UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

COMMISSION FILE NUMBER 000-25959

PRIVATE BUSINESS, INC.

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

Securities to be registered pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, no par value

     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 the filing requirements for the past 90 days.
Yes [x] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

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

     The aggregate market value of Registrant’s voting stock held by non-affiliates of the Registrant, computed by reference to the price at which the stock was sold, or average of the closing bid and asked prices, as of June 30, 2003 was approximately $4,425,000.

     On February 29, 2004, 14,064,008 shares of the Registrant’s no par value Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s definitive proxy statement for its 2004 annual meeting of stockholders are incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.

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TABLE OF CONTENTS

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PART I

Item 1. Business.

Recent Developments

     Preferred Share Issuance

     On January 20, 2004, we completed the sale of 20,000 shares of our Series A preferred stock and a warrant to purchase up to 16 million shares of our common stock at an exercise price of $1.25 per share for a total purchase price of $20 million (“Lightyear Transaction”). This was the conclusion to the Capital Event process we had described in earlier filings. The Series A preferred stock was sold to Lightyear Fund, L. P., an affiliate of Lightyear Capital. The Series A preferred stock is non-convertible and carries a cash dividend rate of 10% of an amount equal to the liquidation preference, payable quarterly in arrears, when and as declared by the Board of Directors. The Series A preferred stock has a liquidation preference superior to the common stock and, to the extent required by the terms of the Series B preferred stock, on parity with the currently outstanding Series B preferred stock. The liquidation preference is equal to the original $20 million purchase price, plus all accrued but unpaid dividends. Each share of Series A preferred stock initially will be entitled to 800 votes per share, which will be proportionately reduced as any portion of the common stock warrant is exercised.

     New Debt Instrument

     Simultaneously with the preferred share issuance discussed above and as part of the Capital Event process, we executed a new long-term credit agreement with Bank of America (the “Bank of America Credit Facility”) that allows for total borrowings of up to $11.0 million. The Bank of America Credit Facility includes a term loan of $5.0 million, repayable in twelve equal quarterly installments of $416,667, and a revolving line of credit of up to $6.0 million, which includes a $1.0 million sub-limit for standby letters of credit. The Bank of America Credit Facility expires on January 19, 2007. As of January 20, 2004, $7.5 million was outstanding under the Bank of America Credit Facility, consisting of $5.0 million under the term loan and $2.5 million under the revolving loan.

     The net proceeds from the Lightyear Transaction and the Bank of America Credit Facility were used to extinguish our Credit Facility with Fleet National Bank, which was entered into in 1998. We have reduced our total bank debt from $23.9 million as of December 31, 2003 to $7.5 million as of February 29, 2004, while improving our shareholders’ equity to an estimated $10.2 million, as compared to negative shareholders’ equity at December 31, 2003 of $4.4 million.

     National Agreement to Provide Forecasting Services to ClubCorp USA, Inc.

     On January 8, 2004, our subsidiary RMSA signed a servicing agreement effective February 1, 2004 with ClubCorp USA, Inc. (“ClubCorp”), which owns or operates nearly 200 golf courses, country clubs, private business and sport clubs, and resorts. RMSA will provide inventory-planning services to ClubCorp’s golf subsidiaries in the United States. We believe that this relationship is a significant milestone in our efforts to reinvigorate the RMSA business.

General

     Private Business was incorporated in Tennessee in 1990. We are a leading provider of two services directed at small businesses: a solution that helps banks market and manage accounts receivable financing and a forecast and tracking service allowing retail chains to better manage their inventories. Business Manager^®, our principal service, is offered through a nationwide network of client banks, and helps these banks provide cash flow and financing to thousands of small businesses across the United States. Business Manager provides targeted marketing, software, and transaction processing services, linking Private Business to our client banks and small business customers. Our retail division, RMSA, offers retail inventory management and forecasting services to smaller retail stores and regional chains throughout the United States and Canada.

     The Business Manager solution enables our network of over 600 client banks to purchase account receivables from their small business customers. The banks then process, bill and track those receivables on an ongoing basis. A major component of our solution is sales and marketing support for our client banks, and we work with these institutions to design, implement and manage the sale of Business Manager accounts receivable financing services to their small business customers. We help these banks reach customers they might not otherwise access because of cost or system constraints. Some banks will perform the basic administrative and detail transaction processing within their own organizations. Others rely on us for this infrastructure and support, which we provide through our product, Private Business Processing (“PBP”). In addition to maintaining the Business Manager software and

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databases related to the accounts receivable financing service, the PBP product also provides staffing for transaction support and more efficient banking services such as lockboxes with automated clearing house transactions, accelerating funds flow and account credits.

     Since 1994 the American Bankers Association, through its subsidiary, the Corporation for American Banking, has endorsed Business Manager. The American Bankers Association employs a due diligence process in endorsing products, including conducting interviews with banks and customers regarding the product. Only 17 companies have the American Bankers Association’s endorsement, and Business Manager is the only product of its type that has received the endorsement.

     As a complement to Business Manager, we advise and train our client banks concerning risk management procedures and offer insurance products that mitigate their exposure to fraud and non-payment. We assume none of the payment risk in the banks’ purchase of receivables; all such risk falls upon the client banks and their small business customers.

     The Business Manager solution benefits both our client banks and their small business customers. The solution introduces our client banks to a new type of high-margin fee generating service in a financing sector they otherwise might be unable to cost-effectively market and serve. Business Manager also provides small business customers with access to a new type of bank financing that may better fit their business needs and capital position.

     RMSA serves small business retail establishments. One of the critical success factors for retail establishments is the proper ordering and turnover of inventory. RMSA, which employs a sales force of experienced consultants along with selected proprietary software and databases, works closely with retailers in helping them manage their purchasing, turnover and disposition of stock items. We normally receive a monthly fee from RMSA customers based on the number of inventory items, or classifications, to be tracked. RMSA usually delivers a report on a monthly basis to its retail customer, which forecasts inventory needs based on historical trends. Approximately 80% of RMSA’s forecasting revenue is recurring in nature.

     The Company’s principal executive offices are located at 9020 Overlook Boulevard, Brentwood, Tennessee 37027, and its telephone number at that address is (615) 221-8400.

Industry Background

Community Banks and Small Businesses

     As of December 31, 2003, the Federal Deposit Insurance Corporation (“FDIC”) listed 9,345 institutions as FDIC insured. We believe that approximately 5,500 of these banks are candidates for our Business Manager program.

     Dun & Bradstreet tracks approximately 13.1 million small businesses in the U.S. with less than $25.0 million of annual sales. Private Business believes that approximately 4.5 million of these businesses are potential prospects for the Business Manager system based on their size, industry and receivables patterns.

     The capital markets in which community banks and small businesses operate in are driven by several key forces including:

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Financing for Small Businesses. Many small businesses are growing rapidly and are financially sound but are not eligible for sufficient traditional bank financing. We believe that, for many of these small businesses, the need for working capital is a significant obstacle to growth, and that these businesses spend much time, money and effort on receivables and cash management. Traditional banks may be unwilling to provide financing to small businesses for a number of reasons such as the particular small business’s lack of credit history or the industry or geographic areas in which a particular small business operates. In other cases, businesses have reached their bank’s credit limit for traditional bank financing.

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Competitive Forces. Community banks compete for deposits and business against larger banks with more resources. In response to the competitive pressures arising from deregulation and consolidation, many community banks are adapting their business practices to meet these new challenges. According to the FDIC, strategies for coping with these pressures include:

•		outsourcing business functions.
•		expanding the use of non-traditional financing.
•		partnering with non-bank service providers.
•		emphasizing personalized services and developing niches or specialty offerings to serve a broader customer base.

At the same time, given the limited asset base of community banks and the need to improve margins, the adoption of these strategies must take into account the need to control operating expenses, maintain proper risk control, and minimize operating complexity.

•		Cost Pressures. Community banks’ size does not allow them to incur the full cost of receivables financing marketing, management and monitoring. Despite the fact that the small business sector provides a very large and potentially profitable market opportunity, financial service providers have encountered difficulty in managing cost-effective sales and support of targeted financial services to small businesses. Community banks have generally provided basic financial services such as business deposit accounts, credit card merchant services, and, in some instances, traditional lines of credit to small businesses. However, these banks typically have been unable to provide small businesses with more sophisticated cash management products such as accounts receivable or lease financing services.
•		Electronic Commerce Services. The market for electronic commerce products and services in the United States has grown dramatically in recent years. The financial sector has been a major user of outsourced electronic commerce services. Examples of outsourced electronic commerce applications in this sector include electronic authorization, processing and settlement of credit card transactions and electronic data interchange. Most of the outsourced electronic commerce activity in the financial sector has focused on servicing larger merchants and businesses. However, small businesses have many of the same financial needs as large businesses and also some unique needs particularly suited for electronic commerce outsourcing. While small businesses have taken advantage of certain outsourcing and/or electronic commerce services such as credit card and merchant services, other services generally have been unavailable in the small business credit and cash management market.
•		Regulation and Regulatory Oversight. Regulators continue to emphasize to banks the need to improve monitoring and risk evaluation for asset-based investments. In addition, changes in laws and regulations have placed both competitive and compliance pressures on both community banks and small businesses.

Our Business Manager Solution

     Business Manager is an integrated solution that includes targeted marketing services, software, transaction processing, and ongoing support. Business Manager enables the management of accounts receivable financing for banks, from the purchase of receivables from small businesses to the ongoing processing, billing and tracking of these receivables. The banks either process the transactions themselves or outsource this activity to our in-house PBP processing facility. To automate the process further, we offer electronic links for the banks and their small business customers through secure connections to our Internet portal, BusinessManager.com.

     Our extensive network of local sales consultants, or Business Development Managers (“BDMs”), helps our client banks develop new marketing strategies and facilitate the market penetration of Business Manager. Once a client bank contracts to utilize Business Manager, our Business Development Managers help the client bank design, implement and manage the sale of the Business Manager accounts receivable financing program to the client bank’s small business customers and prospects. Utilizing a database of likely small business customers of the program, the Business Development Managers generally work directly with the client banks’ commercial loan officers to target and meet with qualified small business customers as part of the direct sale of the program to these businesses. Once the client bank has signed up a new small business customer, our Business Development Managers continue to work with the small business customer in conjunction with the bank loan officer to ensure proper

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implementation and post-implementation support. We also help design the appropriate procedures and controls to successfully implement Business Manager in order to minimize risk to our client banks.

     Business Manager allows banks to provide differentiated, higher-margin financial services to their existing small business customers and new prospects without incurring the cost of internal technology development and additional personnel. Business Manager can benefit our client banks by:

•		increasing their revenues with high margin fee income.
•		creating additional relationships with their existing small business customers.
•		attracting new small business customers.
•		improving access to small business customers’ financial information, enabling better credit decisions.

     Business Manager can also benefit a bank’s small business customers by:

•		improving cash flow and making funds available for growth.
•		providing customized aging, sales, and customer balance reports.
•		reducing management time, effort, and cost associated with billing and tracking receivables.
•		improving receivables tracking and payment by involving the bank.

     Typically, we provide our services to client banks under exclusive long-term contracts with terms ranging from three to five years and automatic renewals for a predefined term thereafter. We receive initial fees for set-up and thereafter receive participation fee payments equal to a percentage of every receivable purchased by the banks from merchants on the program. Some contracts with banks contain performance or deferred payment terms that we must satisfy in order for us to begin receiving payment from the bank and recognizing revenue. During 2003, approximately 65% of our total consolidated revenue resulted from participation fee payments.

     During 2003, our network of client banks purchased approximately $4.44 billion of accounts receivable from approximately 4,900 small businesses.

Retail Inventory Services — RMSA

     For many small retailers, the most critical success factor is inventory management. Purchasing both the right stock items and the appropriate quantities can mean that the retailer avoids overstocking and under stocking, both of which can adversely effect the retailer’s cash flow and operations results.

