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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 March 31, 2003

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
    
    (I.R.S. Employerincorporation or organization)
    
    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.

Yes   [x]    No   [  ]

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

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

Class
    
    Outstanding as of April 30, 2003Common Stock, no par value
    
    14,087,397shares


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TABLE OF CONTENTS



|                                                  |                                                                                                  |                                                        |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------------------ |  |  |  |  |  | 
|Part 1 Financial Information                     
|                                                  | Item 1. Financial Statements                                                                    
|                                                  |                                                                                                  | CONSOLIDATED BALANCE SHEETS  UNAUDITED               
|                                                  |                                                                                                  | CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED     
|                                                  |                                                                                                  | CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED     
|                                                  |                                                                                                  | Notes to Consolidated Financial Statements  Unaudited
|                                                  | Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | 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                                   
|Ex-10.0 Employment Agreement with Peter S. Scully
|Ex-99.1 Section 906 Certification of the CEO     
|Ex-99.2 Section 906 Certification of the CFO     



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PRIVATE BUSINESS, INC.

Form 10-Q

For Quarter Ended March 31, 2003

INDEX

Page No.Part I  Financial InformationItem 1 
    
    Financial StatementsUnaudited Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002
    
    
    3Unaudited Consolidated Statements of
Operations for the three months ended March 31,
2003 and 2002
    
    
    4Unaudited Consolidated Statements of
Cash Flows for the three months ended March 31,
2003 and 2002
    
    
    5Notes to Unaudited Consolidated
Financial Statements
    
    
    6 -12Item 2 
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    13 - 23Item 3 
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    23Item 4 
    
    Disclosure Controls and Procedures
    
    
    23Part II  Other InformationItem 1 
    
    Legal Proceedings
    
    
    24 - 25Item 6 
    
    Exhibits and Reports on Form 8-K
    
    
    26Signatures
    
    
    27Certifications
    
    
    28 - 31


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Part 1
Financial Information




Item 1.   Financial Statements

PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS  UNAUDITED


March 31,
    
    December 31,(in thousands, except per share data)
    
    2003
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    971
    
    
    $
    1,146Accounts receivable  trade, net of allowance for doubtful accounts of
$444 and $632, respectively
    
    
    6,223
    
    
    
    6,726Accounts receivable  other
    
    
    185
    
    
    
    420Deferred tax assets
    
    
    1,226
    
    
    
    1,009Prepaid and other current assets
    
    
    1,428
    
    
    
    1,613Total current assets
    
    
    10,033
    
    
    
    10,914PROPERTY AND EQUIPMENT, NET
    
    
    5,791
    
    
    
    6,468OTHER ASSETS:Software development costs, net
    
    
    1,425
    
    
    
    1,456Deferred tax assets
    
    
    2,133
    
    
    
    2,252Intangible and other assets, net
    
    
    12,006
    
    
    
    12,211Total other assets
    
    
    15,564
    
    
    
    15,919Total assets
    
    $
    31,388
    
    
    $
    33,301LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    2,141
    
    
    $
    2,039Accrued liabilities
    
    
    5,392
    
    
    
    5,718Dividends payable
    
    
    615
    
    
    
    575Deferred revenue
    
    
    478
    
    
    
    470Current portion of long-term debt and capital lease obligations
    
    
    5,576
    
    
    
    5,463Total current liabilities
    
    
    14,202
    
    
    
    14,265REVOLVING LINE OF CREDIT
    
    
    950
    
    
    
    950OTHER NONCURRENT LIABILITIES
    
    
    436
    
    
    
    623LONG-TERM DEBT, net of current portion
    
    
    21,815
    
    
    
    23,190CAPITAL LEASE OBLIGATIONS, net of current portion
    
    
    59
    
    
    
    148Total liabilities
    
    
    37,462
    
    
    
    39,176COMMITMENTS AND CONTINGENCIESPREFERRED STOCK, series B convertible, no par value; 20,000,000
shares authorized, 40,031 shares issued and outstanding
    
    
    114
    
    
    
    114STOCKHOLDERS DEFICIT:Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,064,008 and 14,047,253, respectively
    
    
    0
    
    
    
    0Additional paid-in capital
    
    
    (7,174
    )
    
    
    (7,195
    )Retained earnings
    
    
    986
    
    
    
    1,206Total stockholders deficit
    
    
    (6,188
    )
    
    
    (5,989
    )Total liabilities and stockholders deficit
    
    $
    31,388
    
    
    $
    33,301


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 March 31, 2003 and 2002


(in thousands, except per share data)
    
    2003
    
    2002REVENUES:Participation fees
    
    $
    7,061
    
    
    $
    9,929Software license
    
    
    76
    
    
    
    132Retail planning services
    
    
    2,358
    
    
    
