##### 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 June 30, 2002

Commission file number 000-25959

Private Business, Inc.

---

(Exact name of registrant as specified in its charter)


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

(615) 221-8400

---

(Registrants telephone number, including area code)


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

(1) Yes [x]   No  [   ]
(2) Yes [x]   No  [   ]

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 August 2, 2002
|                           |  |                                 
|Common Stock, no par value |  | 14,029,327 shares               

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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                        |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|                                                   |                                                                                               | CONSOLIDATED BALANCE SHEETS  UNAUDITED               
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED     
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED     
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED     
|                                                   |                                                                                               | Notes to Consolidated Financial Statements  Unaudited
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II  Other Information                       
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                        
|Acquisition Agreement for Retail Access Management
|Section 906 Certification of the CEO ad CFO       



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##### Table of Contents



PRIVATE BUSINESS, INC.

Form 10-Q

For Quarter Ended June 30, 2002

INDEX

|                                           |  |  |  |          |    |                                                                                       |  |                                                                                                   |         |          |       | 
|------------------------------------------ |  |  |  | -------- | -- | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ------- | -------- | ----- | 
|                                           |  |  |  |          |    |                                                                                       |  |                                                                                                   |         | Page No.
|                                           |  |  |  |          |    |                                                                                       |  |                                                                                                   |         |         
|Part I  Consolidated Financial Statements |  |  |  |         
|                                           |  |  |  | Item 1  |    | Unaudited Consolidated Balance Sheets
As of June 30, 2002 and December 31, 2001       |  |                                                                                                   | 3       |         
|                                           |  |  |  |          |    |                                                                                       |  | Unaudited Consolidated Statements of
Operations for the three months ended June 30,
2002 and 2001 |         |          | 4     | 
|                                           |  |  |  |          |    |                                                                                       |  | Unaudited Consolidated Statements of
Operations for the six months ended June 30,
2002 and 2001   |         |          | 5     | 
|                                           |  |  |  |          |    |                                                                                       |  | Unaudited Consolidated Statements of
Cash Flows for the six months ended June 30,
2002 and 2001   |         |          | 6     | 
|                                           |  |  |  |          |    |                                                                                       |  | Notes to Unaudited Consolidated
Financial Statements                                              |         |          | 7 -14 | 
|                                           |  |  |  | Item 2  |    | Managements discussion and analysis of
financial condition and results of operations |  |                                                                                                   | 15 - 25 |         
|                                           |  |  |  | Item 3  |    | Quantitative and qualitative disclosures
about market risk                            |  |                                                                                                   | 25      |         
|Part II  Other Information                |  |  |  |         
|                                           |  |  |  | Item 1  |    | Legal Proceedings                                                                     |  |                                                                                                   | 25 - 27 |         
|                                           |  |  |  | Item 6  |    | Exhibits and reports on Form 8-K                                                      |  |                                                                                                   | 27 - 28 |         
|Signatures                                 |  |  |  |          | 29 |                                                                                      

2



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##### Table of Contents



PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS  UNAUDITED

|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |        |  
|-------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | -------- | ------------ | - | ------ | ------ | ------ | -
|                                                                                                                                 |                                                                                                    |                                             |        | June 30, | December 31,
|(dollars in thousands)                                                                                                           |                                                                                                    | 2002                                        |        | 2001    
|                                                                                                                                 |                                                                                                    |                                             |        |         
|ASSETS                                                                                                                           |                                                                                                    |                                             |        |          |              |   |        |       
|CURRENT ASSETS:                                                                                                                  |                                                                                                    |                                             |        |          |              |   |        |       
|                                                                                                                                 | Cash and cash equivalents                                                                          |                                             | $      | 852      |              |   | $      | 2,648  |       
|                                                                                                                                 | Accounts receivable  trade, net of allowance for doubtful accounts of
$239 and $258, respectively |                                             |        | 8,124    |              |   |        | 8,073  |       
|                                                                                                                                 | Accounts receivable  other                                                                        |                                             |        | 449      |              |   |        | 314    |       
|                                                                                                                                 | Deferred tax assets                                                                                |                                             |        | 1,824    |              |   |        | 2,130  |       
|                                                                                                                                 | Other current assets                                                                               |                                             |        | 2,521    |              |   |        | 1,164  |       
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total current assets                        |        |          | 13,770       |   |        |        | 14,329 |  
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|PROPERTY AND EQUIPMENT, NET                                                                                                      |                                                                                                    |                                             | 7,655  |          |              |   | 8,336  |       
|PROPERTY AND EQUIPMENT HELD FOR SALE                                                                                             |                                                                                                    |                                             | 653    |          |              |   | 2,036  |       
|OTHER ASSETS:                                                                                                                    |                                                                                                    |                                             |        |          |              |   |        |       
|                                                                                                                                 | Software development costs, net                                                                    |                                             |        | 1,444    |              |   |        | 1,461  |       
|                                                                                                                                 | Deferred tax assets                                                                                |                                             |        | 2,979    |              |   |        | 4,835  |       
|                                                                                                                                 | Intangible and other assets, net                                                                   |                                             |        | 11,092   |              |   |        | 10,559 |       
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total other assets                          |        |          | 15,515       |   |        |        | 16,855 |  
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total assets                                |        | $        | 37,593       |   |        | $      | 41,556 |  
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                            |                                                                                                    |                                             |        |          |              |   |        |       
|CURRENT LIABILITIES                                                                                                              |                                                                                                    |                                             |        |          |              |   |        |       
|                                                                                                                                 | Accounts payable                                                                                   |                                             | $      | 2,094    |              |   | $      | 3,617  |       
|                                                                                                                                 | Accrued liabilities                                                                                |                                             |        | 5,203    |              |   |        | 7,102  |       
|                                                                                                                                 | Dividends payable                                                                                  |                                             |        | 495      |              |   |        | 415    |       
|                                                                                                                                 | Deferred revenue                                                                                   |                                             |        | 526      |              |   |        | 1,126  |       
|                                                                                                                                 | Short-term borrowings                                                                              |                                             |        | 2,650    |              |   |        | 0      |       
|                                                                                                                                 | Current portion of long-term debt and capital lease obligations                                    |                                             |        | 5,349    |              |   |        | 5,394  |       
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total current liabilities                   |        |          | 16,317       |   |        |        | 17,654 |  
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|OTHER NONCURRENT LIABILITIES                                                                                                     |                                                                                                    |                                             | 990    |          |              |   | 1,354  |       
|LONG-TERM DEBT, net of current portion                                                                                           |                                                                                                    |                                             | 26,597 |          |              |   | 31,109 |       
|CAPITAL LEASE OBLIGATIONS, net of current portion                                                                                |                                                                                                    |                                             | 299    |          |              |   | 516    |       
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 | Total liabilities                                                                                  |                                             |        | 44,203   |              |   |        | 50,633 |       
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|COMMITMENTS AND CONTINGENCIES                                                                                                    |                                                                                                    |                                             |        |          |              |   |        |       
|PREFERRED STOCK, series B convertible, no par value; 20,000,000
shares authorized, 40,031 shares issued and outstanding          |                                                                                                    |                                             | 114    |          |              |   | 114    |       
|STOCKHOLDERS DEFICIT:                                                                                                           |                                                                                                    |                                             |        |          |              |   |        |       
|Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,026,057 and 13,901,423, respectively |                                                                                                    |                                             | 0      |          |              |   | 0      |       
|                                                                                                                                 | Additional paid-in capital                                                                         |                                             |        | (7,244   | )            |   |        | (7,464 | )     
|                                                                                                                                 | Accumulated deficit                                                                                |                                             |        | 520      |              |   |        | (1,727 | )     
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total stockholders deficit                 |        |          | (6,610       | ) |        |        | (9,077 | )
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       
|                                                                                                                                 |                                                                                                    | Total liabilities and stockholders deficit |        | $        | 37,593       |   |        | $      | 41,556 |  
|                                                                                                                                 |                                                                                                    |                                             |        |          |              |   |        |        |       

