PRIVATE BUSINESS INC - 10-Q Quarterly Report

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

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

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

Page No.

Part I – Financial Information

Item 1 –

Financial Statements

Unaudited Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002

Unaudited Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002

Unaudited Consolidated Statements of Operations for the six months ended June 30, 2003 and 2002

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002

Notes to Unaudited Consolidated Financial Statements

7 –13

Item 2 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14 - 22

Item 3 –

Quantitative and Qualitative Disclosures About Market Risk

Item 4 –

Disclosure Controls and Procedures

Part II – Other Information

Item 1 –

Legal Proceedings

23 – 24

Item 4 –

Submission of Matters to a Vote of Security Holders

Item 6 –

Exhibits and Reports on Form 8-K

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


			June 30,			December 31,
(in thousands, except per share data)			2003			2002

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	1,630		$	1,146
	Accounts receivable — trade, net of allowance for doubtful accounts of $466 and $632, respectively			5,386			6,726
	Accounts receivable — other			103			420
	Current portion of note receivable			57			—
	Deferred tax assets			1,218			1,009
	Prepaid and other current assets			1,485			1,613

		Total current assets		9,879			10,914

PROPERTY AND EQUIPMENT, NET				5,080			6,468
OTHER ASSETS:
	Software development costs, net			1,386			1,456
	Deferred tax assets			1,835			2,252
	Intangible and other assets, net			12,000			12,211
	Note receivable, net of current portion			118			—

		Total other assets		15,339			15,919

		Total assets	$	30,298		$	33,301

LIABILITIES AND STOCKHOLDERS’ DEFICIT CURRENT LIABILITIES:
	Accounts payable		$	2,141		$	2,039
	Accrued liabilities			4,599			5,718
	Dividends payable			655			575
	Deferred revenue			526			470
	Current portion of long-term debt and capital lease obligations			5,667			5,463
	Other short term notes payable			538			—

		Total current liabilities		14,126			14,265

REVOLVING LINE OF CREDIT				950			950
OTHER NONCURRENT LIABILITIES				255			623
LONG-TERM DEBT, net of current portion				20,440			23,190
CAPITAL LEASE OBLIGATIONS, net of current portion				—			148

		Total liabilities		35,771			39,176

COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, series B convertible, no par value; 20,000,000 shares authorized, 40,031 shares issued and outstanding				114			114
STOCKHOLDERS’ DEFICIT:
	Common stock, no par value; 33,333,333 shares authorized; shares issued and outstanding, 14,087,397 and 14,047,253, respectively			0			0
	Additional paid-in capital			(7,159	)		(7,195	)
	Retained earnings			1,572			1,206

		Total stockholders’ deficit		(5,587	)		(5,989	)

		Total liabilities and stockholders’ deficit	$	30,298		$	33,301

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

CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
For the Three Months Ended June 30, 2003 and 2002


(in thousands, except per share data)			2003		2002

REVENUES:
	Participation fees		$	7,148	$	10,287
	Software license			75		177
	Retail planning services			2,286		2,559
	Maintenance and other			1,670		1,592

		Total revenues		11,179		14,615

OPERATING EXPENSES:
	General and administrative			4,255		5,631
	Selling and marketing			4,653		5,453
	Research and development			399		142
	Amortization			423		590
	Other operating expense, net			28		81

		Total operating expenses		9,758		11,897

OPERATING INCOME				1,421		2,718
INTEREST EXPENSE, NET				399		507

INCOME BEFORE INCOME TAXES				1,022		2,211
Income tax provision				399		862

NET INCOME				623		1,349
Preferred stock dividends				40		40

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS			$	583	$	1,309

EARNINGS PER SHARE:
	Basic		$	0.04	$	0.09

	Diluted		$	0.04	$	0.09

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	Basic			14,087		14,004

	Diluted			14,116		14,559

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

CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
For the Six Months Ended June 30, 2003 and 2002