    2,745Maintenance and other
    
    
    1,571
    
    
    
    1,814Total revenues
    
    
    11,066
    
    
    
    14,620OPERATING EXPENSES:General and administrative
    
    
    5,635
    
    
    
    6,178Selling and marketing
    
    
    4,664
    
    
    
    5,783Research and development
    
    
    238
    
    
    
    251Amortization
    
    
    425
    
    
    
    352Other operating expense, net
    
    
    44
    
    
    
    (44
    )Total operating expenses
    
    
    11,006
    
    
    
    12,520OPERATING INCOME
    
    
    60
    
    
    
    2,100INTEREST EXPENSE, NET
    
    
    352
    
    
    
    495INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (292
    )
    
    
    1,605Income tax provision (benefit)
    
    
    (114
    )
    
    
    626NET INCOME (LOSS)
    
    
    (178
    )
    
    
    979Preferred stock dividends
    
    
    40
    
    
    
    40NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS
    
    $
    (218
    )
    
    $
    939EARNINGS (LOSS) PER SHARE:Basic
    
    $
    (0.02
    )
    
    $
    0.07Diluted
    
    $
    (0.02
    )
    
    $
    0.07WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:Basic
    
    
    14,064
    
    
    
    13,954Diluted
    
    
    14,064
    
    
    
    14,267


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 Three Months Ended March 31, 2003 and 2002


(in thousands)
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (178
    )
    
    $
    979Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Write-off of debt issuance costs
    
    
    0
    
    
    
    34Depreciation and amortization
    
    
    1,148
    
    
    
    1,123Deferred taxes
    
    
    (98
    )
    
    
    1,702Non-cash stock based compensation
    
    
    0
    
    
    
    46Gain on sale of certain property and equipment, net
    
    
    0
    
    
    
    (183
    )Changes in assets and liabilities:Accounts receivable
    
    
    738
    
    
    
    70Prepaid and other current assets
    
    
    185
    
    
    
    (850
    )Other assets
    
    
    18
    
    
    
    32Accounts payable
    
    
    102
    
    
    
    (524
    )Accrued liabilities
    
    
    (326
    )
    
    
    (2,319
    )Deferred revenue
    
    
    8
    
    
    
    54Other noncurrent liabilities
    
    
    (187
    )
    
    
    (183
    )Net cash provided by (used in) operating activities
    
    
    1,410
    
    
    
    (19
    )CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (46
    )
    
    
    (876
    )Software development costs
    
    
    (210
    )
    
    
    (170
    )Proceeds from sale of property and equipment
    
    
    0
    
    
    
    2,201Net cash provided by (used in) investing activities
    
    
    (256
    )
    
    
    1,155CASH FLOWS FROM FINANCING ACTIVITIES:Repayments on long-term debt
    
    
    (1,244
    )
    
    
    (1,223
    )Repayments on capitalized lease obligations
    
    
    (106
    )
    
    
    (96
    )Early extinguishment of long-term debt
    
    
    0
    
    
    
    (2,188
    )Proceeds from revolving line of credit, net
    
    
    0
    
    
    
    1,400Proceeds from exercise of employee stock options
    
    
    0
    
    
    
    10Stock issued through employee stock purchase plan
    
    
    21
    
    
    
    20Net cash used in financing activities
    
    
    (1,329
    )
    
    
    (2,077
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (175
    )
    
    
    (941
    )CASH AND CASH EQUIVALENTS at beginning of year
    
    
    1,146
    
    
    
    2,648CASH AND CASH EQUIVALENTS at end of period
    
    $
    971
    
    
    $
    1,707SUPPLEMENTAL CASH FLOW INFORMATION:Cash payments for income taxes during period
    
    $
    100
    
    
    $
    34Cash payments of interest during period
    
    $
    352
    
    
    $
    502


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

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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, 2002.

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 significant accounting policies include revenue recognition,
self-insurance reserves (2002 only) and software development costs. Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2002
for a more detailed description of these accounting policies.

Stock-Based Compensation

The Company has elected to account for its stock-based compensation plans
under the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
and does not utilize the fair value method. However, the Company has adopted
the disclosure requirements of SFAS No. 123, and has adopted the additional
disclosure requirements as specified in SFAS No. 148, Accounting For
Stock-Based Compensation  Transition and Disclosure.

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The following table illustrates the effect on net income (loss) available
to common shareholders and earnings (loss) per share if the fair value based
method had been applied to all outstanding and unvested awards for the
three-month periods ended March 31, 2003 and 2002, respectively.