     Large chain retailers, which have greater resources than local or regional retailers, usually can employ their own full-time in-house staffs to perform inventory forecasting. RMSA’s primary objective is to provide this support to local and regional retail businesses. We believe that between 30,000 and 90,000 retail businesses fit the profile of a RMSA client. RMSA’s inventory planning software is unique in the industry as a result of its ability to provide retailers with a ten-month “forecast” of inventory needs based on a “bottom-up” approach to planning. RMSA’s system looks at the performance of individual classifications of inventory in each store, as opposed to most inventory management services, which are “top down” systems. Top down plans base inventory needs on the overall company targets, as opposed to looking at individual store performance.

Strategy

     Our strategy is focused on internal growth within our two main business units: accounts receivable-cash flow financing (Business Manager) and retail inventory forecasting (RMSA). We believe that each segment offers unique opportunities.

     In the Business Manager segment, we are devoting substantial resources to creating revenue and sales growth for our flagship product, Business Manager. To accomplish this, our growth strategy includes the following:

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a)		Continue to Recruit, Expand and Improve Training for the Bank Sales and BDM Groups, and Complement with Inside Sales. We believe that we can continue to penetrate the community bank market for outsourcing accounts receivable financing with a broader more effective sales effort while lowering the cost of new sales by utilizing the inside sales approach.
b)		Target Associations and Affinity Groups as Wholesale Distribution Channels to Large Groups of Merchants. Our revenues grow with increased financing provided to merchants. Effective access to large merchant groups as a preferred cash flow provider in conjunction with one of its client banks could significantly increase the revenue base.

     We are also increasing the size of our BDM sales force to a target size of between 50 and 55 as well as increasing the number of bank sales personnel to between 8 and 10. We anticipate that the additional sales personnel in these positions will increase the number of banks and merchants available in order to increase the number and quality of leads and prospective merchants for funding at our client banks. We have also broadened the scope of our sales training efforts in the first quarter of 2004.

     Finally, we believe that Business Manager can be improved or expanded with the integration of new services or technological enhancements that expand the number of merchants who could benefit from the program and that encourage banks to undertake additional accounts receivable funding programs targeted at small businesses.

     In addition to a wealth of experience amongst its analysts, we believe that RMSA’s proprietary database and factor files offer us the opportunity to complement our service to small retailers with a database, subscription, or information related products. We expect that obtaining a national retail customer, like ClubCorp, as mentioned elsewhere in this document, will provide us opportunities with other national retailers that previously had no interest in our services. We believe that the RMSA business unit has several growth opportunities:

a)		Internet Distribution and National Account Penetration. During 2003, RMSA introduced Freedom, an internet based reporting process that greatly accelerates the delivery time of forecast reports to its existing clients and enables it to broaden its target market to smaller companies and more rural areas. Freedom also provides RMSA with an important tool for marketing to national accounts that may have many smaller, individual locations.
b)		Additional Consultants. We believe significant growth can be achieved by further penetrating its large target market with the recruitment, training, and deployment of additional consultants. In recent years, RMSA’s number of analysts has been declining, which also has a negative impact to revenue growth. We believe that there is sufficient market opportunity to add forecast clients if an investment is made by RMSA to increase the number of analysts to sell and service additional clients.
c)		Sale of Industry Data. We believe that consolidated monthly data for RMSA’s current 5,000 retail locations tracked nationwide could be sold to research and retail reporting companies providing leading and up-to-date indicators of various industry trends in a format similar to reports provided by Neilson Media Research or The Gartner group. Currently, many analysts and those who report on retail industry trends rely on data from a small sample of less than 100 retail stores. We believe the breadth of data that RMSA accumulates on a monthly basis surpasses any source currently available. RMSA is currently exploring an opportunity to develop a monthly trend publication which would be sold to retailers and other entities operating in the independent retail industry.
d)		Strategic Alliances. We believe that RMSA’s distribution capabilities and existing client base make it an attractive partner for strategic licensing arrangements, alliances or other partnerships that create ways to broaden the product portfolio. In 2003, the Company established strategic alliances with several such groups, including COUTURE and Continental Buying Group (jewelry); American Lighting Association (lighting and home accessories); and The Friedman Group (general retail consulting). We will continue to evaluate and pursue such alliances and strategic transactions to better position the business.

     Acquisitions and Alliances. The market for financial services offered to community banks, small businesses and retail establishments is fragmented and our industry is still in its formative stage. We believe there is an opportunity for strategic transactions such as licensing, alliances or other partnerships that create ways to broaden our product portfolio and assist us in delivering our services efficiently. We will continue to evaluate and pursue strategic transactions to better position our business. We also believe that both our receivables financing business and our RMSA retail service are candidates for new product expansion by way of alliances and other transaction structures. In addition to the initiatives described elsewhere in this filing, we continually review and evaluate such ideas.

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     New Products and Services. In addition to targeting growth in Business Manager and RMSA revenues, we believe that new products and services complementary to our existing business offer further opportunities to take advantage of our strategic assets. We believe that we possess three distinct avenues for complimentary business expansion.

     Our newer product offerings include, LineManager, CollectionsManager, IdentificationManager and Lender Environmental Insurance. While we do not expect any of these products to contribute significantly to revenue growth or operating income in the near-term, these products are examples of how we expect to broaden our products, services, and customer bases. We will continue to assess opportunities to create or acquire complimentary products.

Products & Services

Receivables Financing Business.

     We provide the following products and services through our Business Manager solution:

     Marketing Services. We provide comprehensive marketing services to client banks as a key part of the Business Manager solution. We analyze a bank’s market area using our extensive database and provide a detailed assessment of the market opportunity for Business Manager in a given geographic area. A BDM uses this market analysis to help the client bank sell Business Manager to small businesses.

     As of February 29, 2004, we employed approximately 42 full-time BDM’s, as well as 4 Directors of Sales. Each BDM is responsible for 1 to 15 banks, depending on bank size and market potential, with the typical Business Development Manager responsible for 10 banks. The BDM and the client bank work together, using the market analysis, to develop a prospect list of the bank’s small business customers who would be likely Business Manager users. The master prospect list is prioritized, and, together, the client bank and a BDM approach the businesses on that list. As a follow-up, a BDM periodically contacts small business customers on the system to help the client bank retain their small business customers.

     Business Manager Software. We develop, update and support the Business Manager software, a Windows-based software package, installed at our client banks and in our Service Center that enables banks to purchase and manage accounts receivable from their small business customers. Business Manager provides over 60 detailed reports to keep the client bank and the small business owner informed about the performance and aging of the receivables. In addition, Business Manager’s software enables the client bank to periodically confirm customers’ receivables balances for risk control purposes.

     Processing Services. Our Service Center can perform for the client bank and its small business customers all the processing and service functions that would normally be performed by the client bank’s operations staff. With this option, the Service Center provides all data entry, account set-up, batch processing, lockbox maintenance, preparation and mailing of statements and confirmation letters, invoicing and response to customer service inquiries. The client bank retains the decision-making responsibility for credit underwriting and for monitoring the small businesses’ daily financial transaction activity.

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     Electronic Commerce Capabilities. We provide electronic commerce capabilities that enable data exchange between the small business customers, our client banks and our Service Center. This enables small business customers to deliver new invoice information electronically and have this information accessed by our client banks through a Web browser. The small business can upload this data directly from their accounting software such as Peachtree^® or QuickBooks^® or input this data into a predetermined form provided through the Internet server and accessible via a Web browser. Our Internet communications infrastructure provides the gateway to a central repository for this information. This infrastructure also enables small businesses to access critical cash management reports online through their Web browser. We believe this capability reduces the time and cost of processing new invoices for the small business and enhances our client banks’ relationships with their small business customers.

     Risk Management Procedures. The Business Manager solution also assists client banks with credit risk management, using a variety of tools, including:

•		Underwriting Control. The client bank, using their own credit underwriting procedures, decides which businesses participate in Business Manager and approves limits on the amount of receivables to be purchased from those businesses.
•		Monitoring Capability. Information provided by the Business Manager software enables the bank to monitor the payment performance of the receivables, to detect trends in the business that may impact the bank’s risk, and to facilitate confirmation of outstanding receivables.
•		Primary Source of Payment. The receivables purchased by the bank are the primary source of payment. In most cases, a small business’ customer makes payment of the receivables directly to the client bank.
•		Reserve. As the client bank buys receivables from small businesses, a portion of the purchase price is deposited into a reserve account to protect the client bank against potential losses on the receivables. The reserve is adjusted each month to reflect the condition of the receivables.
•		Repurchase Obligation. The small business maintains ultimate responsibility for accounts receivable collection. Receivables that age beyond a designated period (typically 90 days) are repurchased by the small business. Client banks may require additional collateral and personal guarantees to secure the repurchase obligation.

     Credit and Fraud Insurance. Our insurance brokerage subsidiary offers two insurance products for the Business Manager solution. Both products are primarily underwritten by Coface North America, a unit of The Coface Group, and one of the nation’s major multi-line insurers. Accounts receivable credit insurance protects the client bank and/or its small business customers from default in payment of the receivable. Fraud insurance protects the client bank from two types of fraudulent acts by the client banks’ small business customers: fraudulent invoices and diversion of customer payments.

LineManager

     LineManager is an information tool, allowing asset-based lenders the ability to monitor the activity and quality of the assets that are the collateral to the loans. Our product, in essence, automates and electronically updates the borrowing base in a virtual real-time environment. We believe that much of the processing and reporting is currently done on a manual basis in cycles geared more toward the calendar than the actual underlying business activity.

     LineManager, which is offered on an application service provider or “ASP” basis, brings together in an on-line environment data drawn directly from a debtor’s financial and accounting system with parameters set up in our system by the bank.

     Because the data exchange and reporting downloads can be done at almost any time, we believe that we give asset-based lenders access to higher quality audit information while debtors have a lower cost of administration and compliance for their outstanding loan balances.

IdentificationManager

     IdentificationManager is a bank compliance solution to the requirements imposed by Section 326 of the USA Patriot Act, passed by Congress after the events of September 11, 2001. Under the USA Patriot Act, banks are now required to conduct intensive identification checks on new clients and new accounts will need to be screened against the Office of Foreign Asset Control list and other published lists of suspected terrorists and terrorist organizations. This turnkey solution lets banks enter key information about a prospective client (social security number, driver’s license number, address, date of birth) and searches public

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data records through engines such as Equifax, Choicepoint, the U.S. Postal Service, and 37 state DMVs. IdentificationManager will also archive records of the searches. We believe that this is a service that fits nicely into our market space and a product that our community banking customers will need.

RMSA Retail Inventory Forecasting and Management

     In business since 1955, RMSA is the industry leader in providing inventory forecasting and merchandise planning services to small and medium sized retail merchants nationwide. RMSA utilizes experienced consultants and technology to help retailers manage their purchasing, turnover, and disposition of stock items.

     We believe that RMSA’s proprietary database is the world’s largest database of retail sales information for small independent stores. The database carries more than thirty years of soft goods sales history at a merchandise class level with approximately 100,000 different classes. Each class is a group of similar type merchandise items which comprises up to several dozen or more stock keeping unit (SKU) merchandise categories. For example, athletic shoes, Rolex watches, new college textbooks and ski boots are all individual classes. The database captures information at the class level for approximately 5,000 stores every month. With this information, RMSA believes it is the only source of “bottom-up,” granular sales trending information for the small retailer. Based on this business’ knowledge there continues to be broad opportunity to grow this business.

     The profile of a typical RMSA customer is a retailer of men’s, women’s or children’s clothes with $1 – 10 million in sales and 1 – 4 store locations. Generally, the service works best for retailers selling soft goods and other merchandise that will turn 1 – 6 times per year. Other common retail stores served by RMSA include bookstores, jewelry stores, sporting goods stores, and other small specialty or general merchandise outlets.

     RMSA collects monthly sales data from all of its 5,000 client stores with many utilizing automatic interfaces from point of sale systems. Using this data and RMSA’s proprietary algorithms, customized monthly reports are generated for each retailer. With these reports the consultants work with the retailers to:

•		Create correct timing of deliveries
•		Determine timing of reorders
•		Identify slow-moving inventory
•		Reduce excessive markdowns
•		Optimize turnover
•		Improve cash flow
•		Maximize revenue

     For many retail merchants, this analysis can be critical. Since the inventory cycle can consume a majority of a business’ cash, successful retailers must anticipate the proper inventory level for all items to be sold.

