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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002

Commission file number 000-25959

Private Business, Inc.




(Exact name of
registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Tennessee                                                      |  | 62-1453841                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|9020 Overlook Blvd., Brentwood, Tennessee                      |  | 37027                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

(615) 221-8400




(Registrants telephone
number, including area code)


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.

(1)   Yes   [x]   No [  ]

(2)   Yes   [x]   No [  ]

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practical date.

|                           |  |                                   
|-------------------------- |  | ----------------------------------
|Class                      |  | Outstanding as of October 31, 2002
|                          
|                          
|Common Stock, no par value |  | 14,047,004 shares                 

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TABLE OF CONTENTS



|                                                 |                                                                                                                                                       |                                                                                                          |  |  |  |  |  | 
|------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                                                 | CONSOLIDATED BALANCE SHEETS - UNAUDITED                                                                                                              
|                                                 |                                                                                                                                                       | CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED For the Three Months Ended September 30, 2002 and 2001
|                                                 |                                                                                                                                                       | CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED For the Nine Months Ended September 30, 2002 and 2001 
|                                                 |                                                                                                                                                       | CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED For the Nine Months Ended September 30, 2002 and 2001 
|                                                 |                                                                                                                                                       | Notes to Consolidated Financial Statements - Unaudited                                                  
|                                                 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Nine Months Ended September 30, 2002 and 2001
|                                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                                   
|                                                 | Item 4. Disclosure Controls and Procedures                                                                                                           
|PART II - Other Information                     
|                                                 | Item 1. Legal Proceedings                                                                                                                            
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                                                                             
|Signatures                                      
|CERTIFICATIONS                                  
|CERTIFICATIONS                                  
|Amendment No. 8 to Credit Agreement             
|Certificate of CEO and CFO pursuant to 18 U.S.C.



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##### Table of Contents



PRIVATE BUSINESS, INC.

Form 10-Q

For Quarter Ended September 30, 2002

INDEX

|                                           |                                                                                                |                                                                                                        |         |         |          |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------- | ------- | -------- |  | 
|                                           |                                                                                                |                                                                                                        |         |         | Page No.
|                                           |                                                                                                |                                                                                                        |         |         |         
|Part I  Consolidated Financial Statements |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 1 - Unaudited Consolidated Balance Sheets
As of September 30, 2002 and December 31, 2001  |                                                                                                        |         | 3       |         
|                                           |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                | Unaudited Consolidated Statements of
Operations for the three months ended September 30,
2002 and 2001 |         |         | 4        | 
|                                           |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                | Unaudited Consolidated Statements of
Operations for the nine months ended September 30,
2002 and 2001  |         |         | 5        | 
|                                           |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                | Unaudited Consolidated Statements of
Cash Flows for the nine months ended September 30,
2002 and 2001  |         |         | 6        | 
|                                           |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                | Notes to Unaudited Consolidated
Financial Statements                                                   |         |         | 7 -14    | 
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 2 - Managements discussion and analysis of
financial condition and results of operations |                                                                                                        |         | 15 - 25 |         
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 3 - Quantitative and qualitative disclosures
about market risk                            |                                                                                                        |         | 25- 26  |         
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 4 - Disclosure Controls and Procedures                                                    |                                                                                                        |         | 26      |         
|                                           |                                                                                                |                                                                                                        |         |        
|Part II  Other Information                |                                                                                                |                                                                                                        |         |        
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 1 - Legal Proceedings                                                                     |                                                                                                        |         | 26 - 27 |         
|                                           |                                                                                                |                                                                                                        |         |        
|                                           | Item 6 - Exhibits and reports on Form 8-K                                                      |                                                                                                        |         | 28      |         
|                                           |                                                                                                |                                                                                                        |         |        
|Signatures                                 |                                                                                                |                                                                                                        | 29      |        
|                                           |                                                                                                |                                                                                                        |         |        
|Certifications                             |                                                                                                |                                                                                                        | 30 - 33 |        

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##### Table of Contents



PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS  UNAUDITED

|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |        |  
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | -
|                                                                                                                        |                                                                                                                                  |                                             |        | September 30, |        | December 31,
|(in thousands, except per share data)                                                                                   |                                                                                                                                  | 2002                                        |        | 2001         
|                                                                                                                        |                                                                                                                                  |                                             |        |              
|ASSETS                                                                                                                  |                                                                                                                                  |                                             |        |               |        |              |        |       
|CURRENT ASSETS:                                                                                                         |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                                                                                        | Cash and cash equivalents                                                                                                        |                                             | $      | 428           |        |              | $      | 2,648  |       
|                                                                                                                        | Accounts receivable  trade, net of allowance for doubtful accounts of
$396 and $258, respectively                               |                                             |        | 7,542         |        |              |        | 8,073  |       
|                                                                                                                        | Accounts receivable  other                                                                                                      |                                             |        | 357           |        |              |        | 314    |       
|                                                                                                                        | Deferred tax assets                                                                                                              |                                             |        | 1,584         |        |              |        | 2,130  |       
|                                                                                                                        | Other current assets                                                                                                             |                                             |        | 2,470         |        |              |        | 1,164  |       
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total current assets                        |        |               | 12,381 |              |        |        | 14,329 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|PROPERTY AND EQUIPMENT, NET                                                                                             |                                                                                                                                  |                                             | 7,080  |               |        |              | 8,336  |       
|PROPERTY AND EQUIPMENT HELD FOR SALE                                                                                    |                                                                                                                                  |                                             | 0      |               |        |              | 2,036  |       
|OTHER ASSETS:                                                                                                           |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                                                                                        | Software development costs, net                                                                                                  |                                             |        | 1,472         |        |              |        | 1,461  |       
|                                                                                                                        | Deferred tax assets                                                                                                              |                                             |        | 3,138         |        |              |        | 4,835  |       
|                                                                                                                        | Intangible and other assets, net                                                                                                 |                                             |        | 10,897        |        |              |        | 10,559 |       
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total other assets                          |        |               | 15,507 |              |        |        | 16,855 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total assets                                |        | $             | 34,968 |              |        | $      | 41,556 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                   |                                                                                                                                  |                                             |        |               |        |              |        |       
|CURRENT LIABILITIES                                                                                                     |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                                                                                        | Accounts payable                                                                                                                 |                                             | $      | 2,075         |        |              | $      | 3,617  |       
|                                                                                                                        | Accrued liabilities                                                                                                              |                                             |        | 5,580         |        |              |        | 7,102  |       
|                                                                                                                        | Dividends payable                                                                                                                |                                             |        | 535           |        |              |        | 415    |       
|                                                                                                                        | Deferred revenue                                                                                                                 |                                             |        | 440           |        |              |        | 1,126  |       
|                                                                                                                        | Short-term borrowings                                                                                                            |                                             |        | 1,050         |        |              |        | 0      |       
|                                                                                                                        | Current portion of long-term debt and capital lease obligations                                                                  |                                             |        | 5,379         |        |              |        | 5,394  |       
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total current liabilities                   |        |               | 15,059 |              |        |        | 17,654 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|OTHER NONCURRENT LIABILITIES                                                                                            |                                                                                                                                  |                                             | 806    |               |        |              | 1,354  |       
|LONG-TERM DEBT, net of current portion                                                                                  |                                                                                                                                  |                                             | 24,798 |               |        |              | 31,109 |       
|CAPITAL LEASE OBLIGATIONS, net of current portion                                                                       |                                                                                                                                  |                                             | 228    |               |        |              | 516    |       
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total liabilities                           |        |               | 40,891 |              |        |        | 50,633 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|COMMITMENTS AND CONTINGENCIES                                                                                           |                                                                                                                                  |                                             |        |               |        |              |        |       
|PREFERRED STOCK, series B convertible, no par value; 20,000,000
shares authorized, 40,031 shares issued and outstanding |                                                                                                                                  |                                             | 114    |               |        |              | 114    |       
|STOCKHOLDERS DEFICIT:                                                                                                  |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                                                                                        | Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,036,090 and 13,901,423, respectively |                                             |        | 0             |        |              |        | 0      |       
|                                                                                                                        | Additional paid-in capital                                                                                                       |                                             |        | (7,219        | )      |              |        | (7,464 | )     
|                                                                                                                        | Refined earnings (deficit)                                                                                                       |                                             |        | 1,182         |        |              |        | (1,727 | )     
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total stockholders deficit                 |        |               | (6,037 | )            |        |        | (9,077 | )
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                                                                                        |                                                                                                                                  | Total liabilities and stockholders deficit |        | $             | 34,968 |              |        | $      | 41,556 |  
|                                                                                                                        |                                                                                                                                  |                                             |        |               |        |              |        |        |       

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
For the Three Months Ended September 30, 2002 and 2001

