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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 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
   o

(2)   Yes
   x   No
   o

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 May 3, 2002
|                           |  |                              
|Common Stock, no par value |  | 13,981,633 shares            

This amendment to the
Private Business, Inc. Quarterly Report on Form 10-Q for the
quarterly period March 31, 2002 is being filed to add a financial
statement footnote (Note K to the consolidated financial statements)
to disclose business segment information.





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                                  |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS  UNAUDITED               
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED     
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED     
|                                             |                                                                                               | Notes to Condensed 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                           
|PART II  Other Information                 
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                  
|Certifications                              
|SECTION 906 CERTIFICATION OF THE CEO AND CFO



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PRIVATE BUSINESS, INC.

Form 10-Q

For Quarter Ended March 31, 2002

INDEX

|                                           |                                                                                                     |                                                                                                              |         |         
|------------------------------------------ | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------- | --------
|                                           |                                                                                                     |                                                                                                              |         | Page No.
|                                           |                                                                                                     |                                                                                                              |         |         
|Part I  Consolidated Financial Statements |                                                                                                     |                                                                                                             
|                                           | Item 1  Unaudited Condensed Consolidated Balance Sheets
As of March 31, 2002 and December 31, 2001 |                                                                                                              | 3      
|                                           |                                                                                                     | Unaudited Condensed Consolidated Statements of
Operations for the three months ended March 31, 2002 and 2001 |         | 4       
|                                           |                                                                                                     | Unaudited Condensed Consolidated Statements of
Cash Flows for the three months ended March 31, 2002 and 2001 |         | 5       
|                                           |                                                                                                     | Notes to Unaudited Condensed Consolidated
Financial Statements                                               |         | 6 -12   
|                                           | Item 2  Managements discussion and analysis of
financial condition and results of operations      |                                                                                                              | 13 - 22
|                                           | Item 3  Quantitative and qualitative disclosures about market risk                                 |                                                                                                              | 22     
|Part II  Other Information                |                                                                                                     |                                                                                                             
|                                           | Item 1  Legal Proceedings                                                                          |                                                                                                              | 22 - 24
|                                           | Item 6  Exhibits and reports on Form 8-K                                                           |                                                                                                              | 25     
|Signatures                                 |                                                                                                     | 26                                                                                                          
|Certifications                             |                                                                                                     | 27 - 28                                                                                                     

2



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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS  UNAUDITED

|                                                                                                                        |                                                                                                                                  |                                                                                                    |        |           |        |              |        |        |        |  
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------ | --------- | ------ | ------------ | ------ | ------ | ------ | -
|                                                                                                                        |                                                                                                                                  |                                                                                                    |        | March 31, |        | December 31,
|(dollars in thousands)                                                                                                  |                                                                                                                                  | 2002                                                                                               |        | 2001     
|                                                                                                                       
|ASSETS                                                                                                                  |                                                                                                                                  |                                                                                                    |        |           |        |              |        |       
|CURRENT ASSETS:                                                                                                         |                                                                                                                                  |                                                                                                    |        |           |        |              |        |       
|                                                                                                                        | Cash and cash equivalents                                                                                                        |                                                                                                    | $      | 1,707     |        |              | $      | 2,648  |       
|                                                                                                                        |                                                                                                                                  | Accounts receivable  trade, net of allowance for doubtful accounts of
$225 and $258, respectively |        |           | 8,036  |              |        |        | 8,073  |  
|                                                                                                                        | Accounts receivable  other                                                                                                      |                                                                                                    |        | 281       |        |              |        | 314    |       
|                                                                                                                        | Deferred tax assets                                                                                                              |                                                                                                    |        | 2,171     |        |              |        | 2,130  |       
|                                                                                                                        | Other current assets                                                                                                             |                                                                                                    |        | 2,014     |        |              |        | 1,164  |       
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total current assets                                                                               |        |           | 14,209 |              |        |        | 14,329 |  
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|PROPERTY AND EQUIPMENT, NET                                                                                             |                                                                                                                                  |                                                                                                    | 8,419  |           |        |              | 8,336  |       
|PROPERTY AND EQUIPMENT HELD FOR SALE                                                                                    |                                                                                                                                  |                                                                                                    | 36     |           |        |              | 2,036  |       
|OTHER ASSETS:                                                                                                           |                                                                                                                                  |                                                                                                    |        |           |        |              |        |       
|                                                                                                                        | Software development costs, net                                                                                                  |                                                                                                    |        | 1,419     |        |              |        | 1,461  |       
|                                                                                                                        | Deferred tax assets                                                                                                              |                                                                                                    |        | 3,092     |        |              |        | 4,835  |       
|                                                                                                                        | Intangible and other assets, net                                                                                                 |                                                                                                    |        | 10,332    |        |              |        | 10,559 |       
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total other assets                                                                                 |        |           | 14,843 |              |        |        | 16,855 |  
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total assets                                                                                       |        | $         | 37,507 |              |        | $      | 41,556 |  
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                   |                                                                                                                                  |                                                                                                    |        |           |        |              |        |       
|CURRENT LIABILITIES                                                                                                     |                                                                                                                                  |                                                                                                    |        |           |        |              |        |       
|                                                                                                                        | Accounts payable                                                                                                                 |                                                                                                    | $      | 3,093     |        |              | $      | 3,617  |       
|                                                                                                                        | Accrued liabilities                                                                                                              |                                                                                                    |        | 4,758     |        |              |        | 7,102  |       
|                                                                                                                        | Dividends payable                                                                                                                |                                                                                                    |        | 455       |        |              |        | 415    |       
|                                                                                                                        | Deferred revenue                                                                                                                 |                                                                                                    |        | 1,180     |        |              |        | 1,126  |       
|                                                                                                                        | Short-term borrowings                                                                                                            |                                                                                                    |        | 1,400     |        |              |        | 0      |       
|                                                                                                                        | Current portion of long-term debt and capital lease obligations                                                                  |                                                                                                    |        | 5,214     |        |              |        | 5,394  |       
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total current liabilities                                                                          |        |           | 16,100 |              |        |        | 17,654 |  
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|OTHER NONCURRENT LIABILITIES                                                                                            |                                                                                                                                  |                                                                                                    | 1,171  |           |        |              | 1,354  |       
|LONG-TERM DEBT, net of current portion                                                                                  |                                                                                                                                  |                                                                                                    | 27,879 |           |        |              | 31,109 |       
|CAPITAL LEASE OBLIGATIONS, net of current portion                                                                       |                                                                                                                                  |                                                                                                    | 420    |           |        |              | 516    |       
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        | Total liabilities                                                                                                                |                                                                                                    |        | 45,570    |        |              |        | 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, 13,965,908 and 13,901,423, respectively |                                                                                                    |        | 0         |        |              |        | 0      |       
|                                                                                                                        | Additional paid-in capital                                                                                                       |                                                                                                    |        | (7,389    | )      |              |        | (7,464 | )     
|                                                                                                                        | Accumulated deficit                                                                                                              |                                                                                                    |        | (788      | )      |              |        | (1,727 | )     
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total stockholders deficit                                                                        |        |           | (8,177 | )            |        |        | (9,191 | )
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       
|                                                                                                                        |                                                                                                                                  | Total liabilities and stockholders deficit                                                        |        | $         | 37,507 |              |        | $      | 41,556 |  
|                                                                                                                        |                                                                                                                                  |                                                                                                    |       