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

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##### Table of Contents



PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITEDFor the Three Months Ended June 30, 2002 and 2001


|                                                  |                            |                          |       |        |        |   |       |        |        | 
|------------------------------------------------- | -------------------------- | ------------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|(in thousands, except per share data)             |                            | 2002                     |       | 2001  
|                                                  |                            |                          |       |       
|REVENUES:                                         |                            |                          |       |        |        |   |       |       
|                                                  | Participation fees         |                          | $     | 9,991  |        |   | $     | 10,181 |       
|                                                  | Software license           |                          |       | 177    |        |   |       | 218    |       
|                                                  | Retail planning services   |                          |       | 2,559  |        |   |       | 0      |       
|                                                  | Maintenance and other      |                          |       | 1,888  |        |   |       | 1,849  |       
|                                                  |                            |                          |       |        |        |   |       |       
|                                                  |                            | Total revenues           |       |        | 14,615 |   |       |        | 12,248 | 
|                                                  |                            |                          |       |        |        |   |       |       
|OPERATING EXPENSES:                               |                            |                          |       |        |        |   |       |       
|                                                  | General and administrative |                          |       | 5,631  |        |   |       | 4,832  |       
|                                                  | Selling and marketing      |                          |       | 5,453  |        |   |       | 4,908  |       
|                                                  | Research and development   |                          |       | 142    |        |   |       | 124    |       
|                                                  | Amortization               |                          |       | 590    |        |   |       | 307    |       
|                                                  | Other operating expense    |                          |       | 81     |        |   |       | 74     |       
|                                                  |                            |                          |       |        |        |   |       |       
|                                                  |                            | Total operating expenses |       |        | 11,897 |   |       |        | 10,245 | 
|                                                  |                            |                          |       |        |        |   |       |       
|OPERATING INCOME                                  |                            |                          | 2,718 |        |        |   | 2,003 |       
|INTEREST EXPENSE, NET                             |                            |                          | 507   |        |        |   | 944   |       
|                                                  |                            |                          |       |        |        |   |       |       
|INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |                            |                          | 2,211 |        |        |   | 1,059 |       
|Income tax provision                              |                            |                          | 862   |        |        |   | 413   |       
|                                                  |                            |                          |       |        |        |   |       |       
|NET INCOME                                        |                            |                          | 1,349 |        |        |   | 646   |       
|Preferred stock dividends                         |                            |                          | 40    |        |        |   | 0     |       
|                                                  |                            |                          |       |        |        |   |       |       
|NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS       |                            | $                        | 1,309 |        |        | $ | 646   |       
|                                                  |                            |                          |       |        |        |   |       |       
|EARNINGS PER SHARE:                               |                            |                          |       |        |        |   |       |       
|                                                  | Basic                      |                          | $     | 0.09   |        |   | $     | 0.07   |       
|                                                  |                            |                          |       |        |        |   |       |       
|                                                  | Diluted                    |                          | $     | 0.09   |        |   | $     | 0.07   |       
|                                                  |                            |                          |       |        |        |   |       |       
|WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:       |                            |                          |       |        |        |   |       |       
|                                                  | Basic                      |                          |       | 14,004 |        |   |       | 9,222  |       
|                                                  |                            |                          |       |        |        |   |       |       
|                                                  | Diluted                    |                          |       | 14,559 |        |   |       | 9,243  |       
|                                                  |                            |                          |       |        |        |   |       |       

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

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##### Table of Contents



PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITEDFor the Six Months Ended June 30, 2002 and 2001


|                                                                             |                                  |                          |       |        |        |   |       |        |        | 
|---------------------------------------------------------------------------- | -------------------------------- | ------------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|(in thousands, except per share data)                                        |                                  | 2002                     |       | 2001  
|                                                                             |                                  |                          |       |       
|REVENUES:                                                                    |                                  |                          |       |        |        |   |       |       
|                                                                             | Participation fees               |                          | $     | 19,627 |        |   | $     | 20,214 |       
|                                                                             | Software license                 |                          |       | 309    |        |   |       | 496    |       
|                                                                             | Retail planning services         |                          |       | 5,304  |        |   |       | 0      |       
|                                                                             | Maintenance and other            |                          |       | 3,995  |        |   |       | 3,665  |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|                                                                             |                                  | Total revenues           |       |        | 29,235 |   |       |        | 24,375 | 
|                                                                             |                                  |                          |       |        |        |   |       |       
|OPERATING EXPENSES:                                                          |                                  |                          |       |        |        |   |       |       
|                                                                             | General and administrative       |                          |       | 11,809 |        |   |       | 10,375 |       
|                                                                             | Selling and marketing            |                          |       | 11,236 |        |   |       | 10,188 |       
|                                                                             | Research and development         |                          |       | 393    |        |   |       | 484    |       
|                                                                             | Amortization                     |                          |       | 942    |        |   |       | 574    |       
|                                                                             | Other operating expense (income) |                          |       | (19    | )      |   |       | 149    |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|                                                                             |                                  | Total operating expenses |       |        | 24,361 |   |       |        | 21,770 | 
|                                                                             |                                  |                          |       |        |        |   |       |       
|OPERATING INCOME                                                             |                                  |                          | 4,874 |        |        |   | 2,605 |       
|INTEREST EXPENSE, NET                                                        |                                  |                          | 1,003 |        |        |   | 2,000 |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM                            |                                  |                          | 3,871 |        |        |   | 605   |       
|Income tax provision                                                         |                                  |                          | 1,510 |        |        |   | 236   |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|INCOME BEFORE EXTRAORDINARY ITEM                                             |                                  |                          | 2,361 |        |        |   | 369   |       
|Extraordinary item, early extinguishment of debt,
net of income taxes of $22 |                                  |                          | 34    |        |        |   | 0     |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|NET INCOME                                                                   |                                  |                          | 2,327 |        |        |   | 369   |       
|Preferred stock dividends                                                    |                                  |                          | 80    |        |        |   | 0     |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS                                  |                                  | $                        | 2,247 |        |        | $ | 369   |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|EARNINGS PER SHARE:                                                          |                                  |                          |       |        |        |   |       |       
|                                                                             | Basic                            |                          | $     | 0.16   |        |   | $     | 0.04   |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|                                                                             | Diluted                          |                          | $     | 0.16   |        |   | $     | 0.04   |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:                                  |                                  |                          |       |        |        |   |       |       
|                                                                             | Basic                            |                          |       | 13,979 |        |   |       | 9,208  |       
|                                                                             |                                  |                          |       |        |        |   |       |       
|                                                                             | Diluted                          |                          |       | 14,413 |        |   |       | 9,238  |       
|                                                                             |                                  |                          |       |        |        |   |       |       

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

5



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##### Table of Contents



PRIVATE BUSINESS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDFor the Six Months Ended June 30, 2002 and 2001


|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |        |       |        |        |  
|--------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------- | ---------------------------- | ----------------------------------------- | ----- | ------ | ------ | ------ | ----- | ------ | ------ | -
|(in thousands)                                                                    |                                                   | 2002                                                    |                              | 2001                                     
|                                                                                  |                                                   |                                                         |                              |                                          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                   |                                                         |                              |                                           |       |        |        |       
|Net income                                                                        |                                                   | $                                                       | 2,327                        |                                           |       | $      | 369    |       
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  |                                                   | Write-off of debt issuance costs                        |                              |                                           | 34    |        |        |        | 0     |       
|                                                                                  |                                                   | Depreciation and amortization                           |                              |                                           | 2,542 |        |        |        | 2,105 |       
|                                                                                  |                                                   | Deferred taxes                                          |                              |                                           | 2,162 |        |        |        | 297   |       
|                                                                                  |                                                   | Non-cash stock based compensation                       |                              |                                           | 46    |        |        |        | 179   |       
|                                                                                  |                                                   | Gain on sale of certain property and equipment, net     |                              |                                           | (168  | )      |        |        | 0     |       
|                                                                                  |                                                   | Changes in assets and liabilities, net of acquisitions: |                              |                                           |       |        |        |        |       |       
|                                                                                  |                                                   |                                                         | Accounts receivable          |                                           |       | (186   | )      |        |       | 446    |       
|                                                                                  |                                                   |                                                         | Other current assets         |                                           |       | (1,357 | )      |        |       | 42     |       
|                                                                                  |                                                   |                                                         | Other assets                 |                                           |       | 82     |        |        |       | (546   | )     
|                                                                                  |                                                   |                                                         | Accounts payable             |                                           |       | (1,523 | )      |        |       | (442   | )     
|                                                                                  |                                                   |                                                         | Accrued liabilities          |                                           |       | (1,899 | )      |        |       | (1,496 | )     
|                                                                                  |                                                   |                                                         | Deferred revenue             |                                           |       | (600   | )      |        |       | (331   | )     
|                                                                                  |                                                   |                                                         | Other noncurrent liabilities |                                           |       | (356   | )      |        |       | 0      |       
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  |                                                   |                                                         |                              | Net cash provided by operating activities |       |        | 1,104  |        |       |        | 623    |  
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  | Additions to property and equipment               |                                                         |                              | (1,902                                    | )     |        |        | (829   | )    
|                                                                                  | Software development costs                        |                                                         |                              | (420                                      | )     |        |        | (638   | )    
|                                                                                  | Proceeds from sale of property and equipment      |                                                         |                              | 2,218                                     |       |        |        | 0      |      
|                                                                                  | Acquisition of businesses                         |                                                         |                              | (845                                      | )     |        |        | 0      |      
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  |                                                   |                                                         |                              | Net cash used in investing activities     |       |        | (949   | )      |       |        | (1,467 | )
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  | Repayments on long-term debt                      |                                                         |                              | (2,370                                    | )     |        |        | (1,871 | )    
|                                                                                  | Repayments on capitalized lease obligations       |                                                         |                              | (217                                      | )     |        |        | 0      |      
|                                                                                  | Early extinguishment of long-term debt, net       |                                                         |                              | (2,188                                    | )     |        |        | 0      |      
|                                                                                  | Proceeds from short-term borrowings               |                                                         |                              | 2,650                                     |       |        |        | 1,000  |      
|                                                                                  | Proceeds from exercise of employee stock options  |                                                         |                              | 136                                       |       |        |        | 21     |      
|                                                                                  | Stock issued through employee stock purchase plan |                                                         |                              | 38                                        |       |        |        | 87     |      
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  |                                                   |                                                         |                              | Net cash used in financing activities     |       |        | (1,951 | )      |       |        | (763   | )
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                           |                                                   |                                                         | (1,796                       | )                                         |       |        | (1,607 | )     
|CASH AND CASH EQUIVALENTS at beginning of year                                    |                                                   |                                                         | 2,648                        |                                           |       |        | 1,891  |       
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|CASH AND CASH EQUIVALENTS at end of period                                        |                                                   | $                                                       | 852                          |                                           |       | $      | 284    |       
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  | Cash payments for income taxes during period      |                                                         | $                            | 72                                        |       |        | $      | 239    |      
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       
|                                                                                  | Cash payments of interest during period           |                                                         | $                            | 1,006                                     |       |        | $      | 2,052  |      
|                                                                                  |                                                   |                                                         |                              |                                           |       |        |        |       