|                                                         |                                                                 |      |                          |        |  |        |        |        |   |        | 
|-------------------------------------------------------- | --------------------------------------------------------------- | ---- | ------------------------ | ------ |  | ------ | ------ | ------ | - | ------ | 
|(in thousands, except per share data)                    |                                                                 | 2002 |                          | 2001  
|                                                         |                                                                 |      |                          |       
|REVENUES:                                                |                                                                 |      |                          |        |  |        |        |       
|                                                         | Participation fees                                              |      | $                        | 8,728  |  |        | $      | 11,312 |  
|                                                         | Software license                                                |      |                          | 83     |  |        |        | 223    |  
|                                                         | Retail planning services                                        |      |                          | 2,677  |  |        |        | 1,570  |  
|                                                         | Maintenance and other                                           |      |                          | 1,699  |  |        |        | 2,070  |  
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|                                                         |                                                                 |      | Total revenues           |        |  | 13,187 |        |        |   | 15,175 | 
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|OPERATING EXPENSES:                                      |                                                                 |      |                          |        |  |        |        |       
|                                                         | General and administrative                                      |      |                          | 5,698  |  |        |        | 5,949  |  
|                                                         | Selling and marketing                                           |      |                          | 5,332  |  |        |        | 5,960  |  
|                                                         | Research and development                                        |      |                          | 124    |  |        |        | 452    |  
|                                                         | Amortization                                                    |      |                          | 424    |  |        |        | 344    |  
|                                                         | Other operating expense, net                                    |      |                          | 65     |  |        |        | 4,213  |  
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|                                                         |                                                                 |      | Total operating expenses |        |  | 11,643 |        |        |   | 16,918 | 
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|OPERATING INCOME (LOSS)                                  |                                                                 |      | 1,544                    |        |  |        | (1,743 | )     
|INTEREST EXPENSE, NET                                    |                                                                 |      | 394                      |        |  |        | 760    |       
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |                                                                 |      | 1,150                    |        |  |        | (2,503 | )     
|Income tax provision (benefit)                           |                                                                 |      | 448                      |        |  |        | (976   | )     
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM              |                                                                 |      | 702                      |        |  |        | (1,527 | )     
|EXTRAORDINARY ITEM:                                      |                                                                 |      |                          |        |  |        |        |       
|                                                         | Early extinguishment of debt, net of income taxes of
$0 and $52 |      |                          | 0      |  |        |        | 81     |  
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|NET INCOME (LOSS)                                        |                                                                 |      | 702                      |        |  |        | (1,608 | )     
|Preferred stock dividends                                |                                                                 |      | 40                       |        |  |        | 23     |       
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS       |                                                                 | $    | 662                      |        |  | $      | (1,631 | )     
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|EARNINGS (LOSS) PER SHARE:                               |                                                                 |      |                          |        |  |        |        |       
|                                                         | Basic                                                           |      | $                        | 0.05   |  |        | $      | (0.14  | )
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|                                                         | Diluted                                                         |      | $                        | 0.05   |  |        | $      | (0.14  | )
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:              |                                                                 |      |                          |        |  |        |        |       
|                                                         | Basic                                                           |      |                          | 14,014 |  |        |        | 11,914 |  
|                                                         |                                                                 |      |                          |        |  |        |        |        |  
|                                                         | Diluted                                                         |      |                          | 14,409 |  |        |        | 11,914 |  
|                                                         |                                                                 |      |                          |        |  |        |        |        |  

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
For the Nine Months Ended September 30, 2002 and 2001

|                                                         |                                                                  |      |                          |        |      |        |        |        |   |        |  |  |  |  | 
|-------------------------------------------------------- | ---------------------------------------------------------------- | ---- | ------------------------ | ------ | ---- | ------ | ------ | ------ | - | ------ |  |  |  |  | 
|(in thousands, except per share data)                    |                                                                  | 2002 |                          |        | 2001
|                                                         |                                                                  |      |                          |       
|REVENUES:                                                |                                                                  |      |                          |        |      |        |        |       
|                                                         | Participation fees                                               |      | $                        | 28,355 |      |        | $      | 31,526 |  
|                                                         | Software license                                                 |      |                          | 392    |      |        |        | 719    |  
|                                                         | Retail planning services                                         |      |                          | 7,980  |      |        |        | 1,570  |  
|                                                         | Maintenance and other                                            |      |                          | 5,693  |      |        |        | 5,735  |  
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|                                                         |                                                                  |      | Total revenues           |        |      | 42,420 |        |        |   | 39,550 | 
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|OPERATING EXPENSES:                                      |                                                                  |      |                          |        |      |        |        |       
|                                                         | General and administrative                                       |      |                          | 17,507 |      |        |        | 16,323 |  
|                                                         | Selling and marketing                                            |      |                          | 16,569 |      |        |        | 16,148 |  
|                                                         | Research and development                                         |      |                          | 517    |      |        |        | 937    |  
|                                                         | Amortization                                                     |      |                          | 1,365  |      |        |        | 918    |  
|                                                         | Other operating expense, net                                     |      |                          | 46     |      |        |        | 4,362  |  
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|                                                         |                                                                  |      | Total operating expenses |        |      | 36,004 |        |        |   | 38,688 | 
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|OPERATING INCOME                                         |                                                                  |      | 6,416                    |        |      |        | 862    |       
|INTEREST EXPENSE, NET                                    |                                                                  |      | 1,396                    |        |      |        | 2,760  |       
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |                                                                  |      | 5,020                    |        |      |        | (1,898 | )     
|Income tax provision (benefit)                           |                                                                  |      | 1,958                    |        |      |        | (740   | )     
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                  |                                                                  |      | 3,062                    |        |      |        | (1,158 | )     
|EXTRAORDINARY ITEM:                                      |                                                                  |      |                          |        |      |        |        |       
|                                                         | Early extinguishment of debt, net of income taxes of
$22 and $52 |      |                          | 34     |      |        |        | 81     |  
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|NET INCOME (LOSS)                                        |                                                                  |      | 3,028                    |        |      |        | (1,239 | )     
|Preferred stock dividends                                |                                                                  |      | 120                      |        |      |        | 23     |       
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS       |                                                                  | $    | 2,908                    |        |      | $      | (1,262 | )     
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|EARNINGS (LOSS) PER SHARE:                               |                                                                  |      |                          |        |      |        |        |       
|                                                         | Basic                                                            |      | $                        | 0.21   |      |        | $      | (0.12  | )
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|                                                         | Diluted                                                          |      | $                        | 0.21   |      |        | $      | (0.12  | )
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:              |                                                                  |      |                          |        |      |        |        |       
|                                                         | Basic                                                            |      |                          | 13,991 |      |        |        | 10,120 |  
|                                                         |                                                                  |      |                          |        |      |        |        |        |  
|                                                         | Diluted                                                          |      |                          | 14,412 |      |        |        | 10,120 |  
|                                                         |                                                                  |      |                          |        |      |        |        |        |  

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
For the Nine Months Ended September 30, 2002 and 2001

|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |        |        |        |        |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ------ | ------ | ------ | ------ | -
|(in thousands)                                                                           |                                                                                                                                                                                                                                                                            | 2002                                                    |                              | 2001                                               
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                    
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|Net income (loss)                                                                        |                                                                                                                                                                                                                                                                            | $                                                       | 3,028                        |                                                     |       | $      | (1,239 | )     
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Write-off of debt issuance costs                        |                              |                                                     | 34    |        |        |        | 81     |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Depreciation and amortization                           |                              |                                                     | 3,807 |        |        |        | 3,267  |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Deferred taxes                                          |                              |                                                     | 2,243 |        |        |        | (1,196 | )     
|                                                                                         |                                                                                                                                                                                                                                                                            | Non-cash stock based compensation                       |                              |                                                     | 46    |        |        |        | 255    |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Loss on write-down of certain property and equipment    |                              |                                                     | 0     |        |        |        | 4,142  |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Gain on sale of certain property and equipment, net     |                              |                                                     | (160  | )      |        |        | 0      |       
|                                                                                         |                                                                                                                                                                                                                                                                            | Changes in assets and liabilities, net of acquisitions: |                              |                                                     |       |        |        |        |        |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Accounts receivable          |                                                     |       | 487    |        |        |        | 889    |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Other current assets         |                                                     |       | (1,306 | )      |        |        | 383    |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Other assets                 |                                                     |       | 75     |        |        |        | (33    | )     
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Accounts payable             |                                                     |       | (1,542 | )      |        |        | (1,319 | )     
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Accrued liabilities          |                                                     |       | (1,520 | )      |        |        | (190   | )     
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Deferred revenue             |                                                     |       | (686   | )      |        |        | (575   | )     
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         | Other noncurrent liabilities |                                                     |       | (547   | )      |        |        | (94    | )     
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              | Net cash provided by operating activities           |       |        | 3,959  |        |        |        | 4,751  |  
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         | Additions to property and equipment                                                                                                                                                                                                                                        |                                                         |                              | (2,166                                              | )     |        |        | (1,082 | )     
|                                                                                         | Software development costs                                                                                                                                                                                                                                                 |                                                         |                              | (664                                                | )     |        |        | (918   | )     
|                                                                                         | Proceeds from sale of property and equipment                                                                                                                                                                                                                               |                                                         |                              | 2,863                                               |       |        |        | 0      |       
|                                                                                         | Proceeds of cash and cash equivalents from Towne,
net of direct costs of acquisition                                                                                                                                                                                       |                                                         |                              | 0                                                   |       |        |        | 6,756  |       
|                                                                                         | Acquisition of businesses                                                                                                                                                                                                                                                  |                                                         |                              | (845                                                | )     |        |        | 0      |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              | Net cash (used in) provided by investing activities |       |        | (812   | )      |        |        | 4,756  |  
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         | Repayments on long-term debt                                                                                                                                                                                                                                               |                                                         |                              | (3,495                                              | )     |        |        | (2,736 | )     
|                                                                                         | Repayments on capitalized lease obligations                                                                                                                                                                                                                                |                                                         |                              | (288                                                | )     |        |        | 0      |       
|                                                                                         | Early extinguishment of long-term debt                                                                                                                                                                                                                                     |                                                         |                              | (2,833                                              | )     |        |        | (6,072 | )     
|                                                                                         | Proceeds from short-term borrowings, net                                                                                                                                                                                                                                   |                                                         |                              | 1,050                                               |       |        |        | 0      |       
|                                                                                         | Proceeds from exercise of employee stock options                                                                                                                                                                                                                           |                                                         |                              | 137                                                 |       |        |        | 22     |       
|                                                                                         | Stock issued through employee stock purchase plan                                                                                                                                                                                                                          |                                                         |                              | 62                                                  |       |        |        | 121    |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              | Net cash used in financing activities               |       |        | (5,367 | )      |        |        | (8,665 | )
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                  |                                                                                                                                                                                                                                                                            |                                                         | (2,220                       | )                                                   |       |        | 842    |       
|CASH AND CASH EQUIVALENTS at beginning of year                                           |                                                                                                                                                                                                                                                                            |                                                         | 2,648                        |                                                     |       |        | 1,891  |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|CASH AND CASH EQUIVALENTS at end of period                                               |                                                                                                                                                                                                                                                                            | $                                                       | 428                          |                                                     |       | $      | 2,733  |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                      |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         | Cash payments for income taxes during period                                                                                                                                                                                                                               |                                                         | $                            | 81                                                  |       |        | $      | 240    |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         | Cash payments of interest during period                                                                                                                                                                                                                                    |                                                         | $                            | 1,418                                               |       |        | $      | 2,828  |       
|                                                                                         |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                             |                                                                                                                                                                                                                                                                            |                                                         |                              |                                                     |       |        |        |       
|                                                                                         | In August 2001, the Company issued 4,647,506 common shares and 40,032
preferred shares and granted 963,000 common stock options in exchange for
all common stock, preferred stock and stock options of Towne Services, Inc.
to effect the purchase of Towne by the Company |                                                         |                              |                                                     |       |        |        |        |       

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

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##### Table of Contents



PRIVATE BUSINESS, INC.




