##### 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 March 31, 2006
 Commission file number 000-25959
 Goldleaf Financial Solutions, Inc. (f/k/a Private Business, Inc.)
 (Exact name of registrant as specified in its charter)
 Tennessee
    
    62-1453841(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)9020 Overlook Blvd., Brentwood, Tennessee
    
    37027(Address of principal executive offices)
    
    (Zip Code)
 (615) 221-8400
(Registrants telephone number, including area code)
  þ o
  o o þ
  o þ
  Class
    
    Outstanding as of April 30, 2006Common Stock, no par value
    
    15,811,452 shares




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##### 



GOLDLEAF FINANCIAL SOLUTIONS, INC.
 Form 10-Q
 For Quarter Ended March 31, 2006
 INDEX
 Part I  Financial
Information
    
    Page No.Item 1 Financial Statements:Consolidated Balance Sheets Unaudited as of March 31, 2006
and Audited as of December 31, 2005
    
    
    3Unaudited Consolidated Statements of Operations for the
Three Months ended March 31, 2006 and 2005
    
    
    4Unaudited Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2006 and 2005
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4 Controls and Procedures
    
    
    25Part II  Other InformationItem 1 Legal Proceedings
    
    
    26Item 1A Risk Factors
    
    
    26Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3 Defaults Upon Senior Securities
    
    
    35Item 4 Submission of Matters to a Vote of Security Holders
    
    
    35Item 5 Other Information
    
    
    35Item 6 Exhibits
    
    
    36Signatures
    
    
    37EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



Part 1
Financial Information
 
 Item 1. Financial Statements
 GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,(in thousands, except share data)
    
    2006
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,360
    
    
    $
    137Restricted cash
    
    
    10,336
    
    
    
    50Accounts receivable  trade, net of allowance for doubtful accounts of $304 and $206, respectively
    
    
    5,312
    
    
    
    4,773Accounts receivable  other
    
    
    21
    
    
    
    26Deferred tax assets
    
    
    430
    
    
    
    370Investment in direct financing leases
    
    
    1,931
    
    
    
    2,235Prepaid and other current assets
    
    
    1,732
    
    
    
    1,567Total current assets
    
    
    21,122
    
    
    
    9,158PROPERTY AND EQUIPMENT, NET
    
    
    3,846
    
    
    
    2,187OPERATING LEASE EQUIPMENT, NET
    
    
    155
    
    
    
    187OTHER ASSETS:Software development costs, net
    
    
    1,992
    
    
    
    1,618Deferred tax assets
    
    
    2,723
    
    
    
    1,456Investment in direct financing leases, net of current portion
    
    
    4,080
    
    
    
    4,642Intangible and other assets, net
    
    
    15,961
    
    
    
    4,931Goodwill
    
    
    24,745
    
    
    
    12,378Total other assets
    
    
    49,501
    
    
    
    25,025Total assets
    
    $
    74,624
    
    
    $
    36,557LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    3,805
    
    
    $
    2,535Accrued liabilities
    
    
    2,585
    
    
    
    1,582Dividends payable
    
    
    1,052
    
    
    
    Deferred revenue
    
    
    2,926
    
    
    
    456Customer deposits
    
    
    10,286
    
    
    
    Current portion of capital lease obligations
    
    
    258
    
    
    
    Current portion of non-recourse lease notes payable
    
    
    2,061
    
    
    
    2,336Note payable
    
    
    850
    
    
    
    Current portion of long-term debt
    
    
    8,000
    
    
    
    Total current liabilities
    
    
    31,823
    
    
    
    6,909REVOLVING LINE OF CREDIT
    
    
    1,600
    
    
    
    NON-RECOURSE LEASE NOTES PAYABLE, net of current portion
    
    
    3,510
    
    
    
    4,056DEFERRED REVENUE
    
    
    3,050
    
    
    
    CAPITAL LEASE OBLIGATIONS, net of current portion
    
    
    1,257
    
    
    
    OTHER NON-CURRENT LIABILITIES
    
    
    119
    
    
    
    230LONG-TERM DEBT, net of current portion
    
    
    7,750
    
    
    
    NOTE PAYABLE
    
    
    150
    
    
    
    SENIOR SUBORDINATED LONG-TERM DEBT, net of unamortized discount of $1,491
    
    
    
    
    
    
    8,509PREFERRED STOCK, Series C redeemable, no par value, 10,000 shares issued and outstanding; net of
unamortized discount of $1,416
    
    
    8,584
    
    
    
    Total liabilities
    
    
    57,843
    
    
    
    19,704COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, no par value; 100,000,000 shares authorized; shares issued and outstanding,
15,811,452 and 15,489,454, respectively
    
    
    
    
    
    
    Preferred Stock, 20,000,000 shares authorized:Series A non-convertible, no par value; 20,000 shares issued and outstanding, respectively
    
    
    6,209
    
    
    
    6,209Series B convertible, no par value; 40,031 shares issued and outstanding
    
    
    114
    
    
    
    114Additional paid-in capital
    
    
    7,625
    
    
    
    6,998Retained earnings
    
    
    2,833
    
    
    
    3,532Total stockholders equity
    
    
    16,781
    
    
    
    16,853Total liabilities and stockholders equity
    
    $
    74,624
    
    
    $
    36,557
  3




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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
For the Three Months Ended March 31, 2006 and 2005
 (in thousands, except per share data)
    
