##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

Commission file number 000-25959

Private Business, Inc.

(Exact name of registrant as specified in its charter)


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

(615) 221-8400
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [x] No [  ]

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

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

|                           |  |                                     
|-------------------------- |  | ------------------------------------
|Class                      |  | Outstanding as of September 30, 2003
|                           |  |                                     
|Common Stock, no par value |  | 14,105,844 shares                   

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TABLE OF CONTENTS



|                                    |                                                                                               |                                            |  |  |  |  |  | 
|----------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I Financial Information       
|                                    | Item 1. Financial Statements                                                                 
|                                    |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                    |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                    |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                    |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                    |                                                                                               | Notes to Consolidated Financial Statements
|                                    | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                    | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                    | Item 4. Disclosure Controls and Procedures                                                   
|PART II  Other Information        
|                                    | Item 1. Legal Proceedings                                                                    
|                                    | Item 5. Other Information                                                                    
|                                    | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                         
|EX-31.1 SECTION 302 CEO CERTIFICATE
|EX-31.2 SECTION 302 CFO CERTIFICATE
|EX-32.1 SECTION 906 CEO CERTIFICATE
|EX-32.2 SECTION 906 CFO CERTIFICATE



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##### Table of Contents



PRIVATE BUSINESS, INC.

Form 10-Q

For Quarter Ended September 30, 2003

INDEX

|                               |  |          |  |                                                                                                        |  |         
|------------------------------ |  | -------- |  | ------------------------------------------------------------------------------------------------------ |  | --------
|                               |  |          |  |                                                                                                        |  | Page No.
|                               |  |          |  |                                                                                                        |  |         
|Part I - Financial Information |  |         
|                               |  | Item 1  |  | Financial Statements                                                                                   |  |         
|                               |  |          |  | Unaudited Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002                   |  | 3       
|                               |  |          |  | Unaudited Consolidated Statements of Operations for the three months ended
September 30, 2003 and 2002 |  | 4       
|                               |  |          |  | Unaudited Consolidated Statements of Operations for the nine months ended
September 30, 2003 and 2002  |  | 5       
|                               |  |          |  | Unaudited Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002  |  | 6       
|                               |  |          |  | Notes to Unaudited Consolidated Financial Statements                                                   |  | 7   12 
|                               |  | Item 2  |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations                  |  | 13  21 
|                               |  | Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 21      
|                               |  | Item 4  |  | Disclosure Controls and Procedures                                                                     |  | 21      
|Part II  Other Information    |  |         
|                               |  | Item 1  |  | Legal Proceedings                                                                                      |  | 22      
|                               |  | Item 5  |  | Other Information                                                                                      |  | 22      
|                               |  | Item 6  |  | Exhibits and Reports on Form 8-K                                                                       |  | 23      
|Signatures                     |  | 24      

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##### Table of Contents






PART I
Financial Information




Item 1. Financial Statements




PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  UNAUDITED

|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |        |  
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | -
|                                                  |                                                                                                                                  |                                             |        | September 30, |        | December 31,
|(in thousands, except per share data)             |                                                                                                                                  | 2003                                        |        | 2002         
|                                                  |                                                                                                                                  |                                             |        |              
|ASSETS                                            |                                                                                                                                  |                                             |        |               |        |              |        |       
|CURRENT ASSETS:                                   |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                  | Cash and cash equivalents                                                                                                        |                                             | $      | 1,395         |        |              | $      | 1,146  |       
|                                                  | Accounts receivable  trade, net of allowance for doubtful
accounts of $394 and $632, respectively                               |                                             |        | 5,015         |        |              |        | 6,726  |       
|                                                  | Accounts receivable  other                                                                                                      |                                             |        | 483           |        |              |        | 420    |       
|                                                  | Current portion of note receivable                                                                                               |                                             |        | 57            |        |              |        |       |       
|                                                  | Deferred tax assets                                                                                                              |                                             |        | 920           |        |              |        | 1,009  |       
|                                                  | Prepaid and other current assets                                                                                                 |                                             |        | 1,430         |        |              |        | 1,613  |       
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total current assets                        |        |               | 9,300  |              |        |        | 10,914 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|PROPERTY AND EQUIPMENT, NET                       |                                                                                                                                  |                                             | 4,436  |               |        |              | 6,468  |       
|OTHER ASSETS:                                     |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                  | Software development costs, net                                                                                                  |                                             |        | 1,298         |        |              |        | 1,456  |       
|                                                  | Deferred tax assets                                                                                                              |                                             |        | 1,729         |        |              |        | 2,252  |       
|                                                  | Intangible and other assets, net                                                                                                 |                                             |        | 11,865        |        |              |        | 12,211 |       
|                                                  | Note receivable, net of current portion                                                                                          |                                             |        | 104           |        |              |        |       |       
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total other assets                          |        |               | 14,996 |              |        |        | 15,919 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total assets                                |        | $             | 28,732 |              |        | $      | 33,301 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|LIABILITIES AND STOCKHOLDERS DEFICIT             |                                                                                                                                  |                                             |        |               |        |              |        |       
|CURRENT LIABILITIES:                              |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                  | Accounts payable                                                                                                                 |                                             | $      | 1,872         |        |              | $      | 2,039  |       
|                                                  | Accrued liabilities                                                                                                              |                                             |        | 4,273         |        |              |        | 5,718  |       
|                                                  | Revolving line of credit                                                                                                         |                                             |        | 950           |        |              |        |       |       
|                                                  | Dividends payable                                                                                                                |                                             |        | 695           |        |              |        | 575    |       
|                                                  | Deferred revenue                                                                                                                 |                                             |        | 486           |        |              |        | 470    |       
|                                                  | Current portion of long-term debt and capital lease obligations                                                                  |                                             |        | 5,728         |        |              |        | 5,463  |       
|                                                  | Other short term notes payable                                                                                                   |                                             |        | 411           |        |              |        |       |       
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total current liabilities                   |        |               | 14,415 |              |        |        | 14,265 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|REVOLVING LINE OF CREDIT                          |                                                                                                                                  |                                             |       |               |        |              | 950    |       
|OTHER NONCURRENT LIABILITIES                      |                                                                                                                                  |                                             | 196    |               |        |              | 623    |       
|LONG-TERM DEBT, net of current portion            |                                                                                                                                  |                                             | 18,847 |               |        |              | 23,190 |       
|CAPITAL LEASE OBLIGATIONS, net of current portion |                                                                                                                                  |                                             |       |               |        |              | 148    |       
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total liabilities                           |        |               | 33,458 |              |        |        | 39,176 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|COMMITMENTS AND CONTINGENCIES                     |                                                                                                                                  |                                             |        |               |        |              |        |       
|STOCKHOLDERS DEFICIT:                            |                                                                                                                                  |                                             |        |               |        |              |        |       
|                                                  | Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,105,844 and 14,047,253, respectively |                                             |        |              |        |              |        |       |       
|                                                  | Additional paid-in capital                                                                                                       |                                             |        | (7,148        | )      |              |        | (7,195 | )     
|                                                  | Preferred Stock, series B convertible, no par value; 20,000,000 shares
authorized, 40,031 shares issued and outstanding          |                                             |        | 114           |        |              |        | 114    |       
|                                                  | Retained earnings                                                                                                                |                                             |        | 2,308         |        |              |        | 1,206  |       
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total stockholders deficit                 |        |               | (4,726 | )            |        |        | (5,875 | )
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       
|                                                  |                                                                                                                                  | Total liabilities and stockholders deficit |        | $             | 28,732 |              |        | $      | 33,301 |  
|                                                  |                                                                                                                                  |                                             |        |               |        |              |        |        |       