Notes to Consolidated Financial Statements  Unaudited

A. Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial reporting and in accordance with Rule 10-01
of Regulation S-X.

In the opinion of management, the unaudited interim financial statements contained
in this report reflect all adjustments, consisting of only normal recurring
accruals, which are necessary for a fair presentation of the financial position,
and the results of operations for the interim periods presented. The results of
operations for any interim period are not necessarily indicative of results for
the full year.

These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2001.

B.  Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying financial statements include the accounts of Private
Business, Inc. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Our other significant accounting policies include self-insurance reserves,
income taxes, software development costs, acquisition accounting, intangible
asset impairment evaluation, and revenue recognition. Please refer to our Annual
Report on Form 10-K for the year ended December 31, 2001 for a more detailed
description of these accounting policies.

C.  Acquisition of Access Retail Management

On May 28, 2002, the Company entered into an asset purchase agreement to
acquire certain operating assets of CAM Commerces (CAM) retail planning
division, known as Access Retail Management, in exchange for cash consideration
of $800,000. The acquisition has been recorded in accordance with SFAS No. 141,
Business Combinations (SFAS No. 141), resulting in the operating results of
the CAM division being included with those of the Company subsequent to the date
of acquisition. The Company has completed its initial allocation of purchase
price, resulting in identifiable intangible assets of approximately $220,000 and
goodwill of approximately $570,000.

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D.  Sale of Company Headquarters and Other Properties

During the quarter ended March 31, 2002, the Company sold its former
headquarters building and consolidated its operations into the Technology and
Business Center, which is adjacent to the former headquarters building. The net
proceeds from the sale were approximately $2.2 million. During the third quarter
of 2001, the Company recorded an impairment charge of $4.1 million to write down
the headquarters building, land and fixtures to their estimated fair market
value of approximately $2.0 million. Therefore the sale in March 2002 resulted
in a net gain of approximately $200,000 being recorded in the first quarter of
2002, which is included in other operating expense, net in the accompanying
consolidated statement of operations. During the quarter ended September 30,
2002, the Company sold the headquarters of its retail planning services division
(RMSA) in Riverside, California, which had been acquired by the Company as
part of the Towne acquisition. There was no gain or loss recorded from the sale,
as the sales price of approximately $645,000, was equal to the recorded net book
value of the property.

E.  Merger, Stock Split and Stock Options

On August 9, 2001, the Company completed a merger of Towne Services, Inc.
(Towne) into Private Business, which was accounted for as a purchase in
accordance with SFAS No. 141. The merger was consummated by Towne shareholders
exchanging all of their issued and outstanding common and preferred shares for
Private Business common and preferred shares, respectively, at the conversion
rate of .9087 shares of the Companys common stock for one share of Towne common
stock. The Company also assumed all stock option plans of Towne that existed as
of the acquisition date using the same conversion rate noted above, resulting in
the exchange of approximately 963,000 Private Business common stock options. The
estimated value of these stock options, using the Black-Scholes option pricing
model, of approximately $1.3 million has been recorded as a component of the
purchase price. The assumptions used to value these options were; a risk-free
interest rate range of 3.37% to 4.88%, an expected dividend yield of 0%, an
expected volatility of 75% and an average expected life of 3.5 years. As a
result of the merger, Private Business shareholders own 67% of the outstanding
shares of the new combined entity. In conjunction with the merger agreement, a
one for three reverse stock split of the Companys common stock occurred before
exchanging the Companys common shares for the Towne common shares and common
share equivalents. All shares and per share amounts in these consolidated
condensed financial statements have been restated for the effect of the reverse
stock split.

F.  Net Income (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common and

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common equivalent shares outstanding during the
period, which includes the additional dilution related to conversion of stock
options as computed under the treasury stock method and the conversion of the
preferred stock under the if-converted method for the quarter and nine months
ended September 30, 2002.

The following table represents information necessary to calculate earnings
per share for the three and nine-month periods ended September 30, 2002 and
2001:

|                                                            |                                         |      |                                  |      |                                 |      |        |   |  |   |        |     |  |   |        |   | 
|----------------------------------------------------------- | --------------------------------------- | ---- | -------------------------------- | ---- | ------------------------------- | ---- | ------ | - |  | - | ------ | --- |  | - | ------ | - | 
|                                                            |                                         |      | Three Months Ended September 30, |      | Nine Months Ended September 30,
|(in thousands)                                              |                                         | 2002 |                                  | 2001 |                                 | 2002 | 2001  
|                                                            |                                         |      |                                  |      |                                 |      |       
|Net income (loss) available to common shareholders          |                                         | $    | 662                              |      |                                 | $    | (1,631 | ) |  | $ | 2,908  |     |  | $ | (1,262 | )
|                                                            |                                         |      |                                  |      |                                 |      |        |   |  |   |        |     |  |   |        |  
|Weighted average common shares outstanding                  |                                         |      | 14,014                           |      |                                 |      | 11,914 |   |  |   | 13,991 |     |  |   | 10,120 |  
|Plus additional shares from common stock
equivalent shares: |                                         |      |                                  |      |                                 |      |        |   |  |   |        |     |  |   |        |  
|                                                            | Options and convertible preferred stock |      |                                  | 395  |                                 |      |        | 0 |  |   |        | 421 |  |   |        | 0 | 
|                                                            |                                         |      |                                  |      |                                 |      |        |   |  |   |        |     |  |   |        |  
|Adjusted weighted average common shares
outstanding         |                                         |      | 14,409                           |      |                                 |      | 11,914 |   |  |   | 14,412 |     |  |   | 10,120 |  
|                                                            |                                         |      |                                  |      |                                 |      |        |   |  |   |        |     |  |   |        |  

For the nine months ended September 30, 2002 and 2001, approximately 2.4 million
and 2.0 million employee stock options were excluded from diluted earnings
(loss) per share calculations, as their effects were anti-dilutive.

G.  Comprehensive Income (Loss)

Comprehensive income (loss) for the three and nine months ended September
30, 2002 and 2001 was comprised solely of net income (loss).

H.  Chief Executive Officer Change, Severance and Option Grants

On February 1, 2001, the Company announced the departure of its then
current Chief Executive Officer (CEO) and the hiring of a new CEO. The former
CEO, as part of his employment and severance agreement, was entitled to a
severance payment of $315,000, which was paid and expensed by the Company in
February 2001. The former CEO served as a consultant for one year from the date
of termination. As part of his consulting agreement, the former CEO was granted
options to purchase 100,000 shares of the Companys common stock at $3.75 per
share, the fair market value as of that date. Options to purchase 66,667 of the
shares vested ratably each month from February 2001 to January 2002, while the
remaining 33,333 shares vested ratably each month from July 2001 to January
2002. The options expire 10 years from the date of the grant. The fair value of
these options of approximately $288,000 has been calculated in accordance with
SFAS No. 123, using a risk-free rate of 5.10%, an expected dividend yield of 0%
and an expected volatility of 75%. This fair value was expensed to general and
administrative expense over the vesting period ($264,000 in 2001 and $24,000 in
2002). Approximately $24,000 and $192,000 were expensed for the first nine
months of 2002 and 2001, respectively.

On August 13, 2001, the Company finalized an employment agreement with
the new CEO, which included restricted stock in lieu of salary and stock
options. According to the agreement, the CEO was awarded 43,608 shares of
restricted common stock in lieu of

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of cash compensation for 2001. The shares vested 1/11th per month for 2001 and
the related compensation expense was recorded as the shares vested. The CEO has
opted for cash compensation in 2002. The CEO was also granted options to
purchase 333,333 shares of the Companys common stock. Options to purchase
166,667 shares vested immediately and are exercisable at $3.00 per share, while
the remaining 166,666 shares vest ratably each month February 2001 to January
2005, of which 83,333 shares are exercisable at $12.00 per share and 83,333
shares are exercisable at $18.00 per share. The options expire 10 years from the
date of the grant.

I.  Bank Covenants

The Companys credit facility is secured by a pledge of all Company assets
and imposes financial covenants and requirements and contains limitations on the
Companys ability to sell material assets, redeem capital stock and pay
dividends, among other actions. As of September 30, 2002, the Company was not in
compliance with the Minimum EBITDA financial covenant contained in the credit
agreement. On November 19, 2002, the Company obtained a waiver for this
incidence of non-compliance and entered into an amendment dated September 30,
2002 to its credit facility to modify certain restrictive financial covenants
for the fourth quarter of 2002 and all of 2003. The amendment also
includes reductions in revolving credit availability and capital
expenditure levels for future periods, as well as, an increase to the
interest rate margin grid of 25 basis points on all outstanding debt
obligations. In effect, the Company will pay higher interest rates on
its outstanding debt until its leverage ratio declines to specified
levels at which time the interest rate margin grid returns to the
margins in effect prior to this latest amendment.

