UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Or

Commission file number 000-3149

755 W. Big Beaver, Suite 1700
Troy, Michigan 48084
(Address of principal executive offices, including zip code)
(248) 269-9600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock Par Value $0.0000303

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No. o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o  No . x

The aggregate market value of the Registrant’s common stock held by non-affiliates on April 28, 2004 was approximately $3,004,115 (based upon the closing price of the common stock on the Over the Counter Bulletin Board on such date). Shares of common stock held by each officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons have been deemed to be affiliates for this purpose. This determination of affiliate status is only applicable to this purpose.

As of April 28, 2004, the number of outstanding shares of the Registrant’s Common Stock, $0.0000303 par value per share, was 96,766,439 shares.

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Table of Contents

PART I

Item 1. Business.

Merger with MediaBus Networks, Inc.

On February 11, 2003, MediaBus Networks, Inc. (“MediaBus”) acquired 100% of the outstanding common stock of Presidion Solutions, Inc., (“PSI”) by the issuance of 84,749,980 shares of common stock of MediaBus to the shareholders of PSI, representing an 87.5% ownership interest in MediaBus. At the time of this transaction, Presidion Solutions, Inc. became a wholly owned subsidiary of MediaBus. Immediately prior to this transaction, MediaBus was a publicly traded development stage company with no business operations. Accordingly, this transaction has been accounted for as a reverse acquisition with Presidion Solutions, Inc. as the accounting acquiror. On February 28, 2003 and on May 15, 2003, respectively, MediaBus changed its name to Presidion Corporation and changed its year end to December 31 from June 30.

Business Operations

Presidion Solutions, Inc.

Presidion Corporation (“Presidion”) is the parent company of PSI, a wholly-owned subsidiary. PSI was established as a holding company in July 2000. PSI was incorporated in 2000 under the name Affinity Business Services, Inc. (Affinity), in the state of Florida, and is located in Troy, Michigan. On February 28, 2002, Affinity changed its name to Presidion Solutions, Inc. Presidion, through PSI, operates as a professional employer organization (“PEO”) and provides comprehensive and integrated human resource management services to small and medium sized businesses on a service agreement basis. Presidion provides services to approximately 2,400 clients through approximately 32,000 of the client’s employees primarily in the southeastern United States.

Operating as a PEO, Presidion allows its clients to outsource their human resource responsibilities. Presidion offers a broad range of services, including human resource administration, employer regulatory compliance management, employee benefits administration, risk management services and employer liability protection and payroll administration. Presidion provides these services by becoming the legal employer of its clients’ employees (“worksite employees”). While Presidion becomes the legal employer for most purposes, the clients remain a co-employer and have operational control of their businesses. As the legal employer of its clients’ employees, Presidion is able to take advantage of certain economies of scale relating to employment services and to pass those benefits on to our clients and worksite employees. As a result, the clients are able to obtain, at an economical cost, services and expertise similar to those provided by the human resource departments of large companies.

We believe that Presidion’s services provide substantial benefits to both its clients and their worksite employees. The objective of these services is to assist business owners by:

•		permitting the managers of the client to concentrate on the client’s core business as a result of the reduced time and effort they are required to spend dealing with complex human resource, legal and regulatory compliance issues and employee administration;
•		managing escalating costs associated with unemployment, workers’ compensation, health insurance coverage, worksite safety programs and employee-related litigation;
•		providing better access to broader, more affordable benefits, enhanced benefit portability, improved worksite safety and employment stability; and
•		providing comprehensive and integrated human resource management services to our small and medium size business clients in a highly efficient manner. Based upon the experience of the management of Presidion, our belief is that once the management of a business becomes familiar with the benefits of working with a PEO, they rarely choose to revert back to providing human resource management services on their own.

PSI was founded as a holding company to effect a consolidation in the highly fragmented, fast-growing and scale-intensive PEO industry. PSI has made two significant acquisitions and has assumed certain existing client contracts resulting in the Company serving approximately 2,400 clients with 32,000 worksite employees. PSI was founded by Craig A. Vanderburg, Presidion’s President and Chief Executive Officer, John W. Burcham II, Presidion’s Chairman, and James E. Baiers, Presidion’s Executive Vice President and General Counsel.

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Upon the establishment of PSI, the founders sought to acquire a platform company that could integrate add-on PEO’s and maximize the economies of scale and synergies that are characteristic of the industry. In May 2001, PSI bought the Sunshine Companies (“Sunshine”), a PEO provider in Florida. Sunshine provided a complete PEO service offering, critical mass, a potential for profitable growth and a presence in the Florida market.

On January 1, 2002, PSI made its first add-on acquisition of a PEO by purchasing Amfinity Business Solutions, Inc. (“Amfinity”) Amfinity was the result of the merger of Amfinity with Paradyme Human Resources, Inc., two Florida-based PEO’s, in July 2001. In addition to strengthening PSI’s presence in Florida, Amfinity provided PSI with an advanced online service management system. This system is intended to strengthen PSI’s marketing capabilities, reduce costs and improve customer service.

In addition, on June 14, 2002, PSI acquired certain client service contracts (from a company affiliated with Presidion through common ownership) that had been serviced by the Fidelity United Group of PEO’s, which is based primarily in Southeastern Florida.

Financial Information About Segments

Presidion operates as a PEO and operates under one reportable segment in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information.

Products and Services

Presidion provides professional employer services through five core activities:

•		Human resource administration;
•		Employer regulatory compliance management;
•		Employee benefits administration;
•		Risk management services and employer liability protection; and
•		Payroll and payroll tax administration.

Human Resource Administration. Presidion, as an employer, provides its clients with a broad range of human resource services including on-going supervisory education and training regarding risk management and employment laws, policies and procedures. In addition, Presidion’s human resource department handles sensitive and complicated employment issues such as employee discipline, termination and sexual harassment, as well as wage and salary planning and analysis. Presidion provides a comprehensive employee handbook, which includes customized, site-specific materials concerning each worksite, to all worksite employees. Also, Presidion maintains extensive files and records regarding worksite employees for compliance with various state and federal laws and regulations. The objective of this extensive record keeping is to substantially reduce legal actions arising from a lack of proper documentation.

Regulatory Compliance Management. Presidion, under its Client Services Agreement, assumes responsibility for complying with many employment-related regulatory requirements. As an employer, Presidion must comply with numerous federal and state laws, including certain tax, workers’ compensation, unemployment, immigration, civil rights, and wage and hour laws, which include:

•		The Americans with Disabilities Act of 1990;
•		The Family and Medical Leave Act;
•		Laws administered by the Equal Employment Opportunity Commission; and
•		Employee benefits laws such as ERISA and COBRA.