    2006
    
    
    2005REVENUES:Financial institution service fees
    
    $
    10,214
    
    
    $
    6,960Retail inventory management services
    
    
    2,095
    
    
    
    2,202Other products and services
    
    
    722
    
    
    
    37Total revenues
    
    
    13,031
    
    
    
    9,199OPERATING EXPENSES:General and administrative
    
    
    5,551
    
    
    
    3,936Selling and marketing
    
    
    6,095
    
    
    
    4,299Research and development
    
    
    276
    
    
    
    63Amortization
    
    
    583
    
    
    
    208Other operating (income) expense, net
    
    
    109
    
    
    
    Total operating expenses
    
    
    12,614
    
    
    
    8,506OPERATING INCOME
    
    
    417
    
    
    
    693INTEREST EXPENSE, NET
    
    
    655
    
    
    
    70INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (238
    )
    
    
    623Income tax provision (benefit)
    
    
    (91
    )
    
    
    244NET INCOME (LOSS)
    
    
    (147
    )
    
    
    379Preferred stock dividends
    
    
    552
    
    
    
    540NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    (699
    )
    
    $
    (161
    )LOSS PER SHARE:Basic
    
    $
    (0.04
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.04
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    15,723
    
    
    
    14,575Diluted
    
    
    15,723
    
    
    
    14,575
  4




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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
For the Three Months Ended March 31, 2006 and 2005
 (in thousands)
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (147
    )
    
    $
    379Adjustments to reconcile net income (loss) to net cash provided by operating activities:Write-off of debt issuance costs
    
    
    112
    
    
    
    Depreciation and amortization
    
    
    943
    
    
    
    525Depreciation on fixed assets under operating leases
    
    
    23
    
    
    
    Deferred taxes
    
    
    (76
    )
    
    
    202Amortization of debt issuance costs and discount
    
    
    164
    
    
    
    24Stock option compensation expense
    
    
    160
    
    
    
    6Deferred gain on land sale
    
    
    (4
    )
    
    
    (4
    )Loss on write-down or disposal of fixed assets and software development costs
    
    
    32
    
    
    
    Amortization of lease income and initial direct costs
    
    
    (168
    )
    
    
    Gain on sale of leased equipment
    
    
    (28
    )
    
    
    Gain on sale of other assets
    
    
    (40
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (107
    )
    
    
    (15
    )Prepaid and other current assets
    
    
    281
    
    
    
    140Accounts payable
    
    
    581
    
    
    
    (440
    )Accrued liabilities
    
    
    (236
    )
    
    
    (309
    )Deferred revenue
    
    
    570
    
    
    
    (100
    )Other non-current liabilities
    
    
    6
    
    
    
    Net cash provided by operating activities
    
    
    2,066
    
    
    
    408CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of P.T.C. Banking assets
    
    
    (968
    )
    
    
    Acquisition of Goldleaf Technologies, Inc, net of cash acquired
    
    
    (16,396
    )
    
    
    Investment in direct financing leases
    
    
    (29
    )
    
    
    Lease receivables paid
    
    
    993
    
    
    
    Proceeds from lease terminations
    
    
    27
    
    
    
    Proceeds received from sale of other assets
    
    
    62
    
    
    
    Additions to property and equipment
    
    
    (170
    )
    
    
    (66
    )Additions to intangibles and other assets
    
    
    (10
    )
    
    
    Software development costs
    
    
    (496
    )
    
    
    (153
    )Payments received on notes receivable
    
    
    14
    
    
    
    Net cash used in investing activities
    
    
    (16,973
    )
    
    
    (219
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments on long-term debt
    
    
    (250
    )
    
    
    (416
    )Repayments on capital lease obligations
    
    
    (42
    )
    
    
    Proceeds from amended and restated debt facility with Bank of America, net of issuance cost of $425
    
    
    15,575
    
    
    
    Proceeds from revolving line of credit, net
    
    
    1,493
    
    
    
    400Repayments of non-recourse lease financing notes payable
    
    
    (658
    )
    
    
    Proceeds from non-recourse lease financing notes payable
    
    
    6
    
    
    
    Proceeds from exercise of employee stock options
    
    
    2
    
    
    
    358Stock issued through employee stock purchase plan
    
    
    4
    
    
    
    9Payments of preferred dividends declared
    
    
    
    
    
    
    (540
    )Net cash provided by (used in) financing activities
    
    
    16,130
    
    
    
    (189
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    1,223
    
    
    
    CASH AND CASH EQUIVALENTS at beginning of year
    
    
    137
    
    
    
    7CASH AND CASH EQUIVALENTS at end of period
    
    $
    1,360
    
    
    $
    7SUPPLEMENTAL CASH FLOW INFORMATION:Cash payments for income taxes during period
    
    $
    58
    
    
    $
    119Cash payments of interest during period
    
    $
    267
    
    
    $
    45NONCASH INVESTING ACTIVITIES:Issuance of 314,768 common shares as purchase consideration in the Goldleaf Technologies, Inc. and P.T.C. Banking
acquisitions
    
    $
    461
    
    
    $
    Issuance of note payable to Goldleaf executive for signing bonus
    
    $
    1,000
    
    
    $
    
  5




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##### Table of Contents



GOLDLEAF FINANCIAL SOLUTIONS, INC.
 