J.  Legal Proceedings

As a result of the merger with Towne, we assumed certain outstanding
litigation against Towne. Except for the lawsuits described below, we are not
currently a party to, and none of our material properties is currently subject
to, any material litigation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.      As previously disclosed, Towne, two of its former officers and a current
officer are defendants in a securities class action lawsuit filed in
November 1999. No class has yet been certified. The complaints allege,
among other things, that Towne should have disclosed in the prospectus used
for its secondary public offering in June 1999 that it allegedly
experienced serious problems with its network infrastructure and processing
facilities during the move of its corporate headquarters in June 1999, and
that these problems allegedly led to a higher than usual number of
customers terminating their contracts during the second quarter. The
Parties reached a Settlement Agreement on July 29, 2002 at informal
settlement negotiations in Atlanta and anticipate filing a Memorandum of
Understanding with the Court after final approval by the insurance
carriers. The Settlement Agreement will also need final approval by the
Court, and counsel for Defendants estimate it will take a minimum of twelve
months for the Court to approve all substantive issues related to the
class-action settlement.
|
| | 2.      Another lawsuit arises out of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI
Acquisition Corp., in December 1998. Plaintiff Edward Sullivan, Jr. was
employed by BSI. Sullivan alleges, among other things, that he had a
buy-out agreement with BSI and certain BSI shareholders under which, in
certain circumstances, Sullivan was to receive a commission based on the
gross sales price paid by any purchaser of BSI. Sullivan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | contends that BSI
and the other shareholders allegedly fraudulently induced him to release
them from the agreement by fraudulently misrepresenting the gross sales
price paid by Towne Services subsidiary in the stock purchase. Sullivan
contends that Towne Services is liable to him as the successor to BSI, and
also for allegedly tortiously interfering with the agreement. Sullivan also
contends Towne Services conspired with the other defendants to misrepresent
the gross purchase price. We deny all allegations of the petition. Mr.
Sullivan and his wife seek an unspecified amount of damages including a
percentage of the gross sales price paid by Towne Services subsidiary for
the acquisition of BSI, as well as punitive damages, attorneys fees, and
pre-judgment and post-judgment interest. On July 15, 2002, the District
Court of Collin County, Texas granted our motion for summary judgment on
all claims. The Plaintiffs failed to exercise any right to appeal. We
contend that we are entitled to indemnification from the BSI shareholders
for our expenses in defending this action. Specifically, the BSI stock
purchase agreement provides that the BSI shareholders will indemnify us
against any claims, damages, liabilities, costs and expenses (including
reasonable attorneys and accountants fees and expenses) we suffer that
arise out of any breach of the representations made by BSI in the
agreement, provided that the aggregate amount of all such claims, etc.
exceeds $100,000. It is anticipated that legal action will ensue to enforce
the provisions of the indemnification clause of the BSI stock purchase
agreement.
|
| | 3.      Towne Services, Inc. has also sought relief in the U.S. District Court, Southern District of Mississippi in a companion case. Towne Services, Inc.,
and Banking Solutions, Inc. v. The Merchants Financial Services Group, LLC d/b/a Merchants Financial Services; AmFed Companies, LLC; Clipper
Technologies, LLC; The Clipper Group, Inc.; and Prominent Technologies, LLC. This case was filed on July 24, 2001, and is an action for copyright
infringement under the Copyright Act of 1976, 17 U.S.C. § 101, et seq., and related claims of misappropriation of trade secrets and tortuous
interference with contractual relations. The suit alleges that former customers of Towne Services (a Mississippi bank and an affiliated insurance
company) have developed and are using and marketing a software program, A/R Navigator, that is an improper copy of and a misappropriation of trade
secrets in the Companys Cash Flow Manager. It also alleges that several former employees of the Company (the Clipper Group) are marketing the copied
service to banks including customers of the Company. Towne Services, Inc. has requested an independent comparison of the Cash Flow Manager software and
the A/R Navigator software. At this point, it is anticipated that settlement negotiations between the parties will commence by December 31, 2002.                                                                                                                                                                                                                                                                                                                

The Company is subject to various other legal proceedings, tax matters and other
claims which arise in the ordinary course of business. In the opinion of
management, the amount of any ultimate liability with respect to these actions
will not materially affect the financial position or results of operations of
the Company.

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##### Table of Contents



K. Segment Information

Prior to August 2001, the Company operated in one business segment,
accounts receivable financing. As a result of the Companys merger with Towne in
August 2001, it now operates in a second business segment, retail inventory
forecasting. The Company accounts for segment reporting under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. Since the
Company operated in one business segment prior to 2001, prior year segment
information is not presented. No corporate overhead costs or interest have been
allocated to income (loss) before taxes and extraordinary item of the retail
inventory forecasting segment, but are included in the accounts receivable
financing segment costs.

The following table summarizes the financial information concerning the
Companys reportable segments from continuing operations for the three and nine
months ended September 30, 2002 and 2001. The retail inventory forecasting
segment only includes results subsequent to August 9, 2001, the merger date.

|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|------------------------------------------------------ |  | ------------------ | ------ | ------------------ |  | ----- | ----- | --------- |  | ----------- | ------ | --------- |  | - | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                                       |  | Three Months Ended |        | Three Months Ended
|                                                       |  | September 30, 2002 |        | September 30, 2001
|                                                       |  |                    |        |                   
|                                                       |  | Accounts           |        | Retail             |  |       |       |           |  | Accounts    |        | Retail    |  |   |        |  
|                                                       |  | Receivable         |        | Inventory          |  |       |       |           |  | Receivable  |        | Inventory |  |   |        |  
|                                                       |  | Financing          |        | Forecasting        |  | Total |       | Financing |  | Forecasting |        | Total    
|(in thousands)                                         |  |                    |        |                    |  |       |       |           |  |             |        |          
|Revenues                                               |  | $                  | 10,510 |                    |  | $     | 2,677 |           |  | $           | 13,187 |           |  | $ | 13,605 |   |  | $ | 1,570 |   |  | $ | 15,175 |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Income (loss)
before taxes
and extraordinary
item:     |  | $                  | 431    |                    |  | $     | 271   |           |  | $           | 702    |           |  | $ | (1,525 | ) |  | $ | (2    | ) |  | $ | (1,527 | )
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Assets                                                 |  | $                  | 29,585 |                    |  | $     | 5,503 |           |  | $           | 35,088 |           |  | $ | 36,488 |   |  | $ | 4,376 |   |  | $ | 40,864 |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Total expenditures
for additions to
long-lived assets: |  | $                  | 264    |                    |  | $     | 0     |           |  | $           | 264    |           |  | $ | 89     |   |  | $ | 0     |   |  | $ | 89     |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  

|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|------------------------------------------------------ |  | ------------------ | ------ | ------------------ |  | ----- | ----- | --------- |  | ----------- | ------ | --------- |  | - | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                                       |  | Nine Months Ended  |        | Nine Months Ended 
|                                                       |  | September 30, 2002 |        | September 30, 2001
|                                                       |  |                    |        |                   
|                                                       |  | Accounts           |        | Retail             |  |       |       |           |  | Accounts    |        | Retail    |  |   |        |  
|                                                       |  | Receivable         |        | Inventory          |  |       |       |           |  | Receivable  |        | Inventory |  |   |        |  
|                                                       |  | Financing          |        | Forecasting        |  | Total |       | Financing |  | Forecasting |        | Total    
|(in thousands)                                         |  |                    |        |                    |  |       |       |           |  |             |        |          
|Revenues                                               |  | $                  | 34,440 |                    |  | $     | 7,980 |           |  | $           | 42,420 |           |  | $ | 37,980 |   |  | $ | 1,570 |   |  | $ | 39,550 |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Income (loss)
before taxes
and extraordinary
item:     |  | $                  | 2,292  |                    |  | $     | 616   |           |  | $           | 2,908  |           |  | $ | (1,261 | ) |  | $ | (1    | ) |  |   | (1,262 | )
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Assets                                                 |  | $                  | 29,585 |                    |  | $     | 5,503 |           |  | $           | 35,088 |           |  | $ | 36,488 |   |  | $ | 4,376 |   |  | $ | 40,864 |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  
|Total expenditures
for additions to
long-lived assets: |  | $                  | 2,166  |                    |  | $     | 0     |           |  | $           | 2,166  |           |  | $ | 1,082  |   |  | $ | 0     |   |  | $ | 1,082  |  
|                                                       |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |   |  |   |       |   |  |   |        |  

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L.  New Accounting Pronouncements

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets(SFAS No. 142). SFAS No. 142 supercedes Accounting
Principles Board Opinion No. 17, Intangible Assets, and addresses how intangible
assets and goodwill should be accounted for upon and after their acquisition.
Specifically, goodwill and intangible assets with indefinite useful lives will
not be amortized, but will be subject to impairment tests based on their
estimated fair value. Upon adoption, the Company ceased amortization of goodwill
totaling $4.1 million, which was previously being amortized over a 20-year
period. For the nine months ended September 30, 2002, this resulted in a
reduction of amortization expense of approximately $156,000.

The following table shows the results for the three and nine-month periods ended
September 30, 2002 and 2001, as if the Company had followed SFAS No. 141 for all
periods presented:

|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |       |  
|----------------------------------------------------------- | ----------------------------------------------------------- | - | ------------------- | ---- | ------------------- | - | ------ | ----- | ---- | - | ----- | ---- |  | - | ------ | ----- | -
|                                                            |                                                             |   | Three Months        |      | Nine Months        
|                                                            |                                                             |   | Ended September 30, |      | Ended September 30,
|                                                            |                                                             |   |                     |      |                    
|                                                            |                                                             |   | 2002                |      | 2001                |   | 2002   |       | 2001
|                                                            |                                                             |   |                     |      |                     |   |        |       |     
|Reported net income (loss) available to
common shareholders |                                                             | $ | 662                 |      |                     | $ | (1,631 | )     |      | $ | 2,908 |      |  | $ | (1,262 | )    
|Add back: Goodwill Amortization                             |                                                             |   |                    |      |                     |   | 52     |       |      |   |      |      |  |   | 156    |      
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|Adjusted net income (loss) available to common
shareholders |                                                             | $ | 662                 |      |                     | $ | (1,579 | )     |      | $ | 2,908 |      |  | $ | (1,106 | )    
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|Basic Earnings (Loss) per Share:                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|                                                            | Reported net income (loss) available to
common shareholders |   | $                   | 0.05 |                     |   | $      | (0.14 | )    |   | $     | 0.21 |  |   | $      | (0.12 | )
|Goodwill amortization                                       |                                                             |   |                    |      |                     |   | 0.01   |       |      |   |      |      |  |   | 0.02   |      
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|                                                            | Adjusted net income (loss) available to common
shareholders |   | $                   | 0.05 |                     |   | $      | (0.13 | )    |   | $     | 0.21 |  |   | $      | (0.10 | )
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|Diluted Earnings (Loss) per share:                          |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|                                                            | Reported net income (loss) available to common
shareholders |   | $                   | 0.05 |                     |   | $      | (0.14 | )    |   | $     | 0.21 |  |   | $      | (0.12 | )
|Goodwill amortization                                       |                                                             |   |                    |      |                     |   | 0.01   |       |      |   |      |      |  |   | 0.02   |      
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      
|Adjusted net income (loss) available to
common shareholders |                                                             | $ | 0.05                |      |                     | $ | (0.13  | )     |      | $ | 0.21  |      |  | $ | (0.10  | )    
|                                                            |                                                             |   |                     |      |                     |   |        |       |      |   |       |      |  |   |        |      

The recorded goodwill is subject to annual impairment evaluations by the
Company, which could result in possible write-downs in future periods if
impairments are determined. The Company completed its initial transitional
goodwill impairment review in accordance with

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SFAS No. 142 during June of 2002.
Based on the Companys evaluation, there was no impairment of goodwill as of
January 1, 2002.