Presidion also assists its clients in their efforts as employers to comply with and understand certain other laws and responsibilities with respect to which Presidion does not assume liability and responsibility. For example, while Presidion provides significant safety training and risk management services to its clients, Presidion does not assume responsibility for compliance with the Occupational Safety and Health Act because the client controls its worksite facilities and equipment.

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Employee Benefits Administration. Presidion offers a broad range of employee benefit programs to its worksite employees. Presidion administers such benefit programs, thereby reducing the administrative responsibilities of its clients for maintaining complex and tax-qualified employee benefit plans. By combining its multiple worksite employees, Presidion is able to take advantage of certain economies of scale in the administration and provision of employee benefits. As a result, Presidion is able to offer its worksite employees benefit programs that are comparable to those offered by large corporations. In fact, some programs offered by Presidion would not otherwise be available to the worksite employees of many clients if such clients were the sole employers. Eligible worksite and corporate staff employees are entitled to participate in Presidion’s employee benefit programs without discrimination. Such programs include life insurance coverage as well as a cafeteria plan that offers a choice of different health plans and dental, vision and prescription card coverage. In addition, Presidion permits, in specific cases, employees to participate in its 401(k) retirement plan and its dependent care assistance program. Presidion maintains a defined contribution plan covering certain of its internal employees as well as its worksite employees for a number of client companies. Presidion may, at its discretion, contribute on behalf of each participating client, varying amounts based on client company elections. In addition, Presidion may at its discretion, contribute amounts on behalf of its internal employees. Presidion made internal matching contributions of approximately $63,000 during the year ended December 31, 2003. Presidion made no contributions to these plans during 2002 and 2001.

Presidion believes that by offering its worksite employees a broad range of large corporation style benefit plans and programs, it is able to reduce worksite employee turnover, which results in cost savings for itself and its clients. Presidion performs regulatory compliance and plan administration in accordance with state and federal benefit laws.

Risk Management Services and Employer Liability Protection. Presidion’s risk management of the worksite includes policies and procedures designed with the objective of proactively preventing and controlling costs of lawsuits, fines, penalties, judgments, settlements and legal and professional fees. In addition, Presidion controls benefit plan costs by attempting to prevent fraud and abuse by closely monitoring claims. Other risk management programs include processing workers’ compensation and unemployment claims and aggressively contesting any suspicious or improper claims. The objectives of such risk management efforts include reducing Presidion’s liability exposure and increasing the value of its services to its clients.

Presidion also maintains insurance for employment practices risks, including liability for employment discrimination and wrongful termination. Presidion aims to achieve a higher level of client satisfaction by being insured for such risks. The objective of this insurance coverage is to reduce Presidion’s liability exposure and, consequently, the potential volatility of its operating results because it is not required to rely exclusively on contractual indemnification from its clients. Moreover, Presidion’s contract with its clients provides for indemnification of Presidion for all issues in which the client has operated outside of Presidion’s advice. Presidion believes that this arrangement is better received by clients that are seeking to reduce their employment liability exposures and also aids in preventing Presidion from becoming involved in adversarial situations with its clients by eliminating the need for seeking such indemnification.

Payroll and Payroll Tax Administration. Presidion provides its clients with comprehensive payroll and payroll tax administration, which substantially eliminates client responsibility for payroll and payroll taxes beyond verification of payroll information. Unlike traditional payroll service providers, which do not act as employers, Presidion, as the employer, assumes liability and responsibility for the payroll and payroll taxes of its worksite employees and for the obligations of its client to make federal and state unemployment and workers’ compensation filings, child support levies and garnishments, and new hire reports. Presidion receives all payroll information and then calculates, processes and records all such information. Afterward, Presidion either issues payroll checks or directly deposits the net pay of worksite employees into their bank accounts. Presidion delivers all payroll checks either to the on-site supervisor of the worksite or directly to the worksite employees.

Other Services. Presidion has been working on expanding its PEO service offerings to leverage the strength of its customer relationships and to develop additional revenue streams. For instance, Presidion is using its experience with insurance companies and benefit providers to negotiate favorable terms on products such as mortgages, car insurance and credit cards, that it will offer to the employees of its clients. For these products, Presidion offers advantageous discounts and a convenient method of payment — automatic payroll deduction. During 2003, Presidion began offering clients the flexibility of payroll ATM cards and also began offering personal concierge services to its client company employees.

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Pricing of Services. Presidion bills its clients on each payroll date for:

•		the gross salaries and wages, related employment taxes and employee benefits of its worksite employees;
•		human resource administrative services;
•		workers’ compensation and unemployment service fees; and
•		an administrative fee.

Presidion’s administrative fee for each client is computed based on the particular mix of services to be provided, the estimated costs of delivery, and a targeted profit margin. Accordingly, the administrative fee income will fluctuate based on the volume and amount of gross salaries and wages of worksite employees, as well as the mix of client fee arrangements and terms.

Clients

At December 31, 2003, Presidion served approximately 2,400 clients and approximately 32,000 worksite employees resulting in an average of approximately thirteen worksite employees per client. These customers typically employ fewer than 50 people that earn between $20,000 — $30,000 annually. No single client accounted for more than 2% of Presidion’s revenues for the year ended December 31, 2003.

Presidion’s client base is broadly distributed throughout a wide variety of industries. Approximately 80% of its customers are in the light industrial service, hospitality or distribution sectors while the remaining 20% are in retail or professional services.

Presidion and its customers enter into a Client Service Agreement that details both parties’ employer-related obligations. While Presidion becomes the legal employer for most purposes, the client remains in operational control of its business. In most arrangements, Presidion also becomes the employer of record for its clients’ supervisory and management staffs. The client, however, maintains on-site supervision of the worksite employees, including such key roles as hiring, termination, promotions and setting salary levels. The standard terms for the Client Service Agreements are one year with automatic renewals thereafter. The agreements include an automatic and immediate termination provision for the benefit of Presidion in cases where a customer fails to make a payment.

The Client Service Agreement establishes a three-party relationship among Presidion, the client and the worksite employees. The agreement provides for an initial one year term, subject to cancellation on 30 days’ notice by either Presidion or the client, and sets forth the service fee payable to Presidion. Such service fee is based on the gross payroll of each worksite employee plus the estimated costs of employment related taxes, providing human resource services, performing administrative functions, providing insurance coverage and benefit plans and other services offered by Presidion. This structure yields a comprehensive service fee percentage to be applied to each worksite employee’s gross pay. These fees are invoiced along with each periodic payroll. Pursuant to the Client Service Agreement, Presidion has the obligation to pay all direct costs associated with its worksite employees enumerated in that agreement, regardless of whether the client company makes timely payment to Presidion for the associated service fee. The most significant direct cost associated with each Client Service Agreement is the salaries and wages of worksite employees.