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

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PRIVATE BUSINESS, INC.




Notes to Consolidated Financial Statements  Unaudited




|A. |  | Basis of Presentation
|-- |  | ---------------------

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

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

These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2001.



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

Principles of Consolidation

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

Our other significant accounting policies include self-insurance reserves,
income taxes, software development costs, and revenue recognition. Please
refer to our Annual Report on Form 10-K for the year ended December 31, 2001
for a more detailed description of these accounting policies.



|C. |  | Acquisition of Access Retail Management
|-- |  | ---------------------------------------

On May 28, 2002, the Company entered into an asset purchase agreement to
acquire certain operating assets of CAM Commerces (CAM) retail planning
division, known as Access Retail Management, in exchange for cash consideration
of $800,000. The acquisition has been recorded in accordance with SFAS No.
141, Business Combinations(SFAS No. 141), resulting in the operating results
of the CAM division being included with those of the Company subsequent to the
date of acquisition. The Company has completed its initial allocation of
purchase price, resulting in identifiable intangibles of approximately $220,000
and goodwill of approximately $570,000.

7



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|D. |  | Sale of Company Headquarters
|-- |  | ----------------------------

During the quarter ended March 31, 2002, the Company sold its former
headquarters building and consolidated its operations into the Technology and
Business Center, which is adjacent to the 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 income in the
accompanying consolidated statement of operations.



|E. |  | Merger, Stock Split and Stock Options
|-- |  | -------------------------------------

On August 9, 2001, the Company completed a merger of Towne Services, Inc.
(Towne) into Private Business, which was accounted for as a purchase in
accordance with SFAS No. 141. The merger was consummated by Towne shareholders
exchanging all of their issued and outstanding common and preferred shares for
Private Business common and preferred shares, respectively, at the conversion
rate of .9087 shares of the Companys common stock for one share of Towne
common stock. The Company also assumed all stock option plans of Towne that
existed as of the acquisition date using the same conversion rate noted above,
resulting in the exchange of approximately 963,000 Private Business common
stock options. The estimated value of these stock options, using the
Black-Scholes option pricing model, of approximately $1.3 million has been
recorded as a component of the purchase price. The assumptions used to value
these options were; a risk-free interest rate range of 3.37% to 4.88%, an
expected dividend yield of 0%, an expected volatility of 75% and an average
expected life of 3.5 years. As a result of the merger, Private Business
shareholders own 67% of the outstanding shares of the new combined entity. In
conjunction with the merger agreement, a one for three reverse stock split of
the Companys common stock occurred before exchanging the Companys common
shares for the Towne common shares and common share equivalents. All shares
and per share amounts in these consolidated condensed financial statements have
been restated for the effect of the reverse stock split.



|F. |  | 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.

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##### Table of Contents



The following table represents information necessary to calculate earnings
per share for the three and six-month periods ended June 30, 2002 and 2001:

|                                                            |                                         |      |                             |      |                           |      |       |      |  |   |        |     |  |   |       |    | 
|----------------------------------------------------------- | --------------------------------------- | ---- | --------------------------- | ---- | ------------------------- | ---- | ----- | ---- |  | - | ------ | --- |  | - | ----- | -- | 
|                                                            |                                         |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                                            |                                         |      |                             |      |                          
|(in thousands)                                              |                                         | 2002 |                             | 2001 |                           | 2002 |       | 2001
|                                                            |                                         |      |                             |      |                           |      |       |     
|Net income available to common shareholders                 |                                         | $    | 1,309                       |      |                           | $    | 646   |      |  | $ | 2,247  |     |  | $ | 369   |   
|                                                            |                                         |      |                             |      |                           |      |       |      |  |   |        |     |  |   |       |   
|Weighted average common shares outstanding                  |                                         |      | 14,004                      |      |                           |      | 9,222 |      |  |   | 13,979 |     |  |   | 9,208 |   
|Plus additional shares from common stock equivalent shares: |                                         |      |                             |      |                           |      |       |      |  |   |        |     |  |   |       |   
|                                                            | Options and convertible preferred stock |      |                             | 555  |                           |      |       | 21   |  |   |        | 434 |  |   |       | 30 | 
|                                                            |                                         |      |                             |      |                           |      |       |      |  |   |        |     |  |   |       |   
|Adjusted weighted average common shares outstanding         |                                         |      | 14,559                      |      |                           |      | 9,243 |      |  |   | 14,413 |     |  |   | 9,238 |   
|                                                            |                                         |      |                             |      |                           |      |       |      |  |   |        |     |  |   |       |   



|G. |  | Comprehensive Income
|-- |  | --------------------

Comprehensive income for the three and six months ended June 30, 2002 and
2001 was comprised solely of net income.



|H. |  | Chief Executive Officer Change, Severance and Option Grants
|-- |  | -----------------------------------------------------------

On February 1, 2001, the Company announced the departure of its then
current Chief Executive Officer (CEO) and the hiring of a new CEO. The
former CEO, as part of his employment and severance agreement, was entitled to
a severance payment of $315,000, which was paid and expensed by the Company in
February 2001. The former CEO served as a consultant for one year from the
date of termination. As part of his consulting agreement, the former CEO was
granted options to purchase 100,000 shares of the Companys common stock at
$3.75 per share, the fair market value as of that date. Options to purchase
66,667 of the shares vested ratably each month from February 2001 to January
2002, while the remaining 33,333 shares vested ratably each month from July
2001 to January 2002. The options expire 10 years from the date of the grant.
The fair value of these options of approximately $288,000 has been calculated
in accordance with SFAS No. 123, using a risk-free rate of 5.10%, an expected
dividend yield of 0% and an expected volatility of 75%. This fair value was
expensed to general and administrative expense over the vesting period
($264,000 in 2001 and $24,000 in 2002). Approximately $24,000 and $120,000
were expensed for the first six months of 2002 and 2001, respectively.

On August 13, 2001, the Company finalized an employment agreement with the
new CEO, which included restricted stock in lieu of salary and stock options.
According to the agreement, the CEO was awarded 43,608 shares of restricted
common stock in lieu of cash compensation for 2001. The shares vested 1/11th
per month for 2001 and the related compensation expense was recorded as the
shares vested. The CEO has opted for cash compensation in 2002. The CEO was
also granted options to purchase 333,333 shares of the Companys common stock.
Options to purchase 166,667 shares vested immediately and are exercisable at
$3.00 per share, while the remaining 166,666 shares vest ratably each month
February 2001 to January 2005, of which 83,333 shares are exercisable at $12.00
per share and 83,333 shares are exercisable at $18.00 per share. The options
expire 10 years from the date of the grant.