(in thousands, except per share data)			2003		2002

REVENUES:
	Participation fees		$	14,209	$	20,215
	Software license			151		309
	Retail planning services			4,644		5,304
	Maintenance and other			3,241		3,407

		Total revenues		22,245		29,235

OPERATING EXPENSES:
	General and administrative			9,897		11,809
	Selling and marketing			9,097		11,236
	Research and development			848		393
	Amortization			849		942
	Other operating expense, net			72		37

		Total operating expenses		20,763		24,417

OPERATING INCOME				1,482		4,818
INTEREST EXPENSE, NET				751		1,003

INCOME BEFORE INCOME TAXES				731		3,815
Income tax provision				285		1,488

NET INCOME				446		2,327
Preferred stock dividends				80		80

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS			$	366	$	2,247

EARNINGS PER SHARE:
	Basic		$	0.03	$	0.16

	Diluted		$	0.03	$	0.16

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	Basic			14,076		13,979

	Diluted			14,090		14,413

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

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Six Months Ended June 30, 2003 and 2002


(in thousands)					2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income					$	446		$	2,327
Adjustments to reconcile net income to net cash provided by operating activities:
			Write-off of debt issuance costs			—			34
			Depreciation and amortization			2,288			2,542
			Deferred taxes			208			2,162
			Non-cash stock based compensation			—			46
			Gain on sale of certain property and equipment, net			—			(168	)
			Gain on sale of Bank Insurance division			(427	)		—
			Changes in assets and liabilities:
				Accounts receivable, net		1,657			(186	)
				Prepaid and other current assets		627			(1,357	)
				Other assets		(148	)		82
				Accounts payable		102			(1,523	)
				Accrued liabilities		(1,119	)		(1,899	)
				Deferred revenue		56			(600	)
				Other noncurrent liabilities		(368	)		(356	)

				Net cash provided by operating activities		3,322			1,104

CASH FLOWS FROM INVESTING ACTIVITIES:
			Additions to property and equipment			(79	)		(1,902	)
			Software development costs			(412	)		(420	)
			Proceeds from sale of property and equipment			—			2,218
			Acquisition of businesses			—			(845	)
			Proceeds from sale of Bank Insurance division			325			—

				Net cash used in investing activities		(166	)		(949	)

CASH FLOWS FROM FINANCING ACTIVITIES:
			Repayments on long-term debt			(2,488	)		(2,370	)
			Repayments on capitalized lease obligations			(205	)		(217	)
			Early extinguishment of long-term debt			—			(2,188	)
			Proceeds from revolving line of credit, net			—			2,650
			Proceeds from exercise of employee stock options			—			136
			Stock issued through employee stock purchase plan			21			38

				Net cash used in financing activities		(2,672	)		(1,951	)

NET CHANGE IN CASH AND CASH EQUIVALENTS						484			(1,796	)
CASH AND CASH EQUIVALENTS at beginning of year						1,146			2,648

CASH AND CASH EQUIVALENTS at end of period					$	1,630		$	1,852

SUPPLEMENTAL CASH FLOW INFORMATION:
		Cash payments for income taxes during period			$	197		$	72

		Cash payments of interest during period			$	751		$	1,006

NON-CASH INVESTING ACTIVITIES:
	Note receivable for sale of Bank Insurance division				$	175		$	—

NON-CASH FINANCING ACTIVITIES:
	Notes payable for certain insurance and software support contracts				$	538		$	—


Tennessee		62-1453841

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

9020 Overlook Blvd., Brentwood, Tennessee		37027
(Address of principal executive offices)		(Zip Code)


Class		Outstanding as of July 31, 2003

Common Stock, no par value		14,105,844 shares


Part 1 Financial Information
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS — UNAUDITED
		CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
		CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
		CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
		Notes to Consolidated Financial Statements — Unaudited
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Three and Six Months Ended June 30, 2003 and 2002
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Disclosure Controls and Procedures
PART II – Other Information
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
	Signatures
EX-10.1 ADDENDUM TO EMPLOYMENT AGREEMENT
EX-10.1 ASSET PURCHASE AGREEMENT
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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