     To provide the inventory management service, RMSA’s consultants provide a customized monthly report to each retail client using a series of proprietary algorithms developed by RMSA over many years. The reports collate actual sales data from like classes of merchandise to assist the retail merchant in determining what quantity of what merchandise to buy, sell, markdown, etc. In part, the reports are driven by the actual sales data collected monthly from all 5,000 of RMSA’s client stores.

     Four basic pieces of information are needed about each class of merchandise offered: sales, markdowns, merchandise on order but not yet delivered and merchandise received. This data is transmitted to RMSA’s system database, which contains historical information for each individual business customer. The sales data is manipulated by the Company’s proprietary algorithms which also consider the particular industry segment, geography, seasonality, other current business trends and data from other retailers selling similar merchandise, to produce a customized inventory forecast report for each retailer. The forecast is put together by RMSA and then provided to the retail business customers. It enables the retailers to manage inventory at any classification level and can be as specific as an SKU code.

Training and Support

     We conduct a variety of training activities for our client banks. This training is designed to give bank personnel detailed operating knowledge of the Business Manager solution and the roles that both bank and our personnel play in the system’s success for a particular client bank.

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     An initial two-day training session is conducted approximately 30 times per year at our corporate training center and approximately 8 times per year at various regional locations by experienced members of our training and bank services departments. These sessions encompass training for both bank credit officers and for process coordinators who operate the Business Manager software. Process coordinators receive detailed instruction and practical training in effective utilization of the Business Manager software. Credit officers learn how Business Manager relationships are developed as well as how they are underwritten, documented, and monitored. Newly licensed banks send both a credit officer and a process coordinator to this training prior to implementation of the program. Banks may send additional personnel to these sessions for training or re-training at any time. In addition, both beginning and advanced software training for bank process coordinators is offered throughout the year at various locations around the country.

     Other bank credit officers and relationship managers periodically receive training in the business development and risk management aspects of the program, either at the bank site or at mini-conferences held at various locations around the country.

     In addition to training, we offer a variety of support services to our client banks, including:

•		Account Management. Account Management, an extension of our sales business units, is comprised of four teams of specialists with Implementation and Electronic Commerce experience dedicated to the activation, retention, and support of our client base. This team monitors all account activity for the first 30 to 60 days a client participates on the program by overseeing rate set-up, funding and training procedures. A key component for success is the electronic transmittal of information between our clients via our BusinessManager.com Web portal. This tool provides not only the conduit for data sharing, but also consists of training resources, including marketing materials and operational reference guides. To help ensure long-term retention, Account Management provides risk management training to our banks and assists them in securing the appropriate insurance products. This team also handles approximately 22,000 calls annually and is available five days a week from 7 am to 7 pm (Central Time) to field questions from client banks and small business customers to resolve any problems that may be encountered during processing.
•		Bank Services. Our bank services department works with client banks on a variety of banking issues that arise related to the Business Manager solution, including dealing with regulatory matters, documentation, credit policies, risk management and operational issues.

Sales and Marketing

Receivables Financing Business

     Our sales effort is focused on marketing Business Manager to banks and their small business customers.

     The Business Manager product has one sales force aligned into four geographic regions led by four Directors of Sales. Each regional sales group includes bank sales people and business development managers. The bank sales people will work with client banks up to the point at which the bank signs a contract, attends training and has our Business Manager system implemented and ready to add merchants. After the above occurs, a member of the other part of our sales force is assigned to each client bank. These are our BDMs, whose responsibility is to identify prospective businesses and merchants to the bank for receivables purchases and financing. The BDMs assume the role as our primary day-to-day contact point for banks and businesses. The BDMs cover all fifty states as part of the allocation of territories.

     We employ marketing analysts who are responsible for the design and production of internal and external marketing materials to assist our banks in finding small businesses who can benefit from the Business Manager program. These marketing professionals also attend trade shows and coordinate various marketing programs, such as direct mail campaigns and conferences.

Retail Planning Services

     We sell and market our retail planning services through consultants and analysts situated throughout the United States and Canada. As of February 29, 2004, we employed 44 such consultants and analysts. The average RMSA analyst has been with RMSA for more than 13 years and has more than 20 years experience in the retail sector.

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Customers and Contracts

Receivables Financing Business

     As of December 31, 2003, Business Manager was licensed to over 750 banks of which approximately 560 fund merchants on a monthly basis. No client bank contributed more than five percent of our revenue in 2001, 2002 or 2003. Our network of client banks purchased approximately $4.44 billion of accounts receivable from approximately 4,900 small businesses during 2003.

     Historically, there are two basic components in the typical agreement between Private Business and a client bank. A bank may pay an initial fee upon execution of the agreement and an annual fee on each anniversary date thereafter. The bank may also pay additional license fees contingent upon Business Manager achieving specified milestones during the contract period. Examples of milestones include, but are not limited to, the number of merchants using the program through the bank, or a specified funding level. Our total license fees earned at a particular bank can vary based on the contract structure and any milestones built into it.

     In addition, the agreement provides that the bank pay a participation fee equal to a percentage of the receivables purchased by the bank from a small business customer during the first thirty days after signing such small business customer. Thereafter, the agreement provides for a monthly ongoing participation fee based on a percentage of the discount charged against the receivables purchased from each small business customer.

     The agreements generally have terms of three to five years plus provisions that the bank pays ongoing fees on all accounts transferred to a similar program for a period of 48 months after termination. In addition, we charge an annual software maintenance fee.

     If an existing client bank wishes to outsource its processing services to Private Business, the bank enters into a processing addendum to the original agreement. The processing addendum includes a confidentiality provision with respect to all information received from the client bank relating to the small business customer and its accounts. Some new client banks now enter into an agreement that provides for processing from the outset. The terms of the agreement are very similar to those as set out above.

     We also provide client banks with a standard Business Manager agreement form to be used between the client bank and its small business customers. Private Business is not a party to this agreement, but the general form of the agreement provides that the bank will purchase up to a set amount of the small business’s accounts receivable for the face amount less a discount. The Business Manager agreement provides that the bank will establish an interest-bearing reserve account for the benefit of the small business and will deposit a portion (generally between 10 percent and 20 percent) of the face amount of each receivable purchased into such reserve account. The agreement further provides that the bank may require the small business to repurchase all or any portion of any receivable if any minimum payment remains unpaid after a designated period (generally 90 to 120 days). These agreements have a term of one year and are automatically extended for additional one-year periods, but may be terminated without penalty by either party upon 60 days written notice.

Retail Planning Services

     RMSA works with approximately 860 retailers, representing more than 5,000 store locations throughout the United States, Canada and South America. Although most customers are local or regional retailers, RMSA consults with several national retailers.

Technology

Receivables Financing Business

     The Business Manager software program is a PC-based system written primarily in Smalltalk^®. Private Business has developed two versions of Business Manager, a field version used by client banks and an in-house version used in our processing and service center. Both versions of the software are 32-bit, enabling them to run on Windows 95/98/2000^® and NT/2000^®. For reporting, both versions use Seagate’s Crystal Reports^® report writer. We believe that our Windows^®-based technology is easy-to-use, flexible and scalable.

     The field version runs in stand-alone mode or supports multiple users on Novell or Microsoft NT networks, and runs on standard PC’s with no additional hardware or software requirements other than an Internet connection. Upgrades to the field version are released periodically and generally no less than annually.

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     The in-house, or PBP version, supports larger numbers of concurrent users. Computers from Sun, running the Solaris UNIX operating system, provide the increased capacity. Additionally, this version provides Internet-based reporting to our PBP customers.

     Our bank and small business customers exchange business transaction information via our Internet-based electronic commerce system, which we call B/M Wired. This web-based, bilateral communication system is compatible with businesses running Windows and other operating systems like UNIX or Macintosh. Portions of this system run on Windows NT-based servers, with the balance running on Sun servers using Oracle databases.

     The Company’s Internet connection is provided through two separate telecommunications service providers for reliability and performance.

     A critical component of the Business Manager product is B/M Exchange, the electronic communication and transaction support system linking us with our customers. On a daily basis, we can transmit and/or receive a variety of data and information through B/M Exchange. B/M Exchange is an Internet application integrated into Business Manager.

LineManager Product

     The LineManager product allows our bank clients to monitor and manage commercial lines of credit easier and more effectively. LineManager is a unique and comprehensive Web-based program that provides banks with collateral data that is transmitted over the Internet to the bank directly from a commercial borrower’s accounting software.

     LineManager not only streamlines monitoring procedures, it also provides banks with a tool to improve loan reviews and regulatory exams, eliminate and resolve problem assets proactively, eliminate the time-consuming paperwork and administrative tasks that come along with “paper” monitoring procedures, and gives banks the power to take control of commercial lines of credit.

     The LineManager system is a secure web based online system built on Sun servers, with an Oracle database platform. The LineManager system is available to any client computer system with Internet connection and industry standard web browser software including Windows and Unix systems.

Retail Planning Services

     Although our retail analysts and consultants are a critical piece of our value-added services, RMSA does utilize technology in its business. We believe that we have one of the world’s largest and most comprehensive databases of retail “soft goods” sales history dating back more than 30 years. The database is the foundation for factor files. Factor files are a series of proprietary algorithms developed by RMSA over the years, which collate actual sales data from like classes of merchandise. The factor files then become part of the client inventory forecast process.

     Another way that RMSA uses technology is its ability to interface with a retailer’s point of sale software, which helps capture actual retailer sales history for input into the forecasting process.

     Finally, through a product innovation known as Freedom, RMSA can deliver forecast reports by way of the Internet, thereby streamlining the entire reporting process.

Competition

Receivables Financing Business

     The market for small business financial services continues to be intensely competitive, fragmented and rapidly changing. We believe that we compete effectively as a result of our highly trained and motivated sales force as well as the functionality of Business Manager.

     We face primary competition from companies offering products to banks similar to Business Manager. Only a limited number of companies offer comprehensive solutions similar to Business Manager, including marketing on behalf of the client bank. We believe that Private Business is the largest of such companies offering these services in terms of revenue, number of client banks and size of our dedicated sales force. We believe that other firms typically offer software, but not sales support to the bank.

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     We also compete with banks that use their internal information technology departments to develop proprietary systems or purchase software from third parties to offer similar services to small businesses, and with providers of traditional sources of financing to small businesses such as lines of credit, amortizing loans and factoring. Many banks and other traditional providers of financing are much larger and more established than Private Business. Most providers of traditional sources of financing and banks that have already established relationships with small businesses may be able to leverage their relationships to discourage these customers from purchasing Business Manager or persuade them to replace our products with their products.

     We expect that competition will increase as other established and emerging companies enter the accounts receivable financing market, as new products and technologies are introduced and as new competitors enter the market, some of which may market via the Internet. In addition, as we develop new services, we may begin competing with companies with whom we have not previously competed. Increased competition may result in price reductions, lower profit margins and loss of our market share, any of which could materially adversely affect our business, financial condition and operating results.

Retail Planning Services

     We compete primarily with other consulting firms in the retail inventory area. In addition, many larger retail firms will have in-house forecasting and inventory management groups. We expect that competition could increase as new consulting firms attempt to enter the retail forecasting market, or other retailers bring inventory planning in-house. This competition could result in price reductions, lower profit margins, increases in technology investment or loss of our market share, all of which could materially adverse effects on our business, financial and operating results.

Employees

     At February 29, 2004, we employed 268 people. We have approximately 100 employees involved in direct sales, marketing and business development activities.

Risk Factors

     This annual report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “estimates,” “may,” “likely” and words of similar import. Such statements include statements concerning the Company’s business strategy, operations, industry, economic performance, financial condition, liquidity and capital resources. Such statements are not guarantees of future performance and the Company’s actual results may differ materially from the results discussed in such forward-looking statements because of a number of factors, including those identified in this “risk factors” section and elsewhere in this Annual Report on Form 10-K. The forward-looking statements are made as of the date of this Annual Report on Form 10-K and the Company does not undertake to update the forward-looking statements or to update the reasons that actual results could differ from those projected in the forward-looking statements.