 Notes to Consolidated Financial Statements  Unaudited
 A. The Company
  B. Summary of Significant Accounting Policies
 Basis of Presentation
    Principles of Consolidation
   Comprehensive Income
 Reporting Comprehensive Income
 Stock-Based Compensation
 Share-Based Payment
  6




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
    
    The expected volatility is estimated based on the historical volatility of the Companys
stock over the contractual life of the options and the Companys expectations regarding
stock volatility in the future.
    
    The Company uses historical data to estimate option exercise and employee termination
behavior within the valuation model; the expected life of options granted is derived from
historical Company experience and represents the period of time the options are expected to
be outstanding.
    
    The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the
time of grant for periods within the contractual life of the option.
 Quarter Ended March 31,2006
    
    2005Dividend yield range
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    58
    %
    
    
    75
    %Risk-free interest rate range
    
    
    4.5
    %
    
    
    4.0
    %Expected term (in years)
    
    6.2 years
        
    8 years
   Weighted Average
    
    


    Remaining
    

    

    IntrinsicNumber of Shares
    

    

    Exercise Price
    
    

Contractual
Life
    
    


ValueBalance of December 31, 2005

    

    
    5,363,296
    

    

    $
    2.24Granted

    

    
    1,777,300
    

    

    
    1.33Exercised

    

    
    (2,800
    )

    

    
    0.59Canceled

    

    
    (94,677
    )

    

    
    2.17Balance of March 31, 2006

    

    
    7,043,119
    

    

    $
    1.94
    
    

    
    8.4 years
    

    

    $
    2,389,427Balance
exercisable at March 31, 2006

    

    
    1,689,828
    

    

    $
    3.78
    
    

    
    7.4 years
    

    

    $
    443,455
    7




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##### Table of Contents



Three Months Ended(in thousands, except per share data)
    
    March 31, 2005Net loss available to common shareholders, as reported
    
    $
    (161
    )Add: Stock-based employee compensation expense included in reported net
loss, net of related tax effects
    
    
    4Add: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    15Pro forma net loss
    
    $
    (142
    )Loss per share:Basicas reported
    
    $
    (0.01
    )Basicpro forma
    
    $
    (0.01
    )Dilutedas reported
    
    $
    (0.01
    )Dilutedpro forma
    
    $
    (0.01
    )
 C. Reclassifications
   D. Acquisitions
 Assets of P.T.C. Banking Systems, Inc.
 Business Combinations
 (in thousands, except per share amounts)Purchase Price:Cash
    
    $
    949Common
shares (42,427 shares valued at $1.46 per share)
    
    
    61Direct costs of acquisition
    
    
    19Total purchase price
    
    $
    1,029Value assigned to assets and liabilities:Assets:Current assets
    
    
    10Property and equipment
    
    
    38Customer list (estimated life of ten years)
    
    
    150Acquired technology (estimated life of five years)
    
    
    500Trademarks/tradenames (indefinite life)
    
    
    50Non-compete (estimated life of three years)
    
    
    75Goodwill/unidentified intangibles
    
    
    476Liabilities:Accounts payable
    
    
    10Accrued liabilities
    
    
    10Deferred revenue
    
    
    250Total net assets
    
    $
    1,029
 8




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##### Table of Contents



Goldleaf Technologies, Inc.
 usiness Combinations
 (in thousands except share amounts)Purchase Price:Cash (includes $830,000 paid to executives considered as purchase price)
    
    $
    17,615Note payable to executive
    
    
    1,000Common shares (272,341 shares valued at $1.47 per share)
    
    
    400Direct acquisition costs
    
    
    186Total purchase price
    
    $
    19,201Value assigned to assets and liabilities:Assets:Cash
    
    $
    1,405Restricted cash
    
    
    11,258Accounts receivable
    
    
    560Other current assets
    
    
    156Property and equipment
    
    
    1,811Deferred tax asset
    
    
    1,250Customer list (estimated life of ten years)
    
    
    5,000Acquired technology (estimated life of seven years)
    
    
    2,000Trademarks/tradenames (indefinite life)
    
    
    1,000Product patents (estimated life of twenty years)
    
    
    2,000Non-compete (estimated life of three years)
    
    
    500Goodwill/unidentified intangibles
    
    
    11,772Liabilities:Accounts payable
    
    
    738Accrued liabilities
    
    
    1,638Customer deposits
    
    
    11,258Capital lease obligations
    
    
    1,557Deferred revenue
    
    
    4,320Total net assets
    
    $
    19,201
   ACH Manager and Client (ACH) and Remote Deposit Revenue
 Revenue Arrangements with Multiple Deliverables
 9




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##### Table of Contents



Website Design and Hosting
  E. Debt
  March 31, and June 30, 2006
    
    $250,000/quarterSeptember 30 and December 31, 2006
    
    $500,000/quarterThereafter (until maturity)
    
    $750,000/quarter
   Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity
    10




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##### Table of Contents



F. Net Income Per Share
   Three Months EndedMarch 31,(in thousands)
    
    2006
    
    
    2005Net loss available to common shareholders
    
    $
    (699
    )
    
    $
    (161
    )Weighted average common shares outstanding
    
    
    15,723
    
    
    
