##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM
10-Q/AAMENDMENT NO. 1
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2006
 Commission file number 000-25959
 Goldleaf Financial Solutions, Inc. (f/k/a Private Business, Inc.)
 (Exact name of registrant as specified in its charter)
 Tennessee
    
    62-1453841(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)9020 Overlook Blvd., Brentwood, Tennessee
    
    37027(Address of principal executive offices)
    
    (Zip Code)
 (615) 221-8400
(Registrants telephone number, including area code)
  þ o
  o o þ
  o þ
  Class
    
    Outstanding as of June 5, 2006Common Stock, no par value
    
    15,811,452 shares




---



##### 



GOLDLEAF FINANCIAL SOLUTIONS, INC.
 Form 10-Q
 For Quarter Ended March 31, 2006
 EXPLANATORY NOTE
 
 INDEX
 Part I  Financial
Information
    
    Page No.Item 1 Financial Statements:Unaudited Interim Consolidated Financial DataUnaudited
Consolidated Balance Sheet as of March 31, 2006
    
    
    F-1Unaudited Consolidated Statements of
    Operations for the Three Months Ended March 31, 2006 and
2005
    
    
    F-2Unaudited Consolidated Statements of Cash
    Flows for the Three Months Ended March 31, 2006 and 2005
    
    
    F-3Notes to
Unaudited Consolidated Financial Statements
    
    
    F-5Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    1Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4 Controls and Procedures
    
    
    16Part II  Other InformationItem 1A Risk Factors
    
    
    16Item 6 Exhibits
    
    
    17Signatures
    
    
    18EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                          |  |                                   |        |  |              |   |        | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ |  | ------------ | - | ------ | 
|                                                                                                                                          |  | March 31,                         |        |  | December 31, |  
|                                                                                                                                          |  | 2006                              |        |  | 2005         |  
|                                                                                                                                          |  |                                   |        |  |              |  
|                                                                                                                                          |  | (Unaudited)                       |        |  | (Audited)    |  
|                                                                                                                                          |  | (in thousands, except share data) |       
|Assets                                                                                                                                    |  |                                   |        |  |              |   |        | 
|Current Assets:                                                                                                                           |  |                                   |        |  |              |   |        | 
|Cash and cash equivalents                                                                                                                 |  | $                                 | 1,360  |  |              | $ | 137    | 
|Restricted cash                                                                                                                           |  |                                   | 10,336 |  |              |   | 50     | 
|Accounts receivable trade, net of allowance for doubtful
    accounts of $304 and $206, respectively                                     |  |                                   | 5,312  |  |              |   | 4,773  | 
|Accounts receivable other                                                                                                                |  |                                   | 21     |  |              |   | 26     | 
|Deferred tax assets                                                                                                                       |  |                                   | 430    |  |              |   | 370    | 
|Investment in direct financing leases                                                                                                     |  |                                   | 1,931  |  |              |   | 2,235  | 
|Prepaid and other current assets                                                                                                          |  |                                   | 1,732  |  |              |   | 1,567  | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total current assets                                                                                                                      |  |                                   | 21,122 |  |              |   | 9,158  | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Property and Equipment, Net                                                                                                               |  |                                   | 3,846  |  |              |   | 2,187  | 
|Operating Lease Equipment, Net                                                                                                            |  |                                   | 155    |  |              |   | 187    | 
|Other Assets:                                                                                                                             |  |                                   |        |  |              |   |        | 
|Software development costs, net                                                                                                           |  |                                   | 1,992  |  |              |   | 1,618  | 
|Deferred tax assets                                                                                                                       |  |                                   | 2,723  |  |              |   | 1,456  | 
|Investment in direct financing leases, net of current portion                                                                             |  |                                   | 4,080  |  |              |   | 4,642  | 
|Intangible and other assets, net                                                                                                          |  |                                   | 15,961 |  |              |   | 4,931  | 
|Goodwill                                                                                                                                  |  |                                   | 24,745 |  |              |   | 12,378 | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total other assets                                                                                                                        |  |                                   | 49,501 |  |              |   | 25,025 | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total assets                                                                                                                              |  | $                                 | 74,624 |  |              | $ | 36,557 | 
|                                                                                                                                          |  |                                   |        |  |              |  
|                                                                                                                                         
|Liabilities and Stockholders Equity                                                                                                      |  |                                   |        |  |              |   |        | 
|Current Liabilities:                                                                                                                      |  |                                   |        |  |              |   |        | 
|Accounts payable                                                                                                                          |  | $                                 | 3,805  |  |              | $ | 2,535  | 
|Accrued liabilities                                                                                                                       |  |                                   | 2,585  |  |              |   | 1,582  | 
|Dividends payable                                                                                                                         |  |                                   | 1,052  |  |              |   |       | 
|Deferred revenue                                                                                                                          |  |                                   | 2,926  |  |              |   | 456    | 
|Customer deposits                                                                                                                         |  |                                   | 10,286 |  |              |   |       | 
|Current portion of capital lease obligations                                                                                              |  |                                   | 258    |  |              |   |       | 
|Current portion of non-recourse lease notes payable                                                                                       |  |                                   | 2,061  |  |              |   | 2,336  | 
|Note payable                                                                                                                              |  |                                   | 850    |  |              |   |       | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Current portion of long-term debt                                                                                                         |  |                                   | 8,000  |  |              |   |       | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total current liabilities                                                                                                                 |  |                                   | 31,823 |  |              |   | 6,909  | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Revolving Line of Credit                                                                                                                  |  |                                   | 1,600  |  |              |   |       | 
|Non-Recourse Lease Notes Payable, net of current portion                                                                                  |  |                                   | 3,510  |  |              |   | 4,056  | 
|Deferred Revenue                                                                                                                          |  |                                   | 3,050  |  |              |   |       | 
|Capital Lease Obligations, net of current portion                                                                                         |  |                                   | 1,257  |  |              |   |       | 
|Other Non-Current Liabilities                                                                                                             |  |                                   | 119    |  |              |   | 230    | 
|Long-Term Debt, net of current portion                                                                                                    |  |                                   | 7,750  |  |              |   |       | 
|Note Payable                                                                                                                              |  |                                   | 150    |  |              |   |       | 
|Senior Subordinated Long-Term Debt, net of unamortized discount
    of $1,491                                                             |  |                                   |       |  |              |   | 8,509  | 
|Preferred Stock, Series C redeemable, no par value, 10,000
    shares issued and outstanding; net of unamortized discount of
    $1,416   |  |                                   | 8,584  |  |              |   |       | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total liabilities                                                                                                                         |  |                                   | 57,843 |  |              |   | 19,704 | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Commitments and Contingencies                                                                                                             |  |                                   |        |  |              |   |        | 
|Stockholders Equity:                                                                                                                     |  |                                   |        |  |              |   |        | 
|Common stock, no par value; 100,000,000 shares authorized;
    shares issued and outstanding, 15,811,452 and 15,489,454,
    respectively |  |                                   |       |  |              |   |       | 
|Preferred Stock, 20,000,000 shares authorized:                                                                                            |  |                                   |        |  |              |   |        | 
|Series A non-convertible, no par value; 20,000 shares
    issued and outstanding, respectively                                            |  |                                   | 6,209  |  |              |   | 6,209  | 
|Series B convertible, no par value; 40,031 shares issued
    and outstanding                                                              |  |                                   | 114    |  |              |   | 114    | 
|Additional paid-in capital                                                                                                                |  |                                   | 7,625  |  |              |   | 6,998  | 
|Retained earnings                                                                                                                         |  |                                   | 2,833  |  |              |   | 3,532  | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total Stockholders Equity                                                                                                                |  |                                   | 16,781 |  |              |   | 16,853 | 
|                                                                                                                                          |  |                                   |        |  |              |  
|Total Liabilities and Stockholders Equity                                                                                                |  | $                                 | 74,624 |  |              | $ | 36,557 | 
|                                                                                                                                          |  |                                   |        |  |              |  