Also during the second quarter of 2002, the Company obtained an
independent third-party appraisal to determine the estimated fair value of the
intangible assets acquired in conjunction with the Towne acquisition. As a
result, the Company recorded an adjustment to the opening balance sheet of Towne
to record additional intangible assets of $1,480,000 and a corresponding
reduction to goodwill. In accordance with SFAS No. 142 the Company also recorded
amortization expense associated with these intangibles totaling approximately
$230,000 during the second quarter, of which, approximately $161,000 relates to
prior periods. Therefore, as of June 30, 2002, the net book value of the
identified intangible assets of approximately $1,250,000 is stated as if the
Company had recorded and amortized those intangible assets beginning August 9,
2001.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement replaces SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of(SFAS No. 121). However, it retains the fundamental
provisions of SFAS No. 121 for recognition and measurement of the impairment of
long-lived assets to be held and used and for measurement of long-lived assets
to be disposed of by sale. This statement applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB Opinion
No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business,for the disposal of segments of a business. This
statement requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. The Company was required to adopt this
statement on January 1, 2002, which did not have any impact on its results of
operations, financial position and cash flows.

In August of 2002, the FASB issued SFAS No. 145, Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement rescinds Statement No. 4, which required all
material gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of related income tax effects. Upon adoption of this
statement, extinguishment gains and losses will be classified as ordinary gains
and losses in the income statement. The statement is effective for fiscal years
beginning after May 15, 2002, resulting in it being effective for the Company on
January 1, 2003. The Company does not expect adoption of this statement to have
any impact on its results of operations, financial position and cash flows,
however, certain extinguishment losses reflected as extraordinary items in prior
periods will be reclassified to ordinary expenses.

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PRIVATE BUSINESS, INC.




Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Three and Nine Months Ended September 30, 2002 and 2001

Overview

We are a leading provider of solutions that enable community banks to
manage accounts receivable financing provided to their small business customers.
Our solution is called Business Manager, and is based on software, marketing,
and online electronic transaction processing services. One element of Business
Manager is our proprietary software, which enables our network of client banks
to purchase accounts receivable from their small business customers. The banks
then process, bill and track those receivables on an ongoing basis. As a major
component of our program, we work with client banks to design, implement and
manage the sale of Business Manager accounts receivable financing services to
their small business customers. We also give our client banks the option of
outsourcing to us their application hosting and transaction processing in our
Technology and Business Center. Through our subsidiary, Retail Merchandising
Service Automation, (RMSA), we also provide merchandising forecasting
information and consulting services to customers in the retail industry.

On August 9, 2001, we completed a merger with Towne Services, Inc.
(Towne) into Private Business. The merger was structured as a tax-free
exchange of approximately 4.6 million shares of our common shares valued at
approximately $13.2 million for all the issued and outstanding Towne common
shares and common share equivalents and the issuance of approximately 963,000
common stock options valued at $1.3 million to replace all of the issued and
outstanding Towne common stock options. Also, as a condition of the merger, on
August 9, 2001, we issued 40,031 shares of Series B Convertible preferred stock
valued at approximately $114,000 in exchange for all the issued and outstanding
Towne Series B preferred stock. The merger was accounted for as a purchase in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations. As a result of the merger, Private Business shareholders
own approximately 67% of the outstanding shares of the combined entity. In
conjunction with the merger agreement, a one for three reverse stock split of
our common stock occurred prior to the exchange of our common shares for the
Towne common shares and common share equivalents.

As a result of the merger, we began supporting Towne products, although
from a business and operations standpoint our approach to the Towne merger has
been to transition Towne banks and merchants to our Business Manager program.
Historically, Towne provided services and products that process electronically
sales and payment information and related financing transactions for businesses
and banks in the United States. Towne delivers these services and products
online via an electronic hub, or gateway, that links business and bank customers
with the company and other providers of products

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and services that can benefit these customers. Revenues are generated through
the deployment and use of three primary products: Towne Credit®, which
processes consumer credit transactions for small and medium-sized businesses;
Towne Finance® and Cash Flow ManagerSM, which process business-to-business
credit transactions for commercial businesses; and RMSA® Merchandise Planning
service, which processes sales and inventory transactions and provides
merchandise forecasting information for specialty retail stores; and ancillary
services related to these products. From an operations standpoint, RMSA has
remained a distinct business unit since the merger in August 2001.

We generate revenue from four main sources:



| |  |  | participation fees earned on client bank purchases of small business accounts receivable.                                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | software license fees from new client banks.                                                                                                                                                       
|
| |  |  | retail planning services.                                                                                                                                                                          
|
| |  |  | maintenance fees and other revenues, comprised primarily of
fees received for insurance brokerage services, paper-based
form sales, software maintenance, medical, leasing and
processing services.

There are two types of participation fees. The first type is earned
upon the client banks initial purchase of a small business accounts receivable
during the first 30 days in our program. The second type is an ongoing
participation fee earned from subsequent period purchases. Both types of fees
are based on a percentage of the receivables that a client bank purchases from
its small business customers during each month. The second type of fee is a
smaller percentage of the ongoing receivables purchased. Participation fees are
recognized as earned.

Software license fees for Business Manager consist of two components:
the license fee and customer training and support fee. These are one-time fees
that we receive upon the initial licensing of our Business Manager program to a
community bank. Our license agreements are executed with terms ranging from
three to five years, and are renewable for subsequent terms. Some agreements
contain performance or deferred payment terms that must be met in order for us
to receive payment and recognize revenue. We recognize revenues from the license
fee once we have met the terms of the customer agreement. The customer training
and support fee are recognized ratably over the twelve-month service period
subsequent to the activation of the license agreement. Software license fees for
Towne products include set-up fees for installation, implementation and training
of bank and business customers. All revenues from Towne software license fees
are recorded on a deferred basis over the estimated life of the contract term
and for certain cancellation clauses and/or return guarantees until the
guarantee period is expired. Software license fees for the Towne products
charged to each bank vary depending on the asset size of the bank and the number
of communities served. Set-up fees are also charged to business customers based
either upon a flat rate or upon the expected transaction volume.

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Retail planning services revenue is generated from fees charged
primarily for providing inventory merchandising and forecasting information for
specialty retail stores; and ancillary services related to these products. RMSA
uses a proprietary software to process sales and inventory transactions and
provide the merchandising forecasting information. During the second quarter of
2002, we completed a strategic acquisition of certain operating assets of CAM
Commerces retail planning division, known as Access Retail Management, which
operates in the same niche market as RMSA. We recognize revenues as the
transactions occur and merchandising and forecasting services are performed.

Maintenance fees and other revenues include several ancillary products
and services we provide to client banks. Annual software maintenance fees are
generated from our client banks starting on the first anniversary date of the
Business Manager license agreement and annually thereafter. These revenues are
recognized ratably over a twelve-month period beginning on the first anniversary
date of the agreement. Additionally, since 1995, we have brokered, through our
Private Business Insurance subsidiary, credit and fraud insurance products from
a national insurance company. We earn fees based on a percentage of the premium
that is paid to the insurance company. We also provide a standard set of forms
that client banks may purchase and use in the normal course of administering the
Business Manager program. Revenues related to these forms are recognized in the
period that they are shipped to the client bank. We also offer processing
services to our client banks for an additional fee, based on the volume of
transactions processed through the system. We also have some industry-focused
applications for the medical and dental markets. Monthly transaction processing
fees include charges for electronic processing, statement rendering and mailing,
settling payments, recording account changes and new accounts, leasing and
selling point of sale terminals, telephone and software support services, rental
fees and collecting debts.

In previous filings we have discussed that part of our growth strategy
is to acquire or develop new products or services. We are initiating development
activities in two areas. One is a new program, similar to our Business Manager
accounts receivable financing management product, that will eventually allow
banks to offer commercial insurance products, including property, general
liability and workers compensation, to their business customers in a very
competitive and cost-effective manner. With over 350 large banking organizations
having acquired insurance brokerage firms in recent years, we anticipate that
this product will allow community banks to be more competitive. During the three
months ended September 30, 2002, we executed two contracts with banks to
participate in this program.

Another project is the development of a software product called
LineManager (LM), for commercial banks that would allow them to electronically
monitor their conventional line of credit loans directly from their borrowers
accounting system. The majority of commercial banks do not have the capability
to routinely monitor their collateral for working capital lines of credit. This
fact, along with credit officers and bank regulators expressing concern over the
deteriorating credit conditions in the current

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economy, have led many of our
banking clients to request a product of this type for their secured loans. Our
system, which is currently in beta testing, should allow our client banks to
monitor loans in a manner similar to the way large financial institutions
monitor their asset based loans but on an ASP (Application Service Provider)
basis with no additional labor impact for the bank. Currently, we have executed
contracts with three banks to participate in the beta testing of this new
product.

Results of Operations

The following table sets forth, for the periods indicated, the
percentage relationships of the identified consolidated statements of operations
items to total revenue.