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITEDFor the Three Months Ended March 31, 2002 and 2001

|                                                                             |                                  |                          |       |        |        |   |       |        |        | 
|---------------------------------------------------------------------------- | -------------------------------- | ------------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|(in thousands, except per share data)                                        |                                  | 2002                     |       | 2001  
|                                                                            
|REVENUES:                                                                    |                                  |                          |       |        |        |   |       |       
|                                                                             | Participation fees               |                          | $     | 9,636  |        |   | $     | 10,034 |       
|                                                                             | Software license                 |                          |       | 132    |        |   |       | 277    |       
|                                                                             | Retail planning services         |                          |       | 2,745  |        |   |       | 0      |       
|                                                                             | Maintenance and other            |                          |       | 2,107  |        |   |       | 1,816  |       
|                                                                             |                                  |                          |      
|                                                                             |                                  | Total revenues           |       |        | 14,620 |   |       |        | 12,127 | 
|                                                                             |                                  |                          |      
|OPERATING EXPENSES:                                                          |                                  |                          |       |        |        |   |       |       
|                                                                             | General and administrative       |                          |       | 6,178  |        |   |       | 5,543  |       
|                                                                             | Selling and marketing            |                          |       | 5,783  |        |   |       | 5,280  |       
|                                                                             | Research and development         |                          |       | 251    |        |   |       | 360    |       
|                                                                             | Amortization                     |                          |       | 352    |        |   |       | 267    |       
|                                                                             | Other operating expense (income) |                          |       | (100   | )      |   |       | 75     |       
|                                                                             |                                  |                          |      
|                                                                             |                                  | Total operating expenses |       |        | 12,464 |   |       |        | 11,525 | 
|                                                                             |                                  |                          |      
|OPERATING INCOME                                                             |                                  |                          | 2,156 |        |        |   | 602   |       
|INTEREST EXPENSE, NET                                                        |                                  |                          | 495   |        |        |   | 1,056 |       
|                                                                             |                                  |                          |      
|INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM                     |                                  |                          | 1,661 |        |        |   | (454  | )     
|Income tax provision (benefit)                                               |                                  |                          | 648   |        |        |   | (177  | )     
|                                                                             |                                  |                          |      
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                      |                                  |                          | 1,013 |        |        |   | (277  | )     
|Extraordinary item, early extinguishment of debt,
net of income taxes of $22 |                                  |                          | 34    |        |        |   | 0     |       
|                                                                             |                                  |                          |      
|NET INCOME (LOSS)                                                            |                                  |                          | 979   |        |        |   | (277  | )     
|Preferred stock dividends                                                    |                                  |                          | 40    |        |        |   | 0     |       
|                                                                             |                                  |                          |      
|NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS                           |                                  | $                        | 939   |        |        | $ | (277  | )     
|                                                                             |                                  |                          |      
|EARNINGS (LOSS) PER SHARE:                                                   |                                  |                          |       |        |        |   |       |       
|                                                                             | Basic                            |                          | $     | 0.07   |        |   | $     | (0.03  | )     
|                                                                             |                                  |                          |      
|                                                                             | Diluted                          |                          | $     | 0.07   |        |   | $     | (0.03  | )     
|                                                                             |                                  |                          |      
|WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:                                  |                                  |                          |       |        |        |   |       |       
|                                                                             | Basic                            |                          |       | 13,954 |        |   |       | 9,194  |       
|                                                                             |                                  |                          |      
|                                                                             | Diluted                          |                          |       | 14,267 |        |   |       | 9,194  |       
|                                                                             |                                  |                          |      