    14,575Plus additional shares from common stock equivalent shares:Options and convertible preferred stock
    
    
    0
    
    
    
    0Diluted weighted average common shares outstanding
    
    
    15,723
    
    
    
    14,575
  G. Legal Proceedings
  H. Segment Information
 Disclosures about Segments of
an Enterprise and Related Information.
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Retail
    
    
    
    
    
    
    
    
    
    
    RetailFinancial
    
    
    Inventory
    
    
    
    
    
    
    Financial
    
    
    InventoryInstitution
    
    
    Management
    
    
    
    
    
    
    Institution
    
    
    Management(in thousands)
    
    Service Fees
    
    
    Services
    
    
    Total
    
    
    Service Fees
    
    
    Services
    
    
    TotalRevenues
    
    $
    10,928
    
    
    $
    2,103
    
    
    $
    13,031
    
    
    $
    6,997
    
    
    $
    2,202
    
    
    $
    9,199(Loss) income before taxes
    
    
    (638
    )
    
    
    400
    
    
    
    (238
    )
    
    
    346
    
    
    
    277
    
    
    
    623Assets
    
    
    70,990
    
    
    
    3,634
    
    
    
    74,624
    
    
    
    16,646
    
    
    
    4,012
    
    
    
    20,658Total expenditures for
additions to long-lived
assets
    
    $
    664
    
    
    $
    12
    
    
    $
    676
    
    
    $
    219
    
    
    $
    0
    
    
    $
    219
 11




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##### Table of Contents



I. Stock Option Grants
  J. Supplemental Unaudited Pro Forma Financial Data
  Unaudited Pro Forma Statement of OperationsFor The Three Months Ended March 31, 2006Unaudited Pro FormaAdjustments(in thousands, except per share data)
    
    Goldleaf
    
    
    GTI
    
    
    Debit
    
    
    Credit
    
    
    TotalRevenues
    
    $
    13,031
    
    
    $
    1,014
    
    
    A  $

    41
    
    
    
    
    
    
    $
    14,004B

    88Operating expenses
    
    
    12,614
    
    
    
    1,010
    
    
    C

    6
    
    
    
    
    
    
    
    13,718Operating income (loss)
    
    
    417
    
    
    
    4
    
    
    
    (135
    )
    
    
    
    
    
    
    286Interest expense, net
    
    
    655
    
    
    
    0
    
    
    D
    87
    
    
    
    
    
    
    
    742Income (loss) before provision (benefit) for
income taxes
    
    
    (238
    )
    
    
    4
    
    
    
    (222
    )
    
    
    
    
    
    
    (456
    )Income tax benefit
    
    
    (91
    )
    
    
    0
    
    
    
    
    
    
    E
    87
    
    
    
    (178
    )Net loss
    
    
    (147
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (278
    )Preferred dividends
    
    
    552
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    552Net loss available to common shareholders
    
    $
    (699
    )
    
    $
    4
    
    
    
    (222
    )
    
    
    87
    
    
    $
    (830
    )Diluted earnings (loss) per share
    
    $
    (0.04
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.05
    )
 Unaudited Pro Forma Statement of OperationsFor The Year Ended December 31, 2005UnauditedPro Forma Adjustments(in thousands, except per share data)
    
    Goldleaf
    
    
    Captiva
    
    
    KVI Capital
    
    
    GTI
    
    
    Debit
    
    
    Credit
    
    
    Pro FormaRevenues
    
    $
    38,351
    
    
    $
    1,713
    
    
    $
    757
    
    
    $
    9,412
    
    
    A                    $
    917
    
    
    $
    
    
    
    $
    49,316Operating expenses
    
    
    34,276
    
    
    
    2,289
    
    
    
    935
    
    
    
    10,721
    
    
    B
    1,124C
    468
    
    
    
    
    
    
    
    49,813Operating income (loss)
    
    
    4,075
    
    
    
    (576
    )
    
    
    (178
    )
    
    
    (1,309
    )
    
    
    (2,509
    )
    
    
    
    
    
    
    (497
    )Interest expense, net
    
    
    381
    
    
    
    164
    
    
    
    91
    
    
    
    (39
    )
    
    D
    2,369
    
    
    
    
    
    
    
    2,966Total other expenses
    
    
    381
    
    
    
    164
    
    
    
    91
    
    
    
    (39
    )
    
    
    2,369
    
    
    
    
    
    
    
    2,966Income (loss) before provision for
income taxes
    
    
    3,694
    
    
    
    (740
    )
    
    
    (269
    )
    
    
    (1,270
    )
    
    
    (4,878
    )
    
    
    
    
    
    
    (3,463
    )Provision (benefit) for income taxes
    
    
    1,359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    E
    2,710
    
    
    
    (1,351
    )Net income (loss)
    
    
    2,335
    
    
    
    (740
    )
    
    
    (269
    )
    
    
    (1,270
    )
    
    
    (4,878
    )
    
    
    2,710
    
    
    
    (2,112
    )Preferred stock dividends
    
    
    2,160
    
    
    
    
    
    
    
    
    
    
    
    2,915
    
    
    
    
    
    
    F
    2,915
    
    
    
    2,160Net income (loss) attributable to
common shareholders
    
    
    175
    
    
    
    (740
    )
    
    
    (269
    )
    
    
    (4,185
    )
    
    
    (4,878
    )
    
    
    5,625
    
    
    
    (4,272
    )Diluted earnings (loss) per share
    
    $
    0.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.28
    )
   A.
    