Client attrition has typically been attributable to the following factors:

•

competitive pricing of services;

•

sale or acquisition of the client;

•

termination by Presidion resulting from either the client’s inability to make timely payments or risks increasing beyond the parameters acceptable to Presidion’s underwriting criteria; and,

•

client business failure or downsizing.

Presidion believes that the risk of a client terminating its relationship decreases substantially after the client has been associated with Presidion for over one year because of the client’s increased appreciation of Presidion’s value-added services and because of the difficulties associated with a client resuming the burdens of being the sole employer.

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Presidion, while managing its risk portfolio, is continually assessing its client base and is focused on retaining clients that remain profitable. Presidion considers clients to represent a high risk if, based upon safety and historical factors, there is a significant likelihood of on-the-job accidents pertaining to worksite employees, and such accidents have a high likelihood of being severe, resulting in significant workers’ compensation risks.

Sales and Marketing

Presidion markets its services directly to prospective clients identified by referrals and by a direct sales force. The background of Presidion’s sales executives includes experience in industries such as payroll services, insurance, temporary staffing, public accounting and business management. Each of its sales executives enters into an employment agreement with Presidion, which establishes a performance-based compensation program that includes a base amount and sales commissions. Presidion’s sales materials emphasize its broad range of services and the resulting benefits to clients and worksite employees.

Sales leads result in initial presentations to prospective clients. Presidion’s sales executives gather information about the prospective client and its employees. This includes job classification, workers’ compensation and health insurance claims history, salary and the desired level of employee benefits. Presidion performs a risk management analysis of each prospective client, which involves a review of such factors as the client’s credit history, financial strength, as well as workers’ compensation, health insurance and unemployment claims history. Following a review of these factors, a client proposal is prepared for acceptable clients. Presidion believes that its stringent underwriting procedures greatly reduce its efforts in controlling costs and liability exposure, and are intended as an aid in achieving a high rate of client retention.

Management Information Systems

A key aspect of Presidion’s strategy is to leverage the technological platform purchased through the acquisition of Amfinity to enhance operational efficiencies, add customer value and improve Presidion’s service delivery system. This platform, Lawson Software, is a widely used accounting platform throughout many industries.

Presidion has tailored the Lawson system to create a sophisticated and targeted PEO service delivery platform. This system allows Presidion’s clients to manage their payroll data over the internet and enables them to store and retrieve information regarding all aspects of their businesses, including:

•

human resource administration;

•

regulatory compliance management;

•

employee benefits administration;

•

risk management services; and,

•

payroll tax administration.

A key tenet of Presidion’s future growth strategy is to benefit from the incremental savings and improve customer service by providing all of Presidion’s clients internet access to Lawson. Presidion believes that this system has the capability of being upgraded and expanded to meet Presidion’s needs for the foreseeable future.

Industry

The PEO industry began to evolve in the early 1980s largely in response to the burdens placed on small-to-medium-sized employers in procuring workers’ compensation insurance coverage on a cost-effective basis and in operating in an increasingly complex legal and regulatory environment.

While various service providers such as payroll processing firms, benefits consultants, safety consultants and temporary services firms were available to assist these businesses with specific tasks, PEO’s began to emerge as providers of a more comprehensive range of services relating to the employer/employee relationship. As initially conceived, these services involved the concept of staff leasing, whereby a service provider would become an employer of the client company’s employees and would lease these worksite employees to the client to perform their intended functions at the worksite. As the industry has evolved, the term “professional employer organization” has come to describe an entity that enters into a three-party relationship, including the PEO, the client business and the worksite employee.

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PEO arrangements generally transfer broad aspects of the employer/employee relationship to the PEO. Because the business of the PEO is to enter into these relationships and provide employee related services involving a large number of employees, the PEO can achieve economies of scale as a professional employer and perform the employment related functions at a level typically available only to large corporations with substantial resources to devote to human resources management.

According to the U.S. Small Business Administration, there are more than 6 million businesses in the United States with fewer than 500 employees. Collectively, these businesses employ an estimated 52 million employees and represent $1.2 trillion in aggregate annual payroll. The National Association of Professional Employer Organizations (“NAPEO”) estimates that the PEO industry co-employs fewer than 3 million worksite employees. Therefore, approximately 49 million, or 94 %, of these small business employees are currently not affiliated with the PEO industry, leaving substantial room for further market penetration.

The growth of the PEO industry has been driven primarily by:

•

increasing recognition and acceptance of PEO’s by federal and state governmental authorities;

•

the need to provide competitive health care and retirement benefits in a cost-effective and convenient manner;

•		the increasing costs associated with health and workers’ compensation insurance coverage, workplace safety programs, employee-related complaints and litigation;
•		employment-related governmental regulations and the costs of compliance growing more complex; and,
•		trends relating to the growth and productivity of the small to medium-sized business community in the U.S., resulting from outsourcing, which allows a focus on core competencies.

Competition

Most PEO’s serve a single market or region. Presidion considers its primary competition to be the traditional in-house provider of employee services. In addition, Presidion competes, on a very limited basis, with fee-for-service providers such as payroll processors and human resource consultants.

The key competitive factors in the PEO industry are breadth and quality of employee benefits, in addition to administrative services delivered, price, financial stability, credibility and integrity of the PEO in managing the client’s payroll, tax and insurance functions. Presidion faces competition from other PEO’s and from firms that provide limited component services, such as payroll processing, temporary employment services, contract staffing companies and the insurance industry as a whole.

While direct competition for Presidion’s services is significant, management believes that the primary selling obstacle in the market is generally the low level of familiarity that small and medium size businesses have with the employee outsourcing concept. This tends to make the selling task an educational process and lengthens the selling cycle. Management believes, however, that this is indicative of a significant market opportunity.

Within its markets, Presidion faces competition from such large competitors as: Administaff, Gevity HR, ADP Total-Source, Paychex and EPIX, all of which have significantly greater resources than Presidion.

Federal And State Regulation

Numerous federal and state laws relating to labor, tax and employment matters affect Presidion’s operations. By entering into a co-employer relationship with employees who are assigned to work at client company locations, Presidion assumes certain obligations and responsibilities of an employer under these federal and state laws. Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as professional employer, temporary employment and outsourcing arrangements, many of these laws do not specifically address the obligations and responsibilities of non-traditional employers. In addition, the definition of “employer” under these laws is not uniform.