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDFor the Three Months Ended March 31, 2002 and 2001

|                                                                                     |                                                   |                                                     |                              |                                       |       |        |        |       |       |        |      |  
|------------------------------------------------------------------------------------ | ------------------------------------------------- | --------------------------------------------------- | ---------------------------- | ------------------------------------- | ----- | ------ | ------ | ----- | ----- | ------ | ---- | -
|(in thousands)                                                                       |                                                   | 2002                                                |                              | 2001                                 
|                                                                                    
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |                                                   |                                                     |                              |                                       |       |        |        |      
|Net income (loss)                                                                    |                                                   | $                                                   | 979                          |                                       |       | $      | (277   | )    
|Adjustments to reconcile net income (loss) to net cash used by operating activities: |                                                   |                                                     |                              |                                       |       |        |        |      
|                                                                                     |                                                   | Write-off of debt issuance costs                    |                              |                                       | 34    |        |        |       | 0     |       
|                                                                                     |                                                   | Depreciation and amortization                       |                              |                                       | 1,123 |        |        |       | 1,022 |       
|                                                                                     |                                                   | Deferred taxes                                      |                              |                                       | 1,702 |        |        |       | 110   |       
|                                                                                     |                                                   | Non-cash stock based compensation                   |                              |                                       | 46    |        |        |       | 48    |       
|                                                                                     |                                                   | Gain on sale of certain property and equipment, net |                              |                                       | (183  | )      |        |       | 0     |       
|                                                                                     |                                                   | Changes in assets and liabilities:                  |                              |                                       |       |        |        |       |       |       
|                                                                                     |                                                   |                                                     | Accounts receivable          |                                       |       | 70     |        |       |       | 494    |     
|                                                                                     |                                                   |                                                     | Other current assets         |                                       |       | (850   | )      |       |       | 28     |     
|                                                                                     |                                                   |                                                     | Other assets                 |                                       |       | 32     |        |       |       | 56     |     
|                                                                                     |                                                   |                                                     | Accounts payable             |                                       |       | (524   | )      |       |       | (41    | )   
|                                                                                     |                                                   |                                                     | Accrued liabilities          |                                       |       | (2,319 | )      |       |       | (1,943 | )   
|                                                                                     |                                                   |                                                     | Deferred revenue             |                                       |       | 54     |        |       |       | (90    | )   
|                                                                                     |                                                   |                                                     | Other noncurrent liabilities |                                       |       | (183   | )      |       |       | 0      |     
|                                                                                     |                                                   |                                                     |                             
|                                                                                     |                                                   |                                                     |                              | Net cash used in operating activities |       |        | (19    | )     |       |        | (593 | )
|                                                                                     |                                                   |                                                     |                             
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |                                                   |                                                     |                              |                                       |       |        |        |      
|                                                                                     | Additions to property and equipment               |                                                     |                              | (876                                  | )     |        |        | (203  | )    
|                                                                                     | Software development costs                        |                                                     |                              | (170                                  | )     |        |        | (225  | )    
|                                                                                     | Proceeds from sale of property and equipment      |                                                     |                              | 2,201                                 |       |        |        | 0     |      
|                                                                                     |                                                   |                                                     |                             
|                                                                                     |                                                   | Net cash provided by (used in) investing activities |                              |                                       | 1,155 |        |        |       | (428  | )     
|                                                                                     |                                                   |                                                     |                             
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |                                                   |                                                     |                              |                                       |       |        |        |      
|                                                                                     | Repayments on long-term debt                      |                                                     |                              | (1,223                                | )     |        |        | (936  | )    
|                                                                                     | Repayments on capitalized lease obligations       |                                                     |                              | (96                                   | )     |        |        | 0     |      
|                                                                                     | Early extinguishment of long-term debt, net       |                                                     |                              | (2,188                                | )     |        |        | 0     |      
|                                                                                     | Proceeds from short-term borrowings               |                                                     |                              | 1,400                                 |       |        |        | 0     |      
|                                                                                     | Proceeds from exercise of employee stock options  |                                                     |                              | 10                                    |       |        |        | 20    |      
|                                                                                     | Stock issued through employee stock purchase plan |                                                     |                              | 20                                    |       |        |        | 50    |      
|                                                                                     |                                                   |                                                     |                             
|                                                                                     |                                                   |                                                     |                              | Net cash used in financing activities |       |        | (2,077 | )     |       |        | (866 | )
|                                                                                     |                                                   |                                                     |                             
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                              |                                                   |                                                     | (941                         | )                                     |       |        | (1,887 | )    
|CASH AND CASH EQUIVALENTS at beginning of year                                       |                                                   |                                                     | 2,648                        |                                       |       |        | 1,891  |      
|                                                                                     |                                                   |                                                     |                             
|CASH
AND CASH EQUIVALENTS at end of period                                           |                                                   | $                                                   | 1,707                        |                                       |       | $      | 4      |      
|                                                                                     |                                                   |                                                     |                             
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                  |                                                   |                                                     |                              |                                       |       |        |        |      
|                                                                                     | Cash payments for income taxes during period      |                                                     | $                            | 34                                    |       |        | $      | 141   |      
|                                                                                     |                                                   |                                                     |                             
|                                                                                     | Cash payments of interest during period           |                                                     | $                            | 502                                   |       |        | $      | 1,095 |      
|                                                                                     |                                                   |                                                     |                             

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

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PRIVATE BUSINESS, INC.




