutory employee benefits services is as follows:

PAYROLL ADMINISTRATION SERVICES: We assume responsibility for our employees’ payroll and attendance record-keeping, payroll tax deposits, payroll tax reporting, all federal, state, and payroll tax reports (including 941s, 940s, W-2s, W-3s, W-4s and W-5s), state unemployment taxes, employee file maintenance, unemployment claims and monitoring and responding to changing regulatory requirements.

AGGREGATION OF STATUTORY AND NON–STATUTORY EMPLOYEE BENEFITS SERVICES: We provide workers’ compensation and unemployment insurance to our service employees. Workers’ Compensation is a state-mandated comprehensive insurance program that provides medical expenses, lost wages and other costs that result from work related injuries and illnesses, regardless of fault and without any co-payment by the employee. Unemployment insurance is an insurance tax imposed by both federal and state governments. Our human resources and claims administration departments monitor and review workers’ compensation for loss control purposes.

The focus of our temporary staffing service is to provide short and long term employees as well as temp-to-hire employees to financially secured employers. Our service specializes in clerical and light industrial staffing. Each applicant is thoroughly interviewed, tested, and screened to meet the requirements of our customers. For long term and temp-to-hire positions, a large percentage of our customers will interview our candidates and then select the individual they believe to be best suited for the positon.

Sales and Marketing

AHJR sales staff and staff placement managers determine the needs of prospective customers and locate qualified individuals for assignment. Currently, referrals from satisfied customers provide new customers for AHJR; however this spring the Company intends to hire additional direct sales personnel to facilitate growth.

Competition

The Staffing services industry is highly fragmented. We compete with many small providers in addtion to several large public companies, including Kelly Services, Inc., Manpower, Inc., and others. There are limited barriers to entry and new competitors frequently enter the market. Although a large percentage of flexible staffing providers are locally operated, with fewer than five offices, most of the larger public companies have significantly greater marketing, financial and other resources than we do. We believe that by focusing primarily on customer service, we enjoy a competitive advantage over many of our competitors that attempt to provide a broader range of staffing services. We also believe that by targeting regional and local companies, rather than the national companies, we are generally being pursued by our competitiors and we can gain certain competitive advantages.

Industry Regulations

Numerous federal and state laws and regulations relating to employment matters, benefit plans and employment taxes affect the operations of Staffing companies. We are subject to assume certain obligations and responsibilities as an employer. Because many federal and state laws were enacted before the development of non-traditional employment relationships, such as PEOs, temporary employment and other employment-related outsourcing arrangements, many of the laws do not specifically address the obligations and responsibilities of non-traditional employers. In addition, the definition of “employer” under the law is not uniform.

Some government agencies that regulate employment have developed rules that specifically address issues raised by the relationship among PEOs, staffing agencies, clients and worksite employees. Such regulations are relatively new and, therefore, their interpretation and application by administrative agencies and federal and state courts are limited or non-existent. The development of additional regulations and interpretation of existing regulations can be expected to evolve over time. In addition, from time to time, states have considered, and if not may consider, imposing certain taxes on gross revenues or service fees of the Company and its competitors.

We believe our operations are currently in compliance in all material respects with applicable federal and state statutes and regulations.

Employee Benefit Plans

Effective June 1, 2001, PBS LLC began to offer a 401(k) retirement plan, designed to be a “multiple employer” plan under the Internal Revenue Code of 1986, as amended (the “Code”) Section 413C. This plan design enables owners of client companies and highly compensated worksite employees, as well as highly compensated internal employees of PBS LLC, to participate. Generally, employee benefit plans are subject to provisions of both the Code and the Employee Retirement Income Security Act (“ERISA”). In order to qualify for favorable tax treatment under the Code, the plans must be established and maintained by an employer for the exclusive benefit of its employees. In addition to the employer/employee threshold, pension and profit-sharing plans, including plans that offer CODAs (a profit-sharing plan with a cash or deferred arrangement, or CODA, under Code Section 401(k) and matching contributions under Code Section 401(m), must satisfy certain other requirements under the Code. These other requirements are generally designed to prevent discrimination in favor of highly compensated employees to the detriment of non-highly compensated employees with respect to both the availability and the benefits, rights and features offered in qualified employee benefit plans.

Employee pension and welfare benefit plans are also governed by ERISA. ERISA defines “employer” as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.” ERISA defines the term “employee” as “any individual employed by an employer.” A definitive judicial interpretation of “employer” in the context of a PEO arrangement has not been established, although the Internal Revenue Service (“IRS”) released Rev. Proc. 2002-21 on April 24, 2002, to help clarify the ability of PEOs to maintain multiple employer 401(k) plans.

IRS Issuance of Rev. Proc. 2002-21

In April 2002, the IRS issued Rev. Proc. 2002-21. While Rev. Proc. 2002-21 is intended to describe the steps that may be taken to ensure the qualified status of defined contribution retirement plans maintained by PEOs for the benefit of worksite employees, there remain uncertainties regarding the operation and interpretation of that revenue procedure. Under Rev. Proc. 2002-21, if a PEO operates a multiple employer retirement plan in accordance with Code Section 413C, the IRS will not disqualify the retirement plan solely on the grounds that the plan violates or has violated the exclusive benefit rule.

Federal Employment Taxes

As employers, PBS LLC and Primary HR assume responsibility and liability for the payment of federal and state employment taxes with respect to wages and salaries paid to worksite employees. There are essentially three types of federal employment tax obligations: (i) withholding of income tax governed by Code Section 3401, et seq.; (ii) obligations under the Federal Income Contributions Act (“FICA”), governed by Code Section 3101, et seq.; and (iii) obligations under the Federal Unemployment Tax Act (“FUTA”), governed by Code Section 3101, et seq. Under these various Code sections, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of these taxes. Among other employment tax issues related to whether PEOs are employers of worksite employees are issues under the Code provisions applicable to federal employment taxes. The issue arises as to whether a PEO is responsible for payment of employment taxes on wages and salaries paid to such worksite employees. Code Section 3401(d)(1), which applies to Federal income tax withholding requirements, contains an exception to the general common law test applied to determine whether an entity is an “employer” for purposes of federal income tax withholding. The courts have extended this common law employer exception to apply for both FICA and FUTA tax purposes. Code Section 3401(d)(1) states that if the person for whom services are rendered does not have control of the payment of wages, the “employer” for this purpose is the person having control of the payment of wages.

The Treasury Regulations issued under Code Section 3401(d)(1) state that a third party can be deemed to be the employer of workers under this section for federal income tax withholding purposes where the person for whom services are rendered does not have legal control of the payment of wages. Although several courts have examined Code Section 3401(d) (1) with regard to PEOs, its ultimate scope has not been delineated. Moreover, the IRS has to date relied extensively on the common law test of employment in determining liability for failure to comply with Federal income tax withholding requirements. Accordingly, while PBS LLC believes that it can assume the withholding obligations for worksite employees, if PBS LLC fails to meet these obligations, the client may be held jointly and severely liable. While this interpretive issue has not, to PBS LLC’s knowledge, discouraged clients from utilizing PBS LLC’s services, there can be no assurance that a definitive adverse resolution of this issue would not do so in the future.

State Regulation

While many states do not explicitly regulate PEOs, 22 states including Texas where PBS LLC has offices, have passed laws that contain licensing, registration or other compliance requirements for PEOs, and several other states are considering such regulations. These laws vary from state to state but generally provide for monitoring the fiscal responsibility of PEOs. PBS LLC holds licenses, is registered and otherwise compliant in the state it provides services. Whether or not a state has licensing, registration or other compliance requirement, PBS LLC faces a number of other state and local regulations that could impact its operations.

Employees

As of December 31, 2006, PBS LLC employed 14 full time employees: two in sales, three in payroll, two in accounting, two in loss control, two in customer support, one in information techology and two in management. Primary HR Services has two employees: one in sales and one in management. AHJR has two employees: one in customer service and one in management. All employees are trained in customer service and all are responsible for serving our customers. Management believes relations with employees are good. The employees are not represented by any bargaining group. The combined Company’s aslo provided paychecks to approximately 1100 worksite employees. We believe we maintain positive employee relationships with such employees on client assignments.

Trademarks and Service Marks

We have begun the process of registering the mark “Focus on the Business of Business”.

ITEM 2 DESCRIPTION OF PROPERTIES

We lease approximately 3506 square feet of office space at 433 Kitty Hawk Drive, Suite 226, Universal City, Texas 78148 in a two story masonry office building. The lease began in December 1, 2006 and continues through November 1, 2009. The current monthly lease rate is $3,261.00 plus utilities. The Company owns all furniture, fixtures, computers, servers and equipment necessary to the operations of the business. Management believes that all property is adequately covered under various insurance policies.

The space has been built out to meet the needs of the Company and it is the opinion of management that it will continue to meet the needs of the Company through the term of the lease. In the future we anticipate that we will need additional facilities in which to centralize our accounting, training, human resources, risk management and executive work activitiies. We anticipate that we will also require larger scale data processing and network communication capabilities, in order to facilitate the assimilation of acquired companies into our methods of operating and accounting standards, and to provide customers with state-of-the-art service and support.

ITEM 3. LEGAL PROCEEDINGS

While we are not aware of any outstanding legal proceedings, as a commercial enterprise and employer and with respect to its employment-related businesses in particular, we may become 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 clients for claims brought by worksite employees related to their employment. However, there can be no assurance that the client employer will have funds or insurance in amounts to cover any damages or awards, and as co-employer, we may be subject to liability.

Currently we are not engaged in any litigation, the effect of which would be anticipated to have a material adverse impact on our financial conditions or results of operations.

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

Shareholders of record effective November 27, 2006 were sent Notice of Meeting of Shareholders announcing the Annual Meeting of Shareholde’s to be held in San Antonio TX, on December 12, 2006. At the meeting the Shareholders elected three Directors to hold office until the next annual meeting of sharholders. The Annual Meeting of Sharholders was held December 12, 2006 and at the meeting each director nominated was elected by the shareholders.

Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET FOR COMMON EQUITY

(a) Market Information. The Company’s Common Stock has been quoted and traded on a limited and sporadic basis on the OTC Bulletin Board operated by the NASD under the trading symbol “PBHG”. The limited and sporadic trading does not constitute, nor should it be considered an established public trading market for the Company’s Common Stock. Furthermore, due to limited and sporadic trading, the market value of the Company’s Common Stock held by non-affiliates cannot be estimated.


PBHG – PBS HOLDING, INC. YEAR ENDING DECEMBER 2006 & 2005
			BID
END DATE	HIGH			LOW		CLOSE
2006
12/31/2006	$	0.20		$	0.17	$	0.17
09/30/2006		0.40			0.25		0.25
06/30/2006		0.34			0.25		0.30
03/31/2006		0.70			0.50		0.58
2005
12/31/2005		0.85			0.011		0.34
09/30/2005		0.07			0.015		0.03
06/30/2005		0.02			0.012		0.015
03/31/2005		0.03			0.011		0.013

Source: OTC Bulletin Board – quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Chart reflects the 1 for 8 reverse stock split in October 2005.

(b) Holders. As of March 6, 2007, management believes there to be approximately 187 holders of record of our common stock, holding in the aggregate 11,769,539 shares of the Company’s Common Stock.

(c) Dividends. To date we have not paid any dividends on our Common Stock. We do not currently intend to pay dividends in the future.

EQUITY COMPENSATION INFORMATION

Securities authorized for issuance under equity compensation plans. Although the Company has an Employee Stock Option Plan previously approved by the security holders, no options have been granted under the plan to date.

Equity Compansation Plan Information


Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights.	Weighted – average exercise price of the oustanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	3,000,000	N/A	3,000,000
Equity compensation plans not approved by security holders	315,000	$0.12	N/A
Total	3,315,000	$0.12	3,000,000

RECENT SALES OF EQUITY SECURITIES

This information has been reported on Form 8-K filed on March 10, 2006.

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

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial information set forth in the following discussion should be read in conjunction with the Company’s Audited Financial Statements and Notes included herein under Item 7 of Part II.

The statements contained in this annual report that are not historical facts are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this annual report could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this Item 6 under “Risk Factors” and the uncertainties set forth from time to time in our other public reports and filings and public statements.

We account for our revenues in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting Revenues Gross as a Principal Versus Net as an Agent. Our gross billings to clients include the payroll cost of each worksite employee at the client location and a markup computed as a percentage of each worksite employee’s payroll cost. We invoice the gross billings concurrently with each periodic payroll of our worksite employees. Revenues, which exclude the payroll cost component of gross billing, and therefore, consist solely of the markup, are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. This markup includes pricing components associated with our estimates of payroll taxes, benefits and workers’ compensation costs, plus a separate component related to our HR services.

The results described below are not necessarily indicative of the results to be expected in any future period.

OVERVIEW

Through the Subsidiaries we provide a broad range of comprehensive services, including benefits and payroll administration, health and workers’ compensation insurance programs, personnel records management, employer liability management and employee training and development services.

As a result of our focus on organic growth we have completed four years with double digit growth. Our key objective for 2006 was to continue to accelerate the growth in the number of paid worksite employees while appropriately pricing our service offering and leveraging our existing infrastructure. Our growth is reflected in our Net Revenues which increased 14.61% to $5,367,845 in 2006 compared to$4,919,246 in 2005 and Gross Profit which increased 20.11% to $2,121,776 in 2006 compared to $1,766,531 in 2005.

RESULTS OF OPERATIONS

The following table presents consolidated results of PBS’ operations for the years ended December 31, 2006 and 2005, expressed as a percentage of net revenues.


	Year Ended December 31, 2006		Year Ended December 31, 2005
Net Revenues	%	100	%	100
Cost of Services		62.37		64.09
Gross Profit		37.63		35.91

Operating Expenses
General and Administrative		22.71		18.99
Wages, Compensation & Salaries		13.52		10.22
Officers Compensation		6.15		5.90
Total Operating Expenses		42.38		35.11
Income (Loss) from Operations		(4.75)		0.80

Other Income & (Expense)
Other Income		0		1.02
Consulting Expenses		(0.85)		(2.05)
Acquisition Costs		(1.10)		(0.15)
Employee Services Paid with Stock		(0.60)		0
Officer Compensation with Stock Warrants		(0.60)		0
Non Employee Services Paid with Stock Warrants		0		(1.03)
Non employee Services Paid with Warrants Exercised		(0.28)		0
Non Employee Service Paid with Stock		(0.79)		0
Litigation Costs		0		(1.79)

(Loss) before income taxes		(7.92)		(3.72)
Income Tax (benefit) provisions		-		-
(Loss) Net Income		(7.92)		(3.72)

COMPARISON OF CONSOLIDATED OPERATIONS FOR YEAR ENDED DECEMBER 31, 2006 TO YEAR ENDED DECEMBER 31, 2005.

Net Revenues for the year ended December 31, 2006

increased $718,599 to $5,637,845 compared to $4,919,246 for December 31, 2005, a 14.61% increase, reflecting an increase in business and our aggressive marketing efforts. This growth is attributable to an increase in sales resulting from the Company’s development of a strategic sales process implemented in 2005 and leadership of our experienced management team.

Cost of Revenues for the year ended December 31, 2006 was $3,516,069 or 62.37% of Net Revenue compared to $3,152,715 or 64.09% for the year ended December 31, 2005. This represents an increase of $363,354 or 11.53% which is consistent with increases in our Net Revenues. Cost of Revenues are primarily affected by the workers’ compensation costs, state unemployment cost and benefit expenses.

Workers’ compensation represented the largest increase in our cost of revenues for the year ended December 31, 2006 increasing to $1,106,396 as compared to $1,025,053 for the year ended December 31, 2005. The cost is reflective of the number of leased employees on assignment and the mix of business risk in the program.

Unemployment costs for the year ended December 31, 2006 were $197,793 compared to $183,125 for the year ended December 31, 2005. The increase is consistent with increases in the number of leased employees.

Benefit expenses for the year ended December 31, 2006 were $109,891 compared to $119,373 for the year ended December 31, 2005. The decrease is a result of our shift to consumer driven products whereby the consumer has more control and choice regarding the expense and point of service for health care.

Our Gross Profit for the year ended December 31, 2006 increased $355,245 or 20.11% to $2,121,776 as compared to $1,766,531 for the year ended December 31, 2005.

Total Operating expenses for the year ended December 31, 2006 were $2,389,457 or 42.38% of Net Revenues compared to $1,727,313 or 35.11% of Net Revenues for the year ended December 31, 2005.

General and Administrative Cost were $1,280,366 or 22.71% of Net Revenues for the year ended December 31, 2006 compared to $934,359 or 18.99% for the year ended December 31, 2005. During 2006 the timing and cash requirements of the Company were such that short term tax payment deficiencies exist resulting in penalties incurred by the Company in 2006. The Company incurred penalties totaling $159,213 included in the General and Administrative costs.

Wages, commissions, and salaries for the year ended December 31, 2006 were $762,119 or 13.52% of Net Revenues compared to $502,840 or 10.22% for the year ended December 31, 2004, representing an increase of $259,279. During the year we added additional sales staff. We increased our accounting staff by one employee during 2006 and added one additional customer service representative. The total staff of the Company is seventeen employees. Commissions also increased due to growth as reflected in our Net Revenue. Officers’ compensation for the year ended December 31, 2006 was $346,971 or 6.15% of Net Revenue compared to $290,114 or 5.9% of net revenue for the year ended December 31, 2005.

Consolidated operations for 2006 resulted in a loss of $(267,681) or (4.75) % as compared to income of $39,218 or 0.80% for 2005. This was the accumulative effect of the increase in cost of revenues discussed above and increases in wages, commissions and salaries as a result of the investments in our staff and expansion into additional markets.

Litigation cost for the year ended December 31, 2006 was zero and $87,918 for the year ended December 31, 2005. As expected once clear from the litigation expenses incurred with the acquisition of the company ranging back to 2002 our litigation cost would be minimal.

Consulting expenses for the year ended December 31, 2006 was $47,800 as compared to $101,083 for 2005. These expenses represent the costs incurred by the Company for services rendered during that year in assisting the Company to position itself to acquire other businesses in the human resources outsourcing industries.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair market values. Pro forma disclosure is no longer an alternative. We adopted SFAS 123(R) as of December 31, 2005. Statement 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date: (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date; and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either: (a) all prior periods presented; or (b) prior interim periods of the year of adoption.

We adopted Statement 123(R) using the modified prospective method.

We elected to use cashless warrants as a method to pay for services or reward (award) individuals for their service to the Company. The cashless warrant formula is x = y (a – b) / a wherein “x” is the resultant number of shares issued, “y” is the number of warrants granted, “a” is the market price and “b” is the exercise price. It is the opinion of management this cashless warrant vehicle provides a method to award performance while minimizing the impact on the Company’s cash flow and capital structure. It is widely believed the majority of cashless warrant options will be exercised by surrendering shares as opposed to paying cash for the total number of shares outstanding although this cannot be assured in every case.

To determine the value of the warrants granted as required in Statement 123R(1) we have adopted the Black-Scholes-Merton formula which takes into account the initial stock price, the exercise price, the continuously compounded risk-free interest rate, the expected dividend yield, the expected volatility, and the expected term. Our methodology includes assuming the stock price fair market value at the end of each month a warrant is exercisable that price is also applied to the cashless warrant formula as the value for “a”. Management has an opinion that the application of the two formulas effectively encompasses the intent of FAS 123R (1).

Employee services paid with stock warrants issued during 2006 totaled 102,936 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 statement.

Employee services paid with stock for 2006 was valued at $34,000 there were no corresponding expenses recorded during 2005.

In accordance with FASB no. 123R regarding the value of share-based payment transactions to employees and non employees, management has determined that the restricted shares issued to employees and non employees shall be valued at the fair market value of the shares less a discount due to the restriction placed on the shares. For the year ended December 31, 2006 the fair market value of the shares is $0.17 reduced by a factor of 20% for the restricted nature of the shares. The amount recognized for employee payments of stock at $0.136 per share for 250,000 shares is $34,000.

Non-employee services paid with cashless stock warrants issued during 2006 was valued at zero, the Company issued 330,000 warrants. These cashless warrants were issued in conjunction to services performed by consultants to the Company. In accordance with EITF 96-18 regarding value of non employees services paid with stock warrants granted, management has determined the services received on which the warrants were granted had no value. The alternative to valuing the services received is valuing the warrants granted for those services. The fair market value of the stock at December 31, 2006 was $0.17 per share which is less than the exercise price for all warrants granted and therefore the warrants have no intrinsic value. Because there is no value in the services and no intrinsic value for the warrants granted, management has not recognized any value associated with granting these warrants.

No provision for income taxes have been reflected or recorded in the financial statements. We incurred a net loss of $(627,643) for the year ended December 31, 2006 as a result of the matters discussed above. This represents a $444,479 increase in the net loss from the year ended December 31, 2005. Losses to date can be used to offset future taxable income, assuming the Company becomes profitable in the future.

Our financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. As reflected in the financial statements, we currently have a working capital deficiency and a stockholder’s deficiency of $(620,854) and $(308,573), respectively, as of the year ended December 31, 2006 and 2005. In addition, we have incurred losses from our operations since our inception, and have been dependent upon the financial support of shareholders, management, and other related parties.

The Company had $43,553 in cash and cash equivalents at December 31, 2006. The Company is required to collateralize its obligations under its workers’ compensation coverage. The Company uses its cash as to collateralize these obligations.

At November 18, 2005, the Company deposited $229,220 as collateral with the Company’s workers’ compensation carrier for the 2005/2006 policy year. The Company’s workers’ compensation plans for the previous years are subject to no further collateral adjustments.

The charges to clients by the Company derived from salaries, wages, payroll taxes and benefits are managed from the cash flow perspective so that a matching exists between the time the funds are received from a client and the time the funds are paid to the worksite employees and appropriate tax jurisdictions.

The Company’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 payments of accrued workers’ compensation expense and health benefit plan premiums.

To date the Company has made significant financial commitments to developing its sales force. We hired a sales consulting firm to help develop and implement our sales practices with the expectation of our sales staff becoming better equipped to develop relationships with existing and prospective customers. Our main goals were to (i) reduce the sales cycle, (ii) increase the size of our accounts in terms of employee count and (iii) increase the fee for our services. To date the results sought have been recognized, there is however no guarantee the results we’ve seen to date will continue into the future.

RISK FACTORS

You should carefully consider the risks described below with respect to our operations, businesses and financial condition. The risks and uncertainties described below are not the only ones facing us. Other risks and uncertainties that we have not predicted or assessed may also adversely affect us. Some of the information in this filing contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” and “continue” or other similar words. You should read statements that contain these words carefully for the following reasons:

the statements may discuss our future expectations;

the statements may contain projections of our future earnings or of our financial condition; and

the statements may state other “forward-looking” information.

WE REQUIRE ADDITIONAL CAPITAL TO FUND OUR CURRENT OPERATIONS AND TO MAKE ACQUISITIONS. WE MAY HAVE TO CURTAIL OUR BUSINESS IF WE CANNOT FIND ADEQUATE FUNDING.

The expansion and development of our business will require significant additional capital, which we may be unable to obtain on suitable terms, or at all. 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.

WE MAY ACQUIRE ADDITIONAL COMPANIES, WHICH MAY RESULT IN ADVERSE EFFECT ON OUR EARNINGS.

We may at times become involved in discussions with potential acquisition candidates. Any acquisition that we may consummate may have an adverse effect on our liquidity and earnings and may be dilutive to our earnings. In the event that we consummate an acquisition or obtain additional capital through the sale of debt or equity to finance an acquisition, our shareholders may experience dilution in their shareholders’ equity. We have historically obtained growth through acquisitions of other companies and businesses. Under Statements of Financial Accounting Standards No. 141, Business Combinations (SFAS No. 141) and No. 142 Goodwill and Other intangible Assets implemented in June 2001, we are required to periodically review goodwill and indefinite life intangible assets for possible impairment. In the event that we are required to write down the value of any assets under these pronouncements, it may materially and adversely affect our earnings. See the more detailed discussion appearing as part of our Management’s Discussion and Analysis.

OUR BUSINESS MAY BE ADVERSELY AFFECTED DUE TO ECONOMIC CONDITIONS IN SPECIFIC GEOGRAPHIC MARKETS.

All our revenues are derived through our Texas and Mississippi operations. We attempt to diversify through different industry segments and by obtaining clients in different metropolitan markets. While we believe that our market diversification will eventually lessen this risk in addition to generating significant revenue growth, we may not be able to duplicate in other markets the revenue growth and operating results necessary to offset economic conditions.

UNFAVORABLE INTERPRETATIONS OF GOVERNMENT LAWS MAY HARM OUR PEO OPERATIONS.

Our PEO operations are affected by many federal, state and local laws relating to labor, tax, insurance and employment matters and the provision of managed care services. Many of the laws related to the employment relationship were enacted before the development of alternative employment arrangements, such as those that we provide, and do not specifically address the obligations and responsibilities of non-traditional employers. The unfavorable resolution of unsettled interpretive issues concerning our relationship could have a material adverse effect on our results of operations, financial condition and liquidity. Uncertainties arising under the Code include, but are not limited to, the qualified tax status and favorable tax status of certain benefit plans we and other alternative employers provide. In addition, new laws and regulations may be enacted with respect to its activities, which may also have a material adverse effect on our business, financial condition, results of operations and liquidity.

IF GOVERNMENT REGULATIONS REGARDING PEO’S TEMPORARY AND PERMANENT STAFFING ARE IMPLEMENTED, OR IF CURRENT REGULATIONS ARE CHANGED, OUR BUSINESS COULD BE HARMED.

Because many of the laws related to the employment relationship were enacted prior to the development of PEOs and other staffing businesses, many of these laws do not specifically address the obligations and responsibilities of non-traditional employers. Our operations are affected by numerous federal, state and local laws and regulations relating to labor, tax, insurance and employment matters. By entering into an employment relationship with employees who work at client locations, we assume obligations and responsibilities of an employer under these laws. Uncertainties arising under the Code include, but are not limited to, the qualified tax status and favorable tax status of certain benefit plans provided by our Company and other alternative employers. The unfavorable resolution of these unsettled issues could have a material adverse effect on results of operations and financial condition. While many states do not explicitly regulate PEOs, approximately one-half of the states have enacted laws that have licensing, registration or certification requirements for PEOs. Several additional states are considering such laws. These laws vary from state to state but generally provide for the monitoring of the fiscal responsibility of PEOs and specify the employer responsibilities assumed by PEOs. Additionally, many states require licensure or registration of entities providing temporary health care or nursing services as well as those offering permanent placement services. There can be no assurance that we will be able to comply with any such regulations, which may be imposed upon us now or in the future, and our inability to comply with any such regulations could have a material adverse effect on our results of operations and financial condition. In addition, there can be no assurance that existing laws and regulations which are not currently applicable to us will not be interpreted more broadly in the future to apply to our existing activities or that new laws and regulations will not be enacted with respect to our activities. Either of these changes could have a material adverse effect on our business, financial condition, results of operations and liquidity.

WE MAY NOT BE ABLE TO OBTAIN ALL OF THE LICENSES AND CERTIFICATIONS THAT WE NEED TO OPERATE.

State authorities extensively regulate the PEO, temporary medical staffing and permanent placement industry and some states require us to satisfy operating, licensing or certification requirements. If we are unable to obtain or maintain all of the required licenses or certifications that we need, we could experience material adverse effects to our results of operations, financial condition and liquidity.

HEALTH CARE OR WORKERS’ COMPENSATION REFORM COULD IMPOSE UNEXPECTED BURDENS ON OUR ABILITY TO CONDUCT OUR BUSINESS.

Regulation in the health care and workers’ compensation fields continues to evolve, and we cannot predict what additional government regulations affecting our business may be adopted in the future. Changes in any of these laws or regulations may adversely impact the demand for our services, require that we develop new or modified services to meet the demands of the marketplace, or require that we modify the fees that we charge for our services. Any such changes may adversely impact our competitiveness and financial condition.

IF WE LOOSE OUR QUALIFIED STATUS FOR CERTAIN TAX PURPOSES, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.

The IRS established an Employee Leasing Market Segment Group for the purpose of identifying specific compliance issues prevalent in certain segments of the PEO industry. One issue that arose in the course of these reviews is whether PEOs should be considered the employers of worksite employees under Code provisions applicable to employee benefit plans, which would permit PEOs to offer benefit plans that qualify for favorable tax treatment to worksite employees. If the IRS concludes that PEOs are not employers of worksite employees for purposes of the Code, we would need to respond to the following adverse implications:

•

the tax-qualified status of our 401(k) plan could be revoked and our Cafeteria Plan may lose its favorable tax status;

•

worksite employees would not be able to continue to participate in such plans or in other employee benefit plans;

•

we may no longer be able to assume the client company’s federal employment tax withholding obligations;

•

if such a conclusion were applied retroactively, then employees’ vested account balances in the 401(k) plan would become taxable immediately, we would lose our tax deduction to the extent contributions were not vested, the plan trust would become a taxable trust and penalties, and additional taxes for prior periods could be assessed.

Under such circumstances, we would face the risk of client dissatisfaction as well as potential litigation, and our financial condition, results of operations and liquidity could be materially adversely affected.

In April 2002, the IRS issued Rev. Proc. 2002-21. While Rev. Proc. 2002-21 is intended to describe the steps that may be taken to insure the qualified status of defined contribution retirement plans maintained by PEOs for the benefit of worksite employees, there remain uncertainties regarding the operation and interpretation of that revenue procedure. Under Rev. Proc. 2002-21, if a PEO operates a multiple employer retirement plan in accordance with IRS Code Section 413C, the IRS will not disqualify the retirement plan solely on the grounds that the plan violates or has violated the exclusive benefit rule. PBS LLC’s current active retirement savings plan is designed, and intended to be operated, in accordance with Code Section 413C.

WE ARE LIABLE FOR THE COSTS OF WORKSITE EMPLOYEE PAYROLL AND BENEFITS AND BEAR THE RISK IF SUCH COSTS EXCEED THE FEES PAYABLE TO US BY OUR CLIENTS.

Under our standard client service agreement, we become a co-employer of worksite employees and assume the obligations to pay the salaries, wages and related benefit costs and payroll taxes of such worksite employees. We assume these obligations as a principal, not merely as an agent, of the client company. If a client company does not pay us, or if the costs of benefits provided to worksite employees exceeds the fees paid by a client company, our ultimate liability for worksite employee payroll and benefits costs could have a material adverse effect on our financial condition or results of operations. Our obligations include responsibility for

•

payment of the salaries and wages for work performed by worksite employees, regardless of whether the client company makes timely payment to us of the associated service fee; and

•

periodic reassessments of workers’ compensation claims of prior periods may require an increase or decrease to our reserves, and therefore may also affect our present and future financial conditions; and

•

providing benefits to worksite employees even if the costs we incur to provide those benefits exceed the fees paid by the client company.

WE BEAR THE RISK OF NONPAYMENT FROM OUR CLIENTS AND THE POSSIBLE EFFECTS OF BANKRUPTCY FILINGS BY CLIENTS.

To the extent that any client experiences financial difficulty, or is otherwise unable to meet its obligations as they become due, our financial condition and results of operations could be adversely affected. For work performed prior to the termination of a client agreement, we may be obligated, as an employer, to pay the gross salaries and wages of the client’s worksite employees and the related employment taxes and workers’ compensation costs, whether or not our client pays us on a timely basis, or at all. A significant increase in our uncollected account receivables may have a material adverse effect on our earnings and financial condition.

To the extent that PBS LLC extends credit to its clients under its client service agreements, or is liable for employee payroll and related expenses, and the client files for protection under the bankruptcy laws, PBS LLC may be unable to collect the funds owed to it from the client. As a result, PBS LLC may be required to pay payroll and related expenses without reimbursement. In addition, although PBS LLC believes that its client service agreements should be terminable by it once a client enters bankruptcy, there is a risk that a bankruptcy court may not agree and would require PBS LLC to continue to perform services for such client, thereby increasing the risk that PBS LLC would be unable to collect funds from the client. Therefore, the filing for bankruptcy by a significant client, or a number of clients, may have a material adverse effect upon PBS LLC’s financial condition.

WE MAY BE HELD LIABLE FOR THE ACTIONS OF OUR CLIENTS AND EMPLOYEES AND THEREFORE INCUR UNFORESEEN LIABILITIES.

A number of legal issues with respect to the co-employment arrangements among PEOs and temporary staffing firms, their clients and worksite employees remain unresolved. These issues include who bears the ultimate liability for violations of employment and discrimination laws. As a result of our status as a co-employer, we may be liable for violations of these or other laws despite contractual protections. While our client service agreements generally provide that the client is to indemnify us for any liability caused by the client’s failure to comply with its contractual obligations and the requirements imposed by law, we may not be able to collect on such a contractual indemnification claim and may then be responsible for satisfying such liabilities. In addition, worksite employees may be deemed to be our agents, which could make us liable for their actions.

WE MAY BE LIABLE FOR THE ACTIONS OF PEO WORKSITE EMPLOYEES OR CLIENTS AND OUR INSURANCE POLICIES MAY NOT BE SUFFICIENT TO COVER SUCH LIABILITIES.

Our PEO client services agreement establishes a contractual division of responsibilities between our Company and each client for various human resource matters, including compliance with, and liability under, various government laws and regulations. However, we may be subject to liability for violations of these or other laws despite these contractual provisions, even if we do not participate in such violations. Although such client agreements generally provide that the client indemnify us for any liability attributable to the client’s failure to comply with its contractual obligations and to the requirements imposed by law, we may not be able to collect on such a contractual indemnification claim, and thus may be responsible for satisfying such liabilities. In addition, worksite employees may be deemed to be our agents, subjecting us to liability for the actions of such worksite employees. As an employer, we, from time to time, may be subject in the ordinary course of our business to a wide variety of employment-related claims such as claims for injuries, wrongful death, harassment, discrimination, wage and hours violations and other matters. Although we carry $1 million of general liability insurance, with no deductible, and carry $1 million of employer liability insurance, with no deductible, there can be no assurance that any such insurance we carry will be sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints. There also can be no assurance that sufficient insurance will be available to us in the future and, if available, on satisfactory terms. If the insurance we carry is not sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints, then our business and financial condition could be materially adversely affected.

OUR CLIENTS MAY BE HELD LIABLE FOR EMPLOYMENT TAXES, WHICH COULD DISCOURAGE SOME COMPANIES FROM TRASACTING BUSINESS WITH US.

Pursuant to the PEO client service agreement, we assume responsibility and liability for the payment of federal employment taxes imposed under the Code with respect to wages and salaries paid to our worksite employees as well as various state payroll tax obligations. While the client service agreement provides that we have the sole legal responsibility for making these tax contributions, the IRS or applicable state taxing authority could conclude that such liability cannot be completely transferred to us. Accordingly, in the event that we fail to meet our tax withholding and payment obligations, the client company may be held jointly and severally liable. There are essentially three types of federal employment tax obligations:

•

income tax withholding requirements;

•

obligations under the Federal Income Contribution Act; and

•

obligations under the Federal and States Unemployment Tax Acts.

While this interpretive issue has not, to our knowledge, discouraged clients from enrolling with us, it is possible that a definitive adverse resolution of this issue would not do so in the future.

WE MAY NOT BE FULLY COVERED BY THE INSURANCE WE PROCURE.

Although we carry liability insurance, the insurance we purchase may not be sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints. In addition, sufficient insurance may not be available to us in the future on satisfactory terms or at all. If the insurance we carry is not sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints, our business, financial condition, results of operations and liquidity could be materially adversely affected.

IF WE WERE NOT ABLE TO RENEW ALL OF THE INSURANCE PLANS, WHICH COVER WORKSITE EMPLOYEES, OUR BUSINESS WOULD BE ADVERSELY IMPACTED.

The maintenance of health and workers’ compensation insurance plans that cover worksite employees is a significant part of our business. If we were unable to secure such renewal contracts, our business would be adversely affected. The current health and workers’ compensation contracts are provided by vendors with whom we have an established relationship and on terms that we believe to be favorable. While we believe that renewal contracts could be secured on competitive terms without causing significant disruption to our business, there can be no assurance in this regard.

OUR BUSINESS WILL SUFFER IF OUR SERVICES ARE NOT COMPETITIVE.

Each of the payroll, temporary employee placement and the professional employer industries are characterized by vigorous competition. Since we compete with numerous entities that have greater resources than us in each of our business lines, our business will suffer if we are not competitive with respect to each of the services we provide. We believe that our major competitors with respect to payroll and tax services are Automatic Data Processing, Inc., Ceridian Corp. and Paychex, Inc. Our major competitors with respect to temporary staffing resources are Manpower and TempSource. Our major competitors with respect to professional employer services are ADP Total Source, Gevity HR and Administaff, Inc. These companies may have greater financial and marketing resources than we. We also compete with manual payroll systems and computerized payroll services provided by banks, and smaller independent companies.

IF WE CANNOT OBTAIN SUFFICENT LEVELS OF TEMPORARY EMPLOYEES, OUR BUSINESS MAY BE AFFECTED.

Our subsiairy AHJR is a temporary employment agency, which depends on a pool of qualified temporary employees willing to accept assignments for our clients. Its business is materially dependent upon the continued availability of such qualified medical temporary personnel. Our inability to secure temporary medical personnel would have a material adverse effect on our business.

OUR CLIENT AGREEMENTS ARE TERMINABLE AND IF A SIGNIFICANT NUMBER OF CLIENTS DO NOT RENEW THEIR CONTRACTS, OUR BUSINESS MAY SUFFER.

Our standard PEO client agreement provides for successive one-year terms, subject to termination by us or by the client upon 30 days’ written notice prior to the expiration of the then-current one-year term. A significant number of terminations by clients could have a material adverse effect on our financial condition, results of operations and liquidity.

IF WE ARE UNABLE TO RENEW OR REPLACE CLIENT COMPANIES, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL BE ADVERSLEY AFFECTED.

Our standard PEO client service agreement is subject to non-renewal on 30 days written notice by either us or the client. Accordingly, the nature of the client service agreement makes us vulnerable to potential cancellations by existing clients, which could materially and adversely affect our financial condition and results of operations. In addition, our results of operations are dependent in part upon our ability to retain or replace our client companies upon the termination or cancellation of the client service agreement. Clients may determine to cancel their relationship with us for numerous reasons, including economic factors. It is possible that the number of contract cancellations will increase in the future.

SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, YOU CANNOT EXPECT DIVIDEND INCOME FROM AN INVESTMENT IN OUR COMMON STOCK.

We have not paid any dividends on our Common Stock since our inception and do not contemplate or anticipate paying any dividends on our Common Stock in the foreseeable future. Future potential lenders may prohibit us from paying dividends without its prior consent. Therefore, holders of our Common Stock may not receive any dividends on their investment in us. Earnings, if any, will be retained and used to finance the development and expansion of our business.

WE HAVE OUTSTANDING SHARES OF RESTRICTED STOCK, WHICH IF SOLD IN THE OPEN MARKET, MAY ADVERSLEY AFFECT OUR STOCK PRICE

Of the 10,922,253 shares outstanding as of March 3, 2006, the Company has outstanding 10,194,874 shares, which may be deemed “restricted stock.” These restricted shares include the 9,887,030 shares owned by the directors and officers of the Company. Possible or actual sales of the Company’s Common Stock by shareholders under Rule 144 or registration statements may have a depressing effect on the price of the Company’s Common Stock in the open market.

THERE ARE RISKS ASSOCIATED WITH OUR STOCK TRADING ON THE NASD OTC BULLETIN BOARD RATHER THAN A NATIONAL SECURITIES EXCHANGE.

There are significant consequences associated with our stock trading on the NASD OTC Bulletin Board rather than a national exchange. The effects of not being able to list our securities on a national securities exchange include:

Limited release of the market prices of our securities;

Limited news coverage of us;

Limited interest by investors in our securities;

Volatility of our stock price due to low trading volume;

Increased difficulty in selling our securities in certain states due to “blue sky” restrictions; and

Limited ability to issue additional securities or to secure additional financing.

IF OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES, YOU MAY HAVE GREATER DIFFICULTY SELLING YOU SHARES.

The Securities Enforcement and Penny Stock Reform Act of 1990 applies to stocks characterized as “penny stocks,” and requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Securities and Exchange Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.

The exceptions include exchange-listed equity securities and any equity security issued by an issuer that has

net tangible assets of at least $2,000,000, if the issuer has been in continuous operation for at least

three years;

net tangible assets of at least $5,000,000, if the issuer has been in continuous operation for less

than three years; or

average annual revenue of at least $6,000,000 for the last three years.

Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks.

If our financial condition does not meet the above tests, then trading in our Common Stock will be covered by Rules 15g-1 through 15g-6 and 15g-9 promulgated under the Securities Exchange Act of 1934 as ammended (“Exchange Act”). Under those rules, broker-dealers who recommend such securities to persons other than their established customers and institutional accredited investors must make a special written suitability determination for the purchaser and must have received the purchaser’s written agreement to a transaction prior to sale. These regulations would likely limit the ability of broker-dealers to trade in our Common Stock and thus would make it more difficult for purchasers of common stock to sell their securities in the secondary market. The market liquidity for the common stock could be severely affected.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



PBS Holding, Inc. and Subsidiaries

Consolidated Balance Sheet
As of December 31, 2006 and 2005


		2006	2005
ASSETS

Current assets
	Cash	$ 43,553	$ 84,712
	Notes receivable	154,631	184,890
	Client accounts receivable	114,329	158,877
	Deposit - pending Heart acquisition	25,000	50,000
	Prepaid Expenses	-	3,014
	Employee advances	8,702	857
	Worker compensation prepaid premiums	229,220	167,986
	Total Current Assets	575,435	650,336
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	214,404
	Less: accumulated depreciation	(209,412)	(158,969)
	Total Property & Equipment	100,858	55,435
Other assets
	Security deposits	860	1,560
	Customer list, net of amortization	4,200	6,600
	Total Other Assets	5,060	8,160
	Total Assets	$ 681,353	$ 713,932

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

F-1


PBS Holding, Inc. and Subsidiaries

Consolidated Balance Sheet
As of December 31, 2006 and 2005

LIABILITIES		2006	2005
Current liabilities
	Accounts payable	$ 113,003	$ 101,462
	Checks drawn on uncollected funds	79,648	120,027
	Deferred revenue	17,723	7,121
	Client payroll tax payable	821,408	503,678
	Workers comp payable	91,124	113,676
	Client deposits	-	1,000
	Client payroll amount withheld	39,397	8,475
	Current maturities on long term debt	30,359	25,000
	Due to shareholder/officer	79,970	117,501
	Line of credit from banks	-	7,898

	Total Current Liabilities	1,272,631	1,005,838

Other liabilities

	Long term debt	54,576	16,667

	Total Liabilities	1,327,207	1,022,505

Stockholders' Equity (Deficiency)

	Common stock - $.001 par value
	authorized - 750,000,000, issued and outstanding - 11,769,539 and 10,922,253 shares	0	10,922
	Additional paid-in capital	0	1,118,313
	Accumulated (deficit)	0	(1,437,808)

	Total Stockholders' Equity (Deficiency)	0	(308,573)

	Total Liabilities and Stockholders' Equity (Deficiency)	$ 1,327,207	$ 713,932

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

F-2


PBS Holding, Inc. and Subsidiaries
Consolidated Statement of Operations
For The Years Ended December 31, 2006 and 2005
		2006	2005

Revenues		$ 5,637,845	$ 4,919,246
Cost of Revenues		3,516,069	3,152,715
Gross Profit		2,121,776	1,766,531
Operating Expenses
	General and Administrative	1,280,365	934,359
	Wages, commissions & salaries	762,119	502,840
	Officers compensation	346,973	290,114
		2,389,457	1,727,313
Income (Loss) from Operations		(267,681)	39,218
Other Income & (Expense)
	Other income		50,109
	Consulting expenses	(47,800)	(101,083)
	Cost of Cancelled Heart Acquisition + Deposit Impairment	(61,800)	(7,315)
	Employee services paid with stock warrants	-	-
	Employee services paid with stock	(34,000)
	Officer compensation paid with stock options	25,392	(25,392)
	Non employee services paid with stock warrants	-	(50,783)
	Non employees services paid with warrants exercised	(15,676)
	Non employee services paid with stock	(44,800)
	Litigation costs	-	(87,918)
Total Other Income & (Expenses)
Income (Loss) Before Provision For Income Tax		(446,365)	(183,164)
Provision For Income Taxes		-	-
Net Income (Loss)		$ (446,365)	$ (183,164)
Basic & Diluted Net (Loss) Per Share		$ (0.04)	$ (0.02)
Basic and Diluted Weighted Average
	Shares Outstanding	11,419,586	10,839,367

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

F-3


PBS Holding, Inc. and Subsidiaries
Statement of Stockholders' Equity (Deficiency)
For the Years Ended December 31, 2006 and 2005

		Common Stock		Additional
		Shares	Amount	Paid-In Capital	Accumulated (Deficit)	Net Equity (Deficiency)

Balance December 31, 2004		10,784,753	$ 10,785	$ 992,945	$ (1,254,644)	$ (250,914)
	Stock subscription sale	62,500	62	19,268		19,330
	Stock subscription sale	75,000	75	29,925		30,000
	Stock warrants granted for
	employee services	-	-	25,392		25,392
	Stock warrants granted for
	non employee services	-	-	50,783		50,783
Net (Loss)		-	-	-	(183,164)	(183,164)
Balance December 31, 2005		10,922,253	10,922	1,118,313	#REF!	#REF!
	Sale of stock	100,000	100	39,900		40,000
	Warrants exercised	167,286	167	15,509		15,676
	Stock issued from consulting svc	330,000	330	44,470		44,800
	Stock warrants granted:					-
	Officer warrants granted in prior year remeasured for current year end			(25,392)		(25,392)
	Stock issued for employee services	250,000	250	33,750		34,000
Net Income (Loss)					(446,365)	(446,365)
		11,769,539	$ 11,769	$ 1,226,550	#REF!	#REF!

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

F-4


PBS Holding, Inc. and Subsidiaries
Consolidated Statements Of Cash Flow
For The Years Ended December 31, 2006 and 2005

			2006		2005

Net Income (Loss)		$	(446,365)	$	(183,164)
Adjustments to reconcile net income (loss)
	to net cash provided by (used by)
	operating activities:
	Depreciation and amortization		52,843		12,156
	(Increase) decrease in accounts receivable		44,548		(94,442)
	(Increase) decrease in prepaid expense		3,014		(1,963)
	(Increase) decrease in worker comp deposit		(61,234)		(71,889)
	(Increase) decrease in other assets		(8,145)		(1,363)
	Increase (decrease) in accounts payable		11,542		44,373
	Increase (decrease) in client payroll tax liability		317,730		244,418
	Increase (decrease) in other current liabilities		18,972		15,063
	Non cash expense - services for stock, warrants & options		69,084		76,175
	Deposit - pending Heart acquisition		-		(50,000)
	Impairment Heart acquisition		25,000
	Checks drawn on uncollected payrolls		(40,379)		(57,505)
Total Adjustments			432,975		115,023
Net cash provided by (used in) operating activities			(13,390)		(68,141)
Cash flows from investing activities
	Loans to affiliates		30,259		(76,941)
	Payments for the purchase of property		(95,866)		(9,418)
	Net cash provided by (used in) investing activities		(65,607)		(86,359)
Cash flows from financing activities
	Net adjustment for common stock transactions		40,000		49,330
	Net borrowings under line of credit		(7,898)		(30,624)
	Net borrowing on notes payable		75,756		41,667
	Principal payments on debt		(32,489)		-
	Due to shareholders/officers		(37,531)		(6,645)
	Net cash provided by (used in) financing activities		37,838		53,728
Net increase (decrease) in cash and
	and cash equivalents		(41,159)		(100,772)
Cash and cash equivalents at beginning of year			84,712		185,484
Cash and cash equivalents at end of year		$	43,553	$	84,712

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

F-5


PBS Holding, Inc. and Subsidiaries

Statement of Cash Flows (continued)
For the Years Ended December 31, 2006 and 2005

		2006	2005
Supplemental information:
Cash payments
	Interest expense	$ 12,407	$ 20,835
	Income taxes	-	-
Non cash items
	Stock issued for employee services	$ 34,000	$ -
	Stock issued for non employee services	44,800
	Warrants issued for employee services	(25,392)	25,392
	Warrants granted/exercised for non employee services	15,676	50,783
	Loss on acquisition of Heart deposit	25,000	50,783
	Total non cash items	$ 94,084	$ 126,958

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

F-6

NOTE 1 - Organization and Nature of Business

History

The Company was incorporated in the State of Nevada in 1996 under the name of Anonymous Data Corporation. The Company went through various name changes over the years, an on September 20, 2005 its name was changed to PBS Holding, Inc.

On or about November 4, 2002, the Company effected a 1 for 2,500 reverse stock split with respect to its outstanding shares of Common Stock. And later, on October 4, 2005 the Company effected another reverse stock split of 1 for 8 shares of Common Stock. These reverse stock splits have been recognized from inception.

On February 28, 2003 the Company purchased all of the outstanding shares of AHJR, Inc. (AHJR), a Texas corporation, in a stock for stock transaction. AHJR was previously owned principally by Patrick Matthews, the primary shareholder of the Company today and its President and Chief Executive Officer. In the stock for stock transaction the Company acquired all of the shares

of AHJR in exchange for 9,050,000 post split shares of restricted common stock.

Organization

PBS Holding, Inc. is the parent of the three wholly owned subsidiaries., Primary Business Systems, LLC, AHJR, Inc, dba Concord Staffing, and Primary HR Services, LLC. It has one class of stock, Common stock, of 750,000,000 share authorized at a $0.001 par value.

Business Activity

The business of the Company, is to operate in the human resources outsourcing industries with particular emphasis in the professional employer organization (PEO) industry and the temporary staffing services industry.