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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS 
UNAUDITED


For the Three Months Ended March 31, 2006 and 2005


|                                            |                                       |                       |        |        |      |   |        |       | 
|------------------------------------------- | ------------------------------------- | --------------------- | ------ | ------ | ---- | - | ------ | ----- | 
|                                            |                                       | 2006                  |        |        | 2005 |  
|                                            |                                       |                       |        |        |      |  
|                                            |                                       | (in thousands, except |       
|                                            |                                       | per share data)       |       
|Revenues:                                   |                                       |                       |        |        |      |   |        |      
|                                            | Financial institution service fees    |                       | $      | 10,214 |      |   | $      | 6,960 | 
|                                            | Retail inventory management services  |                       |        | 2,095  |      |   |        | 2,202 | 
|                                            | Other products and services           |                       |        | 722    |      |   |        | 37    | 
|                                            |                                       |                       |        |        |      |  
|Total revenues                              |                                       |                       | 13,031 |        |      |   | 9,199  |      
|                                            |                                       |                       |        |        |      |  
|Cost of Revenues:                           |                                       |                       |        |        |      |   |        |      
|                                            | Financial institution service fees    |                       |        | 1,483  |      |   |        | 544   | 
|                                            | Retail inventory management services  |                       |        | 247    |      |   |        | 287   | 
|                                            |                                       |                       |        |        |      |  
|Gross profit                                |                                       |                       | 11,301 |        |      |   | 8,368  |      
|Operating Expenses:                         |                                       |                       |        |        |      |   |        |      
|                                            | General and administrative            |                       |        | 5,017  |      |   |        | 3,165 | 
|                                            | Selling and marketing                 |                       |        | 5,048  |      |   |        | 4,364 | 
|                                            | Research and development              |                       |        | 247    |      |   |        | 65    | 
|                                            | Amortization                          |                       |        | 463    |      |   |        | 81    | 
|                                            | Other operating (income) expense, net |                       |        | 109    |      |   |        |      | 
|                                            |                                       |                       |        |        |      |  
|Total operating expenses                    |                                       |                       | 10,884 |        |      |   | 7,675  |      
|                                            |                                       |                       |        |        |      |  
|Operating Income                            |                                       |                       | 417    |        |      |   | 693    |      
|Interest Expense, Net                       |                                       |                       | 655    |        |      |   | 70     |      
|                                            |                                       |                       |        |        |      |  
|Income (loss) Before Income Taxes           |                                       |                       | (238   | )      |      |   | 623    |      
|Income tax provision (benefit)              |                                       |                       | (91    | )      |      |   | 244    |      
|                                            |                                       |                       |        |        |      |  
|Net Income (loss)                           |                                       |                       | (147   | )      |      |   | 379    |      
|Preferred stock dividends                   |                                       |                       | 552    |        |      |   | 540    |      
|                                            |                                       |                       |        |        |      |  
|Net Loss Available to Common Shareholders   |                                       | $                     | (699   | )      |      | $ | (161   | )    
|                                            |                                       |                       |        |        |      |  
|Loss Per Share:                             |                                       |                       |        |        |      |   |        |      
|Basic                                       |                                       | $                     | (0.04  | )      |      | $ | (0.01  | )    
|                                            |                                       |                       |        |        |      |  
|Diluted                                     |                                       | $                     | (0.04  | )      |      | $ | (0.01  | )    
|                                            |                                       |                       |        |        |      |  
|Weighted Average Common Shares Outstanding: |                                       |                       |        |        |      |   |        |      
|Basic                                       |                                       |                       | 15,723 |        |      |   | 14,575 |      
|                                            |                                       |                       |        |        |      |  
|Diluted                                     |                                       |                       | 15,723 |        |      |   | 14,575 |      
|                                            |                                       |                       |        |        |      |  



F-2



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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITED


For the Three Months Ended March 31, 2006 and 2005


|                                                                                             |  |                |         |   |      |   |      |  
|-------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ---- | -
|                                                                                             |  | 2006           |         |   | 2005 |  
|                                                                                             |  |                |         |   |      |  
|                                                                                             |  | (in thousands) |        
|Cash Flows From Operating Activities:                                                        |  |                |         |   |      |   |      |  
|Net income (loss)                                                                            |  | $              | (147    | ) |      | $ | 379  |  
|Adjustments to reconcile net income (loss) to net cash
    provided by operating activities: |  |                |         |   |      |   |      |  
|Write-off of debt issuance costs                                                             |  |                | 112     |   |      |   |     |  
|Depreciation and amortization                                                                |  |                | 943     |   |      |   | 525  |  
|Depreciation on fixed assets under operating leases                                          |  |                | 23      |   |      |   |     |  
|Deferred taxes                                                                               |  |                | (76     | ) |      |   | 202  |  
|Amortization of debt issuance costs and discount                                             |  |                | 164     |   |      |   | 24   |  
|Stock option compensation expense                                                            |  |                | 160     |   |      |   | 6    |  
|Deferred gain on land sale                                                                   |  |                | (4      | ) |      |   | (4   | )
|Loss on write-down or disposal of fixed assets and software
    development costs            |  |                | 32      |   |      |   |     |  
|Amortization of lease income and initial direct costs                                        |  |                | (168    | ) |      |   |     |  
|Gain on sale of leased equipment                                                             |  |                | (28     | ) |      |   |     |  
|Gain on sale of other assets                                                                 |  |                | (40     | ) |      |   |     |  
|Changes in assets and liabilities:                                                           |  |                |         |   |      |   |      |  
|Accounts receivable                                                                          |  |                | (107    | ) |      |   | (15  | )
|Prepaid and other current assets                                                             |  |                | 281     |   |      |   | 140  |  
|Accounts payable                                                                             |  |                | 581     |   |      |   | (440 | )
|Accrued liabilities                                                                          |  |                | (236    | ) |      |   | (309 | )
|Deferred revenue                                                                             |  |                | 570     |   |      |   | (100 | )
|Other non-current liabilities                                                                |  |                | 6       |   |      |   |     |  
|                                                                                             |  |                |         |   |      |  
|Net cash provided by operating activities                                                    |  |                | 2,066   |   |      |   | 408  |  
|                                                                                             |  |                |         |   |      |  
|Cash Flows From Investing Activities:                                                        |  |                |         |   |      |   |      |  
|Acquisition of P.T.C. Banking assets                                                         |  |                | (968    | ) |      |   |     |  
|Acquisition of Goldleaf Technologies, Inc, net of cash acquired                              |  |                | (16,396 | ) |      |   |     |  
|Investment in direct financing leases                                                        |  |                | (29     | ) |      |   |     |  
|Lease receivables paid                                                                       |  |                | 993     |   |      |   |     |  
|Proceeds from lease terminations                                                             |  |                | 27      |   |      |   |     |  
|Proceeds received from sale of other assets                                                  |  |                | 62      |   |      |   |     |  
|Additions to property and equipment                                                          |  |                | (170    | ) |      |   | (66  | )
|Additions to intangibles and other assets                                                    |  |                | (10     | ) |      |   |     |  
|Software development costs                                                                   |  |                | (496    | ) |      |   | (153 | )
|Payments received on notes receivable                                                        |  |                | 14      |   |      |   |     |  
|                                                                                             |  |                |         |   |      |  
|Net cash used in investing activities                                                        |  |                | (16,973 | ) |      |   | (219 | )
|                                                                                             |  |                |         |   |      |  