     This section summarizes certain risks, among others, that should be considered by stockholders and prospective investors in the Company. Many of these risks are discussed in other sections of this report. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

     Primary Dependence on One Product. We currently derive a significant portion of our revenues from receivables financing; the majority of which flows through Business Manager. Approximately 1% of our consolidated revenues derived from license fees from new agreements with client banks and approximately 65% derive from participation fees based on accounts receivables purchased by our bank clients from small businesses. We expect to continue to derive significant revenues from this product and related services. If total revenues derived from Business Manager decline, our other products or services may not be sufficient to replace that lost revenue, so any events that adversely impact Business Manager could adversely impact our business. We cannot be certain that we will be able to continue to successfully market and sell Business Manager to both banks and their small business customers or that problems will not develop with Business Manager that could materially impact our business.

     Potential Inability to Promote Business Manager to New and Existing Small Business Customers. Other than the initial contract fee and a small annual support fee, we do not generate any income from banks contracting to utilize Business Manager unless small businesses finance their accounts receivable through our client banks. If we and our client banks cannot retain existing clients and convince potential small business customers of the benefits of Business Manager, such businesses will not continue to use or initiate use of our products and services. Since small business customers of our client banks are the foundation of our

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business, their unwillingness to use Business Manager could have a material adverse effect on our business, operating results and financial condition.

     Dependence on Banking Industry for Clients. Business Manager is used almost exclusively by banks, primarily community banks. Due to our dependence upon the banking industry, any events that adversely impact the industry in general and community banks in particular, such as changed or expanded bank regulations, could adversely affect the Company and its operations. The banking industry is subject to supervision by several federal and/or state governmental regulatory agencies. Regulation of banks, especially with respect to receivable services such as Business Manager, can indirectly affect our business. The use of Business Manager by banks is currently in compliance with or is not subject to banking regulations. These regulatory agencies, however, could change or impose new regulations on banks, including modifying the banks’ ability to offer products and services similar to ours to their small business customers. These new regulations, if any, could prevent or lessen the use of our services by banks.

     Lightyear Owns a Majority of the Company’s Stock and Therefore Effectively Controls the Company’s Management and Policies. The Lightyear Fund, L.P., an affiliate of Lightyear Capital (the “Lightyear Fund”), through its holdings of Company Series A Preferred Stock, and warrants convertible into common stock, beneficially owns, in the aggregate, approximately 53% of the Company’s common stock. As a result of the Lightyear Fund’s investment in the Company, the Company has agreed to use its best efforts to cause four Lightyear Fund nominees to serve on the Company’s Board of Directors, which would be composed of seven directors. Currently, Lightyear has identified three nominees that are currently serving on the Company’s Board and one vacancy remains. In addition, the Company is required to obtain the approval of holders of the Series A Preferred Stock prior to taking certain actions. The holders of the Series A Preferred Stock have certain pre-emptive rights to participate in future equity financings. In view of its large percentage of ownership and its rights as the holders of the Series A Preferred Stock, the Lightyear Fund effectively controls the Company’s management and policies, such as the appointment of new management and the approval of any other action requiring the approval of the stockholders, including any amendments to the Company’s certificate of incorporation, a sale of all or substantially all of the Company’s assets or a merger. In addition, the Lightyear fund has registration rights with respect to the shares of the Company common stock that it beneficially owns. These rights generally become exercisable after July 18, 2004. Any decision by the Lightyear Fund to exercise such registration rights and to sell a significant amount of its shares in the public market could have an adverse effect on the price of the Company’s common stock.

     Potential Inability to Successfully Market our Products and Services to New Client Banks or to Retain Current Client Banks. Our success depends to a large degree on our ability to convince prospective client banks to utilize Business Manager and offer it to small businesses. Failure to maintain market acceptance, retain clients or successfully expand our offered services could adversely affect our business, operating results and financial condition. We have spent, and will continue to spend, considerable resources educating potential customers about our products and services. However, even with these educational efforts, we may not be able to maintain market acceptance and client retention. In addition, as we continue to offer new products and expand our services, existing and potential client banks or their small business customers may be unwilling to accept the new products or services.

     Potential Inability to Attract, Hire, or Retain Enough Qualified Sales and Marketing Personnel. If we are unable to implement our growth plans and strategies, our business, operating results and financial condition could be adversely affected. An important part of our sales strategy is to attract, hire and retain qualified sales and marketing personnel in order to maintain our marketing capabilities in our current markets and expand the number of markets we serve. Since competition for experienced sales and marketing personnel is intense, we cannot be certain that we will be able to attract and retain enough qualified sales and marketing personnel or that those we do hire will be able to generate new business at the rate we currently expect. If the Company is unable to hire and retain enough qualified sales and marketing personnel or those we hire are not as productive as we expect, the Company may not be able to implement its sales plans.

     Potential Inability to Manage Growth of Business. Our business has the potential to grow in size and complexity. If our management is unable to manage growth effectively, our business, operating results and financial condition could be adversely affected. Any new sustained growth would be expected to place a significant strain on our management systems and operational resources. We anticipate that new sustained growth, if any, will require us to recruit, hire and retain new managerial, finance, sales, marketing and support personnel. We cannot be certain that we will be successful in recruiting, hiring or retaining such personnel. Our ability to compete effectively and to manage our future growth, if any, will depend on our ability to maintain and improve operational, financial, and management information systems on a timely basis and to expand, train, motivate and manage our work force. If we begin to grow, we cannot be certain that our personnel, systems, procedures, and controls will be adequate to support our operations. Also, one element of our growth strategy is to actively evaluate and pursue strategic alliances with businesses that are complementary to the Company’s business. We cannot be certain that we will be able to integrate fully any such alliances with our existing operations or otherwise implement our growth strategy.

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     Intended Expansion of Offered Products and Services May Lower Our Overall Profit Margin and New Products may not be Successful. Part of our business strategy is to expand our offering of products and services. We believe that we can provide these services profitably, but such services may generate a lower profit margin than our current products and services. As a result, by offering additional products and services, we may lower our overall profit margin. Although gross revenues would likely increase, the lowering of our profit margin may be viewed negatively by the stock market, possibly resulting in a reduction in our stock price.

     As stated elsewhere in this filing, we are engaged in introducing several new products to our customer base. Although our research leads us to believe that markets and customers exist for this expansion, there can be no assurances that the introduction and sales of these new products will be sufficient for us to recover our investment in costs.

     Our Products and Services May Not be as Successful in a Slower Economy. Since the introduction of Business Manager in 1991, the United States economy generally has been relatively strong. If the United States economy weakens or enters into a recession or depression, our client banks and their small business customers may view the services and benefits provided by Business Manager differently and may be reluctant to use the products and services we provide. In addition, in an economic recession or depression, the customers of small businesses may reduce their purchases of goods and services, thus reducing accounts receivable eligible for our solution. This development could have a material adverse effect on our business, operating results and financial condition.

     Potential Inability to Compete in the Financial Services Market. The market for small business financial services is competitive, rapidly evolving, fragmented and highly sensitive to new product introductions and marketing efforts by industry participants. Fluctuations in interest rates and increased competition for services similar to Business Manager could lower our market share and negatively impact our business and stock price. The Company faces primary competition from a number of companies that offer to banks products similar to Business Manager. However, we believe that we are the largest of the companies offering these services in terms of revenues and number of client banks under contract.

     We also compete with banks that use their internal information technology departments to develop proprietary systems or purchase software from third parties to offer similar services to small businesses. In addition, we compete with traditional sources of financial services to small businesses such as lines of credit, amortizing loans and factoring. Many banks and other traditional providers of financing are much larger and more established than Private Business, have significantly greater resources, generate more revenues and have greater name recognition. We cannot be certain our competitors will not develop products and services comparable or superior to those that we have developed or adapt more quickly to new technologies, evolving industry trends or changing small business requirements. Most providers of traditional sources of financing have already established relationships with small businesses may be able to leverage these relationships to discourage these customers from purchasing the Business Manager solution or persuade them to replace our products with their products.

     We expect that competition will increase as other established and emerging companies enter the accounts receivable financing market, as new products and technologies are introduced and as new competitors enter the market. In addition, as we develop new services, we may begin competing with companies with whom we have not previously competed. Increased competition may result in price reductions, lower profit margins and loss of our market share, any of which could have a material adverse effect on our business, operating results and financial condition.

     Dependence on Key Employees. Our future performance will also largely depend on the efforts and abilities of our executive officers, as well as our key employees and our ability to retain them. The loss of any of our executive officers or key employees could have a material adverse effect on our business, operating results and financial condition.

     Our Charter, Bylaws and Tennessee Law Contain Provisions that Could Discourage a Takeover. Our charter, bylaws and Tennessee law contain provisions that could make it more difficult for a third party to obtain control of the Company. For example, our charter provides for a staggered board of directors, restricts the ability of stockholders to call a special meeting and prohibits stockholder action by written consent. Our bylaws allow the board to expand its size and fill any vacancies without stockholder approval. In addition, the Tennessee Business Corporation Act contains provisions such as the Tennessee Business Combination Act and the Tennessee Greenmail Act, which impose restrictions on stockholder actions.

     Potential Inability to Adequately Protect Our Proprietary Technology. Our success and ability to compete are dependent largely upon our proprietary technology. Third party claims against our proprietary technology could negatively affect our business. We cannot be certain that we have taken adequate steps to deter misappropriation or independent third-party development of our technology. In addition, we cannot be certain that third parties will not assert infringement claims in the future or, if infringement claims are asserted, that such claims will be resolved in our favor. Although we are not currently subject to any

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dispute either protecting our proprietary technology or asserting a third party claim against our proprietary technology, any infringement claims resolved against us could have a material adverse effect on the Company’s business, operating results and financial condition.

     Failure of Our Network Infrastructure and Equipment Would Have a Material Effect on Our Business. Failure of our network infrastructure and equipment, upon which our business is greatly dependent, as well as the occurrence of significant human error, a natural disaster or other unanticipated problems could halt our services, damage network equipment and result in substantial expense to repair or replace damaged equipment. In addition, the failure of our telecommunications providers to supply the necessary services could also interrupt our business, in particular, the application hosting and transaction processing services we offer to our client banks via secure Internet connections. The inability to supply these services to our customers could negatively affect our business, operating results and financial condition and may also harm our reputation.

     Private Business Relies on the Technological Infrastructure of its Client Banks and Their Individual Customers. The success of the products and services offered by Private Business depends, to a degree, on the technological infrastructure and equipment of its client banks and their small business customers. Private Business provides application hosting and transaction processing services to its client banks that require some level of integration with the client banks’ technological infrastructure. In addition, management services and access to information related to the Private Business products are offered to each client bank and their customers through the Private Business portal at BusinessManager.com. Proper technical integration between Private Business and its client banks, as well as continued accessibility of the BusinessManager.com portal is critical to the successful provision of services by Private Business. A failure of a client bank’s infrastructure or the inability to access BusinessManager.com for any reason could negatively affect the business, financial condition and results of Private Business’s operations.

     Private Business’s Revenues Declined in 2003 and May Continue to Decline. Private Business’s revenues declined in 2003 as compared to 2002. Although the Company has previously shown increased revenue growth, Private Business’s revenue may not grow in the future. This could cause the financial results of the company to suffer and have a negative effect on the price of Private Business common stock.

     Private Business May Not be Able to Use the Tax Benefit from Towne’s Operating Losses. At December 31, 2003, Private Business Inc. had available federal net operating losses, or NOLs, of approximately $40.5 million that will expire beginning in 2011 if not used. These NOL’s were acquired in connection with the Company’s merger with Towne Services, Inc. The amount of these NOLs available to Private Business in any given year will be limited by Section 382 of the Internal Revenue Code. This limitation could be material and only permit Private Business to realize a small portion of the potential tax benefit of Towne’s pre-merger NOLs. Private Business estimates it will be able to realize approximately $6.2 million of these NOLs, which has been recorded as a $2.4 million deferred tax asset at December 31, 2003. To the extent that Private Business is not permitted to use these NOLs in future years, some NOLs will not be realized before they expire.