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Some governmental agencies that regulate employment and labor laws have developed rules that specifically address labor and employment issues raised by the relationship among PEO’s, client companies and worksite employees. Existing 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. While Presidion cannot predict with certainty the nature or direction of the development of federal, state and local regulations, NAPEO is continuing to pursue a proactive strategy of educating administrative authorities as to the advantages of PEO’s and achieving regulations that appropriately accommodates their legitimate business function.

Certain federal and state statutes and regulations use the terms “employee leasing” or “staff leasing” to describe the arrangement among a PEO, such as Presidion, and its clients and worksite employees. The terms “employee leasing,” “staff leasing” and “professional employer arrangements” are generally synonymous in such contexts and describe the arrangements entered into by Presidion, its clients and worksite employees.

As an employer, Presidion is subject to federal statutes and regulations governing its employer-employee relationships. Presidion believes that its operations are in compliance in material respects with applicable federal statutes and regulations, except for certain payroll tax issues discussed further in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

PEO’s are subject to extensive state regulations that include operating, fiscal, licensing and certification requirements. Regulatory requirements vary from state to state, and as Presidion enters new states it will face new regulatory and licensing environments. While many states do not explicitly regulate PEO’s, as of December 2003, 22 states have passed laws that have licensing or registration requirements for PEO’s and other states are considering such regulation. Such laws vary from state to state but generally provide for monitoring the fiscal responsibility of PEO’s. State regulation assists in screening insufficiently capitalized PEO operations and, in Presidion’s view, has the effect of legitimizing the PEO industry generally by resolving interpretive issues concerning employee status for specific purposes under applicable state law. In addition to holding a license in Florida, South Carolina and Texas, Presidion has been registered or certified in Illinois and Georgia. Whether or not a state has licensing, registration or certification requirements, Presidion faces a number of other state and local regulations that could impact its operations. Presidion does not view the burdens of complying with the above-mentioned regulations as having a material effect on its business operations.

As employer of record, Presidion assumes responsibility for employer payroll tax requirements. Complying with these requirements entails properly computing the obligations for both the employer portion and worksite employee portion, withholding the worksite employee portion, remitting payments to the appropriate agencies, and maintaining appropriate records. A third party administrator manages testing and compliance for Presidion’s qualified retirement savings plan.

Employees

As of December 31, 2003, Presidion employed approximately 275 internal and 32,000 worksite employees.

Item 2. Properties.

Facilities

Presidion’s administrative and corporate staff are housed in approximately 45,000 square feet of leased office space in Sebring, Palm Beach Gardens and Miami, Florida and Columbia, South Carolina. In addition, PSI leases seven sales offices located in Florida and Georgia. Senior management is located in Troy, Michigan in 11,175 square feet of leased office space. Management believes that these facilities are adequate for Presidion’s activities as currently conducted.

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Item 3. Legal Proceedings.

On December 30, 2003, Accessity Corp. filed a complaint in the Circuit Court of the 11^th Judicial Circuit in and for Miami-Dade County, Florida against MediaBus Networks, Inc. n/k/a Presidion Corporation; Mercator Group, LLC; Mercator Advisory Group, LLC; Mercator Momentum Fund, LP; Mercator Momentum Fund III; Mercator Focus Fund, LP; Taurus Global, LLC; John W. Burcham, II; Craig A. Vanderburg and James E. Baiers (“Defendants”). The complaint alleges interference with a contractual relationship and prospective business relationship between Presidion Solutions, Inc., a wholly owned subsidiary of Presidion Corporation, and Accessity Corp. Accessity is demanding judgment in its favor against the Defendants in amounts to be determined in binding arbitration. Management believes that the outcome of this litigation will not have a material impact on Presidion’s financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of Presidion’s security holders during Presidion’s fourth quarter ended December 31, 2003. On March 5, 2004, a majority of the shareholders of Presidion voted through written consents to establish “blank check” preferred stock, authorizing Presidion’s board of directors to establish the designations, preferences, limitations and relative rights of Presidion’s 50,000,000 shares of Preferred Stock.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Presidion’s common stock is traded on the Over-the-Counter Bulletin Board under the symbol “PSDI”. The following table sets forth for the periods indicated, the high and low bid prices of a share of common stock during the period of February 12, 2003 through December 31, 2003. On February 12, 2003, Presidion Solutions, Inc. was the accounting acquiror in a reverse merger between MediaBus Networks, Inc. n/k/a Presidion Corporation and Presidion Solutions, Inc. The prices reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily reflect actual transactions.

On April 28, 2004, the closing price per share pertaining to Presidion’s common stock was $0.25.

Presidion is presently authorized to issue 400,000,000 shares of Common Stock, $0.0000303 par value.

As of April 28, 2004, there were 35 holders of record of Presidion’s common stock, and there were 96,766,439 shares of common stock issued and outstanding. Management believes that there are a large number of holders maintaining accounts at various brokerage firms.

Presidion has never paid any dividends on its capital stock. Presidion currently expects that it will retain future earnings for use in its operations and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any decision on the future payment of dividends will depend on the earnings and financial position of Presidion at that time and such other factors as Presidion’s Board of Directors deem relevant.

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A summary of common stock authorized for issuance under equity compensation plans follows:

Recent Sales of Unregistered Securities

Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P. and Mercator Focus Fund, L.P., (collectively Mercator”) purchased convertible debentures from Presidion in the total face amount of $2,000,000. Presidion and PSI issued the convertible debentures jointly and severally. Specifically, Mercator Momentum Fund, L.P. purchased $240,000 of face value of the convertible debentures, Mercator Momentum Fund III, L.P. purchased $200,000 in face value of the convertible debentures, and Mercator Focus Fund, L.P. purchased $1,560,000 in face value of the convertible debentures. Other than the face amount, the terms of all of the convertible debentures are identical. The convertible debentures mature on February 12, 2004. Presidion is required to pay monthly interest payments under the convertible debentures at a rate of 6.5% per annum, accruing daily on the basis of a 360-day year. At its option, Mercator may elect to receive shares of Presidion’s common stock instead of cash for the interest payments due under the convertible debenture. The number of shares received instead of cash for an interest payment is calculated by dividing the amount of the interest payment by the lower of (i) $0.34, or (ii) 85% of the average of the lowest three inter-day trading prices during the twenty trading days preceding the conversion date. The debentures are convertible at any time at the option of Mercator. The debentures are convertible at a conversion price equal to the lower of (i) $0.34, or (ii) 85% of the average of the lowest three inter-day trading prices during the twenty trading days preceding the conversion date. Upon the occurrence and continuation of an event of default, as set forth in the convertible debentures, Mercator may, at its option, elect to accelerate the due date for all outstanding principal. If Presidion is unable to pay this accelerated amount, plus all accrued interest, in cash, Mercator may request payment in the form of shares of common stock. If the event of default remains uncured for thirty (30) days, the percentage used in the formula for determining the conversion price from the convertible debentures shall be reduced from 85% to 75% until the event of default is cured. Additionally, the conversion price for the convertible debentures may be adjusted for certain stock dividends, stock splits or stock distributions, and other capitalization. Mercator may not convert the debentures or receive shares of common stock as payment for interest to the extent that such conversion or receipt of shares would result in Mercator, or its affiliates, beneficially owning in excess of 9.999% of the then issued and outstanding shares of common stock.