    To reduce revenues for GTI related to estimated deferred revenues that would not have
been realized had we acquired GTI as of January 1, 2006 and January 1, 2005, respectively,
and recorded the deferred service obligation at its estimated fair value as of that date.
 12




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##### Table of Contents



B.
    
    To increase amortization expense of new intangibles recorded as a result of the
acquisitions. For 2006, the pro forma amounts assume that the Company recorded
approximately $10.5 million of identified intangibles, consisting of acquired technology
($2.0 million), customer lists ($5.0 million), non-compete agreements ($500,000),
tradenames and trademarks ($1.0 million) and product patents ($2.0 million), and that the
Company amortizes these amounts over estimated useful lives of seven, ten, three,
indefinite and twenty years, respectively. For 2005, the pro forma amounts assume that the
Company recorded approximately $13.7 million of identified intangibles, consisting of
acquired technology ($2.8 million), customer lists ($6.6 million), vendor program ($0.1
million), non-compete agreements ($1.2 million), tradenames and trademarks ($1.0 million)
and product patents ($2.0 million), and that the Company amortizes these amounts over
estimated average useful lives of five, ten, seven, three, indefinite, and twenty years,
respectively.C.
    
    To increase general and administrative costs for the increased salary of the Companys
new chief executive officer and executive officers of KVI Capital and GTI based on the
employment agreements executed as part of these acquisitions.D.
    
    To increase interest expense for additional debt we acquired to fund the purchase
prices of KVI Capital, Captiva and GTI. The Company has estimated interest expense
assuming a weighted average interest rate for the two debt instruments used to complete the
transactions: the $10.0 million Lightyear Series C redeemable preferred stock at 10% (as
received in exchange for a $10.0 million subordinated note we originally issued) and the
$18.0 million Bank of America credit facility. Therefore, the pro forma interest expense
was calculated using an interest rate of 7.5% (2006) and 8.3% (2005) and includes accretion of the debt discount
(related to common stock warrants issued to Lightyear in connection with the $10.0 million
financing ) using the effective interest method.E.
    
    To record income tax effects of the pro forma adjustments at the Companys effective
rate of 39%.F.
    
    To reduce preferred dividends for the elimination of GTI dividends ($2.9 million in
2005).
    K. Related Party Transaction
  L. Subsequent Events
  13




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##### Table of Contents




    
    an additional 500 shares of Series A preferred stock to Lightyear in lieu of $500,000 in
cash dividends that became due on January 1, 2006 on the Series A preferred stock;
    
    an additional 512.5 shares of Series A preferred stock to Lightyear in lieu of $512,500
in cash dividends that became due on April 1, 2006 on the Series A preferred stock; and
    
    warrants to Lightyear that give Lightyear the right to
purchase 767,045 shares of our
common stock at an exercise price of $1.32 per share.
  14




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended March 31, 2006 and 2005
 Note Regarding Forward Looking Information
   Overview
  
    
    Captiva Solutions, LLC, or Captiva, which added core data processing as well as image and item processing,
    
    P.T.C. Banking Systems, Inc., or P.T.C., which added teller automation systems; and
    
    Goldleaf Technologies, Inc., or GTI, which added ACH processing, remote capture
processing, and website design and hosting.
  Revenues
  
    
    financial institution service fees;
    
    retail inventory management services; and
    
    other products and services.
 15




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##### Table of Contents



Financial Institution Service Fees
  
    
    participation fees and insurance brokerage fees;
    
    core data processing and image processing fees;
    
    software license and maintenance fees;
    
    leasing revenues;
    
    ACH origination and processing fees;
    
    remote capture and deposit processing fees;
    
    financial institution website design and hosting fees; and
    
    teller automation systems.
 Participation Fees, Insurance Brokerage Fees and Maintenance Fees from Our Accounts Receivable
Financing Solution.
  Core Data Processing and Image Processing Fees.
 Software License and Maintenance Fees.
 Leasing Revenues.
 ACH Origination and Processing, Remote Capture and Deposit Processing Fees.
 Financial Institution Website Design and Hosting Fees
 16




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##### Table of Contents



Retail Inventory Management Services
  Other Products and Services
   Results of Operations
   Three MonthsEnded March 31,2006
    
    
    2005Revenues:Financial institution processing and service fees
    
    
    78.4
    %
    
    
    75.7
    %Retail inventory management services
    
    
    16.1
    %
    
    
    23.9
    %Other products and services
    
    
    5.5
    %
    
    
    0.4
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating Expenses:General and administrative
    