     Increased Fraud Committed by Small Businesses and Increased Uncollectible Accounts of Small Businesses May Adversely Affect our Business. Small business customers from time to time fraudulently submit artificial receivables to our client banks using our products and services. In addition, customers from time to time keep cash payments that are mistakenly remitted to the small business when those payments should actually be remitted directly to the client bank. Our client banks are also susceptible to uncollectible accounts from small business customers. Many of the banks purchase insurance through us to insure against these risks. If the number and amount of fraudulent or bad debt claims increase, our client banks may decide to reduce or terminate their use of our products and services, reducing our ability to attract and retain revenue producing client banks. Further, our insurance carrier providing coverage for the insurance products may increase rates or cancel coverage, reducing our ability to produce that revenue and reducing our margins on that business.

     Errors and Omissions by our Employees at the Private Business Service Center and any Problems with Systems or Software may Expose Private Business to Claims and Loss of Business. Private Business currently conducts processing services for certain client banks and may do so for future client banks. Acting as processor for client banks may expose Private Business to claims about the quality of those services. Private Business employees may make errors, or technical or other events beyond our control may occur. These errors or events may cause banks to reduce their participation in the program or leave the program entirely, negatively affecting our revenue.

     Access to Capital for Growth and New Product Introduction or Acquisitions. A significant part of our growth plans rest on the development of new products or the formation of certain strategic alliances. The execution of these plans may require that we have access to additional capital. Market conditions at the time we need this capital may preclude access to new capital of any kind. Any of these developments could significantly hinder our ability to add new products or services.

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Item 2. Properties.

     In March 2000, the Company signed a ten-year lease for approximately 45,000 square feet of office space in a building in Brentwood, Tennessee. This leased space houses our headquarters, processing, insurance and other staff offices.

     The Company was a party to a non-cancelable operating lease for office space in Suwanee, Georgia. On October 1, 2003, the Company negotiated a release from this lease agreement in exchange for the issuance of an unsecured promissory note totaling approximately 75% of the remaining undiscounted future lease payments. The unsecured promissory note payable is being paid in monthly installments of approximately $32,000, which end in July 2004.

Item 3. 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.

In Re Towne Services, Inc./Securities Litigation

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 in the District Court of Georgia, Atlanta Division. The complaints alleged, among other things, that Towne should have disclosed in the prospectus used for its secondary public offering in June 1999 that it allegedly experienced serious problems with its network infrastructure and processing facilities during the move of its corporate headquarters in June 1999, and that these problems allegedly led to a higher than usual number of customers terminating their contracts during the second quarter. The Complaint seeks an unspecified amount of damages. Towne and its officers answered, denying liability. The parties reached a tentative settlement, which is subject to certain conditions including Court approval, and which is memorialized in a Memorandum of Understanding signed January 17, 2003. Counsel for plaintiffs agreed to dismiss all claims and release all defendants for a negotiated settlement amount, which will be funded by Towne’s directors and officers insurance carrier and Towne. The settlement funds were placed in escrow on February 21, 2003. On July 23, 2003, the United States District Court, Northern District of Georgia approved the settlement. On January 30, 2004, the Company entered into a settlement agreement requiring its insurance carrier to pay in the immediate future certain costs of defense incurred in connection with the Towne securities litigation.

     Edward H. Sullivan, Jr. and Lisa Sullivan v. Towne Services, Inc.

(Towne Services, Inc. as the successor to Banking Solutions, Inc., Bane Leasing.Com, Inc., the successor to BSI Capital Funding, Inc., Moseley & Standerfer, P.C., David R. Frank, Don G. Shafer, and Shannon W. Webb)

This lawsuit was the result of Towne’s acquisition of Banking Solutions, Inc. (“BSI”) through a stock purchase made by its subsidiary, BSI Acquisition Corp. This lawsuit was filed in December 1998 in the District Court of Collin County, Texas. 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 whom, 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 tortuously interfering with the agreement. Sullivan also contends Towne Services conspired with the other defendants to misrepresent the “gross purchase price.” The District Court of Collin County, Texas granted Towne Service’s Inc. Motion for Summary Judgment on all claims. The Order was entered on July 15, 2002. PBI has sought indemnification from the BSI shareholders for its expenses in defending this action based on the provisions of the BSI stock purchase agreement.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     The common stock of the Company is currently traded on The Nasdaq SmallCap Market under the designation “PBIZ”. As of February 29, 2004, there were approximately 3,690 shareholders of record. The closing price on February 29, 2004 was $1.19. The following table sets forth representative bid quotations of the common stock for each quarter of 2003 and 2002 as provided by NASDAQ. The following bid quotations reflect interdealer prices without retail mark-ups, markdowns, or commissions, and may not necessarily represent actual transactions.

     The Company did not declare or pay any cash dividends on its common stock in 2002 and 2003. The Company’s new credit facility prohibits the payment of cash dividends on the common stock during the term of the facility. As a result of the Lightyear Transaction, described in Item 1. Business – Recent Developments, the Company does expect to declare and pay dividends on both our Series A and Series B preferred shares on a quarterly basis for the foreseeable future, so long as the Company is in compliance with all covenants contained in the Company’s new credit facility.

     The Company’s equity compensation plan information is incorporated by reference to the Company’s definitive proxy statement (the “Proxy Statement”) for the annual meeting of the stockholders to be held on May 18, 2004.

Item 6. Selected Financial Data.

     The following selected financial data is derived from the audited consolidated financial statements of the Company and should be read in conjunction with those financial statements, including the related notes thereto. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All earning per share amounts have been adjusted for the 1-for-3 reverse stock split that occurred in August 2001 in conjunction with the Towne merger.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this 10-K.

Overview

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

     On January 20, 2004, we completed a capital restructuring event consisting of the sale of 20,000 shares of our Series A preferred stock and a warrant to purchase up to 16 million shares of our common stock at a price of $1.25 per share to Lightyear Fund, L.P. for a total purchase price of $20 million, as well as the execution of a new long-term credit facility with a bank that allows for total borrowings of up to $11 million. This process was initiated in April 2003 as a result of the ninth amendment to our credit facility, which required that a capital event, as defined in the amendment, be pursued and completed by December 31, 2003. As a result, this process consumed a great deal of executive management resources during 2003, which hindered some of the core business initiatives outlined early in 2003. The completion of this capital event is a significant milestone in our Company’s history as it improves our capitalization and financial position, which we believe will allow the Company to begin a new growth phase.

     In previous filings, we have commented that part of our growth strategy is to acquire or develop new products and services. While this will continue to be one aspect of our strategy, our primary focus in 2004 will be to return our core receivables financing business to a growth business. We strongly believe that the market for our core business is strong, particularly given the pervasive signs that an economic recovery is underway. The receivables financing market is strongly influenced by the United States economy, and as we have seen during the past two years of economic decline, it has impacted our core business revenues negatively. We believe that with an improving and growing economy and initiatives underway, that we can return our core receivables financing business to a growth mode.

     In order to achieve this goal, we have undertaken several key initiatives. First, we intend to invest in our sales force by expanding our bank sales personnel, as well as our business development managers. During the last three years, our average number of sales personnel has declined each year. Now that we have addressed the financial uncertainty related to our high debt service obligations, which constrained our ability to invest in the sales force in prior years, we believe that increasing the size of our sales force is a top priority. Second, we intend to train our entire sales force more effectively in order to achieve higher productivity levels from all of our sales personnel. We have redesigned our sales training agenda for new sales personnel so that they receive more comprehensive training on the products they are expected to sell. Further, we have begun a process of re-training all of our existing sales personnel during February and March of 2004. This training is a four-day session that covers all aspects of the Company’s products, operations, and technologies. Finally, the third key initiative is creating sales force accountability. Beginning in late 2003, all of sales management was given minimum acceptable quotas for new bank and merchant sales for the core business as well as for the various new products launched in 2003. These quotas have been disseminated and communicated to all sales personnel, and individual sales personnel performance will be measured against these quotas continually.

     We believe that successful execution of the sales force initiatives will result in growth of the core business, however we do not expect to see significant improvement in revenues or operating results in 2004. These initiatives will take a considerable amount of time and the fruits of these initiatives will not begin to be seen in our financial results until late 2004.

Critical Accounting Policies

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

     A “critical accounting policy” is one that is both important to the understanding of the financial condition and results of operations of the Company and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management believes the following accounting policies fit this definition:

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     Revenue Recognition. We generate revenue from four main sources:

•		participation fees earned on client bank purchases of small business accounts receivable.
•		software license fees from new client banks.
•		retail planning services.
•		maintenance fees and other revenues, comprised primarily of fees received for insurance brokerage services, paper-based form sales, software maintenance, medical, 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, which is based upon the transaction dates of bank purchases from its small business customers.

     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. Revenue recognition rules for up front fees are complex and do require some interpretation and judgment on the part of management. Management has consistently followed the same revenue recognition practices for this type of revenue during all years presented. We believe that this practice most accurately portrays the economic reality of the transactions.

     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 proprietary software to process sales and inventory transactions and provide the merchandising forecasting information. We recognize revenues as the transactions occur and merchandising and forecasting services are performed.

     Maintenance fees and other revenues include several ancillary products and services we provide to client banks. Annual software maintenance fees are generated from our client banks starting on the first anniversary date of the Business Manager license agreement and annually thereafter. These revenues are recognized ratably over a twelve-month period beginning on the first anniversary date of the agreement. Additionally, since 1995, we have brokered, through our Private Business Insurance subsidiary, credit and fraud insurance products from a national insurance company. We earn fees based on a percentage of the premium that is paid to the insurance company. These commission revenues are recognized at the time receivable fundings covered by credit and fraud insurance policies are purchased by our bank customers. 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 have some industry-focused applications for the medical and dental markets. Monthly transaction processing fees include charges for electronic processing, statement rendering and mailing, settling payments, recording account changes and new accounts, leasing and selling point of sale terminals, telephone and software support services, rental fees and collecting debts.

     Software Development Costs. Software development costs incurred in the research and development of new software products and enhancements to existing software products to be sold or marketed are expensed as incurred until technological feasibility has been established. After such time, any additional costs are capitalized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Also, the Company capitalizes the cost of internally used software when application development begins in accordance with AICPA SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This is generally defined as the point when research and development has been completed, the project feasibility established, and management has approved a development plan. Many of the costs capitalized for internally used software are related to upgrades or enhancements of existing systems. These costs are only capitalized if the development costs will result in specific additional functionality of the existing system, and are capitalized at the point that application development begins. Capitalized software development costs are amortized on a straight-line basis over their useful lives, generally three years. The key assumptions and estimates that must be made relative to this accounting policy center around determining when technological feasibility has been achieved and whether the project being undertaken is one that will be marketable or enhance the marketability of an existing product for externally marketed software and whether the project will result in additional functionality for internal use software projects. Management consults monthly with all

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project managers to ensure that the scope and expected results of each project are understood in order to make a judgment on whether it meets the requirements outlined in the authoritative accounting literature.

Results of Operations

     The following table sets forth, for the periods indicated, the percentage relationship of the identified consolidated statement of operations items to total revenues.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     Participation fees. Participation fees decreased $9.2 million, or 24.8%, to $27.9 million for the year ended December 31, 2003, compared to $37.1 million for the year ended December 31, 2002. The decrease was primarily due to two reasons: a decrease in the average participation rate and a decrease in the total funding through our Business Manager program. The average participation rate declined to .62% in 2003 as compared to .65% in 2002. The decreased average participation rate was due to two factors. First, our bank customers, in response to continued declines in interest rates, were forced to lower their service charge, which has a direct effect on our participation rates. Second, in reaction to competitive pressures and the general slow down in the economy, we were forced to make some rate concessions to avoid customer attrition. Total receivables funded through Business Manager declined to $4.44 billion in 2003 compared to $5.25 billion in 2002. This decreased funding was primarily the result of fewer merchants funding through our Business Manager program during 2003 as compared to 2002. As a percentage of total revenue, participation fees decreased to 64.7% for the year ended December 31, 2003, from 66.3% for the year earlier period.