The convertible debentures are immediately due and payable if and when Presidion raises $4,000,000 or more through the sale of equity securities. Presidion has the right to redeem the convertible debentures during the first year the convertible debentures are outstanding by paying Mercator 115% of the outstanding principal at the time of redemption, plus accrued interest. Presidion’s obligations under the convertible debentures are secured by pledge agreements executed by John W. Burcham II, Craig A. Vanderburg and James E. Baiers who are officers and directors of Presidion. Presidion does not have any agreements with Mercator regarding the distribution of common stock received upon conversion of the debentures, although Mercator may promptly sell any stock received upon conversion under the convertible debentures. The debentures are currently in default. Presidion has received a waiver of default and an extension on the maturity of the convertible debentures to July 31, 2004.

Mercator Momentum Fund, L.P. also received warrants to purchase 850,000 shares of common stock at a purchase price of the greater of $1.00 or the market price of the common stock as of the closing date of the Securities Purchase Agreement dated February 12, 2003. Based on the market price on February 12, 2003, as determined pursuant to the terms of the warrant, the purchase price of the shares of the common stock under the warrants is $1.08.

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Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.

The historical results presented are not necessarily indicative of the results of operations to be expected for future periods.

Consolidated Statement of Operations Data:

Consolidated Balance Sheet Data:

(1)

On February 11, 2003, MediaBus Networks, Inc. and Presidion Solutions, Inc. entered into a reverse acquisition transaction pursuant to which Presidion Solutions, Inc. became the accounting acquiror. Therefore, the financial information presented for the years ended December 31, 2003, 2002 and the period of May 3, 2001 through December 31, 2001 is that of the accounting acquiror, Presidion Solutions, Inc.

(2)

Reflects the acquisition of Amfinity Business Solutions, Inc., which has been included in our results since January 1, 2002.

(3)

On January 1, 2002, Presidion adopted the SFAS No. 142, Goodwill and Other Intangible Assets, pursuant to which Presidion recognized no goodwill amortization expense during 2003 and 2002 compared to the recognition of goodwill amortization expense amounting to $655,351 during the period May 3, 2001 through December 31, 2001.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of Presidion’s financial condition and results of operations should be read in conjunction with Presidion’s audited consolidated financial statements and related footnotes. This discussion and analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations concerning matters that are not historical facts. These statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements. Presidion’s actual results, levels of activity, performance or achievements and those of Presidion’s industry may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Presidion undertakes no obligation to update the forward-looking statements in this filing.

Overview

Presidion operates as a PEO and provides comprehensive and integrated human resource management services to small and medium sized businesses on a service agreement basis. Presidion provides services to approximately 2,400 clients through approximately 32,000 worksite employees primarily in the state of Florida. Presidion’s services consist of the following:

•		Human resources administration;
•		Employer regulatory compliance management;
•		Employee benefits administration;
•		Risk management services and employer liability protection; and
•		Payroll and payroll tax administration.

Critical Accounting Policies and Estimates

Presidion’s discussion and analysis of its financial condition and results of operations is based upon its audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Presidion to make estimates and judgments that affect the reported amounts of assets and liabilities as well as the 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.

Presidion bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates.

The following represents a summary of Presidion’s critical accounting policies that require management’s most difficult and subjective judgments.

Revenue Recognition. Presidion’s revenues represent service fees charged to its clients, pursuant to a client service agreement, less associated worksite employee wage costs. Revenue is recognized ratably over the periods in which the applicable worksite employees perform services at client worksite locations. The service agreement provides for an initial one-year term, subject to cancellation upon 30 days’ notice by either Presidion or the client. The service fees are based upon the gross payroll of each worksite employee plus the estimated costs of employment related taxes, human resources and administrative services as well as insurance coverage and benefit plans. This structure results in a comprehensive service fee applied to each worksite employee’s gross wage. Under the service agreement, Presidion has the obligation to provide the benefits and services covered by the agreement, as well as the obligation to pay the direct costs associated with such services, regardless of whether the client company makes timely payment to Presidion of the associated service fee.

Presidion estimates a markup component included in its gross billings to clients based upon the above mentioned costs. Therefore, Presidion’s ability to accurately estimate, control and manage its worksite employee wages and related direct costs has a significant impact on Presidion’s operating results.

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If Presidion underestimates its direct costs in developing its gross billings for the year ended December 31, 2003 by 5% to 10%, its operating loss would increase in the approximate range of $4.8 million to $9.6 million.

Health Insurance Costs. Presidion provides health care insurance to its worksite and internal employees through several plans. The cost pertaining to some plans is fixed and determinable, while Presidion retains some risk through others.

In the case of plans in which Presidion retains risk, Presidion makes claim payments as claims are incurred up to a predetermined claim liability. The insurance carrier is responsible for all amounts in excess of the predetermined claim liability. Presidion estimates liabilities pertaining to these plans based on claims data provided by the insurance carrier and internal and external factors such as payment patterns, expected rates of increase in medical care costs and known specific occurrences. Presidion establishes a liability for claims that have been reported but not paid, and claims that have been incurred but not reported at the end of each accounting period. The medical care cost trend, which is the rate of increase in health care costs, and the volatility in the number of claims incurred per period have the most significant impact on Presidion’s health care expenses.

Presidion charges its clients for the costs of its medical plans. However, Presidion bears the risk for the amount of claims in excess of such charges.

Presidion uses estimates and judgment in the process of determining health care liabilities and in factoring health care costs into Presidion’s gross billings to clients.

The impact of unanticipated increases in health insurance expense of 10% of the 2003 expense, would result in an increase to expense of approximately $1.2 million.

Workers’ Compensation Costs. Workers’ compensation costs include premiums, administrative costs and expenses related to claims under Presidion’s workers’ compensation programs. Presidion is a participant in several large-deductible workers’ compensation programs. Presidion has recognized expenses and the corresponding liabilities associated with these plans based upon the historical claim experience of Presidion’s operating units utilizing actuarial assumptions and estimated discount rates to determine the present value of future payments to be made in conjunction with these programs.

Workers’ compensation claims can remain open for a significant number of years. As a result of the potential long life of these claims, the final costs to Presidion associated with these programs are subject to a significant degree of judgment and estimation.