    
    42.6
    %
    
    
    42.8
    %Selling and marketing
    
    
    46.8
    %
    
    
    46.7
    %Research and development
    
    
    2.1
    %
    
    
    0.7
    %Amortization
    
    
    4.5
    %
    
    
    2.3
    %Other operating expense (income), net
    
    
    0.8
    %
    
    
    0.0
    %Total operating expenses
    
    
    96.8
    %
    
    
    92.5
    %Operating Income
    
    
    3.2
    %
    
    
    7.5
    %Interest expense, net
    
    
    5.0
    %
    
    
    0.8
    %Income before income taxes
    
    
    (1.8)
    %
    
    
    6.7
    %Income tax (benefit) provision
    
    
    (0.7)
    %
    
    
    2.7
    %Net (loss) income
    
    
    (1.1)
    %
    
    
    4.0
    %Preferred stock dividends
    
    
    4.2
    %
    
    
    5.9
    %Net loss available to common shareholders
    
    
    (5.3)
    %
    
    
    (1.9)
    %
  Financial Institution Service Fees.
 17




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##### Table of Contents



Retail
inventory management services
 Other
products and services
 General and
administrative.
 Selling and marketing
 Research and development
 Amortization
 Other operating expenses (income), net
 Operating
income.
 Interest expense, net
 18




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##### Table of Contents



Income tax provision (benefit).
 Critical Accounting Policies
   Revenue Recognition
 Financial institution service fees.
      Revenue Arrangements with Multiple
Deliverables
  19




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##### Table of Contents



Retail Inventory Management Services
  Other Products and Services
  Software Development Costs
 Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Accounting for the Costs of Computer Software Developed or Obtained for
internal Use,
 Income Taxes
 Accounting for Income Taxes.
 20




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##### Table of Contents



Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
 Business Combinations.
 Long-Lived Assets, Intangible Assets and Goodwill
  
    
    significant underperformance relative to expected historical or projected future operating results,
    
    significant changes in the manner of our use of the acquired assets or the strategy for our overall business, and
    
    significant negative industry or economic trends.
  Liquidity and Capital Resources
  Quarter Ended March 31,2006
    
    
    2005(in thousands)Net cash provided by operating activities
    
    $
    2,066
    
    
    
    408Net cash used in investing activities
    
    
    (16,973
    )
    
    
    (219
    )Net cash provided by (used in) financing activities
    
    
    16,130
    
    
    
    (189
    )
 Cash Provided by Operating Activities
  Cash Used in Investing Activities
  21




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##### Table of Contents



Cash Provided by (Used in) Financing Activities
  Analysis of Changes in Working Capital
    Obligations and Commitments for Future Payments as of March 31, 2006
  Payments Due by PeriodLess
    
    
    
    
    
    
    
    
    
    
    5 YearsThan
    
    
    1-2
    
    
    3-4
    
    
    andContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    After(in thousands)Revolving line of credit
    
    $
    1,600
    
    
    $
    
    
    
    $
    1,600
    
    
    $
    
    
    
    $
    Short-term debt
    
    
    6,000
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    1,515
    
    
    
    258
    
    
    
    403
    
    
    
    814
    
    
    
    40Long-term debt (1)
    
    
    9,750
    
    
    
    2,000
    
    
    
    7,750
    
    
    
    
    
    
    
    Operating leases
    
    
    8,063
    
    
    
    2,278
    
    
    
    2,226
    
    
    
    1,984
    
    
    
    1,575Note payable
    
    
    1,000
    
    
    
    850
    
    
    
    150
    
    
    
    
    
    
    
    Series C redeemable preferred stock
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    Total contractual cash obligations
    
    $
    37,928
    
    
    $
    11,386
    
    
    $
    12,129
    
    
    $
    12,798
    
    
    $
    1,615Standby letters of credit commitment
    
    $
    400
    
    
    $
    400
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Debt excludes non-recourse lease notes payable of approximately $5.6 million, which
are non-recourse to us and are secured by the leased equipment purchased using the
proceeds of the non-recourse notes. 22




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##### Table of Contents



Debt Outstanding as of March 31, 2006
  Long-term debt (1):Secured Bank of America term loan due January 23, 2008, with installment
payments due before that date
    
    $
    7,750Revolving line of credit (Bank of America) due January 23, 2008
    
    
    1,600Capital lease obligations
    
    
    1,257Unsecured note to executive officer Paul McCulloch, for portion of
signing bonus, due April 30, 2007
    
    
    150Redeemable Series C preferred stock, net of discount of $1,416
    
    
    8,584Total long-term debt
    
    $
    19,341Short-term debt1:Bank of America facility term loan due July 23, 2006
    
    $
    6,000Current portion of Secured Bank of America term loan due January 23,
2008, with installment payments due before that date
    
    
    2,000Current portion of capital lease obligations
    
    
    258Unsecured note to executive officer Paul McCulloch, for portion of
signing bonus,
due June 15, 2006
    
    
    850Total short-term debt
    
    $
    9,108Total debt
    
    $
    28,449
 
 (1)
    
    Debt excludes non-recourse lease notes payable of approximately $5.6 million, which
are non-recourse to us and are secured by the leased equipment purchased using the
proceeds of the non-recourse notes.   Historical Uses of Debt
     March 31 and June 30, 2006
    
    $250,000/quarterSeptember 30 and December 31, 2006
    
    $500,000/quarterThereafter (until maturity)
    
    $750,000/quarter
 23




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##### Table of Contents




    
    The Lightyear Fund, L.P., an affiliate of Lightyear, guaranteed a $6.0 million term loan
included in the facility that is due July 23, 2006 and we agreed to pay a fee of $45,000 to
The Lightyear Fund, L.P. and to reimburse the Lightyear Fund, L.P. for up to $50,000 of its
expenses in connection with this guaranty;
    