     Software license. Software license fees decreased 46.0% to $269,000 for the year ended December 31, 2003, compared to $498,000 for the year ended December 31, 2002. The decrease was primarily due to a decrease in the number of new software license agreements funded during 2003 compared to 2002. Software license fees accounted for 0.6% of total revenues for the year ended December 31, 2003, compared to 1.0% for the year earlier period, primarily as a result of the decrease in fees discussed above. The decline is the result of fewer bank salesman on staff during 2003 as compared to 2002, as well as potential bank customers being unwilling to enter into a long-term contracts due to the Company’s financial uncertainty that existed throughout 2003.

     Retail planning services. Retail planning services revenue decreased to $9.1 million as compared to $10.4 million in 2002. The decline of $1.3 million, or 12.7%, from 2002 is a result of a 15.0% decline in forecast plans produced in 2003 as compared to 2002 (9,327 in 2003 compared to 10,970 in 2002). Also contributing to the decline was fewer point of sale system support customers, which is due to the point of sale system support services offered relate to a point of sales system that is no longer being marketed, upgraded and sold. As such existing point of sale support customers have purchased new point of sale systems and have moved their support services elsewhere. As a percentage of total revenues, retail planning services accounted for 21.1% during 2003 compared to 19.2% in 2002.

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     Maintenance and other. Maintenance and other revenues decreased approximately $640,000, or 9.9%, to $5.8 million for the year ended December 31, 2003, compared to $6.5 million for the year ended December 31, 2002. Other revenue in 2003 includes two unusual revenue items: a gain of $427,000 resulting from the sale of our bank insurance division in June 2003, and a $250,000 gain resulting from a favorable legal settlement. Excluding these two items, other revenue would have been approximately $5.1 million. Insurance commission revenues decreased approximately $600,000 to $2.8 million in 2003 from $3.4 million in 2002. In addition, medical processing revenues declined approximately $123,000 to $144,000 in 2003 from $267,000 in 2002. Towne other revenues, which consist of processing fees and machine rental fees, decreased by $473,000 to $1,000 in 2003 from $474,000 in 2002, which is a result of the Towne products being phased out during late 2002. These decreases were partially offset by an increase in factoring commission revenues of approximately $175,000 to $791,000 in 2003 from $616,000 in 2002. As a percentage of total revenues, maintenance and other revenue increased to 13.6% for the year ended December 31, 2003, from 11.8% for the year ended December 31, 2002.

     Total revenues. As a result of the foregoing revenue categories, total revenues decreased 20.9% to $43.2 million for the year ended December 31, 2003, compared to $54.5 million for the year ended December 31, 2002.

     General and administrative. General and administrative expenses decreased 18.8% to $18.6 million for the year ended December 31, 2003, compared to $23.0 million for the year ended December 31, 2002. General and administrative expenses include the cost of our executive, finance, human resources, information services, support services, administrative functions and general operations. The decrease was primarily due to a lower number of general and administrative personnel during 2003 as compared to 2002. As a percentage of total revenues, general and administrative expenses increased to 43.2% for the year ended December 31, 2003 compared to 42.1% for the year ended December 31, 2002.

     Selling and marketing. Selling and marketing expenses decreased 19.9% to $17.6 million for the year ended December 31, 2003, compared to $21.9 million for the year ended December 31, 2002. Selling and marketing expenses include cost of wages and commissions paid to our dedicated business development, bank and retail planning sales force, travel costs of the dedicated sales force, recruiting for new sales and marketing personnel and marketing fees associated with direct and telemarketing programs. The decrease was primarily due to decreases in sales staff. As a percentage of total revenues, selling and marketing expenses increased 0.5% to 40.7% for the year ended December 31, 2003, compared to 40.2% for the year ended December 31, 2002.

     Research and development. Research and development expenses decreased 52.9% to $401,000 for the year ended December 31, 2003, compared to $852,000 for the previous year ended December 31, 2002. These costs include the non-capitalizable direct costs associated with developing new versions of the Business Manager software, as well as, other software development projects that do not meet the capitalization rules. The decrease was primarily due to fewer personnel on staff devoted to research and development activities in 2003. As a percentage of total revenues, research and development expenses decreased to 0.9% for the year ended December 31, 2003 from 1.6% for the year ended December 31, 2002.

     Amortization. Amortization expenses increased 1.3% to approximately $1.8 million for the year ended December 31, 2003, compared to approximately $1.8 million for the previous year. These expenses include the cost of amortizing intangible assets including trademarks, software development costs, and debt issuance costs related to our recapitalization in 1998 as well as identified intangibles recorded from the Towne merger. Included in 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. Excluding the 2002 catch-up amount of $161,000, amortization expense increased approximately $185,000, or 11.3% in 2003. The increase is primarily the result of increased debt issuance cost amortization associated with additional debt amendment fees incurred during 2003.

     Other operating expenses. Other operating expenses increased approximately $149,000 for the year ended December 31, 2003, to approximately $280,000. Other operating expenses include property tax and other miscellaneous costs associated with providing support and services to our client banks. The increase was primarily the result of a legal dispute settlement that arose and was settled during 2003 for $125,000. Excluding the $125,000 legal dispute settlement, other operating expenses remained relatively constant at less than 1% of revenues for the two years ended December 31, 2003.

     Operating income. As a result of the above factors, our operating income decreased 35.3% to $4.4 million for the year ended December 31, 2003, compared to $6.9 million for the previous year.

     Interest expense, net. Interest expense, net decreased $306,000 to $1.5 million for the year ended December 31, 2003, compared to $1.8 million in 2002. The decrease was primarily due to the reduction of our outstanding debt, partially offset by higher average interest rates in 2003 as compared to 2002. In addition to our normal debt service, we reduced long-term debt by approximately $295,000 using cash from the divestiture of our commercial insurance division.

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     Income tax provision (benefit). The income tax provision for 2003 was approximately $1.2 million as compared to $2.0 million for the year ended December 31, 2002. As a percentage of income before taxes, the income tax rate was 39% for both 2003 and 2002.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     Participation fees. Participation fees decreased $6.9 million, or 15.6%, to $37.1 million for the year ended December 31, 2002, compared to $44.0 million for the year ended December 31, 2001. The participation fees for 2002 and 2001 include fees of approximately $2.2 million and $2.0 million from the Towne merger, which was effective August 9, 2001. The decrease was primarily due to two reasons: a decrease in the average participation rate and a decrease in the total funding through our Business Manager program. The average participation rate declined to .65% in 2002 as compared to .75% in 2001. The decreased average participation rate was due to two factors. First, our bank customers, in response to continued declines in interest rates, were forced to lower their service charge, which has a direct effect on our participation rates. Secondly, in reaction to competitive pressures and the general slow down in the economy, we were forced to make some rate concessions to avoid customer attrition. Total receivables funded through Business Manager declined to $5.25 billion in 2002 compared to $5.44 billion in 2001. The decreased funding was primarily the result of fewer banks funding through our Business Manager program during 2002 as compared to 2001. As a percentage of total revenue, participation fees decreased to 66.3% for the year ended December 31, 2002, from 78.9% for the year earlier period.

     Software license. Software license fees decreased 45.6% to $498,000 for the year ended December 31, 2002, compared to $915,000 for the year ended December 31, 2001. The decrease was primarily due to a decrease in the number of new software license agreements funded during 2002 compared to 2001. Although more new Business Manager licenses were sold in 2002, the average license fee paid declined significantly. This was primarily the result of the Company discounting our license fees during the months of March and September 2002 in order to stimulate our software license activity. Software license fees accounted for 1.0% of total revenues for the year ended December 31, 2002, compared to 1.6% for the year earlier period primarily as a result of the decrease in fees discussed above.

     Retail planning services. Retail planning services revenue increased to $10.4 million for the year ended December 31, 2002 as compared to $4.3 million in 2001. The $4.3 million of revenue in 2001 was for the period August 9, 2001 through December 31, 2001, as a result of our merger with Towne. As a percentage of total revenues, retail planning services accounted for 19.2% during 2002.

     Maintenance and other. Maintenance and other revenues decreased approximately $28,000, or 0.4%, to $6.5 million for the year ended December 31, 2002, compared to $6.5 million for the year ended December 31, 2001. Contributing to the decline, was a decrease in Towne processing and other fees of $270,000, a decrease in insurance commission revenues of approximately $168,000 to $3.4 million in 2002 from $3.6 million in 2001, and medical processing revenues declined by approximately $120,000 to $267,000 in 2002 from $387,000 in 2001. These decreases were partially offset by an increase in factoring commission revenues of approximately $335,000 to $616,000 in 2002 from $281,000 in 2001. As a percentage of total revenues, maintenance and other revenue increased to 11.8% for the year ended December 31, 2002, from 11.7% for the year ended December 31, 2001.

     Total revenues. As a result of the foregoing revenue categories, total revenues decreased 2.2% to $54.5 million for the year ended December 31, 2002, compared to $55.8 million for the year ended December 31, 2001.

     General and administrative. General and administrative expenses decreased 2.0% to $23.0 million for the year ended December 31, 2002, compared to $23.4 million for the year ended December 31, 2001. General and administrative expenses include the cost of our executive, finance, human resources, information services, support services, administrative functions and general operations. The decrease was primarily due to a lower number of general and administrative personnel during 2002 as compared to 2001. Also, 2001 included one-time severance costs paid to the former President and the former CEO. As a percentage of total revenues, general and administrative expenses remained relatively constant at approximately 42.0% for the two years ended December 31, 2002.

     Selling and marketing. Selling and marketing expenses decreased 2.6% to $21.9 million for the year ended December 31, 2002, compared to $22.5 million for the year ended December 31, 2001. Selling and marketing expenses include cost of wages and commissions paid to our dedicated business development, bank and retail planning sales force, travel costs of the dedicated sales force, recruiting for new sales and marketing personnel and marketing fees associated with direct and telemarketing programs. The decrease was primarily due to decreases in sales staff. We also decreased our marketing programs, particularly telemarketing, as a result of focusing more specifically on banks in targeted markets. The decrease was slightly offset by increased commission

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expense relating to the addition of the sales people with RMSA who were added as a result of the Towne merger. As a percentage of total revenues, selling and marketing expenses decreased 0.2% to 40.2% for the year ended December 31, 2002, compared to 40.4% for the year ended December 31, 2001.

     Research and development. Research and development expenses decreased 33.6% to $852,000 for the year ended December 31, 2002, compared to approximately $1.3 million for the previous year ended December 31, 2001. These costs include the non-capitalizable direct costs associated with developing new versions of the Business Manager software, as well as, other software development projects that do not meet the capitalization rules. The decrease was primarily due to more projects in 2002 as opposed to 2001 that met the software development cost capitalization rules. Particularly, the development of our LineManager product in 2002, which was released to beta testing in the fourth quarter of 2002, was a major project that utilized significant internal resources that were capitalizable, whereas in 2001 more of these resources were spent on non-capitalizable projects. As a percentage of total revenues, research and development expenses decreased to 1.6% for the year ended December 31, 2002 from 2.3% for the year ended December 31, 2001.

     Amortization. Amortization expenses increased 42.9% to approximately $1.8 million for the year ended December 31, 2002, compared to approximately $1.3 million for the previous year. These expenses include the cost of amortizing intangible assets including trademarks and the associated costs of goodwill (only for 2001), software development costs, and debt issuance costs related to our recapitalization in 1998 as well as identified intangibles recorded from the Towne merger. Included in 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 during 2002 in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The amount of goodwill amortized in 2001 was approximately $208,000.

     Other operating expenses. Other operating expenses decreased approximately $4.1 million for the year ended December 31, 2002, to approximately $131,000. Other operating expenses include property tax and other miscellaneous costs associated with providing support and services to our client banks. The decrease was primarily due to the write-down of land, building and furniture at the Company headquarters to its estimated fair market value in 2001, which totaled $4.2 million. Excluding the $4.2 million property write-down in 2001, other operating expenses remained relatively constant at less than 1% of revenues for the two years ended December 31, 2002.

     Operating income. As a result of the above factors, our operating income increased 128.5% to $6.9 million for the year ended December 31, 2002, compared to $3.0 million for the previous year.