Notes to Condensed Consolidated Financial Statements  Unaudited


A. Basis of Presentation

The accompanying unaudited condensed 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 condensed 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, 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. Sale of Company Headquarters

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 headquarters building. During the
third quarter of 2001, the Company recorded an impairment charge of $4.1
million to write down the headquarters building, land and equipment to their
estimated fair market value. The net proceeds from the sale were approximately
$2.2 million with a net gain on the sale of approximately $200,000 being
recorded in the first quarter of 2002, which is included in other operating
expense (income) in the accompanying condensed consolidated statements of
operations.

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D. 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, Business Combinations(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 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.

E. 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 outstanding stock options and common equivalents were not included in
the adjusted weighted average common shares outstanding for the three months
ended March 31, 2001, as the effects of conversion were antidilutive.

The following table represents information necessary to calculate earnings
(loss) per share for the three months ended March 31, 2002 and 2001:

|                                                            |                                         |      |                              |      |  |   |       |   | 
|----------------------------------------------------------- | --------------------------------------- | ---- | ---------------------------- | ---- |  | - | ----- | - | 
|                                                            |                                         |      | Three Months Ended March 31,
|                                                            |                                         |      |                             
|(in thousands)                                              |                                         | 2002 |                              | 2001
|                                                            |                                         |      |                              |     
|Net income (loss) available to common shareholders          |                                         | $    | 939                          |      |  | $ | (277  | )
|                                                            |                                         |      |                              |      |  |   |       |  
|Weighed average common shares outstanding                   |                                         |      | 13,954                       |      |  |   | 9,194 |  
|Plus additional shares from common stock equivalent shares: |                                         |      |                              |      |  |   |       |  
|                                                            | Options and convertible preferred stock |      |                              | 313  |  |   |       |  | 
|                                                            |                                         |      |                              |      |  |   |       |  
|Adjusted weighted average common shares outstanding         |                                         |      | 14,267                       |      |  |   | 9,194 |  
|                                                            |                                         |      |                              |      |  |   |       |  

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F. Comprehensive Income

Comprehensive income for the three months ended March 31, 2002 and 2001
was comprised solely of net income.

G. 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 will
be expensed to general and administrative expense over the vesting period
($264,000 in 2001 and $24,000 in 2002). Approximately $24,000 and $48,000 were
expensed for the first quarter 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 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.

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. On March 18, 2002, the Company entered into an
amendment dated December 31, 2001 to its credit facility. The amendment
modified certain restrictive financial covenants for the first three quarters
of 2002. At March 31, 2002, the Company was in compliance with all covenants.

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I. Pro forma Information

The following unaudited information presents a summary of operating
results of combined operations of the Company and Towne for the three months
ended March 31, 2002 compared to the pro forma results of the combined
operations for the three months ended March 31, 2001 as if the merger with
Towne had occurred as of January 1, 2001. The pro forma results include
estimates and assumptions that management believes are reasonable, but are not
necessarily indicative of the results which would have occurred if the merger
had been in effect on the dates indicated, or which may result in the future.

|                                            |         |      |                    |        |  |   |        |        | 
|------------------------------------------- | ------- | ---- | ------------------ | ------ |  | - | ------ | ------ | 
|                                            |         |      | Three Months Ended
|                                            |         |      | March 31,         
|                                            |         |      |                   
|(in thousands, except earnings per share)   |         | 2002 |                    | 2001  
|                                            |         |      |                    |       
|Pro Forma                                   |         |      |                    |        |  |   |        |       
|Revenues                                    |         | $    | 14,620             |        |  | $ | 17,798 |       
|Operating income                            |         |      | 2,156              |        |  |   | 1,831  |       
|Income before extraordinary item            |         |      | 1,013              |        |  |   | 558    |       
|Net income available to common stockholders |         | $    | 939                |        |  | $ | 518    |       
|Earnings per share:                         |         |      |                    |        |  |   |        |       
|                                            | Basic   |      | $                  | 0.07   |  |   | $      | 0.04   | 
|                                            | Diluted |      | $                  | 0.07   |  |   | $      | 0.04   | 
|Weighted average outstanding shares:        |         |      |                    |        |  |   |        |       
|                                            | Basic   |      |                    | 13,954 |  |   |        | 13,842 | 
|                                            | Diluted |      |                    | 14,267 |  |   |        | 14,055 | 

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 other than routine litigation incidental to our
business.