|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |      |      |  
|------------------------------------------------------------ | ------------------------------------------- | -------------------------- | ----- | ------------- | ---- | ------------ | ----- | ----- | ---- | ---- | ----- | --- | ---- | - | ----- | ---- | ---- | -
|                                                             |                                             |                            |       | Third Quarter |      | Year to Date
|                                                             |                                             |                            |       |               |      |             
|                                                             |                                             |                            |       | 2002          |      | 2001         |       | 2002  |      | 2001
|                                                             |                                             |                            |       |               |      |              |       |       |      |     
|Revenue:                                                     |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|                                                             |                                             | Participation fees         |       |               | 66.2 | %            |       |       | 74.5 | %    |       |     | 66.8 | % |       |      | 79.7 | %
|                                                             |                                             | Software license           |       |               | 0.6  | %            |       |       | 1.5  | %    |       |     | 1.0  | % |       |      | 1.8  | %
|                                                             |                                             | Retail planning services   |       |               | 20.3 | %            |       |       | 10.3 | %    |       |     | 18.8 | % |       |      | 4.0  | %
|                                                             |                                             | Maintenance and other      |       |               | 12.9 | %            |       |       | 13.7 | %    |       |     | 13.4 | % |       |      | 14.5 | %
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|                                                             |                                             |                            | 100.0 | %             |      |              | 100.0 | %     |      |      | 100.0 | %   |      |   | 100.0 | %   
|Operating Expenses:                                          |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|                                                             |                                             | General and administrative |       |               | 43.2 | %            |       |       | 39.2 | %    |       |     | 41.3 | % |       |      | 41.3 | %
|                                                             |                                             | Selling and marketing      |       |               | 40.4 | %            |       |       | 39.3 | %    |       |     | 39.1 | % |       |      | 40.8 | %
|                                                             |                                             | Research and development   |       |               | 0.9  | %            |       |       | 3.0  | %    |       |     | 1.2  | % |       |      | 2.4  | %
|                                                             |                                             | Amortization               |       |               | 3.0  | %            |       |       | 2.3  | %    |       |     | 3.2  | % |       |      | 2.3  | %
|                                                             |                                             | Other operating expense    |       |               | 0.5  | %            |       |       | 27.8 | %    |       |     | 0.1  | % |       |      | 11.0 | %
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|                                                             |                                             |                            | 88.2  | %             |      |              | 111.6 | %     |      |      | 84.9  | %   |      |   | 97.8  | %   
|Operating Income (Loss)                                      |                                             |                            | 11.8  | %             |      |              | (11.6 | )%    |      |      | 15.1  | %   |      |   | 2.2   | %   
|Interest expense, net                                        |                                             |                            | 3.0   | %             |      |              | 5.0   | %     |      |      | 3.3   | %   |      |   | 7.0   | %   
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|Income (Loss) Before Income Taxes
and Extraordinary Item     |                                             |                            | 8.8   | %             |      |              | (16.6 | )%    |      |      | 11.8  | %   |      |   | (4.8  | )%  
|Income Tax Provision (Benefit)                               |                                             |                            | 3.4   | %             |      |              | (6.4  | )%    |      |      | 4.6   | %   |      |   | (1.9  | )%  
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|Net Income (Loss) Before
Extraordinary Item                  |                                             |                            | 5.4   | %             |      |              | (10.1 | )%    |      |      | 7.2   | %   |      |   | (2.9  | )%  
|Extraordinary Item: early extinguishment of debt, net of tax |                                             |                            | 0.0   | %             |      |              | 0.5   | %     |      |      | 0.1   | %   |      |   | 0.2   | %   
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|Net Income (Loss)                                            |                                             |                            | 5.4   | %             |      |              | (10.6 | )%    |      |      | 7.1   | %   |      |   | (3.1  | )%  
|Preferred Stock Dividends                                    |                                             |                            | 0.1   | %             |      |              | 0.2   | %     |      |      | 0.2   | %   |      |   | 0.1   | %   
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     
|                                                             | Net Income Available to
Common Shareholders |                            |       | 5.3           | %    |              |       | (10.8 | )%   |      |       | 6.9 | %    |   |       | (3.2 | )%  
|                                                             |                                             |                            |       |               |      |              |       |       |      |      |       |     |      |   |       |     

Participation Fees.Participation fees decreased 22.8% and 10.1% to
$8.7 million and $28.4 million for the third quarter and first nine months of
2002 compared to $11.3 million and $31.5 million for the comparable periods of
2001. The participation fees for the third quarter and first nine months of 2002
include participation fees of approximately $453,000 and $2.0 million from
Towne, respectively. The decreases were primarily due to a reduction in the
total funding through our Business Manager program to $1.3 billion

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and $3.9
billion for the third quarter and first nine months of 2002, compared to $1.4
billion and $4.1 billion for the comparable periods of 2001. Also affecting
participation fees are rate concessions and pricing changes initiated by banks
in response to the current lending environment, particularly the relatively low
cost of traditional financing, as well as, the continued reduction of
Towne participation fees as a result of our strategy to transition
bank customers from Towne Credit and Towne Finance products to the
Business Manager product. We believe the decrease in funding is due to a
combination of two factors; fewer merchants funding through our Business Manager
program and lower funding levels at existing merchants due to the slower
economy. As a percentage of total revenues, participation fees accounted for
66.2% and 66.8% for the three and nine-month periods ended September 30, 2002
compared to 74.5% and 79.7% for the comparable periods of 2001.

Software License. Software license fees decreased 62.9% and 45.4% to
$83,000 and $392,000 for the third quarter and first nine months of 2002,
compared to $223,000 and $719,000 for the comparable periods of 2001. We believe
the decrease was due to several contributing factors, including our continued
focus on marketing more specifically to banks in targeted areas where we wish to
better penetrate and support the small business market. As a result of the
current economic slowdown, we discounted our license fee for the month of March
2002 and September 2002 to $1.00 in order to stimulate our software license
activity. While the promotion reduced software license fees for the first nine
months of 2002, it increased the number of bank license agreements for the first
nine months of 2002. Software license fees accounted for 0.6% and 1.0% of total
revenues for the three and nine months ended September 30, 2002, compared to
1.5% and 1.8% for the comparable periods in 2001, respectively.

Retail planning services. Retail planning services revenues of $2.7
million and $8.0 million is the result of merchandising and forecasting services
performed for our clients during the three and nine months ended September 30,
2002. As a percentage of total revenues, retail planning services accounted for
20.3% and 18.8% for the third quarter and first nine months of 2002, compared to
$1.6 million in the third quarter of 2001. The $1.6 million generated during the
third quarter of 2001 was for the period from August 9, 2001 (acquisition date)
through September 30, 2001.

Maintenance and other. Maintenance and other fees decreased 17.9% and
0.7% to $1.7 million and $5.7 million for the three and nine-month periods ended
September 30, 2002 compared to $2.1 million and $5.7 million for the comparable
periods for 2001. Maintenance and other fees consist primarily of credit and
fraud risk insurance commissions earned form the sale of policies to our
Business Manager banks, processing fees for our processing services provided to
some of our Business Manager banks, commissions earned through our referrals of
certain merchants to alternative financing companies and account verification
services performed for some of our Business Manager banks. The decrease was
primarily attributable to decreases in our insurance revenues and processing
services. Our insurance revenues decreased 7.2% and 4.2% to $868,000 and $2.6
million for the three and nine months of 2002 compared to $936,000 and $2.7
million for the comparable periods in 2001. The decline in insurance revenues is
due to the lower funding levels through the Business Manager program as
discussed above. Our processing services fees decreased 41.6% and 2.7% to
$322,000 and $1.3 million for the three and nine months of 2002 compared to
$552,000 and $1.4

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million for the comparable periods in 2001. The decrease was
primarily the result of some of our bank customers electing to transfer their
processing activities from our processing center back to the bank. Maintenance
and other fees accounted for 12.9% and 13.4% of total revenues for the three and
nine-month periods ended September 30, 2002 compared to 13.7% and 14.5% for the
comparable periods in 2001.

Total revenues. Total revenues for the third quarter and first nine
months of 2002 decreased 13.1% and increased 7.3% to $13.2 million and $42.4
million compared to $15.2 million and $39.6 million for the third quarter and
first nine months of 2001. Total revenues for the third quarter and first nine
months of 2002 include $3.2 million and $10.5 million in revenues related to the
Towne merger. Excluding the new revenues, the decreases were primarily as a
result of decreased participation fees and software license fees.

General and administrative. General and administrative expenses
decreased 4.2% and increased 7.3% to $5.7 million and $17.5 million for the
three and nine-month periods ended September 30, 2002 compared to $5.9 million
and $16.3 million for the comparable periods in 2001. The decrease for the three
months ended September 30, 2002 is primarily due to reductions in salary expense
as a result of reduced headcount and reduced consulting charges. During the
third quarter of 2001, consulting charges were approximately $172,000 higher due
to our implementation of a new operating system. The increase for the first nine
months of 2002 was primarily due to the inclusion of additional general and
administrative expenses related to Towne and RMSA acquired businesses that did
not exist prior to August 9, 2001, the merger date. General and administrative
expenses include the cost of our executive, finance, human resources,
information and support services, administrative functions and general
operations. As a percentage of total revenue, general and administrative
expenses increased 4.6% to 43.2% for the three-month period ended September 30,
2002 compared to the same period in the prior year. For the nine months ended
September 30, 2002 general and administrative expenses remained constant at
41.3% of total revenue.

Selling and marketing. Selling and marketing expenses decreased 10.5%
and increased 2.6% for the three and nine-month periods ended September 30, 2002
to $5.3 million and $16.6 million compared to $6.0 million and $16.1 million for
the three and nine-month periods ended September 30, 2001. The decrease for the
three months ended September 30, 2002 compared to the same period in 2001 was
primarily due to a reduction in sales staff as a result of continued focus on
sales productivity per sales person. This resulted in decreased compensation,
training, and travel expenses. The increase for the nine months ended September
30, 2002 was primarily due to the inclusion of additional selling and marketing
expenses related to Towne and RMSA acquired businesses which occurred in August
of 2001. Therefore the nine months ended September 30, 2001 only includes
approximately two months of Towne and RMSA selling and marketing expenses.
Selling and marketing expenses include the cost of wages and commissions paid to
our dedicated business development and bank sales force, travel costs of our
sales force, recruiting for new sales and marketing personnel and marketing fees
associated with direct and telemarketing programs. As a percentage of total
revenue, selling and marketing expenses increased 2.7% to 40.4% and decreased

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4.2% to 39.1% for the three and nine month periods of 2002 compared to 39.3% and
40.8% for the comparable periods in 2001.

Research and development. Research and development expenses decreased
72.5% and 44.7% to $125,000 and $518,000 for the third quarter of 2002 compared
to $453,000 and $937,000 for the year earlier period. These costs include the
non-capitalizable direct costs associated with developing new versions of our
Business Manager system and other projects that have not yet reached
technological feasibility. The decrease in costs for the third quarter and first
nine months of 2002 was primarily due to more capitalized activity related
primarily to the development and production of the new LineManager product
compared to the same period in 2001. As a percentage of total revenues, research
and development expenses decreased to 0.9% and 1.2% for the three and nine
months of 2002 compared to 3.0% and 2.4% for the same periods in the prior year.

Amortization. Amortization expenses increased 23.1% to $423,000 and
48.6% to $1.4 million for the third quarter and first nine months of 2002
compared to $344,000 and $918,000 for the comparable periods in 2001. These
expenses include the cost of amortizing intangible assets including trademarks,
associated costs of goodwill (only for 2001), software development costs and
debt issuance costs. The increase was primarily related to the increased
activity and capitalization of software development costs in the first half of
2001, which is now being amortized, and amortization of identifiable intangibles
from the Towne acquisition. There was no goodwill amortization recorded in the
first nine months of 2002 in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. The amount of goodwill amortized in the third quarter and
first nine months of 2001 was approximately $52,000 and $156,000, respectively.