Due to the uncertainty in estimating workers’ compensation claims, adjustments to workers’ compensation costs could be significant and may result in a material impact on Presidion’s results of operations, financial position and cash flows. The impact of unanticipated increases in workers’ compensation expense in 5% to 10% increments, based upon Presidion’s workers’ compensation expense for the year ended December 31, 2003, would result in an increase to expense of approximately $1.4 million (5%) to $2.8 million (10%).

To limit some of this risk and uncertainty, Presidion entered into a deductible reimbursement reinsurance agreement with an insurance carrier for workers’ compensation coverage pertaining to certain of Presidion’s workers’ compensation programs. This agreement is dated May 19, 2003. See Note 16 of the Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data.”

Goodwill. SFAS No. 142, Goodwill and Other Intangible Assets requires that no amortization be recognized in relation to goodwill. However, SFAS No. 142 requires a test for impairment of goodwill to be performed annually, or immediately if conditions indicate that impairment could exist. The evaluation of Presidion’s reporting unit in relation to impairment testing requires significant judgment and estimation. Events or changes in business circumstances may indicate that the carrying value pertaining to goodwill might not be recoverable. As a result of such an indication, a significant charge may be required in Presidion’s Statement of Operations.

If impairment pertaining to Presidion’s reporting unit is indicated, Presidion may be required to recognize an impairment charge of up to $14.7 million, with no corresponding tax benefit because the impairment charge would be non-deductible for tax return purposes. There would be no income tax return effect unless the reporting unit were abandoned or sold.

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Property and Equipment. Presidion’s property and equipment consist of furniture and fixtures, leasehold improvements, vehicles and computer equipment and software. The capitalized costs associated with property and equipment are depreciated over the estimated useful lives of the applicable asset on a straight-line basis. Depreciation expense could be accelerated if the useful lives of these assets were determined to be shorter than current estimates. This situation would have the effect of decreasing net income or increasing net loss in periods subsequent to such a determination. Presidion is also required to periodically evaluate the carrying amounts of its property and equipment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144 contains requirements concerning the recognition and measurement of an impairment loss for property and equipment. If events or circumstances were to indicate that impairment might be applicable to Presidion’s property and equipment, Presidion may be required to recognize an impairment loss, which could have a significant adverse impact on Presidion’s operating results.

If the average estimated useful lives of property and equipment were adjusted by just one year, depreciation expense would increase by approximately $0.5 million on an annual basis. If impairment were indicated in the range of 5% to 10%, Presidion would recognize a charge to income in the approximate range of $83,062 and $166,125, respectively.

Taxes. Presidion is required to make estimates of income tax expense or benefit, as applicable, in each tax jurisdiction in which Presidion operates. This process incorporates an assessment of current taxes payable and/or receivable with temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These differences result in deferred tax assets and deferred tax liabilities included in Presidion’s audited consolidated balance sheets. Management’s judgment and estimation is utilized to determine whether it is more likely than not that all of the deferred tax asset amounts will be realized. A valuation allowance has been established in the amount of $1.5 million, which pertains to general business tax credits recognized by Presidion. The amount of the deferred tax assets considered realizable, however, could be reduced in the future. The recognition of a valuation allowance in relation to Presidion’s deferred tax assets could result in a significant increase in income tax expense.

At December 31, 2003, Presidion accrued an estimated $2.4 million in relation to tax penalties associated with late payments of payroll taxes representing approximately 2% of annual tax liabilities to the Company, which remain in arrears. Should Presidion be successful in abating such penalties, the applicable amounts would be recognized as income with no corresponding tax expense as these penalties were not deducted for tax purposes.

Results Of Operations

The Year Ended December 31, 2003 Compared To The Year Ended December 31, 2002

Revenues. Revenues, representing gross billings less associated direct wage costs, increased approximately $1.5 million (1.2%), to $125.2 million during 2003 from $123.7 million in 2002. This increase reflected a full year of business activity in relation to certain contracts acquired in June 2002. Revenues pertaining to these contracts increased in 2003 over 2002. This increase was partially offset by a decline in revenues of Presidion’s other businesses, which reflected a change in client mix resulting in higher gross margins. This trend is a reflection of Presidion’s decision to serve clients with a lower risk profile and to cease serving certain high-risk clients. During 2003, Presidion terminated certain high-risk clients, which resulted in a negative impact on Presidion’s revenue. However, this impact was partially offset by the addition of clients throughout 2003. Presidion is continually assessing its client base and is focusing on retaining clients that remain profitable and adding new low risk clients with the potential of increasing profitability. Presidion considers clients to represent a high risk if, based upon safety and historical factors, there is a great likelihood of frequent of on-the-job accidents pertaining to worksite employees and such accidents have a high likelihood of being severe. Presidion’s management believes that the volatility of earnings associated with the costs of workers’ compensation insurance programs will decrease as a result of not serving such high-risk clients. Volatility pertaining to workers’ compensation costs results when the number and severity of such accidents cannot be reasonably estimated, resulting in a wide range of possible losses for an insurance policy year.

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Gross Profit. Gross profit increased to $29.6 million in 2003 from $28.7 million in 2002, or approximately $0.9 million (3.1%). Gross margin increased to 23.7% during 2003 from 23.2% in 2002. This increase was a result of the above-mentioned additional revenue, which was partially offset by an increase in direct expenses of approximately $0.6 million. Health insurance and payroll tax expenses increased approximately $1.5 million and $1.3 million, respectively, and partially offset a decline of approximately $2.2 million for workers’ compensation expense. The decline in workers’ compensation expense resulted primarily from Presidion’s decision to end serving certain high-risk clients as discussed above under “Revenues.” In May 2003, Presidion entered into a deductible reimbursement reinsurance agreement with an insurance carrier for workers’ compensation coverage pertaining to certain of Presidion’s workers’ compensation programs to limit the risk and uncertainty associated with the expenses pertaining to those programs. The increase in payroll taxes was a consequence of the recognition of approximately $2.4 million of tax penalties during 2003 in comparison to the recognition of $150,000 of penalties during 2002. This increase is associated with late payments of payroll taxes representing approximately 2% of annual tax liabilities to Presidion, which remain in arrears. The higher expense associated with health insurance for 2003 resulted primarily from a higher medical cost rate.

Selling, General and Administrative. Selling, general and administrative expenses increased approximately $2.8 million, or 11.1%, to $28.2 million in 2003 from $25.4 million during 2002. This increase resulted from professional fees primarily associated with Presidion’s reverse merger and public offering. As a result of the integration of two business acquisitions that were completed during 2001 and 2002, Presidion increased internal headcount in 2003 and the costs associated with headcount.