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF
OPERATIONS  UNAUDITED

For the Three Months Ended September 30, 2003 and 2002


|                                            |                              |                          |       |        |        |   |       |        |        | 
|------------------------------------------- | ---------------------------- | ------------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|(in thousands, except per share data)       |                              | 2003                     |       | 2002  
|                                            |                              |                          |       |       
|REVENUES:                                   |                              |                          |       |        |        |   |       |       
|                                            | Participation fees           |                          | $     | 7,063  |        |   | $     | 8,943  |       
|                                            | Software license             |                          |       | 62     |        |   |       | 83     |       
|                                            | Retail planning services     |                          |       | 2,244  |        |   |       | 2,677  |       
|                                            | Maintenance and other        |                          |       | 1,337  |        |   |       | 1,484  |       
|                                            |                              |                          |       |        |        |   |       |        |       
|                                            |                              | Total revenues           |       |        | 10,706 |   |       |        | 13,187 | 
|                                            |                              |                          |       |        |        |   |       |        |       
|OPERATING EXPENSES:                         |                              |                          |       |        |        |   |       |       
|                                            | General and administrative   |                          |       | 4,355  |        |   |       | 5,720  |       
|                                            | Selling and marketing        |                          |       | 4,137  |        |   |       | 5,333  |       
|                                            | Research and development     |                          |       | 102    |        |   |       | 101    |       
|                                            | Amortization                 |                          |       | 431    |        |   |       | 424    |       
|                                            | Other operating expense, net |                          |       | 21     |        |   |       | 65     |       
|                                            |                              |                          |       |        |        |   |       |        |       
|                                            |                              | Total operating expenses |       |        | 9,046  |   |       |        | 11,643 | 
|                                            |                              |                          |       |        |        |   |       |        |       
|OPERATING INCOME                            |                              |                          | 1,660 |        |        |   | 1,544 |       
|INTEREST EXPENSE, NET                       |                              |                          | 385   |        |        |   | 394   |       
|                                            |                              |                          |       |        |        |   |       |        |       
|INCOME BEFORE INCOME TAXES                  |                              |                          | 1,275 |        |        |   | 1,150 |       
|Income tax provision                        |                              |                          | 497   |        |        |   | 448   |       
|                                            |                              |                          |       |        |        |   |       |        |       
|NET INCOME                                  |                              |                          | 778   |        |        |   | 702   |       
|Preferred stock dividends                   |                              |                          | 40    |        |        |   | 40    |       
|                                            |                              |                          |       |        |        |   |       |        |       
|NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |                              | $                        | 738   |        |        | $ | 662   |       
|                                            |                              |                          |       |        |        |   |       |       
|EARNINGS PER SHARE:                         |                              |                          |       |        |        |   |       |       
|                                            | Basic                        |                          | $     | 0.05   |        |   | $     | 0.05   |       
|                                            |                              |                          |       |        |        |   |       |       
|                                            | Diluted                      |                          | $     | 0.05   |        |   | $     | 0.05   |       
|                                            |                              |                          |       |        |        |   |       |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |                              |                          |       |        |        |   |       |       
|                                            | Basic                        |                          |       | 14,106 |        |   |       | 14,014 |       
|                                            |                              |                          |       |        |        |   |       |       
|                                            | Diluted                      |                          |       | 14,210 |        |   |       | 14,409 |       
|                                            |                              |                          |       |        |        |   |       |       

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF
OPERATIONS  UNAUDITED

For the Nine Months Ended September 30, 2003 and 2002


|                                            |                              |                          |       |        |        |   |       |        |        | 
|------------------------------------------- | ---------------------------- | ------------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|(in thousands, except per share data)       |                              | 2003                     |       | 2002  
|                                            |                              |                          |       |       
|REVENUES:                                   |                              |                          |       |        |        |   |       |       
|                                            | Participation fees           |                          | $     | 21,272 |        |   | $     | 29,105 |       
|                                            | Software license             |                          |       | 213    |        |   |       | 392    |       
|                                            | Retail planning services     |                          |       | 6,886  |        |   |       | 7,980  |       
|                                            | Maintenance and other        |                          |       | 4,578  |        |   |       | 4,943  |       
|                                            |                              |                          |       |        |        |   |       |        |       
|                                            |                              | Total revenues           |       |        | 32,949 |   |       |        | 42,420 | 
|                                            |                              |                          |       |        |        |   |       |        |       
|OPERATING EXPENSES:                         |                              |                          |       |        |        |   |       |       
|                                            | General and administrative   |                          |       | 14,823 |        |   |       | 17,693 |       
|                                            | Selling and marketing        |                          |       | 13,309 |        |   |       | 16,560 |       
|                                            | Research and development     |                          |       | 304    |        |   |       | 340    |       
|                                            | Amortization                 |                          |       | 1,280  |        |   |       | 1,365  |       
|                                            | Other operating expense, net |                          |       | 94     |        |   |       | 102    |       
|                                            |                              |                          |       |        |        |   |       |        |       
|                                            |                              | Total operating expenses |       |        | 29,810 |   |       |        | 36,060 | 
|                                            |                              |                          |       |        |        |   |       |        |       
|OPERATING INCOME                            |                              |                          | 3,139 |        |        |   | 6,360 |       
|INTEREST EXPENSE, NET                       |                              |                          | 1,136 |        |        |   | 1,396 |       
|                                            |                              |                          |       |        |        |   |       |        |       
|INCOME BEFORE INCOME TAXES                  |                              |                          | 2,003 |        |        |   | 4,964 |       
|Income tax provision                        |                              |                          | 781   |        |        |   | 1,936 |       
|                                            |                              |                          |       |        |        |   |       |        |       
|NET INCOME                                  |                              |                          | 1,222 |        |        |   | 3,028 |       
|Preferred stock dividends                   |                              |                          | 120   |        |        |   | 120   |       
|                                            |                              |                          |       |        |        |   |       |        |       
|NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |                              | $                        | 1,102 |        |        | $ | 2,908 |       
|                                            |                              |                          |       |        |        |   |       |       
|EARNINGS PER SHARE:                         |                              |                          |       |        |        |   |       |       
|                                            | Basic                        |                          | $     | 0.08   |        |   | $     | 0.21   |       
|                                            |                              |                          |       |        |        |   |       |       
|                                            | Diluted                      |                          | $     | 0.08   |        |   | $     | 0.21   |       
|                                            |                              |                          |       |        |        |   |       |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |                              |                          |       |        |        |   |       |       
|                                            | Basic                        |                          |       | 14,086 |        |   |       | 13,991 |       
|                                            |                              |                          |       |        |        |   |       |       
|                                            | Diluted                      |                          |       | 14,131 |        |   |       | 14,412 |       
|                                            |                              |                          |       |        |        |   |       |       

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

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PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH
FLOWS  UNAUDITED