    Lightyear exchanged its senior subordinated $10.0 million note for 10,000 shares of our
Series C preferred stock, which decreased our debt by $10.0 million but added that same
amount in redeemable preferred stock; and
    
    we amended and restated the common stock warrants that we issued to Lightyear in
December 2005 in connection with the Lightyear note.
   Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Share-Based Payment, Accounting for Stock Issued to Employees.
  Seasonality
  Inflation
  24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  25




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##### Table of Contents



PART II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Risks Related to Our Business
 We have a limited operating history as a combined company under a new chief executive officer.
  We generate a majority of our revenues from our accounts receivable financing solution and our
retail inventory management services, and those revenues have declined in recent years.
  The loss of our chief executive officer or other key employees could have a material adverse
effect on our business.
  Acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  26




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##### Table of Contents




    
    the inability to centralize and consolidate our financial, operational and
administrative functions with those of the businesses we acquire;
    
    the possible impairment of significant identifiable intangible assets and
goodwill that we record as part of the purchase price allocation;
    
    our managements attention may be diverted from other business concerns;
    
    the inability to retain and motivate key employees of an acquired company;
    
    our entrance into markets in which we have little or no prior direct experience;
    
    litigation, indemnification claims and other unforeseen claims and liabilities
that may arise from the acquisition or operation of acquired businesses;
    
    the costs necessary to complete integration exceeding our expectations or
outweighing some of the intended benefits of the acquisitions we close;
    
    the inability to maintain the client relationships of an acquired business; and
    
    the costs necessary to improve or replace the operating systems, products and
services of acquired businesses exceeding our expectations.
  We may acquire companies that have significant deficiencies or material weaknesses in their
internal control over financial reporting.
  We may be unable to account for our acquisitions in a timely manner.
 ,
 27




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##### Table of Contents



If we are unable to successfully integrate the business operations of Captiva, P.T.C. and
Goldleaf Technologies into our business operations, we will not realize the anticipated potential
benefits from these acquisitions and our business could be adversely affected.
  Because our business involves the electronic storage and transmission of data, security
breaches and computer viruses could adversely affect us.
  If we experience losses, we could experience difficulty meeting our business plan and our
stock price could decline.
  We may be unable to maintain or grow our business.
  We may be unable to manage our growth.
  Our business significantly depends on a productive sales force, and our sales force has
experienced management and employee turnover in recent years.
  28




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##### Table of Contents



We have a long sales and implementation cycle for some of our solutions.
  
    
    our clients budgetary constraints;
    
    the timing of our clients budget cycles and approval processes;
    
    our clients willingness to replace their current vendors;
    
    the success and continued support of our strategic marketing partners sales efforts; and
    
    the timing and expiration of our clients current license agreements or
outsourcing agreements for similar services.
  Competition, restrictions under our credit facility, market conditions and other factors may
impede our ability to acquire other businesses and may inhibit our growth.
  
    
    identify suitable acquisition candidates;
    
    reach agreements to acquire these companies;
    
    obtain necessary financing on acceptable terms; and
    
    successfully integrate the operations of these businesses.
  We may not be able to enter into and successfully implement strategic alliances.
  We may be unable to market our products and services successfully to new client financial
institutions or to retain current client financial institutions.
  29




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##### Table of Contents



The failure to execute our growth plans may affect our ability to remain a publicly traded
company.
  Our plans to expand the number of products and services we offer may not be successful and may
lower our overall profit margin.
  We may be unable to compete in our markets.
    We may be unable to protect our proprietary technology adequately.
  In our products, we use software owned by others, and we may be unable to replace that
software if it becomes unavailable, obsolete or incompatible with our products.
  30




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##### Table of Contents



If our products or services are found to infringe the proprietary rights of others, we may be
required to change our business practices and may also become subject to significant costs and
monetary penalties.
  
    
    be expensive and time-consuming to defend;
    
    cause us to cease making, licensing or using products that incorporate the challenged intellectual property;
    
    require us to redesign our products, if feasible;
    
    divert our managements attention and resources; and
    
    require us to enter into royalty or licensing agreements to obtain the right to use necessary technologies.
  The failure of our network infrastructure and equipment could have a material adverse effect
on our business.
  We rely on the technological infrastructure of our client financial institutions and their
individual customers.
  Increased fraud committed by small businesses and increased uncollectible accounts of small
businesses may adversely affect our accounts receivable financing business.
  We could be sued for contract or product liability claims that exceed our available insurance
coverage.
  31




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##### Table of Contents



We may not have access to capital to support our planned growth.
  If our products and services contain errors, we may lose clients and revenues and be subject
to claims for damages.
  
    
    delayed or lost revenues while we correct the errors;
    
    a loss of clients or the delay or failure to achieve market acceptance; and
    
    additional and unexpected expenses to fund further product development.
  Technological changes may reduce the demand for our products and services or render them
obsolete.
  Examination of our business by regulatory agencies could cause us to incur significant
expenses, and failure to remedy any identified deficiency would adversely affect our business.
  Future governmental laws and regulations may adversely affect us.
  32