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 complaints seek an unspecified awards of damages. Towne filed a motion
to dismiss for failure to state a claim, the plaintiffs filed an answer to
Townes motion and the judge granted parts of Townes motion to dismiss
and denied other parts, which had the effect of allowing the claim to
proceed. Towne and the individual defendants filed answers denying
liability and asserting numerous affirmative defenses. Discovery has not
yet commenced. We believe that the allegations in the complaints are
without merit and intend to defend the lawsuits vigorously. Our directors
and executive officers

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | liability insurance carrier is presently providing a defense under a
reservation of rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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 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. We have
filed a motion for summary judgment seeking dismissal of all claims
against us. The court has not yet ruled on the motion, and discovery is
ongoing. We believe that the allegations in the complaint are without
merit and intend to defend the lawsuit vigorously. We also 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.
|  
|3. |  | 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. Towne contends that the defendants have 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. Towne has asserted
claims against these defendants for misappropriation of trade secrets
(including both customer information and confidential information
regarding Townes software product), misappropriation of confidential
information, breach of employment contracts, tortious interference with
employment contracts, tortious interference with licensing agreements,
tortious interference with customer contracts, breach of the covenant
of good faith and fair dealing, and conspiracy. Towne seeks actual and
punitive damages, injunctive relief, and attorneys fees and costs. On
or about April 30, 2001, the defendants answered, denied liability,
moved to compel arbitration, and asserted a counterclaim against Towne
for alleged fraudulent inducement of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | employment contracts at issue. A settlement agreement has been reached
between the parties at this time regarding this matter. The Company has
agreed to dismiss all claims brought against the individual defendants in
the arbitration proceedings with prejudice and have reserved the right to
pursue damages in the companion federal court case pending in Mississippi
against the corporate defendant once the Companys claims for
misappropriation of trade secrets (including both customer information
and confidential information regarding Plaintiffs software product),
misappropriation of confidential information, tortuous interference with
licensing agreements, tortuous interference with customer contracts,
breach of the covenant of good faith and fair dealing, and infringement
of copyrights are proven. The individual defendants have in turn
dismissed with prejudice all counter claims against the Company for
fraudulent inducement of employment contracts and alleged unpaid bonuses.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | 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, parties to the above-referenced arbitration) 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,
defendants have refused to co-operate, and it is anticipated that
Plaintiffs will seek intervention from the court to proceed.

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.

K. Segment Information

Prior to 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 August of 2001, prior year segment information is not presented. Additionally,
no corporate overhead costs or interest have been allocated to 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 months ended March
31, 2002.

|                                                      |  |                    |        |             |  |       |       |  |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ----------- |  | ----- | ----- |  |  | - | ------ | 
|                                                      |  | Three Months Ended |        |             |  |      
|                                                      |  | March 31, 2002     |        |             |  |      
|                                                      |  |                    |        |             |  |      
|                                                      |  | Accounts           |        | Retail      |  |       |       | 
|                                                      |  | Receivable         |        | Inventory   |  |       |       | 
|(in thousands)                                        |  | Financing          |        | Forecasting |  | Total
|                                                      |  |                    |        |             |  |      
|Revenues                                              |  | $                  | 11,875 |             |  | $     | 2,745 |  |  | $ | 14,620 | 
|Income before taxes
and extraordinary item            |  | $                  | 1,239  |             |  | $     | 422   |  |  | $ | 1,661  | 
|Assets                                                |  | $                  | 32,485 |             |  | $     | 5,022 |  |  | $ | 37,507 | 
|Total expenditures for
additions to long-lived
assets |  | $                  | 876    |             |  | $     | 0     |  |  | $ | 876    | 

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 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

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amortization of goodwill totaling $4.1 million, which was previously being
amortized over a 20-year period. For the quarter ended March 31, 2002, this
resulted in a reduction of amortization expense of approximately $52,000. 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 expects to complete the transitional
goodwill impairment reviews required by SFAS No. 142 by June 30, 2002.

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.

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PRIVATE BUSINESS, INC.




Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThree Months Ended March 31, 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 through secure Internet connections, allowing them to
receive accounts receivable information and make funding decisions
electronically.

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. Towne
provides services and products that process 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 and services that can benefit these customers. Towne uses
this electronic gateway to deliver a variety of business and management
solutions using Internet and telecommunication connections. Towne also provides
these solutions through its proprietary software, housed at its clients
locations.

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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 a
business and operations standpoint, our approach to the Towne merger is to
convert Towne banks and merchants to Business Manager.

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 new agreements range from approximately $5,000 to $156,000 and are
generally based on the asset size of the client bank. 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 terms 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.

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Set-up fees are also charged to business customers based either upon a flat
rate or upon the expected transaction volume.

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. Retail
Merchandising Service Automation (RMSA) uses a proprietary software to
process sales and inventory transactions and provide the merchandising
forecasting information. 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 and an
equipment-leasing program for use by small business customers where we receive
a commission on referred leasing transactions funded by a third-party finance
company. 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, this
product will allow community banks to be more competitive.

Another project is the development of a software product called Electronic
Line Monitoring (ELM), for community banks that would allow them to
electronically monitor their conventional line of credit loans directly from
their borrowers accounting system. The majority of community 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
economy, have led many of our banking clients to request a product of this

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type for their unsecured loans. Our system, which will take several
months of in-house development, 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.

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 Quarter
|                                                             |  |                                  |       |   |              
|                                                             |  |                                  |       |   | 2002          |    | 2001 
|                                                             |  |                                  |       |   |               |    |      
|Revenue:                                                     |  |                                  |       |   |               |    |       |   
|                                                             |  | Participation fees               |       |   | 65.9          | %  |       |    | 82.7 | %
|                                                             |  | Software license                 |       |   | 0.9           | %  |       |    | 2.3  | %
|                                                             |  | Retail planning services         |       |   | 18.8          | %  |       |    | 0.0  | %
|                                                             |  | Maintenance and other            |       |   | 14.4          | %  |       |    | 15.0 | %
|                                                             |  |                                  |       |   |               |    |       |   
|                                                             |  |                                  | 100.0 | % |               |    | 100.0 | % 
|Operating Expenses:                                          |  |                                  |       |   |               |    |       |   
|                                                             |  | General and administrative       |       |   | 42.3          | %  |       |    | 45.7 | %
|                                                             |  | Selling and marketing            |       |   | 39.6          | %  |       |    | 43.5 | %
|                                                             |  | Research and development         |       |   | 1.7           | %  |       |    | 3.0  | %
|                                                             |  | Amortization                     |       |   | 2.4           | %  |       |    | 2.2  | %
|                                                             |  | Other operating expense (income) |       |   | (0.7          | )% |       |    | 0.6  | %
|                                                             |  |                                  |       |   |               |    |       |   
|                                                             |  |                                  | 85.3  | % |               |    | 95.0  | % 
|Operating Income                                             |  |                                  | 14.7  | % |               |    | 5.0   | % 
|Interest expense, net                                        |  |                                  | 3.4   | % |               |    | 8.7   | % 
|                                                             |  |                                  |       |   |               |    |       |   
|Income (Loss) Before Income Taxes
and Extraordinary Item     |  |                                  | 11.3  | % |               |    | (3.7  | )%
|Income Tax Provision (Benefit)                               |  |                                  | 4.4   | % |               |    | (1.5  | )%
|                                                             |  |                                  |       |   |               |    |       |   
|Net Income (Loss) Before
Extraordinary Item                  |  |                                  | 6.9   | % |               |    | (2.2  | )%
|Extraordinary Item: early extinguishment of debt, net of tax |  |                                  | 0.2   | % |               |    | 0     |   
|                                                             |  |                                  |       |   |               |    |       |   
|Net Income (Loss)                                            |  |                                  | 6.7   | % |               |    | (2.2  | )%
|Preferred Stock Dividends                                    |  |                                  | 0.3   | % |               |    | 0     |   
|                                                             |  |                                  |       |   |               |    |       |   
|Net Income (Loss) Available to
Common Shareholders           |  |                                  | 6.4   | % |               |    | (2.2  | )%
|                                                             |  |                                  |       |   |               |    |       |   

Participation Fees.Participation fees decreased 4.0% to $9.6 million for
the first quarter of 2002 compared to $10.0 million for the first quarter of
2001. The participation fees for the first quarter of 2002 include new
participation fees of approximately $837,000 from Towne. The decreases were
primarily due to a reduction in the total funding through our Business Manager
program to $1.3 billion for the first quarter of 2002, compared to $1.4 billion
for the first quarter of 2001. The decrease in funding was primarily due to
fewer banks and merchants funding through our Business Manager

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program. As a percentage of total revenues, participation fees accounted
for 65.9% for the first quarter of 2002 compared to 82.7% for 2001.

Software License. Software license fees decreased 52.3% to $132,000 for
the first quarter of 2002, compared to $277,000 for the comparable period for
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 to $1.00 in order to stimulate our
software license activity. While the promotion did reduce software license
fees for the first quarter of 2002, it did increase the number of bank license
agreements for the first quarter of 2002. Software license fees accounted for
0.9% of total revenues for the three months ended March 31, 2002, compared to
2.3% for the comparable period in 2001.

Retail planning services. Retail planning services revenues of $2.7
million is the result of merchandising and forecasting services performed for
our clients during the quarter ended March 31, 2002. As a percentage of total
revenues, Retail planning services accounted for 18.8% for the first quarter of
2002.

Maintenance and other. Maintenance and other fees increased 16.0% to $2.1
million for the three months ended March 31, 2002 compared to $1.8 million for
the comparable period for 2001. The increase was primarily attributable to
increases in our processing services and new additional other fees of
approximately $140,000 related to the Towne merger. These additional fees
primarily consist of machine rental fees related to our Towne products and
other miscellaneous administrative fees that fell outside the normal
contractual fees. Our processing services fees increased 31.5% to $582,000 for
the first quarter of 2002 compared to $443,000 for the comparable periods in
2001. The increase was primarily the result of new additional processing
revenues of $149,000 for first quarter of 2002 related to the Towne merger.
Maintenance and other fees accounted for 14.4% of total revenues for the first
quarter of 2002 compared to 15.0% for the comparable period in 2001.

Total revenues. Total revenues for the first quarter of 2002 increased
20.6% to $14.6 million compared to $12.1 million for the first quarter of 2001.
Total revenues for the first quarter 2002 include $3.9 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, which were partially offset by increased maintenance and other fees.

General and administrative. General and administrative expenses increased
11.5% to $6.2 million for the three months ended March 31, 2002 compared to
$5.5 million for the comparable period in 2001. The increases were primarily
due to the inclusion of additional general and administrative expenses of
approximately $1.2 million for the quarter related to Towne and RMSA acquired
businesses. General and administrative expenses include the cost of our
executive, finance, human resources,

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information and support services, administrative functions and general
operations. As a percentage of total revenue, general and administrative
expenses decreased 3.4% to 42.3% for the quarter ended March 31, 2002 compared
to 45.7% for the same period in 2001. Excluding these additional expenses
related to the acquired Towne and RMSA businesses, general and administrative
expenses decreased approximately $500,000 or 9.1% for the three months ended
March 31, 2002 compared to the same quarter in 2001. The decrease was
primarily due to lower compensation expense and the first quarter of 2001
included a one-time severance of approximately $315,000 to the former CEO paid
in February 2001. Severance costs for the first quarter of 2002 were
approximately $122,000.

Selling and marketing. Selling and marketing expenses increased 9.5% for
the first quarter of 2002 to $5.8 million compared to $5.3 million for the
three months ended March 31, 2001. The increases were primarily due to the
inclusion of additional selling and marketing expenses of approximately $1.5
million for the first quarter of 2002 related to Towne and RMSA acquired
businesses. 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 decreased
3.9% to 39.6% for the first quarter of 2002 compared to 43.5% for the
comparable period in 2001. Excluding these additional expenses related to
the acquired Towne and RMSA businesses, selling and marketing expenses
decreased approximately $1.0 million, or 18.9%, compared to the first quarter
of 2001. The decrease 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.

Research and development. Research and development expenses decreased
30.1% to $251,000 for the first quarter of 2001 compared to $360,000 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 was primarily due to less research and development activity
in the first quarter of 2002 compared to the same period in 2001. As a
percentage of total revenues, research and development expenses decreased to
1.7% for the first quarter of 2002 compared to 3.0% for the year earlier
period.

Amortization. Amortization expenses increased 31.9% to $352,000 for the
first quarter of 2002 compared to $267,000 for the comparable period 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 quarter of 2002 in accordance with SFAS No.

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142, Goodwill and Other Intangible Assets.The amount of goodwill amortized in
the first quarter of 2001 was approximately $52,000.

Other operating expenses. Other operating expenses for the first quarter
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 $83,000 for the first quarter of 2002 compared to
$75,000 for the first 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.As a result of the above factors, our operating income
was $2.2 million, or an increase of 257.7%, for the first quarter of 2002
compared to $602,000 for the first quarter of 2001. As a percentage of total
revenue, operating income increased to 14.7% for the first quarter of 2002
compared to 5.0% for the same period in 2001.

Interest expense, net. Interest expense, net decreased 53.1% to $495,000
for the three months ended March 31, 2002 compared to $1.1 million for the
comparable period in 2001. The decrease was primarily due to the reduction of
our debt balances in 2001 and more favorable interest rates. 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.The income tax provision was approximately $648,000
for the first quarter of 2002 compared to a benefit of $177,000 million for
the same period in 2001. As a percentage of income before taxes, the income
tax rate was 39.0% for the first quarter of 2002 and 2001.

Extraordinary item.The extraordinary item represents the after-tax
write-off of a portion of the unamortized debt issuance costs in the amount of
$34,000 as a result of paying down approximately $2.2 million in long-term debt
using cash from the sale of the Companys former headquarters.

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 2002 our operating activities used cash of
approximately $19,000. We received approximately $1.2 million from our
investing activities, primarily due to the sale of our former headquarters,
which netted approximately $2.2 million in cash. This was partially offset due
to purchases of equipment and software development. We currently estimate that
total capital expenditures for 2002 will be approximately $2.5 million.

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Cash used in financing activities totaled $2.1 million for the first three
months of 2002, which is the result of $3.5 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 partially
offset by proceeds from short-term borrowings, the exercise of employer stock
options and the employee stock purchase plan.

The credit facility includes term loans with balances as of March 31, 2002
of $12.4 million and $20.3 million, and also provides 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.
There was $1.4 million outstanding on the revolving line of credit and $600,000
in stand-by letters of credit at March 31, 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 $12.4 million loan is generally repayable in quarterly installments of
$1.1 million through September 30, 2002, $1.2 million until September 30, 2003
and $1.3 million until maturity (August 7, 2004). The $20.3 million loan is
repayable in equal quarterly installments of $67,509 until December 31, 2004,
at which time the required quarterly payments increase to $3.0 million until
September 30, 2005 and $4.0 million until December 31, 2005 with a final
payment of $3.5 million due March 31, 2006. The revolver has an annual
commitment fee and matures August 7, 2004. As of March 31, 2002, we had $12.4
million outstanding at 5.56%, $20.3 million outstanding at 6.06%, $1.4 million
in short-term borrowing outstanding at 7.0% and $600,000 in outstanding letters
of credit. Subsequent to March 31, 2002, we repaid $750,000 of the $1.4
million in short-term borrowings outstanding as of March 31, 2002.

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 March 31, 2002, we were
in compliance with all of the restrictive covenants.

As of March 31, 2002, we had a working capital deficit of approximately
$1.9 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 the
current portion of our borrowings along with increases in deferred tax assets
and other current assets. These changes were partially offset by decreases in
accounts receivable and increases in dividends payable and deferred revenue.
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:

|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |        |  |  |   |       | 
|----------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | ----- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ----- | 
|                                    |  | Payments Due by Period
|                                    |  |                       
|                                    |  |                        |        |        |  | Less than |       | 1-2   |  | 3-4     |        | 5 years
|Contractual Obligations             |  | Total                  |        | 1 year |  | years     |       | years |  | & after
|                                    |  |                        |        |        |  |           |       |       |  |        
|Short-Term Borrowings               |  | $                      | 1,400  |        |  | $         | 1,400 |       |  | $       | 0      |         |  | $ | 0      |  |  | $ | 0     | 
|Long-Term Debt                      |  | $                      | 32,737 |        |  | $         | 4,858 |       |  | $       | 14,307 |         |  | $ | 13,572 |  |  | $ | 0     | 
|Capitalized Lease Obligations       |  | $                      | 776    |        |  | $         | 356   |       |  | $       | 420    |         |  | $ | 0      |  |  | $ | 0     | 
|Operating Leases                    |  | $                      | 10,490 |        |  | $         | 1,889 |       |  | $       | 3,011  |         |  | $ | 2,227  |  |  | $ | 3,363 | 
|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |        |  |  |   |       | 
|Total Contractual Cash Obligations  |  | $                      | 45,403 |        |  | $         | 8,503 |       |  | $       | 17,738 |         |  | $ | 15,799 |  |  | $ | 3,363 | 
|Standby Letter of Credit Commitment |  | $                      | 600    |        |  | $         | 600   |       |  | $       | 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 ended March 31, 2002, this
resulted in a reduction of amortization expense of approximately $52,000. 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 expects to complete the transitional
goodwill impairment reviews required by SFAS No. 142 by June 30, 2002.

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 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.

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

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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 rates associated with these debt obligations
were to increase 100 basis points, the annual impact on future cash flows would
be approximately $327,000.




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 other than routine litigation incidental to our
business.

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 complaints seek unspecified awards of damages. Towne filed a motion to
dismiss for failure to state a claim, the plaintiffs filed an answer to
Townes motion and the judge granted parts of Townes motion to dismiss
and denied other parts, which had the effect of allowing the claim to
proceed. Towne and the individual defendants filed answers denying
liability and asserting numerous affirmative defenses. Discovery has not
yet commenced. We believe that the allegations in the complaints are
without merit and intend to defend the lawsuits vigorously. Our directors
and executive officers

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | liability insurance carrier is presently providing a defense under a
reservation of rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|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 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. We have
filed a motion for summary judgment seeking dismissal of all claims
against us. The court has not yet ruled on the motion, and discovery is
ongoing. We believe that the allegations in the complaint are without
merit and intend to defend the lawsuit vigorously. We also 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.
|  
|3. |  | 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. Towne contends that the defendants have 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. Towne has asserted
claims against these defendants for misappropriation of trade secrets
(including both customer information and confidential information
regarding Townes software product), misappropriation of confidential
information, breach of employment contracts, tortious interference with
employment contracts, tortious interference with licensing agreements,
tortious interference with customer contracts, breach of the covenant
of good faith and fair dealing, and conspiracy. Towne seeks actual and
punitive damages, injunctive relief, and attorneys fees and costs. On
or about April 30, 2001, the defendants answered, denied liability,
moved to compel arbitration, and asserted a counterclaim against Towne
for alleged fraudulent inducement of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | employment contracts at issue. A settlement agreement has been reached
between the parties at this time regarding this matter. The Company has
agreed to dismiss all claims brought against the individual defendants in
the arbitration proceedings with prejudice and have reserved the right to
pursue damages in the companion federal court case pending in Mississippi
against the corporate defendant once the Companys claims for
misappropriation of trade secrets (including both customer information
and confidential information regarding Plaintiffs software product),
misappropriation of confidential information, tortuous interference with
licensing agreements, tortuous interference with customer contracts,
breach of the covenant of good faith and fair dealing, and infringement
of copyrights are proven. The individual defendants have in turn
dismissed with prejudice all counter claims against the Company for
fraudulent inducement of employment contracts and alleged unpaid bonuses.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | 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, parties to the above-referenced arbitration) 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,
defendants have refused to co-operate, and it is anticipated that
Plaintiffs will seek intervention from the court to proceed.

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)
|    
|99.1 |  |  |  | Officer
certification                                                                                                                     

(b)  Reports on Form 8-K

| |  |                                                                                               
| |  | ----------------------------------------------------------------------------------------------
| |  | No reports on Form 8-K were filed by the Company during the
three months ended March 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:
November 14, 2002 |  | By: /s/ Thomas L. Black                            
|                        |  |                                                    
|                        |  | Thomas L. Black
      Chief Executive Officer      
|                       
|Date: November 14, 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/A 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;                   

|                  |  |     |  |                                                       
|----------------- |  | --- |  | ------------------------------------------------------
|November 14, 2002 |  | /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/A 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;                   

|                  |  |     |  |                                                                   
|----------------- |  | --- |  | ------------------------------------------------------------------
|November 14, 2002 |  | /s/ |  | Gerard M.
Hayden, Jr.Gerard M. Hayden, Jr.
Chief Financial Officer

28