Depreciation and Amortization. Depreciation and amortization expense for 2003 of $1.9 million was approximately $0.5 million higher than for 2002. Depreciation expense accounted for approximately $0.3 million of this increase. This was a result of higher property and equipment balances during 2003. The increase in amortization expense was attributable to client contracts acquired by Presidion in June 2002.

Operating Income (Loss). Presidion recognized an operating loss in the amount of $1.4 million in 2003 compared to an operating income amounting to $1.9 million during 2002. The operating loss for 2003 was attributable to the selling general and administrative expenses and depreciation and amortization expenses mentioned above, and to the write-off of notes receivable in the amount of $0.9 million.

Other Income (Expense). Other expense, net increased approximately $3.6 million to $4.9 million in 2003 from $1.3 million in 2002. This increase was attributable to increased interest expense of approximately $3.6 million and to a significantly lesser extent, a decline in interest income. The recognition of the fair values of a warrant and the beneficial conversion feature associated with convertible debentures issued by Presidion in February 2003 accounted for $0.9 million of the increase in interest expense. The remainder of the increase in interest expense is primarily associated with the amortization of direct financing costs pertaining to the debenture mentioned above, irrevocable letter of credit fees pertaining to certain debt agreements and interest costs associated with Presidion’s line of credit. The slight decline in interest income resulted from discontinuing the recognition of interest in relation to certain notes receivable.

Provision for Income Taxes. Presidion recognized an income tax benefit amounting to $0.2 million during 2003 in association with a pre-tax loss of $6.3 million. For 2002, Presidion had income tax expense of approximately $0.6 million on pre-tax income of $0.6 million. The effective tax benefit rate for 2003 was 3.5% and the effective tax (expense) rate for 2002 was 83.7%. Both of these tax rates resulted from expenses recognized for financial statement purposes that are not deductible for tax return purposes. During 2003, these non-deductible items included the interest expense associated with the warrant and beneficial conversion feature associated with Presidion’s secured convertible debentures amounting to $0.9 million, tax penalties amounting to $2.4 million and the write-off of notes receivable in the amount of $0.9 million. Presidion also recognized state income taxes amounting to $0.7 million in 2003.

Net Loss. Presidion recognized a net loss of approximately $6.0 million in 2003 compared to the recognition of net income in the amount of approximately $0.1 million during 2002. The net loss in 2003 resulted primarily from increased operating expenses of $4.2 million and the significantly higher interest charges described above.

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Year Ended December 31, 2002 Compared To The Year Ended December 31, 2001

Revenues. Presidion commenced business operations in May 2001 with the acquisition of the Sunshine Companies; therefore, Presidion’s business operations covered a period of only approximately eight months during 2001. Revenues increased $58.0 million, or 88.2%, for 2002 over 2001. This increase resulted from the Amfinity business acquisition in January 2002, as well as the acquisition of client contracts in June 2002. These acquisitions added revenue of approximately $24.5 million and $15.4 million, respectively, during 2002. In addition, Presidion’s continuation of business from its predecessor company, representing the operations of the Sunshine Companies, recognized an increase in revenues of approximately $18.1 million for 2002 compared to 2001.

Gross Profit. Gross profit increased $13.7 million (90.4%) for 2002 compared to 2001. Gross profit as a percentage of sales increased slightly to 23.2% in 2002 from 23.0% in 2001. The increased gross profit resulted from the higher revenue associated with the increased business activities mentioned above.

Selling, General and Administrative. Selling, general and administrative expenses increased approximately $13.1 million to $25.4 million during 2002 from $12.3 million during 2001. This increase in expenses offset the increase in gross profit. The increase in expense occurred because of the significant rise in business activities during 2002, as well as the fact that Presidion’s business operations covered a period of only approximately eight months during 2001.

Depreciation and Amortization. Depreciation and amortization expense increased $0.5 million, or 59.4%, from 2001 to 2002. This increase reflected the commencement of amortization expense ($0.4 million) associated with client contracts obtained during 2002. Depreciation expense increased $0.7 million over the prior period as a consequence of higher property and equipment balances during the 2002 period. The above mentioned increases were partially offset by amortization expense of $0.7 million associated with goodwill that was recognized during 2001, while no amortization expense for goodwill was recognized during 2002, due to compliance with SFAS No. 142, Goodwill and Other Intangible Assets.

Operating Income. Operating income for 2002 increased slightly (2.6%) from operating income in 2001. This increase resulted from the higher revenues associated with increased business activities during 2002. The effect of the higher revenues was substantially offset by the recognition of significant expenses of integrating Presidion’s business acquisitions that were consummated during 2002 and 2001.

Other Income (Expense). Other expense, net increased $0.5 million, or 60.9%, to $1.3 million in 2002 from $0.8 million during 2001. This increase was primarily attributable to a $0.4 million increase in interest expense and a small increase in miscellaneous expenses. The increase in interest expense was due to significantly higher borrowing activity and financing fees associated with letters of credit. There was a slight increase in interest income from 2001.

Provision for Income Taxes. Presidion’s provision for income taxes increased $0.1 million, or 25.0%, in 2002 compared to 2001. Presidion’s effective tax rate increased to 83.7% in 2002 from 40.3% in 2001. The significantly higher effective tax rate for 2002 versus 2001 reflects expenses recognized for financial reporting purposes that are not deductible for tax return purposes.

Net Income. Net income declined $0.5 million from 2001 to 2002. This decline was primarily attributable to the $0.4 million increase in interest expense and the high effective tax rate of 83.7% mentioned above.

Liquidity and Capital Resources

During 2003, Presidion’s cash requirements were met through operations, borrowings from Presidion’s credit facility and the issuance of 6.5% Secured Convertible Debentures in the aggregate principal amount of $2.0 million. The net proceeds associated with the debentures amounted to $1.7 million, which was utilized to reduce the outstanding balance on Presidion’s bank line of credit. See Notes 6 and 7 of the Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data.”

Net cash provided by operating activities amounted to $6.0 million for 2003 compared to net cash provided by operations of $3.4 million during 2002. The net cash provided during 2003 was primarily attributable to significantly higher deposits, higher accrued payroll tax liabilities and higher accrued liability amounts.

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Net cash used in investing activities amounted to $2.4 million in 2003 compared to net cash used in the amount of $3.0 million during 2002. During 2003, there were lower capital expenditures and net loan activities with related parties in the amounts of $0.3 million and $0.8 million, respectively. The impact of these declines was partially offset by an increase in payments to a related party for acquired client contracts and payments pertaining to an equity agreement for a human resources outsourcing arrangement.

Net cash used in financing activities was $3.9 million during 2003 and $0.1 million in 2002. The increase in cash used in financing activities is mainly attributable to increased net payments on the bank line of credit.

Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P. and Mercator Focus Fund, L.P., (collectively Mercator”) purchased convertible debentures from Presidion in the total face amount of $2,000,000. Presidion and PSI issued the convertible debentures jointly and severally. Specifically, Mercator Momentum Fund, L.P. purchased $240,000 of face value of the convertible debentures, Mercator Momentum Fund III, L.P. purchased $200,000 in face value of the convertible debentures, and Mercator Focus Fund, L.P. purchased $1,560,000 in face value of the convertible debentures. Other than the face amount, the terms of all of the convertible debentures are identical. The convertible debentures mature on February 12, 2004. Presidion is required to pay monthly interest payments under the convertible debentures at a rate of 6.5% per annum, accruing daily on the basis of a 360-day year. At its option, Mercator may elect to receive shares of Presidion’s common stock instead of cash for the interest payments due under the convertible debenture. The number of shares received instead of cash for an interest payment is calculated by dividing the amount of the interest payment by the lower of (i) $0.34, or (ii) 85% of the average of the lowest three inter-day trading prices during the twenty trading days preceding the conversion date. The debentures are convertible at any time at the option of Mercator. The debentures are convertible at a conversion price equal to the lower of (i) $0.34, or (ii) 85% of the average of the lowest three inter-day trading prices during the twenty trading days preceding the conversion date. Upon the occurrence and continuation of an event of default, as set forth in the convertible debentures, Mercator may, at its option, elect to accelerate the due date for all outstanding principal. If Presidion is unable to pay this accelerated amount, plus all accrued interest, in cash, Mercator may request payment in the form of shares of common stock. If the event of default remains uncured for thirty (30) days, the percentage used in the formula for determining the conversion price from the convertible debentures shall be reduced from 85% to 75% until the event of default is cured. Additionally, the conversion price for the convertible debentures may be adjusted for certain stock dividends, stock splits or stock distributions, and other capitalization. Mercator may not convert the debentures or receive shares of common stock as payment for interest to the extent that such conversion or receipt of shares would result in Mercator, or its affiliates, beneficially owning in excess of 9.999% of the then issued and outstanding shares of common stock.

The convertible debentures are immediately due and payable if and when Presidion raises $4,000,000 or more through the sale of equity securities. Presidion has the right to redeem the convertible debentures during the first year the convertible debentures are outstanding by paying Mercator 115% of the outstanding principal at the time of redemption, plus accrued interest. Presidion’s obligations under the convertible debentures are secured by pledge agreements executed by John W. Burcham II, Craig A. Vanderburg and James E. Baiers who are officers and directors of Presidion. Presidion does not have any agreements with Mercator regarding the distribution of common stock received upon conversion of the debentures, although Mercator may promptly sell any stock received upon conversion under the convertible debentures. The debentures are currently in default. Presidion has received a waiver of default and an extension on the maturity of the convertible debentures to July 31, 2004.

Mercator Momentum Fund, L.P. also received warrants to purchase 850,000 shares of common stock at a purchase price of the greater of $1.00 or the market price of the common stock as of the closing date of the Securities Purchase Agreement dated February 12, 2003. Based on the market price on February 12, 2003, as determined pursuant to the terms of the warrant, the purchase price of the shares of the common stock under the warrants is $1.08.

During 2003, Presidion had a line of credit arrangement, amounting to $6.0 million, with an expiration date of May 31, 2004. Borrowings pertaining to this line of credit are restricted by certain formula calculations. At December 31, 2003, outstanding borrowings pertaining to this credit facility amounted to $4.6 million with amounts available for borrowing totaling $0.2 million. Presidion is currently in violation of covenants in relation to this arrangement. Presidion is presently in negotiations with the financial institution to waive these events of non-compliance. See Note 6 of the Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data.”

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Presidion’s ability to continue as a going concern is contingent upon its ability to obtain adequate financing to support its operations and its ability to restructure its debt. Presidion will require additional financing in connection with its business. Presidion may seek additional funds from time to time through equity offerings and/or debt financing. Presidion is in default of its existing debt agreements; Presidion is in violation of covenants pertaining to its line of credit agreement, as amended; its current debt service obligations are in excess of anticipated cash flows from operations; and Presidion has a negative current ratio. Management has taken significant actions through April 2004 to enable Presidion to meet its current debt service obligations and provide adequate working capital to support its operations. These actions include attempts to successfully restructure its debt agreements to extend maturities and reduce debt service requirements to be more closely aligned with its expected cash flows from operations, to continue negotiations with the provider of its line of credit agreement to obtain waivers of events of default, and to renew the facility through May 31, 2005 on comparable terms. Presidion is also attempting to obtain additional equity and debt financing. However, there is no assurance that Presidion will be able to successfully restructure its debt or obtain adequate financing on terms favorable to Presidion. Should these negotiations to restructure its current debt structure be unsuccessful, Presidion has received a binding commitment from an unrelated third party to provide financing of up to $12.0 million to replace the line of credit facility, provide working capital and repay certain other obligations of Presidion.

The Company has no existing off-balance sheet arrangements beyond the commitments disclosed regarding letters of credit supporting the reserves for worker’s compensation and Seller Financed Note C.

The following is a summary of the time periods in which Presidion’s contractual obligations are due:

Recently Issued Accounting Standards

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires the classification of a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003. This standard does not have a material impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued Financial Interpretation Number 46 (“FIN 46”), Consolidation of Variable Interest Entities, which requires variable interest entities, which are entities subject to consolidation according to the provisions of this Interpretation, to be consolidated by a company if that company is subject to a majority of the risk of loss from the entity’s activities, or is entitled to receive a majority of the entity’s residual returns, or both. The consolidation provisions of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to variable interest entities created before January 31, 2003 in the first fiscal year or interim period beginning after December 15, 2003. Certain disclosure provisions apply to financial statements issued after January 31, 2003. The Company is currently evaluating FIN 46 and has yet to form an opinion on whether adoption will have any significant impact on the Company’s consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Presidion is exposed to changes in interest rates in its cash and debt transactions. Presidion does not hold derivative financial instruments for trading or speculative purposes.

Presidion’s exposure related to adverse movements in interest rates is primarily derived from the variable rates associated with its line of credit facility. At December 31, 2003, Presidion had approximately $0.2 million available for borrowing under this facility at the financial institution’s prime rate of interest plus 0.25%. At December 31, 2003, borrowings outstanding pertaining to this facility aggregated $4.6 million at an interest rate of 4.25%. Based upon the outstanding balance of this facility at December 31, 2003, an increase of 100% in the annual interest rate would cause a corresponding increase in interest expense of $0.2 million on an annual basis.

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