---



##### Table of Contents



Risks Related to Our Industry
 We depend heavily on a single industry.
  Financial institutions are subject to industry consolidation, and we may lose clients with
little notice.
  The banking industry is highly regulated, and changes in banking regulations could negatively
affect our business.
  Risks of Owning Our Common Stock
 Our stock price is volatile and any investment in our common stock could suffer a decline in
value.
 
    
    actual or anticipated variations in quarterly revenues, operating results and profitability;
    
    changes in financial estimates by us or by a securities analyst who covers our stock;
    
    publication of research reports about our company or industry;;
    
    conditions or trends in our industry;
    
    stock market price and volume fluctuations of other publicly-traded companies
and, in particular, those whose businesses involve technology products and services
for financial institutions;
    
    announcements by us or our competitors of technological innovations, new
services, service enhancements, significant contracts, acquisitions, commercial
relationships, strategic partnerships, divestitures, technological innovations, new
services or service enhancements;
    
    announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
    
    the passage of legislation or other regulatory developments that adversely affect us, our clients or our industry;
    
    additions or departures of key personnel;
    
    sales of our common stock, including sales of our common stock by our directors
and officers or specific shareholders;
    
    slow or negative growth of related markets; and
    
    general economic conditions.
 33




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##### Table of Contents



If we are required to restate or reissue our financial statements, the price of our stock may
decline significantly.
  Our auditors have identified significant deficiencies in our internal controls that if not
properly remediated could result in a material misstatement of our financial statements.
  Complying with Section 404 of the Sarbanes-Oxley Act of 2002 may strain our resources and
distract management.
  In complying with Section 404 of the Sarbanes-Oxley Act of 2002, we may detect material
weaknesses in our internal controls.
  We do not anticipate paying any dividends on our common stock in the foreseeable future.
  We may not be able to use the tax benefit from our operating losses.
  34




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##### Table of Contents



Provisions in our organizational documents and under Tennessee law could delay or prevent a
change in control of our company, which could adversely affect the price of our common stock.
  Our planned public offering of common stock may not be successful.
  
    
    approximately $33.3 million to purchase and retire all of the outstanding shares
of our Series A preferred stock and Series C preferred stock, plus accrued and
unpaid dividends, from Lightyear PBI Holdings, LLC, or Lightyear, and to purchase
and cancel the common stock warrants that we issued to Lightyear in 2006;
    
    approximately $19.1 million to repay the outstanding amount under our $19.75
million credit facility with Bank of America, N.A.
    
    approximately $2.1 million to purchase and retire all the outstanding shares of
our Series B Preferred Stock; and
    
    the remaining net proceeds to fund our business strategy, for working capital and
for general corporate purposes, including potential future acquisitions.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  35




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##### Table of Contents



Item 6. Exhibits
  ExhibitNo.
    
    
    
    Description3.1
    
    
    
    Amended and Restated Charter of the Company (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement on No. 333-75013 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 No. 333-75013 Form S-1).10.1
    
    
    
    Stock Purchase Agreement dated January 23, 2006 among Private Business, Inc. and
the Stockholders of Goldleaf Technologies, Inc. (incorporated by reference to
Exhibit 2.1 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 24, 2006).10.2
    
    
    
    Amended and Restated Credit Agreement dated January 23, 2006 between Private
Business, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit 10.1
to Private Business, Inc.s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 26, 2006).10.3
    
    
    
    Guaranty Side Letter dated January 23, 2006 between Private Business, Inc., The
Lightyear Fund, L.P. and Lightyear PBI Holdings, LLC (incorporated by reference to
Exhibit 10.2 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.4
    
    
    
    Exchange Agreement dated January 23, 2006 between Private Business, Inc. and
Lightyear PBI Holdings, LLC (incorporated by reference to Exhibit 10.3 to Private
Business, Inc.s Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 26, 2006).10.5
    
    
    
    Amended and Restated Warrant Agreement dated January 23, 2006 between Private
Business, Inc. and Lightyear PBI Holdings, LLC (incorporated by reference to
Exhibit 10.4 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.6
    
    
    
    Amended and Restated Warrant Certificate dated January 23, 2006 issued by Private
Business, Inc. to Lightyear PBI Holdings, LLC. (incorporated by reference to
Exhibit 10.5 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.7
    
    
    
    Amended and Restated Warrant Certificate dated January 23, 2006 issued by Private
Business, Inc. to Lightyear PBI Holdings, LLC (incorporated by reference to Exhibit
10.6 to Private Business, Inc.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2006).10.8
    
    
    
    Employment Agreement dated January 31, 2006 between Private Business, Inc. and Paul
McCulloch (incorporated by reference to Exhibit 10.1 to Private Business Inc.s
Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 26, 2006).31.1
    
    
    
    Certification pursuant to Rule 13a  14(a)/15d  14(a)  Chief Executive Officer.31.2
    
    
    
    Certification pursuant to Rule 13a  14(a)/15d  14(a)  Chief Financial Officer.32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002  Chief Executive Officer.32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002  Chief Financial Officer.
 36




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##### Table of Contents



Signatures
  Goldleaf Financial Solutions, Inc.(f/k/a Private Business, Inc.)(Registrant)Date: May 12, 2006
    
    By:
    
    /s/ G. Lynn BoggsG. Lynn BoggsChief Executive OfficerDate: May 12, 2006
    
    By:
    
    /s/ J. Scott CraigheadJ. Scott CraigheadChief Financial Officer
 37