(in thousands, except per share data)
    
    2003
    
    2002Net income (loss) available to common
shareholders, as reported
    
    $
    (218
    )
    
    $
    939Add: Stock-based employee compensation expense
included in reported net income (loss), net of
related tax effects
    
    
    0
    
    
    
    28Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (177
    )
    
    
    (229
    )Pro forma net loss
    
    $
    (395
    )
    
    $
    (738
    )


2003
    
    2002Earnings (loss) per share:Basicas reported
    
    $
    (0.02
    )
    
    $
    0 .07Basicpro forma
    
    $
    (0.03
    )
    
    $
    (0.05
    )Dilutedas reported
    
    $
    (0.02
    )
    
    $
    0.07Dilutedpro forma
    
    $
    (0.03
    )
    
    $
    (0.05
    )


C.    Reclassifications

Certain prior period amounts have been reclassified to conform with
current period presentation.

D.    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.

E.    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

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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.

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 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.

The following table represents information necessary to calculate earnings
per share for the three-month periods ended March 31, 2003 and 2002:

Three Months Ended March 31,(in thousands)
    
    2003
    
    2002Net income (loss) available to common shareholders
    
    $
    (218
    )
    
    $
    939Weighted average common shares outstanding
    
    
    14,064
    
    
    
    13,954Plus additional shares from common stock equivalent shares:Options and convertible preferred stock
    
    
    0
    
    
    
    313Adjusted weighted average common shares outstanding
    
    
    14,064
    
    
    
    14,267


For the three months ended March 31, 2003 and 2002, approximately 2.1
million and 2.0 million employee stock options and the preferred shares 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 months ended March 31, 2003 and
2002 was comprised solely of net income (loss).

H.    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 March 31, 2003, the Company was in
compliance with all such covenants.

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I.    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 other than routine litigation incidental to our
business.

In Re Towne Services, Inc./Securities Litigation

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 in the District Court of Georgia, Atlanta Division. The complaints
alleged, 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 Complaint seeks an
unspecified amount of damages. Towne and its officers answered, denying
liability. The parties reached a tentative settlement, which is subject to
certain conditions including court approval, and which is memorialized in a
Memorandum of Understanding signed January 17, 2003. Counsel for plaintiffs
agreed to dismiss all claims and release all defendants for a negotiated
settlement amount which will be funded by Townes directors and officers
insurance carrier and Towne. The settlement funds were placed in escrow on
February 21, 2003. Counsel for defendants estimate it will take a minimum of
six months for the court to approve the class-action settlement. The parties
also continue to pursue the question as to whether the carrier will also pay
the cost of defense, including the attorneys fees incurred by Towne, as
provided by the underlying insurance policy.

Edward H. Sullivan, Jr. and Lisa Sullivan v. Towne Services, Inc.

(Towne Services, Inc. as the successor to Banking Solutions, Inc., Bane
Leasing.Com, Inc., the successor to BSI Capital Funding, Inc., Moseley &
Standerfer, P.C., David R. Frank, Don G. Shafer, and Shannon W. Webb)

This lawsuit was the result of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI Acquisition
Corp. This lawsuit was filed in December 1998 in the District Court of Collin
County, Texas. 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s subsidiary in the stock
purchase. Sullivan contends that Towne is liable to him as the successor to
BSI, and also for allegedly tortiously interfering with the agreement. Sullivan
also contends Towne conspired with the other defendants to misrepresent the
gross purchase price. The District Court of Collin County, Texas granted
Townes Motion for Summary

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Judgment on all claims. The Order was entered on
July 15, 2002. PBI has sought indemnification from the BSI shareholders for its
expenses in defending this action based on the provisions of the BSI stock
purchase agreement.

Towne Services, Inc. v. Clipper, et al.

As previously reported, Towne filed an action against six former BSI sales
representatives and The Clipper Group, a company founded by one or more of
former BSI sales representatives, on April 24, 2001 in the 277th District Court
of Williamson County, Texas. Towne contends that the defendants formed a
competing company, and are marketing a competing product, to Townes bank
customers, in violation of the named individuals employment contracts, and in
particular, in violation of trade secret and confidentiality provisions and
non-solicitation of customer and employee provisions contained in those
contracts. The parties have reached a settlement agreement in this matter, and
executed the final settlement agreement on September 30, 2002. The pending
claims were dismissed by agreement of the parties.

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.

J.    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.No
corporate overhead costs or interest have been allocated to income (loss)
before taxes of the retail inventory forecasting segment, but are included in
the accounts receivable financing segment costs. Additionally, $1.5 million of
goodwill associated with the Towne merger has been allocated to the retail
inventory forecasting segment and is therefore included in the segments total
assets.

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The following table summarizes the financial information concerning the
Companys reportable segments from continuing operations for the three months
ended March 31, 2003 and 2002.

Three Months Ended
    
    Three Months EndedMarch 31, 2003
    
    March 31, 2002Accounts
    
    Retail
    
    
    
    
    
    Accounts
    
    RetailReceivable
    
    Inventory
    
    
    
    
    
    Receivable
    
    InventoryFinancing
    
    Forecasting
    
    Total
    
    Financing
    
    Forecasting
    
    Total(in thousands)Revenues
    
    $
    8,708
    
    
    $
    2,358
    
    
    $
    11,066
    
    
    $
    11,875
    
    
    $
    2,745
    
    
    $
    14,620Income (loss)
before taxes
    
    $
    (405
    )
    
    $
    113
    
    
    $
    (292
    )
    
    $
    1,183
    
    
    $
    422
    
    
    $
    1,605Assets
    
    $
    26,215
    
    
    $
    5,173
    
    
    $
    31,388
    
    
    $
    32,485
    
    
    $
    5,022
    
    
    $
    37,507Total expenditures
for additions to
long-lived assets:
    
    $
    46
    
    
    $
    0
    
    
    $
    46
    
    
    $
    876
    
    
    $
    0
    
    
    $
    876


K.    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.

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 SFAS No. 142 during June of 2002
and its annual impairment test as of December 31, 2002. Based on the Companys
evaluations, there were no impairments of goodwill as of January 1, 2002 or
December 31, 2002.

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 early adopted this statement during
December 2002, which did not have a material impact on the Companys financial
position or results of operations. However, certain debt extinguishment losses
that had previously been reflected as extraordinary items were reclassified to
ordinary expenses.

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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities,requiring that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146, which applies to all entities, is
effective for exit or disposal activities that are initiated after December 31,
2002. The Company expects that the adoption of SFAS No. 146 during fiscal 2003
will not materially impact the Companys financial position or results of
operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure,which amends SFAS No. 123. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123 to require more prominent
and more frequent disclosures in financial statements about the effects of
stock-based compensation. SFAS No. 148 is effective for financial statements
issued for fiscal years ending after December 15, 2002, and interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company adopted this
statement on January 1, 2003 and has included the required interim disclosures
elsewhere in this document.

At the November 21, 2002 Emerging Issues Task Force (EITF) meeting, the
Task Force reached a consensus in Issue 00-21, Multiple-Deliverable Revenue
Arrangements, which addresses how to account for arrangements that may involve
the delivery or performance of multiple products, services, or rights to use
assets, other than those arrangements accounted for under other more specific
literature. The final consensus will be applicable to agreements entered into
in fiscal periods beginning after June 15, 2003 with early adoption permitted.
Additionally, companies will be permitted to apply the consensus guidance to
all existing arrangements as the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes. The
Company expects that adoption of this new consensus will not have a material
effect on the Companys financial position or results of operations.

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PRIVATE BUSINESS, INC.




Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended March 31, 2003 and 2002


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 BusinessManager, and is based on software,
marketing, and online electronic transaction processing services. One element
of BusinessManager 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 BusinessManager 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.

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 BusinessManager
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.

Another new product that was developed in 2002 called LineManager (LM),
is for commercial banks that allows 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
electronically 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 economy, have led many
of our banking clients to request a product of this type for their secured
loans. Our system 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.

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Critical Accounting Policies and Estimates

Managements Discussion and Analysis of Financial Condition and Results of
Operations are based upon the Companys consolidated financial statements. The
preparation of these consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. On an on-going basis, management evaluates its critical
accounting policies and estimates.

In December 2001, the Securities and Exchange Commission (SEC) requested
that all registrants list their three to five critical accounting policies in
the text of Managements Discussion and Analysis of Financial Condition and
Results of Operations. The SEC indicated that a critical accounting policy
is one that is both important to the understanding of the financial condition
and results of operations of the Company and requires managements most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Management believes the following accounting policies fit this definition:

Revenue Recognition. 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 BusinessManager 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 BusinessManager 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

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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.

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
BusinessManager 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 BusinessManager 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.

Software Development Costs.Software development costs incurred in the
research and development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility has
been established. After such time, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed.Capitalized software development costs are amortized on a
straight-line basis over three years.

Self-Insurance Reserves.Prior to January 1, 2003, the Company was
primarily self-insured for employee medical costs with certain limits of per
claim and aggregate stop loss insurance coverage that management considers
adequate. The Company maintains an accrual for these costs based on claims
filed and an estimate of claims incurred but not reported. The difference
between actual settlements and recorded

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accruals are expensed in the period
identified. The Company was self-insured for employee medical claims up to
$40,000 per employee per year or an aggregate of approximately $11 million per
year. Effective January 1, 2003 the Company ceased being self-insured for
medical costs.

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.

First Quarter2003
    
    2002Revenues:Participation fees
    
    
    63.8
    %
    
    
    67.9
    %Software license
    
    
    0.7
    %
    
    
    0.9
    %Retail planning services
    
    
    21.3
    %
    
    
    18.8
    %Maintenance and other
    
    
    14.2
    %
    
    
    12.4
    %100.0
    %
    
    
    100.0
    %Operating Expenses:General and administrative
    
    
    50.9
    %
    
    
    42.3
    %Selling and marketing
    
    
    42.1
    %
    
    
    39.6
    %Research and development
    
    
    2.2
    %
    
    
    1.7
    %Amortization
    
    
    3.8
    %
    
    
    2.4
    %Other operating expense, net
    
    
    0.4
    %
    
    
    (0.3
    )%99.4
    %
    
    
    85.7
    %Operating Income
    
    
    0.6
    %
    
    
    14.3
    %Interest expense, net
    
    
    3.2
    %
    
    
    3.4
    %Income (Loss) Before Income Taxes
    
    
    (2.6
    )%
    
    
    10.9
    %Income Tax Provision (Benefit)
    
    
    (1.0
    )%
    
    
    4.2
    %Net Income (Loss)
    
    
    (1.6
    )%
    
    
    6.7
    %Preferred Stock Dividends
    
    
    0.4
    %
    
    
    0.3
    %Net Income (Loss) Available to
Common Shareholders
    
    
    (2.0
    )%
    
    
    6.4
    %


Participation Fees.Participation fees decreased 28.9% to $7.1 million
for the first three months of 2003 compared to $9.9 million for the comparable
period of 2002. The decreases were primarily due to a reduction in the total
funding through our BusinessManager program to $1.1 billion for the first three
months of 2003, compared to $1.3 billion for the comparable period of 2002.
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. The decrease in funding is
due to a combination of two factors; fewer merchants funding through our
BusinessManager program and lower funding levels at existing merchants due to
the slower economy. As a percentage of total revenues, participation fees
accounted for 63.8% for the three-month period ended March 31, 2003 compared to
67.9% for the comparable period of 2002.

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Software license. Software license fees decreased 42.4% to $76,000 for
the first three months of 2003, compared to $132,000 for the comparable period
of 2002. The decrease was due to several contributing factors, including our
sales organization restructure that occurred in January 2003, which caused
temporary disruption to the sales cycle and our continued focus on marketing
more specifically to banks in targeted areas where we wish to better penetrate
and support the small business market. Software license fees accounted for 0.7
% of total revenues for the three months ended March 31, 2003 compared to 0.9%
for the comparable period in 2002.

Retail planning services. Retail planning services revenues declined
14.1% to $2.4 million during the three months ended March 31, 2003 as compared
to $2.7 million for the first three months of 2002. The decline is due to
fewer forecasting service clients as a result of the slower retail economy. As
a percentage of total revenues, retail planning services accounted for 21.3%
for the first three months of 2003 compared to 18.8% in the comparable period
of 2002.

Maintenance and other. Maintenance and other fees decreased 13.4% to $1.6
million for the three-month period ended March 31, 2003 compared to $1.8
million for the comparable period for 2002. Maintenance and other fees consist
primarily of software maintenance fees, credit and fraud risk insurance
commissions earned from the sale of policies to our BusinessManager banks,
commissions earned through our referrals of certain merchants to alternative
financing companies and account verification services performed for some of our
BusinessManager banks. The decrease was primarily attributable to decreases in
our insurance revenues and Towne processing and machine rental fees. Our
insurance revenues decreased 17.1% to $704,000 for the first three months of
2003 compared to $849,000 for the comparable period in 2002. The decline in
insurance revenues is due to the lower funding levels through the
BusinessManager program as discussed above. Towne processing and machine rental
fees were $0 during the first quarter of 2003 compared to approximately
$215,000 in the first quarter of 2002. This decline is the result of the Towne
products being eliminated during 2002. Maintenance and other fees accounted for
14.2% of total revenues for the three month period ended March 31, 2003
compared to 12.4% for the comparable period in 2002.

Total revenues. Total revenues for the first three months of 2003
decreased 24.3% to $11.1 million compared to $14.6 million for the first three
months of 2002.

General and administrative. General and administrative expenses decreased
8.9% to $5.6 million for the three-month period ended March 31, 2003 compared
to $6.2 million for the comparable period in 2002. The decrease for the three
months ended March 31, 2003 is primarily due to reductions in salary and
benefits expense as a result of reduced headcount and reduced consulting
charges. During the first quarter of 2002, consulting and general fees were
approximately $225,000 higher due to our implementation of a new operating
system and higher professional service fees. 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 8.6% to 50.9% for the three-month period ended March 31,
2003 compared to the same period in the prior year.

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Selling and marketing. Selling and marketing expenses decreased 19.3% for
the three-month period ended March 31, 2003 to $4.7 million compared to $5.8
million for the three-month period ended March 31, 2002. The decrease for the
three months ended March 31, 2003 compared to the same period in 2002 was
primarily due to lower commissions expense, as a result of lower revenues, as
well as, fewer sales personnel. This resulted in decreased compensation,
training, and travel 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 2.5% to 42.1% for the three-month period of 2003 compared to 39.6%
for the comparable period in 2002.

Research and development. Research and development expenses decreased
5.2% to $238,000 for the first quarter of 2003 compared to $251,000 for the
year earlier period. These costs include the non-capitalizable direct costs
associated with developing new versions of our system and other projects that
have not yet reached technological feasibility. The decrease in costs for the
first three months of 2003 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 2002. As a percentage of total
revenues, research and development expenses increased to 2.2% for the three
months of 2003 compared to 1.7% for the same period in the prior year.

Amortization. Amortization expenses increased 20.7% to $425,000 for the
first three months of 2003 compared to $352,000 for the comparable period in
2002. These expenses include the cost of amortizing intangible assets
including trademarks, software development costs and debt issuance costs. The
increase was primarily related to the amortization of identifiable intangibles
from the Towne acquisition that was recorded during the second quarter of 2002
and were therefore not amortized in the first quarter of 2002.

Other operating expenses, net. Other operating expenses for the first
three 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. Partially offsetting this gain was a
loss on extinguishment of debt related to the write-off of a portion of our
capitalized debt issuance costs of approximately $56,000. This amount had been
previously classified as an extraordinary loss, however the amount was
reclassified in accordance with SFAS No. 145, Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
(SFAS No. 145). Excluding the net gain and debt issuance cost write-off,
other operating expenses were approximately $83,000 for the first quarter of
2002 compared to $44,000 for the first quarter of 2003. Other operating
expenses include property tax and other miscellaneous costs associated with
providing support and services to our client banks.

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Operating income.As a result of the above factors, our operating income
decreased 97.1% to income of $60,000 for the first three months of 2003,
compared to $2.1 million for the comparable period of 2002. As a percentage of
total revenue, operating income decreased to 0.6% for the first three months of
2003 compared to 14.3% for the same period in 2002.

Interest expense, net. Interest expense, net decreased 28.9% to $352,000
for the three months ended March 31, 2003 compared to $495,000 for the
comparable period in 2002. The decrease was primarily due to the reduction of
our debt balances in 2003 and more favorable interest rates.

Income tax provision (benefit).The income tax benefit was approximately
$114,000 for the three months ended March 31, 2003 compared to a tax provision
of $626,000 for the same period in 2002. As a percentage of income before
taxes, the income tax rate was 39.0% for both 2003 and 2002.

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 three months of 2003 our operating activities provided cash of
approximately $1.4 million. We used approximately $256,000 in our investing
activities, consisting of capital expenditures of $46,000 and $210,000 of
software development costs. We currently estimate that total capital
expenditures for 2003 will be approximately $275,000.

Cash used in financing activities totaled $1.3 million for the first three
months of 2003, which is the result of $1.3 million in repayments of long-term
debt and capitalized lease obligations.

The Company is the borrower under a credit agreement dated August 7, 1998
between the Company as borrower, Fleet National Bank as administrative agent
and a syndicate of other lenders. This credit facility has been amended from
time to time. The credit facility is secured by a pledge of all of our assets
and contains financial and non-financial covenants and contains limitations on
our ability to sell material assets, redeem capital stock and pay cash
dividends, among other actions.

On April 11, 2003, we entered into an amendment to our credit facility.
The amended credit facility modifies financial and certain non-financial
covenants for 2003 and requires us to take certain other actions (as set forth
in the amended credit facility). As of March 31, 2003, the Company was in
compliance with all amended covenants. Pursuant to the amendment, we agreed to
pay certain fees to our lenders, to increase the interest rates payable under
the credit facility, and to use our best efforts to consummate a capital event
(as defined in the amended credit facility) on or before December 31, 2003.

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Our
amended credit facility includes term loans with current balances of $7.6
million (the Term A Loan) and $19.5 million (the Term B Loan), and reduces
our revolving line of credit from $5 million to the lesser of $3 million or 60%
of the eligible receivables (as defined in the amended credit facility). The
revolving line of credit includes swing line advances and a $2 million sublimit
for standby letters of credit. The interest rate for the Term A Loan and any
advances under the revolving loan is the greater of: (1) 5.5% per annum; or (2)
4.0% over the Eurodollar rate or 2.75% over the prime rate. The interest rate
for the Term B Loan is 4.5% over the Eurodollar rate or 3.5% over the prime
rate. The applicable margin on all outstanding loans increases by 1% on January
1, 2004.

The amended credit facility also includes a provision requiring early payment
on the term loans if we have excess cash, as defined in the credit agreement,
on hand at year-end. At December 31, 2002, no excess cash payments were
required.

The amended credit facility provides for the payment to the lenders of a
fee totaling 2% of the outstanding debt as of April 11, 2003, which is
approximately $600,000. Twenty-five percent of this fee was paid immediately
upon entering into the amendment, twenty-five percent of this fee is payable on
September 30, 2003, and 50% is payable on December 31, 2003. Fifty percent of
the September 30, 2003 fee will be waived by the Lenders in the event of a
documentation benchmark (as defined in the credit facility amendment) and 100%
of the September and December payments will be waived to the extent that no
amount remains outstanding under the credit facility as of the applicable
payment date.

The $7.6 million term loan is generally repayable in quarterly
installments of $1.2 million through September 30, 2003 and then increasing to
$1.3 million beginning December 31, 2003 until maturity (August 7, 2004). The
$19.5 million term loan is repayable in equal quarterly installments of $65,000
until December 31, 2004, at which time the required quarterly payments increase
to $2.9 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
bears an annual commitment fee and matures August 7, 2004. As of March 31,
2003, we had $7.6 million outstanding at 4.41%, $19.5 million outstanding at
4.91%, $620,000 in standby letters of credit and $950,000 outstanding draws
against the revolver at 6.0%.

As of March 31, 2003, we had a working capital deficit of approximately
$4.2 million compared to a working capital deficit of approximately $3.4
million as of December 31, 2002. The increase in working capital deficit
resulted primarily from decreases in cash, accounts receivable, prepaid assets
and an increase in accounts payable, partially offset by a decrease in accrued
liabilities. 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 PeriodLess than
    
    1-2
    
    3-4
    
    4 yearsContractual Obligations
    
    Total
    
    1 year
    
    years
    
    years
    
    & afterRevolving Line of Credit
    
    $
    950
    
    
    $
    0
    
    
    $
    950
    
    
    $
    0
    
    
    $
    0Long-Term Debt
    
    $
    27,052
    
    
    $
    5,237
    
    
    $
    21,815
    
    
    $
    0
    
    
    $
    0Capitalized Lease Obligations
    
    $
    398
    
    
    $
    339
    
    
    $
    59
    
    
    $
    0
    
    
    $
    0Operating Leases
    
    $
    9,552
    
    
    $
    1,858
    
    
    $
    2,866
    
    
    $
    2,550
    
    
    $
    2,278Other
    
    $
    930
    
    
    $
    465
    
    
    $
    465
    
    
    $
    0
    
    
    $
    0Total Contractual Cash Obligations
    
    $
    38,882
    
    
    $
    7,899
    
    
    $
    26,155
    
    
    $
    2,550
    
    
    $
    2,278Standby 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. 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 and the annual impairment evaluation as of December 31,
2002. The results of the Companys evaluations did not indicate that any of
the goodwill recorded has been impaired.

In August of 2002, the FASB issued SFAS No. 145. 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 early adopted the statement during December 2002, which did not have a
material impact on the Companys financial position on results of operations.
However, certain debt extinguishment losses that had previously been reflected
as extraordinary items were reclassified to ordinary expenses.

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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities,requiring that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146, which applies to all entities, is
effective for exit or disposal activities that are initiated after December 31,
2002. The Company expects that the adoption of SFAS No. 146 during fiscal 2003
will not materially impact the Companys financial position or results of
operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure,which amends SFAS No. 123. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123 to require more prominent
and more frequent disclosures in financial statements about the effects of
stock-based compensation. SFAS No. 148 is effective for financial statements
issued for fiscal years ending after December 15, 2002, and interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company adopted this
statement on January 1, 2003 and has included the required interim disclosures
elsewhere in this document.

At the November 21, 2002 Emerging Issues Task Force (EITF) meeting, the
Task Force reached a consensus in Issue 00-21, Multiple-Deliverable Revenue
Arrangements, which addresses how to account for arrangements that may involve
the delivery or performance of multiple products, services, or rights to use
assets, other than those arrangements accounted for under other more specific
literature. The final consensus will be applicable to agreements entered into
in fiscal periods beginning after June 15, 2003 with early adoption permitted.
Additionally, companies will be permitted to apply the consensus guidance to
all existing arrangements as the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes. The
Company expects that adoption of this new consensus will not have a material
effect on the Companys financial position or results of operations.

Note Regarding Forward Looking Information

This interim report contains several forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements containing the words may, would, could,
will, expect, anticipate, believe, intend, plan, and estimate and
words of similar importance. Such statements include 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. 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

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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, 2002, and include, among other
factors, our substantial leverage, our ability to regain compliance with The
Nasdaq SmallCap Market continued listing standards, 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 rates associated with these debt obligations
were to increase 100 basis points, the annual impact on future cash flows would
be approximately $280,000.




Item 4.    Disclosure Controls and Procedures

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 as of a date within 10 days of the filing date of this report.
Based on that evaluation, the Companys management, including the CEO and CFO,
concluded that the Companys disclosure controls and procedures were adequate.
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 March 31, 2003.

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PART II  Other Information




Item 1.    Legal Proceedings

As a result of the merger with Towne, the Company assumed certain
outstanding litigation against Towne. Except for the lawsuits described below,
the Company is not currently a party to, and none of its material properties is
currently subject to, any material litigation other than routine litigation
incidental to its business.

In Re Towne Services, Inc./Securities Litigation

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 in the District Court of Georgia, Atlanta Division. The complaints
alleged, 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 Complaint seeks an
unspecified amount of damages. Towne and its officers answered, denying
liability. The parties reached a tentative settlement, which is subject to
certain conditions including court approval, and which is memorialized in a
Memorandum of Understanding signed January 17, 2003. Counsel for plaintiffs
agreed to dismiss all claims and release all defendants for a negotiated
settlement amount which will be funded by Townes directors and officers
insurance carrier and Towne. The settlement funds were placed in escrow on
February 21, 2003. Counsel for defendants estimate it will take a minimum of
six months for the court to approve the class-action settlement. The parties
also continue to pursue the question as to whether the carrier will also pay
the cost of defense, including the attorneys fees incurred by Towne, as
provided by the underlying insurance policy.

Edward H. Sullivan, Jr. and Lisa Sullivan v. Towne Services, Inc.

(Towne Services, Inc. as the successor to Banking Solutions, Inc., Bane
Leasing.Com, Inc., the successor to BSI Capital Funding, Inc., Moseley &
Standerfer, P.C., David R. Frank, Don G. Shafer, and Shannon W. Webb)

This lawsuit was the result of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI Acquisition
Corp. This lawsuit was filed in December 1998 in the District Court of Collin
County, Texas. 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s subsidiary in the stock
purchase. Sullivan contends that Towne is liable to him as the successor to
BSI, and also for allegedly tortiously interfering with the agreement. Sullivan
also contends Towne conspired with the other defendants to misrepresent the
gross purchase price. The District Court of Collin County, Texas granted
Townes Motion for Summary Judgment on all claims. The Order was entered on
July 15, 2002. PBI has sought indemnification from the BSI shareholders for its
expenses in defending this action based on the provisions of the BSI stock
purchase agreement.

Towne Services, Inc. v. Clipper, et al.

As previously reported, Towne filed an action against six former BSI sales
representatives and The Clipper Group, a company founded by one or more of
former BSI sales representatives, on April 24, 2001 in the 277th District Court
of Williamson County, Texas. Towne contends that the defendants formed a
competing company, and are marketing a competing product, to Townes bank
customers, in violation of the

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named individuals employment contracts, and in
particular, in violation of trade secret and confidentiality provisions and
non-solicitation of customer and employee provisions contained in those
contracts. The parties have reached a settlement agreement in this matter, and
executed the final settlement agreement on September 30, 2002. The pending
claims were dismissed by agreement of the parties.

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)10.0    
    
    Employment Agreement with Peter S. Scully dated April 1, 200310.4.9   
    
    Amendment No. 9 to Credit Agreement  April 11, 2003 (incorporated by
reference to Exhibit 10.4.9 to the Companys annual report filed on
Form 10-K for the year ended December 31, 2002)99.1   
    
    Certificate of CEO pursuant to 18 U.S.C. Section 1350, adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200299.2   
    
    Certificate of 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



| | 1. |  | A current report on Form 8-K on January 31, 2003
was filed to announce the appointment of Henry M. Baroco as
the Companys new Chief Executive Officer, as well as, the
resignation of Thomas L. Black as Chief Executive Officer.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | A current report on Form 8-K on February 10, 2003
was filed to announce the promotions of Stephen D. Giddens to
President and James T. Quinn to Chief Sales Officer.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | A current report on Form 8-K on March 5, 2003 was
filed to announce the Companys financial results for the
quarter and year ended December 31, 2002.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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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:
    
    May 14, 2003
    
    By:
    
    /s/ Henry M. BarocoHenry M. BarocoChief Executive OfficerDate:
    
    May 14, 2003
    
    By:
    
    /s/ Gerard M. Hayden, Jr.Gerard M. Hayden, Jr.
Chief Financial Officer


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CERTIFICATIONS

I, Henry M. Baroco, 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 identified for the registrants auditors any
material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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: May 14, 2003By: /s/ Henry M. BarocoHenry M. BarocoChief 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
record, process, summarize and report financial data
and have identified for the registrants auditors any
material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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: May 14, 2003By: /s/ Gerard M. Hayden, Jr.Gerard M. Hayden, Jr.Chief Financial Officer


31