F-3



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITED


For the Three Months Ended March 31, 2006 and 2005


|                                                                                                                                   |  |                |        |   |      |   |      |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ---- | -
|                                                                                                                                   |  | 2006           |        |   | 2005 |  
|                                                                                                                                   |  |                |        |   |      |  
|                                                                                                                                   |  | (in thousands) |       
|Cash Flows From Financing Activities:                                                                                              |  |                |        |   |      |   |      |  
|Repayments on long-term debt                                                                                                       |  | $              | (250   | ) |      | $ | (416 | )
|Repayments on capital lease obligations                                                                                            |  |                | (42    | ) |      |   |     |  
|Proceeds from amended and restated debt facility with Bank of
    America, net of issuance cost of $425                            |  |                | 15,575 |   |      |   |     |  
|Proceeds from revolving line of credit, net                                                                                        |  |                | 1,493  |   |      |   | 400  |  
|Repayments of non-recourse lease financing notes payable                                                                           |  |                | (658   | ) |      |   |     |  
|Proceeds from non-recourse lease financing notes payable                                                                           |  |                | 6      |   |      |   |     |  
|Proceeds from exercise of employee stock options                                                                                   |  |                | 2      |   |      |   | 358  |  
|Stock issued through employee stock purchase plan                                                                                  |  |                | 4      |   |      |   | 9    |  
|Payments of preferred dividends declared                                                                                           |  |                |       |   |      |   | (540 | )
|                                                                                                                                   |  |                |        |   |      |  
|Net cash provided by (used in) financing activities                                                                                |  |                | 16,130 |   |      |   | (189 | )
|                                                                                                                                   |  |                |        |   |      |  
|Net Change in Cash and Cash Equivalents                                                                                            |  |                | 1,223  |   |      |   |     |  
|Cash and Cash Equivalents at beginning of year                                                                                     |  |                | 137    |   |      |   | 7    |  
|                                                                                                                                   |  |                |        |   |      |  
|Cash and Cash Equivalents at end of period                                                                                         |  | $              | 1,360  |   |      | $ | 7    |  
|                                                                                                                                   |  |                |        |   |      |  
|Supplemental Cash Flow Information:                                                                                                |  |                |        |   |      |   |      |  
|Cash payments for income taxes during period                                                                                       |  | $              | 58     |   |      | $ | 119  |  
|                                                                                                                                   |  |                |        |   |      |  
|Cash payments of interest during period                                                                                            |  | $              | 267    |   |      | $ | 45   |  
|                                                                                                                                   |  |                |        |   |      |  
|Noncash Investing Activities:                                                                                                      |  |                |        |   |      |   |      |  
|Issuance of 314,768 common shares as purchase consideration in
    the Goldleaf Technologies, Inc. and P.T.C. Banking acquisitions |  | $              | 461    |   |      | $ |     |  
|                                                                                                                                   |  |                |        |   |      |  
|Issuance of note payable to Goldleaf executive for signing bonus                                                                   |  | $              | 1,000  |   |      | $ |     |  
|                                                                                                                                   |  |                |        |   |      |  



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED




|   |            
|-- | -----------
|A. | The Company





|   |                                           
|-- | ------------------------------------------
|B. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

10-01 S-X.




10-K




| |                            
| | ---------------------------
| | Principles of Consolidation



10-Q 10-K




| |                     
| | --------------------
| | Comprehensive Income

Reporting Comprehensive Income




| |                         
| | ------------------------
| | Stock-Based Compensation

Share-Based Payment,


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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




non-qualified










| |   |                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The expected volatility is estimated based on the historical
    volatility of the Companys stock over the contractual life
    of the options and the Companys expectations regarding
    stock volatility in the future.                                                                               
|
| |  | The Company uses historical data to estimate option exercise and
    employee termination behavior within the valuation model; the
    expected life of options granted is derived from historical
    Company experience and represents the period of time the options
    are expected to be outstanding.

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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk-free interest rate is based on the U.S. Treasury yield
    curve in effect at the time of grant for periods within the
    contractual life of the option.

|                              |  |                         |           |   |      |  |         |  
|----------------------------- |  | ----------------------- | --------- | - | ---- |  | ------- | -
|                              |  | Quarter Ended March 31, |          
|                              |  |                         |          
|                              |  | 2006                    |           |   | 2005 | 
|                              |  |                         |           |   |      | 
|Dividend yield range          |  |                         | 0.0       | % |      |  | 0.0     | %
|Expected volatility           |  |                         | 58        | % |      |  | 75      | %
|Risk-free interest rate range |  |                         | 4.5       | % |      |  | 4.0     | %
|Expected term (in years)      |  |                         | 6.2 years |   |      |  | 8 years |  





|                                      |  |                  |           |                  |                |   |           |                  |  |           |           |  |  |   |           | 
|------------------------------------- |  | ---------------- | --------- | ---------------- | -------------- | - | --------- | ---------------- |  | --------- | --------- |  |  | - | --------- | 
|                                      |  |                  |           | Weighted Average |                |   | Remaining |                  |  | Intrinsic |          
|                                      |  | Number of Shares |           |                  | Exercise Price |   |           | Contractual Life |  |           | Value     | 
|                                      |  |                  |           |                  |                |   |           |                  |  |           |           | 
|Balance of December 31, 2005          |  |                  | 5,363,296 |                  |                | $ | 2.24      |                  |  |           |           |  |  |   |           | 
|Granted                               |  |                  | 1,777,300 |                  |                |   | 1.33      |                  |  |           |           |  |  |   |           | 
|Exercised                             |  |                  | (2,800    | )                |                |   | 0.59      |                  |  |           |           |  |  |   |           | 
|Canceled                              |  |                  | (94,677   | )                |                |   | 2.17      |                  |  |           |           |  |  |   |           | 
|                                      |  |                  |           |                  |                |   |           |                  |  |           |           | 
|Balance of March 31, 2006             |  |                  | 7,043,119 |                  |                | $ | 1.94      |                  |  |           | 8.4 years |  |  | $ | 2,389,427 | 
|                                      |  |                  |           |                  |                |   |           |                  |  |           |           | 
|Balance exercisable at March 31, 2006 |  |                  | 1,689,828 |                  |                | $ | 3.78      |                  |  |           | 7.4 years |  |  | $ | 443,455   | 
|                                      |  |                  |           |                  |                |   |           |                  |  |           |           | 







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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




|                                                                                                                                                 |  |                    |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | -
|                                                                                                                                                 |  | Three Months Ended |      
|                                                                                                                                                 |  | March 31, 2005     |      
|                                                                                                                                                 |  |                    |      
|                                                                                                                                                 |  | (In thousands,     |      
|                                                                                                                                                 |  | except per share   |      
|                                                                                                                                                 |  | data)              |      
|Net loss available to common shareholders, as reported                                                                                           |  | $                  | (161  | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects                                     |  |                    | 4     |  
|Add: Total stock-based employee compensation expense determined
    under fair value based method for all awards, net of related tax
    effects |  |                    | 15    |  
|                                                                                                                                                 |  |                    |      
|Pro forma net loss                                                                                                                               |  | $                  | (142  | )
|                                                                                                                                                 |  |                    |      
|Loss per share:                                                                                                                                  |  |                    |       |  
|Basic  as reported                                                                                                                              |  | $                  | (0.01 | )
|                                                                                                                                                 |  |                    |      
|Basic  pro forma                                                                                                                                |  | $                  | (0.01 | )
|                                                                                                                                                 |  |                    |      
|Diluted  as reported                                                                                                                            |  | $                  | (0.01 | )
|                                                                                                                                                 |  |                    |      
|Diluted  pro forma                                                                                                                              |  | $                  | (0.01 | )
|                                                                                                                                                 |  |                    |      



|   |                  
|-- | -----------------
|C. | Reclassifications

10-Q.






|   |             
|-- | ------------
|D. | Acquisitions



| |                                       
| | --------------------------------------
| | Assets of P.T.C. Banking Systems, Inc.



F-8



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)


Business
Combinations


|                                                        |  |   |       | 
|------------------------------------------------------- |  | - | ----- | 
|(In thousands, except per share amounts)                | 
|Purchase Price:                                         |  |   |       | 
|Cash                                                    |  | $ | 949   | 
|Common shares (42,427 shares valued at $1.46 per share) |  |   | 61    | 
|Direct costs of acquisition                             |  |   | 19    | 
|                                                        |  |   |      
|Total purchase price                                    |  | $ | 1,029 | 
|                                                        |  |   |      
|Value assigned to assets and liabilities:               |  |   |       | 
|Assets:                                                 |  |   |       | 
|Current assets                                          |  |   | 10    | 
|Property and equipment                                  |  |   | 38    | 
|Customer list (estimated life of ten years)             |  |   | 150   | 
|Acquired technology (estimated life of five years)      |  |   | 500   | 
|Trademarks/tradenames (indefinite life)                 |  |   | 50    | 
|Non-compete (estimated life of three years)             |  |   | 75    | 
|Goodwill/unidentified intangibles                       |  |   | 476   | 
|Liabilities:                                            |  |   |       | 
|Accounts payable                                        |  |   | 10    | 
|Accrued liabilities                                     |  |   | 10    | 
|Deferred revenue                                        |  |   | 250   | 
|                                                        |  |   |      
|Total net assets                                        |  | $ | 1,029 | 
|                                                        |  |   |      





| |                            
| | ---------------------------
| | Goldleaf Technologies, Inc.



F-9



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)


Business Combinations


|                                                                             |  |   |        | 
|---------------------------------------------------------------------------- |  | - | ------ | 
|(In thousands except share amounts)                                          | 
|Purchase Price:                                                              |  |   |        | 
|Cash (includes $830,000 paid to executives considered as
    purchase price) |  | $ | 17,615 | 
|Note payable to executive                                                    |  |   | 1,000  | 
|Common shares (272,341 shares valued at $1.47 per share)                     |  |   | 400    | 
|Direct acquisition costs                                                     |  |   | 186    | 
|                                                                             |  |   |       
|Total purchase price                                                         |  | $ | 19,201 | 
|                                                                             |  |   |       
|Value assigned to assets and liabilities:                                    |  |   |        | 
|Assets:                                                                      |  |   |        | 
|Cash                                                                         |  | $ | 1,405  | 
|Restricted cash                                                              |  |   | 11,258 | 
|Accounts receivable                                                          |  |   | 560    | 
|Other current assets                                                         |  |   | 156    | 
|Property and equipment                                                       |  |   | 1,811  | 
|Deferred tax asset                                                           |  |   | 1,250  | 
|Customer list (estimated life of ten years)                                  |  |   | 5,000  | 
|Acquired technology (estimated life of seven years)                          |  |   | 2,000  | 
|Trademarks/tradenames (indefinite life)                                      |  |   | 1,000  | 
|Product patents (estimated life of twenty years)                             |  |   | 2,000  | 
|Non-compete (estimated life of three years)                                  |  |   | 500    | 
|Goodwill/unidentified intangibles                                            |  |   | 11,772 | 
|Liabilities:                                                                 |  |   |        | 
|Accounts payable                                                             |  |   | 738    | 
|Accrued liabilities                                                          |  |   | 1,638  | 
|Customer deposits                                                            |  |   | 11,258 | 
|Capital lease obligations                                                    |  |   | 1,557  | 
|Deferred revenue                                                             |  |   | 4,320  | 
|                                                                             |  |   |       
|Total net assets                                                             |  | $ | 19,201 | 
|                                                                             |  |   |       







| |                                                              
| | -------------------------------------------------------------
| | ACH Manager and Client (ACH) and Remote Deposit
    Revenue

Revenue Arrangements
with Multiple Deliverables


F-10



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)






| |                           
| | --------------------------
| | Website Design and Hosting



E.     Debt




|                                   |  |   |                 | 
|---------------------------------- |  | - | --------------- | 
|March 31, and June 30, 2006        |  | $ | 250,000/quarter | 
|September 30 and December 31, 2006 |  | $ | 500,000/quarter | 
|Thereafter (until maturity)        |  | $ | 750,000/quarter | 





F-11



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity,










F.     Net Income Per Share




F-12



---



##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)






|                                                            |  |                 |        |   |      |   |        |  
|----------------------------------------------------------- |  | --------------- | ------ | - | ---- | - | ------ | -
|                                                            |  | Three Months    |       
|                                                            |  | Ended March 31, |       
|                                                            |  |                 |       
|                                                            |  | 2006            |        |   | 2005 |  
|                                                            |  |                 |        |   |      |  
|                                                            |  | (In thousands)  |       
|Net loss available to common shareholders                   |  | $               | (699   | ) |      | $ | (161   | )
|                                                            |  |                 |        |   |      |  
|Weighted average common shares outstanding                  |  |                 | 15,723 |   |      |   | 14,575 |  
|Plus additional shares from common stock equivalent shares: |  |                 |        |   |      |   |        |  
|Options and convertible preferred stock                     |  |                 | 0      |   |      |   | 0      |  
|                                                            |  |                 |        |   |      |  
|Diluted weighted average common shares outstanding          |  |                 | 15,723 |   |      |   | 14,575 |  
|                                                            |  |                 |        |   |      |  



G.     Legal Proceedings




H.     Segment Information


Disclosures about Segments of an
Enterprise and Related Information.




|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |   |       |  |  |   |        | 
|----------------------------------------------------- |  | --------------------------------- | ------ | ------ | --------------------------------- | - | ----- | ----- |  | ----------- | ------------ | - | ---------- | -------- | ------ |  | ----- | - | ----- |  |  | - | ------ | 
|                                                      |  | Three Months Ended March 31, 2006 |        |        | Three Months Ended March 31, 2005 |  
|                                                      |  |                                   |        |        |                                   |  
|                                                      |  |                                   |        | Retail |                                   |   |       |       |  |             | Retail       |   |            |         
|                                                      |  | Financial                         |        |        | Inventory                         |   |       |       |  | Financial   |              |   | Inventory  |          |        | 
|                                                      |  | Institution                       |        |        | Management                        |   |       |       |  | Institution |              |   | Management |          |        | 
|                                                      |  | Service Fees                      |        |        | Services                          |   |       | Total |  |             | Service Fees |   |            | Services |        |  | Total |  
|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |  
|                                                      |  | (In thousands)                    |       
|Revenues                                              |  | $                                 | 10,928 |        |                                   | $ | 2,103 |       |  | $           | 13,031       |   |            | $        | 6,997  |  |       | $ | 2,202 |  |  | $ | 9,199  | 
|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |  
|(Loss) income before taxes                            |  |                                   | (638   | )      |                                   |   | 400   |       |  |             | (238         | ) |            |          | 346    |  |       |   | 277   |  |  |   | 623    | 
|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |  
|Assets                                                |  |                                   | 70,990 |        |                                   |   | 3,634 |       |  |             | 74,624       |   |            |          | 16,646 |  |       |   | 4,012 |  |  |   | 20,658 | 
|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |  
|Total expenditures for additions to long-lived assets |  | $                                 | 664    |        |                                   | $ | 12    |       |  | $           | 676          |   |            | $        | 219    |  |       | $ | 0     |  |  | $ | 219    | 
|                                                      |  |                                   |        |        |                                   |   |       |       |  |             |              |   |            |          |        |  |       |  

F-13



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




|   |                    
|-- | -------------------
|I. | Stock Option Grants

one-fourth




|   |                                                
|-- | -----------------------------------------------
|J. | Supplemental Unaudited Pro Forma Financial Data



|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |    |  |  |   |        |  
|------------------------------------------------------------- |  | ------------------------------------------- | ------ | ----------- | --- | - | ----- |  |  | ----- |  | - | ---- | - | ------ | - |  | ----- | -- |  |  | - | ------ | -
|                                                              |  | Unaudited Pro Forma Statement of Operations |       
|                                                              |  | For The Three Months Ended March 31, 2006   |       
|                                                              |  |                                             |       
|                                                              |  |                                             |        | Unaudited   |     |   |      
|                                                              |  |                                             |        | Pro Forma   |     |   |      
|                                                              |  |                                             |        | Adjustments |     |   |      
|                                                              |  |                                             |        |             |     |   |      
|                                                              |  | Goldleaf                                    |        |             | GTI |   |       |  |  | Debit |  |   |      |   | Credit |   |  | Total |   
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|                                                              |  | (In thousands, except per share data)       |       
|Revenues                                                      |  | $                                           | 13,031 |             |     | $ | 1,014 |  |  | A     |  | $ | 41   |   |        |   |  |       |    |  |  | $ | 14,004 |  
|                                                              |  |                                             |        |             |     |   |       |  |  | B     |  |   | 88   |   |        |   |  |       |    |  |  |   |        |  
|Operating expenses                                            |  |                                             | 12,614 |             |     |   | 1,010 |  |  | C     |  |   | 6    |   |        |   |  |       |    |  |  |   | 13,718 |  
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Operating income (loss)                                       |  |                                             | 417    |             |     |   | 4     |  |  |       |  |   | (135 | ) |        |   |  |       |    |  |  |   | 286    |  
|Interest expense, net                                         |  |                                             | 655    |             |     |   | 0     |  |  | D     |  |   | 87   |   |        |   |  |       |    |  |  |   | 742    |  
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Income (loss) before provision (benefit) for income
    taxes |  |                                             | (238   | )           |     |   | 4     |  |  |       |  |   | (222 | ) |        |   |  |       |    |  |  |   | (456   | )
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Income tax benefit                                            |  |                                             | 91     |             |     |   | 0     |  |  |       |  |   | 0    |   |        | E |  |       | 87 |  |  |   | 178    |  
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Net loss                                                      |  |                                             | (147   | )           |     |   | 4     |  |  |       |  |   | (222 | ) |        |   |  |       | 87 |  |  |   | (278   | )
|Preferred dividends                                           |  |                                             | 552    |             |     |   | 0     |  |  |       |  |   | 0    |   |        |   |  |       | 0  |  |  |   | 552    |  
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Net loss available to common shareholders                     |  | $                                           | (699   | )           |     | $ | 4     |  |  |       |  |   | (222 | ) |        | E |  |       | 87 |  |  | $ | (830   | )
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   
|Diluted earnings (loss) per share                             |  | $                                           | (0.04  | )           |     |   |       |  |  |       |  |   |      |   |        |   |  |       |    |  |  | $ | (0.05  | )
|                                                              |  |                                             |        |             |     |   |       |  |  |       |  |   |      |   |        |   |  |       |   

F-14



---



##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)


|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           |  |   |       |  |  |   |        |  
|----------------------------------------------------- |  | ------------------------------------------- | ------ | --------------------- | ------- | - | ----- | ----------- |  | - | ---- | - |  | - | ------ | ----- |  | - |  | - | ------ | - |  | --------- |  | - | ----- |  |  | - | ------ | -
|                                                      |  | Unaudited Pro Forma Statement of Operations |       
|                                                      |  | For The Year Ended December 31, 2005        |       
|                                                      |  |                                             |       
|                                                      |  |                                             |        | Unaudited             |         |   |      
|                                                      |  |                                             |        | Pro Forma Adjustments |         |   |      
|                                                      |  |                                             |        |                       |         |   |      
|                                                      |  | Goldleaf                                    |        |                       | Captiva |   |       | KVI Capital |  |   | GTI  |   |  |   |        | Debit |  |   |  |   | Credit |   |  | Pro Forma | 
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|                                                      |  | (In thousands, except per share data)       |       
|Revenues                                              |  | $                                           | 38,351 |                       |         | $ | 1,713 |             |  | $ | 757  |   |  | $ | 9,412  |       |  | A |  | $ | 917    |   |  |           |  | $ |       |  |  | $ | 49,316 |  
|Operating expenses                                    |  |                                             | 34,276 |                       |         |   | 2,289 |             |  |   | 935  |   |  |   | 10,721 |       |  | B |  |   | 1,124  |   |  |           |  |   |       |  |  |   |        |  
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  | C |  |   | 468    |   |  |           |  |   |       |  |  |   | 49,813 |  
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Operating income (loss)                               |  |                                             | 4,075  |                       |         |   | (576  | )           |  |   | (178 | ) |  |   | (1,309 | )     |  |   |  |   | (2,509 | ) |  |           |  |   |       |  |  |   | (497   | )
|Interest expense, net                                 |  |                                             | 381    |                       |         |   | 164   |             |  |   | 91   |   |  |   | (39    | )     |  | D |  |   | 2,369  |   |  |           |  |   |       |  |  |   | 2,966  |  
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Total other expenses                                  |  |                                             | 381    |                       |         |   | 164   |             |  |   | 91   |   |  |   | (39    | )     |  | D |  |   | 2,369  |   |  |           |  |   |       |  |  |   | 2,966  |  
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Income (loss) before provision for income taxes       |  |                                             | 3,694  |                       |         |   | (740  | )           |  |   | (269 | ) |  |   | (1,270 | )     |  |   |  |   | (4,878 | ) |  |           |  |   |       |  |  |   | (3,463 | )
|Provision (benefit) for income taxes                  |  |                                             | 1,359  |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  | E         |  |   | 2,710 |  |  |   | (1,351 | )
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Net income (loss)                                     |  |                                             | 2,335  |                       |         |   | (740  | )           |  |   | (269 | ) |  |   | (1,270 | )     |  |   |  |   | (4,878 | ) |  |           |  |   | 2,710 |  |  |   | (2,112 | )
|Preferred stock dividends                             |  |                                             | 2,160  |                       |         |   |       |             |  |   |      |   |  |   | 2,915  |       |  |   |  |   |        |   |  | F         |  |   | 2,915 |  |  |   | 2,160  |  
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Net income (loss) attributable to common shareholders |  |                                             | 175    |                       |         |   | (740  | )           |  |   | (269 | ) |  |   | (4,185 | )     |  |   |  |   | (4,878 | ) |  |           |  |   | 5,625 |  |  |   | (4,272 | )
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 
|Diluted earnings (loss) per share                     |  | $                                           | 0.01   |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           |  |   |       |  |  | $ | (0.28  | )
|                                                      |  |                                             |        |                       |         |   |       |             |  |   |      |   |  |   |        |       |  |   |  |   |        |   |  |           | 







| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A. | To reduce revenues for GTI related to estimated deferred
    revenues that would not have been realized had we acquired GTI
    as of January 1, 2006 and January 1, 2005,
    respectively, and recorded the deferred service obligation at
    its estimated fair value as of that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | B. | To increase amortization expense of new intangibles recorded as
    a result of the acquisitions. For 2006, the pro forma amounts
    assume that the Company recorded approximately
    $10.5 million of identified intangibles, consisting of
    acquired technology ($2.0 million), customer lists
    ($5.0 million),
    non-compete agreements
    ($500,000), tradenames and trademarks ($1.0 million) and
    product patents ($2.0 million), and that the Company
    amortizes these amounts over estimated useful lives of seven,
    ten, three, indefinite and twenty years, respectively. For
    2005, the pro forma amounts assume that the Company
    recorded approximately $13.7 million of identified
    intangibles, consisting of acquired technology
    ($2.8 million), customer lists ($6.6 million), vendor
    program ($0.1 million),
    non-compete agreements
    ($1.2 million), tradenames and trademarks
    ($1.0 million) and product patents ($2.0 million), and
    that the Company amortizes these amounts over estimated average
    useful lives of five, ten, seven, three, indefinite, and
    twenty years, respectively.
|
| | C. | To increase general and administrative costs for the increased
    salary of the Companys new chief executive officer and
    executive officers of KVI Capital and GTI based on the
    employment agreements executed as part of these acquisitions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-15



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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | D. | To increase interest expense for additional debt we acquired to
    fund the purchase prices of KVI Capital, Captiva and GTI.
    The Company has estimated interest expense assuming a weighted
    average interest rate for the two debt instruments used to
    complete the transactions: the $10.0 million Lightyear
    Series C redeemable preferred stock at 10% (as received in
    exchange for a $10.0 million subordinated note we
    originally issued) and the $18.0 million Bank of America
    credit facility. Therefore, the pro forma interest expense was
    calculated using an interest rate of 7.5% (2006) and 8.3%
    (2005) and includes accretion of the debt discount (related
    to common stock warrants issued to Lightyear in connection with
    the $10.0 million financing ) using the effective interest
    method.
|
| | E. | To record income tax effects of the pro forma adjustments
    at the Companys effective rate of 39%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | F. | To reduce preferred dividends for the elimination of
    GTI dividends ($2.9 million in 2005). As a result of
our acquisition of Goldleaf Technologies, it no longer has a
preferred stockholder. Therefore, on a pro forma basis, no preferred
stock dividends would have existed in 2005 related to Goldleaf
Technologies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                









|   |                          
|-- | -------------------------
|K. | Related Party Transaction



F-16



---



##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED(Continued)






|   |                  
|-- | -----------------
|L. | Subsequent Events







| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an additional 500 shares of Series A preferred stock to
    Lightyear in lieu of $500,000 in cash dividends that became due
    on January 1, 2006 on the Series A preferred stock;    
|
| |  | an additional 512.5 shares of Series A preferred stock to
    Lightyear in lieu of $512,500 in cash dividends that became due
    on April 1, 2006 on the Series A preferred stock; and
|
| |  | warrants to Lightyear that give Lightyear the right to purchase
    767,045 shares of our common stock at an exercise price of $1.32
    per share.                                    



F-17



---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended March 31, 2006 and 2005
 Note Regarding Forward Looking Information
   Overview
   
    growing competition with larger national and regional banks;
    the emergence of non-traditional competitors;
    the compression of margins on traditional products;
    the convergence of financial products into a single institution;
    and
    legislative changes accelerating the need for financial
    institutions to offer a wider range of products and services to
    their customers.    1




---



##### Table of Contents







| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | Captiva, which added core data processing as well as image and
    item processing;                              
|
| |  | P.T.C., which added teller automation systems; and                                                               
|
| |  | Goldleaf Technologies, which added ACH processing, remote
    capture processing, and website design and hosting.





Revenues






| |   |                                          
| | - | -----------------------------------------
| |  | financial institution service fees;      
|
| |  | retail inventory management services; and
|
| |  | other products and services.             

Financial Institution Service Fees






| |   |                                                       
| | - | ------------------------------------------------------
| |  | participation fees and insurance brokerage fees;      
|
| |  | core data processing and image processing fees;       
|
| |  | software license and maintenance fees;                
|
| |  | ACH origination and processing fees;                  
|
| |  | remote capture and deposit processing fees;           
|
| |  | leasing revenues; and                                 
|
| |  | financial institution website design and hosting fees.

Participation Fees, Insurance Brokerage Fees and Maintenance
Fees from Our Accounts Receivable Financing Solution.




Core Data Processing and Image Processing Fees.


2



---



##### Table of Contents





Software License and Maintenance Fees.


ACH Origination and Processing, Remote Capture and
Deposit Processing Fees.


Leasing Revenues.


Financial Institution Website Design and Hosting Fees.


Retail Inventory Management Services




Other Products and Services






3



---



##### Table of Contents



Results of Operations




|                                  |                                       |                          |                 |      |      |       |  |      |      |       | 
|--------------------------------- | ------------------------------------- | ------------------------ | --------------- | ---- | ---- | ----- |  | ---- | ---- | ----- | 
|                                  |                                       |                          | Three Months    |     
|                                  |                                       |                          | Ended March 31, |     
|                                  |                                       |                          |                 |     
|                                  |                                       |                          | 2005            |      |      | 2006  | 
|                                  |                                       |                          |                 |      |      |       | 
|Revenues:                         |                                       |                          |                 |      |      |       |  |      |     
|                                  | Financial institution service fees    |                          |                 |      | 75.7 | %     |  |      | 78.4 | %    
|                                  | Retail inventory management services  |                          |                 |      | 23.9 |       |  |      | 16.1 |      
|                                  | Other products and services           |                          |                 |      | 0.4  |       |  |      | 5.5  |      
|                                  |                                       |                          |                 |      |      |       | 
|                                  |                                       | Total revenues           |                 |      |      | 100.0 |  |      |      | 100.0 | 
|Cost of revenues:                 |                                       |                          |                 |      |      |       |  |      |     
|                                  | Financial institution service fees    |                          |                 |      | 5.9  |       |  |      | 11.4 |      
|                                  | Retail inventory management services  |                          |                 |      | 3.1  |       |  |      | 1.9  |      
|Gross profit                      |                                       |                          |                 | 91.0 |      |       |  | 86.7 |     
|Operating expenses:               |                                       |                          |                 |      |      |       |  |      |     
|                                  | General and administrative            |                          |                 |      | 34.4 |       |  |      | 38.5 |      
|                                  | Selling and marketing                 |                          |                 |      | 47.5 |       |  |      | 38.7 |      
|                                  | Research and development              |                          |                 |      | 0.7  |       |  |      | 1.9  |      
|                                  | Amortization                          |                          |                 |      | 0.9  |       |  |      | 3.6  |      
|                                  | Other operating (income) expense, net |                          |                 |      | 0.0  |       |  |      | 0.8  |      
|                                  |                                       |                          |                 |      |      |       | 
|                                  |                                       | Total operating expenses |                 |      |      | 83.5  |  |      |      | 83.5  | 
|                                  |                                       |                          |                 |      |      |       | 
|Operating income                  |                                       |                          |                 | 7.5  |      |       |  | 3.2  |     
|Interest expense, net             |                                       |                          |                 | (0.8 | )    |       |  | (5.0 | )   
|Other income                      |                                       |                          |                 | 0.0  |      |       |  | 0.0  |     
|                                  |                                       |                          |                 |      |      |       | 
|Income (loss) before income taxes |                                       |                          |                 | 6.7  |      |       |  | (1.8 | )   
|Income tax provision (benefit)    |                                       |                          |                 | 2.7  |      |       |  | (0.7 | )   
|                                  |                                       |                          |                 |      |      |       | 
|Net income (loss)                 |                                       |                          |                 | 4.0  | %    |       |  | (1.1 | )%  
|                                  |                                       |                          |                 |      |      |       | 





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2006 Compared to Three
    Months Ended March 31, 2005



Financial Institution Service Fees.


4



---



##### Table of Contents





Retail Inventory Management Services.


Other Products and Services.


Cost of Revenues  financial institution service
fees.


Cost of Revenues  retail inventory management
services.


General and Administrative.


5



---



##### Table of Contents



Selling and Marketing.


Research and Development.


Amortization.


Other Operating (Income) Expense, Net.


Operating Income.


Interest Expense, Net.


Income Tax Provision (Benefit).


6



---



##### Table of Contents



Critical Accounting Policies








| |                    
| | -------------------
| | Revenue Recognition



Financial institution service fees.








97-2,




00-21, Revenue Arrangements with Multiple Deliverables.


7



---



##### Table of Contents













8



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Retail Inventory Management Services





| |                            
| | ---------------------------
| | Other Products and Services





| |                           
| | --------------------------
| | Software Development Costs

Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use




| |             
| | ------------
| | Income Taxes

Accounting for Income Taxes


9



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##### Table of Contents







| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Fair Value of Assets Acquired and Liabilities Assumed in
    Business Combinations

Accounting for the Impairment or
Disposal of Long-Lived Assets




| |                                                  
| | -------------------------------------------------
| | Long-Lived Assets, Intangible Assets and Goodwill





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected historical or
    projected future operating results,              
|
| |  | significant changes in the manner of our use of the acquired
    assets or the strategy for our overall business, and
|
| |  | significant negative industry or economic trends.                                                                    



Liquidity and Capital Resources




|                                                    |  |   |                             |   |  |      |         |  
|--------------------------------------------------- |  | - | --------------------------- | - |  | ---- | ------- | -
|                                                    |  |   | Three Months EndedMarch 31, |  
|                                                    |  |   |                             |  
|                                                    |  |   | 2005                        |   |  | 2006 |        
|                                                    |  |   |                             |   |  |      |        
|Net cash provided by operating activities           |  | $ | 408                         |   |  | $    | 2,066   |  
|Net cash used in investing activities               |  |   | (219                        | ) |  |      | (16,973 | )
|Net cash provided by (used in) financing activities |  |   | (189                        | ) |  |      | 16,130  |  

10



---



##### Table of Contents





| |                               
| | ------------------------------
| | Cash from Operating Activities





| |                               
| | ------------------------------
| | Cash from Investing Activities





| |                               
| | ------------------------------
| | Cash from Financing Activities





| |                                       
| | --------------------------------------
| | Analysis of Changes in Working Capital





11



---



##### Table of Contents





| |                                                                         
| | ------------------------------------------------------------------------
| | Obligations and Commitments for Future Payments as of
    March 31, 2006



|                                     |  |                |        |                        |        |   |        |       |  |     |        |  |           |       |        |  |  |   |       | 
|------------------------------------ |  | -------------- | ------ | ---------------------- | ------ | - | ------ | ----- |  | --- | ------ |  | --------- | ----- | ------ |  |  | - | ----- | 
|                                     |  |                |        | Payments Due by Period |       
|                                     |  |                |        |                        |       
|                                     |  |                |        | Less                   |        |   |       
|                                     |  |                |        | Than                   |        |   | 1-2    |       |  | 3-4 |        |  | 5 Years & |      
|Contractual Obligations              |  | Total          |        |                        | 1 Year |   |        | Years |  |     | Years  |  |           | After |       
|                                     |  |                |        |                        |        |   |        |       |  |     |        |  |           |       |       
|                                     |  | (In thousands) |       
|Revolving line of credit             |  | $              | 1,600  |                        |        | $ |       |       |  | $   | 1,600  |  |           | $     |       |  |  | $ |      | 
|Short-term debt                      |  |                | 6,000  |                        |        |   | 6,000  |       |  |     |       |  |           |       |       |  |  |   |      | 
|Capital lease obligations(1)         |  |                | 1,515  |                        |        |   | 258    |       |  |     | 403    |  |           |       | 814    |  |  |   | 40    | 
|Long-term debt(2)                    |  |                | 9,750  |                        |        |   | 2,000  |       |  |     | 7,750  |  |           |       |       |  |  |   |      | 
|Operating leases                     |  |                | 8,063  |                        |        |   | 2,278  |       |  |     | 2,226  |  |           |       | 1,984  |  |  |   | 1,575 | 
|Note payable                         |  |                | 1,000  |                        |        |   | 850    |       |  |     | 150    |  |           |       |       |  |  |   |      | 
|Series C redeemable preferred stock  |  |                | 10,000 |                        |        |   |       |       |  |     |       |  |           |       | 10,000 |  |  |   |      | 
|                                     |  |                |        |                        |        |   |        |       |  |     |        |  |           |       |       
|Total contractual cash obligations   |  | $              | 37,928 |                        |        | $ | 11,386 |       |  | $   | 12,129 |  |           | $     | 12,798 |  |  | $ | 1,615 | 
|                                     |  |                |        |                        |        |   |        |       |  |     |        |  |           |       |       
|Standby letters of credit commitment |  | $              | 400    |                        |        | $ | 400    |       |  | $   |       |  |           | $     |       |  |  | $ |      | 
|                                     |  |                |        |                        |        |   |        |       |  |     |        |  |           |       |       




|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In connection with our acquisition of Goldleaf Technologies on
    January 31, 2006, we assumed certain capital lease
    obligations of Goldleaf Technologies. The capital leases are
    primarily for computer hardware equipment in Goldleaf
    Technologies data centers.
|   
|(2) | Debt excludes non-recourse lease notes payable of approximately
    $5.6 million, which are non-recourse to us and are secured
    by the leased equipment purchased using the proceeds of the
    non-recourse notes.                                                          



12



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##### Table of Contents







| |                                      
| | -------------------------------------
| | Debt Outstanding as of March 31, 2006



|                    |                                                                                                                                   |                       |   |       |  |  |  |   |        | 
|------------------- | --------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ----- |  |  |  | - | ------ | 
|Long-term debt(1):  |                                                                                                                                   |                       |   |       |  |  |  |  
|                    | Secured Bank of America term loan due January 23, 2008,
    with installment payments due before that date                        |                       | $ | 7,750 |  |  |  |   |       
|                    | Revolving line of credit (Bank of America) due January 23,
    2008                                                               |                       |   | 1,600 |  |  |  |   |       
|                    | Capital lease obligations                                                                                                         |                       |   | 1,257 |  |  |  |   |       
|                    | Unsecured note to executive officer Paul McCulloch, for portion
    of signing bonus, due April 30, 2007                          |                       |   | 150   |  |  |  |   |       
|                    | Redeemable Series C preferred stock, net of discount of
    $1,416                                                                |                       |   | 8,584 |  |  |  |   |       
|                    |                                                                                                                                   |                       |   |       |  | 
|                    |                                                                                                                                   | Total long-term debt  |   |       |  |  |  | $ | 19,341 | 
|                    |                                                                                                                                   |                       |   |       |  | 
|Short-term debt(1): |                                                                                                                                   |                       |   |       |  |  |  |  
|                    | Bank of America facility term loan due July 23, 2006                                                                              |                       | $ | 6,000 |  |  |  |   |       
|                    | Current portion of Secured Bank of America term loan due
    January 23, 2008, with installment payments due before that
    date |                       |   | 2,000 |  |  |  |   |       
|                    | Current portion of capital lease obligations                                                                                      |                       |   | 258   |  |  |  |   |       
|                    | Unsecured note to executive officer Paul McCulloch, for portion
    of signing bonus, due June 15, 2006                           |                       |   | 850   |  |  |  |   |       
|                    |                                                                                                                                   |                       |   |       |  | 
|                    |                                                                                                                                   | Total short-term debt |   |       |  |  |  | $ | 9,108  | 
|                    |                                                                                                                                   |                       |   |       |  | 
|                    |                                                                                                                                   | Total debt            |   |       |  |  |  | $ | 28,449 | 
|                    |                                                                                                                                   |                       |   |       |  | 




|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Debt excludes non-recourse lease notes payable of approximately
    $5.6 million, which are
    non-recourse to us and
    are secured by the leased equipment purchased using the proceeds
    of the non-recourse notes.





13



---



##### Table of Contents





| |                        
| | -----------------------
| | Historical Uses of Debt













| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Lightyear Fund, L.P., an affiliate of Lightyear, guaranteed
    a $6.0 million term loan included in the facility that is
    due July 23, 2006 and we agreed to pay a fee of $45,000 to
    The Lightyear Fund, L.P. and to reimburse the Lightyear Fund,
    L.P. for up to $50,000 of its expenses in connection with this
    guaranty;

14



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lightyear exchanged its senior subordinated $10.0 million
    note for 10,000 shares of our Series C preferred
    stock, which decreased our debt by $10.0 million but added
    that same amount in redeemable preferred stock; and
|
| |  | we amended and restated the common stock warrants that we issued
    to Lightyear in December 2005 in connection with the Lightyear
    note.                                                                                        





Off-Balance Sheet Arrangements


S-K.


Recent Accounting Pronouncements


Share-Based Payment Accounting for Stock
Issued to Employees




15



---



##### Table of Contents



Seasonality


period-to


Inflation







Item 3. Quantitative and Qualitative Disclosures About Market Risk







Item 4. Controls and Procedures







PART II  Other Information





Item 1A. Risk Factors




16



---



##### Table of Contents



Item 6. Exhibits
  ExhibitNo.
    
    
    
    Description3.1
    
    
    
    Amended and Restated Charter of the Registrant (incorporated by
    reference to Exhibit 3.1 of Amendment No. 1 to the
    Registrants Registration Statement on Form S-1 (File
    No. 333-75013) filed with the SEC on May 3, 1999).3.1.1
    
    
    
    Charter Amendment dated August 9, 2001 (incorporated by
    reference to Exhibit 3.3 of the Registrants Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2001).3.1.2
    
    
    
    Charter Amendment dated August 9, 2001 (incorporated by
    reference to Exhibit 3.4 of the Registrants Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2001).3.1.3
    
    
    
    Charter Amendment dated January 16, 2004 (incorporated by
    reference to Exhibit B of the Registrants Definitive
    Proxy Statement on Schedule 14A filed with the SEC on
    December 29, 2003).3.1.4
    
    
    
    Charter Amendment dated January 23, 2006 (incorporated by
    reference to Exhibit 3.1 to the Registrants Current
    Report on Form 8-K filed with the SEC on January 26,
    2006).3.1.5
    
    
    
    Charter Amendment dated January 24, 2006 (incorporated by
    reference to Exhibit 3.2 to the Registrants Current
    Report on Form 8-K filed with the SEC on January 26,
    2006).3.1.6
    
    
    
    Charter Amendment dated May 4, 2006 and effective
    May 5, 2006 (incorporated by reference to Exhibit 3.1
    of the Registrants Current Report on Form 8-K filed
    with the SEC on May 10, 2006).3.2
    
    
    
    Second Amended and Restated Bylaws of the Registrant
    (incorporated by reference to Exhibit 3.2 of Amendment
    No. 1 to the Registrants Registration Statement on
    Form S-1 (File No. 333-75013) filed with the SEC on
    May 3, 1999).3.2.1
    
    
    
    Bylaws Amendment dated January 20, 2004 (incorporated by
    reference to Exhibit 3.2.1 to the Registrants Annual
    Report on Form 10-K for the year ended December 31,
    2003).10.1
    
    
    
    Stock Purchase Agreement dated January 23, 2006 among Private Business, Inc. and
the Stockholders of Goldleaf Technologies, Inc. (incorporated by reference to
Exhibit 2.1 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 24, 2006).10.2
    
    
    
    Amended and Restated Credit Agreement dated January 23, 2006 between Private
Business, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit 10.1
to Private Business, Inc.s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 26, 2006).10.3
    
    
    
    Guaranty Side Letter dated January 23, 2006 between Private Business, Inc., The
Lightyear Fund, L.P. and Lightyear PBI Holdings, LLC (incorporated by reference to
Exhibit 10.2 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.4
    
    
    
    Exchange Agreement dated January 23, 2006 between Private Business, Inc. and
Lightyear PBI Holdings, LLC (incorporated by reference to Exhibit 10.3 to Private
Business, Inc.s Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 26, 2006).10.5
    
    
    
    Amended and Restated Warrant Agreement dated January 23, 2006 between Private
Business, Inc. and Lightyear PBI Holdings, LLC (incorporated by reference to
Exhibit 10.4 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.6
    
    
    
    Amended and Restated Warrant Certificate dated January 23, 2006 issued by Private
Business, Inc. to Lightyear PBI Holdings, LLC. (incorporated by reference to
Exhibit 10.5 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.7
    
    
    
    Amended and Restated Warrant Certificate dated January 23, 2006 issued by Private
Business, Inc. to Lightyear PBI Holdings, LLC (incorporated by reference to Exhibit
10.6 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.8
    
    
    
    Employment Agreement dated January 31, 2006 between Private Business, Inc. and Paul
McCulloch (incorporated by reference to Exhibit 10.1 to Private Business Inc.s
Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 26, 2006).31.1
    
    
    
    Certification pursuant to Rule 13a  14(a)/15d  14(a)  Chief Executive Officer.31.2
    
    
    
    Certification pursuant to Rule 13a  14(a)/15d  14(a)  Chief Financial Officer.32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002  Chief Executive Officer.32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002  Chief Financial Officer.
 17




---



##### Table of Contents



Signatures
  Goldleaf Financial Solutions, Inc.(f/k/a Private Business, Inc.)(Registrant)Date:
June 6, 2006
    
    By:
    
    /s/ G. Lynn BoggsG. Lynn BoggsChief Executive OfficerDate:
June 6, 2006
    
    By:
    
    /s/ J. Scott CraigheadJ. Scott CraigheadChief Financial Officer
 18