Its primary wholly owned subsidiary, PBS LLC, is a provider of PEO services. A PEO is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risks of its clients, by contractually assuming substantial employer rights, responsibilities, and risks and, through the establishment and maintenance of an employer relationship with the workers assigned to its clients. Over 98% of all business of the Company comes from PBS LLC

The second wholly owned subsidiary, Concord, is a temporary staffing services company and works with temporary employment services. It began operations on March 1, 2003. Currently , less than 2% of the Company’s business operations come from Concord.

The third subsidiary of the Company, Primary HR Services, LLC, (a Mississippi Limited Liability Company) began operating during the fiscal year ended December 31, 2004. Primary HR Services is an operating entity that allows the Company to provide PEO services to clients in Mississippi. Presently little business activity is generated by this subsidiary.

F-7

NOTE 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements includes the accounts of PBS Holding, Inc (parent), and its subsidiaries PBS LLC, Concord, and Primary HR Services, LLC. Revenues and expenses of PBS Holding, Inc. are included for the years ending December 31,2006 and 2005. All material Intercompany accounts and transactions have been eliminated.

All significant intercompany transactions have been eliminated.

Because nearly all business activity comes from employee leasing from PBS LLC, then segmented results of operations are of little value and are not presented separately.

Cash Equivalents

For purposes of reporting of cash flows, the Company classifies all cash and short-term investments with maturities of three months or less to be cash equivalents.

Receivables

Accounting principles generally accepted in the United States require that the allowance for uncollectibles method be used to reflect bad debts. The Company uses the direct write-off method instead; but it approximates the allowance for uncollectibles in the case of these financial statements.

Property and Equipment

Property and equipment are valued at cost. Depreciation is provided by use of the straight-line method over the estimated useful lives of the assets. Useful lives of the respective assets are generally from three to seven years. Purchase of property and equipment greater than $500 and major repairs of existing equipment that extends the useful life of the asset are capitalized.

Depreciation and amortization expense for the years December 31, 2006 and 2005 are $52,843 and $12,156 respectively.

Intangible Assets

The Company acquired a customer list when it acquired Concord in March 2003. The customer list is valued at $12,000 and is amortized over five years. Management considers the customer list worth more than its remaining net book value of $4,200 as of December 31, 2006.. Therefore, impairment does not apply.

The Financial Accounting Standards Board issued SFAS No.142 “Goodwill and Other Intangible Assets” effective for fiscal years beginning after December 15, 2001. According to SFAS 142, goodwill should not be amortized. Instead, it should be reviewed for impairment at least annually and charged to earnings only when its recorded value exceeds its fair value. The Company has elected to follow SFAS 142. The Company has no recorded goodwill on its financial statements and does not believe this accounting standard will affect the Company.

Impairment of Long-Lived Assets

It is the policy of the Company to periodically evaluate the economic recoverability of all of its long-lived assets. In accordance with that policy, when it is determined that an asset has been impaired the loss is recognized in the statement of operations.

F-8

Fair Value of Financial Instruments

The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:

Cash and cash equivalents, receivables, prepaid premiums, accounts payable, checks drawn on uncollected funds, deferred revenue, accrued expenses and deposits, notes payable are reflected in the financial statements at cost, which approximates fair value because of the relatively short maturity of these instruments.

Deposit – Heart acquisition later cancelled is reduced from cost to its net collectible value. Long-term debt is valued at cost as it has a reasonable interest rate attached to the obligation. Related party receivable and payable are valued at cost, bear no interest, continually revolve in amounts receivable and payable and are considered worth face value overall.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash deposits. The Company will exceed the FDIC insurable limit in an account only when gross payrolls billed and collected post to the payroll bank account before the payroll checks and tax deposits are posted. The timeliness of the deposits and withdrawals are such that management estimates no material credit risk.

The Company provides its services to its clients based upon an evaluation of each client’s financial condition. Exposure to losses on receivables is primarily dependent on each client’s financial condition. The Company mitigates such exposure by requiring customers to immediately pay via electronic funds transfer the amount of the payroll billed, through cash on delivery payment of invoices, through deposits or letters-of-credit or personal guarantees from certain clients. Exposure to credit losses is monitored by the Company, and bad debts for anticipated losses are recognized when necessary.

Revenue Recognition

Primary bills its clients on each payroll date an administrative fee for: 1) the actual gross salaries and wages plus related employment taxes and employee benefits of the company’s worksite employees; 2) actual costs associated with worksite employees, (e.g. recruiting costs, drug testing, etc.); 3) workers compensation and unemployment costs, 4) other benefits associated with the worksite employees; 5) other insurance premiums associated with the client; and 6) payroll processing

The Company’s administrative fee is computed based upon either a fixed fee per worksite

employee or an established percentage of gross salaries and wages, negotiated at the time the client service agreement is executed. The Company’s administrative fee varies by client based primarily upon the nature and size of the client’s business and the Company’s assessment of the costs and risks associated with the employment of the client’s worksite employees.

Accordingly, the Company’s administrative fee income will fluctuate based on the number and gross salaries and wages of worksite employees, and the mix of client fee income will fluctuate based on the mix of total client fee arrangements and terms. Although most contracts are for one year and renew automatically, the Company and its clients generally have the ability to terminate the relationship with 30 days notice.

Income Taxes

The Company has adopted the provisions of SFAS No. 109, “Accounting for Income Taxes,” which incorporates the use of the asset and liability approach of accounting for income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the income tax basis of assets and liabilities.

F-9

During 2002, the Company underwent an ownership change as defined in Section 382 of the Internal Revenue Code. Consequently, management believes the net operating loss carry forwards are lost for the tax year 2002 and before. The Federal net operating losses since the ownership change are $1,528,202 and $1,379,469 as of December 31, 2006 and 2005, respectively. The Company continues to sustain operating losses and there remains an uncertainty as to whether any income tax benefit can be used in the future. Therefore, no recognition of any net operating loss (NOL) carry forwards or benefits are recognized in these financial statements; however the tax benefit for the NOL carry-forward can be estimated at $552,371 and $482,814 respectively for the fiscal years ended December 31, 2006 and 2005.

Comprehensive Income

The Company has adopted SFAS No. 130 Reporting Comprehensive Income. The Company has no reportable differences between net income and comprehensive income, therefore a statement of comprehensive income has not been presented.

Stock-Based Compensation

FASB No. 123, and FASB No 123R. “Accounting for Stock-Based Compensation” established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. In addition, the Emerging Issues Task Force has issued EITF 96-18 to further hald clarify FASB No. 123 & 123R. During the 2005 and 2006 the Company issued stock and stock warrants to consultants and employees. The estimated value of those warrants is disclosed in the subsequent note on equity and common stock.

Reclassifications

Certain amounts in 2005 have been reclassified and represented to conform to the current financial statement presentation.

Net (Loss) Per Share of Common Stock

The basic and diluted net income (loss) per common share in the accompanying statements of operations are based upon the net income (loss) divided by the weighted average number of shares outstanding during the periods presented. Diluted net (loss) per common share is the same as basic net (loss) per share because including any pending shares to issued services or otherwise would be anti-dilutive.

Advertising Costs

The Company’s advertising costs are expensed when incurred. Total advertising costs of $8,618 and $9,593 were incurred for the years ended December 31, 2006 and 2005, respectively.

Use of Accounting 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 and disclosure of contingent 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.

F-10

Other Recent Accounting Pronouncements

The Company does not expect that the adoption of other recent accounting pronouncements to have any material impact on its financial statements.

NOTE 3 - Equity & Common Stock

The statement of changes in stockholders’ equity is reported in these financial statements and discloses the transactions as they were incurred for the years ended December 31, 2006 and 2005. 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 FASB no. 123R and EITF 96-18. The fair values of the restricted stock issued are reported using the guidance of FASB no. 123R and EITF 96-18 and are computed at fair market value.

For the year ended December 31, 2005

During 2005 the Company sold 137,500 shares of Common Stock as part of a stock subscription offer to private investors for a total of $55,000 less the cost of placing the shares of $5,670 for a net of $49,330. The subscriptions were offered at $.40 per share with warrants attached that allowed the holders to exercise an additional purchase of shares at $.40 per share.

In October, November and December of 2005 the Company issued warrants to an employee of the Company and to a consultant to the Company to purchase 105,000 shares for each month, for a total of 315,000 shares at an exercise price of $.12 per share. The value of the warrants granted was computed based on the cashless exchange rate for the consultant for a value of $50,783. The warrants granted to the employee are valued under the Black-Scholes model at $25,392 as of December 31, 2005 and are subject to reevaluation at the end of each reporting period going forward until the warrants are exercised and the stock has been purchased.

For the year ended December 31, 2006

During the quarter ended March 31, 2006 the holders of warrants granted in 2005 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 originally granted.

On March 29, 2006 the Company entered into a five year contract with Patrick Matthews, CEO, effective January 2006. The stock options are made available on a monthly basis in a value equal to the difference of the base salary and monies actually paid. Mr. Matthews earned 7,032 shares of common stock each month for twelve months ended December 31, 2006 for a total of 84,384 shares of common stock. None of these options have been exercised as of December 31, 2006.

On March 29, 2006 the Company entered into a five year contract with Amanda Sinclair, COO, effective January 2006. The stock options are made available on a monthly basis in a value equal to the difference of the base salary and monies actually paid. Mrs. Sinclair earned 1,549 shares of common stock each month for twelve months ended December 31, 2006 for a total of 18,588 shares of common stock. No options have been exercised as of December 31, 2006.

F-11

During February 2006, the Company sold 100,000 shares of common stock to investors at $0.40 per share, for $40,000. Warrants to purchase an additional 25,000 shares at a purchase price of $0.40 were also granted with this stock sale. The warrants are immediately exercisable for a two year period at a per share exercise price of $0.40.

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 $0.43 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.

On February 8, 2006 the Company agreed to issue warrants with a cashless option to purchase an aggregate of 450,000 shares of common stock for services. The exercise price of such warrants is $0.60 and such warrants are immediately exercisable up to five 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.

On March 8, 2006 the Company agreed to issue 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.

On June 5, 2005 the Company agreed to issue 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.

FASB No. 123R requires “the fair value of liabilities incurred in share-based transactions with employees shall be remeasured at the end of each reporting period through settlement.” It also states that “an equity instrument for which it is not possible to reasonably estimated fair value at the grant date shall be accounted for based on its intrinsic value, measured at each reporting date through the date of exercise of other settlement.