For the Nine Months Ended September 30, 2003 and 2002


|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |       |        |        |        |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------- | ----------------------------------------- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | -
|(in thousands)                                                                    |                                                                           | 2003                                                |                                  | 2002                                     
|                                                                                  |                                                                           |                                                     |                                  |                                          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                                           |                                                     |                                  |                                           |        |        |        |      
|Net income                                                                        |                                                                           | $                                                   | 1,222                            |                                           |        | $      | 3,028  |      
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           | Write-off of debt issuance costs                    |                                  |                                           |       |        |        |       | 34     |       
|                                                                                  |                                                                           | Depreciation and amortization                       |                                  |                                           | 3,375  |        |        |       | 3,807  |       
|                                                                                  |                                                                           | Deferred taxes                                      |                                  |                                           | 612    |        |        |       | 2,243  |       
|                                                                                  |                                                                           | Non-cash stock based compensation                   |                                  |                                           |       |        |        |       | 46     |       
|                                                                                  |                                                                           | Gain on sale of certain property and equipment, net |                                  |                                           |       |        |        |       | (160   | )     
|                                                                                  |                                                                           | Gain on sale of Bank Insurance division             |                                  |                                           | (427   | )      |        |       |       |       
|                                                                                  |                                                                           | Changes in assets and liabilities:                  |                                  |                                           |        |        |        |       |        |       
|                                                                                  |                                                                           |                                                     | Accounts receivable, net         |                                           |        | 1,648  |        |       |        | (487   | )     
|                                                                                  |                                                                           |                                                     | Prepaid and other current assets |                                           |        | 759    |        |       |        | (1,306 | )     
|                                                                                  |                                                                           |                                                     | Other assets                     |                                           |        | (288   | )      |       |        | 75     |       
|                                                                                  |                                                                           |                                                     | Accounts payable                 |                                           |        | (167   | )      |       |        | (1,542 | )     
|                                                                                  |                                                                           |                                                     | Accrued liabilities              |                                           |        | (1,046 | )      |       |        | (1,520 | )     
|                                                                                  |                                                                           |                                                     | Deferred revenue                 |                                           |        | 16     |        |       |        | (686   | )     
|                                                                                  |                                                                           |                                                     | Other noncurrent liabilities     |                                           |        | (428   | )      |       |        | (547   | )     
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           |                                                     |                                  | Net cash provided by operating activities |        |        | 5,276  |       |        |        | 3,959  |  
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           | Additions to property and equipment                 |                                  |                                           | (89    | )      |        |       | (2,166 | )     
|                                                                                  |                                                                           | Software development costs                          |                                  |                                           | (555   | )      |        |       | (664   | )     
|                                                                                  |                                                                           | Proceeds from sale of property and equipment        |                                  |                                           |       |        |        |       | 2,863  |       
|                                                                                  |                                                                           | Acquisition of businesses                           |                                  |                                           |       |        |        |       | (845   | )     
|                                                                                  |                                                                           | Proceeds from sale of Bank Insurance division       |                                  |                                           | 325    |        |        |       |       |       
|                                                                                  |                                                                           | Proceeds from note receivable                       |                                  |                                           | 14     |        |        |       |       |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           |                                                     |                                  | Net cash used in investing activities     |        |        | (305   | )     |        |        | (812   | )
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           | Repayments on long-term debt                        |                                  |                                           | (4,014 | )      |        |       | (3,495 | )     
|                                                                                  |                                                                           | Repayments on capitalized lease obligations         |                                  |                                           | (301   | )      |        |       | (288   | )     
|                                                                                  |                                                                           | Early repayment of long-term debt                   |                                  |                                           |       |        |        |       | (2,833 | )     
|                                                                                  |                                                                           | Proceeds from revolving line of credit, net         |                                  |                                           |       |        |        |       | 1,050  |       
|                                                                                  |                                                                           | Proceeds from exercise of employee stock options    |                                  |                                           |       |        |        |       | 137    |       
|                                                                                  |                                                                           | Stock issued through employee stock purchase plan   |                                  |                                           | 47     |        |        |       | 62     |       
|                                                                                  |                                                                           | Payments on other short-term borrowings             |                                  |                                           | (454   | )      |        |       |       |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  |                                                                           |                                                     |                                  | Net cash used in financing activities     |        |        | (4,722 | )     |        |        | (5,367 | )
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                           |                                                                           |                                                     | 249                              |                                           |        |        | (2,220 | )    
|CASH AND CASH EQUIVALENTS at beginning of year                                    |                                                                           |                                                     | 1,146                            |                                           |        |        | 2,648  |      
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|CASH AND CASH EQUIVALENTS at end of period                                        |                                                                           | $                                                   | 1,395                            |                                           |        | $      | 428    |      
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  | Cash payments for income taxes during period                              |                                                     | $                                | 207                                       |        |        | $      | 81    |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  | Cash payments of interest during period                                   |                                                     | $                                | 1,142                                     |        |        | $      | 1,418 |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|NON-CASH INVESTING ACTIVITIES:                                                    |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  | Note receivable for sale of Bank Insurance division                       |                                                     | $                                | 175                                       |        |        | $      |      |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      
|                                                                                  | Notes payable issued for certain insurance and software support contracts |                                                     | $                                | 865                                       |        |        | $      |      |       
|                                                                                  |                                                                           |                                                     |                                  |                                           |        |        |        |      

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

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##### Table of Contents



PRIVATE BUSINESS, INC.
Notes to Consolidated Financial Statements  Unaudited




A. Basis of Presentation

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

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

These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2002.

B. Summary of Significant Accounting Policies

Principles of Consolidation

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

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

Stock-Based Compensation

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

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##### Table of Contents



The following table illustrates the effect on net income available to
common shareholders and earnings per share if the fair value based method had
been applied to all outstanding and unvested awards for the three and nine
month periods ended September 30, 2003 and 2002, respectively.

|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ------------------ | ---- | ----------------- | ---- | --- | ---- |  | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                                                                                            |                       |      | Three Months Ended |      | Nine Months Ended
|                                                                                                                                            |                       |      | September 30,      |      | September 30,    
|                                                                                                                                            |                       |      |                    |      |                  
|(in thousands, except per share data)                                                                                                       |                       | 2003 |                    | 2002 |                   | 2003 |     | 2002
|                                                                                                                                            |                       |      |                    |      |                   |      |     |     
|Net income available to common shareholders, as reported                                                                                    |                       | $    | 738                |      |                   | $    | 662 |      |  | $ | 1,102 |      |  | $ | 2,908 |     
|Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects                                  |                       |      |                   |      |                   |      |    |      |  |   |      |      |  |   | 46    |     
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects |                       |      | 73                 |      |                   |      | 235 |      |  |   | 556   |      |  |   | 702   |     
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|Pro forma net income                                                                                                                        |                       | $    | 665                |      |                   | $    | 427 |      |  | $ | 546   |      |  | $ | 2,252 |     
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|Earnings per share:                                                                                                                         |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|                                                                                                                                            | Basic  as reported   |      | $                  | 0.05 |                   |      | $   | 0.05 |  |   | $     | 0.08 |  |   | $     | 0.21 | 
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|                                                                                                                                            | Basic  pro forma     |      | $                  | 0.05 |                   |      | $   | 0.03 |  |   | $     | 0.04 |  |   | $     | 0.16 | 
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|                                                                                                                                            | Diluted  as reported |      | $                  | 0.05 |                   |      | $   | 0.05 |  |   | $     | 0.08 |  |   | $     | 0.21 | 
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     
|                                                                                                                                            | Dilutedpro forma     |      | $                  | 0.05 |                   |      | $   | 0.03 |  |   | $     | 0.04 |  |   | $     | 0.16 | 
|                                                                                                                                            |                       |      |                    |      |                   |      |     |      |  |   |       |      |  |   |       |     

C. Reclassifications

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

D. Sale of Bank Insurance Business

On June 30, 2003, the Company entered into an agreement to sell certain
operating assets of its Bank Insurance business for cash of $325,000 and a note
receivable for $175,000. The note is secured by all assets of the business
sold, is due in equal quarterly installments of principal and interest through
June 2006 and bears interest at 3%. The result of this transaction is a gain
on sale of approximately $427,000, which is included in maintenance and other
revenues in the accompanying 2003 statement of operations.

E. Stock Option Grants

On May 30, 2003, the Companys Board of Directors approved grants of
incentive stock options totaling 745,700 to certain employees of the Company.
All of the grants have an exercise price equal to the market value of a share
of stock as of the date of grant. As such, no compensation expense was
recorded in accordance with Accounting Principles Bulletin No. 25.

F. Notes Payable

During the second quarter of 2003, the Company entered into several
short-term notes payable. The notes are for certain insurance policies, as
well as various annual software maintenance and support contracts. All of
the notes are unsecured and have monthly payments that extend less than
twelve months.

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G. Acquisition of Access Retail Management

On May 28, 2002, the Company entered into an asset purchase agreement to
acquire certain operating assets of CAM Commerces (CAM) retail planning
division, known as Access Retail Management, in exchange for cash consideration
of $800,000. The acquisition has been recorded in accordance with SFAS No. 141,
Business Combinations(SFAS No. 141), resulting in the operating results of
the CAM division being included with those of the Company subsequent to the
date of acquisition. The Company allocated the purchase price of $800,000,
resulting in identifiable furnitures and fixtures of $10,000, intangible assets
of approximately $210,000 and goodwill of approximately $570,000.

H. Sale of Company Headquarters and Other Properties

During the quarter ended March 31, 2002, the Company sold its former
headquarters building and consolidated its operations into the Technology and
Business Center, which is adjacent to the former headquarters building. The net
proceeds from the sale were approximately $2.2 million. During the third
quarter of 2001, the Company recorded an impairment charge of $4.1 million to
write down the headquarters building, land and fixtures to their estimated fair
market value of approximately $2.0 million. Therefore the sale in March 2002
resulted in a net gain of approximately $200,000 being recorded in the first
quarter of 2002, which is included in other operating expense, net in the
accompanying 2002 consolidated statement of operations.

I. Net Income Per Share

Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing net
income available to common shareholders by the weighted average number of
common and common equivalent shares outstanding during the period, which
includes the additional dilution related to conversion of stock options as
computed under the treasury stock method and the conversion of the preferred
stock under the if-converted method.

The following table represents information necessary to calculate earnings
per share for the three and nine month periods ended September 30, 2003 and
2002:

|                                                            |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        | 
|----------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                            |  | Three Months Ended |        | Nine Months Ended
|                                                            |  | September 30,      |        | September 30,    
|                                                            |  |                    |        |                  
|(in thousands)                                              |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                                            |  |                    |        |                   |  |      |        |     
|Net income available to common shareholders                 |  | $                  | 738    |                   |  | $    | 662    |      |  | $ | 1,102  |  |  | $ | 2,908  | 
|                                                            |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        | 
|Weighted average common shares outstanding                  |  |                    | 14,106 |                   |  |      | 14,014 |      |  |   | 14,086 |  |  |   | 13,991 | 
|Plus additional shares from common stock equivalent shares: |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        | 
|Options and convertible preferred stock                     |  |                    | 104    |                   |  |      | 395    |      |  |   | 45     |  |  |   | 421    | 
|                                                            |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        | 
|Adjusted weighted average common shares outstanding         |  |                    | 14,210 |                   |  |      | 14,409 |      |  |   | 14,131 |  |  |   | 14,412 | 
|                                                            |  |                    |        |                   |  |      |        |      |  |   |        |  |  |   |        | 

For the nine months ended September 30, 2003 and 2002, approximately 2.1
million and 2.4 million employee stock options and the preferred shares were
excluded from diluted earnings per share calculations, as their effects were
anti-dilutive.

J. Comprehensive Income

Comprehensive income for the three and nine months ended September 30,
2003 and 2002 was comprised solely of net income.

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K. Bank Covenants

The Companys credit facility is secured by a pledge of all Company assets
and imposes financial covenants and requirements and contains limitations on
the Companys ability to sell material assets, redeem capital stock and pay
dividends, among other actions. As of September 30, 2003, the Company was in
compliance with all such covenants.

L. Legal Proceedings

As a result of the merger with Towne Services, Inc. in August 2001, we
assumed certain outstanding litigation against Towne. Except for the lawsuits
described below, we are not currently a party to, and none of our material
properties is currently subject to, any material litigation other than routine
litigation incidental to our business.

In Re Towne Services, Inc./Securities Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As previously disclosed, Towne, two of its former officers and a current
officer were defendants in the securities class action lawsuit filed in
November 1999. The complaints alleged, among other things, that Towne should
have disclosed in the prospectus used for its secondary public offering in
June 1999 that it allegedly experienced serious problems with its network
infrastructure and processing facilities during the move of its corporate
headquarters in June 1999, and that these problems allegedly led to a higher
than usual number of customers terminating their contracts during the second
quarter. The parties reached a tentative settlement, which was subject to
certain conditions including court approval. The settlement funds were placed
in escrow on February 21, 2003. On July 23, 2003, the United States District
Court, Northern District of Georgia approved the settlement, which is still
subject to the distribution of the settlement funds from the escrow account
to the plaintiffs and their attorneys. The Company has initiated an
arbitration proceeding to require its insurance carrier to pay in the
immediate future certain costs of defense incurred in connection with the
Towne securities litigation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based upon the Companys review of the documents and proceedings, and
after consultation with its outside counsel, the Company believes that the
carrier is obligated to reimburse the Company immediately for its legal
defense costs. Accordingly, the Company has recorded both a liability owed
to the attorneys and a receivable due from the carrier in offsetting amounts
in the accompanying consolidated balance sheet as of September 30, 2003.

M. Segment Information

Prior to August 2001, the Company operated in one business segment,
accounts receivable financing. As a result of the Companys merger with Towne
in August 2001, it now operates in a second business segment, retail inventory
forecasting. The Company accounts for segment reporting under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.No
corporate overhead costs or interest have been allocated to income before taxes
of the retail inventory forecasting segment, but are included in the accounts
receivable financing segment costs. Additionally, $1.5 million of goodwill
associated with the Towne merger has been allocated to the retail inventory
forecasting segment and is therefore included in the segments total assets.

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##### Table of Contents



The following tables summarize the financial information concerning the
Companys reportable segments for the three and nine months ended September 30,
2003 and 2002.

|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ----- | ----- | --------- |  | ----------- | ------ | --------- |  | - | ------ |  |  | - | ----- |  |  | - | ------ | 
|                                                      |  | Three Months Ended |        | Three Months Ended
|                                                      |  | September 30, 2003 |        | September 30, 2002
|                                                      |  |                    |        |                   
|                                                      |  | Accounts           |        | Retail             |  |       |       |           |  | Accounts    |        | Retail    |  |   |        | 
|                                                      |  | Receivable         |        | Inventory          |  |       |       |           |  | Receivable  |        | Inventory |  |   |        | 
|(in thousands)                                        |  | Financing          |        | Forecasting        |  | Total |       | Financing |  | Forecasting |        | Total    
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |          
|Revenues                                              |  | $                  | 8,462  |                    |  | $     | 2,244 |           |  | $           | 10,706 |           |  | $ | 10,510 |  |  | $ | 2,677 |  |  | $ | 13,187 | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Income before taxes                                   |  | $                  | 866    |                    |  | $     | 409   |           |  | $           | 1,275  |           |  | $ | 879    |  |  | $ | 271   |  |  | $ | 1,150  | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Assets                                                |  | $                  | 24,133 |                    |  | $     | 4,599 |           |  | $           | 28,732 |           |  | $ | 29,465 |  |  | $ | 5,503 |  |  | $ | 34,968 | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Total expenditures for additions to long-lived assets |  | $                  | 8      |                    |  | $     | 2     |           |  | $           | 10     |           |  | $ | 264    |  |  | $ |      |  |  | $ | 264    | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 

|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ----- | ----- | --------- |  | ----------- | ------ | --------- |  | - | ------ |  |  | - | ----- |  |  | - | ------ | 
|                                                      |  | Nine Months Ended  |        | Nine Months Ended 
|                                                      |  | September 30, 2003 |        | September 30, 2002
|                                                      |  |                    |        |                   
|                                                      |  | Accounts           |        | Retail             |  |       |       |           |  | Accounts    |        | Retail    |  |   |        | 
|                                                      |  | Receivable         |        | Inventory          |  |       |       |           |  | Receivable  |        | Inventory |  |   |        | 
|(in thousands)                                        |  | Financing          |        | Forecasting        |  | Total |       | Financing |  | Forecasting |        | Total    
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |          
|Revenues                                              |  | $                  | 26,063 |                    |  | $     | 6,886 |           |  | $           | 32,949 |           |  | $ | 34,440 |  |  | $ | 7,980 |  |  | $ | 42,420 | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Income before taxes                                   |  | $                  | 1,159  |                    |  | $     | 844   |           |  | $           | 2,003  |           |  | $ | 4,348  |  |  | $ | 616   |  |  | $ | 4,964  | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Assets                                                |  | $                  | 24,133 |                    |  | $     | 4,599 |           |  | $           | 28,732 |           |  | $ | 29,465 |  |  | $ | 5,503 |  |  | $ | 34,968 | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 
|Total expenditures for additions to long-lived assets |  | $                  | 87     |                    |  | $     | 2     |           |  | $           | 89     |           |  | $ | 2,166  |  |  | $ |      |  |  | $ | 2,166  | 
|                                                      |  |                    |        |                    |  |       |       |           |  |             |        |           |  |   |        |  |  |   |       |  |  |   |        | 

N. New Accounting Pronouncements

In August of 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections.This statement rescinds
Statement No. 4, which required all material gains and losses from
extinguishment of debt to be classified as an extraordinary item, net of
related income tax effects. Upon adoption of this statement, extinguishment
gains and losses will be classified as ordinary gains and losses in the income
statement. The statement is effective for fiscal years beginning after May 15,
2002, resulting in it being effective for the Company on January 1, 2003. The
Company early adopted this statement during December 2002, which did not have a
material impact on the Companys financial position or results of operations.
However, certain debt extinguishment losses that had previously been reflected
as extraordinary items were reclassified to ordinary expenses.

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

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation 

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##### Table of Contents



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

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

In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. Financial instruments that fall within the scope of SFAS No. 150 must
be classified by the issuer as liabilities (or assets in some circumstances).
Many of those instruments were previously classified as equity. The statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted SFAS No. 150 as of July 1,
2003 and, as a result, the issued and outstanding Series B Preferred stock
totaling $114,000 has been reclassified to equity for all periods presented in
the accompanying consolidated balance sheets.

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, to expand upon and strengthen
existing accounting guidance that addresses when a company should include in
its financial statements the assets, liabilities and activities of another
entity. Until now, a company generally has included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that guidance by requiring a variable
interest entity, as defined, to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the entitys residual
returns or both. FIN 46 also requires disclosure about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003 and to
older entities in the first fiscal year or interim period ending after
December 15, 2003. Certain portions of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company is currently evaluating
the requirements and impact, if any, of FIN 46 on its consolidated results of
operations and financial position.

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##### Table of Contents



PRIVATE BUSINESS, INC.




|        |  |                                                                                                                                             
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of OperationsThree and Nine Months Ended September 30, 2003 and 2002

Overview

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

In previous filings we have discussed that part of our growth strategy is
to acquire or develop new products or services. During 2003, marketing and
sales activity has begun for three new products; LineManager, Collections
Manager and Identification Manager. LineManager allows banks and financial
institutions to electronically monitor asset based arrangements in a more
timely, cost efficient manner. Collections Manager allows our bank and
merchant customers on-line access to collection services, thereby creating
efficient, timely follow-up on past due accounts. Identification Manager is an
electronic web-based compliance program for banks who must adhere to the
requirements of Section 326 of the USA Patriot Act, which is effective October
1, 2003. Section 326 of the Act, among other things, mandates that banks
perform background checks on all persons opening accounts at financial
institutions. These institutions must then document and retain the results of
these background checks. Although the revenue contributions from these new
products during 2003 may be insignificant in relation to total consolidated
revenues, these products are complimentary to our core business, and we believe
will provide significant growth in future years.

Critical Accounting Policies and Estimates

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

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

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##### Table of Contents



Revenue Recognition. We generate revenue from four main sources:



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

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

Software license fees for BusinessManager consist of two components: the
license fee and customer training and support fee. These are one-time fees that
we receive upon the initial licensing of our BusinessManager program to a
community bank. Our license agreements are executed with terms ranging from
three to five years and are renewable for subsequent terms. Some agreements
contain performance or deferred payment terms that must be met in order for us
to receive payment and recognize revenue. We recognize revenues from the
license fee once we have met the terms of the customer agreement. The customer
training and support fee are recognized ratably over the twelve-month service
period subsequent to the activation of the license agreement.

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

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

Software Development Costs.Software development costs incurred in the
research and development of new software products and enhancements to existing
software products are expensed as incurred until

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technological feasibility has been established. After such time, any
additional costs are capitalized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed.In addition, any costs
incurred for the development or enhancement of software products utilized
internally are capitalized in accordance with Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.Among other provisions, SOP 98-1 requires capitalization of
certain internal-use software costs once certain criteria are met. Overhead,
general and administrative, and training costs are not capitalized.
Capitalized software development costs are amortized on a straight-line basis
generally over three years.

Self-Insurance Reserves.Prior to January 1, 2003, the Company was
primarily self-insured for employee medical costs with certain limits of per
claim and aggregate stop loss insurance coverage that management
considered
adequate. The Company maintains an accrual for these costs based on claims
filed and an estimate of claims incurred but not reported. The difference
between actual settlements and recorded accruals are expensed in the period
identified. The Company was self-insured for employee medical claims up to
$40,000 per employee per year or an aggregate of approximately $11 million per
year. Effective January 1, 2003 the Company ceased being self-insured for
medical costs.

Results of Operations

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

|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|------------------------------------------- | ---------------------------- |  | ------------- | ---- | ------------ |  | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                            |                              |  | Third Quarter |      | Year to Date
|                                            |                              |  |               |      |             
|                                            |                              |  | 2003          |      | 2002         |  | 2003  |      | 2002
|                                            |                              |  |               |      |              |  |       |      |     
|Revenues:                                   |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |     
|                                            | Participation fees           |  |               | 66.0 | %            |  |       | 67.8 | %    |  |       | 64.6 | % |  |       | 68.6 | %
|                                            | Software license             |  |               | 0.6  | %            |  |       | 0.6  | %    |  |       | 0.6  | % |  |       | 0.9  | %
|                                            | Retail planning services     |  |               | 21.0 | %            |  |       | 20.3 | %    |  |       | 20.9 | % |  |       | 18.8 | %
|                                            | Maintenance and other        |  |               | 12.4 | %            |  |       | 11.3 | %    |  |       | 13.9 | % |  |       | 11.7 | %
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|                                            |                              |  | 100.0         | %    |              |  | 100.0 | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|Operating Expenses:                         |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |     
|                                            | General and administrative   |  |               | 40.7 | %            |  |       | 43.3 | %    |  |       | 45.0 | % |  |       | 41.7 | %
|                                            | Selling and marketing        |  |               | 38.6 | %            |  |       | 40.4 | %    |  |       | 40.4 | % |  |       | 39.1 | %
|                                            | Research and development     |  |               | 1.0  | %            |  |       | 0.8  | %    |  |       | 0.9  | % |  |       | 0.8  | %
|                                            | Amortization                 |  |               | 4.0  | %            |  |       | 3.2  | %    |  |       | 3.9  | % |  |       | 3.2  | %
|                                            | Other operating expense, net |  |               | 0.2  | %            |  |       | 0.5  | %    |  |       | 0.3  | % |  |       | 0.2  | %
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|                                            |                              |  | 84.5          | %    |              |  | 88.2  | %    |      |  | 90.5  | %    |   |  | 85.0  | %   
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|Operating Income                            |                              |  | 15.5          | %    |              |  | 11.8  | %    |      |  | 9.5   | %    |   |  | 15.0  | %   
|Interest expense, net                       |                              |  | 3.6           | %    |              |  | 3.0   | %    |      |  | 3.4   | %    |   |  | 3.3   | %   
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|Income Before Income Taxes                  |                              |  | 11.9          | %    |              |  | 8.7   | %    |      |  | 6.1   | %    |   |  | 11.7  | %   
|Income Tax Provision                        |                              |  | 4.6           | %    |              |  | 3.4   | %    |      |  | 2.4   | %    |   |  | 4.6   | %   
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|Net Income                                  |                              |  | 7.3           | %    |              |  | 5.3   | %    |      |  | 3.7   | %    |   |  | 7.1   | %   
|Preferred Stock Dividends                   |                              |  | 0.4           | %    |              |  | 0.3   | %    |      |  | 0.4   | %    |   |  | 0.3   | %   
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  
|Net Income Available to Common Shareholders |                              |  | 6.9           | %    |              |  | 5.0   | %    |      |  | 3.3   | %    |   |  | 6.8   | %   
|                                            |                              |  |               |      |              |  |       |      |      |  |       |      |   |  |       |      |  

Participation Fees.Participation fees decreased 21.0% and 26.9% to $7.1
million and $21.3 million for the third quarter and first nine months of 2003
compared to $8.9 million and $29.1 million for the comparable periods of 2002.
The decreases were primarily due to a reduction in the total funding through
our BusinessManager program to $1.15 billion and $3.43 billion for the third
quarter and first nine months of 2003,
15Table of Contents

compared to $1.33 billion and $3.97 billion for the comparable periods of 2002.
Also affecting participation fees are rate concessions and pricing changes
initiated by banks in response to the current lending environment, particularly
the relatively low cost of traditional financing. The decrease in funding is
due to a combination of two factors; fewer merchants funding through our
BusinessManager program and lower funding levels at existing merchants due to
the slower economy. As a percentage of total revenues, participation fees
accounted for 66.0% and 64.6% for the third quarter and nine month period ended
September 30, 2003 compared to 67.8% and 68.6% for the comparable periods of
2002.

Software license. Software license fees decreased 25.3% and 45.7% to
$62,000 and $213,000 for the third quarter and first nine months of 2003,
compared to $83,000 and $392,000 for the comparable periods of 2002. The
decrease was due to several contributing factors, including our sales
organization restructure that occurred in January 2003, which caused temporary
disruption to the sales cycle and our continued focus on marketing to banks in
targeted geographic areas where we seek to better penetrate and support the
small business market. Software license fees accounted for 0.6% of total
revenues for the third quarter and nine months ended September 30, 2003
compared to 0.6% and 0.9% for the comparable periods in 2002.

Retail planning services. Retail planning services revenues declined 16.2%
and 13.7% to $2.2 and
$6.9 million during the third quarter and nine months ended September 30, 2003
as compared to $2.7 and $8.0 million for the comparable periods of 2002. The
decline is due to fewer forecasting service clients as a result of the slower
retail economy. As a percentage of total revenues, retail planning services
accounted for 21.0% and 20.9% for the third quarter and first nine months of
2003 compared to 20.3% and 18.8% in the comparable periods of 2002.

Maintenance and other. Maintenance and other fees decreased 9.9% to $1.3
million and decreased 7.4% to $4.6 million for the third quarter and nine
months ended September 30, 2003 compared to $1.5 and $4.9 million for the
comparable periods for 2002. Maintenance and other fees consist primarily of
software maintenance fees, credit and fraud risk insurance commissions earned
from the sale of policies to our BusinessManager banks, commissions earned
through our referrals of certain merchants to alternative financing companies
and account verification services performed for some of our BusinessManager
banks. During the nine months ended September 30, 2003, maintenance and other
revenues include a gain of $427,000 as a result of the sale of our bank
insurance division as of June 30, 2003. Excluding this gain, maintenance and
other revenues decreased $792,000 or 16.0%. The decrease for the third quarter
and first nine months of 2003 was attributable to decreases in our insurance
revenues and Towne processing and machine rental fees. Our insurance revenues
decreased 14.4% and 17.9% to $743,000 and $2.2 million for the third quarter
and first nine months of 2003 compared to $868,000 and $2.6 million for the
comparable periods in 2002. The decline in insurance revenues is due to the
lower funding levels through the BusinessManager program as discussed above.
Towne processing and machine rental fees were $0 during the third quarter and
first nine months of 2003 compared to approximately $84,000 and $465,000 in the
comparable periods of 2002. This decline is the result of the Towne products
being phased out during 2002. Maintenance and other fees accounted for 12.4%
and 13.9% of total revenues for the third quarter and nine month period ended
September 30, 2003 compared to 11.3% and 11.7% for the comparable periods in
2002.

Total revenues. Total revenues for the third quarter and first nine months
of 2003 decreased 18.8% and 22.3% to $10.7 and $32.9 million compared to $13.2
and $42.4 million for the comparable periods of 2002.

General and administrative. General and administrative expenses decreased
23.9% and 16.2% to $4.4
and $14.8 million for the third quarter and nine month period ended September
30, 2003 compared to $5.7
and $17.7 million for the comparable periods in 2002. The decrease is primarily
due to reductions in salary
and benefits expense as a result of reduced headcount, as well as, reduced
consulting charges. During the first nine months of 2002, consulting and
general fees were approximately $444,000 higher due to our implementation of a
new operating system and higher professional service fees. The ninth amendment
to our credit agreement, executed in April 2003, precludes the payment of any
discretionary bonuses to employees.

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As such discretionary bonus expense has declined by approximately $841,000 from
$986,000 for the first nine months of 2002 to $145,000 for the first nine
months of 2003. General and administrative expenses include the cost of our
executive, finance, human resources, information and support services,
administrative functions and general operations. As a percentage of total
revenue, general and administrative expenses accounted for 40.7% and 45.0% for
the third quarter and nine month period ended September 30, 2003 compared to
43.3% and 41.7% for the same periods in the prior year.

Selling and marketing. Selling and marketing expenses decreased 22.4% and
19.6% for the third quarter and nine month period ended September 30, 2003 to
$4.1 and $13.3 million compared to $5.3 and $16.6 million for the comparable
periods of 2002. The decrease for the nine months ended September 30, 2003
compared to the same periods in 2002 was primarily due to lower commissions
expense, caused by lower revenues, as well as, fewer sales personnel. This
resulted in decreased compensation, training, and travel expenses. Selling and
marketing expenses include the cost of wages and commissions paid to our
dedicated business development and bank sales force, travel costs of our sales
force, recruiting for new sales and marketing personnel and marketing fees
associated with direct and telemarketing programs. As a percentage of total
revenue, selling and marketing expenses accounted for 38.6% and 40.4% for the
third quarter and nine month periods of 2003 compared to 40.4% and 39.1% for
the comparable periods in 2002.

Research and development. Research and development expenses increased 1.0%
to $102,000 for the third quarter ended September 30, 2003 compared to $101,000
for the year earlier period and decreased 10.6% to $304,000 for the nine months
ended September 30, 2003 compared to $340,000 for the year earlier period.
These costs include the non-capitalizable direct costs associated with
developing new versions of our products and other projects that have not yet
reached technological feasibility. The decrease in costs for the first nine
months of 2003 was primarily due to less capitalized activity related to the
development and production of the new LineManager product compared to the same
period in 2002. As a percentage of total revenues, research and development
expenses increased to 1.0% and 0.9% for the third quarter and first nine months
of 2003 compared to 0.8% for the same periods in the prior year.

Amortization. Amortization expenses increased 1.7% to $431,000 for the
third quarter of 2003 compared to $424,000 for the comparable period in 2002.
However, for the first nine months of 2003, amortization expenses decreased
6.3% to $1.3 million in 2003 compared to $1.4 million in 2002. These expenses
include the cost of amortizing intangible assets including trademarks, software
development costs and debt issuance costs.

Other operating expenses, net. Other operating expenses decreased 7.8% for
the first nine months of 2003 to $94,000 compared to $102,000 for the
comparable period of 2002. Included in the 2002 amount is a net gain on the
sale of certain property and equipment of approximately $183,000. This gain
relates primarily to the sale of the Companys former headquarters. Partially
offsetting this gain was a loss on extinguishment of debt related to the
write-off of a portion of our capitalized debt issuance costs of approximately
$56,000. This amount had been previously classified as an extraordinary loss,
however the amount was reclassified in accordance with SFAS No. 145, Recission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections(SFAS No. 145). Excluding the net gain and debt
issuance cost write-off, other operating expenses were approximately $228,000
for the first nine months of 2002 compared to $94,000, or a 59.0% decline for
the first nine months of 2003. Other operating expenses include property tax
and other miscellaneous costs associated with providing support and services to
our client banks.

Operating income.As a result of the above factors, our operating income
increased 7.5% and decreased 51.1% to operating income levels of $1.7 and $3.1
million for the third quarter and nine months of 2003, compared to $1.5 and
$6.4 million for the comparable periods of 2002. As a percentage of total
revenue, operating income increased to 15.5% for the third quarter and
decreased to 9.5% for the first nine months of 2003 compared to 11.8% and 15.1%
for the same periods in 2002.

Interest expense, net. Interest expense, net decreased 2.3% and 18.6% to
$385,000 and $1.1 million for the

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third quarter and nine months ended September 30, 2003 compared to $394,000 and
$1.4 million for the comparable periods in 2002. The decrease was primarily due
to the reduction of our debt balances in 2003, partially offset by higher
interest rates.

Income tax provision.The income tax provision was approximately $497,000
and $781,000 for the third quarter and nine months ended September 30, 2003
compared to $448,000 and $1.9 million for the same periods in 2002. As a
percentage of income before taxes, the income tax rate was 39.0% for both 2003
and 2002.

Liquidity and Capital Resources

Our primary sources of capital have historically been cash provided by
operations, short-term and long-term debt, and investment from stockholders.
During the first nine months of 2003 our operating activities provided cash of
approximately $5.3 million. We used approximately $305,000 in our investing
activities, consisting of capital expenditures of $89,000 and $555,000 of
software development costs, partially offset by the receipt of $325,000 in
proceeds from the sale of the Bank Insurance division. We currently estimate
that total capital expenditures for 2003 will be approximately $200,000
(excluding expenditures for software development costs).

Cash used in financing activities totaled $4.7 million for the first nine
months of 2003, which is the result of $4.3 million in repayments of long-term
debt and capitalized lease obligations. During July of 2003, a principal
prepayment of $295,000 was made using proceeds from the June 30, 2003 sale of
the Bank Insurance division.

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

On April 11, 2003, we entered into an amendment to our credit facility.
The amended credit facility modifies financial and certain non-financial
covenants for 2003 and requires us to take certain other actions (as set forth
in the amended credit facility). As of September 30, 2003, the Company was in
compliance with all amended covenants. Pursuant to the amendment, we agreed to
pay certain fees to our lenders, to increase the interest rates payable under
the credit facility, and to use our best efforts to consummate a capital event
(as defined in the amended credit facility) on or before December 31, 2003.

Our amended credit facility includes term loans with current balances of
$5.2 million (the Term A Loan) and $19.1 million (the Term B Loan), and a
revolving line of credit with availability equal to the lesser of $3.0 million
or 60% of the eligible receivables (as defined in the amended credit facility).
The revolving line of credit includes swing line advances and a $2 million
sublimit for standby letters of credit. The interest rate for the Term A Loan
and any advances under the revolving loan is the greater of: (1) 5.5% per
annum; or (2) 4.0% over the Eurodollar rate or 2.75% over the prime rate. The
interest rate for the Term B Loan is 4.5% over the Eurodollar rate or 3.5% over
the prime rate. The applicable margin on all outstanding loans increases by 1%
on January 1, 2004. The amended credit facility also includes a provision
requiring early payment on the term loans if we have excess cash, as defined in
the credit agreement, on hand at year-end. At December 31, 2002, no excess cash
payments were required.

The amended credit facility provided for the payment to the lenders of a
fee totaling 2% of the outstanding debt as of April 11, 2003, which is
approximately $600,000. Twenty-five percent of this fee was paid immediately
upon entering into the amendment, twenty-five percent of this fee was payable
on September 30, 2003, and 50% is payable on December 31, 2003. Fifty percent
of the September 30, 2003 fee was waived by

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the Lenders as a result of achieving a documentation benchmark (as defined in
the credit facility amendment) and 100% of the December payment will be waived
to the extent that no amount remains outstanding under the credit facility as
of the applicable payment date.

The $5.2 million term loan is generally repayable in quarterly
installments of $1.3 million beginning December 31, 2003 until maturity (August
7, 2004). The $19.1 million term loan is repayable in equal quarterly
installments of $65,000 until December 31, 2004, at which time the required
quarterly payments increase to $2.9 million until September 30, 2005 and $3.9
million until December 31, 2005 with a final payment of $3.4 million due March
31, 2006. The revolver bears an annual commitment fee and matures August 7,
2004. As of September 30, 2003, we had $5.2 million outstanding at 5.5%, $19.1
million outstanding at 5.656%, $921,000 in standby letters of credit and
$950,000 outstanding draws against the revolver at 6.75%.

As of September 30, 2003, we had a working capital deficit of
approximately $5.1 million compared to a working capital deficit of
approximately $3.4 million as of December 31, 2002. The increase in working
capital deficit resulted primarily from decreases in accounts receivable and
prepaid assets and an increase in other short-term notes payable and the line
of credit balance being classified as current as of September 30, 2003,
partially offset by an increase in cash and a decrease in accrued liabilities.
Upon the consummation of a capital event as defined in the amended credit
facility, we believe that our line of credit availability along with future
operating cash flows will be sufficient to meet our working capital and capital
expenditure requirements for the next twelve months. There can be no assurance
that we will be able to consummate a capital event on terms satisfactory to the
Company, if at all.

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

|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |       |  |  |   |       | 
|----------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | ----- |  | ------- | ------ | ------- |  | - | ----- |  |  | - | ----- | 
|(in thousands)                      |  | Payments Due by Period
|                                    |  |                       
|                                    |  |                        |        |        |  | Less than |       | 1-2   |  | 3-4     |        | 4 years
|Contractual Obligations             |  | Total                  |        | 1 year |  | years     |       | years |  | & after
|                                    |  |                        |        |        |  |           |       |       |  |        
|Revolving Line of Credit            |  | $                      | 950    |        |  | $         | 950   |       |  | $       | 0      |         |  | $ | 0     |  |  | $ | 0     | 
|Long-Term Debt                      |  |                        | 24,284 |        |  |           | 5,436 |       |  |         | 18,848 |         |  |   | 0     |  |  |   | 0     | 
|Capitalized Lease Obligations       |  |                        | 292    |        |  |           | 292   |       |  |         | 0      |         |  |   | 0     |  |  |   | 0     | 
|Operating Leases                    |  |                        | 8,481  |        |  |           | 1,669 |       |  |         | 2,640  |         |  |   | 2,463 |  |  |   | 1,709 | 
|Other                               |  |                        | 411    |        |  |           | 411   |       |  |         | 0      |         |  |   | 0     |  |  |   | 0     | 
|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |       |  |  |   |       | 
|Total Contractual Cash Obligations  |  | $                      | 34,418 |        |  | $         | 8,758 |       |  | $       | 21,488 |         |  | $ | 2,463 |  |  | $ | 1,709 | 
|Standby Letter of Credit Commitment |  | $                      | 921    |        |  | $         | 921   |       |  | $       | 0      |         |  | $ | 0     |  |  | $ | 0     | 

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

New Accounting Pronouncements

In August of 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 145. This statement rescinds Statement No. 4, which required
all material gains and losses from extinguishment of debt to be classified as
an extraordinary item, net of related income tax effects. Upon adoption of this
statement, extinguishment gains and losses will be classified as ordinary gains
and losses in the income statement. The statement is effective for fiscal years
beginning after May 15, 2002, resulting in it being effective for the Company
on January 1, 2003. The Company early adopted the statement during December
2002, which did not have a material impact on the Companys financial position
on results of operations. However, certain debt extinguishment losses that had
previously been reflected as extraordinary items were reclassified to ordinary

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expenses.

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

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

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

In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. Financial instruments that fall within the scope of SFAS No. 150 must
be classified by the issuer as liabilities (or assets in some circumstances).
Many of those instruments were previously classified as equity. The statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted SFAS No. 150 as of July 1,
2003 and, as a result, the issued and outstanding Series B Preferred stock
totaling $114,000 has been reclassified to equity for all periods presented in
the accompanying consolidated balance sheets.

In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, to expand upon and strengthen
existing accounting guidance that addresses when a company should include in
its financial statements the assets, liabilities and activities of another
entity. Until now, a company generally has included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that guidance by requiring a variable
interest entity, as defined, to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the entitys residual
returns or both. FIN 46 also requires disclosure about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003 and to
older entities in the first fiscal year or interim period ending after
December 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company is currently evaluating
the requirements and impact, if any, of FIN 46 on its consolidated results of
operations and financial

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position.

Note Regarding Forward Looking Information

This interim report contains several forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements containing the words may, would, could,
will, expect, anticipate, believe, intend, plan, and estimate and
words of similar importance. Such statements include statements concerning our
operations, prospects, strategies and financial condition, including our future
economic performance, intent, plans and objectives, and the likelihood of
success in developing and expanding our business. These statements are based
upon a number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond our control. Actual results may differ
materially from those expressed or implied by such forward-looking statements.
The Company assumes no obligation to update this information. Factors that
could cause actual results to differ materially are discussed in our filings
with the Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31, 2002, and include, among other
factors, our substantial leverage, our ability to maintain compliance with The
Nasdaq SmallCap Market listing standards, the timely development and market
acceptance of products and technologies and competitive market conditions.

Inflation

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk from exposure to changes in interest
rates based on our financing and cash management activities. Our exposure
relates primarily to our long-term debt obligations that expire in 2004 and
2006. In the event that interest rates associated with these debt obligations
were to increase 100 basis points, the Companys annual cash flows would be
reduced by approximately $250,000.




Item 4. Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the
participation of the Companys management, including the CEO and CFO, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures as of September 30, 2003. Based on that evaluation, the
Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were adequate. During the fiscal quarter
ended September 30, 2003, there has not occurred any change in the Companys
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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PART II  Other Information




Item 1. Legal Proceedings

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

In Re Towne Services, Inc./Securities Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As previously disclosed, Towne, two of its former officers and a current
officer were defendants in the securities class action lawsuit filed in
November 1999. The complaints alleged, among other things, that Towne should
have disclosed in the prospectus used for its secondary public offering in
June 1999 that it allegedly experienced serious problems with its network
infrastructure and processing facilities during the move of its corporate
headquarters in June 1999, and that these problems allegedly led to a higher
than usual number of customers terminating their contracts during the second
quarter. The parties reached a tentative settlement, which was subject to
certain conditions including court approval. The settlement funds were placed
in escrow on February 21, 2003. On July 23, 2003, the United States District
Court, Northern District of Georgia approved the settlement, which is still
subject to the distribution of the settlement funds from the escrow account
to the plaintiffs and their attorneys. The Company has initiated an
arbitration proceeding to require its insurance carrier to pay in the
immediate future certain costs of defense incurred in connection with the
Towne securities litigation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based upon the Companys review of the documents and proceedings, and
after consultation with its outside counsel, the Company believes that the
carrier is obligated to reimburse the Company immediately for its legal
defense costs. Accordingly, the Company has recorded both a liability owed
to the attorneys and a receivable due from the carrier in offsetting amounts
in the accompanying consolidated balance sheet as of September 30, 2003.




Item 5. Other Information



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As previously disclosed by the Company in its press release dated
September 29, 2003, the Company received a letter from Nasdaq notifying the
Company that it has regained full compliance with the continued listing
requirements set forth in Nasdaq Rule 431(c)(4). On September 9, 2003, the
Company received notification that Nasdaq had granted the Company an
additional 180 calendar days, or until March 8, 2004, in which to regain
compliance for continued listing by having the closing bid price of the
Companys common stock above $1.00 per share or more for a minimum of 10
consecutive trading days. Since these prior notices, the closing bid price
of the Companys common stock has been at $1.00 per share or greater for at
least 10 consecutive trading days. Accordingly, the Company has regained
compliance with the continued listing requirements set forth in Nasdaq Rule
431(c)(4).

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Item 6. Exhibits and Reports on Form 8-K



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

|     |  |   |  |                                                                                                                                           
|---- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  |  |  | Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to the Companys registration statement
on Form S-1)
|     |  |   |  |                                                                                                                                           
|3.2  |  |  |  | Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys registration statement
on Form S-1)
|     |  |   |  |                                                                                                                                           
|31.1 |  |  |  | Certificate of CEO pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                  
|     |  |   |  |                                                                                                                                           
|31.2 |  |  |  | Certificate of CFO
pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                  
|     |  |   |  |                                                                                                                                           
|32.1 |  |  |  | Certificate of CEO pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                  
|     |  |   |  |                                                                                                                                           
|32.2 |  |  |  | Certificate of CFO pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                  



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



| | 1. |  | A current report on Form 8-K was filed on August 15, 2003 to announce the Companys
June 30, 2003 financial results.
| | -- |  | --------------------------------------------------------------------------------------------------------------------

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Signatures

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

|                       |  |                                           |  |                          
|---------------------- |  | ----------------------------------------- |  | -------------------------
|                       |  | Private Business, Inc.
      (Registrant)
|                       |  |                                           |  |                          
|Date: November 6, 2003 |  | By:                                       |  | /s/ Henry M. Baroco      
|                       |  |                                           |  |                          
|                       |  |                                           |  |                          
|                       |  |                                           |  |                          
|                       |  |                                           |  | Henry M. Baroco          
|                       |  |                                           |  | Chief Executive Officer  
|                       |  |                                           |  |                          
|Date: November 6, 2003 |  | By:                                       |  | /s/ Gerard M. Hayden, Jr.
|                       |  |                                           |  |                          
|                       |  |                                           |  |                          
|                       |  |                                           |  |                          
|                       |  |                                           |  | Gerard M. Hayden, Jr.    
|                       |  |                                           |  | Chief Financial Officer  

24