     Interest expense, net. Interest expense, net decreased $1.5 million to $1.8 million for the year ended December 31, 2002, compared to $3.3 million in 2001. The decrease was primarily due to the reduction of our debt and more favorable interest rates. In addition to our normal debt service, we reduced long-term debt by approximately $3.1 million using cash from the divestiture of certain properties during 2002.

     Income tax provision (benefit). The income tax provision for 2002 was approximately $2.0 million as compared to an income tax benefit of $132,000 for the year ended December 31, 2001. As a percentage of income before taxes, the income tax rate was 39% for both 2002 and 2001.

Liquidity and Capital Resources

     Our primary sources of capital have historically been cash provided by operations and investment from stockholders. During 2003, our operating activities provided cash of $7.9 million. We used $500,000 in our investing activities as a result of fixed asset and software development additions totaling $878,000, which was partially offset by $325,000 of cash proceeds received from the sale of our bank insurance division in June 2003. Cash used in financing activities totaled $7.0 million for 2003, which consisted of repayments of long-term debt and capitalized lease obligations totaling $5.7 million, payments of debt amendment fees of $589,000, as well as payments against other short-term borrowings of $795,000, partially offset by proceeds from the employee stock purchase plan and the exercise of employee stock options. Approximately $295,000 of the repayments were payments over and above our normal debt service using cash from the sale of our bank insurance division discussed above.

     The Company was the borrower under a credit agreement dated August 7, 1998 between the Company as borrower, and Fleet National Bank as administrative agent for a syndicate of other lenders (the “Fleet Credit Facility”). The Fleet Credit Facility was secured by a pledge of all of our assets and contained financial and non-financial covenants and contained negative covenants, which, among other things, limited our ability to sell material assets, redeem capital stock and pay cash dividends. The Company was in violation of certain covenants as of December 31, 2003. The Fleet Credit Facility was paid in full on January 20, 2004 using the net proceeds received from the Lightyear transaction and the net proceeds from the Bank of America Credit Facility. As such,

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the Fleet covenants expired at the time of refinancing. The Company was and expects to be in compliance with the new Bank of America Credit Facility covenants throughout 2004.

     The Fleet Credit Facility included term loans with balances of $3.9 million (the “Term A Loan”) and $19.0 million (the “Term B Loan”), and our revolving line of credit availability in the amount of the lesser of $3 million or 60% of the Eligible Receivables (as defined in the Fleet Credit Facility). The revolving line of credit included swing line advances and a $2 million sub-limit for standby letters of credit. The interest rate in 2003 for the Term A Loan and any advances under the revolving loan was 4.0% over the Eurodollar rate or 2.75% over the prime rate. The interest rate in 2003 for the Term B Loan was 4.5% over the Eurodollar rate or 3.5% over the prime rate. The applicable margin on all outstanding loans increased by 1% on January 1, 2004.

     The amended credit facility provided for the payment to the lenders of a fee totaling 2% of the outstanding debt as of April 11, 2003, which was approximately $600,000. 25% of this fee was paid immediately upon entering into the amendment, 25% of this fee was payable on September 30, 2003, and 50% was payable on December 31, 2003. 50% of the September 30, 2003 fee was waived by the Lenders as a result of the Company achieving a required documentation benchmark. The December payment was paid on December 31, 2003.

     The Company has entered into the Bank of America Credit Facility on January 19, 2004. The credit facility is secured by a pledge of all of the Company’s assets and contains financial and non-financial covenants. The new credit agreement includes a term loan in the amount of $5.0 million and a revolving line of credit of up to $6.0 million for a total facility of up to $11.0 million. The revolving line of credit includes a $1.0 million letter of credit sub-limit. As of February 29, 2004, $7.5 million is currently outstanding under the Bank of America Credit Facility.

     The Bank of America Credit Facility expires on January 19, 2007. The revolving credit commitment reduces by $1.0 million on each of the first two anniversary dates.

     The term loan is repayable in twelve equal quarterly installments of $416,667, along with interest at the applicable margin. Interest is also due on the revolving loan quarterly at the applicable margin. The interest rates of the term loan and revolving loan are based on a pricing grid using the Company’s Funded Debt to Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) Ratio, as follows:

     As of February 29, 2004, the rate, calculated as Libor + 2.25%, was 3.36%.

     The credit agreement includes certain restrictive financial covenants, measured quarterly, relating to net worth, maximum annual capital expenditures, funded debt to EBITDA ratio and fixed charges coverage ratio, as defined in the credit agreement.

     The credit agreement contains customary negative covenants, including but not limited to a prohibition on declaring and paying any cash dividends on any class of stock, except for the Series A and Series B preferred shares outstanding, provided, that no default, as defined in the credit agreement, exists as of the date of payment and such payment will not cause a default.

     As of December 31, 2003, we had a working capital deficit of approximately $2.0 million compared to a working capital deficit of approximately $3.4 million as of December 31, 2002. The change in working capital resulted primarily from a decrease in the amount of the current portion of long-term debt by $1.6 million, as well as a decrease in accounts payable and accrued liabilities of $2.2 million and an increase in cash of $440,000 partially offset by a $2.0 million decrease in accounts receivable. The decrease in accounts receivable is primarily the result of improved collections and lower days sales outstanding, as well as, lower revenues in the fourth quarter of 2003 as compared to the fourth quarter of 2002. The decreases in accounts payable and accrued liabilities are primarily attributable to lower overall operating expenses and continued payments of assumed liabilities from the Towne merger.

     As mentioned above, subsequent to year-end, the Company completed a capital event consisting of the sale of preferred stock and a new credit facility. These events result in a significant improvement in the Company’s financial position. Immediately following these transactions, the Company’s working capital improved to an estimated $300,000 compared to the $2.0 million working capital deficit as of December 31, 2003. We believe that the existing cash available, future operating cash flows and our new revolving line of credit will be sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months. Furthermore, we expect to be in compliance with the financial covenants of our new credit facility

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throughout 2004. There can be no assurance the Company will have sufficient cash flows to meet its obligations or that the Company will remain in compliance with the new covenants and non-compliance with these covenants could have a material adverse impact to the Company’s operating and financial results.

     The following is a schedule of our obligations and commitments for future payments as of December 31, 2003:

     The following is a pro forma schedule of our obligations and commitments for future payments as if the Lightyear transaction and the debt refinancing discussed elsewhere in this document had occurred on December 31, 2003:

     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 on terms acceptable to us or at all, 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.

Recent Accounting Pronouncements

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

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

     In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that fall within the scope of SFAS No. 150 must be classified by the issuer as liabilities (or assets in some circumstances). Many of those instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has reclassified its Series B preferred stock to Stockholders’ equity that had been previously shown outside of Stockholders’ equity, based on its terms and characteristics.

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     In January 2003, the FASB issued FASB Interpretation No. (“FIN”) 46, Consolidation of Variable Interest Entities, to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that guidance by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

Seasonality

     We have generally realized lower revenues and income in the first quarter and, to a lesser extent, in the second quarter of the year. We believe that this is primarily due to a general slowdown in economic activity following the fourth quarter’s holiday season and, more specifically, a decrease in purchased receivables by our client banks. Therefore, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and that such comparison cannot be relied upon as indicators of our future performance. Due to the relatively fixed nature of costs such as personnel, facilities and equipment costs, a revenue decline in a quarter will typically result in lower profitability for that quarter.

Inflation

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

Note Regarding Forward Looking Information

     This 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,” “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. Factors that could cause actual results to differ materially are discussed in “Business — Risk Factors” and elsewhere in this Report on Form 10-K, and include, among other factors, liquidity and capital resources, the timely development and market acceptance of products and technologies, and competitive market conditions.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

     We are 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, which expire in 2007 pursuant to the Bank of America Credit Facility. Under the Fleet Credit Facility, our long-term debt obligations totaled $23.9 million as of December 31, 2003. An increase of 100 basis points under the Fleet Credit Facility would have resulted in an impact on future cash flows of approximately $240,000 annually. Under the Bank of America Credit Facility, our long-term debt obligations totaled $7.5 million as of February 29, 2004. An increase of 100 basis point under the Bank of America Credit Facility will impact future cash flows by approximately $75,000 annually.

Item 8. Financial Statements and Supplementary Data.

     Financial statements are contained on pages F-1 through F-24 of this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     None.

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Item 9A. Controls and Procedures.

     In an effort to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of December 31, 2003. Based on such evaluation, such officers have concluded that, as of December 31, 2003, the Company’s disclosure controls and procedures were effective in timely alerting them to information relating to the Company required to be disclosed in the Company’s periodic reports filed with the SEC. There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

29

PART III

Item 10. Directors and Executive Officers of the Registrant.

     Information concerning directors and executive officers of the Company is incorporated by reference to the Proxy Statement.

Item 11. Executive Compensation.

     Executive compensation information is incorporated by reference to the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     The equity compensation plan information and the security ownership of certain beneficial owners and management information are incorporated by reference to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

     Information concerning relationships and related transactions of the Company is incorporated by reference to the Proxy Statement.

Item 14. Principal Accountant Fees and Services.

     Information concerning the fees and services provided by the Company’s principal accountant is incorporated by reference to the Proxy Statement.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     Financial statements and schedules of the Company and its subsidiaries required to be included in Part II, Item 8 are listed below.

Financial Statements

Report of Independent Auditors

Copy of Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2003 and 2002

Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements

Financial Statement Schedules

     Schedule II — Valuation and Qualifying Accounts

     No other schedules are required or are applicable.

Exhibits

     The Exhibits filed as part of the Report on Form 10-K are listed in the Index to Exhibits immediately following the signature page.

Reports on Form 8-K

     During the fourth quarter of 2003, the Company did not file any reports on Form 8-K.

31

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Private Business, Inc.

     We have audited the accompanying balance sheets of Private Business, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. Our audits also included the financial statement schedule for the years ended December 31, 2003 and 2002 listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements and schedule of Private Business, Inc. for the year ended December 31, 2001, were audited by other auditors whose report dated February 15, 2002 (except with respect to certain matters, as to which the date was March 18, 2002), expressed an unqualified opinion on those statements and schedule.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Private Business, Inc. and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the years ended December 31, 2003 and 2002.

     As discussed in Note 1 to the consolidated financial statements, in 2002, the Company changed its method of accounting for goodwill and other intangible assets upon adoption of a new accounting standard.

     As discussed above, the consolidated financial statements of Private Business Inc., and subsidiaries for the year ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 1, these financial statements have been revised to include the transitional disclosures required by SFAS No. 142, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 1 with respect to 2001 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income. In our opinion, the disclosures for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee
March 4, 2004

F-2

The following report of Arthur Andersen LLP (“Andersen”) is a copy of the report previously issued by Andersen on February 15, 2002. (except with respect to the matter discussed in Note 7, as to which the date is March 18, 2002.) The report of Andersen is included in this annual report on Form 10-K pursuant to rule 2-02(e) of Regulation S-X. The Company has not been able to obtain a reissued report from Andersen. Andersen has not consented to the inclusion of its report in this annual report on Form 10-K. Because Andersen has not consented to the inclusion of its report in this annual report, it may be difficult to seek remedies against Andersen, and the ability to seek relief against Andersen may be impaired.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Private Business, Inc.:

     We have audited the accompanying consolidated balance sheets of PRIVATE BUSINESS, INC. (a Tennessee corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Private Business, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Nashville, Tennessee
February 15, 2002 (except with respect to the matter
discussed in Note 7, as to which the date is March 18, 2002.)

F-3

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002

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

F-4

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003, 2002 and 2001

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

F-5

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Years Ended December 31, 2003, 2002 and 2001

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

F-6

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002 and 2001

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

F-7

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

     Private Business, Inc. (the “Company”) was incorporated under the laws of the state of Tennessee on December 26, 1990 for the purpose of marketing a solution that helps banks market and manage accounts receivable financing. The Company operates primarily in the United States and its customers consist of banks of various sizes, primarily community banks. The Company consists of three wholly owned subsidiaries, Private Business Processing, Inc., Private Business Capital, Inc. and Towne Services, Inc. Private Business Processing, Inc. owns Private Business Insurance, Inc. (“Insurance”), while Towne Services, Inc. owns Forseon Corporation and Banking Solutions, Inc. Insurance brokers credit and fraud insurance, which is underwritten through a third party, to its customers. Capital is a dormant entity.