In accordance with FASB no. 123R the fair value assigned to the stock warrants granted to employees for the year ended December 31, 2005 is $25,392. For the year ended December 31, 2006 the stock warrants grated in 2005 as well as those granted in 2006 to employees have no fair value and no intrinsic value. Consequently, all stock warrants and options as of December 31, 2006 have no value assigned to them. The $25,392 assigned to the warrants as of December 31, 2005 is therefore reported as “other income” in the Statement of Operations for the year ending December 31, 2006.

EITF 96 discusses how to report non-employee services paid with stock warrants and options granted. Using the guidelines presented in EITF 96-18, management has determined the intrinsic value of the non-employee services received on which the warrants were granted had no value to the Company. The Company has also determined that the value of the warrants using the stock price leaves no value for the warrants because the market value has continued to remain below the exercisable price of the warrants and the stock market of its stock continues on a downward spiral compared to what it was when the warrants were originally issued. Because the Company identifies no value for the services received and no definitive value for the warrants granted using the market value of the stock, management has concluded to recognize no value associated with the granting of warrants during 2006.

F-12

The total of all stock warrants and stock options granted remaining outstanding as of December 31, 2006 for the possible conversion to common stock are 102,972 and 1,522,500 respectively.

Stock Issued

On March 7, 2006 the Company issued 50,000 shares of restricted common stock to a non-employee pursuant to a placement agency agreement with a broker-dealer with a private placement for financing.

On March 20, 2006 the Company issued 150,000 shares of restricted common stock to a non-employee pursuant to a placement agency agreement with a broker-dealer with a private placement for financing.

On June 14, 2006 the Company issued 130,000 shares of restricted common stock to a non-employee pursuant to a placement agency agreement with a broker-dealer with a private placement for financing.

On June 21, 2006 the Company issued 250,000 shares of restricted common stock for employee services.

In accordance with FASB no. 123R regarding the value of share-based payment transactions to employees and non employees, management has assigned a value for the stock issued taking into consideration the closing prices of its free trading stock at the date of issue. The total amount recognized for non-employee payments of stock for 330,000 shares is $44,880 while the total amount recognized for employee payments of stock for 250,000 shares is $34,000.

NOTE 4 - Employee Benefit Plan

A 401-K employee benefit plan for the Company’s client worksite employees is included in the package of services provided by PBS LLC as a PEO. The Company’s office and administrative employees may also participate in the plan. The plan is year to year and is paid in full through December 31, 2006 with no obligation for past, present, or future funding required.

NOTE 5 - Related Party Transactions

The majority shareholder loans funds to the Company from time to time should it need it. The amounts due to the shareholder are $79,970 and $117,501 at December 31, 2006 and 2005 respectively.

The note receivable of $154,631 and $184,890 as of December 31, 2006 and 2005, respectively, is for amounts due from Consumers Insurance Agency LLC (Consumers). The Company bills Consumers, and Consumers reimburses the Company for use of 500 square feet of office space, office supplies and payroll. These transactions are related party transactions as the related parties of the company owned 55% of Consumers member interest as of December 31, 2006 and 2005. Patrick Matthews has 45%, Amanda Sinclair has 10% and an unrelated party has the remaining 45% of the member interest in the LLC.

Related party receivable and payable are both reported as current assets and liabilities respectively. The amounts do not vary significantly from year to year and consequently would otherwise be more correctly classified as non current. However, the net difference management does not feel is significant and has left them both as current.

NOTE 6 - Lease Commitments

The Company has no lease commitments except with respect to the facilities it operates out of at 433 Kitty Hawk, Universal City, Texas as of December 31, 2006 and 2005. The net rent expense for the years ended December 31, 2006 and 2005 is $43,620 and $47,212 respectively. The lease commitment was through November 2006.The Company has subleased (rented) 500 square feet to Consumers Insurance Agency LLC (“Consumers”) since May 2002.

F-13

Beginning December 1, 2006 the Company entered into a lease agreement with Dennis Hank-Property Management to lease two offices totaling 3,506 square feet. The lease is for 36 months ending on November 1, 2009. The lease agreement states the monthly payment to be $3,261. The lease also states that the Company is required to pay the utility bills associated with the leased space on a monthly basis. The schedule for lease commitments is as follows;


Year		Lease Commitment

2007	$	39,132
2008		39,132
2009		35,871
Remaining lease commitment		114,135

NOTE 7- Line of Credit


Lines of Credit are for:	2006	2005

Jourdanton State Bank, limit of $50,000 at 8% interest. Collateralized with accounts receivable and right of payment and equipment	$ 0	$ 7.898
	$ 0	$ 7,898

NOTE 8 - Workers Compensation

PBS LLC maintains workers compensation insurance for worksite employees as well as its regular and administrative employees. The amount of premiums paid and the required premium deposit is based on the gross payroll to all employees which was over $23,000,000 for the year ended December 31, 2006 and over $18,000,000 for the year ended December 31, 2005.

Premium deposits are $229,220 and $167,986 as of December 31, 2006 and 2005 respectively. The workers compensation payable premium due as of December 31, 2006 and 2005 was $91,124 and $113,676, respectively. The insurance carrier retains the required premium deposit until the yearly payroll audit is completed. At that time the unused portion of the deposit is refunded to the Company. Each year the Company renegotiates its workers compensation coverage with either the existing or a different insurance carrier.

F-14

NOTE 9 - Notes Payable

The long term debt of the company at December 31, 2006 and 2005 includes the following:



The Company has a note payable to AMS Inc., a payroll services provider. The note I the result of a settlement of dispute charges made by AMS Inc. under an agreement to provide services to the Company. A cost of $50,000 has been included in the cost of revenues in the statement of operations. The original amount of the note is $50,000 with no interest and payment of $3,083.33 monthly for 24 months. Management did not elect to input interest on this note because of the relative short term of the note and the amount of interest that would result was not material.	16,667	41,667

Note payable to Chrysler Financial for $36,797 to be paid in 60 equal months payments of $763.66 with annual interest rate of 8.99%. The note holds as collateral the automobiles purchased with the loan proceeds.	32,790	-

Note payable to Chrysler Financial for $40,000 to be paid in 60 equal months payments of $799.80 with annual interest rate of 7.40%. The note holds as collateral the automobiles purchased with the loan proceeds.	35,478	-

Total notes payable	84,935	41,667

Current maturities of long term debt	(30,359)	(25,000)

Long term debt	$54,576	$16,667

The five year maturities for long term debt is:


		2006		2005
December 31, 2006			$	25,000
December 31, 2007	$	30,359		16,667
December 31, 2008		14,852
December 31, 2009		14,717
December 31, 2010		17,358
December 31, 2011		7,649
	$	84,935	$	41,667

F-15

NOTE 10- Checks drawn on uncollected funds and Client payroll tax payable

The Company processes payroll checks for its worksite employees in advance of the payments received by its clients resulting in the balance recognized on the balance sheet of “Checks drawn on uncollected funds”. The amounts recognized for the years ended December 31, 2006 and 2005 are $79,648 and $120,027, respectively.

The amounts reported as “Client payroll tax payable” reflect an amount of tax deposits required based on the payroll checks issued. Timing differences between when the client pays the related invoice and when the tax deposits are due can result in payroll tax deposit penalties.

During the year ended December 31, 2005 there were litigation costs and the cost of a required deposit associated with a letter of intent to purchase Heart Employee Leasing Services, Inc. that caused the company to incur additional tax deposit penalties due to late payment. The amount of penalties for payroll tax deposits during the year ended December 31, 2006 and 2005 was $159,101 and $81,419 respectively. The Company believes it has stabilized its cash outflow demands and anticipates the ongoing late payment of payroll taxes and its related penalties should show improvement in 2007.

NOTE 11 - Going Concern Issues

The Company continues suffering significant 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 could be in jeopardy of continuing operations.

Management has developed a strategy, which it believes will accomplish this objective through additional long and short term loans and sale of Common Stock of the Company to related and unrelated parties. The Company has also sustained substantial cost related to litigation and corporate administration that has been and will continue to be reduced in going forward.

NOTE 12 - Subsequent Events

Heart Employee Leasing, Inc.

On December 21, 2005, the Company entered into a non-binding letter of intent to acquire all of the outstanding capital stock of Heart Employee Leasing, Inc. (Heart), a privately held company which is also engaged in the human resources outsourcing business. The closing was expected to take place on or about April 26, 2006. The closing did not take place as scheduled. Concurrently with the execution of the non-binding letter of intent, the Company deposited $50,000 with Heart in connection with the proposed transaction and is reported on the balance sheet as a current asset as of December 31, 2005.

As of December 31, 2006, the Company had not received back the $50,000 deposit. In March 2007 the Company agreed to, settled with, and received from Heart a reduced amount of $25,000 as the full return of its $50,000 deposit. The Company has recognized the unpaid difference of $25,000 as impairment on the deposit and reduced the value of the deposit accordingly as December 31, 2006, expensing it as part of “cost of cancelled Heart acquisition & deposit impairment” on the Statement of Operations.

F-16

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

During the two most recent fiscal years ended December 31, 2006 there have been no disagreements between us and Madsen and Associates, CPAs, Inc.

ITEM 8A. CONTROLS AND PROCEDURES

Our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that we had effective controls and procedures for (i) recording, processing, summarizing and reporting information that is required to be disclosed in its reports under the Exchange Act, as amended, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) ensuring that information required to be disclosed in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our Board of Directors addopted a code of ethics as of March 1, 2004. Our Code of Ethics and Conduct covers all our employees including executive officers.

ITEM 8B. OTHER INFORMATION

On March 7, 2006, the Registrant entered into a placement agency agreement with a broker-dealer to assist the Registrant in connection with a private placement financing by the Registrant. Pursuant to such placement agency agreement, the Registrant agreed to issue 50,000 shares to such broker-dealer or its designee(s). Such shares will be issued in reliance upon the exemption provided by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder inasmuch as the securities were issued without any form of general solicitation or general advertising and the acquirers were an accredited investor. The shares were valued as of the date of execution at price equal to the per share closing price of the shares of Common Stock on the date of execution. On March 7, 2006, the per share closing sales price of the Registrant’s Common Stock was $0.40. Form 8K was filed June 2006.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The following table sets forth the names, ages and positions of our executive officers and directors as of May 01, 2007. Under our bylaws, each director holds office until the election and qualification of his successor or until his earlier resignation or removal.


Name	Age	Position

Patrick D. Matthews	47	Chairman, Chief Executive Officer, Chief Financial Offiver and President

Amanda Sinclair	24	Director, Chief Operations Officer, Executive Vice President, Secretary

Michael Ellis	54	Director

PATRICK D. MATTHEWS has been Chairman, CEO, CFO and President since November 29, 2003. Mr. Matthews was the founder of PBS., and established the company in October 1999. From February 1997 until 1999, Mr. Matthews was a founder, Director, Vice President of Aerostaff Services Inc., a PEO. From March 1992 until 1997, Mr. Matthews was a Director and Regional Vice President of BSI a Texas based PEO. From June 1990 until 1992, Mr. Matthews was founder and owner of Matthews Painting Co., a commercial and residential painting company. From March 1979 until 1989, Mr. Matthews was Vice President with Piccadilly Cafeterias. Mr. Matthews is the husband of Connie Matthews and the father of Amanda Sinclair.

AMANDA SINCLAIR has been Director, Secretary and Vice President since November 29, 2003. Mrs. Sinclair was a Member, Director of Operations of Primary Business Systems, LLC since January 2000. From 1998 until 2000, Mrs. Sinclair was employed by Lane Bryant as a sales associate. Mrs. Sinclair is currently enrolled in a business degree program at St. Phillips College. Amanda Sinclair is the daughter of Patrick D. Matthews and Connie Matthews.

MICHAEL ELLIS was elected by a majority of votes of the shareholders of the Company at the Annual Meeting of Shareholders in November 2005. Mr. Ellis is currently employed by Trinity University in San Antonio as the Sr.Systems Administrator. From September 2000 to June 2001, Mr. Ellis was VP of Clear Blue Media and internet advertisig company. From December 1991, Mr.Ellis was president of Marketbas, Inc. From November 1984, Mr. Ellis was President of Advanced Theraputic Products. Mr. Ellis resides in San Antiono, TX.

COMPENSATION OF DIRECTORS

Directors attending the Annual Meeting of Shareholders are compensated $1,000.

MEETINGS AND COMMITTES OF THE BOARD OF DIRECTORS

During the fiscal year ended December 31, 2006, the Board of Directors met on nine occasions and acted by unanimous written consent on nine occasions. No member of the Board of Directors attended less than 100% of the aggregate number of the total number of meetings of the Board of Directors

The Board of Directors has not established any committees. All matters relating to audit, compensation, nominations and corporate governance and considered and acted upon by our Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS.

The Board does not have a compensation committee. There are no interlocks between our Directors and Directors of other companies.

AUDIT COMMITTEE FINANCIAL EXPERT

We do not currently have at least one member that qualifies as an audit committee financial expert pursuant to Item 401 of Regulation S-B.

CERTIAN REPORTS

No person who, during the fiscal year ended December 31, 2006, was a Director, officer or beneficial owner of more than ten percent of our common stock (which is the only class of our securities registered under Section 12 of the Securities Exchange Act of 1934 failed to file on a timely basis, reports required by Section 16 of the Securities Exchange Act during the most recent fiscal year or prior years. The foregoing is based solely upon our review of Forms 3 and 4 during the most recent fiscal year as furnished to us under Rule 16a-3(d) under the Securities Exchange Act, and Forms 5 and amendments thereto furnished to us with respect to its most recent fiscal year, and any representation received by us from any reporting person that no Form 5 is required.

CODE OF ETHICS

Our Board of Directors revised the Code of Ethics November 2005 to reflect the name change of the Company the previous edition was adopted March 1, 2004. Our Code of Ethics and Conduct covers all our employees and Directors, including our Chief Executive Officer and Chief Financial Officer. A copy of our Code of Ethics and Conduct is included as an exhibit to Form 10KSB for the year ended December 31, 2003 as previously filed with the Commission.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth executive compensation information as of December 31, 2006 and 2005 with respect to each executive officer and highly compensated officer of the Company.

SUMMARY COMPENSATION TABLE

Long Term Compensation


A	B	C	D	E	F	G	H	I
Name and principal position	Year	Salary ($)	Bonuses ($)	Other annual compensation ($)	Restricted Stock awards ($)	Securities underlying options/ SAR’s (#)	LTIP Payout ($)	Other compensation
Patrick Matthews, CEO	2006	175,943	1,000	0	0	84,384	0	0
Patrick Matthews, CEO	2005	175,943	1,000	0	0	0	0	0
Amanda Sinclair, COO	2006	65,000	1,000	0	0	18,588	0	0
Amanda Sinclair, COO	2005	65,000	0
Ron Newton, VP Sales	2006	180,549	0	0	250,000	0	0	0
Ron Newton, VP Sales	2005	180,549	0	0	0	0	0	0

OPTION/SAR GRANTED IN LAST FISCAL YEAR

Effective January 2006 Company entered into a five year contract with Patrick Matthews, CEO. The stock options are made available on a monthly basis in a value equal to the difference of the base salary and monies actually paid. Mr. Matthews earned 7,032 shares of common stock each month for twelve months ended December 31, 2006 for a total of 84,384 shares of common stock. None of these options have been exercised as of December 31, 2006. The 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.

Effective January 2006 the Company entered into a five year contract with Amanda Sinclair, COO. The stock options are made available on a monthly basis in a value equal to the difference of the base salary and monies actually paid. Mrs. Sinclair earned 1,549 shares of common stock each month for twelve months ended December 31, 2006 for a total of 18,588 shares of common stock. 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.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

Name

Share Acquired on Exercise

Value Realized

Number of Securities Underlying Unexercised Options/SARs at December 31, 2005

Exercisable/Unexercisable

Value of Unexercised In-The-Money Options/SARs At December 31, 2005

Exercisable/Unexercisable

None

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth common stock ownership information as of March 3, 2006 with respect to:

Each person known to us to be the beneficial owner of more than 5% of our common stock;

Each of our officers and directors;

and All directors and officers as a group.

This information as to beneficial ownership was furnished to us by or on behalf of the persons named. Unless otherwise indicated, the business address of each person listed is 433 Kitty Hawk Dr. Suite 226 Universal City, TX 78148. Information with respect to the percent of class is based on outstanding shares of common stock as of March 3, 2006. Except as otherwise indicated, to our knowledge, each stockholder has sole power to vote and dispose of all the shares of common stock listed opposite his name.

For purposes of this table, each person is deemed to have beneficial ownership of any shares of our common stock such person has the right to acquire on or within 60 days after March 3, 2006.


Name of Beneficial Owner	Amount of Shares Beneficially Owned	Percent of Class
Patrick D Matthews	8,549,199	72.64
Amanda Sinclair	802,231	6.82
Connie Matthews	535,601	4.55
Mike Ellis	0	0
All officers and directors as a group	9,887,031	84.01

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Patrick Matthews and Amanda Sinclair own a number of other companies that provide services to and for the benefit of PBS LLC or clients of PBS LLC; the other companies are Consumers Insurance Agency, LLC (CIA LLC) and PBS Premium Funding, LLC. PBS Premium Funding, LLC currently has no operations. CIA LLC provides insurance services for the customers of PBS LLC, Primary HR and AHJR. Under the agreement between PBS LLC and CIA LLC, PBS LLC pays CIA LLC 9% management fee for the insurance accounts of PBS LLC’s clients managed by CIA LLC. CIA LLC’s employees are serviced by PBS LLC. PBS LLC bills CIA LLC for normal services provided all PBS LLC customers.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

none

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table presents the total fees paid for professional audit and non-audit services rendered by our independent auditors for the audit of our annual financial statements for the years ended December 31, 2006 and December 31, 2005 and fees billed for other services rendered by our independent auditors during those periods.


	Year Ended December 31, 2006	Year Ended December 31, 2005
Audit Fees (1)	$40,196	$20,990
Audit-Related Fees (2)	N/A	N/A
Tax Fees (3)	$5,000	N/A
All other Fees (4)	$10,350	N/A
Total	$55,546	$20,990

(1)

Audit services consist of audit work performed in the preparation of financial statements for the fiscal year and for the review of financial statements included in Quarterly Reports on Form 10-Q during the fiscal year, as well as work that generally only the independent auditor can reasonably be expected to provide, including consents for registration statement flings and responding to SEC comment letters on annual and quarterly filings.

(2)

Audit-related services consist of assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, agreed upon procedures report and accounting and regulatory consultations.

(3)

Tax services consist of all services performed by the independent auditor’s tax personnel, except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

(4)

Other services consist of those services not captured in the other categories.

Our Board has determined that the services provided by our independent auditors and the fees paid to them for such services has not compromised the independence of our independent auditors.

Consistent with SEC policies regarding auditor independence, the Board has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Board has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor. Prior to engagement of the independent auditor for the next year’s audit, management will submit a detailed description of the audit and permissible non-audit services expected to be rendered during that year for each of four categories of services described below to the Board for approval. In addition, management will also provide to the Board for its approval a fee proposal for the services proposed to be rendered by the independent auditor. Prior to the engagement of the independent auditor, the Board will approve both the description of audit and permissible non-audit services proposed to be rendered by the independent auditor and the budget for all such services. The fees are budgeted and the Board requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service.

During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, the Board requires separate pre-approval before engaging the independent auditor. To ensure prompt handling of unexpected matters, the Board may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Board at its next scheduled meeting. The four categories of services provided by the independent auditor are as defined in the footnotes to the fee table set forth above.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


		PBS Holding, Inc.

Date: May 15, 2007	By:	/s/ Patrick D Matthews
		PATRICK D. MATTHEWS
		CHIEF EXECUTIVE OFFICER AND PRESIDENT

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


		PBS Holding, Inc.

Date: May 15, 2007	By:	/s/ Patrick D Matthews
		PATRICK D. MATTHEWS
		CHIEF EXECUTIVE OFFICER AND PRESIDENT


		PBS Holding, Inc.

Date: May 15, 2007	By:	/s/ Amanda Sinclair
		Amanda Sinclair
		Director, Executive Vice President, Secretary