9



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|I. |  | Bank Covenants
|-- |  | --------------

The Companys credit facility is secured by a pledge of all Company assets
and imposes financial covenants and requirements and contains limitations on
the Companys ability to sell material assets, redeem capital stock and pay
dividends, among other actions. On March 18, 2002, the Company entered into an
amendment dated December 31, 2001 to its credit facility. The amendment
modified certain restrictive financial covenants for the first three quarters
of 2002. At June 30, 2002, the Company was in compliance with all covenants.



|J. |  | Legal Proceedings
|-- |  | -----------------

As a result of the merger with Towne, we assumed certain outstanding
litigation against Towne. Except for the lawsuits described below, we are not
currently a party to, and none of our material properties is currently subject
to, any material litigation.



|1. |  | As previously disclosed, Towne, two of its former officers and a current
officer are defendants in a securities class action lawsuit filed in
November 1999. No class has yet been certified. The complaints allege,
among other things, that Towne should have disclosed in the prospectus
used for its secondary public offering in June 1999 that it allegedly
experienced serious problems with its network infrastructure and
processing facilities during the move of its corporate headquarters in
June 1999, and that these problems allegedly led to a higher than usual
number of customers terminating their contracts during the second quarter.
The complaints seek an unspecified awards of damages. Towne filed a motion
to dismiss for failure to state a claim, the plaintiffs filed an answer to
Townes motion and the judge granted parts of Townes motion to dismiss
and denied other parts, which had the effect of allowing the claim to
proceed. Towne and the individual defendants filed answers denying
liability and asserting numerous affirmative defenses. Discovery has not
yet commenced. We believe that the allegations in the complaints are
without merit and intend to defend the lawsuits vigorously. Our directors
and executive officers liability insurance carrier is presently providing
a defense under a reservation of rights.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Another lawsuit arises out of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI
Acquisition Corp., in December 1998. Plaintiff Edward Sullivan, Jr. was
employed by BSI. Sullivan alleges, among other things, that he had a
buy-out agreement with BSI and certain BSI shareholders under which, in
certain circumstances, Sullivan was to receive a commission based on the
gross sales price paid by any purchaser of BSI. Sullivan contends that BSI
and the other shareholders allegedly fraudulently induced him to release
them from the agreement by fraudulently misrepresenting the gross sales
price paid by Towne Services subsidiary in the stock purchase. Sullivan
contends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

10



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##### Table of Contents





|   |  | that Towne Services is liable to him as the successor to BSI, and
also for allegedly tortiously interfering with the agreement. Sullivan
also contends Towne Services conspired with the other defendants to
misrepresent the gross purchase price. We deny all allegations of the
petition. Mr. Sullivan and his wife seek an unspecified amount of damages
including a percentage of the gross sales price paid by Towne Services
subsidiary for the acquisition of BSI, as well as punitive damages,
attorneys fees, and pre-judgment and post-judgment interest. On July 15,
2002, the District Court of Collin County, Texas granted our motion for
summary judgment on all claims. It is unknown at this time whether the
plaintiffs will exercise their right to appeal. We also contend that we
are entitled to indemnification from the BSI shareholders for our expenses
in defending this action. Specifically, the BSI stock purchase agreement
provides that the BSI shareholders will indemnify us against any claims,
damages, liabilities, costs and expenses (including reasonable attorneys
and accountants fees and expenses) we suffer that arise out of any breach
of the representations made by BSI in the agreement, provided that the
aggregate amount of all such claims, etc. exceeds $100,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Towne filed an action against six former BSI sales representatives,
and The Clipper Group, a company founded by one or more of former BSI
sales representatives. Towne contends that the defendants have formed a
competing company, and are marketing a competing product, to Townes
bank customers, in violation of the named individuals employment
contracts, and in particular, in violation of trade secret and
confidentiality provisions and non-solicitation of customer and
employee provisions contained in those contracts. Towne has asserted
claims against these defendants for misappropriation of trade secrets
(including both customer information and confidential information
regarding Townes software product), misappropriation of confidential
information, breach of employment contracts, tortious interference with
employment contracts, tortious interference with licensing agreements,
tortious interference with customer contracts, breach of the covenant
of good faith and fair dealing, and conspiracy. Towne seeks actual and
punitive damages, injunctive relief, and attorneys fees and costs. On
or about April 30, 2001, the defendants answered, denied liability,
moved to compel arbitration, and asserted a counterclaim against Towne
for alleged fraudulent inducement of the employment contracts at issue.
A settlement agreement has been reached between the parties at this
time regarding this matter. The Company has agreed to dismiss all
claims brought against the individual defendants in the arbitration
proceedings with prejudice and have reserved the right to pursue
damages in the companion federal court case pending in Mississippi
against the corporate defendant once the Companys claims for
misappropriation of trade secrets (including both customer information
and confidential information regarding Plaintiffs software product),
misappropriation of confidential information, tortuous interference
with licensing agreements, tortuous interference with customer
contracts, breach of the covenant of good faith and fair dealing, and
infringement of copyrights are proven. The individual defendants have
in turn dismissed with prejudice all counter claims against the Company
for fraudulent inducement of employment contracts and alleged unpaid
bonuses.

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##### Table of Contents





| |  | Towne Services, Inc. has also sought relief in the U.S. District Court,
Southern District of Mississippi in a companion case. Towne Services,
Inc., and Banking Solutions, Inc. v. The Merchants Financial Services
Group, LLC d/b/a Merchants Financial Services; AmFed Companies, LLC;
Clipper Technologies, LLC; The Clipper Group, Inc.; and Prominent
Technologies, LLC .This case was filed on July 24, 2001, and is an
action for copyright infringement under the Copyright Act of 1976, 17
U.S.C. § 101, et seq., and related claims of misappropriation of trade
secrets and tortuous interference with contractual relations. The suit
alleges that former customers of Towne Services (a Mississippi bank and
an affiliated insurance company) have developed and are using and
marketing a software program, A/R Navigator, that is an improper copy of
and a misappropriation of trade secrets in the Companys Cash Flow
Manager. It also alleges that several former employees of the Company
(the Clipper Group, parties to the above-referenced arbitration) are
marketing the copied service to banks including customers of the Company.
Towne Services, Inc. has requested an independent comparison of the Cash
Flow Manager software and the A/R Navigator software. At this point,
defendants have refused to co-operate, and it is anticipated that
Plaintiffs will seek intervention from the court to proceed.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company is subject to various other legal proceedings, tax matters and
other claims which arise in the ordinary course of business. In the opinion of
management, the amount of any ultimate liability with respect to these actions
will not materially affect the financial position of results of operations of
the Company.



|K. |  | New Accounting Pronouncements
|-- |  | -----------------------------

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets(SFAS No. 142). SFAS No. 142 supercedes Accounting
Principles Board Opinion No. 17, Intangible Assets, and addresses how
intangible assets and goodwill should be accounted for upon and after their
acquisition. Specifically, goodwill and intangible assets with indefinite
useful lives will not be amortized, but will be subject to impairment tests
based on their estimated fair value. Upon adoption, the Company ceased
amortization of goodwill totaling $4.1 million, which was previously being
amortized over a 20-year period. For the six months ended June 30, 2002, this
resulted in a reduction of amortization expense of approximately $104,000.

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The following table shows the results for the three and six-month periods ended
June 30, 2002 and 2001, as if the Company had followed SFAS No. 141 for all
periods presented:

|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |      | 
|---------------------------------------------------- | ---------------------------------------------------- | ---- | -------------- | ---- | -------------- | ---- | --- | ---- |  | - | ----- | ---- |  | - | --- | ---- | 
|                                                     |                                                      |      | Three Months   |      | Six Months    
|                                                     |                                                      |      | Ended June 30, |      | Ended June 30,
|                                                     |                                                      |      |                |      |               
|(in thousands, except per share amounts)             |                                                      | 2002 |                | 2001 |                | 2002 |     | 2001
|                                                     |                                                      |      |                |      |                |      |     |     
|Reported net income available to
common shareholders |                                                      | $    | 1,309          |      |                | $    | 646 |      |  | $ | 2,247 |      |  | $ | 369 |     
|                                                     | Add back: Goodwill Amortization                      |      |                |     |                |      |     | 52   |  |   |       |     |  |   |     | 104  | 
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|Adjusted net income available to common
shareholders |                                                      | $    | 1,309          |      |                | $    | 698 |      |  | $ | 2,247 |      |  | $ | 473 |     
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|Basic Earnings per Share:                            |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|                                                     | Reported net income available to
common shareholders |      | $              | 0.09 |                |      | $   | 0.07 |  |   | $     | 0.16 |  |   | $   | 0.04 | 
|                                                     | Goodwill amortization                                |      |                |     |                |      |     | 0.01 |  |   |       |     |  |   |     | 0.01 | 
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|                                                     | Adjusted net income available to common
shareholders |      | $              | 0.09 |                |      | $   | 0.08 |  |   | $     | 0.16 |  |   | $   | 0.05 | 
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|Diluted earnings per share:                          |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|                                                     | Reported net income available to common
shareholders |      | $              | 0.09 |                |      | $   | 0.07 |  |   | $     | 0.16 |  |   | $   | 0.04 | 
|                                                     | Goodwill amortization                                |      |                |     |                |      |     | 0.01 |  |   |       |     |  |   |     | 0.01 | 
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     
|                                                     | Adjusted net income available to
common shareholders |      | $              | 0.09 |                |      | $   | 0.08 |  |   | $     | 0.16 |  |   | $   | 0.05 | 
|                                                     |                                                      |      |                |      |                |      |     |      |  |   |       |      |  |   |     |     

The recorded goodwill is subject to annual impairment evaluations by the
Company, which could result in possible write-downs in future periods if
impairments are determined. The Company completed its initial transitional
goodwill impairment review in accordance with SFAS No. 142 during June of 2002.
Based on the Companys evaluation, there was no impairment of goodwill as of
January 1, 2002.

Also during the second quarter of 2002, the Company obtained an
independent third-party appraisal to determine the estimated fair value of the
intangible assets acquired in conjunction with the Towne acquisition. As a
result, the Company recorded an adjustment to the opening balance sheet of
Towne to record additional intangible assets of $1,480,000 and a corresponding
reduction to goodwill. In accordance with SFAS No. 142 the Company also
recorded amortization expense associated with these intangibles totaling
approximately $230,000 during the second quarter, of which, approximately
$161,000 relates to prior periods. Therefore, as of June 30, 2002, the net
book value of the identified intangible assets of approximately $1,250,000 is
stated as if the Company had recorded and amortized those intangible assets
beginning August 9, 2001.

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In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement replaces SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of(SFAS No. 121). However, it retains the fundamental
provisions of SFAS No. 121 for recognition and measurement of the impairment of
long-lived assets to be held and used and for measurement of long-lived assets
to be disposed of by sale. This statement applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB Opinion
No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, for the disposal of segments of a business. This
statement requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. The Company was required to adopt
this statement on January 1, 2002, which did not have any impact on its results
of operations, financial position and cash flows.

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PRIVATE BUSINESS, INC.




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

Three and Six Months Ended June 30, 2002 and 2001


Overview

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

On August 9, 2001, we completed a merger with Towne Services, Inc.
(Towne) into Private Business. The merger was structured as a tax-free
exchange of approximately 4.6 million shares of our common shares valued at
approximately $13.2 million for all the issued and outstanding Towne common
shares and common share equivalents and the issuance of approximately 963,000
common stock options valued at $1.3 million to replace all of the issued and
outstanding Towne common stock options. Also, as a condition of the merger, on
August 9, 2001, we issued 40,031 shares of Series B Convertible preferred stock
valued at approximately $114,000 in exchange for all the issued and outstanding
Towne Series B preferred stock. The merger was accounted for as a purchase in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations. As a result of the merger, Private Business
shareholders own approximately 67% of the outstanding shares of the combined
entity. In conjunction with the merger agreement, a one for three reverse stock
split of our common stock occurred prior to the exchange of our common shares
for the Towne common shares and common share equivalents.

As a result of the merger, we began supporting Towne products. Towne
provides services and products that process sales and payment information and
related financing transactions for businesses and banks in the United States.
Towne delivers these services and products online via an electronic hub, or
gateway, that links business and bank customers with the company and other
providers of products and services that can benefit

15



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##### Table of Contents



these customers. Towne uses
this electronic gateway to deliver a variety of business and management
solutions using Internet and telecommunication connections. Towne also provides
these solutions through its proprietary software, housed at its clients
locations. Revenues are generated through the deployment and use of three
primary products: Towne Credit®, which processes consumer credit transactions
for small and medium-sized businesses; Towne Finance® and Cash
Flow ManagerSM,
which process business-to-business credit transactions for commercial
businesses; and RMSA® Merchandise Planning service, which processes sales and
inventory transactions and provides merchandise forecasting information for
specialty retail stores; and ancillary services related to these products. From
a business and operations standpoint, our approach to the Towne merger is to
convert Towne banks and merchants to Business Manager.

We generate revenue from four main sources:



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

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

Software license fees for Business Manager consist of two components: the
license fee and customer training and support fee. These are one-time fees that
we receive upon the initial licensing of our Business Manager program to a
community bank. Our license agreements are executed with terms ranging from
three to five years, and are renewable for subsequent terms. Some agreements
contain performance or deferred payment terms that must be met in order for us
to receive payment and recognize revenue. We recognize revenues from the
license fee once we have met the terms of the customer agreement. The customer
training and support fee are recognized ratably over the twelve-month service
period subsequent to the activation of the license agreement. Software license
fees for Towne products include set-up fees for installation, implementation
and training of bank and business customers. All revenues from Towne software
license fees are recorded on a deferred basis over the estimated life of the
contract terms and for certain cancellation clauses and/or return guarantees
until the guarantee period is expired. Software license fees for the Towne
products charged to each bank vary depending on the asset size of the bank and
the number of communities served. Set-up fees are also charged to business
customers based either upon a flat rate or upon the expected transaction
volume.

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

In previous filings we have discussed that part of our growth strategy is
to acquire or develop new products or services. We are initiating development
activities in two areas. One is a new program, similar to our Business Manager
accounts receivable financing management product, that will eventually allow
banks to offer commercial insurance products, including property, general
liability and workers compensation, to their business customers in a very
competitive and cost-effective manner. With over 350 large banking
organizations having acquired insurance brokerage firms in recent years, this
product will allow community banks to be more competitive.

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Another project is the development of a software product called Line
Manager (LM), for commercial banks that would allow them to electronically
monitor their conventional line of credit loans directly from their borrowers
accounting system. The majority of commercial banks do not have the capability
to routinely monitor their collateral for working capital lines of credit.
This fact, along with credit officers and bank regulators expressing concern
over the deteriorating credit conditions in the current economy, have led many
of our banking clients to request a product of this type for their secured
loans. Our system, which is currently being developed, should allow our client
banks to monitor loans in a manner similar to the way large financial
institutions monitor their asset based loans but on an ASP (Application Service
Provider) basis with no additional labor impact for the bank.

Results of Operations

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

|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |      |      |  
|------------------------------------------------------------ | -------------------------------- | ------------------------ | ----- | -------------- | ---- | ------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- | - | ----- | ---- | ---- | -
|                                                             |                                  |                          |       | Second Quarter |      | Year to Date
|                                                             |                                  |                          |       |                |      |             
|                                                             |                                  |                          |       | 2002           |      | 2001         |       | 2002 |      | 2001
|                                                             |                                  |                          |       |                |      |              |       |      |      |     
|Revenue:                                                     |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|                                                             |                                  | Participation fees       |       |                | 68.4 | %            |       |      | 83.1 | %    |       |      | 67.1 | % |       |      | 83.0 | %
|                                                             |                                  | Software license         |       |                | 1.2  | %            |       |      | 1.8  | %    |       |      | 1.1  | % |       |      | 2.0  | %
|                                                             |                                  | Retail planning services |       |                | 17.5 | %            |       |      | 0.0  | %    |       |      | 18.1 | % |       |      | 0.0  | %
|                                                             |                                  | Maintenance and other    |       |                | 12.9 | %            |       |      | 15.1 | %    |       |      | 13.7 | % |       |      | 15.0 | %
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|                                                             |                                  |                          | 100.0 | %              |      |              | 100.0 | %    |      |      | 100.0 | %    |      |   | 100.0 | %   
|Operating Expenses:                                          |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|                                                             | General and administrative       |                          |       | 38.5           | %    |              |       | 39.4 | %    |      |       | 40.4 | %    |   |       | 42.6 | %   
|                                                             | Selling and marketing            |                          |       | 37.3           | %    |              |       | 40.1 | %    |      |       | 38.4 | %    |   |       | 41.8 | %   
|                                                             | Research and development         |                          |       | 1.0            | %    |              |       | 1.0  | %    |      |       | 1.3  | %    |   |       | 2.0  | %   
|                                                             | Amortization                     |                          |       | 4.0            | %    |              |       | 2.5  | %    |      |       | 3.2  | %    |   |       | 2.4  | %   
|                                                             | Other operating expense (income) |                          |       | 0.6            | %    |              |       | 0.6  | %    |      |       | (0.1 | )%   |   |       | 0.6  | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|                                                             |                                  |                          | 81.4  | %              |      |              | 83.6  | %    |      |      | 83.3  | %    |      |   | 89.3  | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|Operating Income                                             |                                  |                          | 18.6  | %              |      |              | 16.4  | %    |      |      | 16.7  | %    |      |   | 10.7  | %   
|Interest expense, net                                        |                                  |                          | 3.5   | %              |      |              | 7.7   | %    |      |      | 3.4   | %    |      |   | 8.2   | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|Income Before Income Taxes
and Extraordinary Item            |                                  |                          | 15.1  | %              |      |              | 8.7   | %    |      |      | 13.2  | %    |      |   | 2.5   | %   
|Income Tax Provision                                         |                                  |                          | 5.9   | %              |      |              | 3.4   | %    |      |      | 5.2   | %    |      |   | 1.0   | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|Net Income Before
Extraordinary Item                         |                                  |                          | 9.2   | %              |      |              | 5.3   | %    |      |      | 8.1   | %    |      |   | 1.5   | %   
|Extraordinary Item: early extinguishment
of debt, net of tax |                                  |                          | 0.0   | %              |      |              | 0.0   | %    |      |      | 0.1   | %    |      |   | 0.0   | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|Net Income                                                   |                                  |                          | 9.2   | %              |      |              | 5.3   | %    |      |      | 8.0   | %    |      |   | 1.5   | %   
|Preferred Stock Dividends                                    |                                  |                          | 0.3   | %              |      |              | 0.0   | %    |      |      | 0.3   | %    |      |   | 0.0   | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     
|Net Income Available to
Common Shareholders                  |                                  |                          | 9.0   | %              |      |              | 5.3   | %    |      |      | 7.7   | %    |      |   | 1.5   | %   
|                                                             |                                  |                          |       |                |      |              |       |      |      |      |       |      |      |   |       |     

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Participation Fees.Participation fees decreased 1.9% and 2.9% to $10.0
million and $19.6 million for the second quarter and first six months of 2002
compared to $10.2 million and $20.2 million for the comparable periods of 2001.
The participation fees for the second quarter and first six months of 2002
include new participation fees of approximately $755,000 and $1.6 million from
Towne, respectively. The decreases were primarily due to a reduction in the
total funding through our Business Manager program to $1.4 billion and $2.6
billion for the second quarter and first six months of 2002, compared to $1.4
billion and $2.8 billion for the comparable periods of 2001. The decrease in
funding was primarily due to fewer banks and merchants funding through our
Business Manager program. As a percentage of total revenues, participation
fees accounted for 68.4% and 67.1% for the three and six-month periods ended
June 30, 2002 compared to 83.1% and 83.0% for the comparable periods of 2001.

Software License. Software license fees decreased 18.8% and 37.6% to
$177,000 and $309,000 for the second quarter and first six months of 2002,
compared to $218,000 and $496,000 for the comparable periods of 2001. We
believe the decrease was due to several contributing factors, including our
continued focus on marketing more specifically to banks in targeted areas where
we wish to better penetrate and support the small business market. As a result
of the current economic slowdown, we discounted our license fee for the month
of March 2002 to $1.00 in order to stimulate our software license activity.
While the promotion reduced software license fees for the first six months of
2002, it increased the number of bank license agreements for the first six
months of 2002. Software license fees accounted for 1.2% and 1.1% of total
revenues for the three and six months ended June 30, 2002, compared to 1.8% and
2.0% for the comparable periods in 2001, respectively.

Retail planning services. Retail planning services revenues of $2.6
million and $5.3 million is the result of merchandising and forecasting
services performed for our clients during the three and six months ended June
30, 2002. As a percentage of total revenues, retail planning services
accounted for 17.5% and 18.1% for the second quarter and first six months of
2002.

Maintenance and other. Maintenance and other fees increased 2.1% and 9.0%
to $1.9 million and $4.0 million for the three and six-month periods ended June
30, 2002 compared to $1.8 million and $3.7 million for the comparable periods
for 2001. The increase was primarily attributable to increases in our
processing services. Our processing services fees increased 14.6% and 23.9% to
$417,000 and $999,000 for the three and six months of 2002 compared to $364,000
and $807,000 for the comparable periods in 2001. The increase was primarily
the result of new additional processing revenues of $78,000 and $226,000 for
three and six months of 2002 related to the Towne merger. Maintenance and
other fees accounted for 12.9% and 13.7% of total revenues for the three and
six month periods ended June 30, 2002 compared to 15.1% and 15.0% for the
comparable periods in 2001.

Total revenues. Total revenues for the second quarter and first six
months of 2002 increased 19.3% and 19.9% to $14.6 million and $29.2 million
compared to $12.2 million and $24.4 million for the second quarter and first
six months of 2001. Total revenues for the second quarter and first six months
of 2002 include $3.4 million and $7.3 million in revenues related to the Towne
merger. Excluding the new revenues, the decreases were primarily as a result
of decreased participation fees and software license fees, which were partially
offset by increased maintenance and other fees.

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General and administrative. General and administrative expenses increased
16.5% and 13.8% to $5.6 million and $11.8 million for the three and six-month
periods ended June 30, 2002 compared to $4.8 million and $10.4 million for the
comparable periods in 2001. The increases were primarily due to the inclusion
of additional general and administrative expenses of approximately $1.1 million
and $2.2 million for the three and six months ended June 30, 2002 related to
Towne and RMSA acquired businesses. 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 decreased 0.9%
and 2.2% to 38.5% and 40.4% for the three and six-month periods ended June 30,
2002 compared to 39.4% and 42.6% for the same periods in 2001. Excluding these
additional expenses related to the acquired Towne and RMSA businesses, general
and administrative expenses decreased approximately $300,000 and $800,000 or
6.3% and 7.7% for the three and six month periods ended June 30, 2002 compared
to the same periods in 2001.

Selling and marketing. Selling and marketing expenses increased 11.1% and
10.3% for the three and six month periods ended June 30, 2002 to $5.5 million
and $11.2 million compared to $4.9 million and $10.2 million for the three and
six month periods ended June 30, 2001. The increases were primarily due to the
inclusion of additional selling and marketing expenses of approximately $1.6
million and $3.0 million for the first three and six months of 2002 related to
Towne and RMSA acquired businesses. Selling and marketing expenses include the
cost of wages and commissions paid to our dedicated business development and
bank sales force, travel costs of our sales force, recruiting for new sales and
marketing personnel and marketing fees associated with direct and telemarketing
programs. As a percentage of total revenue, selling and marketing expenses
decreased 2.8% to 37.3% and 3.4% to 38.4% for the three and six month periods
of 2002 compared to 40.1% and 41.8% for the comparable periods in 2001.
Excluding these additional expenses related to the acquired Towne and RMSA
businesses, selling and marketing expenses decreased approximately $1.0
million, or 20.4%, and $2.0 million, or 19.6% compared to the second quarter
and first six months of 2001. The decrease was primarily due to a reduction in
sales staff as a result of continued focus on sales productivity per sales
person. This resulted in decreased compensation, training, and travel
expenses.

Research and development. Research and development expenses increased
14.5% to $142,000 for the second quarter of 2002 compared to $124,000 for the
year earlier period but have decreased 18.8% to $393,000 for the six months
ended June 30, 2002 compared to $484,000 for the year earlier period. These
costs include the non-capitalizable direct costs associated with developing new
versions of our Business Manager system and other projects that have not yet
reached technological feasibility. The increase in costs for the second
quarter was primarily due to less capitalizable research and development
activity compared to the same period in 2001. However, for the six months
ended June 30, 2002, research and development costs have decreased due to
increased capitalizable activities in the first quarter of 2002. As a
percentage of total revenues, research and development expenses remained
consistent at 1.0% for the second quarter of 2002 and 2001.

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Amortization. Amortization expenses increased 92.2% to $590,000 and 64.1%
to $942,000 for the second quarter and first six months of 2002 compared to
$307,000 and $574,000 for the comparable periods in 2001. These expenses
include the cost of amortizing intangible assets including trademarks,
associated costs of goodwill (only for 2001), software development costs and
debt issuance costs. The increase was primarily related to the increased
activity and capitalization of software development costs in the first half of
2001, which is now being amortized, and amortization of identifiable
intangibles from the Towne acquisition. Included in the three months ended
June 30, 2002, is approximately $230,000 of amortization related to
identifiable intangibles that were adjusted in June of 2002 to their appraised
values, of which $161,000 relates to prior periods. There was no goodwill
amortization recorded in the first and second quarter of 2002 in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets.The amount of
goodwill amortized in the second quarter and first six months of 2001 was
approximately $52,000 and $104,000, respectively.

Other operating expenses. Other operating expenses for the first six months of 2002 included a net gain on the sale of certain
property and equipment of approximately $183,000. This gain relates primarily
to the sale of the Companys former headquarters. Excluding the net gain,
other operating expenses were approximately $81,000 and $164,000 for the second
quarter and first six months of 2002 compared to $74,000 and $149,000 for the
comparable periods of 2001. Other operating expenses include property tax and
other miscellaneous costs associated with providing support and services to our
client banks.

Operating income.As a result of the above factors, our operating income
increased 35.7% to $2.7 million and 87.1% to 4.9 million for the second quarter
and first six months of 2002, respectively, compared to $2.0 million and $2.6
million for the comparable periods of 2001. As a percentage of total revenue,
operating income increased to 18.6% and 16.7% for the second quarter and first
six months of 2002 compared to 16.4% and 10.7% for the same periods in 2001.

Interest expense, net. Interest expense, net decreased 46.3% and 49.8% to
$507,000 and $1.0 million for the three and six months ended June 30, 2002
compared to $944,000 and $2.0 million for the comparable periods in 2001. The
decrease was primarily due to the reduction of our debt balances in 2001 and
first six months of 2002 and more favorable interest rates. During the first
quarter of 2002, we paid an additional $2.2 million to reduce our long-term
debt using the proceeds from the sale of our former headquarters building.
During the third quarter of 2001, we reduced long-term debt by approximately
$6.0 million, over and above our normal debt service, using cash from
operations and cash and cash equivalents acquired through the merger with
Towne; the remaining principal repayments for 2001 of $4.0 million were
regularly scheduled payments under our loan agreement.

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Income tax provision.The income tax provision was approximately $862,000
and $1.5 million for the three and six months ended June 30, 2002 compared to
$413,000 and $236,000 for the same periods in 2001. As a percentage of income
before taxes, the income tax rate was 39.0% for all periods in both 2002 and
2001.

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

Liquidity and Capital Resources

Our primary sources of capital have historically been cash provided by
operations, short-term and long-term debt and investment from stockholders.
During the first six months of 2002 our operating activities provided cash of
approximately $1.1 million. We used approximately $949,000 in our investing
activities, primarily due to the sale of our former headquarters, which netted
approximately $2.2 million in cash, which was offset by capital expenditures of
$1.9 million, software development costs of $420,000 and cash paid for the
businesses acquired. We currently estimate that total capital expenditures for
2002 will be approximately $2.5 million.

Cash used in financing activities totaled $2.0 million for the first six
months of 2002, which is the result of $4.8 million in repayments of long-term
debt and capitalized lease obligations, $2.2 million of which was repaid using
cash acquired through the sale of the Companys former headquarters partially
offset by proceeds from short-term borrowings, the exercise of employer stock
options and the employee stock purchase plan.

The credit facility includes term loans with balances as of June 30, 2002
of $11.3 million and $20.3 million, and also provides for a revolving line of
credit in the amount of $7.5 million, including a $3.0 million sublimit for
swing line advances and a $2.0 million sublimit for standby letters of credit.
There was $2.6 million outstanding on the revolving line of
credit and $620,000
in stand-by letters of credit at June 30, 2002. The credit facility bears
interest in accordance with a grid pricing formula based on the achievement of
various financial ratios. The formula calls for advances to bear interest
ranging from 1.25% to 2.75% above prime rate or 2.50% to 4.00% above the
Eurodollar rate.

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The $11.3 million loan is generally repayable in quarterly installments of
$1.1 million through September 30, 2002, $1.2 million until September 30, 2003
and $1.3 million until maturity (August 7, 2004). The $20.3 million loan is
repayable in equal quarterly installments of $67,509 until December 31, 2004,
at which time the required quarterly payments increase to $3.0 million until
September 30, 2005 and $4.0 million until December 31, 2005 with a final
payment of $3.5 million due March 31, 2006. The revolver has an annual
commitment fee and matures August 7, 2004. As of June 30, 2002, we had $11.3
million outstanding at 5.38%, $20.3 million outstanding at 5.88%, $2.6 million
in short-term borrowing outstanding at 7.0% and $620,000 in outstanding letters
of credit. Subsequent to June 30, 2002, we repaid $1.7 million of the $2.6
million in short-term borrowings outstanding as of June 30, 2002.

The credit facility is secured by a pledge of all of our assets and
imposes financial covenants and requirements on us and contains limitations on
our ability to sell material assets, redeem capital stock and pay dividends,
among other actions. On March 18, 2002, the Company entered into an amendment
to its credit facility. The amendment modified certain restrictive financial
covenants for the first three quarters of 2002. As of June 30, 2002, we were
in compliance with all of the restrictive covenants.

As of June 30, 2002, we had a working capital deficit of approximately
$2.5 million compared to a working capital deficit of approximately $3.3
million as of December 31, 2001. The improvement in working capital resulted
primarily from decreases in accounts payable and accrued liabilities partially
offset by decreases in deferred tax assets and the increase in outstanding
short-term borrowings. 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.

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

|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |        |  |  |   |       | 
|----------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | ----- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ----- | 
|                                    |  | Payments Due by Period
|                                    |  |                       
|                                    |  |                        |        |        |  | Less than |       | 1-2   |  | 3-4     |        | 5 years
|Contractual Obligations             |  | Total                  |        | 1 year |  | years     |       | years |  | & after
|                                    |  |                        |        |        |  |           |       |       |  |        
|Short-Term Borrowings               |  | $                      | 2,650  |        |  | $         | 2,650 |       |  | $       | 0      |         |  | $ | 0      |  |  | $ | 0     | 
|Long-Term Debt                      |  | $                      | 31,589 |        |  | $         | 4,993 |       |  | $       | 16,063 |         |  | $ | 10,533 |  |  | $ | 0     | 
|Capitalized Lease Obligations       |  | $                      | 656    |        |  | $         | 357   |       |  | $       | 299    |         |  | $ | 0      |  |  | $ | 0     | 
|Operating Leases                    |  | $                      | 9,779  |        |  | $         | 1,581 |       |  | $       | 1,577  |         |  | $ | 1,318  |  |  | $ | 5,303 | 
|                                    |  |                        |        |        |  |           |       |       |  |         |        |         |  |   |        |  |  |   |       | 
|Total Contractual Cash Obligations  |  | $                      | 44,674 |        |  | $         | 9,581 |       |  | $       | 17,939 |         |  | $ | 11,851 |  |  | $ | 5,303 | 
|Standby Letter of Credit Commitment |  | $                      | 620    |        |  | $         | 620   |       |  | $       | 0      |         |  | $ | 0      |  |  | $ | 0     | 

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

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New Accounting Pronouncements

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets(SFAS No. 142). SFAS No. 142 supercedes Accounting
Principles Board Opinion No. 17, Intangible Assets, and addresses how
intangible assets and goodwill should be accounted for and upon and after their
acquisition. Specifically, goodwill and intangible assets with indefinite
useful lives will not be amortized, but will be subject to impairment tests
based on their estimated fair value. Upon adoption, the Company ceased
amortization of goodwill totaling $4.1 million, which was previously being
amortized over a 20-year period. For the quarter and six months ended June 30,
2002, this resulted in a reduction of amortization expense of approximately
$52,000 and $104,000, respectively. The recorded goodwill will be subject to
annual impairment evaluations by the Company, which could result in possible
write-downs in future periods if impairments are determined. The Company has
completed the transitional goodwill impairment reviews required by SFAS No. 142
as of June 30, 2002. The results of the Companys evaluation did not indicate
that any of the goodwill recorded has been impaired.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement replaces SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. However, it retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of long-lived
assets to be held and used and for measurement of long-lived assets to be
disposed of by sale. This statement applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB Opinion
No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, for the disposal of segments of a business. This
statement requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. The Company was required to adopt
this statement on January 1, 2002, which did not have any impact on its results
of operations, financial position and cash flows.

Note Regarding Forward Looking Information

This interim report contains several forward-looking statements
concerning our operations, prospects, strategies and financial condition,
including our future economic performance, intent, plans and objectives, and
the likelihood of success in developing and expanding our business. These
statements are based upon a number of assumptions and estimates which are
subject to significant uncertainties, many of which are beyond our control.
Words such as may, would, could, will, expect, anticipate,
believe, intend, plan, and estimate are meant to identify such
forward-looking statements. Actual results may differ materially from those
expressed or implied by such forward-looking statements. The Company assumes
no obligation to update this information. Factors that could cause actual
results to differ materially are discussed in our filings with the Securities
and Exchange Commission, including our Annual Report on Form 10-K for the year
ended December 31, 2001, and include, among other factors, the timely
development and market acceptance of products and technologies and competitive
market conditions.

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Inflation

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk from exposure to changes in interest
rates based on our financing and cash management activities. Our exposure
relates primarily to our long-term debt obligations that expire in 2004 and
2006. In the event that interest rates associated with these debt obligations
were to increase 100 basis points, the annual impact on future cash flows would
be approximately $316,000.




PART II  Other Information




Item 1. Legal Proceedings

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



|1. |  | As previously disclosed, Towne, two of its former officers and a current
officer are defendants in a securities class action lawsuit filed in
November 1999. No class has yet been certified. The complaints allege,
among other things, that Towne should have disclosed in the prospectus
used for its secondary public offering in June 1999 that it allegedly
experienced serious problems with its network infrastructure and
processing facilities during the move of its corporate headquarters in
June 1999, and that these problems allegedly led to a higher than usual
number of customers terminating their contracts during the second quarter.
The complaints seek unspecified awards of damages. Towne filed a motion to
dismiss for failure to state a claim, the plaintiffs filed an answer to
Townes motion and the judge granted parts of Townes motion to dismiss
and denied other parts, which had the effect of allowing the claim to
proceed. Towne and the individual defendants filed answers denying
liability and asserting numerous affirmative defenses. Discovery has not
yet commenced. We believe that the allegations in the complaints are
without merit and intend to defend the lawsuits vigorously. Our directors
and executive officers liability insurance carrier is presently providing
a defense under a reservation of rights.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|2. |  | Another lawsuit arises out of Townes acquisition of Banking Solutions,
Inc. (BSI) through a stock purchase made by its subsidiary, BSI
Acquisition Corp., in December 1998. Plaintiff Edward Sullivan, Jr. was
employed by BSI. Sullivan alleges, among other things, that he had a
buy-out agreement with BSI and certain BSI shareholders under which, in
certain circumstances, Sullivan was to receive a commission based on the
gross sales price paid by any purchaser of BSI. Sullivan contends that BSI
and the other shareholders allegedly fraudulently induced him to release
them from the agreement by fraudulently misrepresenting the gross sales
price paid by Towne Services subsidiary in the stock purchase. Sullivan
contends that Towne Services is liable to him as the successor to BSI, and
also for allegedly tortiously interfering with the agreement. Sullivan
also contends Towne Services conspired with the other defendants to
misrepresent the gross purchase price. We deny all allegations of the
petition. Mr. Sullivan and his wife seek an unspecified amount of damages
including a percentage of the gross sales price paid by Towne Services
subsidiary for the acquisition of BSI, as well as punitive damages,
attorneys fees, and pre-judgment and post-judgment interest. On
July 15, 2002, the District Court of Collin County, Texas granted our
motion for summary judgment on all claims. It is unknown at this time
whether the plaintiffs will exercise their right to appeal.  We also contend that we
are entitled to indemnification from the BSI shareholders for our expenses
in defending this action. Specifically, the BSI stock purchase agreement
provides that the BSI shareholders will indemnify us against any claims,
damages, liabilities, costs and expenses (including reasonable attorneys
and accountants fees and expenses) we suffer that arise out of any breach
of the representations made by BSI in the agreement, provided that the
aggregate amount of all such claims, etc. exceeds $100,000.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Towne filed an action against six former BSI sales representatives,
and The Clipper Group, a company founded by one or more of former BSI
sales representatives. Towne contends that the defendants have formed a
competing company, and are marketing a competing product, to Townes
bank customers, in violation of the named individuals employment
contracts, and in particular, in violation of trade secret and
confidentiality provisions and non-solicitation of customer and
employee provisions contained in those contracts. Towne has asserted
claims against these defendants for misappropriation of trade secrets
(including both customer information and confidential information
regarding Townes software product), misappropriation of confidential
information, breach of employment contracts, tortious interference with
employment contracts, tortious interference with licensing agreements,
tortious interference with customer contracts, breach of the covenant
of good faith and fair dealing, and conspiracy. Towne seeks actual and
punitive damages, injunctive relief, and attorneys fees and costs. On
or about April 30, 2001, the defendants answered, denied liability,
moved to compel arbitration, and asserted a counterclaim against Towne
for alleged fraudulent inducement of the employment contracts at issue.
A settlement agreement has been reached between the parties at this
time regarding this matter. The Company has agreed to dismiss all
claims brought against the individual defendants in the arbitration
proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |  | with prejudice and have reserved the right to pursue
damages in the companion federal court case pending in Mississippi
against the corporate defendant once the Companys claims for
misappropriation of trade secrets (including both customer information
and confidential information regarding Plaintiffs software product),
misappropriation of confidential information, tortuous interference
with licensing agreements, tortuous interference with customer
contracts, breach of the covenant of good faith and fair dealing, and
infringement of copyrights are proven. The individual defendants have
in turn dismissed with prejudice all counter claims against the Company
for fraudulent inducement of employment contracts and alleged unpaid
bonuses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Towne Services, Inc. has also sought relief in the U.S. District Court,
Southern District of Mississippi in a companion case. Towne Services,
Inc., and Banking Solutions, Inc. v. The Merchants Financial Services
Group, LLC d/b/a Merchants Financial Services; AmFed Companies, LLC;
Clipper Technologies, LLC; The Clipper Group, Inc.; and Prominent
Technologies, LLC .This case was filed on July 24, 2001, and is an
action for copyright infringement under the Copyright Act of 1976, 17
U.S.C. § 101, et seq., and related claims of misappropriation of trade
secrets and tortuous interference with contractual relations. The suit
alleges that former customers of Towne Services (a Mississippi bank and
an affiliated insurance company) have developed and are using and
marketing a software program, A/R Navigator, that is an improper copy of
and a misappropriation of trade secrets in the Companys Cash Flow
Manager. It also alleges that several former employees of the Company
(the Clipper Group, parties to the above-referenced arbitration) are
marketing the copied service to banks including customers of the Company.
Towne Services, Inc. has requested an independent comparison of the Cash
Flow Manager software and the A/R Navigator software. At this point,
defendants have refused to co-operate, and it is anticipated that
Plaintiffs will seek intervention from the court to proceed.

The Company is subject to various other legal proceedings, tax matters and
other claims which arise in the ordinary course of business. In the opinion of
management, the amount of any ultimate liability with respect to these actions
will not materially affect the financial position of results of operations of
the Company.




Item 6. Exhibits and Reports on Form 8-K



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

|     |  |   |  |                                                                                                                                           
|---- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  |  |  | Amended and Restated Charter of the Company (incorporated by
reference to exhibit 3.1 to the Companys registration statement
on Form S-1)
|     |  |   |  |                                                                                                                                           
|3.2  |  |  |  | Amended and Restated By-laws of the Company (incorporated by
reference to exhibit 3.2 to the Companys registration statement on Form S-1)
|     |  |   |  |                                                                                                                                           
|10.1 |  |  |  | Acquisition agreement for Retail Access Management                                                                                        
|     |  |   |  |                                                                                                                                           
|99.1 |  |  |  | Officer certification                                                                                                                     

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

| |  |                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The following reports on Form 8-K were filed by the Company
during the three months ended June 30, 2002:                                                                             
| |  |                                                                                                                                                                                      
| |  | 1.   A current report on Form 8-K on May 2, 2002 was filed
to announce the Companys March 31, 2002 financial results.                                                               
| |  |                                                                                                                                                                                      
| |  | 2.    A current report on Form 8-K on May 20, 2002 was filed
to announce the dismissal of Arthur Andersen LLP and to
appoint Ernst & Young LLP as the Companys independent
auditors.
| |  |                                                                                                                                                                                      
| |  | 3.   A current report on Form 8-K on May 28, 2002 was filed
to announce the Companys acquisition of the Access Retail
Management business and product re-alignment initiatives.     
| |  |                                                                                                                                                                                      
| |  | 4.   A current report on Form 8-K on May 31, 2002 was filed
to announce that Joe Mooney, Chief Sales Officer, had
resigned.                                                          
| |  |                                                                                                                                                                                      
| |  | 5.   A current report on Form 8-K on June 7, 2002 was filed
to announce the promotion of Steve Giddens to Chief Sales
Officer.                                                       

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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: |  | August 12, 2002 |  | By:                                |  | /s/ Thomas L. Black                          
| |  |       |  |                 |  |                                    |  |                                              
| |  |       |  |                 |  |                                    |  | Thomas L. Black
Chief Executive Officer      
| |  |       |  |                 |  |                                    |  |                                              
| |  | Date: |  | August 12, 2002 |  | By:                                |  | /s/ Gerard M. Hayden, Jr.                    
| |  |       |  |                 |  |                                    |  |                                              
| |  |       |  |                 |  |                                    |  | Gerard M. Hayden, Jr.
Chief Financial Officer

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