Other operating expenses, net. Other operating expenses for the first
nine months of 2002 included a net gain on the sale of certain property and
equipment of approximately $183,000. This gain relates primarily to the sale of
the Companys former headquarters. Excluding the net gain, other operating
expenses were approximately $64,000 and $228,000 for the third quarter and first
nine months of 2002 compared to $4.2 million and $4.4 million for the comparable
periods of 2001. During the third quarter of 2001, the Company decided to
consolidate its business operations into one location in its Technology and
Business Center located in leased space adjacent to its then current
headquarters. As a result, the Company placed its headquarters property for sale
and wrote down the value of the land, building and furniture comprising the
headquarters to their estimated fair value. This resulted in a $4.1 million
charge in other operating expenses during the third quarter of 2001. Other
operating expenses include property tax and other miscellaneous costs associated
with providing support and services to our client banks.

Operating income (loss). As a result of the above factors, our
operating income (loss) increased 188.6% to income of $1.5 million and 643.9% to
income of $6.4 million for the third quarter and first nine months of 2002,
respectively, compared to a loss of $1.7 million and income of $862,000 for the
comparable periods of 2001. As a

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percentage of total revenue, operating income
(loss) increased to 11.8% and 15.1% for the third quarter and first nine months
of 2002 compared to (11.6)% and 2.2% for the same periods in 2001.

Interest expense, net. Interest expense, net decreased 40.0% and 52.8%
to $394,000 and $1.4 million for the three and nine months ended September 30,
2002 compared to $760,000 and $2.8 million for the comparable periods in 2001.
The decrease was primarily due to the reduction of our debt balances in 2001 and
first nine months of 2002 and more favorable interest rates. During the third
and first quarter of 2002, we paid an additional $645,000 and $2.2 million to
reduce our long-term debt using the proceeds from the sale of the RMSA
headquarters and our former headquarters buildings, respectively. During the
third quarter of 2001, we reduced long-term debt by approximately $6.0 million,
over and above our normal debt service, using cash from operations and cash and
cash equivalents acquired through the merger with Towne; the remaining principal
repayments for 2001 of $4.0 million were regularly scheduled payments under our
loan agreement.

Income tax provision (benefit). The income tax provision was
approximately $448,000 and $2.0 million for the three and nine months ended
September 30, 2002 compared to a tax benefits of $976,000 and $740,000 for the
same periods in 2001. As a percentage of income before taxes, the income tax
rate was 39.0% for all periods in both 2002 and 2001.

Extraordinary item. The extraordinary item for the first nine months of
2002 represents the after-tax write-off of a portion of the unamortized debt
issuance costs in the amount of $34,000 and $81,000 for the comparable period of
2001 as a result of paying down approximately $2.2 and $6.0 million in long-term
debt using cash from the sale of the Companys former headquarters and during
2001 using cash from operations and cash equivalents from the merger with Towne.

Liquidity and Capital Resources

Our primary sources of capital have historically been cash provided by
operations, short-term and long-term debt and investment from stockholders.
During the first nine months of 2002 our operating activities provided cash of
approximately $4.0 million. We used approximately $812,000 in our investing
activities, consisting of capital expenditures of $2.2 million, $664,000 of
software development costs, and $845,000 cash used to acquire a business. These
uses were partially offset by proceeds received from the sale of our former
headquarters building and the RMSA headquarters totaling approximately $2.9
million. We currently estimate that total capital expenditures for 2002 will be
approximately $2.5 million.

Cash used in financing activities totaled $5.4 million for the first
nine months of 2002, which is the result of $6.6 million in repayments of
long-term debt and capitalized lease obligations, $2.2 million of which was
repaid using cash acquired through the sale of the Companys former headquarters
and RMSA headquarters, partially offset by

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proceeds from short-term borrowings
totaling $1.0 million, the exercise of employer stock options and the employee
stock purchase plan.

The credit facility is secured by a pledge of all of our assets and
imposes financial covenants and requirements on us and contains limitations on
our ability to sell material assets, redeem capital stock and pay dividends,
among other actions. On March 18, 2002, the Company entered into an amendment to
its credit facility. The amendment modified certain restrictive financial
covenants for the first three quarters of 2002. As of September 30, 2002 we were
in default of the minimum rolling four quarters EBITDA covenant. We have
obtained a waiver of this covenant default as of September 30, 2002 and have
also obtained an amendment to our credit agreement to modify certain restrictive
financial covenants for the fourth quarter of 2002 and each quarter
of 2003. The amendment also includes reductions in revolving credit
availability and capital expenditure levels for future periods, as
well as, an increase to the interest rate margin grid of 25 basis
points on all outstanding debt obligations. In effect, the Company
will pay higher interest rates on its outstanding debt until its
leverage ratio declines to specified levels at which time the
interest rate margin grid returns to the margins in effect prior to
this latest amendment.

The credit facility includes term loans with balances as of September
30, 2002 of $10.0 million and $19.8 million, and also
provided for a revolving
line of credit in the amount of $7.5 million, including a $3.0 million sublimit
for swing line advances and a $2.0 million sublimit for standby letters of
credit. Availability on the revolving line of credit was reduced to
$5.0 million as part of the amendment executed on November 19, 2002. There was $950,000 outstanding on the revolving line of credit, $100,000
on the swing line advance and $620,000 in stand-by letters of credit at
September 30, 2002. The credit facility bears interest in accordance with a grid
pricing formula based on the achievement of various financial ratios. The
formula calls for advances to bear interest ranging from 1.25% to 2.75% above
prime rate or 2.50% to 4.00% above the Eurodollar rate. The $100,000 of swing
line advance was repaid on October 3, 2002.

The $10.0 million loan is generally repayable in quarterly installments
of $1.2 million until September 30, 2003 and $1.3 million until maturity (August
7, 2004). The $19.8 million loan is repayable in equal quarterly installments of
$66,130 until December 31, 2004, at which time the required quarterly payments
increase to $3.0 million until September 30, 2005 and $3.9 million until
December 31, 2005 with a final payment of $3.4 million due March 31, 2006. The
revolver has an annual commitment fee and matures August 7, 2004. As of
September 30, 2002, we had $10.0 million outstanding at 4.59%, $19.8 million
outstanding at 5.09%, $950,000 in short-term borrowing outstanding at 6.25%,
$100,000 in swing line advances at 6.25% and $620,000 in outstanding letters of
credit.

As of September 30, 2002, we had a working capital deficit of approximately
$2.7 million compared to a working capital deficit of approximately $3.3 million
as of December 31, 2001. The improvement in working capital resulted primarily
from decreases in accounts payable, accrued liabilities and deferred revenue
partially offset by decreases in cash, deferred tax assets and the increase in
outstanding short-term borrowings. We believe that our line of credit
availability along with future operating cash flows will be sufficient to meet
our working capital and capital expenditure requirements for the next twelve
months.

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The following is a schedule of our
obligations and commitments for future payments:

|                                    |  |                        |        |        |  |           |       |       |  |         |       |         |  |   |        |  |  |   |        | 
|----------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | ----- |  | ------- | ----- | ------- |  | - | ------ |  |  | - | ------ | 
|(in thousands)                      |  | Payments Due by Period |        |        |  |          
|                                    |  |                        |        |        |  |          
|                                    |  |                        |        |        |  | Less than |       | 1-2   |  | 3-4     |       | 4 years
|Contractual Obligations             |  | Total                  |        | 1 year |  | years     |       | years |  | & after
|                                    |  |                        |        |        |  |           |       |       |  |        
|Short-Term Borrowings               |  | $                      | 1,050  |        |  | $         | 1,050 |       |  | $       | 0     |         |  | $ | 0      |  |  | $ | 0      | 
|Long-Term Debt                      |  | $                      | 29,821 |        |  | $         | 5,023 |       |  | $       | 5,552 |         |  | $ | 11,903 |  |  | $ | 7,343  | 
|Capitalized Lease Obligations       |  | $                      | 584    |        |  | $         | 356   |       |  | $       | 228   |         |  | $ | 0      |  |  | $ | 0      | 
|Operating Leases                    |  | $                      | 10,247 |        |  | $         | 1,868 |       |  | $       | 1,734 |         |  | $ | 1,305  |  |  | $ | 5,340  | 
|                                    |  |                        |        |        |  |           |       |       |  |         |       |         |  |   |        |  |  |   |        | 
|Total Contractual Cash Obligations  |  | $                      | 41,702 |        |  | $         | 8,297 |       |  | $       | 7,514 |         |  | $ | 13,208 |  |  | $ | 12,683 | 
|Standby Letter of Credit Commitment |  | $                      | 620    |        |  | $         | 620   |       |  | $       | 0     |         |  | $ | 0      |  |  | $ | 0      | 

We may, in the future, acquire businesses or products complementary to
our business, although we cannot be certain that any such acquisitions will be
made. The need for cash to finance additional working capital or to make
acquisitions may cause us to seek additional equity or debt financing. We cannot
be certain that such financing will be available, or that our need for higher
levels of working capital will not have a material adverse effect on our
business, financial condition or results of operations.

New Accounting Pronouncements

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets(SFAS No. 142). SFAS No. 142 supercedes Accounting
Principles Board Opinion No. 17, Intangible Assets, and addresses how intangible
assets and goodwill should be accounted for and upon and after their
acquisition. Specifically, goodwill and intangible assets with indefinite useful
lives will not be amortized, but will be subject to impairment tests based on
their estimated fair value. Upon adoption, the Company ceased amortization of
goodwill totaling $4.1 million, which was previously being amortized over a
20-year period. For the quarter and nine months ended September 30, 2002, this
resulted in a reduction of amortization expense of approximately $52,000 and
$156,000, respectively. The recorded goodwill will be subject to annual
impairment evaluations by the Company, which could result in possible
write-downs in future periods if impairments are determined. The Company has
completed the transitional goodwill impairment reviews required by SFAS No. 142
as of June 30, 2002. The results of the Companys evaluation did not indicate
that any of the goodwill recorded has been impaired.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement replaces SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. However, it retains the fundamental provisions of SFAS
No. 121 for recognition and measurement of the impairment of long-lived assets
to be held and used and for measurement of long-lived assets to be disposed of
by sale. This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair

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value less cost to sell, whether reported in continuing operations or in
discontinued operations. The Company was required to adopt this statement on
January 1, 2002, which did not have any impact on its results of operations,
financial position and cash flows.

In August of 2002, the FASB issued SFAS No. 145, Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement rescinds Statement No. 4, which required all
material gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of related income tax effects. Upon adoption of this
statement, extinguishment gains and losses will be classified as ordinary gains
and losses in the income statement. The statement is effective for fiscal years
beginning after May 15, 2002, resulting in it being effective for the Company on
January 1, 2003. The Company does not expect adoption of this statement to have
any impact on its results of operations, financial position and cash flows,
however, certain extinguishment losses reflected as extraordinary items in prior
periods will be reclassified to ordinary expenses.

Note Regarding Forward Looking Information

This interim report contains several forward-looking statements
concerning our operations, prospects, strategies and financial condition,
including our future economic performance, intent, plans and objectives, and the
likelihood of success in developing and expanding our business. These statements
are based upon a number of assumptions and estimates which are subject to
significant uncertainties, many of which are beyond our control. Words such as
may, would, could, will, expect, anticipate, believe, intend,
plan, and estimate are meant to identify such forward-looking statements.
Actual results may differ materially from those expressed or implied by such
forward-looking statements. The Company assumes no obligation to update this
information. Factors that could cause actual results to differ materially are
discussed in our filings with the Securities and Exchange Commission, including
our Annual Report on Form 10-K for the year ended December 31, 2001, and
include, among other factors, the timely development and market acceptance of
products and technologies and competitive market conditions.

Inflation

We do not believe that inflation has had a material effect on our
results of operation. There can be no assurance, however, that our business will
not be affected by inflation in the future.




Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk from exposure to changes in
interest rates based on our financing and cash management activities. Our
exposure relates primarily to our long-term debt obligations that expire in 2004
and 2006. In the event that interest

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rates associated with these debt obligations were to increase 100 basis points,
the annual impact on future cash flows would be approximately $308,000.




Item 4.  Disclosure Controls and Procedures

As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of the Companys management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that evaluation, the
Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were satisfactory as of September 30, 2002.
There have been no significant changes in the Companys internal disclosure
controls or in other factors that could significantly affect internal disclosure
controls subsequent to September 30, 2002.




PART II  Other Information




Item 1. Legal Proceedings

As a result of the merger with Towne, we assumed certain outstanding
litigation against Towne. Except for the lawsuits described below, we are not
currently a party to, and none of our material properties is currently subject
to, any material litigation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     As previously disclosed, Towne, two of its former officers and a current
officer are defendants in a securities class action lawsuit filed in
November 1999. No class has yet been certified. The complaints allege,
among other things, that Towne should have disclosed in the prospectus used
for its secondary public offering in June 1999 that it allegedly
experienced serious problems with its network infrastructure and processing
facilities during the move of its corporate headquarters in June 1999, and
that these problems allegedly led to a higher than usual number of
customers terminating their contracts during the second quarter. The
Parties reached a Settlement Agreement on July 29, 2002 at informal
settlement negotiations in Atlanta and anticipate filing a Memorandum of
Understanding with the Court after final approval by the insurance
carriers. The Settlement Agreement will also need final approval by the
Court, and counsel for Defendants estimate it will take a minimum of twelve
months for the Court to approve all substantive issues related to the
class-action settlement.
|
| | 2.     Another lawsuit arises out of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI
Acquisition Corp., in December 1998. Plaintiff Edward Sullivan, Jr. was
employed by BSI. Sullivan alleges, among other things, that he had a
buy-out agreement with BSI and certain BSI shareholders under which, in
certain circumstances, Sullivan was to receive a commission based on the
gross sales price paid by any purchaser of BSI. Sullivan contends that BSI
and the other shareholders allegedly fraudulently induced him to release
them from the agreement by fraudulently misrepresenting the gross sales
price paid by Towne Services subsidiary in the stock purchase. Sullivan
contends that Towne Services is liable to him as the successor to BSI, and
also for allegedly                                                                                                                                                                                                                                                                                         

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | tortiously interfering with the agreement. Sullivan also contends Towne Services
conspired with the other defendants to misrepresent the gross purchase price.
We deny all allegations of the petition. Mr. Sullivan and his wife seek an
unspecified amount of damages including a percentage of the gross sales price
paid by Towne Services subsidiary for the acquisition of BSI, as well as
punitive damages, attorneys fees, and pre-judgment and post-judgment interest.
On July 15, 2002, the District Court of Collin County, Texas granted our motion
for summary judgment on all claims. The Plaintiffs failed to exercise any right
to appeal.. We contend that we are entitled to indemnification from the BSI
shareholders for our expenses in defending this action. Specifically, the BSI
stock purchase agreement provides that the BSI shareholders will indemnify us
against any claims, damages, liabilities, costs and expenses (including
reasonable attorneys and accountants fees and expenses) we suffer that arise
out of any breach of the representations made by BSI in the agreement, provided
that the aggregate amount of all such claims, etc. exceeds $100,000. It is
anticipated that legal action will ensue to enforce the provisions of the
indemnification clause of the BSI stock purchase agreement.                         
|
| | 3.      Towne Services, Inc. has also sought relief in the U.S. District Court, Southern District of Mississippi in a companion case. Towne Services, Inc.,
and Banking Solutions, Inc. v. The Merchants Financial Services Group, LLC d/b/a Merchants Financial Services; AmFed Companies, LLC; Clipper
Technologies, LLC; The Clipper Group, Inc.; and Prominent Technologies, LLC. This case was filed on July 24, 2001, and is an action for copyright
infringement under the Copyright Act of 1976, 17 U.S.C. § 101, et seq., and related claims of misappropriation of trade secrets and tortuous
interference with contractual relations. The suit alleges that former customers of Towne Services (a Mississippi bank and an affiliated insurance
company) have developed and are using and marketing a software program, A/R Navigator, that is an improper copy of and a misappropriation of trade
secrets in the Companys Cash Flow Manager. It also alleges that several former employees of the Company (the Clipper Group) are marketing the copied
service to banks including customers of the Company. Towne Services, Inc. has requested an independent comparison of the Cash Flow Manager software and
the A/R Navigator software. At this point, it is anticipated that settlement negotiations between the parties will commence by December 31, 2002.

The Company is subject to various other legal proceedings, tax matters and other
claims which arise in the ordinary course of business. In the opinion of
management, the amount of any ultimate liability with respect to these actions
will not materially affect the financial position of results of operations of
the Company.

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Item 6. Exhibits and Reports on Form 8-K



| |             
| | ------------
| | (a) Exhibits

| |  |        |  |                                                                                                                                           
| |  | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3.1 -  |  | Amended and Restated Charter of the Company (incorporated by
reference to exhibit 3.1 to the Companys registration statement
on Form S-1)
| |  |        |  |                                                                                                                                           
| |  | 3.2 -  |  | Amended and Restated By-laws of the
Company (incorporated by reference to
exhibit 3.2 to the Companys registration
statement on Form S-1)
| |  |        |  |                                                                                                                                           
| |  | 10.4.8 |  | Amendment No.
8 to Credit Agreement - November 19, 2002                                                                                   
| |  |        |  |                                                                                                                                           
| |  | 99.1 - |  | Certificate of CEO and CFO pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002          



| |                        
| | -----------------------
| | (b) Reports on Form 8-K

|                                                                                                  
|--------------------------------------------------------------------------------------------------
|No reports on Form 8-K were filed by the Company
during the three months ended September 30, 2002.

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1.     Signatures

Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

|      |  |                   |  |                                              
|----- |  | ----------------- |  | ---------------------------------------------
|      |  |                   |  | Private Business, Inc.     
(Registrant)     
|      |  |                   |  |                                              
|      |  |                   |  |                                              
|Date: |  | November 19, 2002 |  | By: /s/ Thomas L. Black                      
|      |  |                   |  |                                              
|      |  |                   |  | Thomas L. Black
Chief Executive Officer      
|      |  |                   |  |                                              
|      |  |                   |  |                                              
|Date: |  | November 19, 2002 |  | By: /s/ Gerard M. Hayden, Jr.                
|      |  |                   |  |                                              
|      |  |                   |  | Gerard M. Hayden, Jr.
Chief Financial Officer

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CERTIFICATIONS

I, Thomas L. Black, certify that:

|   |  |                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this quarterly report on Form 10-Q of Private Business Inc.;                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                               
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
|   |  |                                                                                                                                                                                                                                                                                                                               
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;                   
|   |  |                                                                                                                                                                                                                                                                                                                               
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:                                                                                                        

| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | designed such disclosure controls and procedures
to ensure that material information relating to
the registrant, including its consolidated
subsidiaries, is made known to us by others
within those entities, particularly during the
period in which this quarterly report is being
prepared;
| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                        

|   |  |                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
functions):

|   |  |                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrants ability to
record, process, summarize and report financial
data and have

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|   |  |                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | identified for the registrants
auditors any material weaknesses in internal
controls; and                                                            
|  
|b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and

|   |  |                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 19, 2002

|                                                              
|--------------------------------------------------------------
|By: /s/ Thomas L. BlackThomas L. Black
Chief Executive Officer

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CERTIFICATIONS

I, Gerard M. Hayden, Jr., certify that:

|   |  |                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this quarterly report on Form 10-Q of Private Business Inc.;                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                               
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
|   |  |                                                                                                                                                                                                                                                                                                                               
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;                   
|   |  |                                                                                                                                                                                                                                                                                                                               
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:                                                                                                        

| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | designed such disclosure controls and procedures
to ensure that material information relating to
the registrant, including its consolidated
subsidiaries, is made known to us by others
within those entities, particularly during the
period in which this quarterly report is being
prepared;
| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
| |  |    |  |                                                                                                                                                                                                                                                                                                
| |  | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                        

|   |  |                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
functions):

| |  |    |  |                                                                                                                                      
| |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrants ability to

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##### Table of Contents



| |  |    |  |                                                                                                                                                         
| |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |  | record, process, summarize and report financial
data and have identified for the registrants
auditors any material weaknesses in internal
controls; and
| |  |    |  |                                                                                                                                                         
| |  | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and  

|   |  |                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

Date:  November 19, 2002

|                                                                          
|--------------------------------------------------------------------------
|By: /s/ Gerard M. Hayden, Jr.Gerard M. Hayden, Jr.
Chief Financial Officer

33