     On August 9, 2001, the Company completed a merger of Towne Services, Inc. (“Towne”) into the Company in exchange for approximately 4.6 million common shares and 40,031 preferred shares of the Company, as more fully described in Note 3 to the consolidated financial statements. As such, these consolidated financial statements include the operating results of Towne from August 10, 2001. Towne’s primary products were similar to the Company’s accounts receivable financing product and were therefore converted to the Company’s solution in 2002. Towne has a subsidiary, Forseon Corporation, which provides inventory management services to retail companies across the United States.

     The market for the Company’s services is concentrated in the banking industry. Further, the Company’s services are characterized by risk and uncertainty as a result of the Company’s reliance on one product to generate a substantial amount of the Company’s revenues. There are an increasing number of competitors and alternative products available and rapid consolidations in the banking industry. Consequently, the Company is exposed to a high degree of concentration risk relative to the banking industry environment and its limited product offerings.

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter company transactions and balances have been eliminated.

Cash and Cash Equivalents

     The Company considers all highly liquid investments that mature in three months or less to be cash equivalents.

Property and Equipment

     Property and equipment are recorded at cost. Depreciation is calculated using an accelerated method over 39 years for buildings, 5 to 10 years for furniture and equipment, 3 years for purchased software and the life of the lease for all leasehold improvements. Expenditures for maintenance and repairs are charged to expense as incurred, whereas expenditures for renewals and betterments are capitalized. The Company evaluates the carrying value of property and equipment whenever events or circumstances indicate that the carrying value may have been impaired in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Allowance for Doubtful Accounts

     The Company estimates its allowance for doubtful accounts on a case-by-case basis, based on the facts and circumstances surrounding each potentially uncollectible receivable. An allowance is also maintained for expected billing adjustments and for accounts that are not specifically reviewed that may become uncollectible in the future. Uncollectible receivables are written-off in the period management believes it has exhausted every opportunity to collect payment from the customer.

Software Development Costs

     Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After such time, any additional costs are

F-8

capitalized in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Capitalized software development costs are amortized on a straight-line basis over three years. Amortization expense associated with capitalized software development costs were approximately $954,000, $881,000, and $629,000 during the three years ended December 31, 2003.

     Also, the Company capitalizes costs of internally used software when application development begins in accordance with AICPA SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This is generally defined as the point when research and development have been completed, the project feasibility is established, and management has approved a development plan. Many of the costs capitalized for internally used software are related to upgrades or enhancements of existing systems. These costs are only capitalized if the development costs will result in specific additional functionality of the existing system, and are capitalized at the point that application development begins.

Intangible and Other Assets

     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 with a carrying value of $4.1 million, which was previously being amortized over a 20-year period. For 2002 and 2003, this resulted in a reduction of amortization expense of approximately $208,000.

     Intangible and other assets consist primarily of the excess of purchase price over the fair value of the identifiable assets acquired for the minority share of Insurance purchased during 1998, Towne acquired in 2001 and debt issuance costs associated with the bank debt acquired during 1998. Debt issuance costs are being amortized using the effective interest method over the respective terms of the bank loans.

     During 2002, the Company engaged an independent third party to perform a valuation of the identified intangible assets acquired in the Towne acquisition. As a result, intangible assets were recorded for customer list and acquired technology. See note 3 for a more detailed discussion of these activities.

     The following table shows the results for the three years ended December 31, 2003, as if the Company had followed SFAS No. 142 for all periods presented:

Revenue Recognition

Software Licenses

     The Company accounts for software revenues in accordance with the American Institute of Certified Public Accountants’ Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”). Further, the Company has adopted the provisions of SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions, which supercedes and clarifies certain provisions of SOP 97-2.

F-9

     The Company licenses its software under automatically renewing agreements, which allow the licensees use of the software for the term of the agreement and each renewal period. The fee charged for this license is typically stated in the contract and is not inclusive of any post contract customer support. The agreements typically do not allow for cancellation during the term of the agreement; therefore, the entire fee is non-refundable and is recognized at the time a contract is signed and executed and the software has been delivered. For agreements that do contain refund or cancellation provisions, the Company defers the entire fee until such refund or cancellation provisions lapse.

     The original license agreement also includes a fee for post contract customer support (“PCS”), which must be renewed annually. This fee covers all customer training costs, marketing assistance, phone support, and any and all software enhancements and upgrades. The Company defers the entire amount of this fee and recognizes it over the twelve-month period in which the PCS services are provided.

Participation Fees

     The Company’s license agreements are structured in a manner that provides for a continuing participation fee to be paid for all receivables purchased by customers using the Company’s software product. These fees are recognized as earned based on the volume of receivables purchased by customers.

Retail Planning Services

     Retail planning services revenue is recognized as earned as the inventory forecasting services are performed.

Maintenance and Other

     Maintenance revenue is deferred and recognized over the period in which PCS services are provided. Insurance and other revenues are recognized as the services are performed.

Income Taxes

     The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The Company evaluates its ability to realize the deferred tax assets based on an assessment of the likelihood that the Company will have sufficient taxable income in future years to realize the recorded deferred tax assets. As of December 31, 2003 the Company believes that it is more likely than not that the Company will be able to generate sufficient taxable income in future years in order to realize the deferred tax assets that are recorded. As such, no valuation allowance has been provided against the Company’s deferred tax assets as of December 31, 2003.

Self-Insurance Reserves

     The Company was primarily self-insured for employee medical and dental costs with certain limits of per claim and aggregate stop loss insurance coverage that management considers adequate during 2002 and 2001. The Company maintained an accrual for these costs based on claims filed and an estimate of claims incurred but not reported. The difference between actual settlements and recorded accruals were expensed in the period identified. Effective January 1, 2003, the Company ceased being self-insured for medical costs and now participates in a premium based health plan.

Concentration of Revenues

     Substantially all of the Company’s revenues are generated from financial institutions that in turn provide cash management services to small and medium size organizations.

Earnings Per Share

     The Company applies the provisions of SFAS No. 128, Earnings per Share, which establishes standards for both the computation and presentation of basic and diluted EPS on the face of the consolidated statement of operations. Basic earnings per share have been computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during each year presented. Diluted earnings per common share have been computed by dividing net

F-10

income (loss) available to common shareholders by the weighted average number of common shares outstanding plus the dilutive effect of options and other common stock equivalents outstanding during the applicable periods.

Stock Based Compensation

     The Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and does not utilize the fair value method. However, the Company has adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, and has adopted the additional disclosure requirements as specified in SFAS No. 148, Accounting For Stock-Based Compensation-Transition and Disclosure, for the three years ended December 31, 2003.

     The following table illustrates the effect on net income (loss) available to common shareholders and earnings (loss) per share if the fair value based method had been applied to all outstanding and unvested awards in each period.

Fair Value of Financial Instruments

     To meet the reporting requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments, the Company estimates the fair value of financial instruments. At December 31, 2003 and 2002, there were no material differences in the book values of the Company’s financial instruments and their related fair values.

Comprehensive Income (Loss)

     The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires that the changes in the amounts of certain items, including gains and losses on certain securities, be shown in the financial statements as a component of comprehensive income. The Company reports comprehensive income (loss) as a part of the consolidated statements of stockholders’ deficit.

Segment Disclosures

     The Company applies the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the method that business enterprises report information about operating segments in annual and interim financial statements. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic area and major customers. The Company operates in two industry segments, accounts receivables financing and retail inventory forecasting. Note 17 of these consolidated financial statements discloses the Company’s segment results.

Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

F-11

Reclassifications

     Certain prior year amounts have been reclassified to conform with current year classifications.

Recent Accounting Pronouncements

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

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

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that fall within the scope of SFAS No. 150 must be classified by the issuer as liabilities (or assets in some circumstances). Many of those instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has reclassified its Series B preferred stock to Stockholders’ equity that had been previously shown outside of Stockholders’ equity, based on its terms and characteristics.

     In January 2003, the FASB issued FASB Interpretation No. (“FIN”) 46, Consolidation of Variable Interest Entities, to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that guidance by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

2. SALE OF BANK INSURANCE DIVISION

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

F-12

3. ACQUISITIONS

     On May 28, 2002, the Company acquired certain operating assets of a division of CAM Commerce (“CAM”) for cash of $800,000. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, Business Combinations. The purchase price was allocated as follows:

     On August 9, 2001, the Company completed a merger of Towne Services, Inc. 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 Private Business common and preferred stock for one share of Towne common and preferred stock resulting in the issuance of 4,647,506 common and 40,031 preferred shares. 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 issuance of approximately 963,000 Private Business common stock options. The estimated fair 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.

     The allocation of the purchase price to the underlying net assets acquired is based on estimates of the fair value of the net assets as follows:

     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 financial statements have been restated for the effect of the reverse stock split.

     During 2003, it was determined that shares issued in conjunction with the Towne merger were overstated by 68,152 shares. As such, the Company has reduced the total purchase price by $194,000, resulting in a reduction of additional paid-in capital and a corresponding

F-13

reduction in goodwill. The Company has corrected the purchase price accounting in 2003 as management determined the impact of the change to be immaterial to the consolidated financial statements.

4. PROPERTY AND EQUIPMENT

     Property and equipment are classified as follows:

     Depreciation expense was approximately $2,698,000, $3,285,000 and $3,239,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

     In September 2001, the Company’s Board of Directors decided to sell the Company’s headquarters building and consolidate operations into the Technology and Business Service Center, which is in leased space adjacent to the headquarters building. As a result, the Company recorded an asset impairment charge of approximately $4.1 million in the third quarter 2001 to write-down the headquarters building, land and certain furniture to their estimated fair market value. During the first quarter of 2002, this property was sold for net proceeds of approximately $2.2 million, resulting in a net gain on the sale of approximately $200,000. This gain is included in other operating expense in the accompanying consolidated statement of operations.

     As a result of the merger with Towne, the Company owned a 12,852 square foot office building in Riverside, California, situated on 3.3 acres of land that housed the RMSA administrative offices. The Company sold this building and property in August of 2002 for approximately $645,000 and relocated the RMSA administrative offices to comparable leased space in the Riverside, California area. The net proceeds from this transaction were used to reduce our outstanding debt.

     During the fourth quarter of 2003, the Company completed an extensive review of its fixed assets and determined that certain fixed assets, primarily computer equipment, should be written off. As such, $160,000 of computer equipment was expensed in 2003, which is included in other operating expense in the accompanying 2003 consolidated statement of operations. Also, the Company retired fully depreciated fixed assets with a cost of approximately $4,706,000.

5. INTANGIBLE AND OTHER ASSETS

     Intangible and other assets consist of the following:

Amortization expense of identified intangible assets during the years ended December 31, 2003, 2002 and 2001 was approximately $342,000, $625,000, and $151,000, respectively

F-14

The changes in the carrying amount of goodwill for 2003 and 2002 are as follows:

The estimated amortization expense of intangible assets during the next five years is as follows:

     Accrued liabilities consist of the following:

     During 2003, the Company had a revolving loan outstanding in conjunction with the Fleet Credit Facility. The credit agreement (“Fleet Credit Agreement”) evidencing the Fleet Credit Facility allowed the Company to draw up to the lesser of $3.0 million or 60% of eligible receivables, with a sublimit of up to $2.0 million for standby letters of credit. The revolving loan, which was repaid on January 20, 2004, was to have matured on August 7, 2004. The interest rate paid on the revolving loan was 6.75% at December 31, 2003. As of December 31, 2003, there was $950,000 drawn against this facility. Weighted average borrowings drawn against the facility during the years ended December 31, 2003, 2002 and 2001 were $950,000, $929,000 and $417,000, respectively. As of December 31, 2003, there was also $920,981 of reduced availability under the revolving loan related to standby letters of credit outstanding. This revolving line of credit was refinanced subsequent to December 31, 2003 in conjunction with the capital event described in Note 18.

8. LONG-TERM DEBT

     Long-term debt consists of the following: