-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MLHfMxdXVwczh2L+ao7SO5+9N3Eb6qAjAL6vR+ponBHEPW6RdLCp2X9AojwAwQ7i 6I1DJrGOvGgNN+eWDNj2ow== 0001206774-07-000810.txt : 20070329 0001206774-07-000810.hdr.sgml : 20070329 20070329071710 ACCESSION NUMBER: 0001206774-07-000810 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070329 DATE AS OF CHANGE: 20070329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDLEAF FINANCIAL SOLUTIONS INC. CENTRAL INDEX KEY: 0001069469 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 621453841 STATE OF INCORPORATION: TN FISCAL YEAR END: 1205 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25959 FILM NUMBER: 07725677 BUSINESS ADDRESS: STREET 1: 9020 OVERLOOK BLVD STREET 2: SUITE 300 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 615-221-8400 MAIL ADDRESS: STREET 1: 9020 OVERLOOK BLVD STREET 2: SUITE 300 CITY: BRENTWOOD STATE: TN ZIP: 37027 FORMER COMPANY: FORMER CONFORMED NAME: PRIVATE BUSINESS INC DATE OF NAME CHANGE: 19990322 10-K 1 gf124368.htm FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

CHECK ONE:

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006,

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-25959

GOLDLEAF FINANCIAL SOLUTIONS, INC.

(Formerly named Private Business, Inc.)

(Exact name of Registrant as specified in its charter)

TENNESSEE		62-1453841
(State or other jurisdiction of Incorporation or organization)		(I. R. S. Employer Identification No.)

9020 OVERLOOK BOULEVARD, THIRD FLOOR
BRENTWOOD, TENNESSEE		37027
(Address of principal executive offices)		(Zip Code)

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

Securities 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 if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o

No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o

No x

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 o

No x

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

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, 2006 was approximately $27,064,709.

On March 9, 2007, 17,030,628 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 2007 annual meeting of stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1	Business	3
Item 1A	Risk Factors	17
Item 1B	Unresolved Staff Comments	27
Item 2	Properties	27
Item 3	Legal Proceedings	27
Item 4	Submission of Matters to a Vote of Security Holders	27

PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6	Selected Financial Data	29
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	45
Item 8	Financial Statements and Supplementary Data	45
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A	Controls and Procedures	45
Item 9B	Other Information	45
PART III

Item 10	Directors, Executive Officers, and Corporate Governance	46
Item 11	Executive Compensation	46
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13	Certain Relationships and Related Transactions, and Director Independence	46
Item 14	Principal Accountant Fees and Services	46

PART IV

Item 15	Exhibits and Financial Statement Schedules	47
Index to Financial Statements		F-1
Reports of Independent Registered Public Accounting Firms		F-2
Consolidated Balance Sheets		F-5
Consolidated Statements of Operations		F-6
Consolidated Statements of Stockholders’ Equity (Deficit)		F-7
Consolidated Statements of Cash Flows		F-8
Notes to Consolidated Financial Statements		F-10

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future economic performance, plans and objectives of management for future operations and projections of revenues and other financial items that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The words “expect,” “estimate,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. We make forward-looking statements in Items 1, 1A, 2, 5, 7 and 7A of this report. Some of the forward-looking statements relate to our intent, belief or expectations regarding our strategies and plans for operations and growth. Other forward-looking statements relate to trends affecting our financial condition and results of operations and our anticipated capital needs and expenditures. These statements involve risks, uncertainties and assumptions, including industry and economic conditions, competition and other factors discussed in this and our other filings with the SEC. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those that are anticipated in the forward-looking statements. Other forward-looking statements relate to trends affecting our financial condition and results of operations and our anticipated capital needs and expenditures. See Item 1A, Risk Factors, for a description of some of the important factors that may affect actual outcomes.

For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business.

General

We provide a suite of technology-based products and services that help community financial institutions serve their customers better, improve their operational efficiency, enhance their competitive position, increase their profitability and help them satisfy regulatory requirements. We focus on the needs and interests of community financial institutions and strive to provide our clients with proven, user-friendly technologies, coupled with superior customer service. We provide our solutions primarily on an outsourced basis, enabling our clients to obtain our advanced products and services without having to incur the substantial capital expense and hire the skilled personnel required to develop, implement and update their internal systems. In addition to the suite of solutions we offer to community financial institutions, we also offer products and services to small businesses. As of December 31, 2006, we had over 2,500 community financial institution clients.

We believe that our suite of solutions allows us to market ourselves as a single-source provider for the technology and operating needs of community financial institutions. Our products and services include:

	•	core data processing;

	•	item processing and check imaging;

	•	ACH origination and processing;

	•	remote check capture and deposit processing;

	•	accounts receivable financing solutions;

	•	teller automation systems;

	•	turn-key leasing solutions;

	•	financial institution website design and hosting; and

	•	retail inventory management services.

Recent Expansion of Business Focus

Historically, our business has primarily consisted of providing accounts receivable financing solutions and retail inventory management services. Recently, we have made a number of strategic acquisitions designed to enable us to offer a broader range of products and services to meet the technology needs of community financial institutions. On December 9, 2005, we merged with Captiva Solutions, LLC (“Captiva”), adding core, item and image processing services to our product suite. In connection with the Captiva merger, Captiva’s chief executive officer, Lynn Boggs, became our chief executive officer. On January 18, 2006, we acquired the assets of P.T.C. Banking Systems, Inc. (“P.T.C.”), adding full-featured teller automation systems to our product suite. On January 31, 2006, we acquired Goldleaf Technologies, adding ACH origination and processing, remote check capture and deposit processing and financial institution website design and hosting. To grow our revenues, we intend to focus on offering our newly expanded suite of technology-based products and services to community financial institutions, including our existing clients. We expect, however, that in 2007 and for a period thereafter, we will continue to generate a substantial portion of our revenues from our accounts receivable financing solutions and our retail inventory management services. Our revenues from those sources have declined from year-to-year in recent years.

Our Industry

We believe that community financial institutions, which have traditionally competed on personalized service, are facing increasing challenges to improve their operating efficiencies. These challenges include competition with larger financial institutions such as national and regional banks, the entrance of non-traditional competitors, the compression of margins on traditional products and the convergence of financial products into a single institution. Recent legislation has allowed non-traditional competitors, such as insurance companies and brokerage houses, to enter the market for traditional banking products. In addition, community financial institutions are under increasing pressure to reduce costs while continuing to offer a broader array of products and services. At the same time, the cost and complexity of delivering these products and services has increased as the widespread introduction of new technology has forced community financial institutions to deliver their products and services through ATMs, telephone, wireless devices and the Internet. Legislative changes have also accelerated the ability of financial institutions to offer wider ranges of products and services to their customers. In addition, financial institutions are required by law to evaluate the effectiveness of their information technology systems periodically. This obligation, together with ongoing technology upgrades and phase-outs, creates a frequent need for institutions to evaluate the replacement of their information technology systems. We believe that these competitive pressures are particularly acute for community financial institutions, which lack the substantial capital and specialized personnel to address their technology needs internally.

According to research by technology research firm IDC in June 2006, banks, thrifts, and credit unions in the United States spent approximately $31 billion on information technology during 2005 and are expected to spend approximately $35.5 billion in 2007. Our target market of community financial institutions ranges in size from start-up de novo financial institutions to those with $1 billion in assets. According to the FDIC, the number of these financial institutions totals approximately 8,032 as of December 31, 2006.

During the past several years, there has been significant consolidation in the financial technology industry. We believe that this consolidation creates the potential for client disruption. For example, a large company that acquires an industry competitor may decide to discontinue a particular product or service formerly provided by that competitor, or the acquiring company may move, promote or terminate sales or operational personnel who have the primary relationships with a community financial institution. We believe that ongoing consolidation in our industry has adversely affected customer service and has created a demand for a technology solutions provider that focuses on customer service and the needs of community financial institutions.

Small businesses are important customers for community financial institutions. According to industry sources, there are approximately 11.7 million small businesses in the United States, each with less than $25 million of annual sales. We believe that many of these businesses are locally owned and operated and that they bank with community financial institutions that often lack the products and services necessary to support the full range of a small business’ financial needs.

Our Solution

We offer a suite of technology-based products and services specifically targeted to community financial institutions. Using these services on an outsourced basis allows community financial institutions to provide a broad range of products and services to their small business customers. In addition, our management, sales, operational and customer service personnel have deep industry experience, which enables them to better understand and meet the needs of community financial institutions. Our products and services help community financial institutions:

Focus on Customer Relationships and Compete More Effectively. We believe that customers of community financial institutions are seeking personalized, relationship-based service focused on the local community and its business needs. We provide our community financial institution clients with a broad array of proven products and services that appeal to small businesses. As a result, we believe we enable our clients to attract small business customers, to maintain and expand their relationships with those customers and to compete more effectively with larger financial institutions. Additionally, we employ approximately 35 business development managers who are dedicated to marketing some of the products and services we provide to community financial institutions directly to their small business customers.

Rapidly Implement Advanced Technologies. Community financial institutions generally lack sufficient capital and human resources to develop and implement advanced technologies internally. We offer a suite of proven, advanced technology products and services that a community financial institution needs to effectively compete in today’s marketplace. By using our products and services, community financial institutions can quickly gain access to sophisticated, user-friendly technologies and services that they might not be able to acquire, implement or develop in a timely, cost-effective manner.

Improve Operating Efficiencies. By taking advantage of our outsourced solutions, our clients can improve their operating efficiencies without having to make large up-front capital expenditures or recruit and retain the specialized personnel required to develop, update and run these systems. We also offer our clients the flexibility to use our technology solutions on an in-house basis.

Our Strategy

Our business strategy is to grow our revenue and earnings organically as well as through acquisitions. The key components of our business strategy are to:

Focus on Client Relationships. We intend to continue to provide community financial institutions with a high degree of customer service, flexible customization of products and services and a dedicated focus on their local community and business needs. We have hired and will continue to hire employees with strong relationships in the community financial institutions industry who can help us strengthen our client relationships and provide better customer care. In addition to our dedicated sales representatives and local sales consultants, our senior executives develop ongoing relationships with existing and prospective clients, and our dedicated customer service and technical support personnel work closely with our existing clients. To reinforce our focus on serving the needs of our community financial institution clients, we promote and reward a corporate culture that is focused on exceptional customer service.

Cross-Sell to Our Customer Base. We seek to increase the products and services we provide to our clients. As a result of recent acquisitions, we now provide products and services to over 2,500 financial institutions, which we believe gives us an attractive market for cross-selling opportunities. We intend to grow our revenues by cross-selling additional products and services to our clients that do not currently use our full range of products and services.

Expand Our Client Base through Various Channels. To build and expand distribution channels for our suite of products and services, we intend to leverage our relationships with banking organizations, such as state and national banking associations and bankers’ banks. Bankers’ banks are local or regional business organizations that provide banking products and services for financial institutions that cannot efficiently offer them due to cost, location, lack of resources or other circumstances. We now have relationships with three bankers’ banks, and we intend to continue to develop and expand mutually beneficial relationships with other bankers’ banks that will enhance our growth. We also intend to add sales and product specialists throughout our targeted markets and build name recognition through advertising and trade shows.

Grow Recurring Revenue and Improve Operating Margins. We seek to establish and maintain long-term relationships with our clients and enter into contracts that typically extend for multiple years. Most of our products and services require the payment of monthly fees, which allows us to generate recurring revenues. We expect that as our revenue grows, our cost structure will allow us to maintain and expand our operating margins.

Pursue Strategic Acquisitions and Alliances. We intend to continue to expand our suite of products and services through strategic acquisitions and alliances to accelerate our internal growth. We will continue to explore acquisitions of businesses and products that will complement our existing client offerings, to better penetrate our target markets and to expand our client base.

Our Products and Services

We are committed to the needs and interests of community financial institutions and strive to upgrade, enhance or acquire complementary products and services to ensure that our clients receive proven, user-friendly technologies. By taking advantage of our technology and operating solutions on an outsourced basis, our clients can improve their operating efficiencies without allocating the expenses and resources necessary to develop or maintain similar systems themselves. Our products and services include:

Core Data Processing

We provide software and systems that meet our clients’ core data processing requirements. Most of our clients implement our Retriever core data processing solutions on an outsourced basis. In that event, we house and maintain the software at one of our data centers and update our clients’ files each business day. This arrangement allows our clients to focus on their core competencies by outsourcing their data processing needs. We also offer our clients the flexibility to install and operate our systems in-house using their own personnel. Retriever is an open architecture system capable of managing all of a financial institution’s core processing requirements. Our core software permits the financial institution and its customers to view their transactions over the telephone, on the Internet, at the ATM, inside the financial institution or at an external debit location.

We believe that our core data processing software is less expensive to install and maintain than most legacy systems. We offer our solution using an outsourced delivery model that significantly reduces the cost of installation, because no hardware is required at the customer location. Our solution can be easily integrated with third party applications or our own complementary products to provide a broad platform. Our system architecture allows for extensive data mining capabilities, providing our clients the flexibility to easily retrieve and format valuable customer information for specifically targeting cross-selling or up-selling opportunities.

Some of the key features of our core data processing software include:

	•	customer-centric, user-friendly system;

	•	integrated real-time and/or batch processing;

	•	comprehensive lending and deposit processing;

	•	customizable web-based reporting;

	•	comprehensive teller/customer service applications;

	•	commercial lending and deposit functionality;

	•	holding company, main office and branch functionality;

	•	comprehensive general ledger reporting; and

	•	extensive customer profitability analysis and reporting.

Item Processing and Check Imaging

The passage of the Check Clearing for the 21st Century Act, or Check 21, along with increased technological development, has created a demand for faster, more efficient electronic handling of bank documents. The need to reduce labor, research time and costs has increased the demand for check imaging solutions. Check 21 has removed legal obstacles to electronic check clearing and has facilitated the use of check truncation and check imaging. Financial institutions employ check imaging as part of their efforts to reduce operating costs and provide enhanced banking services to their customers.

We provide a turn-key solution for check imaging activities that gives our clients the ability to offer check imaging either on an in-house basis through the purchase of our proprietary software solution or on an outsourced basis through our data center without a large capital expenditure. Our systems deliver a suite of check imaging products, including:

	•	front and back imaging for customer statements;

	•	clearing and settlement;

	•	reconciliation; and

	•	automated exception processing.

To establish a presence on the east coast and enhance the redundancy of our operations, we have opened an item processing and imaging center in Atlanta, Georgia.

ACH Origination and Processing

An ACH transaction is a type of electronic funds transfer in which the holder of a deposit account authorizes a direct credit or debit to the account, such as a direct deposit from an employer or a direct payment to a mortgage lender. Once the deposit holder provides the necessary initial authorization, no check or other paper documentation is required. Our Goldleaf suite of hosted ACH origination and processing solutions helps our community financial institution clients increase their operating efficiency. In addition, our Goldleaf suite of ACH solutions helps our clients strengthen their existing relationships with small business customers and build new ones by enabling their small business customers to lower their processing costs, improve their cash flow and benefit their employees.

Goldleaf Manager and Goldleaf Client give financial institutions and their customers a private label, Internet-based ACH origination solution with online file delivery. Many community financial institutions do not have the technical expertise or resources to offer ACH origination. Goldleaf Manager provides banks with the ability to manage and maintain ACH transactions for their customers. Goldleaf Client, the origination solution used by the small business customers of community financial institutions, uses a broadband connection to the Internet, thereby enabling the real-time transmission of files as opposed to the traditional method of transmitting files by batch processing. We believe Goldleaf Manager and Goldleaf Client deliver greater control for financial institutions by permitting online administration and a user-friendly solution for an unlimited number of small business originators.

Remote Check Capture and Deposit Processing

With the passage of Check 21, financial institutions can present, and are legally required to accept, image replacement documents that meet the necessary legal requirements of Check 21. Our Remote Deposit Express product enables community financial institutions to offer this solution to their small business customers. Small business customers benefit by no longer having to physically travel to a financial institution branch to deposit their checks because they can scan and transmit their deposits electronically. Our remote check capture and deposit processing product saves time for the small business and potentially extends the cut-off for receiving credit for deposited funds on the same day. In addition, it allows the community financial institution to increase core customer deposits more easily by removing the geographic barrier. With remote deposit, a community financial institution can have a small business customer outside of its branch footprint, because proximity to a branch is no longer necessary.

Accounts Receivable Financing Solutions

Our BusinessManager product enables community financial institutions to manage accounts receivable financing, from the purchase of receivables from small businesses to the ongoing processing, billing and tracking of these receivables. Many of our clients outsource this activity to us. To automate the process further, we offer electronic links for the financial institutions and their small business customers through secure connections to our Internet portal, BusinessManager.com. During 2006, our network of client financial institutions purchased approximately $3.58 billion of accounts receivable from approximately 2,200 small businesses. We do not act as a lender for any of our accounts receivable financing solutions and do not have any credit risk for the accounts receivable. BusinessManager, including insurance brokerage fees related to BusinessManager, generated $26.1 million, or 46.9%, of our total revenues in 2006, $26.3 million, or 68.9%, of our total revenues in 2005 and $28.6 million, or 72.1%, of our revenues in 2004.

Our network of local sales consultants, or business development managers, helps our client financial institutions develop new marketing strategies and facilitates the market penetration of BusinessManager. Once a client financial institution contracts to use BusinessManager, our business development managers help the client design, implement and manage the sale of the BusinessManager accounts receivable financing program to the client’s small business customers and prospects.

In addition to BusinessManager, we offer the following complementary products and services:

	•	MedCashManager— an accounts receivable financing product using a third party solution specifically tailored for medical facilities and practices;

	•	LendingNetwork— a referral network that offers small business financing from a group of alternative commercial lenders, allowing our community financial institutions to provide their small business customers with another financing option when a traditional line of credit or accounts receivable financing through BusinessManager is not available; and

	•	Insurance— our insurance brokerage subsidiary offers credit and fraud insurance to our accounts receivable financing clients.

Teller Automation Systems

Our teller automation systems, including WinTELLER, WinGUARD and CaptureFIRST, are installed in approximately 60 financial institutions in the United States and are designed to help financial institution branches better manage customer account transactions, improve teller efficiency and enhance customer experiences. WinGUARD is a transactional fraud detection solution and CaptureFIRST is a branch image capture and signature verification tool.

Turn-key Leasing Solutions

Financial Institution Website Design and Hosting

Our website design and hosting services for community financial institutions provide solutions that give a community financial institution a variety of options for its website. We have designed and currently host over 625 financial institution websites across the United States, but we do not host any confidential bank data on our servers.

Related Products and Services

To complement our product and service offerings described above, we provide a variety of related services, software products and equipment. Our current ancillary products and services include:

	•	loan and deposit platform automation;

	•	Free Checking— our direct mail campaign to assist community financial institutions with new account initiation;

	•	Internet banking;

	•	electronic bill presentment and payment; and

	•	IdentificationManager— a United States Patriot Act verification tool.

In addition to the products and services we offer to community financial institutions and their small business customers, we also provide small business retailers with retail inventory management services through our RMSA division. We believe that between 30,000 and 90,000 retail businesses fit the profile of a RMSA client. We believe that RMSA’s inventory management software, called Freedom, 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. RMSA generated $8.2 million, or 14.7%, of our total revenues in 2006, $8.7 million, or 22.6%, of our total revenues in 2005 and $9.0 million, or 22.6%, of our revenues in 2004.

We operate in two industry segments, financial institution services and retail inventory management services. Note 23 to our audited consolidated financial statements included in this Form 10-K discloses our segment results.

Sales and Marketing

We seek to retain and expand our community financial institution client base and to help our clients drive end user adoption rates for their small business customers. As of December 31, 2006, we had approximately 125 employees involved in direct sales, marketing and business development activities. As of that date, our financial institutions sales team was composed of approximately 35 sales representatives and product specialists who sell our suite of products and services. Because they have the ability to sell our full range of products and services, our sales representatives can capitalize on their relationships with community financial institutions by cross-selling additional products and services to existing clients.

In addition, we have approximately 35 business development managers who work closely with our community financial institution clients to sell some of our products to small businesses. These sales professionals use our database marketing tools to provide a detailed analysis of small businesses that are likely candidates for our products in the community financial institution’s prospective market area. We also sell and market our retail inventory management services through analysts located throughout the United States and Canada. As of December 31, 2006, we employed 37 such analysts. The average RMSA analyst has been with RMSA for more than 14 years and has more than 20 years’ experience in the retail sector.

Our marketing efforts consist of sponsorship and attendance at trade shows, email newsletters, print media advertisement placements, direct mail, telemarketing and national and regional marketing campaigns. We also conduct a user group meeting, which enables us to keep in close contact with our clients and demonstrate new products and services to them. Our marketing efforts also include obtaining referrals and endorsements from our clients and various banking-related organizations including bankers’ banks, the Independent Community Bankers Association and the American Bankers Association.

Customer Service

We believe exceptional customer service is a strong competitive differentiator in the community financial institution marketplace, and we are creating a corporate culture that promotes and rewards exceptional customer service from all of our employees. For example, most of our senior executives interact regularly with our existing and potential clients and are readily accessible by them. In addition, our dedicated customer service and technical support departments enhance our ability to offer reliable, secure and automated solutions.

Our customer service department is responsible for educating and assisting our clients in the use of our services. Our technical support department is generally responsible for consulting with clients regarding technical issues and for solving any technical problems our customer service department brings to their attention. Our technical support department is also responsible for maintaining our backup systems and for coordinating the disaster recovery services maintained by some of our information processing clients.

Competition

The market for companies that provide technology solutions to financial institutions is intensely competitive and highly fragmented, and we expect increased competition from both existing competitors and companies that enter our existing or future markets. Numerous companies supply competing products and services, and many of these companies specialize in one or more of the services that we offer or intend to offer to our clients.

In our financial institution services business, we compete with several national companies, including FiServ, Inc., Jack Henry & Associates, Inc., Open Solutions, Inc., John H. Harland Company, and Fidelity National Information Services, Inc. In addition, we compete with multiple smaller and regional providers. The principal competitive factors affecting the market for our products and services include quality and reliability of customer care and service, price, degree of product and service integration, ease of use and service features. There has been significant consolidation among providers of information technology products and services to financial institutions, and we believe this consolidation will continue in the future.

With respect to our receivables financing product offering, 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 BusinessManager. We face primary competition from companies offering products similar to BusinessManager to financial institutions. Only a limited number of companies offer similar broad solutions, including marketing on behalf of the client financial institution. We believe that we are the largest of such companies in terms of revenue, number of client financial institutions and size of our dedicated sales force. We believe that other firms typically offer software, but not sales support, to the financial institution.

In the retail inventory management area, we compete primarily with other consulting and planning firms. In addition, many larger retail firms have in-house forecasting and inventory management groups. We expect that competition could increase as new consulting and planning firms attempt to enter the retail forecasting market or other retailers bring inventory planning in-house.

Many of our competitors are larger and have substantially greater resources than we have. As a result, we may be unable to compete effectively against these businesses in our product and service offerings or in our efforts to acquire businesses and products that could support our growth or expand our operations.

Government Regulation

We are not licensed by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, the FDIC, the National Credit Union Administration or any other federal or state agency that regulates or supervises depository institutions or other providers of financial services. However, our current and prospective community financial institution clients operate in markets that are subject to substantial federal and state regulatory oversight and supervision. Because we provide products and services to regulated entities, we are subject to examination under the authority of the Bank Service Company Act and must comply with the Gramm-Leach-Bliley Act of 1999 and other laws and regulations that apply to depository and financial institutions. These regulators have broad supervisory authority to require the correction of any deficiencies or other negative findings identified in any such examination.

Financial institutions are required to comply with privacy regulations imposed under the Gramm-Leach-Bliley Act and applicable regulations under that Act. These regulations place restrictions on financial institutions’ use of non-public personal information. All financial institutions must provide detailed privacy policies to their customers and offer them the opportunity to opt out of the sharing by the financial institutions of the customer’s non-public personal information with non-affiliated parties. As a provider of services to financial institutions, we are required to comply with the privacy regulations and are bound by the same limitations on disclosure of the information received from our clients as apply to the financial institutions themselves.

Legal Proceedings

We are from time to time a party to legal proceedings which arise in the normal course of business. We are not currently involved in any material litigation, the outcome of which would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened against us.

Industry Background and Market

Community Financial Institutions

Financial institutions have historically invested a significant amount of money in information technology systems. Technology firm IDC estimates that banks, thrifts and credit unions in the United States spent approximately $31 billion on information technology during 2005 and are expected to spend approximately $35.5 billion in 2007. Our target market of community financial institutions ranges in size from de novo banks (i.e. start-up financial institutions) to those with $1 billion in assets. We believe the number of these financial institutions totals approximately 8,100.

We believe that these financial institutions, which have traditionally competed on the basis of personalized service, are facing increasing challenges to improve their operating efficiencies. These challenges include the entrance of non-traditional competitors, the compression of margins on traditional products and the convergence of financial products into a single institution. Recent legislation has allowed non-traditional competitors, such as insurance companies and brokerage houses, to enter the market for traditional banking products. Because these competitors are able to subsidize traditional banking products with the revenues of other, higher-profit products, financial institutions have experienced lower margins, increasing the pressure to reduce costs while continuing to offer an increasing array of consumer products and services. At the same time, the cost and complexity of delivering these products and services has increased as the widespread introduction of new technology has forced financial institutions to expand their distribution channels to include ATMs, telephone banking, Internet banking and wireless devices. Legislative changes have also accelerated the ability of financial institutions to offer wider ranges of products and services to their customers. To distinguish themselves from competitors in this more competitive environment, banks and credit unions must accurately define and understand their specific markets, and be able to launch relevant products and services to those markets over tailored delivery channels. These challenges are forcing financial institutions to examine how to conduct their business and service their customers most efficiently.

We believe that a technology solution must enable financial institutions to achieve a competitive advantage in their markets through improved customer service, competitive product offerings and lower costs. In addition, financial institutions are required by federal law to evaluate the effectiveness of their information technology systems periodically. This obligation, together with significant upgrades and phase-outs of certain hardware by hardware providers, creates an ongoing need for institutions to evaluate replacement of their information technology systems.

Small Businesses

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

	•	financing for small businesses,

	•	competitive forces,

	•	cost pressures,

	•	electronic commerce services and

	•	regulation and regulatory oversight.

We intend to be the single source provider that community financial institutions can turn to for assistance in all of these areas.

Our Products and Services

Financial Institution Services

In our financial institutions services segment, we provide products and services that help financial institutions serve their customers better, increase the efficiency of their operations, improve their competitive position in the marketplace, and boost their bottom-line profitability, while satisfying regulatory requirements. We are committed to the needs and interests of financial institutions and strive to upgrade, enhance or acquire complementary products and services to ensure that our customers receive the latest technology. By taking advantage of our technology and operating solutions, our customers can improve their operating efficiencies without allocating the expenses and resources necessary to develop or maintain similar systems themselves. Our customers get the benefit of our products and services without having to maintain personnel to develop, update and run these systems and without having to make large up-front capital expenditures to implement these advanced technologies.

Core Data Processing

We provide software and systems that meet our customers’ core data processing requirements, including general ledger, loan and deposit operations, financial accounting and reporting and customer information file maintenance. Our products and services provide superior flexibility and improve customer service throughout the financial institution. Most of our customers outsource their processing activities to our data center located in Denver, Colorado, while others install our systems in-house and perform the processing functions themselves. We are planning to build out an item processing and imaging center in Atlanta, Georgia during 2007.

Financial institutions can have our core systems installed and operate them in-house using their own personnel. Most of our customers, however, use one of these systems through a service bureau arrangement. In this case, we house and maintain the software at one of our data centers, and we process our customers’ data each business day. This arrangement allows customers to focus on core competencies by outsourcing their data processing needs, which gives them access to our processing systems without the expense of maintaining in-house processing operations.

Item Processing and Check Imaging

Increased technological development, regulatory changes and changing banking practices have created a demand for faster, more efficient electronic handling of bank documents, including checks. The need to reduce labor, research time and the cost of postage has increased the demand for check imaging solutions. The recent passage of the Check Clearing for the 21st Century Act (Check 21) has removed certain legal obstacles to electronic check clearing, and has facilitated the use of check truncation and check imaging. Check imaging involves creating digital images through the use of a camera attached to a sorter. As each check passes through the sorter, the camera takes its picture. Images of insufficient checks, stop payments and large dollar checks are presented online to bank operations staff for review. Financial institutions employ check imaging as part of their efforts to reduce operating costs and provide enhanced banking services to their customers.

In our item processing operations, we provide a turnkey solution for check imaging activities that provides our customers the ability to offer check imaging either on an in-house basis through the purchase of our proprietary software solution or on an outsourced basis through our data center without a large capital expenditure. Our systems deliver a suite of check imaging products, including front and back imaging for customer statements, clearing and settlement, reconciliation and automated exception processing. Customers may print multiple check images in check sequence on a single page for inclusion in monthly statements, thereby reducing postage costs. This system allows bank employees and bank customers to retrieve imaged checks on personal computers to facilitate signature verification and improve research. We provide these services through our service bureau operations using 3^rd party software systems.

ACH Origination and Processing

Our Goldleaf suite of ACH origination and processing solutions helps financial institutions to strengthen existing relationships and build new ones by offering a service that lowers a customer company’s processing costs, improves its cash flow and benefits its employees. In turn, this service benefits the financial institution by increasing customer retention and satisfaction, generating interest income and reducing its back room processing costs.

Goldleaf Client® gives financial institutions a brandable, Internet-based origination solution with online file delivery. Goldleaf Client eliminates costly onsite software installation and frustrating modem file transmission by using the most cost-effective delivery channel available – the Internet. We believe Goldleaf Client delivers greater control for financial institutions with online administration and a user-friendly solution for an unlimited number of commercial originators.

Many institutions are eager to establish an ACH origination program, but do not know how to get started. This process can be simplified with our Goldleaf Manager® processing solutions. By leveraging over a decade of experience in software design and implementation, the transaction process is streamlined in a standardized manner, ensuring accuracy and reducing risk. Combined with our Goldleaf Client origination solutions, industry leading on-site training, and toll-free support for our financial institutions and originators, Goldleaf Manager can guide the implementation of an effective, profit-producing program.

Remote Capture Processing

With the passing of the Check 21 legislation, financial institutions are now allowed to present and are legally required to accept image replacement documents (“IRDs”) if they meet the necessary legal requirements of Check 21. Our remote capture product allows financial institutions to offer this solution to their commercial customers. Commercial customers benefit by no longer having to physically travel to a financial institution branch and deposit their checks. Instead, they can scan them and transmit their deposits to their financial institution electronically. It saves the commercial customer time and potentially extends the cut-off for receiving credit for deposited funds on that same day. Financial institutions are constantly striving to increase core customer deposits. Remote capture allows the financial institution to do that more easily by removing the geographic barrier. With remote deposit, a financial institution can have a commercial customer outside of its branch footprint, because proximity to a branch is no longer necessary. Our remote capture product is completely web-based, thus requiring no software installation.

BusinessManager®

BusinessManager enables financial institutions to manage accounts receivable financing, from the purchase of receivables from small businesses to the ongoing processing, billing and tracking of these receivables. The financial institutions either process the transactions themselves or outsource this activity to our in-house processing facility. To automate the process further, we offer electronic links for the financial institutions and their small business customers through secure connections to our Internet portal, BusinessManager.com. We also provide integration with Intuit’s Quickbooks™, which many small businesses use.

Our network of local sales consultants, or Business Development Managers (“BDMs”), helps our client financial institutions develop new marketing strategies and facilitates the market penetration of BusinessManager. Once a client financial institution contracts to use BusinessManager, our BDMs help the client financial institution design, implement and manage the sale of the BusinessManager accounts receivable financing program to the client financial institution’s small business customers and prospects. Using a database of likely small business customers of the program, the BDMs generally work directly with the client

financial institutions’ 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 financial institution has signed up a new small business customer, our BDMs continue to work with the small business customer in conjunction with the financial institution loan officer to ensure proper implementation and post-implementation support. We also help design the appropriate procedures and controls to successfully implement BusinessManager in order to minimize risk to our client financial institutions.

We typically provide our services to client financial institutions under exclusive long-term contracts with terms ranging from three to five years with 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 financial institutions from merchants on the program. Some contracts with financial institutions contain performance or deferred payment terms that we must satisfy to receive the initial set-up fee from the financial institution and recognize revenue.

During 2006, our network of client financial institutions purchased approximately $3.58 billion of accounts receivable from approximately 2,200 small businesses.

MedCashManager

MedCashManager is a proven program that enables banks to broaden their portfolio, generate fee income and increase core deposits. Creditworthy yet cash flow constrained medical facilities can get cash for accounts receivable every day by selling them to their financial institution. The sales are at a discount on a full-recourse basis, with a flexible cash collateral reserve. MedCashManager matches each financial institution client with one of our BDMs to help make programs successful.

Credit and Fraud Insurance

Our insurance brokerage subsidiary offers two insurance products for the BusinessManager and MedCashManager solutions. 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.

Financial Institution Leasing

We offer a turn-key leasing solution to community financial institutions that consists of lease structuring and pricing, lease equipment procurement, monthly processing and servicing and off lease equipment sales. Most community financial institutions have historically avoided the leasing business because of its complexity. As a result, many of the community financial institutions’ customers are leasing equipment through other financing sources, including larger super regional and national financial institutions. This puts the overall customer relationship at risk and the community financial institution has missed out on an additional revenue opportunity. Our solution allows a community financial institution to brand its own leasing program and offer a comprehensive leasing option to commercial businesses in its market. The financial institution’s involvement is limited to what it does best, which is loan money to finance the leased equipment based on the creditworthiness of the lessee. The loan for the leased equipment is structured as a non-recourse note payable to us and we in turn use the funds to acquire the leased asset and close the lease with the lessee. The financial institution receives an origination fee based on the cost of the leased equipment as well as the interest yield on each non-recourse note issued to finance each lease.

LineManager®

LineManager is an information tool, enabling asset-based lenders to monitor the activity and quality of the assets that are the collateral for their loans. We believe that much of the processing and reporting for asset-based loans 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 automates and electronically updates the borrowing base in a virtual real-time environment. LineManager brings together in an on-line environment data drawn directly from a debtor’s accounting system with parameters set up in our system by the financial institution. 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.

LendingNetwork™

Our LendingNetwork™ offers “outside the box” financing from a group of more than 20 commercial lenders in the industry. Businesses facing financial hurdles may need to use non-traditional collateral, yet they have challenges common to all businesses: maximizing cash flow, meeting payroll, continuing operations, and managing seasonal fluctuations. The LendingNetwork enables our financial institutions to provide their customers a soft landing after being declined for a traditional line of credit and/or BusinessManager.

Financial Institution Website Design and Hosting

Almost all financial institutions want to have a sophisticated and dynamic website. Our website design and hosting services for financial institutions provides everything a financial institution typically desires. We provide conceptual, functional and useful web solutions. The process of designing each financial institution website is well defined and highly efficient based on years of experience in designing and hosting websites. A financial institution can select from a multitude of options for their website. We currently have designed and host over 625 financial institution websites across the United States.

Related Products and Services

Our customer service and technical support departments provide coverage 24 hours a day, seven days a week. Our trained customer service and technical support personnel enhance our ability to offer reliable, secure and automated solutions. Our customer service departments are responsible for educating and assisting our customers in the use of our services. Our technical support department is generally responsible for consulting with our customers regarding technical issues and for solving any technical problems brought to their attention by our customer service department. Our technical support department is also responsible for maintaining our backup systems and for coordinating the disaster recovery services maintained by some of our information processing customers.

To complement our product and service offering described above, we provide a variety of related services, software products and equipment. Our ancillary products and services include:

	•	WinTELLER® - an online teller platform system,

	•	WinGUARD® - a transactional fraud detection solution,

	•	CaptureFIRST® - branch image capture and signature verification,

	•	Loan and Deposit Platform Automation,

	•	Internet Banking and Bill Payment,

	•	CollectionsManager® - an online debt collection service, and

	•	IdentificationManager – United State Patriot Act verification tool

The WinTELLER® system is installed in approximately 60 financial institutions in the United States and is designed to help financial institution branches better manage customer account transactions, improve teller efficiency, and enhance customer experiences.

Retail Inventory Management -- RMSA

For many small retailers, their most critical success factor is inventory management. Purchasing the right stock items and in the appropriate quantities enables the retailer to avoid overstocking and under stocking, both of which can adversely affect 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 (“Freedom”) 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 objective is to grow our revenue and earnings organically as well as through acquisitions. The key components of our business strategy are to:

Expand into New Customers and New Geographies. We now provide a full suite of products and services to the financial institutions marketplace. We intend to:

	a)	partner with state and national banking associations and Bankers Banks,

	b)	build name recognition through advertising, trade shows and sales representation, and

	c)	add sales and product specialists throughout targeted markets.

Expand Our Existing Customer Relationships. We seek to increase the products and services we provide to those customers that do not use our full range of products and services. We believe that we will be able to increase revenues from current customers with lower sales and marketing expenses as well as further the relationship with the existing customers. As of December 31, 2006 we offer products and services to over 2,500 financial institutions.

Build Recurring Revenue. We enter into contracts with customers to provide services that meet their ongoing information technology needs. We provide ongoing software support for our in-house customers. Additionally, we provide data processing for our outsourcing customers on contracts that typically extend for periods of three to five years.

Acquire Products or Services that are Complementary to our Existing Products and Services. We will continue to acquire products or services that our customers require or that add additional customers, geographies or relationships.

Maximize Economies of Scale. Our goal is to develop and maintain a sufficiently large client base to create economies of scale, enabling us to provide value-priced products and services to our clients while expanding our operating margins.

Attract and Retain Capable Employees. We believe attracting and retaining high-quality employees is essential to our continued growth and success.

Sales and Marketing

Financial Institution Services

At March 1, 2007, our financial institutions sales team is composed of approximately 34 sales representatives, product specialists and others who sell certain of our products but act as referral agents to sales specialists in other areas. This allows us to capitalize on the experienced sales force that we employ to assist in cross-selling products and services to existing clients. In addition, we have approximately 35 business development managers who focus on merchants which allows for cross-selling opportunities for our financial institution sales team.

Our marketing efforts consist of sponsorship and attendance at trade shows, email newsletters, print media advertisement placements, telemarketing and national and regional marketing campaigns. We also conduct a user group meeting which enables us to keep in close contact with our customers and demonstrate new products and services to them. Our marketing efforts also include obtaining referrals and endorsements from our customers and various banking related organizations including the bankers banks, the Independent Community Bankers Association and the American Bankers Association.

Dedicated sales forces, inside sales teams, and technical sales support teams conduct our sales efforts for our two market segments and are overseen by regional sales managers. Our dedicated sales executives are responsible for sales activities focused on acquiring new core customers. Our account executives nurture long-term relationships with our client base and cross-sell our complementary products and services. Our inside sales force markets specific complementary products and services to our existing customers. We also have a dedicated sales force responsible for new customers for our acquired businesses targeted outside our core customer base. All sales force personnel have responsibility for a specific territory. The sales support teams write business proposals and contracts and prepare responses to requests-for-proposal regarding our software and hardware solutions. All of our sales professionals receive a base salary and performance-based commission compensation.

We continue to sell and support selected products and solutions in the Caribbean, and we now have installations in Central America as a result of our Goldleaf Technologies acquisition. Our international sales have accounted for less than 1% of our total revenues in each of the three years ended December 31, 2006, 2005, and 2004.

Retail Inventory Management Services

We sell and market our retail planning services through consultants and analysts located throughout the United States and Canada. As of March 1, 2007, we employed 38 such consultants and analysts. The average RMSA analyst has been with RMSA for more than 14 years and has more than 20 years experience in the retail sector. Our consultants and analysts pursue sales and service opportunities in all fifty states. Leads are acquired for RMSA through trade shows, direct mail campaigns, and our alliances.

Competition

Financial Institution Services

General. The market for companies that provide technology solutions to financial institutions is intensely competitive and highly fragmented, and we expect increased competition from both existing competitors and companies that enter our existing or future markets. Numerous companies supply competing products and services, and many of these companies specialize in one or more of the services that we offer or intend to offer to our customers.

Financial Institution Product and Service Offerings Other Than BusinessManager. In our financial institution services business, we compete with several national and regional companies including FiServ, Inc., Jack Henry & Associates, Inc., Open Solutions, Inc., John H. Harland Company, and Fidelity National Financial, Inc. Many of our current and potential competitors have longer operating histories, greater name recognition, larger customer bases and substantially greater financial, personnel, marketing, technical and other resources than we do. The principal competitive factors affecting the market for our services include price, quality and reliability of service, degree of product and service integration, ease of use and service features. There has been significant consolidation among providers of information technology products and services to financial institutions, and we believe this consolidation will continue in the future.

BusinessManager. In our receivables financing product offering, 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 BusinessManager. We face primary competition from companies offering products to financial institutions similar to BusinessManager. Only a limited number of companies offer similar comprehensive solutions, including marketing on behalf of the client financial institution. We believe that we are the largest of such companies in terms of revenue, number of client financial institutions and size of our dedicated sales force. We believe that other firms typically offer software, but not sales support to the financial institution.

We compete with financial institutions that use their internal information technology departments to develop proprietary systems or purchase software from third parties to offer similar services to small businesses. We also compete with providers of traditional sources of financing to small businesses such as lines of credit, amortizing loans and factoring. Many financial institutions and other traditional providers of financing are much larger and more established than we are. Most providers of traditional sources of financing and financial institutions that have already established relationships with small businesses may be able to leverage their relationships to discourage these customers from using our BusinessManager 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, some of which may market via the Internet.

Retail Inventory Management Services

We compete primarily with other consulting and planning 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 and planning 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.

Intellectual Property and Other Proprietary Rights

We regard intellectual property and other proprietary rights as important to our success. We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary technology. We also enter into confidentiality and proprietary rights agreements with our employees, consultants and other third parties and use what we believe are reasonable efforts to control access to our proprietary information. In addition, we have a number of non-exclusive licenses from third parties that allow us to incorporate their software in our product offerings. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products, independently develop products similar to ours, or obtain and use information that we regard as proprietary. We cannot assure you that the steps we have taken will adequately protect our proprietary rights or that our competitors will not independently develop similar technology. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially significantly harming our competitive position and decreasing our revenues. If a claim is asserted that we have infringed the intellectual property of a third party or if our products or services are found to infringe the proprietary rights of others, we may be required to change our business practices or seek licenses to that intellectual property. We may also become subject to significant costs and monetary penalties.

In addition to a portfolio of trade secrets and registered and unregistered copyrights and trade marks, we have filed a United States patent application and a related continuation-in-part covering an invention related to remote check deposits. The United States Patent and Trademark Office is examining the patent application and related continuation-in-part. We believe that the patent, if issued, may give us a competitive advantage. We cannot assure you, however, that the patent will be granted or that none of its claims will be rejected.

Employees

At March 1, 2007, we employed 343 people. We have approximately 129 employees involved in direct sales, marketing and business development activities.

Item 1A. Risk Factors

RISK FACTORS

This section summarizes certain risks, among others, that shareholders and prospective investors should consider. Many of these risks are discussed in other sections of this report. If any of the following risks actually occurs, 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. These risks are not the only ones we face. Additional risks of which we are presently unaware or that we currently consider immaterial may also impair our business operations and hinder our financial performance.

Risks Related to Our Business

We generate a significant amount of our revenues from our accounts receivable financing solution and our retail inventory management services, and those revenues have declined in recent years. If these trends continue, our financial performance may be materially and adversely affected.

For the fiscal year ended December 31, 2006, we derived approximately 46.9% of our consolidated revenues from participation fees, license fees, insurance brokerage fees, and maintenance fees from BusinessManager, our accounts receivable financing solution, and approximately 14.7% of our consolidated revenues from fees generated by RMSA, our retail inventory management services product. We expect to continue to generate a substantial portion of our revenues from BusinessManager and RMSA during 2007 and for some period thereafter. In recent years, our revenues from BusinessManager and RMSA have declined from year-to-year. If our annual revenues from BusinessManager or RMSA continue to decline or begin to decline more rapidly, we may not be able to generate sufficient revenues from our other products or services to offset that decline. In addition, we cannot be certain that we will be able to continue to successfully market and sell BusinessManager to both financial institutions and their small business customers or successfully market and sell our RMSA services to small businesses. Our failure to do so, or any events that adversely affect BusinessManager or RMSA, would materially and adversely affect our overall business.

The loss of our chief executive officer or other key employees could have a material adverse effect on our business.

Mr. Boggs, our chief executive officer, has substantial experience in our industry. Although we maintain key man life insurance on Mr. Boggs and we have an employment agreement with him, our client and marketing relationships would likely be impaired and our business would likely suffer if, for any reason, we lost the services of Mr. Boggs. In addition, we believe that our success as a combined company depends on the continued contribution of a number of our other executive officers or key employees. The loss of services of any of these individuals would similarly adversely affect our business.

Acquisitions could result in integration difficulties, unexpected expenses, diversion of management’s attention and other negative consequences.

Our growth strategy is partly based on making acquisitions. We plan to continue to acquire complementary businesses, products and services. We must integrate the technology, products and services, operations, systems and personnel of acquired businesses, including our recent acquisitions, with our own and attempt to grow the acquired businesses as part of our company. The integration of other businesses is a complex process and places significant demands on our management, financial, technical and other resources. The successful integration of businesses we acquire is critical to our future success, and if we are unsuccessful in integrating these businesses, our financial and operating performance could suffer. The risks and challenges associated with acquisitions include:

	•	the inability to centralize and consolidate our financial, operational and administrative functions with those of the businesses we acquire;

	•	our management’s attention may be diverted from other business concerns;

	•	the inability to retain and motivate key employees of an acquired company;

	•	our entrance into markets in which we have little or no prior direct experience;

	•	the inability to prepare and file with the SEC in a timely manner the required financial statements of any businesses we acquire;

	•	litigation, indemnification claims and other unforeseen claims and liabilities that may arise from the acquisition or operation of acquired businesses;

	•	the costs necessary to complete integration exceeding our expectations or outweighing some of the intended benefits of the acquisitions we close;

	•	the inability to maintain the client relationships of an acquired business; and

	•	the costs necessary to improve or replace the operating systems, products and services of acquired businesses exceeding our expectations.

We may be unable to integrate our acquisitions with our operations on schedule or at all. We cannot assure you that we will not incur large accounting charges or other expenses in connection with any of our acquisitions or that our acquisitions will result in cost savings or sufficient revenues or earnings to justify our investment in, or our expenses related to, these acquisitions. We may acquire companies that have significant deficiencies or material weaknesses in their internal control over financial reporting, which may cause us to fail to meet our reporting obligations, cause our financial statements to contain material misstatements and harm our business and operating results.

If we are unable to successfully integrate the business operations of companies we acquire in the future into our business operations, we will not realize the anticipated potential benefits from these acquisitions and our business could be adversely affected.

Any future acquisitions we complete will involve the integration of companies that have previously operated independently and may be in markets that are new to us. Successful integration of future acquired businesses with ours entails numerous challenges and will depend on our ability to consolidate operations, systems and procedures, eliminate redundancies and reduce costs. If we are unable to do so, we will not realize any anticipated potential benefits of the acquisitions, and our business and results of operations would be adversely affected.

Because our business involves the electronic storage and transmission of data, security breaches and computer viruses could expose us to litigation and adversely affect our reputation and revenue.

Our online transaction processing systems electronically store and transmit sensitive business information of our clients. The difficulty of securely storing confidential information electronically has been a significant issue in conducting electronic transactions. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that our activities or the

activities of our clients involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing clients to lose confidence in our systems and could inhibit our ability to attract new clients.

As an example of the risks of this nature that we faced, in May 2006 our Goldleaf Technologies division suffered an attempt to redirect its clients’ customers to a phishing website to entice them to enter their personal financial information. To ensure the security of the network, Goldleaf Technologies temporarily suspended all Internet access to its website services. Although Goldleaf Technologies does not host any personal data for its community financial institution clients and consequently lost no data in the incident, the interruption of service, the inconvenience to its clients and their customers, the management time required to deal with the issue, and the potential loss of personal data by consumers who may have been enticed to enter their information on the false website have had and may continue to have an adverse effect on our financial performance and business reputation.

If we experience losses, we could experience difficulty meeting our business plan and our stock price could decline.

We may not be able to maintain our financial performance as we implement our business plan. Any failure to achieve and maintain profitability could negatively affect the market price of our common stock. If our revenues decline or grow slower than we anticipate, or if our operating expenses exceed our expectations and cannot be adjusted accordingly, our business operations and financial results will suffer. We anticipate that we will incur significant product development, administrative, and sales and marketing expenses. In light of these expenses, any failure to increase revenues significantly may also harm our ability to achieve and maintain profitability.

If we are unable to maintain or grow our business, our operating results and financial condition would be adversely affected.

In recent years, revenues generated by our accounts receivable financing solution and retail inventory management products and services have declined. We cannot guarantee that our revenues will not continue to decline. If we are unable to grow our business and revenues, our operating results and financial condition would be adversely affected.

If we are unable to manage our growth, our business and results of operations could be adversely affected.

Any new sustained growth will 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 those 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.

Our business significantly depends on a productive sales force, and our sales force has experienced management and employee turnover in recent years. If these problems recur, we may not be able to achieve our sales plans or maintain our current level of sales.

An important part of our sales strategy is to attract, hire and retain qualified sales and marketing personnel to maintain and expand our marketing capabilities. Because 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. In recent years, we have experienced a significant amount of turnover in the management and personnel of our sales force, which we believe has been a factor in our declining revenues from our accounts receivable financing and retail inventory management products. If we are unable to hire and retain enough qualified sales and marketing personnel, or those we hire are not as productive as we expect, we may not be able to achieve our sales plans or maintain our current level of sales.

Because we have a long sales and implementation cycle for some of our solutions, we face the risk of not closing sales after expending significant resources, which could materially and adversely affect our business, financial condition and results of operations.

We must expend substantial time, effort and money educating potential clients about the value of some of our solutions, particularly our core data processing solution. We may expend significant funds and management resources during the sales cycle and ultimately fail to generate any revenues. For our core data processing solution, our sales cycle generally ranges between six to

nine months, and our implementation cycle generally ranges between six to nine additional months. Many of our other products require similarly long sales and implementation cycles. Our sales cycle for all of our products and services is subject to significant risks and delays over which we have little or no control, including

	•	our clients’ budgetary constraints;

	•	the timing of our clients’ budget cycles and approval processes;

	•	our clients’ willingness to replace their current vendors;

	•	the success and continued support of our strategic marketing partners’ sales efforts; and

	•	the timing and expiration of our clients’ current license agreements or outsourcing agreements for similar services.

If we are unsuccessful in closing sales after expending significant funds and management resources or if we experience delays as discussed above, our business, financial condition and results of operations will be materially and adversely affected.

Competition, restrictions under our credit facility, market conditions and other factors may impede our ability to acquire other businesses and may inhibit our growth.

We anticipate that we may derive a portion of our future growth through acquisitions. The success of this strategy depends on our ability to:

	•	identify suitable acquisition candidates;

	•	reach agreements to acquire these companies;

	•	obtain necessary financing on acceptable terms; and

	•	successfully integrate the operations of these businesses.

In pursuing acquisitions, we may compete with other companies that have similar growth strategies. Many of these competitors are larger and have greater financial, operational and technical resources than we have. This competition may inhibit our ability to acquire businesses that could improve our growth or expand our operations.

We may not be able to enter into and successfully implement strategic alliances, which could limit our ability to grow our business as we intend.

One element of our growth strategy is to evaluate and pursue strategic alliances that are complementary to our business. However, we may not be able to identify or negotiate strategic alliances on acceptable terms. If we are not able to establish and maintain strategic alliances, we may not be able to fully implement our growth strategy. In addition, pursuing and implementing strategic alliances may cause a significant strain on our management, operational and financial resources that could have a material adverse effect on our results of operations.

We may be unable to market our products and services successfully to new client financial institutions or to retain current client financial institutions. If we are unable to do so, our business may be materially and adversely affected.

Our success depends to a large degree on our ability to persuade prospective client financial institutions to use our products. Failure to maintain market acceptance, retain clients or successfully expand the products and services we offer could adversely affect our business, operating results and financial condition. We have spent, and will continue to spend, considerable resources educating potential clients about our products and services. Even with these educational efforts, however, we may be unable to grow or maintain market acceptance of our products and services or retain our clients. In addition, as we continue to offer new products and expand our services, existing and potential client financial institutions or their small business customers may be unwilling to accept the new products or services.

The failure to execute our growth plans may affect our ability to remain a publicly traded company.

We intend to grow organically and through acquisitions and strategic alliances. These growth plans will require a substantial expenditure of time, money and other valuable resources. Not only does this take resources away from our current business, but we face the risk that our strategy will not ultimately be successful. In that event, the continued costs associated with being a public company may outweigh the anticipated organic growth of our current business, which could result in our being delisted from the Nasdaq Global Market or engaging in a going private transaction.

Our plans to expand the number of products and services we offer may not be successful and may lower our overall profit margin.

Part of our business strategy is to expand our offering of products and services. We believe that we can provide these new services profitably, but they 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.

We may be unable to compete in our markets, which could cause us not to achieve our growth plans and materially and adversely affect our financial performance.

The market for community financial institutions and small business financial services is highly competitive. We face primary competition from a number of companies that offer to financial institutions products and services that are similar to ours, and many of these competitors are much larger and have more resources than we do. Community financial institution clients that offer BusinessManager, our accounts receivable financing solution, compete with other financial institutions and financing providers that offer lines of credit, amortizing loans, factoring and other traditional types of financing to small businesses. Many of these other financial institutions and financing providers are much larger and more established than we are, have significantly greater resources, generate more revenues and have greater name recognition. In addition, as we expand our service offerings, we may begin competing against 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. Both our traditional and new competitors may 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.

We may be unable to protect our proprietary technology adequately, which may have a material adverse effect on our revenue, our prospects for future growth and our overall business.

Our success depends largely upon our ability to protect our current and future proprietary technology through a combination of copyright, trademark, trade secret and unfair competition laws. Although we assess the advisability of patenting any technological development, we have historically relied on copyright and trade secret law, as well as employee and third-party non-disclosure agreements, to protect our intellectual property rights. The protection afforded by these means may not be as complete as patent protection. We cannot be certain that we have taken adequate steps to deter misappropriation or independent development of our technology by others. Although we are not currently subject to any dispute regarding our proprietary technology, any claims of that nature brought or resolved against us could have a material adverse effect on our business, operating results and financial condition.

If our products or services are found to infringe the proprietary rights of others, we may be required to change our business practices and may also become subject to significant costs and monetary penalties.

Others may claim that our proprietary technology infringes their intellectual property. Any claims of that nature, whether with or without merit, could:

	•	be expensive and time-consuming to defend;

	•	cause us to cease making, licensing or using products that incorporate the challenged intellectual property;

	•	require us to redesign our products, if feasible;

	•	divert our management’s attention and resources; and

	•	require us to enter into royalty or licensing agreements to obtain the right to use necessary technologies.

Others may assert infringement claims against us in the future with respect to our current or future products and services. In that event, we cannot be certain that those claims will be resolved in our favor. Although we are not currently engaged in any dispute of that nature, any infringement claims resolved against us could have a material adverse effect on our business, operating results and financial condition.

The failure of our network infrastructure and equipment could have a material adverse effect on our business.

Failure of our network infrastructure and equipment, 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 telecommunication providers to supply necessary services to us could also interrupt our business, particularly the application hosting and transaction processing services we offer to our client financial institutions via secure Internet connections. The inability to supply these services to our clients could negatively affect our business, reputation, operating results and financial condition. Currently, we have only one core data and two item processing centers. Interruption in our processing or communications services could delay transfers of our clients’ data, or damage or destroy the data. Any of these occurrences could result in lawsuits or loss of clients and may also harm our reputation.

We rely on the technological infrastructure of our client financial institutions and their individual customers, and any failure of that infrastructure could have a material adverse effect on our revenue and our business.

The success of the products and services we offer depends, to a degree, on the technological infrastructure and equipment of our client financial institutions and their small business customers. We provide application hosting and transaction processing services to our clients that require some level of integration with the client’s technological infrastructure. Proper technical integration between our clients and us is critical to our being able to provide the services we have agreed to provide. A failure of a client’s infrastructure for any reason could negatively affect our business, financial condition and results.

Increased fraud committed by small businesses and increased uncollectible accounts of small businesses may adversely affect our accounts receivable financing business.

Small business customers of our financial institution clients sometimes fraudulently submit artificial receivables to our clients. In addition, small business customers may keep cash payments that their consumers mistakenly send to them instead of our financial institution clients. Our clients are also susceptible to uncollectible accounts from their small business customers. Many of our clients purchase insurance through us to insure against some of these risks. If the number and amount of fraudulent or bad debt claims increase, our clients may decide to reduce or terminate their use of our accounts receivable financing products and services, reducing our ability to attract and retain revenue-producing clients and to cross-sell our other products and services to them. Further, our insurance carrier providing coverage for the insurance products may increase rates or cancel coverage, reducing our ability to produce revenue and reducing our margins on that business.

We could be sued for contract or product liability claims that exceed our available insurance coverage, which could have a material adverse effect on our business, financial condition and results of operations.

Failures in the products and services we provide could result in an increase in service and warranty costs or a claim for substantial damages against us. We can give no assurance that the limitations of liability in our contracts would be enforceable or would otherwise protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors and omissions in excess of the applicable deductible amount. We can give no assurance that this coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or coinsurance requirements, could have a material adverse effect on our business, financial condition and results of operations. Further, any litigation, regardless of its outcome, could result in substantial cost to us and divert management’s attention from our operations. Any contract liability claim or litigation against us could have a material adverse effect on our business, financial condition and results of operations. In addition, because some of our products and services affect the core business processes of our community financial institution clients, a failure or inability to meet a client’s expectations could seriously damage our reputation and negatively affect our ability to attract new business.

We may not have adequate capital to support our planned growth, which could significantly impair our ability to add new products or services.

A significant part of our growth plans rests on the development of new products, strategic acquisitions and the formation of strategic alliances for our primary products. To execute our growth plans as we intend, we may need additional capital. Market conditions when we need this capital may preclude access to new capital of any kind or to capital on terms acceptable to us. Any of these developments could significantly hinder our ability to add new products or services, pursue strategic acquisitions or enter into strategic alliances.

If our products and services contain errors, we may lose clients and revenues and be subject to claims for damages.

Our new products and services, and enhancements to our existing products and services, may have undetected errors or failures, despite testing by our current and potential clients and by us. If we discover errors after we have introduced a new or updated product to the marketplace, we could experience, among other things:

	•	delayed or lost revenues while we correct the errors;

	•	a loss of clients or the delay or failure to achieve market acceptance; and

	•	additional and unexpected expenses to fund further product development.

Our agreements with our clients generally contain provisions designed to limit our exposure to potential product liability claims, such as disclaimers of warranties and limitations on liability for special, consequential and incidental damages. These provisions may not be effective because of existing or future federal, state or local laws or ordinances, or unfavorable judicial decisions. If our products and services fail to function properly, we could be subject to product liability claims, which could result in increased litigation expense, damage awards and harm to our business reputation.

Technological changes may reduce the demand for our products and services or render them obsolete, which would reduce our revenue and income.

The introduction of new technologies and financial products and services can render existing technology products and services obsolete. We expect other vendors to introduce new products and services, as well as enhancements to their existing products and services, which will compete with our current products and services. To be successful, we must anticipate evolving industry trends, continue to apply advances in technology, enhance our existing products and services and develop or acquire new products and services to meet the demands of our clients. We may not be successful in developing, acquiring or marketing new or enhanced products or services that respond to technological change or evolving client needs. We may also incur substantial costs in developing and employing new technologies. If we fail to adapt to changes in technologies, we could lose clients and revenues, and fail to attract new clients or otherwise realize the benefits of costs we incur.

Examination of our business by regulatory agencies could cause us to incur significant expenses, and failure to remedy any identified deficiency would adversely affect our business.

We are subject to federal and state examination under the authority of the Bank Service Company Act and must comply with the Gramm-Leach-Bliley Act and other laws and regulations that apply to depository and financial institutions. Bank regulators have broad supervisory authority to require the correction of any deficiencies or other negative findings identified in any such examination. Efforts to correct any deficiency or to otherwise comply with existing regulations could result in substantial costs and divert our management’s attention and resources. The failure to adequately correct any deficiency or to comply with existing regulations could result in the imposition of monetary penalties or prevent us from offering one of our products or services to some our clients and could have a substantial negative effect on our business and operations.

Governmental laws and regulations may adversely affect us by making it more costly and burdensome to conduct our business or operations.

Federal, state or foreign authorities could adopt new laws, rules or regulations relating to the financial services industry and the protection of consumer personal information belonging to financial institutions that affect our business. Those laws and regulations may address issues such as end-user privacy, pricing, content, characteristics, taxation and quality of services and products. Adoption of these laws, rules or regulations could render our business or operations more costly and burdensome and could require us to modify our current or future products or services.

Risks Related to Our Industry

We depend heavily on a single industry and any downturn in that industry would materially and adversely affect our business and operations.

We sell our financial institution products and services almost exclusively to financial institutions, primarily community financial institutions. As a result, any events that adversely affect the industry in general and community financial institutions in particular, such as changed or expanded financial institution regulations, could adversely affect us and our operations. A downturn in this industry would have a substantial negative effect on our business and operations.

Financial institutions are subject to industry consolidation, and we may lose clients with little notice, which could adversely affect our revenues.

The financial institution industry is prone to consolidations that result from mergers and acquisitions. Other financial institutions that do not use our products and services may acquire our existing clients and then convert them to competing products and services. Most of our contracts provide for a charge to the client for early termination of the contract without cause, but these charges are insufficient to replace the recurring revenues that we would have received if the financial institution had continued as a client.

The banking industry is highly regulated, and changes in banking regulations could negatively affect our business.

Our financial institution clients are subject to the supervision of several federal, state and local government regulatory agencies, and we must continually ensure that our products and services work within the extensive and evolving regulatory requirements applicable to our financial institution clients. Regulation of financial institutions, especially with respect to accounts receivable services such as BusinessManager, can indirectly affect our business. While the use of our products by financial institutions is either not subject to, or is currently in compliance with, banking regulations, a change in regulations or the creation of new regulations on financial institutions, including modifying a financial institution’s ability to offer products and services similar to ours, could prevent or lessen the use of our products and services by financial institutions, which would have a substantial negative effect on our business and operations.

Risks of Owning Our Common Stock

Our stock price is volatile and any investment in our common stock could suffer a decline in value.

The market price of our common stock has been subject to significant fluctuations and may continue to be volatile in response to:

	•	actual or anticipated variations in quarterly revenues, operating results and profitability;

	•	changes in financial estimates by us or by a securities analyst who covers our stock;

	•	publication of research reports about our company or industry;

	•	conditions or trends in our industry;

	•	stock market price and volume fluctuations of other publicly-traded companies and, in particular, those whose businesses involve technology products and services for financial institutions;

	•	announcements by us or our competitors of technological innovations, new services, service enhancements, significant contracts, acquisitions, commercial relationships, strategic partnerships, divestitures, technological innovations, new services or service enhancements;

	•	announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

	•	the passage of legislation or other regulatory developments that adversely affect us, our clients or our industry;

	•	additions or departures of key personnel; and

	•	general economic conditions.

We believe that period-to-period comparisons of our results of operations are not necessarily meaningful. We can provide no assurance that future revenues and results of operations will not vary substantially. In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

If we are required to restate or reissue our financial statements, the price of our stock may decline significantly.

We believe that we have prepared our financial statements in accordance with generally accepted accounting principles and the SEC’s regulations. We base these financial statements on our interpretation of those regulations, our use of estimates and assumptions and our internal controls. We may make faulty judgments, errors and mistakes regarding these matters, however, particularly in the context of accounting for acquisitions. As a result of the complexity of these matters and our rate of growth, our financial statements may contain or may in the future contain mistakes or errors. If we are required to restate our financial statements, it is highly likely that the price of our stock will decline significantly. Further, any exchange on which our stock may then be traded may suspend trading on our stock, in which case it is highly likely that the market price of our stock will fall significantly when trading resumes.

If we fail to maintain adequate internal controls over financial reporting, then our business and operating results could be harmed.

Internal controls over financial reporting are processes designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We have disclosed a material weakness in our internal controls over financial reporting in Item 9A - Controls and Procedures of this report. A failure of our remedial measures, as discussed in Item 9A - Controls and Procedures, to correct this material weakness may cause us to fail to meet our reporting obligations, cause our financial statements to contain material misstatements and harm our business and operating results. Even after effecting the remedial measures discussed in Item 9A - Controls and Procedures, our internal controls may not prevent all potential errors, because any control system, regardless of its design, can provide only reasonable, and not absolute, assurance that the objectives of the control system will be achieved.

Complying with Section 404 of the Sarbanes-Oxley Act of 2002 may strain our resources and distract management.

We will be required to comply with Section 404 beginning with our annual report for our 2007 fiscal year. We expect to incur material costs and to spend significant management time to comply with Section 404. As a result, management’s attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, we may need to hire additional accounting and financial staff with appropriate experience and technical accounting knowledge, and we cannot assure you that we will be able to do so in a timely fashion.

In complying with Section 404 of the Sarbanes-Oxley Act of 2002, we may detect material weaknesses in our internal controls.

When we are required to comply with Section 404 of Sarbanes-Oxley, our annual report on Form 10-K will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of that fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. In the course of our evaluation and testing of internal controls, we may identify areas for improvement in the documentation, design and effectiveness of our internal controls, and these areas of improvement may be material. We cannot assure you that we will not disclose material weaknesses we discover in the course of our testing. Any disclosure of that type may result in a material decline in the trading price of our common stock.

We do not anticipate paying any dividends on our common stock in the foreseeable future.

In the foreseeable future, we do not expect to declare or pay any cash or other dividends on our common stock. Our credit facility prohibits our paying cash dividends on our common stock, and we may enter into other borrowing arrangements in the future that restrict our ability to declare or pay cash dividends on our common stock.

We may not be able to use the tax benefit from our operating losses.

As of December 31, 2006, we had available net operating losses, or NOLs, of approximately $47.8 million that will expire beginning in 2011 if not used. We acquired approximately $37.6 million of these NOLs in connection with our 2001 merger with Towne Services. Section 382 of the Internal Revenue Code limits the amount of NOLs available to us in any given year. This limitation permits us to realize only a small portion of the potential tax benefit of the NOLs each year. We estimate that we will be able to realize approximately $5.3 million of the Towne Services NOLs, which we recorded as a $1.9 million deferred tax asset at December 31, 2006. We may be unable to use all of these NOLs before they expire.

Provisions in our organizational documents and under Tennessee law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

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

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

In March 2000, we 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. We also lease approximately 14,000 square feet of office space in a building in Atlanta, Georgia. This leased space has a three-year term and houses a portion of our executive management and an item processing and imaging center. Our retail forecasting services group is based in Riverside, California where we lease 6,100 square feet of office space. The term for this space expires January 31, 2008. We also lease approximately 7,500 square feet of office space in Denver, Colorado for our core and item processing services. This lease expires July 31, 2007. Through our acquisition of Goldleaf Technologies in 2006, we lease approximately 12,000 square feet of office space in a building in Brentwood, Tennessee. This office space has been vacated, has approximately three years remaining and is currently being marketed to sublease occupants.

Item 3. Legal Proceedings.

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.

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

None.

PART II

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

Our common stock is currently traded on The Nasdaq Global Market under the designation “GFSI”. As of January 31, 2007, there were approximately 2,480 shareholders of record. The closing price on March 1, 2007 was $6.72. The following table sets forth representative bid quotations of the common stock for each quarter of 2006 and 2005 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.

	BID QUOTATIONS

For the year ended December 31, 2005	HIGH		LOW

First Quarter	$	12.10	$	9.70
Second Quarter	$	10.75	$	6.55
Third Quarter	$	10.25	$	6.15
Fourth Quarter	$	6.95	$	3.05

For the year ended December 31, 2006	HIGH		LOW

First Quarter	$	9.00	$	5.30
Second Quarter	$	10.05	$	7.50
Third Quarter	$	8.90	$	4.41
Fourth Quarter	$	7.00	$	5.24

We did not declare or pay any cash dividends on our common stock in 2005 and 2006. As a result of our January 2004 transaction with Lightyear, as discussed in Note 4 to our audited consolidated financial statements included in this report, we declared and paid dividends on our Series A, Series B, and Series C preferred shares on a quarterly basis in 2006 and on our Series A and Series B preferred shares in 2005. The preferred dividends and deemed distributions totaled $19.4 million and $2.1 million in 2006 and 2005, respectively. In 2006, the Series A and C dividends were paid in cash totaling $1.6 million and paid-in-kind with the issuance of 1,537.8125 and 667.4 additional shares of Series A and C preferred stock and 667.3973 additional shares of Series C preferred stock.. The 2006 Series B preferred dividends totaling approximately $150,000 were paid in cash on December 8, 2006. Under the terms of the Bank of America credit facility described more fully elsewhere in this report, we are prohibited from declaring and paying cash dividends on our common shares and the Series A, Series B and Series C preferred shares during the term of the facility except as discussed above. As of December 31, 2006, all of the Series A, B, and C preferred shares had been redeemed and there were no Series A, B, or C preferred shares outstanding.

Equity Compensation Plans

We currently have stock options outstanding under seven separate stock option plans known as the Private Business, Inc. 2005 Long Term Equity Incentive Plan, or the 2005 Plan, the Private Business, Inc. 2004 Equity Incentive Plan, or the 2004 Plan, the Private Business, Inc. 1999 Amended and Restated Stock Option Plan, or the 1999 Plan, the Towne Services, Inc. 1996 Stock Option Plan, the Towne Services, Inc. 1998 Stock Option Plan, the Towne Services, Inc. Director Stock Option Plan and the Towne Services, Inc. Non-Qualified Stock Option Plan. We also have options outstanding under individual stock option grants that are not governed by the terms of a stock option plan but that were made pursuant to a single form of option grant (we refer to those grants as the 1994 Plan). All of the Towne Services, Inc. stock option plans have been terminated and no future stock options will be granted under these plans. There are 40,942 stock options issued and outstanding under the Towne Services, Inc. plans, 998,792 stock options issued and outstanding under the 2005 Plan, 82,600 stock options issued and outstanding under the 2004 Plan, 260,113 stock options issued and outstanding under the 1999 Plan, and 43,742 options issued and outstanding under the 1994 Plan.

The following table provides information about our equity compensation plans in effect as of December 31, 2006, aggregated for two categories of plans, those approved by shareholders and those not approved by shareholders.

Equity Compensation Plan Information

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

		(a)		(b)		(c)
Equity compensation plans approved by shareholders		1,426,189	$	8.65		55,073
Equity compensation plans not approved by shareholders		0		—		0
Total		1,426,189	$	8.65		55,073

Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such a filing.

This stock performance graph compares the yearly percentage change in cumulative total shareholder return on our common stock with (a) the performance of a broad equity market indicator, in our case the Nasdaq Stock Market (US) (the “Nasdaq Index”) and (b) the performance of a published industry index or peer group index, in our case the Russell 2000 (the “Russell 2000 Index”). We do not believe that we have an industry peer group. The following graph compares the yearly percentage change in the return on our common stock for the period commencing on December 31, 2001 and ending on December 31, 2006, with the cumulative total return on the Nasdaq Index and the Russell 2000 Index. The graph assumes the investment of $100 on December 31, 2001 in each of our common stock, the Nasdaq Index and the Russell 2000 Index on December 31, 2001, and that with respect to each hypothetical investment, all dividends were reinvested.

Message

Graph produced by Research Data Group, Inc

Item 6. Selected Financial Data.

The following selected financial data is derived from our audited consolidated financial statements and should be read in conjunction with those financial statements, including the related notes thereto. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All earnings 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 and the 1-for-5 reverse stock split that occurred in September 2006 in conjunction with our secondary public offering.

	YEAR ENDED DECEMBER 31,

(in thousands, except per share data)	2006			2005			2004			2003			2002

Statement of Income Data:
Revenues	$	55,651		$	38,351		$	39,649		$	42,730		$	54,545

Operating (loss) income	$	(1,125	)	$	4,075		$	2,834		$	4,440		$	6,868

(Loss) income from operations before income taxes	$	(3,722	)	$	3,694		$	2,632		$	2,948		$	5,070
Income tax (benefit) provision		(750	)		1,359			62			1,150			1,977

Net (loss) income	$	(2,972	)	$	2,335		$	2,570		$	1,798		$	3,093

Preferred stock dividends, deemed distributions, and accretion		(19,386	)		(2,160	)		(2,056	)		(160	)		(160	)

Net (loss) income available to common stockholders	$	(22,358	)	$	175		$	514		$	1,638		$	2,933

(Loss) earnings per diluted common share	$	(3.62	)	$	0.06		$	0.17		$	0.58		$	1.02

Balance Sheet Data (at Year-end):
Cash and cash equivalents	$	6,760		$	137		$	7		$	1,586		$	1,146
Working capital (deficit)		5,707			2,249			(158	)		(2,045	)		(3,351	)
Total assets		75,304			36,557			21,371			27,085			33,301
Long-term debt, net of current portion		2,500			8,509			1,776			20,227			23,190
Total stockholders’ equity (deficit)		49,254			16,853			13,396			(4,368	)		(5,875	)

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

The following is a discussion and analysis of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and related notes, and with the information contained in “Selected Consolidated Financial Data,” included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could vary materially from those indicated, implied or suggested by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and elsewhere in this prospectus. For an overview of our business segments, including a description of products and services that we provide, see the section entitled “Business.”

Recent Developments

On October 11, 2006, we completed the sale of 10,000,000 shares of our common stock in a secondary public offering at a price of $5.50 per share for proceeds, net of underwriting fees, of $51,150,000. Subsequently, on October 18, 2006, the underwriter exercised the over-allotment option to purchase an additional 1,500,000 shares of our common stock at $5.50 per share for proceeds, net of underwriting fees, of $7,672,500. The proceeds from the offering were used to redeem our Series A and C preferred stock and certain of our warrants held by Lightyear at a total redemption price of approximately $34.5 million with the remaining offering proceeds and the proceeds from the over-allotment option being used to pay down the full $17.8 million balance under our Bank of America credit facility.

On October 11, 2006, we also issued 2,346,000 new common shares to Lightyear, representing 14.9% ownership of our fully diluted common stock as of October 11, 2006, in exchange for the 3,200,000 common stock warrants held by Lightyear and the release of Lightyear from its guaranty of our Term B Note.

The Company also redeemed all outstanding Series B preferred shares at the stated redemption price, plus accrued and unpaid dividends, on December 8, 2006. The total amount of the redemption and accrued dividends was $2.2 million. As a result of the Series B redemption we recorded a deemed distribution of approximately $1.9 million during the quarter ended December 31, 2006.

Overview

We provide a suite of technology-based products and services that help community financial institutions compete more effectively with larger regional and national financial institutions. We believe that community financial institutions, which have traditionally competed on personalized service, are facing increasing challenges to improve their operating efficiencies and grow their customer base. These challenges include:

	•	growing competition with larger national and regional banks;

	•	the emergence of non-traditional competitors;

	•	the compression of margins on traditional products;

	•	the convergence of financial products into a single institution; and

	•	legislative changes accelerating the need for financial institutions to offer a wider range of products and services to their customers.

We believe that these competitive pressures are particularly acute for community financial institutions, which lack the substantial capital and specialized personnel to address their technology needs internally. Our solutions enable our clients to focus on their core competencies while we help them meet their product and technology needs. We provide our solutions primarily on an outsourced basis.

The financial technology industry is currently characterized by significant acquisition activity, the introduction of new product and service offerings for financial institutions and an increased emphasis on security of customer data. We believe that these trends will result in greater opportunities for providers of financial technology.

Historically, we have generated our revenues primarily from participation fees, software licenses fees, maintenance fees and insurance brokerage fees derived from BusinessManager, our accounts receivable financing solution, and from fees associated with our retail inventory management services product. For the year ended December 31, 2006, we derived approximately 46.9% of our consolidated revenues from BusinessManager and approximately 14.7% of our consolidated revenues from retail inventory management services. We expect to continue to generate a substantial portion of our revenues from these sources during 2007 and for some period thereafter. In recent years, our revenues from BusinessManager and retail inventory management services have declined from year-to-year, and this trend may continue.

Given the above trends in the performance of our BusinessManager and retail inventory management services businesses, we decided in December 2005 to broaden our strategy to add other products and services that we believed offered greater opportunity for future growth, with the goal of providing a suite of solutions primarily to community financial institutions. We accomplished this shift in strategy by acquiring:

	•	Captiva, which added core data processing as well as image and item processing;

	•	P.T.C., which added teller automation systems; and

	•	Goldleaf Technologies, which added ACH processing, remote capture processing, and website design and hosting.

We paid approximately $29.2 million for these acquisitions and our earlier acquisition of KVI Capital in July 2005, and we recorded goodwill totaling approximately $19.5 million. In further pursuit of our strategy, we intend to acquire businesses, products or technologies to expand our suite of solutions.

In addition to these acquisitions, we further implemented our strategy by adding several new members to our management team who have significant industry experience, including Lynn Boggs, our new chief executive officer. We now offer products and services to over 2,500 community financial institutions, which gives us an opportunity to cross-sell our full range of products and services across our client base.

Revenues

We generate revenue from three main sources:

	•	financial institution service fees;

	•	retail inventory management services; and

	•	other products and services.

Financial Institution Service Fees

Financial institution service fees include:

	•	participation fees, insurance brokerage fees and maintenance fees;

	•	core data processing and image processing fees;

	•	software license and maintenance fees;

	•	ACH origination and processing fees;

	•	remote capture and deposit processing fees;

	•	leasing revenues; and

	•	financial institution website design and hosting fees.

Participation Fees, Insurance Brokerage Fees and Maintenance Fees from Our Accounts Receivable Financing Solution. We derive revenue from two types of participation fees. First, we earn a fee during the first 30 days after a client financial institution implements our solution and purchases accounts receivable from its small business customers. Second, we earn an ongoing participation fee from subsequent purchases of accounts receivable by the client. Both types of fees are based on a percentage of the accounts receivable that the client purchases during each month, with the second type of fee being a smaller percentage of the accounts receivable purchased.

Insurance brokerage fees are derived from the sale of credit and fraud insurance products issued by a third-party national insurance company. We earn fees based on a percentage of the premium paid to the insurance company. We recognize these commission revenues when our financial institution clients purchase the accounts receivable covered by credit and fraud insurance policies.

Core Data Processing and Image Processing Fees. We generate support and service fees from implementation services, from ongoing support services to assist the client in operating the systems and to enhance and update the software and from providing outsourced core data processing services. We derive revenues from outsourced item and core data processing services from monthly usage fees, typically under multi-year contracts with our clients.

Software License and Maintenance Fees. We derive software license fees from the sale of software associated with our accounts receivable financing solutions and our core data processing solution. Software license fees for our accounts receivable financing solutions consist of two components: a license fee and a client training and support fee. We receive these one-time fees on the initial licensing of our program to a client financial institution. Our license agreements have terms ranging from three to five years and are renewable for subsequent terms. We generate annual software maintenance fees from our client financial institutions starting on the first anniversary of the BusinessManager license agreement and annually thereafter. We license our core data processing product under standard license agreements that typically provide the client with a non-exclusive, non-transferable right to use the software. We generate annual software maintenance fees from our client financial institutions starting on the first anniversary of the core data processing license agreement and annually thereafter.

ACH Origination and Processing, Remote Capture and Deposit Processing Fees. We license these products via up-front fees to financial institutions at the time of execution of the agreements, which are typically five-year contracts. We recognize these up-front fees when we complete customer implementation, which typically occurs within the first thirty days after contract execution. We also generate monthly fees for hosting services from each originator of ACH transactions, and we receive fees for each ACH transaction that occurs each month. We offer annual hosting and maintenance support to all of our financial institution clients for a fee that is generally equal to 16% to 20% of the up-front fees.

Leasing Revenues. Subsequent to our acquisition of KVI Capital in August 2005, we began to offer equipment leasing services to some of our clients. We have no credit risk exposure for these leases. Our leases fall into two categories: direct financing leases and operating leases. For direct financing leases, the investment in direct financing leases caption consists of the sum of the minimum lease payments due during the remaining term of the lease and unguaranteed residual value of the leased asset. We record the difference between this sum and the cost of the leased asset as unearned income. We amortize unearned income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. For leases classified as operating leases, we record the leased asset at cost and depreciate the leased asset. We record lease payments as rent income during the period earned.

Financial Institution Website Design and Hosting Fees. We offer website design and hosting services to financial institutions, although we do not host any confidential bank data on our servers. The revenues we generate for these services consist of up-front fees associated with the design and implementation of each website and monthly hosting fees for hosting each website in our data center.

Retail Inventory Management Services

We generate retail inventory management services revenue from fees we charge primarily for providing inventory merchandising and forecasting information for specialty retail stores and ancillary services related to these products. We use proprietary software to process sales and inventory transactions and provide the merchandising forecasting information.

Historically, we have derived substantially all of our revenues from fees associated with our accounts receivable financing solutions and retail inventory management services. While we believe that our acquisitions and product diversification will enable us to derive revenues from a broader mix of products and services, we anticipate that revenues derived from our accounts receivable solutions and inventory management services will continue to account for a substantial portion of our revenues in 2007 and for a period thereafter.

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,

	2004			2005			2006

Revenues:
Financial institution service fees		76.7	%		76.3	%		78.6	%
Retail inventory management services		22.7			22.6			14.7
Other products and services		0.6			1.1			6.7

Total revenues		100.0			100.0			100.0
Cost of revenues:
Financial institution service fees		6.2			7.7			17.2
Retail inventory management services		2.9			2.6			1.6

Gross profit		90.9			89.7			81.2
Operating expenses:
General and administrative		34.3			31.6			41.1
Selling and marketing		43.9			45.7			33.6
Research and development		1.0			0.7			2.0
Amortization		0.9			1.1			3.6
Loss on extinguishment of debt		2.0			0.0			2.9
Other operating (income) expense, net		1.7			0.0			0.0

Total operating expenses		83.8			79.1			83.2

Operating income (loss)		7.1			10.6			(2.0	)
Interest expense, net		(1.2	)		(1.0	)		(4.7	)
Other income		0.7			0.0			0.0
Income (loss) before income taxes		6.6			9.6			(6.7	)
Income tax provision (benefit)		0.2			3.4			(1.3	)

Net income (loss)		6.4	%		6.2	%		(5.4	)%

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Total revenues increased 45.1% to $55.7 million for the year ended December 31, 2006, compared to $38.4 million for the year ended December 31, 2005.

Financial Institution Service Fees. Financial institution service fees increased $14.5 million, or 49.5%, to $43.7 million for the year ended December 31, 2006, compared to $29.3 million for the year ended December 31, 2005. The increase was primarily due to an increase in revenues of $13.7 million attributable to our acquisitions of Goldleaf Technologies, Captiva, and P.T.C. Also contributing to the increase was an increase in Free Checking revenues of $654,000 and an increase in leasing revenues of approximately $726,000, partially offset by a decline in Business Manager revenues of approximately $538,000. This decline in BusinessManager revenues is due to lower volume of receivables purchased by our customers during 2006 as compared to 2005. In 2006, total receivables purchased were $3.58 billion, compared to $3.82 billion in 2005. As a percentage of total revenues, financial institution service fees increased to 78.6% during 2006 compared to 76.3% in 2005.

Retail Inventory Management Services. Retail inventory management services fees decreased to $8.2 million for 2006 as compared to $8.7 million for 2005. The decrease of $484,000, or 5.6%, from 2005 was primarily a result of a decline in monthly forecast service fees of $371,000 due to a decrease in the number of forecast customers and a $107,000 decline in point-of-sale maintenance revenues. As a percentage of total revenues, retail inventory management services fees accounted for 14.7% during 2006 compared to 22.6% in 2005.

Other Products and Services. Revenues from other products and services increased $3.3 million, or 789%, to $3.7 million for the year ended December 31, 2006 compared to $418,000 for the year ended December 31, 2005. This increase was primarily attributable to scanner sales related to our remote capture product offering totaling $2.6 million, $208,000 in promotional gift revenue from our Free Checking program, and an increase of $101,000 in item processing postage charges.

Cost of Revenues — financial institution service fees. Cost of revenues related to financial institution service fees increased 223.4% to $9.6 million for the year ended December 31, 2006 compared to $3.0 million for the year ended December 31, 2005. This increase is primarily attributable to cost of revenues related to our Goldleaf Technologies acquisition totaling $3.0 million, cost of scanner equipment sold of $2.1 million, cost of revenues related to our core and item processing business of $597,000,

cost of revenues related to our Free Checking program of $309,000 and cost of revenues for discount interest expense and property taxes of approximately $400,000 associated with our leasing product. As a percentage of total revenues, cost of sales for financial institution service fees increased to 17.2% for the year ended December 31, 2006 compared to 7.7% for the year ended December 31, 2005.

Cost of Revenues — retail inventory management services. Cost of revenues related to retail inventory management services decreased 9.9% to $905,000 for the year ended December 31, 2006 compared to $1.0 million for the year ended December 31, 2005. The decrease is primarily due to a decline of approximately $45,000 in salary and benefits expense related to a reduction in headcount and a $46,000 reduction in the cost of postage and outside processing services associated with the generation of our forecast reports.

General and Administrative. General and administrative expenses increased 88.7% to $22.9 million for the year ended December 31, 2006, compared to $12.1 million for the year ended December 31, 2005. The increase was due to a $3.8 million increase in non-cash stock compensation expense due to the adoption of SFAS 123R. Also contributing to the increase was an increase of approximately $4.0 million in salary, bonus and benefits expense due to an increase in the number of general and administrative personnel during 2006 as compared to 2005, as well as a $3.1 million increase due to the acquisition of Goldleaf Technologies. Other general and administrative expense increases included consulting and accounting fees of $358,000 and rent expense of $339,000. As a percentage of total revenues, general and administrative expenses increased to 41.1% for the year ended December 31, 2006 compared to 31.6% for the year ended December 31, 2005.

Selling and Marketing. Selling and marketing expenses increased 6.7% to $18.7 million for the year ended December 31, 2006, compared to $17.5 million for the year ended December 31, 2005. Selling and marketing expenses include cost of wages and commissions paid to our sales force, travel costs of the sales force, recruiting for new sales and marketing personnel and marketing fees associated with direct and telemarketing programs. Sales salaries and benefits increased by $401,000, which includes the salary and benefits of the Goldleaf Technologies sales personnel. Commissions expense also increased approximately $558,000. Other selling and marketing expenses related to the Goldleaf Technologies acquisition totaled approximately $755,000 and were partially offset by decreases in travel, consulting and other miscellaneous selling and marketing fees totaling $534,000. As a percentage of total revenues, selling and marketing expenses decreased to 33.6% for the year ended December 31, 2006, compared to 45.7% for the year ended December 31, 2005.

Research and Development. Research and development expenses increased 327.6% to $1.1 million for the year ended December 31, 2006, compared to $257,000 for the previous year ended December 31, 2005. Research and development expenses include the non-capitalizable direct costs associated with developing new versions of our software, as well as other software development projects that, in accordance with GAAP, we do not capitalize. The increase was primarily due to our acquisition of Goldleaf Technologies and their ongoing research and developing activities. As a percentage of total revenues, research and development expenses increased to 2.0% for the year ended December 31, 2006 compared to 0.7% for 2005.

Amortization. Amortization expenses increased 376.7% to approximately $2.0 million for the year ended December 31, 2006, compared to approximately $421,000 for the previous year. These expenses include the cost of amortizing intangible assets, including trademarks and identified intangibles recorded from our August 2001 merger with Towne Services and the acquisitions of KVI Capital, Captiva, Goldleaf Technologies, and P.T.C. The increase is primarily due to the amortization of new intangibles recorded as a result of the KVI and Captiva acquisitions in late 2005 and the P.T.C. and GTI acquisitions in January 2006.

Loss on Extinguishment of Debt. Loss on extinguishment of debt totaled $1.6 million for the year ended December 31, 2006. Of this total, $118,000 related to our credit facility replaced in January 2006, with the remainder, $1.5 million, related to the redemption of our Series C preferred stock in October 2006.

Other Operating (Income) Expense, Net. Other operating (income) expense, net remained relatively flat totaling $36,000 for the year ended December 31, 2006 from approximately $3,000 of income for 2005. Other operating expenses include property tax and other miscellaneous costs associated with providing support and services to our client financial institutions.

Operating Income. As a result of the above factors, our operating loss totaled $1.1 million for the year ended December 31, 2006, compared to operating income of $4.1 million for the previous year.

Interest Expense, Net. Interest expense, net increased $2.2 million to $2.6 million for the year ended December 31, 2006, compared to interest expense of $381,000 in 2005. The increase was primarily due to the increase of our outstanding debt. Also in 2006, interest expense includes dividends accrued and discount accretion on our Series C preferred stock totaling approximately $1.1 million. Our average debt balance for 2006 was approximately $15.1 million compared to $3.1 million in 2005. The increase in average debt balance was due to borrowings associated with our acquisitions of P.T.C. and GTI in January 2006.

Income Tax (Benefit) Provision. The income tax benefit for the year ended December 31, 2006 was approximately $750,000 as compared to a tax provision of $1.4 million for the year ended December 31, 2005. We expect our effective tax rate to be approximately 38.5% in future periods.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Total revenues decreased 3.3% to $38.4 million for the year ended December 31, 2005, compared to $39.6 million for the year ended December 31, 2004.

Financial Institution Service Fees. Financial institution service fees decreased $1.1 million, or 3.6%, to $29.3 million for the year ended December 31, 2005, compared to $30.4 million for the year ended December 31, 2004. The decrease was primarily due to a decline in revenues of $2.2 million attributable to our accounts receivable financing product, BusinessManager. Total receivables funded through BusinessManager declined to $3.82 billion in 2005 compared to $4.03 billion in 2004. This decrease was primarily the result of fewer small businesses funding through BusinessManager and fewer community financial institutions offering funding through BusinessManager during 2005 as compared to 2004, which we believe was due in part to a significant amount of turnover in the management and personnel of our sales force for this product. Although attrition rates for small businesses and client financial institutions were relatively stable, new sales to small businesses were lower than necessary to increase total participation fees. This decrease was partially offset by $528,000 in fees from new product introductions and $678,000 related to the acquisitions of KVI Capital and Captiva, both of which we acquired during 2005.

Retail Inventory Management Services. Retail inventory management services fees decreased to $8.7 million for 2005 as compared to $9.0 million for 2004. The decrease of $325,000, or 3.6%, from 2004 was primarily a result of a decline in monthly forecast service fees of $227,000 due to a decrease in the number of forecast customers. As a percentage of total revenues, retail inventory management services fees accounted for 22.6% during 2005 compared to 22.7% in 2004.

Other Products and Services. Revenues from other products and services increased $179,000, or 73.4%, to $418,000 for the year ended December 31, 2005 compared to $241,000 for the year ended December 31, 2004. This increase was primarily attributable to $298,000 in revenue from our Free Checking program, partially offset by a reduction in forms sales and other miscellaneous revenue.

Cost of Revenues — financial institution service fees. Cost of revenues related to financial institution service fees increased 21.5% to $3.0 million for the year ended December 31, 2005 compared to $2.4 million for the year ended December 31, 2004. This increase is primarily attributable to a cost of sales related to our Free Checking program of $378,000 and cost of sales for discount interest expense of $180,000 associated with our leasing product. Neither of these products existed in 2004. As a percentage of total revenues, cost of sales for financial institution service fees increased to 7.7% for the year ended December 31, 2005 compared to 6.2% for the year ended December 31, 2004.

Cost of Revenues — retail inventory management services. Cost of revenues related to retail inventory management services decreased 12.9% to $1.0 million for the year ended December 31, 2005 compared to $1.2 million for the year ended December 31, 2004. The decrease is due to a decline of approximately $81,000 in salary and benefits expense related to a reduction in headcount and a $54,000 reduction in the cost of postage and outside processing services associated with the generation of our forecast reports.

General and Administrative. General and administrative expenses decreased 10.9% to $12.1 million for the year ended December 31, 2005, compared to $13.6 million for the year ended December 31, 2004. The decrease was due to a $655,000 decrease in depreciation expense in 2005 due to lower capital spending over the last two years. Also contributing to the decrease was a decline of $853,000 in salary and benefits expense due to a decrease in the number of general and administrative personnel during 2005 as compared to 2004. As a percentage of total revenues, general and administrative expenses decreased to 31.6% for the year ended December 31, 2005 compared to 34.3% for the year ended December 31, 2004.

Selling and Marketing. Selling and marketing expenses increased 1.0% to $17.5 million for the year ended December 31, 2005, compared to $17.4 million for the year ended December 31, 2004. Selling and marketing expenses include cost of wages and commissions paid to our sales force, travel costs of the sales force, recruiting for new sales and marketing personnel and marketing

fees associated with direct and telemarketing programs. Sales salaries and benefits increased by $429,000. This increase was partially offset by decreases in commission expense of $404,000. As a percentage of total revenues, selling and marketing expenses increased to 45.7% for the year ended December 31, 2005, compared to 43.9% for the year ended December 31, 2004.

Research and Development. Research and development expenses decreased 35.4% to $257,000 for the year ended December 31, 2005, compared to $398,000 for the previous year ended December 31, 2004. Research and development expenses include the non-capitalizable direct costs associated with developing new versions of our software, as well as other software development projects that, in accordance with GAAP, we do not capitalize. The decrease was primarily due to our capitalizing an increased percentage of total development staff during 2005. As a percentage of total revenues, research and development expenses decreased to 0.7% for the year ended December 31, 2005 compared to 1.0% for 2004.

Amortization. Amortization expenses increased 18.3% to approximately $421,000 for the year ended December 31, 2005, compared to approximately $356,000 for the previous year. These expenses include the cost of amortizing intangible assets, including trademarks and identified intangibles recorded from our August 2001 merger with Towne Services and the acquisitions of KVI Capital and Captiva. The increase is primarily due to the amortization of new intangibles recorded as a result of the KVI and Captiva acquisitions in 2005.

Loss on Extinguishment of Debt. During the year ended December 31, 2004, we incurred a write-off of deferred financing costs associated with our 1998 credit facility resulting from the January 2004 Lightyear financing. No such charges were incurred during the year ended December 31, 2005.

Other Operating (Income) Expense, Net. Other operating (income) expense, net decreased significantly to operating income of $3,000 for the year ended December 31, 2005 from approximately $677,000 of expense for 2004. Other operating expenses include property tax and other miscellaneous costs associated with providing support and services to our client financial institutions. The decrease in 2005 is due to significant charges related to the $20.0 million financing we completed with Lightyear in January 2004. The January 2004 Lightyear financing resulted in a significant charge of $896,000 related to the purchase of a tail directors and officers insurance policy that was required to be expensed immediately. Partially offsetting those two items in 2004 was a reduction in expense of approximately $400,000 due to the favorable conclusion of several state sales tax contingency matters.

Operating Income. As a result of the above factors, our operating income increased 43.7% to $4.1 million for the year ended December 31, 2005, compared to $2.8 million for the previous year.

Interest Expense, Net. Interest expense, net decreased $87,000 to $381,000 for the year ended December 31, 2005, compared to $468,000 in 2004. The decrease was primarily due to the reduction of our outstanding debt. Our average debt balance for 2005 was approximately $3.1 million compared to $6.9 million in 2004.

Other Income. For the year ended December 31, 2004, we received proceeds totaling $266,000 relating to notes receivable from former officers of one of our subsidiaries. Because we had previously written off these notes as uncollectible, their subsequent collection resulted in this gain.

Income Tax Provision. The income tax provision for the year ended December 31, 2005 was approximately $1.4 million as compared to $62,000 for the year ended December 31, 2004. During September 2004, we recorded a tax benefit of $972,000 relating to an income tax contingent liability for which the statute of limitations expired in that month. As a result, the effective tax rate for the year ended December 31, 2004 was 2.3%. We expect our effective tax rate to be approximately 39.0% in future periods.

Critical Accounting Policies

Management has based this discussion and analysis of financial condition and results of operations on our consolidated financial statements. The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management evaluates its critical accounting policies and estimates on a periodic basis.

A “critical accounting policy” is one that is both important to the understanding of the company’s financial condition and results of operations 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:

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 and other related generally accepted accounting principles. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is probable.

Financial institution service fees. We earn two types of participation fees. Both types of fees are based on a percentage of the receivables that a client financial institution purchases from its small business customers during each month. Participation fees are recognized as earned, which is based upon the transaction dates of financial institution purchases from its small business customers.

We recognize insurance brokerage fee revenues when our financial institution clients purchase the accounts receivable covered by credit and fraud insurance policies and earn our fees based on a percentage of the premium paid to the insurance company.

We generate maintenance fees and other revenues from several ancillary products and services that we provide to our client financial institutions ratably over a 12-month period beginning on the first anniversary of the agreement with our client.

For customers that install our core data processing system at their location, we recognize revenues from the installation and training for the system as we provide the installation and training services. In addition, we charge an annual software maintenance fee, which we recognize ratably over the year to which it relates.

We recognize core data processing and image processing fees as we perform services for our clients. We also generate revenues from the licensing of our core data processing systems. We recognize revenue for licensing these systems in accordance with Statement of Position 97-2, “Software Revenue Recognition.” We recognize the software license after we have signed a non-cancelable license agreement, have installed the products and have fulfilled all significant obligations to the client under the agreement.

Our acquisition of Goldleaf Technologies added three primary products from which we earn revenues: ACH origination and processing; remote deposit; and website design and hosting. We describe the current revenue recognition policies for these products below.

We account for the ACH and remote deposit products in accordance with SOP 97-2. We license these products under automatically renewing agreements, which allow our customers to use the software for the term of the agreement, typically five years, and each renewal period. Typically, there is an up-front fee, an annual or monthly maintenance and hosting fees for each year of the contract, and per originator and per transaction fees for processing of ACH and remote deposit transactions. We also offer training services on a per training day basis if the customer requests training. During the second quarter of 2006, we began the process of modifying Goldleaf Technologies’ ACH and Remote Deposit contracts entered into after the January 31, 2006 acquisition date. The primary modification allows customers of these products to take possession of the software for use on an in-house basis versus the primary application service provider basis that Goldleaf Technologies had historically employed. In accordance with the guidance provided in EITF No. 00-3, Application of AICPA SOP 97-2, “Software Revenue Recognition,” to Arrangements That Include the Right to Use Software Stored in Another Entity’s Hardware, this change in contractual terms results in a change in the applicable accounting literature from EITF 00-21 to SOP 97-2, Software Revenue Recognition, as modified by SOPs 98-4 and 98-9. Under SOP 97-2, if vendor specific objective evidence of fair value (“VSOE”) has been established for all undelivered elements, the residual method applies. Under the residual method, the fair value of each undelivered element is deferred, and the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Therefore, in April 2006, we began recognizing the up-front fees when all of the revenue recognition criteria in paragraph 8 of SOP 97-2 have been met, which is normally upon customer implementation. Revenue related to the undelivered elements is recognized as the services are delivered. Included in revenue for the year ended December 31, 2006 is approximately $1.8 million related to up-front fees for contracts entered into during 2006. Had we not adopted this change, the total of $1.8 million in additional revenue recognized in 2006 would have been spread over the estimated life of the client relationships, which is approximately 60 months. The effect of this change on how we recognize revenue from sales of these products in future years will be to accelerate the amount of revenue we recognize in each year in which we sell the products, although the precise amount will vary depending on the number and dollar amount of our contracts.

The annual maintenance fee covers telephone support and all unspecified software enhancements and upgrades. The annual hosting fee covers the actual hosting of the software products on our servers, which are accessed by our customers. We defer both the annual maintenance fees and the hosting fees and recognize them into income over the one-year life of the maintenance and hosting agreements. We recognize monthly maintenance and hosting fees on a monthly basis as earned and recognize transaction fees monthly as the transactions occur. We recognize training revenue when we deliver the training services when delivered separately.

We offer financial institution website design services as well as hosting services for the website once design is complete. We charge an up-front fee for the design services and a monthly website hosting fee each month of the contract, which is typically five years. The monthly hosting fee typically includes a limited amount of website maintenance hours each month. We bill for any maintenance work exceeding the designated number of hours included in the monthly hosting fee at an agreed-to hourly rate as the services are rendered. We account for the website design and hosting services in accordance with EITF No. 00-21. During July 2006, the Company was able to establish objective and reliable evidence of fair value of the undelivered elements (the hosting and support services). As a result, the up-front fee for the design services is recognized at the time the customer website is completed and operational. Included in 2006 revenues are approximately $297,000 related to up-front fees sold after the acquisition date for completed customer websites that had previously been deferred. Had the Company not adopted this change, the total of $297,000 in additional revenue in 2006 would have been spread over the estimated life of the client relationships, which is approximately 60 months. The effect of this change on how the Company recognizes revenue from sales of these products in future years will be to accelerate the amount of revenue it recognizes in each year in which it sells the products, although the precise amount will vary depending on the number and dollar amount of its contracts. Monthly hosting and maintenance revenues are recognized on a monthly basis as earned.

Software license fees for our accounts receivable financing solution consist of two components: a license fee and a client training and support fee. We receive these one-time fees on the initial licensing of our program to a client financial institution. Some agreements contain performance or deferred payment terms that must be met for us to receive payment and recognize revenue. We recognize revenues from the license fee once we have met the terms of the client agreement. We recognize the client training and support fee ratably over a four-month service period after activation of the license agreement.

Revenue recognition rules for up-front fees are complex and require interpretation and judgment on the part of management. Each of our products containing software elements, including core data processing, ACH processing, remote capture processing, accounts receivable financing and teller automation systems, requires the establishment of vendor specific objective evidence, or VSOE, for each element of the arrangement. Determining each element of an agreement and establishing VSOE can be complex. If we modify our contract terms to an extent that changes our VSOE conclusions, our revenue recognition practices could be materially affected. Management completed a thorough analysis of the new client licenses for accounts receivable financing we obtained in 2003 and 2004 and concluded that we completed all services related to the up-front fees in approximately four months. As a result, effective January 1, 2005, we changed the estimated service period for recognition of the up-front license fee from a twelve-month to a four-month revenue recognition period. This change in assumptions resulted in an increase of approximately $115,000 in financial institution service fees during the quarter ended March 31, 2005 and increased financial institution service fees by $130,000 for the year ended December 31, 2005. We believe that this practice most accurately portrays the economic reality of the transactions.

We recognize leasing revenues for both direct financing and operating leases. For direct financing leases, the investment in direct financing leases caption consists of the sum of the minimum lease payments due during the remaining term of the lease and unguaranteed residual value of the leased asset. We record the difference between the total above and the cost of the leased asset as unearned income. We amortize unearned income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease. There is a significant amount of judgment involved in estimated residual values of leased assets at the inception of each lease. Management bases these estimates primarily on historical experience; however, changes in the economy or product obsolescence could adversely affect the residual values actually obtainable. We monitor residual values quarterly to re-assess the recorded amounts. In the event our assumptions change regarding the amounts expected to be realized, we could incur substantial losses related to leased assets. For leases classified as operating leases, we record the leased asset at cost and depreciate the leased asset. We record lease payments as rent income during the period earned.

Retail Inventory Management Services

We recognize revenues for our retail inventory management services as the transactions occur and as we perform merchandising and forecasting services.

Other Products and Services

Revenues from other products and services consist of revenues from the sale of premium gifts related to our Free Checking product, our direct mail program, scanner device sales related to our remote deposit product, other ancillary hardware sales, and revenues from the sale of business forms. We record revenues from our Free Checking direct mail campaign as the customer of our client financial institution opens a checking account and receives a premium gift. We recognize revenues related to the hardware sales and business forms in the period that we ship them to the client financial institution.

Software Development Costs

We expense software development costs incurred in the research and development of new software products and enhancements to existing software products as we incur those expenses until technological feasibility has been established. After that point, we capitalize any additional costs in accordance with Statement of Financial Accounting Standards SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. In addition, we capitalize 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, which is generally the point when we have completed research and development, we have established project feasibility, and management has approved a development plan. Many of the costs capitalized for internally used software relate to upgrades or enhancements of existing systems. If the development costs will result in specific additional functionality of the existing system, we capitalize these costs at the point that application development begins. We amortize capitalized software development costs on a straight-line basis over their useful lives, generally three years. The key assumptions and estimates for this accounting policy relate to determining when we have achieved technological feasibility 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 project managers to ensure that management understands the scope and expected results of each project to make a judgment on whether a particular project meets the requirements outlined in the authoritative accounting literature described above. There have been no significant changes in the critical assumptions affecting software development costs during any of the reporting periods presented in this prospectus.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and liability method, meaning that 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. We evaluate our ability to realize the deferred tax assets based on an assessment of the likelihood that we will have sufficient taxable income in future years to realize the recorded deferred tax assets. Deferred taxes for us primarily relate to NOLs, which require considerable judgment regarding whether we will ultimately realize them. For us, this judgment relies largely on whether we expect to have sufficient taxable income in future years that will allow for full use of the NOLs we record. In order to realize the NOLs recorded as a deferred tax asset at December 31, 2006, we will have to generate approximately $15.4 million of taxable income in future periods. Our recent historical taxable income is not sufficient to meet this minimum level of pre-tax profitability, however we do believe that future periods will provide sufficient taxable income levels to realize the recorded NOLs. Our recent historical results a number of significant one-time non-recurring charges, as well as, our operating performance has improved significantly due to our recent acquisitions. The other key assumption affecting the amount of NOLs we record as a deferred tax asset is the estimated restriction in usage due to Section 382 of the Internal Revenue Code. Section 382 is very complex, requiring significant expertise and professional judgment to properly evaluate its effect on our usable NOLs. We use an independent public accounting firm to assist with this evaluation and believe that we have appropriately considered the limitations required by Section 382 in arriving at the deferred tax asset for NOLs. If our assumptions change, we could have significant increases in income tax expense and reductions in deferred tax assets and operating cash flows.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (“FIN No. 48”) Accounting for Uncertainty in Income Taxes, which is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 requires a company to evaluate all uncertain tax positions and determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the positions. We must adopt FIN No. 48 beginning January 1, 2007. We are currently evaluating the requirements and impact, if any, of FIN No. 48 on our consolidated results of operations and financial position.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

Our business combinations require us to estimate the fair value of the assets acquired and liabilities assumed in accordance with SFAS No. 141, Accounting for the Impairment or Disposal of Long-Lived Assets. In general, we determine the fair values based upon information supplied by the management of the acquired entities, which information we substantiate, and valuations using standard valuation techniques. The valuations have been based primarily on future cash flow projections for the acquired assets, discounted to present value using a risk-adjusted discount rate. These future cash flow projections are highly subjective, and changes in these projections could materially affect the amounts calculated for intangible assets. In connection with our acquisitions, we have recorded a significant amount of intangible assets including goodwill. We are amortizing these intangible assets over their expected economic lives, generally ranging from three to ten years except for goodwill, which is not amortized.

Long-Lived Assets, Intangible Assets and Goodwill

We assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is measured as the amount by which the carrying value of the intangible asset exceeds its fair value. Factors we consider important that could trigger an impairment review include the following:

	•	significant underperformance relative to expected historical or projected future operating results,

	•	significant changes in the manner of our use of the acquired assets or the strategy for our overall business, and

	•	significant negative industry or economic trends.

We also perform an annual impairment test of goodwill at December 31. We assess potential impairment through a comparison of the fair value of each reporting unit versus its carrying value. The estimated fair value of goodwill and intangible assets is based on a number of factors including past operating results, budgets, economic projections, market trends, product development cycles and estimated future cash flows. Changes in these assumptions and estimates could cause a material effect on our financial statements.

Liquidity and Capital Resources

The following table sets forth the elements of our cash flow statement for the following periods:

	Year Ended December 31,

	2004			2005			2006

	(In thousands)
Net cash provided by operating activities	$	6,471		$	4,389			5,295
Net cash used in investing activities		(1,201	)		(8,331	)		(19,247	)
Net cash provided by (used in) financing activities		(6,849	)		4,072			20,575

Cash from Operating Activities

Cash provided by operations for the year ended December 31, 2006 was attributable to depreciation and amortization expense of $4.4 million, non-cash stock compensation of $3.8 million and the write-off of debt issuance costs totaling $1.6 million. These amounts were partially offset by a net loss of $3.0 million and a net decline in working capital assets and liabilities of $511,000, which was a result of an increase accounts receivable of $1.0 million, an increase in prepaid and other current assets of $664,000, an increase in inventory of $420,000 and decreases in accounts payable of $338,000 and other noncurrent liabilities of $124,000, partially offset by an increases in accrued liabilities of $1.2 million and deferred revenue of $891,000.

Cash provided by operations for the year ended December 31, 2005 was attributable to net income of $2.3 million, depreciation and amortization expense of $2.1 million and a deferred tax provision of $973,000. These operating cash flows were partially offset by a decline in working capital of $707,000 which was a result of an increase in prepaid and other current assets of $203,000, and a decrease in accrued liabilities of $892,000, partially offset by an increase in accounts payable of $433,000. Cash provided by operations in the year ended December 31, 2004 was attributable to net income of $2.6 million, depreciation and amortization of $2.8 million, the write-off of debt issuance costs of $780,000, and a deferred tax provision of $1.1 million.

Operating cash flows for 2004 were partially offset by an improvement in working capital of approximately $927,000 largely due to a decrease in accrued liabilities of $1.8 million, partially offset by decreases in accounts receivable and prepaid and other current assets of $402,000 and $289,000, respectively.

Cash from Investing Activities

Cash from investing activities consists primarily of purchases of fixed assets, business acquisitions and capitalization of software development costs. Cash used in investing activities totaling $19.2 million for the year ended December 31, 2006 consisted primarily of business acquisitions, lease receivable payments, purchases of fixed assets and capitalization of software development costs. Total capital expenditures, including software development costs, totaled $2.7 million for the year ended December 31, 2006. Theses expenditures primarily related to the purchase of computer equipment, computer software, software development activities, furniture and fixtures, and leasehold improvements. During the year ended December 31, 2006, we used approximately $17.4 million to acquire the stock of Goldleaf Technologies and operating assets of P.T.C. These cash uses were partially offset by $424,000 in net proceeds we received from our direct finance leases activities.

Cash used in investing activities for the year ended December 31, 2005 totaled $8.3 million. Total capital expenditures including capitalized software development costs were $1.6 million for the year ended December 31, 2005. These expenditures primarily related to the purchase of computer equipment, computer software, software development activities, furniture and fixtures and leasehold improvements. Net cash used in investing activities for the year ended December 31, 2005 included $6.6 million for the acquisition of Captiva and $575,000 for the acquisition of KVI Capital.

Cash used in investing activities for the year ended December 31, 2004 totaled $1.2 million consisting almost entirely of purchases of fixed assets and capitalization of software development costs.

Cash from Financing Activities

Cash from financing activities primarily relates to borrowings (paydowns) on our credit facilities, the payment of preferred dividends, inflows from the sale of common stock, preferred stock, and new debt issuances. During the year ended December 31, 2006, net cash provided by financing activities was $20.6 million and was attributable primarily to proceeds received from the sale of 11.5 million new common shares net of offering expenses totaling $56.1 million and net new borrowings of approximately $2.5 million from our amended and restated credit facility with Bank of America. We used substantially all of the offering proceeds to redeem all of our outstanding Series A, B, and C preferred shares and warrants, which totaled approximately $35.5 million. We also paid off our Term A, B, and C bank loans totaling $16.0 million and repaid an outstanding note payable of $850,000 relating to the GTI acquisition.

During 2005, net cash provided by financing activities was $4.1 million and was attributable primarily to net additional borrowings of $6.7 million offset by preferred dividends of $2.2 million.

During 2004, net cash used in financing activities was $6.8 million and was attributable to the repayment of $28.3 million in outstanding indebtedness and the payment of $2.8 million of preferred dividends, partially offset by net proceeds of $16.9 million from the sale of Series A preferred stock and $7.5 million from a new credit facility.

Analysis of Changes in Working Capital

As of December 31, 2006, we had working capital of approximately $5.7 million compared to working capital of approximately $2.2 million as of December 31, 2005. The change in working capital resulted primarily from an increase in cash of $6.6 million, an increase of $1.4 million in accounts receivable, an increase of $813,000 in prepaid and other assets and a $1.0 million increase in current deferred tax asset. These increases were partially offset by increases in accounts payable of $850,000, accrued liabilities of $2.4 million, deferred revenue of $3.2 million and notes payable of $150,000. All of these changes were primarily the result of completing the Goldleaf Technologies acquisition on January 31, 2006 and the completion of our secondary offering in October 2006.

We believe that the existing cash available, future operating cash flows and our amended and restated credit facility 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 throughout 2007. There can be no assurance that we will have sufficient cash flows to meet our obligations or that we will remain in compliance with the new covenants. Non-compliance with these covenants could have a material adverse effect on our operating and financial results.

Obligations and Commitments for Future Payments as of December 31, 2006

The following is a schedule of our obligations and commitments for future payments as of December 31, 2006:

			Payments Due by Period

Contractual Obligations	Total		Less Than 1 Year		1-2 Years		3-4 Years		5 Years & After

						(in thousands)
Revolving line of credit	$	2,500	$	—	$	—	$	2,500	$	—
Capital lease obligations		1,321		364		414		543		—
Non-recourse lease notes payable		6,118		2,141		1,736		1,996		245
Operating leases		5,389		2,079		1,664		1,643		3
Notes payable		150		150		—		—		—

Total contractual cash obligations	$	15,478	$	4,734	$	3,814	$	6,682	$	248

In the future, we may acquire businesses or products that are complementary to our business, although we cannot be certain that we will make any acquisitions. The need for cash to finance additional working capital or to make acquisitions may cause us to seek additional equity or debt financing. We cannot be certain that 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.

In December 2005, in connection with our acquisition of Captiva, we amended the Bank of America credit facility to convert it to a $5.0 million revolving line of credit, and we issued a $10.0 million unsecured senior subordinated note and common stock warrants to Lightyear. We paid Lightyear a fee of $250,000 in connection with this transaction and agreed to reimburse Lightyear for its legal fees up to $100,000. As of December 31, 2005, no amount was outstanding under the Bank of America credit facility. We were in compliance with all restrictive financial and non-financial covenants contained in the Bank of America credit facility throughout 2005.

On January 23, 2006, we entered into an amended and restated $18.0 million credit facility with Bank of America. We used the proceeds of the facility on January 31, 2006 to buy Goldleaf Technologies.

In connection with the January 2006 amendment and restatement of the Bank of America credit facility:

	•	The Lightyear Fund, L.P., an affiliate of Lightyear, guaranteed a $6.0 million term loan included in the facility that was due July 23, 2006 and we agreed to pay a fee of $45,000 to The Lightyear Fund, L.P. and to reimburse the Lightyear Fund, L.P. for up to $50,000 of its expenses in connection with this guaranty;

	•	Lightyear exchanged its senior subordinated $10.0 million note for 10,000 shares of our Series C preferred stock, which decreased our debt by $10.0 million but added that same amount in redeemable preferred stock; and

	•	we amended and restated the common stock warrants that we issued to Lightyear in December 2005 in connection with the Lightyear note.

The Series C preferred stock issued to Lightyear had a mandatory redemption date of December 9, 2010 at a redemption price of $10.0 million plus accrued and unpaid dividends, and had a 10% annual dividend rate that would have increased to 12% on June 9, 2007. As discussed elsewhere in this Form 10-K, on October 11, 2006, all of the Series C preferred stock outstanding was redeemed with cash generated from our secondary common stock offering.

We subsequently amended the Bank of America credit facility again in April 2006 to provide for an additional $1.75 million in short-term loans. We further amended the Bank of America credit facility in June 2006 to increase the total facility to $25.0 million, consisting of the $9.75 million Term A note, the $6.0 million Term B note and a $9.25 million revolving credit line. The June amendment also eliminated the scheduled quarterly Term A note payments of $250,000 on June 30, 2006, $500,000 on both September 30, 2006 and December 31, 2006, and $750,000 per quarter thereafter until maturity. On August 31, 2006, we again amended the Bank of America credit facility to reduce the interest rate on the Term B note from LIBOR plus 3% to LIBOR plus 1.25%. We repaid the $17.8 million outstanding under our credit facility with proceeds from our common stock offering and over allotment option discussed elsewhere in this Form 10-K. Upon repayment of the $17.8 million outstanding, our credit facility converted automatically to a $25.0 million revolving credit facility.

On November 30, 2006, we entered into a second amended and restated credit agreement with Bank of America, N.A., The People’s Bank of Winder, and Wachovia Bank, N.A. The Second Amended and Restated Credit Agreement amends and restates in its entirety the amended and restated credit agreement originally dated January 19, 2004, as amended and restated on January 23, 2006 and as further amended on February 17, 2006, April 5, 2006, May 3, 2006, June 15, 2006, and August 31, 2006. In the Second Amended and Restated Credit Agreement and the form of the Second Amended and Restated Note the parties thereto agreed to certain changes from the existing credit agreement, including the following:

	•	the credit facility was converted to a revolving credit facility in the amount of $40 million, an increase of $15 million over the previously existing credit facility;

	•	the maturity of the credit facility was extended from January 23, 2008 to November 30, 2009 with an option, conditioned upon the consent of the lenders, to extend the maturity for 12 additional months;

	•	the Funded Debt to EBITDA Ratio under the credit facility was increased from 2.25 (times) to 3 (times);

	•	Wachovia Bank, N.A. joined as a participant in the credit facility; and

	•	the limit on capital expenditures in the credit facility was increased from $3 million to $5 million per fiscal year.

Our Bank of America credit facility contains financial covenants, including the maintenance of financial ratios and limits on capital expenditures. We are required to maintain on a quarterly basis a ratio of Funded Debt, as defined and generally including all liabilities for borrowed money, to EBITDA. The definition of EBITDA in the credit facility agreement is different from the one used elsewhere in this prospectus in that it permits to be added back to EBITDA various specified amounts that include employee severance expenses, non-cash debt amortization expenses, costs associated with the change of our corporate name, certain litigation expenses and non-cash stock compensation expenses. We are required to maintain on a quarterly basis a ratio of Funded Debt to EBITDA not exceeding 3:1. This ratio is calculated (a) at the end of each fiscal quarter, using the results of the twelve-month period ending with the fiscal quarter and after giving pro forma effect to any acquisition made during such period and (b) on the date of any borrowing under the credit facility, using EBITDA for the most recent period and Funded Debt after giving pro forma effect to such borrowing. We are also required to maintain for the 12-calendar month period ending on the last day of each calendar quarter, a Fixed Charge Coverage Ratio (as defined) of: 2.0:1. In addition, we may not acquire fixed assets (other than any equipment purchased by KVI Capital with proceeds of non-recourse loans) having a value greater than $5.0 million during any 12-month period ending with each fiscal quarter. The credit agreement also contains customary negative covenants, including but not limited to a prohibition on declaring and paying any cash dividends on any class of stock.

As of December 31, 2006, we were in compliance with all restrictive financial and non-financial covenants contained in the Bank of America credit facility.

Off-Balance Sheet Arrangements

As of December 31, 2006, we do not have any off-balance sheet arrangements as defined by item 303(a) (4) of regulation S-K.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (“FIN No. 48”) Accounting for Uncertainty in Income Taxes, which is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 requires a company to evaluate all uncertain tax positions and determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company must adopt FIN No. 48 beginning January 1, 2007. We are currently evaluating the requirements and impact, if any, of FIN No. 48 on our consolidated results of operations and financial position.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006.

Historically, there have been two widely-used methods for quantifying the effects of financial statement misstatement. These methods are referred to as the “roll-over” and “iron curtain” method. The roll-over method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that results from the correction of an error existing in previously issued financial statements. We currently use the roll-over method for quantifying identified financial statement misstatements.

SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the Company’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach” because it requires quantification of errors under both the roll-over and iron curtain methods.

SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.

Our adoption of SAB 108 did not have any effect on our consolidated financial statements.

On September 20, 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS no. 157”). This new standard provided guidance for using fair value to measure assets and liabilities as required by other accounting standards. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which they reporting entity transacts. SFAS No. 157 must be adopted by the Company effective January 1, 2008, although early application is permitted. The Company is currently evaluating the effects of SFAS No. 157 upon adoption, however at this time it does not believe that adoption of this standard will have a material affect on its operating results or consolidated financial position.

In June 2006, Emerging Issues Task Force (“EITF”) No. 06-3 was issued to address the treatment of taxes collected by various governmental authorities related to revenue transactions. EITF No. 06-3 requires that all companies make an accounting policy decision as to whether such governmental taxes collected on revenue transactions are accounted for on a gross or net basis. For companies that elect to account for these taxes on a gross basis, then disclosure of the amount included in revenues for each period is required. EITF No. 06-3 is effective for periods beginning after December 15 2006. The Company will adopt this rule effective January 1, 2007 and intends to account for all governmental taxes associated with revenue transactions on a net basis.

In February 2007, the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effects of SFAS No. 159 upon adoption, however at this time it does not believe that adoption of this standard will have a material affect on its operating results or consolidated 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 financial institutions. 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.

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. Currently, our exposure relates primarily to our long-term debt obligations pursuant to the Amended and Restated Bank of America Credit Facility.

As of December 31, 2006, our outstanding line of credit totaled $2.5 million. An increase of 100 basis points under the Bank of America Credit Facility will impact our future cash flows by approximately $25,000 annually.

Item 8. Financial Statements and Supplementary Data.

Financial statements are contained on pages F-1 through F-36 of this Report.

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

None.

Item 9A. Controls and Procedures.

In an effort to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of December 31, 2006. Based on such evaluation, such officers have concluded that, as of December 31, 2006, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in our periodic reports filed with the SEC is recorded, processed, summarized and reported in the time periods specified in the rules and forms of the SEC. In making this determination, management considered the material weakness in our internal control over financial reporting that existed as of December 31, 2006, as more fully described below.

In connection with the completion of its audit of, and the issuance of its opinion dated March 28, 2007 on the Company's financial statements for the year ended December 31, 2006, Grant Thornton has determined, and the Company has concurred, that the Company does not have sufficient accounting resources to ensure the appropriate identification and accounting for certain non-routine transactions in a timely manner, and that this constitutes a material weakness in the Company's internal controls pursuant to standards established by the Public Company Accounting Oversight Board. A "material weakness" is a deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

We believe that our rapid growth through acquisitions in 2006, the number of non-routine transactions undertaken in 2006, and the increased complexity of our business contributed to the creation of this material weakness by placing additional burdens on our accounting resources. As of March 29, 2007 (the date the Annual Report on Form 10-K was filed), the Company already had begun to remediate the material weakness and to enhance its internal control over financial reporting. In January 2007, the Company hired an accounting reporting manager that has experience with reporting company accounting matters and disclosure obligations, and this individual will begin employment on March 30, 2007. Retention of this individual will allow us to improve our allocation of accounting resources. We also believe that Scott Meyerhoff, the Company's executive vice president who previously served as the chief financial officer for a reporting company, gives us an additional resource in accounting for non-routine transactions and provides a depth of expertise not typically available to companies our size. We believe that this staffing addition and our increased and more formalized utilization of Mr. Meyerhoff will mitigate the material weakness discussed above.

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance.

Information concerning our directors and executive officers is incorporated by reference to the proxy statement for our 2007 annual meeting of shareholders.

Item 11. Executive Compensation.

Executive compensation information is incorporated by reference to the proxy statement for our 2007 annual meeting of shareholders.

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

Information on the security ownership of certain beneficial owners and management information are incorporated by reference to the proxy statement for our 2007 annual meeting of shareholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information concerning relationships and related transactions and director independence is incorporated by reference to the proxy statement for our 2007 annual meeting of shareholders.

Item 14. Principal Accountant Fees and Services.

Information concerning the fees and services provided by our principal accountant is incorporated by reference to the proxy statement for our 2007 annual meeting of shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

Financial Statements

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2006 and 2005

Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004

Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2006, 2005, and 2004

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004

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.

INDEX TO FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms		F-2
Consolidated Balance Sheets as of December 31, 2006 and 2005		F-5
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004		F-6
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004		F-8
Notes to Consolidated Financial Statements		F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.)

We have audited the accompanying consolidated balance sheets of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries at December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 of the consolidated financial statements, the Company has adopted Financial Accounting Standards Board Statement No. 123(R), Share Based Payment, effective January 1, 2006.

	/s/ Grant Thornton, LLP


Raleigh, North Carolina
March 28, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.)

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries referred to in our report dated March 28, 2007, which is included in the annual report to security holders and incorporated by reference in Part II of this form. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule titled “Schedule II-Valuation and Qualifying Accounts” for each of the two years in the period ended December 31, 2006 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

	/s/ Grant Thornton, LLP

Raleigh, North Carolina
March 28, 2007

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.)

We have audited the accompanying consolidated statements of operations, stockholders’ equity (deficit), and cash flows of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries as of December 31, 2004. Our audit also included the financial statement schedule listed in the Index at Item 15 for the year ended December 31, 2004. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

	/s/ Ernst & Young LLP

Nashville, Tennessee

February 18, 2005, except for the reclassifications paragraph of Note 1, as to which the date is August 1, 2006, and the stock split paragraph of Note 1, as to which the date is September 8, 2006.

F-4

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005

	2006			2005

	(Dollars in thousands)
Assets:
Current assets:
Cash and cash equivalents	$	6,760		$	137
Restricted cash		3,029			50
Accounts receivable — trade, net of allowance for doubtful accounts of $396 and $206, Respectively		6,180			4,773
Accounts receivable — other		16			26
Inventory		432			12
Deferred tax assets		1,377			370
Investment in direct financing leases		2,230			2,235
Prepaid and other current assets		2,368			1,555

Total current assets		22,392			9,158

Property and equipment, net		3,196			2,187
Operating lease equipment, net		70			187
Other assets:
Software development costs, net		2,705			1,618
Deferred tax assets		3,121			1,456
Investment in direct financing leases, net of current portion		4,310			4,642
Intangible and other assets, net		13,033			4,931
Goodwill		26,477			12,378

Total other assets		49,646			25,025

Total assets	$	75,304		$	36,557

Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable	$	3,385		$	2,535
Accrued liabilities		4,014			1,582
Deferred revenue		3,654			456
Customer deposits		2,977			—
Current portion of capital lease obligations		364			—
Current portion of non-recourse lease notes payable		2,141			2,336
Note payable		150			—

Total current liabilities		16,685			6,909

Revolving line of credit		2,500			—
Deferred revenue		1,840			—
Capital lease obligations, net of current portion		957			—
Non-recourse lease notes payable, net of current portion		3,977			4,056
Other non-current liabilities		91			230
Senior Subordinated Long-Term Debt, net of unamortized debt discount of $0 and $1,491, respectively		—			8,509

Total liabilities		26,050			19,704

Commitments and contingencies
Stockholders’ equity:
Common stock, no par value; 100,000,000 shares authorized; shares issued and outstanding, 17,023,948 and 3,097,891, respectively		—			—
Preferred Stock, 20,000,000 shares authorized:
Series A non-convertible, no par value; 0 and 20,000 shares issued and outstanding, respectively		—			6,209
Series B convertible, no par value; 0 and 40,031 shares issued and outstanding, respectively		—			114
Additional paid-in capital		68,080			6,998
Retained (deficit) earnings		(18,826	)		3,532

Total stockholders’ equity		49,254			16,853

Total liabilities and stockholders’ equity	$	75,304		$	36,557

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

F-5

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004

	(In thousands, except per share data)
Revenues:
Financial institution service fees	$	43,741		$	29,255		$	30,405
Retail inventory management services		8,194			8,678			9,003
Other products and services		3,716			418			241

Total revenues		55,651			38,351			39,649

Cost of Revenues:
Financial institution service fees		9,589			2,965			2,440
Retail inventory management services		905			1,004			1,153

Gross profit		45,157			34,382			36,056

Operating Expenses:
General and administrative		22,867			12,118			13,596
Selling and marketing		18,694			17,514			17,415
Research and development		1,099			257			398
Amortization		1,984			421			356
Loss on extinguishment of debt		1,602			—			780
Other operating expenses (income), net		36			(3	)		677

Total operating expenses		46,282			30,307			33,222

Operating (Loss) income		(1,125	)		4,075			2,834
Interest Expense, Net		(2,597	)		(381	)		(468	)
Other Income		—			—			266

(Loss) income Before Income Taxes		(3,722	)		3,694			2,632
Income tax (benefit) provision		(750	)		1,359			62

Net (Loss) Income		(2,972	)		2,335			2,570
Preferred stock dividends and deemed distributions		(19,386	)		(2,160	)		(2,056	)

Net (Loss) Income Available to Common Stockholders	$	(22,358	)	$	175		$	514

(Loss) Earnings Per Share:
Basic	$	(3.62	)	$	0.06		$	0.18

Diluted	$	(3.62	)	$	0.06		$	0.17

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

F-6

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2006, 2005 and 2004

	Shares of Common Stock			Preferred Stock			Additional Paid- in Capital			Retained Earnings (Deficit)			Total

	(In thousands)
Balance December 31, 2003		2,813		$	114		$	(7,326	)	$	2,844		$	(4,368	)
Series A preferred stock issuance and common stock warrant issuance		—			6,209			10,685			—			16,894
Preferred stock dividends		—			—			—			(2,056	)		(2,056	)
Exercise of stock options		60			—			325			—			325
Shares issued under employee stock purchase plan		5			—			32			—			32
Other		—			—			—			(1	)		(1	)
Comprehensive income: 2004 net income		—			—			—			2,570			2,570

Balance December 31, 2004		2,878		$	6,323		$	3,716		$	3,357		$	13,396

Issuance of common stock for purchase of KVI Capital, LLC		23			—			200			—			200
Issuance of common stock for the merger with Captiva Solutions, LLC		152			—			925			—			925
Issuance of stock options for the merger with Captiva Solutions, LLC		—			—			381			—			381
Issuance of common stock warrants		—			—			1,510			—			1,510
Preferred stock dividends		—			—			—			(2,160	)		(2,160	)
Exercise of stock options		60			—			381			—			381
Shares issued under employee stock purchase plan		5			—			35			—			35
Repurchase of treasury stock		(20	)		—			(150	)		—			(150	)
Comprehensive income: 2005 net income		—			—			—			2,335			2,335

Balance December 31, 2005		3,098		$	6,323		$	6,998		$	3,532		$	16,853

Issuance of common stock to Series A and C preferred shareholder		2,346			—			12,903			—			12,903
Issuance of common stock in conjunction with acquisitions		63			—			462			—			462
Issuance of Series A dividends paid-in-kind and related common stock warrants		—			878			659			—			1,537
Cancellation of common stock for purchase of KVI Capital, LLC		(2	)		—			(20	)		—			(20	)
Preferred stock dividends and deemed distributions		—			—						(19,386	)		(19,386	)
Stock compensation expense		—			—			3,809			—			3,809
Sale of common stock, net of offering expenses		11,500			—			56,116			—			56,116
Redemption of Series A and B preferred shares		—			(7,201	)		(12,854	)		—			(20,055	)
Shares issued under employee stock purchase plan		1			—			4			—			4
Purchase of fractional shares for reverse stock split and correction to shares outstanding for reverse stock split		17			—			(1	)		—			(1	)
Exercise of stock options		1			—			4			—			4
Comprehensive income: 2006 net loss		—			—			—			(2,972	)		(2,972	)

Balance December 31, 2006		17,024		$	—		$	68,080		$	(18,826	)	$	49,254

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

F-7

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004

	(In thousands)
Cash Flows From Operating Activities:
Net (loss) income	$	(2,972	)	$	2,335		$	2,570
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Write-off of debt issuance costs		1,602			—			780
Depreciation and amortization		4,333			2,056			2,844
Depreciation on fixed assets under operating leases		72			48			—
Deferred taxes		(962	)		973			1,065
Amortization of debt issuance costs and discount		577			126			90
Stock option compensation expense		3,809			—			—
Amortization of lease income and initial direct costs		(624	)		(376	)		—
Loss on write-down or disposal of fixed assets and software development costs		83			16			65
Impairment charge for change in depreciable lives		17			—			—
Deferred gain on land sale		(15	)		(16	)		(16	)
Gain on sale of leased equipment		(74	)		(66	)		—
Gain on sale of other assets		(40	)		—			—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(1,039	)		4			402
Prepaid and other current assets		(664	)		(203	)		289
Inventory		(420	)		—			—
Accounts payable		(338	)		433			120
Accrued liabilities		1,183			(892	)		(1,767	)
Deferred revenue		891			(130	)		29
Other non-current liabilities		(124	)		81			—

Net cash provided by operating activities		5,295			4,389			6,471

Cash Flows From Investing Activities:
Change in restricted cash		2			(50	)		—
Proceeds from lease terminations		643			122			—
Investment in direct financing leases		(2,315	)		(719	)		—
Lease receivables paid		2,739			1,001			—
Additions to property and equipment		(1,036	)		(545	)		(530	)
Software development costs		(1,628	)		(1,028	)		(714	)
Additions to intangible and other assets		(396	)		(26	)		—
Proceeds from sale of other assets		162			—			—
Net proceeds from note receivables		(4	)		60			43
Acquisition of businesses, net of cash acquired		(17,414	)		(7,146	)		—

Net cash used in investing activities		(19,247	)		(8,331	)		(1,201	)

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

F-8

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004

	(In thousands)
Cash Flow From Financing Activities:
Proceeds from sale of common shares, net of offering expenses		56,116			—			—
Repayments on long-term debt		(16,000	)		(3,333	)		(1,667	)
Repayments on capitalized lease obligations		(236	)		—			(201	)
Extinguishment of long-term debt, facility with Fleet		—			—			(23,875	)
Payments on other short term borrowings		—			—			(388	)
Payment of debt issuance costs and amendment fees		(674	)		(287	)		(286	)
Payment of preferred dividends declared		(562	)		(2,160	)		(2,793	)
Net proceeds (payments) from revolving line of credit		2,500			(110	)		(2,390	)
Net proceeds from sale of Series A preferred shares and common stock warrant		—			—			16,894
Proceeds from new debt facility with Bank of America		16,000			—			7,500
Proceeds from issuance of senior subordinated long-term debt and common stock warrant		—			10,000			—
Redemption of Preferred A, B, and C shares		(34,208	)		—			—
Redemption of common stock warrants		(1,245	)		—			—
Proceeds from non-recourse lease financing notes payable		2,400			535			—
Repayments of non-recourse lease financing notes payable		(2,674	)		(839	)		—
Repayments of note payable		(850	)		—			—
Repurchase of common stock		(2	)		(150	)		—
Proceeds from exercise of employee stock options		5			381			325
Stock issued through employee stock purchase plan		5			35			32

Net cash provided by (used in) financing activities		20,575			4,072			(6,849	)

Net change in cash and cash equivalents		6,623			130			(1,579	)
Cash and cash equivalents at beginning of year		137			7			1,586

Cash and cash equivalents at end of year	$	6,760		$	137		$	7

Supplemental Cash Flow Information:
Cash payments for income taxes during period	$	334		$	749		$	306

Cash payments of interest during period	$	1,211		$	168		$	237

Supplemental Non-Cash Investing Disclosures:
Issuance of 62,953 common shares as purchase consideration in the Goldleaf Technologies, Inc. and P.T.C. Banking acquisitions	$	462		$	—		$	—

Issuance of 174,636 common shares as purchase consideration in the Captiva Solutions, LLC and KVI Capital, LLC acquisitions	$	—		$	1,125		$	—

Issuance of note payable to Goldleaf executive for signing bonus	$	1,000		$	—		$	—

Supplemental Non-Cash Financing Disclosures:
Payment-in-kind on Series A preferred stock dividend	$	1,537		$	—		$	—

Payment-in-kind on Series C preferred stock dividend	$	556		$	—		$	—

Issuance of 2,346,000 common shares to redeem Series A and C preferred shares	$	12,903		$	—		$	—

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

F-9

GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Goldleaf Financial Solutions, Inc., formerly named 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 financial institutions market and manage accounts receivable financing. Effective May 5, 2006, the Company changed its name to Goldleaf Financial Solutions, Inc. The Company operates primarily in the United States and its customers consist of financial institutions of various sizes, primarily community financial institutions. The Company consists of three wholly owned subsidiaries, Goldleaf Technologies, Inc. (“GTI”), Towne Services, Inc. (“Towne”) and Captiva Solutions, LLC (“Captiva”). Towne Services, Inc. (“Towne”) owns Forseon Corporation (d/b/a RMSA), Private Business Insurance, LLC (“Insurance”) and KVI Capital, LLC (“KVI”). Insurance brokers credit and fraud insurance, which is underwritten through a third party, to its customers. KVI Capital was acquired in August 2005 and is in the business of providing a “turn-key” leasing solution for financial institutions who want to offer a leasing option to their commercial customers. Captiva was acquired in December 2005 and is in the business of providing core data and image processing services to financial institutions. GTI was acquired in January 2006 and is in the business of providing ACH origination and processing services, remote capture processing services and financial institution website design and hosting services.

The market for the Company’s services related to its financial institution services segment is concentrated in the financial institution industry. Further, the Company’s services are characterized by risk and uncertainty as a result of the Company’s reliance primarily 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 financial institution industry. Consequently, the Company is exposed to a high degree of concentration risk relative to the financial institution industry environment for its financial institution services segment and its limited product offerings.

Stock Split

On August 8, 2006, the Company’s Board of Directors approved a one for five reverse stock split which was effected on September 8, 2006. As a result, all common shares, common share options and warrants and per share amounts for all prior periods have been adjusted to reflect this reverse split in the accompanying consolidated financial statements.

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. As of December 31, 2006 and 2005, the Company reclassified $0 and $529,000 of uncleared checks to accounts payable, respectively.

As of December 31, 2006, the Company is exposed to credit risks related to its cash balances at financial institutions in excess of the limits of the Federal Deposit Insurance Corporation (“FDIC”).

Restricted Cash

The Company maintains a custodial cash account that is used for the processing and clearance of ACH transactions for some of its customers. The cash is restricted and there is an off-setting customer deposit account included in current liabilities in the accompanying consolidated balance sheet as of December 31, 2006.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated using both straight line and accelerated methods over 3 to 10 years for furniture and equipment, 3 years for purchased software and the shorter of estimated useful life or the life of the lease for all leasehold improvements. During the fourth quarter of 2006, the Company changed the estimated life used for computers from 5 to 3 years. As a result, the Company recorded an impairment charge of $17,000 for computer equipment greater than 3 years old and an increase in depreciation expense totaling $143,000. The impairment charge is included in other operating

F-10

expense in the accompanying consolidated statements of operations and was associated primarily with the financial institution services operating segment. 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 Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, issued by the Financial Accounting Standards Board (“FASB”). As of December 31, 2006, the Company believes no impairment to long-lived assets existed, except as described above.

Equipment under operating leases is carried at cost and is depreciated to the individual equipment’s net realizable value. Depreciation is calculated using the straight-line method over the shorter of the life of the lease or the estimated useful life of the equipment, typically 5 to 7 years.

Unbilled Accounts Receivable

The Company invoices for certain revenues in arrears in the month following the month in which the revenues were earned. Therefore, at each period-end, the Company includes unbilled accounts receivable in its trade accounts receivable balance in the accompanying consolidated balance sheet. As of December 31, 2006 and 2005, the Company’s unbilled accounts receivable totaled approximately $523,000 and $0, respectively.

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. The Company considers customer balances in excess of sixty days past due to be delinquent and thus subject to consideration for the allowance for doubtful accounts.

Inventory

The Company maintains limited quantities of hardware equipment in stock related primarily to its remote deposit product. The Company also maintains small quantities of incidental inventory items related to other product lines. The Company values inventories at the lower of cost or market at each period and with cost determined by the first-in, first-out (“FIFO”) costing method. As of December 31, 2006 and 2005, the Company’s inventory balance totaled $432,000 and $12,000, respectively.

Software Development Costs

Development costs incurred in the research and development of new software products and significant enhancements to existing software products are expensed as incurred until technological feasibility has been established. After such time, any additional costs are 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 the estimated life of the product or enhancement, typically 2 to 5 years.

Also, the Company capitalizes costs of internally used software when application development begins in accordance with Statement of Position (“SOP”) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued by the American Institute of Certified Public Accounts (“AICPA”). 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. Typically these costs are amortized on a straight-line basis over a three to five year time period.

Amortization expense associated with capitalized software development costs was approximately $410,000, $548,000 and $788,000 during the years ended December 31, 2006, 2005, and 2004, respectively. Total accumulated amortization of software development cost as of December 31, 2006 and 2005 totaled $5.4 million and $5.0 million, respectively.

F-11

Intangible and Other Assets

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses how intangible assets and goodwill should be accounted for upon and after their acquisition. Specifically, goodwill and intangible assets with indefinite useful lives are not amortized, but are subject to impairment tests based on their estimated fair value.

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 KVI and Captiva acquired in 2005. Intangible and other assets also includes the identified intangible assets acquired in our acquisitions completed in 2006. See Note 3 for further discussion of these acquisitions. Also included in intangible and other assets are debt issuance costs that are amortized using the effective interest method over the respective terms of the financial institution loans. In addition, intangible and other assets include non-competition agreements, customer lists, tradenames and trademarks, and acquired technology. As of December 31, 2006, the Company believes no impairment to intangible and other assets existed.

Revenue Recognition

Software Licenses

The Company accounts for software revenues in accordance with SOP No. 97-2, Software Revenue Recognition. 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 supersedes and clarifies certain provisions of SOP 97-2.

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 (“PCS”). The original license agreement also includes a fee for 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. The Company has established vendor specific objective evidence (“VSOE”) for its PCS services, therefore the portion of the up-front fee not attributable to PCS relates to the software license and to all other services provided during the initial year of the agreement, including installation, training and marketing services. The portion of the up-front fee related to these activities is recognized over the first four months of the contract, which is the average period of time over which these services are performed. The agreements typically do not allow for cancellation during the term of the agreement. However, for agreements that contain refund or cancellation provisions, the Company defers the entire fee until such refund or cancellation provisions lapse.

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.

Insurance Brokerage Fees

The Company acts as a licensee insurance agent for the credit and fraud insurance products that can be purchased in conjunction with the Company’s accounts receivable financing services. The Company earns an insurance brokerage commission for all premiums paid by our financial institution customers. The brokerage fees are recorded on a net basis as opposed to reflecting the entire insurance premium as revenues because the Company does not take any credit risk with respect to these premiums.

Lease Accounting

As a result of the KVI acquisition (Note 3), the Company is an equipment lessor. As such, the Company accounts for its leasing business in accordance with SFAS No. 13, Accounting for Leases. SFAS No. 13 requires lessors to evaluate each lease transaction and determine whether it qualifies as a sales-type, direct financing, leveraged, or operating lease. KVI’s leases fall into two of those catagories: direct financing and operating leases.

F-12

For direct financing leases, the investment in direct financing leases caption consists of the sum of the minimum lease payments due during the remaining term of the lease and the unguaranteed residual value of the leased asset. The difference between the total above and the cost of the leased asset is then recorded as unearned income. Unearned income is amortized to income over the lease term as to produce a constant periodic rate of return on the net investment in the lease.

For leases classified as operating leases, lease payments are recorded as rent income during the period earned.

Core Data and Image Processing

Core data and image processing services are primarily offered on an outsourced basis through our service bureau but are also offered through licenses for use by the institution on an in-house basis. Support and services fees are generated from implementation services contracted with us by the customer, ongoing support services to assist the customer in operating the systems and to enhance and update the software, and from providing outsourced data processing services. Outsourcing services are performed through our data and item centers. Revenues from outsourced item and data processing are derived from monthly usage fees typically under multi-year contracts with our customers and are recorded as revenue in the month the services are performed.

For customers that install our core data system at their location, revenues from the installation and training for the system are recognized as the installation and training services are provided. In addition, there is an annual software maintenance fee, which is recognized ratably over the year to which it relates.

ACH Manager and Client (“ACH”) and Remote Deposit Revenue

Historically, GTI had accounted for the ACH and Remote Deposit products in accordance with EITF No. 00-21, Revenue Arrangements with Multiple Deliverables. These products are licensed under automatically renewing agreements, which allow the licensees use of the software for the term of the agreement (typically five years) and each renewal period. Typically, there is an up-front fee, an annual or monthly maintenance fee and hosting fee for each year of the contract, and per transaction fees for processing of ACH and remote deposit transactions.

During the second quarter of 2006, the Company began the process of modifying GTI’s ACH and Remote Deposit contracts entered into after the January 31, 2006 acquisition date. The primary modification related to allowing for customers of these products to take possession of the software for use on an in-house basis versus the primary application service provider (“ASP”) basis that GTI typically employs. In accordance with the guidance provided in EITF No. 00-3, Application of AICPA SOP 97-2, “Software Revenue Recognition,” to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, this change in contractual terms results in a change in the applicable accounting literature from EITF 00-21 to SOP 97-2, Software Revenue Recognition, as modified by SOPs 98-4 and 98-9. Under SOP 97-2, if Vendor Specific Objective Evidence of Fair Value, (“VSOE”) has been established for all undelivered elements, the residual method applies. Under the residual method, the fair value of each undelivered element is deferred and the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Therefore, in April 2006, the Company began recognizing the up-front fees when all of the revenue recognition criteria in paragraph 8 of SOP 97-2 have been met, which is normally upon customer implementation. Revenue related to the undelivered elements is recognized as the services are delivered. Included in financial institution revenues for the year ended December 31, 2006 is approximately $1.8 million related to up-front fees for contracts entered into during 2006. Had the Company not adopted this change, the total of $1.8 million in additional revenue in 2006 would have been spread over the estimated life of the client relationships, which is approximately 60 months. The effect of this change on how the Company recognizes revenue from sales of these products in future years will be to accelerate the amount of revenue it recognizes in each year in which it sells the products although the precise amount will vary depending on the number and dollar amount of its contracts.

The annual maintenance fee covers phone support and all unspecified software enhancements and upgrades. Annual maintenance fees are deferred and recognized into income over the one-year life of the maintenance agreement. Monthly maintenance and hosting fees are recognized on a monthly basis as earned. The transaction fees are recognized monthly as the transactions occur. Training is recognized when delivered based on the fair value of the training services when delivered separately.

The Company also offers training services on a per training day basis if the customer requests training.

Website Design and Hosting Revenue

The Company offers financial institution website design services as well as hosting and support services for the website once design is complete. The Company charges an up-front fee for the design services and charges a monthly website hosting and support fee each month of the contract, which is typically five years. Typically included in the monthly hosting and support fee is

F-13

a limited amount of website maintenance hours each month. Any maintenance work exceeding the designated number of hours included in the monthly hosting fee and support is billed at an agreed upon hourly rate as the services are rendered. The Company accounts for the website design and hosting services in accordance with EITF No. 00-21. During July 2006, the Company was able to establish objective and reliable evidence of fair value of the undelivered elements (the hosting and support services). As a result, the up-front fee for the design services is recognized at the time the customer website is completed and operational. Included in 2006 revenues are approximately $297,000 related to up-front fees for completed customer websites that had previously been deferred. Had the Company not adopted this change, the total of $297,000 in additional revenue in 2006 would have been spread over the estimated life of the client relationships, which is approximately 60 months. The effect of this change on how the Company recognizes revenue from sales of these products in future years will be to accelerate the amount of revenue it recognizes in each year in which it sells the products, although the precise amount will vary depending on the number and dollar amount of its contracts. Monthly hosting and maintenance revenues are recognized on a monthly basis as earned.

Maintenance and Other

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

Advertising Costs

The Company expenses all advertising costs as incurred, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of direct mail piece production and mailing related to the Company’s bank deposit acquisition products, Free Checking, and DepositPlus. Direct-response advertising costs are amortized over three years. As of December 31, 2006 and 2005, the net book value of capitalized direct-response advertising costs totaled $265,000 and $0, respectively.

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. As of December 31, 2005 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, 2006.

Concentration of Revenues

Substantially all of the Company’s revenues are generated from financial institutions.

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 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 income 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. Common stock equivalents are excluded from diluted earnings per common share to the effect that they are anti-dilutive.

Stock Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the cost of employee services received in exchange for equity instruments awarded or liabilities incurred to be recognized in the financial statements. Under this method, compensation cost beginning January 1, 2006 includes the portion vesting in the period for (1) all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (2) all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated using the Black-Scholes option pricing model.

F-14

Under the Black-Scholes option-pricing model, the Company estimated volatility using its historical share price performance over the expected life of the option. Results of prior periods do not reflect any restated amounts, and the Company had no cumulative effect adjustment upon adoption of SFAS No. 123R under the modified prospective method. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises or grants of restricted shares. The Company has determined that it has two pools of employees for the purpose of calculating the estimated compensation cost: executive officers pool and non-executive officers’ pool. These two pools properly segregate our employees that have similar historical exercise and forfeiture behavior. Refer to Note 17 for complete stock option disclosures.

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, 2006 and 2005, there were no material differences in the book values of the Company’s financial instruments and their related fair values. Financial instruments primarily consist of cash, accounts receivable, accounts payable and debt instruments.

Comprehensive Income

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 as a part of the consolidated statements of stockholders’ equity (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, financial institution services and retail inventory forecasting. Note 23 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.

Reclassifications

Historically, the Company has reported its results of operations using the following revenue line items; participation fees; software license; retail inventory management services; insurance brokerage fees; and maintenance and other. Due to the Company’s recent acquisitions, we believe that the presentation using revenue line items for financial institution service fees, retail inventory management services and other products and services, will be more useful to an understanding of our operations. Also, we added a cost of revenues category to capture direct costs associated with the generation of our revenues. Revenues and cost of revenues for the years ended December 31, 2005 and 2004 have been reclassified to reflect this presentation.

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

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (“FIN No. 48”) Accounting for Uncertainty in Income Taxes, which is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 requires a company to evaluate all uncertain tax positions and determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company must adopt FIN No. 48 beginning January 1, 2007. The Company is evaluating its tax positions in all open tax periods to assess whether any of those positions are uncertain and thus require a valuation allowance.

F-15

Our adoption of SAB 108 did not have any effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effects of SFAS No. 159 upon adoption, however at this time it does not believe that adoption of this standard will have a material affect on its operating results or consolidated financial position.

2. SECONDARY COMMON STOCK OFFERING AND PREFERRED STOCK REDEMPTION

On October 11, 2006, the Company completed the sale of 10,000,000 shares of its common stock in a secondary public offering at a price of $5.50 per share for proceeds, net of underwriting fees, of $51,150,000. Subsequently, on October 18, 2006, the underwriter exercised the over-allotment option to purchase an additional 1,500,000 shares of the Company’s common stock at $5.50 per share for proceeds, net of underwriting fees, of $7,672,500. The proceeds from the offering were used to redeem its

F-16

Series A and C preferred stock held by Lightyear for a total of approximately $34.5 million with the remaining offering proceeds and the proceeds from the over-allotment option being used to pay down the Company’s $17.8 million Bank of America credit facility. The following is a summary of the secondary offering transaction:

(In thousands, except per share amounts)

Gross proceeds (10.0 million and 1.5 million shares sold at $5.50 per share)	$	63,250
Less:
Underwriting and advisory fees		4,428
Legal and accounting fees		1,902
Printing and distribution expenses		279
Roadshow expenses		267
Other expenses		258

Net offering proceeds	$	56,116

In conjunction with the secondary offering, the Company redeemed all of the Series A and C preferred shares for $33.2 million, including all accrued but unpaid dividends, paid $1.2 million to redeem the 378,788 common stock warrants issued in January 2006, and issued 2,346,000 new common shares to Lightyear, representing 14.9% ownership of the fully diluted common stock of the Company as of October 11, 2006, in exchange for the 3,200,000 common stock warrants held by Lightyear and the release of Lightyear from its guaranty of our Term B Note. This redemption resulted in a deemed distribution of approximately $15.7 million representing the difference in the total value of what the Company paid in cash as well as the estimated fair value of the 2.3 million common shares issued to Lightyear totaling $47.3 million compared to the recorded values of the Series A and C preferred stock of $15.8 million and the amounts credited to additional paid-in-capital relating to the associated warrants of approximately $12.9 million. The deemed distribution is included in the preferred dividends caption in the accompanying consolidated statement of operations for the quarter and year ended December 31, 2006. The Company also recorded a one-time, non-recurring charge for the write-off of the debt discount and the debt issuance costs previously recorded on the Series C preferred stock. This expense is included in other operating expense during the quarter and year ended December 31, 2006 and totals approximately $1.5 million.

The Company redeemed all outstanding Series B preferred shares at the stated redemption price, plus accrued and unpaid dividends, on December 8, 2006. The total amount of the redemption and accrued dividends totaled $2.2 million. As a result of the Series B redemption, the Company recorded a deemed distribution of approximately $1.9 million during the quarter and year ended December 31, 2006.

As a result of the change in control upon completion of the secondary offering, vesting was accelerated on 951,986 of the Company’s outstanding stock options. In accordance with SFAS No. 123R, the acceleration in vesting results in the acceleration of non-cash stock compensation associated with these options. Therefore, a non-cash stock compensation charge of approximately $3.0 million was recorded during the quarter and year ended December 31, 2006. Approximately 930,000 of the stock options held by executives and directors that became vested are subject to lock-up agreements with the underwriters. Fifty percent (50%) of the accelerated executive and director options are locked-up for six months with the balance being locked-up for twenty-four months.

Upon the paydown of the Bank of America credit facility, the term debt was extinguished and converted into additional revolving debt, making the credit facility a $25.0 million revolving credit facility. See Note 12 for further discussion of the Company’s credit facility.

3. ACQUISITIONS

Goldleaf Technologies, Inc.

On January 31, 2006, the Company acquired 100% of the outstanding capital stock of Goldleaf Technologies, Inc. (“GTI”) in exchange for cash consideration of $16,785,121 and common stock consideration of $400,341 (54,464 shares valued at $7.35 per share). Simultaneous with the execution of the merger agreement, the Company entered into a two-year employment agreement

F-17

with the chief executive officer of GTI to become an executive vice president of the Company. The operating results of GTI were included with those of the Company beginning January 31, 2006. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations. The purchase price allocation is as follows:

(In thousands, except share amounts)

Purchase price:
Cash (includes $830,000) paid to executives considered as purchase price)	$	17,615
Notes payable to executive		1,000
Common shares (54,468 shares valued at $7.35 per share)		400
Direct acquisition costs		218

Total purchase price	$	19,233

Value assigned to assets and liabilities:
Assets:
Cash	$	1,405
Restricted cash		11,258
Accounts receivable		466
Other current assets		156
Property and equipment		1,790
Deferred tax asset		1,710
Customer list (estimated life of ten years)		2,110
Acquired technology (estimated life of seven years)		2,070
Trademarks/tradenames (indefinite life)		3,860
Non-compete (estimated life of three years)		1,300
Goodwill		13,555
Liabilities:
Accounts payable		(1,181	)
Accrued liabilities		(2,261	)
Customer deposits		(11,258	)
Capital lease obligations		(1,557	)
Deferred revenue		(4,190	)

Total net assets	$	19,233

Included in accrued liabilities are the office lease costs of GTI’s former headquarters building, net of estimated sublease proceeds. The Company has vacated this building space and thus will not receive any future economic benefits from this office space. The Company is actively seeking to sublease the space. The office lease space accrual totaled $243,000 as of the opening balance sheet.

Assets of P.T.C. Banking Systems, Inc.

On January 18, 2006, the Company executed an asset purchase agreement to acquire certain operating assets and liabilities from P.T.C. Banking Systems, Inc. (“P.T.C.”), in exchange for cash consideration of $948,836 and common stock consideration of $62,000 (8,485 shares valued at $7.30). Simultaneous with the execution of the asset purchase agreement, the Company entered into a one-year employment agreement with the principal officer of P.T.C. The operating results of P.T.C. were included with those of the Company beginning January 18, 2006. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations.

F-18

The purchase price allocation is as follows:

(In thousands, except share amounts)

Purchase price:
Cash	$	949
Common shares (8,485 shares valued at $7.30 per share)		62
Direct acquisition costs		37

Total purchase price	$	1,048

Value assigned to assets and liabilities:
Assets:
Property and equipment	$	15
Customer list (estimated life of ten years)		53
Acquired technology (estimated life of five years)		280
Non-compete (estimated life of three years)		375
Goodwill		478
Liabilities:
Accounts payable		(3	)
Accrued liabilities		(10	)
Deferred revenue		(140	)

Total net assets	$	1,048

Captiva Solutions, LLC

On December 9, 2005, the Company acquired 100% of the membership units of Captiva Solutions, LLC in exchange for cash consideration of $6,000,000 and common stock consideration of $925,000 (151,515 shares). Based on the 2006 financial results of the acquired entities, the selling shareholders of Captiva will be entitled to an additional 242,425 common shares. These additional common shares will be issued in April 2007 and will be treated as additional purchase price and therefore increase goodwill by approximately $1.5 million. Simultaneous with the execution of the merger agreement, the Company entered into a two year employment agreement with the chief executive officer of Captiva to become the chief executive officer of the Company. The operating results of Captiva were included with those of the Company beginning December 9, 2005. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations. The purchase price allocation is as follows:

(In thousands, except share amounts)

Purchase price:
Cash	$	6,000
Common shares (151,515 shares valued at $6.10 per share)		925
Common stock options		381
Direct acquisition costs		740

Total purchase price	$	8,046

Value assigned to assets and liabilities:
Assets:
Cash	$	8
Accounts receivable		171
Other current assets		78
Property and equipment		317
Customer list (estimated life of ten years)		1,450
Acquired technology (estimated life of three years)		760
Non-compete (estimated life of three years)		640
Goodwill		5,229
Liabilities:
Accounts payable		(142	)
Accrued liabilities		(394	)
Other non-current liabilities		(71	)

Total net assets	$	8,046

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KVI Capital, Inc.

Effective August 1, 2005, the Company acquired 100% of the outstanding membership units of KVI in exchange for cash consideration of $699,000 and common stock consideration of $200,000 (23,124 shares). In 2006, the stock consideration was reduced as a result of certain escrow claims made by the Company to $179,649 (20,771 shares). In addition to the consideration at closing, the selling shareholder will be entitled to contingent consideration equal to 20% of the operating income (as defined in the stock purchase agreement) of KVI for each of the three years ending December 31, 2008. Through December 31, 2006, no contingent consideration has been earned. Any contingent consideration payments made will be treated as additional purchase price and therefore increase goodwill. Simultaneous to the execution of the stock purchase agreement, the Company entered into a three year employment agreement with the principal selling member of KVI. The operating results of KVI were included with those of the Company beginning August 1, 2005. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations. The purchase price allocation is as follows:

(In thousands, except share amounts)

Purchase price:
Cash	$	699
Common shares (20,771 shares valued at $8.65 per share)		180

Total purchase price	$	879

Value assigned to assets and liabilities:
Assets:
Cash	$	124
Accounts receivable		212
Property and equipment		44
Operating lease equipment		209
Investment in direct financing leases		8,280
Customer list (estimated life of seven years)		116
Vendor program (estimated life of seven years)		119
Non-compete (estimated life of two years)		75
Goodwill		198
Liabilities:
Accounts payable		(242	)
Accrued liabilities		(320	)
Non-recourse lease notes payable		(7,910	)
Other non-current liabilities		(26	)

Total net assets	$	879

We expect that the goodwill originating from both the P.T.C. and Captiva transactions will be deductible for tax purposes over fifteen years, however the goodwill associated with GTI and KVI will not be deductible for tax purposes.

4. PREFERRED STOCK ISSUANCE AND CREDIT FACILITY CLOSING

On January 20, 2004, the Company completed the sale of 20,000 shares of Series A non-convertible preferred stock and a warrant to purchase 16,000,000 shares of our common stock ($1.25 per share exercise price) for a total of $20 million to Lightyear Fund, L.P. (the “Lightyear Transaction”). The preferred shares carried 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 had a liquidation preference superior to the common stock and to the extent required by the terms of the Series B preferred stock, in parity with the currently outstanding Series B preferred stock. As described in Note 2, on October 11, 2006, the Company redeemed all Series A preferred shares.

The net proceeds from the Lightyear Transaction are shown below:

	(In thousands)

Cash Received from Lightyear	$	20,000
Less:
Broker fees		1,256
Legal and accounting fees		383
Transaction structuring fees		1,200
Other		267

Net Proceeds Received	$	16,894

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Simultaneous with the closing of the Lightyear Transaction, the Company entered into a credit facility with Bank of America. See Notes 11 and 12 for discussion of the Company’s credit facility.

The total net proceeds of both the Lightyear Transaction and the Bank of America credit facility were used to extinguish the Company’s 1998 credit facility.

As a result of the 1998 debt facility extinguishment, the Company recorded a charge of $780,000 to write-off the unamortized portion of debt issuance costs as of January 20, 2004 which is shown on the face of the accompanying 2004 consolidated statement of operations. Also, the Lightyear Transaction required that the Company obtain directors and officers tail insurance coverage for periods prior to January 20, 2004. The premium for the tail directors and officers’ liability insurance coverage totaled approximately $900,000. The Company expensed the entire premium in January 2004 which is included in other operating expenses in the accompanying 2004 consolidated statements.

5. PROPERTY AND EQUIPMENT

Property and equipment are classified as follows:

	2006			2005

	(In thousands)
Purchased software	$	4,199		$	3,765
Leasehold improvements		726			697
Furniture and equipment		8,867			8,031

		13,792			12,493
Less: accumulated depreciation		(10,596	)		(10,306	)

	$	3,196		$	2,187

Depreciation expense was approximately $1,888,000, $1,042,000, and $1,642,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The portion of depreciation expense above included in cost of revenues totaled $295,000, $4,000, and $0 for the years ended December 31, 2006, 2005, and 2004, respectively.

Depreciation expense related to property and equipment subject to capital lease arrangements totaled $335,000, $0, and $0 for the years ended December 31, 2006, 2005, and 2004, respectively.

6. OPERATING LEASE PROPERTY

The following schedule provides an analysis of the Company’s investment in property leased under operating leases by major classes as follows:

	2006			2005

	(In thousands)
Computer equipment	$	19		$	20
Office furniture		38			38
Manufacturing equipment		7			7
Medical equipment		16			16
Copiers		76			134

		156			215
Plus: initial direct costs		1			2
Less accumulated depreciation		(87	)		(30	)

Net property on operating leases	$	70		$	187

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The following is a schedule by years of minimum future rentals on noncancelable operating leases as of December 31, 2006:

2007	$	36
2008		20
2009		2
2010		—

	$	58

Depreciation expense on operating lease property was $72,000 and $39,000 for the years ended December 31, 2006 and 2005, respectively.

7. NET INVESTMENT IN DIRECT FINANCING LEASES

The following lists the components of the net investment in direct financing leases as of December 31, 2006 and 2005, respectively:

	2006			2005

	(In thousands)
Total minimum lease payment to be received	$	6,957		$	7,291
Less: Allowance for uncollectibles		—			—

Net minimum lease payments receivable		6,957			7,291
Plus: unguaranteed estimated residual values of leased property		783			862
Plus: initial direct costs		109			102
Less: unearned income		(1,309	)		(1,378	)

Net investment in direct financing leases	$	6,540		$	6,877

All lease assets are pledged as security against the non-recourse lease notes payable discussed in Note 14.

At December 31, 2006, minimum lease payments for each of the next five years are as follows:

2007	$	2,527
2008		1,992
2009		1,519
2010		659
2011		245
Thereafter		15

	$	6,957

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8. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

	2006		2005

	(In thousands)
Debt issuance costs, net of accumulated amortization of $276 and $199, respectively	$	360	$	375
Non-compete agreements, net of accumulated amortization of $852 and $389, respectively (remaining weighted average life of 21 months)		2,518		1,626
Customer lists, net of accumulated amortization of $1,665 and $1,126, respectively (remaining weighted average life of 100 months)		3,364		1,740
Acquired technology, net of accumulated amortization of $939 and $308, respectively (remaining weighted average life of 52 months)		2,592		872
Tradenames (indefinite life)		3,860		—
Other, net		339		318

	$	13,033	$	4,931

Amortization expense of identified intangible assets during the years ended December 31, 2006, 2005 and 2004 was approximately $2,100,000, $421,000, and $356,000, respectively.

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

2007	$	2,115
2008		1,954
2009		923
2010		760
2011		694
2012 and thereafter		2,727

	$	9,173

9. GOODWILL

The changes in the carrying amount of goodwill for 2006 and 2005 are as follows:

	2006		2005

	(In thoudands)
Balance as of January 1	$	12,378	$	7,161
Goodwill acquired during year		14,033		5,249
Other changes		66		—
Decrease resulting from change to deferred tax assets associated with Towne acquisition (Note 15)		—		(25	)
Write off of goodwill		—		(7	)

Balance as of December 31	$	26,477	$	12,378

The goodwill additions and other changes in 2006 related solely to the financial institution services segment.

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10. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

	2006		2005

	(In thousands)
Employee bonuses	$	606	$	—
Commissions and other payroll costs		899		704
Accrued severance costs		—		103
Other		2,509		775

	$	4,014	$	1,582

11. REVOLVING LINE OF CREDIT

On December 8, 2005, the Bank of America credit facility was amended such that the entire facility (both revolver and term loan) was converted into a revolving credit line with a total capacity of $5.0 million. As of December 31, 2005, there was $0 drawn against the facility and $400,000 was utilized for standby letters of credit. Weighted average borrowings drawn against the facility during 2005 were $3.1 million. This facility was replaced in its entirely by an amended and restated facility as described in Note 12.

12. LONG-TERM DEBT

Long-term debt consists of the following:

	2006		2005

	(In thousands)
Senior Subordinated Note Payable with Lightyear PBI Holdings, Inc., net of unamortized debt discount of $0 and $1,491, respectively	$	—	$	8,509

As stated in Note 11, the Bank of America facility was amended on December 8, 2005, which converted the term loan to a revolver with a maximum borrowing capacity of $5.0 million. The facility is secured by all assets of the Company. There were no amounts outstanding at December 31, 2005 and, as such, there were no scheduled term debt repayments at December 31, 2005. The facility had restrictive financial covenants including a minimum net worth requirement, a maximum debt to EBITDA ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all such restrictive covenants for all periods in which they were applicable. The amended facility had a stated maturity date of March 8, 2006.

On December 9, 2005, the Company issued a $10.0 million unsecured senior subordinated note to Lightyear PBI Holdings, Inc. (“Lightyear Note”) and warrants to acquire 757,576 common shares at $6.60 per share in exchange for $10.0 million in cash. On January 23, 2006, the Lightyear Note was converted into shares of the Company’s Series C Preferred Stock as described below. The Lightyear Note was unsecured and was subordinated to the then existing Bank of America facility. The Lightyear Note accrued interest monthly at a rate of 10%, increasing to 12% beginning June 9, 2007, and was payable semi-annually in arrears beginning July 1, 2006. The term of the Lightyear Note was five years, at which time the entire principal was to become due. In the event that the Company prepaid the Lightyear Note in full or any partial payments prior to June 9, 2007, up to 50% of the 757,576 of common stock warrants would be cancelled on a pro rata basis in proportion to the amount of debt prepaid. The $10.0 million in proceeds received was allocated to the two instruments in proportion to their relative fair values. As a result, the Lightyear Note has been recorded at a discount. The discount was accreted over the term of the debt as interest expense until redemption on October 11, 2006 at which time the remaining unamortized discount of $1.3 million was written-off and is included in other operating expense in the accompanying consolidated statements of operations. The proceeds of the Lightyear Note were used to acquire Captiva Solutions and repay the outstanding balance of the Bank of America facility. The Series C Preferred Stock was redeemed in its entirety on October 11, 2006, as more fully described in Note 2.

On January 23, 2006, the Company entered into an amended and restated $18.0 million credit facility with Bank of America. The Company used the proceeds of the facility on January 31, 2006 to buy Goldleaf Technologies.

F-24

In connection with the January 2006 amendment and restatement of the Bank of America credit facility:

	•	The Lightyear Fund, L.P., an affiliate of Lightyear, guaranteed a $6.0 million term loan included in the facility that is due July 23, 2006 and we agreed to pay a fee of $45,000 to The Lightyear Fund, L.P. and to reimburse the Lightyear Fund, L.P. for up to $50,000 of its expenses in connection with this guaranty;

	•	Lightyear exchanged its senior subordinated $10.0 million note for 10,000 shares of our Series C preferred stock, which decreased our debt by $10.0 million but added that same amount in redeemable preferred stock; and

	•	We amended and restated the common stock warrants that we issued to Lightyear in December 2005 in connection with the Lightyear note.

The Series C preferred stock issued to Lightyear has a mandatory redemption date of December 9, 2010 at a redemption price of $10.0 million plus accrued and unpaid dividends, and has a 10% annual dividend rate that increases to 12% on June 9, 2007. As discussed in Note 2, in October 11, 2006, all of the Series C preferred stock outstanding was redeemed with cash generated from the Company’s $63.0 million secondary common stock offering.

We subsequently amended the Bank of America credit facility again in April 2006 to provide for an additional $1.75 million in short-term loans. We further amended the Bank of America credit facility in June 2006 to increase the total facility to $25.0 million, consisting of the $9.75 million Term A note, the $6.0 million Term B note and a $9.25 million revolving credit line. The June amendment also eliminated the scheduled quarterly Term A note payments of $250,000 on June 30, 2006, $500,000 on both September 30, 2006 and December 31, 2006, and $750,000 per quarter thereafter until maturity. On August 31, 2006, we again amended the Bank of America credit facility to reduce the interest rate on the Term B note from LIBOR plus 3% to LIBOR plus 1.25%. We repaid the $17.8 million outstanding under our credit facility with proceeds from our common stock offering discussed elsewhere in this Form 10-K. Upon repayment of the $17.8 million outstanding, our credit facility converted automatically to a $25.0 million revolving credit facility.

	•	the credit facility was converted to a revolving credit facility in the amount of $40 million, an increase of $15 million over the previously existing credit facility;

	•	the maturity of the credit facility was extended from January 23, 2008 to November 30, 2009 with an option, conditioned upon the consent of the lenders, to extend the maturity for 12 additional months;

	•	the Funded Debt to EBITDA Ratio under the credit facility was increased from 2.25 times to 3 times;

	•	Wachovia Bank, N.A. joined as a participant in the credit facility; and

	•	The limit on capital expenditures in the credit facility was increased from $3 million to $5 million per fiscal year.

Our Bank of America credit facility contains financial covenants, including the maintenance of financial ratios and limits on capital expenditures. We are required to maintain on a quarterly basis a ratio of Funded Debt, as defined and generally including all liabilities for borrowed money, to EBITDA. The definition of EBITDA in the credit facility agreement is different from the one used elsewhere in this filing in that it permits to be added back to EBITDA various specified amounts that include employee severance expenses, non-cash debt amortization expenses, costs associated with the change of our corporate name, certain litigation expenses and non-cash stock compensation expenses. We are required to maintain on a quarterly basis a ratio of Funded Debt to EBITDA not exceeding 3:1. This ratio is calculated (a) at the end of each fiscal quarter, using the results of the twelve-month period ending with the fiscal quarter and after giving pro forma effect to any acquisition made during such period and (b) on the date of any borrowing under the credit facility, using EBITDA for the most recent period and Funded Debt after giving pro forma effect to such borrowing. We are also required to maintain for the 12-calendar month period ending on the last day of each calendar quarter, a Fixed Charge Coverage Ratio (as defined) of: 2.0:1. In addition, we may not acquire fixed assets (other than any equipment purchased by KVI Capital with proceeds of non-recourse loans) having a value greater than $5.0 million during any 12-month period ending with each fiscal quarter. The credit agreement also contains customary negative covenants, including but not limited to a prohibition on declaring and paying any cash dividends on any class of stock.

As of December 31, 2006, we were in compliance with all restrictive financial and non-financial covenants contained in the Bank of America credit facility.

F-25

13. CAPITAL LEASE OBLIGATIONS

The Company, through its acquisition of GTI, assumed GTI’s capital lease agreements for certain computer equipment, office equipment, and software. The leases are due in monthly installments through May 2010. Borrowings are collateralized by the leased property and bear interest at rates ranging from 3.62% to 9.75%. At December 31, 2006 and 2005, the net book value of the assets under these capital leases totaled approximately $1.5 million and $0, respectively, and are included in their respective captions for property and equipment. As of December 31, 2006, the future maturities of the Company’s capital lease obligations are as follows:

	(in thousands)

2007	$	452
2008		471
2009		430
2010		143

		1,496
Less — Amount representing interest		(175	)

		1,321
Less — Current portion		(364	)

	$	957

14. NON-RECOURSE LEASE NOTES PAYABLE

As part of the leasing business, the Company borrows funds from its community bank partners on a non-recourse basis in order to acquire the equipment to be leased. In the event of a lease default, the Company is not obligated to continue to pay on the non-recourse note payable associated with that particular lease. As of December 31, 2006, the principal balance of all non-recourse lease notes payable, due to various financial institutions, totaled $6.1 million ($2.1 million of the total is classified as current). Interest and principal are primarily due monthly with interest rates ranging from 4% to 11%.

The following is the scheduled non-recourse notes payable principal payments over the next five years as of December 31, 2006 (in thousands):

2007	$	2,141
2008		1,736
2009		1,408
2010		588
2011		234
Thereafter		11

	$	6,118

15. INCOME TAXES

Income tax provision (benefit) consisted of the following for the three years ended December 31, 2006:

	2006			2005		2004

	(In thousands)
Current income tax expense (benefit)	$	212		$	386	$	(1,003	)
Deferred tax (benefit) expense		(962	)		973		1,065

Income tax provision, net	$	(750	)	$	1,359	$	62

F-26

A reconciliation of the tax provision from the U.S. federal statutory rate to the effective rate for the three years ended December 31, 2006 is as follows:

	2006			2005			2004

	(In thousands)
Tax (benefit) expense at U.S. federal statutory rate	$	(1,265	)	$	1,256		$	895
State tax (benefit) expense, net of reduction to federal taxes		(167	)		148			129
Non-deductible interest expense - Series C Preferred stock		471			—			—
Stock compensation - incentive stock options		231			—			—
Expenses not deductible		58			58			56
Other		(78	)		(103	)		(1,018	)

Income tax (benefit) provision, net	$	(750	)	$	1,359		$	62

During September 2004, the Company recorded a $972,000 tax benefit relating to an income tax contingent liability for which the statue of limitations expired in September 2004. This resulted in the large other reconciling item above and the low effective tax rate for 2004.

Significant components of the Company’s deferred tax assets and liabilities, using an average tax rate of 38.5% at December 31, 2006 and 37% at December 31, 2005 are as follows:

	2006			2005

	(In thousands)
Current assets (liabilities):
Deferred revenue	$	629		$	87
Allowances on assets		183			57
Net operating loss carryforwards		648			400
Prepaid and accrued expenses		(83	)		(174	)

Deferred tax assets, current		1,377			370

Non-current assets (liabilities):
Deferred revenue		681			—
Software development costs		(1,012	)		(607	)
Net operating loss carryforwards, net of current portion		5,276			2,746
Stock compensation - Nonqualified options		1,273			—
Other		180			38
Depreciation and amortization		(3,277	)		(721	)

Deferred tax assets, non-current		3,121			1,456

Total net deferred tax assets	$	4,498		$	1,826

The Company has gross net operating loss carryforwards of approximately $47.8 million available as of December 31, 2006 for both federal and state tax purposes. Of this total, $37.6 million were acquired during the Towne merger. At the time of the merger, an analysis was performed to assess the realizability of these NOLs due to Section 382 of the US tax code. The results of this analysis concluded that the likelihood of ever being able to utilize the majority of those NOLs was remote; therefore, the Company recorded only the portion of the Towne NOLs estimated to be usable under Section 382. These carryforwards are limited in use to approximately $982,000 per year in years 2006 through 2009 and $333,000 annually thereafter due to the Lightyear transaction and the Towne merger and expire at various times through 2021.

16. PREFERRED STOCK

On August 9, 2001, the Company issued 40,031 shares of Series B Convertible Preferred Stock valued at approximately $114,000 as a condition of the merger of Towne into the Company. These preferred shares were issued in exchange for all the issued and outstanding Towne Series B preferred stock. The preferred stock was entitled to dividends, in preference to the holders of any and all other classes of capital stock of the Company, at a rate of $0.99 per share of preferred stock per quarter commencing on the date of issuance. Holders of the Series B preferred shares were entitled to one vote per share owned.

The Series B Convertible Preferred Stock was convertible to common stock on a one share for one share basis at the option of the preferred stockholders at any time after August 9, 2002 upon the written election of the stockholder. The Series B Convertible Preferred Stock was also redeemable at the option of the Company for cash at any time, in whole or in part, with proper notice. The stated redemption price was $50.04 per Series B Convertible Preferred share, plus any accrued but unpaid dividends as of the redemption date. On December 8, 2006, the Series B Convertible Preferred Stock was redeemed in its entirety as more fully described in Note 2.

F-27

The Series A Non-convertible Preferred Stock issued on January 20, 2004 in conjunction with the capital event is described in Note 4. Holders of the Series A preferred shares were entitled to 800 votes per share owned.

On December 9, 2005, the Company entered into a $10.0 million senior subordinated note payable instrument with Lightyear PBI Holdings (“Lightyear Note”) as approved by the shareholders of the Company during a special shareholders meeting on that same date. The Lightyear Note was unsecured and could be redeemed by the Company, in whole or part, at anytime at 100% of the principal amount plus any accrued and unpaid interest. In conjunction with the Lightyear Note, the Company issued warrants to Lightyear PBI Holdings, LLC to acquire up to 757,576 common shares at $6.60 per share. As part of the warrant agreement, in the event that the Company repaid all or a portion of the Lightyear Note prior to June 9, 2007, then 50% of the warrants above were cancelable on a pro-rata basis. On January 23, 2006, the Lightyear Note was exchanged for 10,000 shares of the Company’s Series C Preferred Stock. The warrant agreement and the warrants were amended in connection with the conversion of the Lightyear Note into shares of Series C Preferred Stock. The warrants were amended such that the exercise price of such warrants would be paid, at the option of their holder; (i) in cash or by wire transfer, (ii) by the surrender of shares that would otherwise be issuable upon exercise of the warrant that have a market price equal to the aggregate exercise price, or (iii) through a redemption of shares of the Company’s Series C Preferred Stock having a liquidation value equal to the aggregate exercise price. Under the terms of the amended warrant agreement and amended warrants, in the event that the Company redeemed any shares of Series C Preferred Stock on or before June 23, 2007, the number of shares issuable pursuant to the warrants would be reduced in accordance with a formula set forth in the warrant agreements.

As discussed in Note 2, all outstanding Series A, B, and C preferred shares were redeemed in 2006, and as such, no preferred stock is outstanding as of December 31, 2006.

17. EMPLOYEE STOCK OPTION PLAN

The Company has four stock option plans: the 1994 Stock Option Plan, the 1999 Stock Option Plan, the 2004 Equity Incentive Plan and the 2005 Long-Term Equity Incentive Plan. Options under these plans include non-qualified and incentive stock options and are issued to officers, key employees and directors of the Company. The Company has reserved 1,481,262 new shares of common stock for these plans under which the options are granted at a minimum of 100% of the fair market value of common stock on the date of the grant, expire 10 years from the date of the grant and are exercisable at various times determined by the Board of Directors. The Company also has approximately 169,697 shares of common stock reserved for the issuance of options replacing the Towne options outstanding at the time of the Towne merger. The Company applies SFAS No. 123R in accounting for its options in 2006 and applied APB No. 25 in accounting for its options in 2005 and 2004 and, accordingly, no compensation cost was recognized in 2005 and 2004, respectively.

As indicated in Note 1, the Company adopted SFAS 123R on January 1, 2006. The adoption of SFAS No. 123R decreased the Company’s December 31, 2006 reported operating income and increased the loss before income taxes for the year ended December 31, 2006 by approximately $3.8 million, increased the reported net loss for the year ended December 31, 2006 by approximately $2.0 million and increased the reported basic and diluted net loss per share by approximately $0.33 per share. The stock compensation expense, before income tax effect, is reflected in general and administrative expense in the accompanying consolidated statement of operations. The Company’s adoption of SFAS No. 123R did not affect operating income, income before income taxes, net income, cash flow from operations, cash flow from financing activities, and basic and diluted net income per share for the years ended December 31, 2005 and 2004.

The fair value of each option award is estimated, on the date of grant using the Black-Scholes option pricing model, which incorporates ranges of assumptions for inputs as shown in the following table.

	•	The expected volatility is estimated based on the historical volatility of the Company’s stock over the contractual life of the options and the Company’s expectations regarding stock volatility in the future.

	•	The Company uses historical data to estimate option exercise and employee termination behavior within the valuation model; the expected life of options granted is derived from historical Company experience and represents the period of time the options are expected to be outstanding. Currently, the Company applies the simplified method as allowed by SAB 107.

	•	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option.

F-28

	Year Ended December 31,

	2006		2005		2004

Dividend yield range		0.0%		0.0%		0.0%
Expected volatility		58%		59%		75%
Risk-free interest rate range	4.31% - 5.08%			4.50%		4.00%
Expected term (in years)		6.2 years		6.5years		8 years

As of December 31, 2006, there was $63,360 of total forfeiture adjusted unrecognized compensation cost related to unvested share-based compensation arrangements. We expected to recognize this cost over a weighted-average period of 3.2 years.

Below is a summary of the Company’s option activity as of December 31, 2006, and changes during the year ended December 31, 2006:

	Number of Shares			Weighted Average Exercise Price		Remaining Contractual Life		Intrinsic Value

Balance of December 31, 2005		1,072,659		$	11.20
Granted		479,460			6.59
Exercised		(1,560	)		2.95
Canceled		(124,370	)		18.44

Balance of December 31, 2006		1,426,189		$	8.65		8.28	$	206,879

Balance exercisable at December 31, 2006		1,398,626		$	8.67		8.26	$	206,738

The weighted-average grant date fair value of options granted during the year ended December 31, 2006, 2005, and 2004 was $3.94, $3.90, and $6.00, respectively. The total fair value of stock options that vested during the year ended December 31, 2006 was approximately $4.5 million. The total intrinsic value of stock options exercised during the year ended December 31, 2006 was $9,462.

During the year ended December 31, 2006, cash received from options exercised was $5,000 and the actual tax benefit realized for the tax deductions from stock options exercised totaled $0.

Prior to January 1, 2006, the Company accounted 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 did not utilize the fair value method.

The following table illustrates the effect on net income available to common shareholders and earnings per share if the fair value based method had been applied to all outstanding and unvested awards for the years ended December 31, 2005 and 2004, respectively.


in thousands, except per share data	2005		2004

Net income available to common shareholders, as reported	$	175	$	514
Add (Deduct): Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		71		(219	)

Pro forma net income	$	246	$	295

Income per share:
Basic —as reported	$	0.06	$	0.18

Basic —pro forma	$	0.08	$	0.10

Diluted —as reported	$	0.06	$	0.17

Diluted —pro forma	$	0.08	$	0.10

F-29

A summary of the status of the Company’s stock options is as follows:

	Number of Shares			Weighted Average Exercise Price

Balance at December 31, 2003		501,977		$	16.75
Granted		32,000			7.95
Exercised		(59,255	)		5.45
Canceled		(26,306	)		23.65

Balance at December 31, 2004		448,416		$	17.20

Granted		760,442			6.90
Exercised		(59,948	)		6.35
Canceled		(76,251	)		15.30

Balance at December 31, 2005		1,072,659		$	11.20

Granted		479,460			6.59
Exercised		(1,560	)		2.95
Canceled		(124,370	)		18.44

Balance at December 31, 2006		1,426,189		$	8.65

The following table summarizes information about stock options outstanding at December 31, 2006:

	Options Outstanding						Options Exercisable

Exercise Price	Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Exercise Price

$0.00 to $4.43		61,510		6.4 years	$	2.95		61,510	$	2.95
$4.44 to $8.40		1,097,303		8.9 years		6.67		1,069,740		6.64
$8.41 to $13.28		127,502		6.2 years		10.09		127,502		10.09
$13.29 to $297.15		139,874		6.4 years		25.91		139,874		25.91

Total		1,426,189		8.3 years	$	8.65		1,398,626	$	8.67

At the end of 2006, 2005 and 2004, the number of options exercisable was approximately 1,398,626, 357,180, and 396,600, respectively, and the weighted average exercise price of these options was $8.67, $18.45, and $18.50, respectively.

18. NET (LOSS) INCOME PER SHARE

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of dilutive common and common equivalent shares outstanding during the fiscal year, which includes the additional dilution related to conversion of preferred stock, common stock warrants and stock options as computed under the treasury stock method. Neither the Series B Convertible Preferred Stock nor the common stock warrant held by the Series A shareholder were included in the adjusted weighted average common shares outstanding for 2006, 2005 and 2004 as the effects of conversion are anti-dilutive.

The following table is a reconciliation of the Company’s basic and diluted earnings per share in accordance with SFAS No. 128:

	2006			2005		2004

	(In thousands, except per share data)
Net (loss) income available to common stockholders	$	(22,358	)	$	175	$	514

Basic (loss) earnings per Share:
Weighted average common shares outstanding		6,181			2,945		2,848

Basic (loss) earnings per share	$	(3.62	)	$	0.06	$	0.18

Diluted (loss) earnings per Share:
Weighted average common shares outstanding		6,181			2,945		2,848
Dilutive common share equivalents		—			58		93

Total diluted shares outstanding		6,181			3,003		2,941

Diluted (loss) earnings per share	$	(3.62	)	$	0.06	$	0.17

F-30

For the years ended December 31, 2006, 2005, and 2004, approximately 1.9 million, 5.0 million and 3.4 million employee stock options, contingently issuable common shares, warrants and the Series B preferred shares, respectively, were excluded from diluted (loss) earnings per share calculations as their effects were anti-dilutive.

19. COMMITMENTS AND CONTINGENCIES

The Company leases office space and office equipment under various operating lease agreements. Rent expense for the years ended December 31, 2006, 2005 and 2004 totaled approximately $2,132,000, $1,535,000, and $1,446,000, respectively, and is included in general and administrative expense in the consolidated statements of income.

As of December 31, 2006, the future minimum lease payments relating to operating lease obligations are as follows (in thousands):

2007	$	2,079
2008		1,664
2009		1,340
2010		303
2011		3

	$	5,389

Legal Proceedings

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.

Employment Agreements

The Company has entered into employment agreements with certain executive officers of the Company. The agreements provide for compensation to the officers in the form of annual base salaries and bonuses based on the earnings of the Company. The employment agreements also provide for severance benefits, ranging from 0 to 24 months, upon the occurrence of certain events, including a change in control, as defined. As of December 31, 2006, the total potential payouts under all employment agreements were approximately $3.2 million.

20. EMPLOYEE BENEFIT PLANS

The Company has an employee savings plan, the Private Business, Inc. 401(k) Profit Sharing Plan (the “Plan”), which permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. The Company matches contributions contributed by employees up to a maximum of $1,000 per employee per year and may, at its discretion, make additional contributions to the Plan. Employees are eligible for participation beginning with the quarter immediately following one year of service. Total contributions made by the Company to the Plan were $138,000, $136,000, and $153,000, in 2006, 2005 and 2004, respectively, and are included in general and administrative expense in the consolidated statements of income.

During 2000, the Company established an employee stock purchase plan whereby eligible employees may purchase Company stock at a discount through payroll deduction of up to 15% of base pay. The price paid for the stock is the lesser of 85% of the closing market price on the first or last day of the quarter in which payroll deductions occur. The Company has reserved 333,333 shares for issuance under this plan. The Company issued 5,000 shares during 2005 and 6,000 shares during 2004. Effective December 31, 2005, the Company terminated the employee stock purchase plan.

As a result of the Towne merger, the Company had an employee stock ownership plan (“ESOP”), the RMSA Employee Stock Ownership Plan (the “ESOP Plan”). The purpose of the ESOP was to provide stock ownership benefits for substantially all the employees of RMSA who had completed one year of service. The plan was subject to all the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. The Company made no contribution to the ESOP Plan in 2005 or 2004. As of December 31, 2005, all of the Company’s common shares previously held by the ESOP Plan were distributed to participants as a result of the Plan’s termination.

F-31

21. RELATED PARTY TRANSACTIONS

During the years ended December 31, 2006, 2005 and 2004, the Company paid fees of approximately $965,000, $25,000, and $15,000, respectively, for legal services to a law firm in which a former director and shareholder of the Company is a partner. Additionally, this former director held a material membership interest in Captiva prior to the Company’s acquisition of Captiva. Because of this ownership interest, the acquisition of Captiva required a shareholder vote, which was held on December 9, 2005. The former director received approximately $1.1 million cash, 57,454 common shares of the Company’s common stock and 134,000 common stock options with a $6.60 exercise price as his portion of the total consideration paid for Captiva.

During the year ended December 31, 2004, the Company received proceeds of $266,000 for the repayment of notes receivable owed to the Company by two former officers of Towne Services. The Company had previously written these notes off as uncollectible, therefore collection of these notes resulted in a gain. This gain was recorded in 2004 as a non-operating gain in the accompanying consolidated statement of income.

In conjunction with the acquisition of GTI discussed in Note 3, the Company issued two notes payable to Paul McCulloch, the President of GTI, as a portion of the consideration paid to him for executing an employment agreement with the Company. The notes had original principal balances of $850,000 (due June 15, 2006) and $150,000 (due April 30, 2007), are unsecured and carry interest at prime rate as published in The Wall Street Journal (8.25% at June 30, 2006). On June 15, 2006, $350,000 of the $850,000 note was paid and the remaining $500,000 was paid on July 15, 2006. These notes were classified as additional purchase price.

22. QUARTERLY FINANCIAL DATA (UNAUDITED)

	Quarter Ended (in thousands, except per share data)

	March 31, 2005			June 30, 2005		Sept. 30, 2005		Dec. 31, 2005		March 31, 2006			June 30, 2006			Sept. 30, 2006			Dec. 31, 2006

Statement of income data:
Revenues	$	9,199		$	9,501	$	9,554	$	10,097	$	13,031		$	14,098		$	14,511		$	14,011

Operating income (loss)	$	693		$	1,158	$	1,189	$	1,035	$	362		$	420		$	1,076		$	(2,983	)

Income (loss) from operations before income taxes	$	623		$	1,088	$	1,110	$	873	$	(293	)	$	(497	)	$	205		$	(3,137	)
Income tax provision (benefit)		244			423		433		259		(112	)		(194	)		80			(524	)

Net income (loss)		379			665		677		614		(181	)		(303	)		125			(2,613	)
Preferred stock dividends		540			540		540		540		552			(565	)		583			17,686

Net income (loss) available to common Stockholders	$	(161	)	$	125	$	137	$	74	$	(733	)	$	(868	)	$	(458	)	$	(20,299	)

Earnings (loss) per share:
Basic	$	(0.06	)	$	0.04	$	0.05	$	0.03	$	(0.23	)	$	(0.27	)	$	(0.14	)	$	(1.33	)

Diluted common share	$	(0.06	)	$	0.04	$	0.05	$	0.03	$	(0.23	)	$	(0.27	)	$	(0.14	)	$	(1.33	)

The quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, were amended to increase operating expenses by $55,000, $281,000 and $51,000 related to audit fees incurred during those quarters related to the required acquisition audits of KVI Capital and GTI. These audit costs had previously been capitalized as direct acquisition costs.

For the twelve months ended December 31, 2006, the actual year-end basic and diluted loss per share totaled $(3.62); however, on a quarterly basis the sum of the four quarters does not agree to the actual year-end basic and diluted earnings per share. The reason for this is the result of the Company’s secondary offering of 11,500,000 common shares that closed on October 11, 2006, which affects the weighted average shares outstanding for the fourth quarter of 2006.

23. SEGMENT INFORMATION

The Company operates in two business segments: financial institution services and retail inventory management and forecasting. The Company accounts for segment reporting under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Corporate overhead costs and interest have been allocated out of financial institution services segment to income before income taxes of the retail inventory forecasting segment. Additionally, $1.5 million of the goodwill originating from the Towne acquisition has been allocated to the retail inventory forecasting segment and is therefore included in the segment’s total assets.

F-32

The following table summarizes the financial information concerning the Company’s reportable segments from continuing operations for the years ended December 31, 2006, 2005 and 2004.

	(in thousands)

	2006								2005						2004

(in thousands)	Financial Institution Services			Retail Inventory Management		Total			Financial Institution Services		Retail Inventory Management		Total		Financial Institution Services		Retail Inventory Management		Total

Revenues	$	47,457		$	8,194	$	55,651		$	29,673	$	8,678	$	38,351	$	30,646	$	9,003	$	39,649

Cost of revenues		9,589			905		10,494			2,965		1,004		3,969		2,440		1,153		3,593

Gross profit		37,868			7,289		45,157			26,708		7,674		34,382		28,206		7,850		36,056

Income before taxes		(4,961	)		1,239		(3,722	)		2,607		1,087		3,694		1,606		1,026		2,632

Assets		71,872			3,432		75,304			32,806		3,751		36,557		17,283		4,088		21,371

Total expenditures for additions to long-lived assets		3,037			23		3,060			1,580		19		1,599		1,095		149		1,244

Goodwill		24,407			2,070		26,477			10,308		2,070		12,378		5,091		2,070		7,161

24. SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)

As described in Note 3 the Company acquired GTI in the first quarter of 2006. Furthermore, the Company acquired KVI Capital, Inc. (KVI) and Captiva Solutions, LLC (Captiva) in the third and fourth quarters of 2005, respectively. Below is unaudited pro forma consolidated statement of operations data of the Company as if these businesses were acquired as of January 1, 2005.

	For the Year Ended December, 2006

							Unaudited Pro forma Adjustments

(in thousands, except per share data)	Goldleaf			GTI			Debit			Credit		Total

Revenues	$	55,651		$	1,014	A	$	41		$		$	56,624
Cost of revenues		10,494			294								10,788

Gross profit		45,157			720			(41	)				45,836
Operating expenses		46,282			716	B		78					47,082
						C		6

Operating income (loss)		(1,125	)		4			(125	)				(1,246	)
Other Expenses:
Interest expense, net		2,597			—	D		87					2,684

Total other expenses		2,597			—			87					2,684

Income (loss) before provision for income taxes		(3,722	)		4			(212	)				(3,930	)
Income tax benefit		(750	)		—			—	E		83		(833	)

Net Income (Loss)		(2,972	)		4			(212	)		83		(3,097	)
Preferred Stock Dividends		19,386			—								19,386

Net Income (Loss) Attributable to Common Shareholders	$	(22,358	)	$	4		$	(212	)	$	83	$	(22,483	)

Loss Per Share:
Basic	$	(3.62	)									$	(3.63	)

Diluted	$	(3.62	)									$	(3.63	)

Weighted Average Common Shares Outstanding:
Basic		6,181				G		5					6,186

Diluted		6,181				G		5					6,186

NOTE: During the year ended December 31, 2006, no employee stock options were included in the diluted weighted average shares outstanding, as their effect would be anti-dilutive. For the year ended December 31, 2006, we excluded approximately 1.9 million shares of common stock issuable upon the exercise or conversion of employee stock options warrants and contingently issuable common shares of approximately 242,000 from the diluted earnings per share calculation, as their effects were anti-dilutive.

F-33

	For the Year Ended December, 2005

													Unaudited Pro forma Adjustments

(in thousands, except per share data)	Goldleaf		Captiva			KVI			GTI				Debit				Credit			Pro Forma

Revenues	$	38,351	$	1,713		$	816		$	9,412		A	$	917			$			$	49,375
Cost of revenues		3,969		341			373			3,126											7,809

Gross profit		34,382		1,372			443			6,286				(917	)						41,566
Operating expenses		30,307		1,948			554			7,595		B		1,013
												C		468							41,885

Operating income (loss)		4,075		(576	)		(111	)		(1,309	)			(2,398	)						(319	)
Other Expenses:
Interest expense, net		381		164			23			(39	)	D		2,369							2,898

Total other expenses		381		164			23			(39	)			2,369							2,898

Income (loss) before provision for income taxes		3,694		(740	)		(134	)		(1,270	)			(4,767	)						(3,217	)
Provision (benefit) for income taxes		1,359		—			—			—				—		E		(2,613	)		(1,254	)

Net Income (Loss)		2,335		(740	)		(134	)		(1,270	)			(4,767	)			2,613			(1,963	)
Preferred Stock Dividends		2,160		—			—			2,915						F		(2,915	)		2,160

Net Income (Loss) Attributable to Common Shareholders	$	175	$	(740	)	$	(134	)	$	(4,185	)		$	(4,767	)		$	5,528		$	(4,123	)

Income (Loss) Per Share:
Basic	$	0.06																		$	(1.31	)

Diluted	$	0.06																		$	(1.31	)

Weighted Average Common Shares Outstanding:
Basic		2,945										G		210							3,155

Diluted		3,004										G		210							3,155

NOTE: During the twelve months ended December 31, 2005, 58,200 employee stock options were included in the diluted weighted average shares outstanding. However, after taking into account the pro forma adjustments above, we would have incurred a net loss attributable to common shareholders. Therefore, on a pro forma basis, we have excluded the 58,200 employee stock options in calculating diluted loss per share, as their effect would be anti-dilutive. For the twelve months ended December 31, 2005, we also excluded approximately 5.0 million shares of common stock issuable upon the exercise or conversion of employee stock options and the Series B preferred shares (8,000) from the diluted earnings per share calculation, as their effects were anti-dilutive.

	A.	To reduce revenues for Goldleaf Technologies related to estimated deferred revenues that would not have been realized had we acquired Goldleaf Technologies as of January 1, 2005 and recorded the deferred service obligation at its estimated fair value as of that date.

	B.	To increase amortization expense of new intangibles recorded as a result of the acquisitions. For 2006, the pro forma amounts assume that we record approximately $9.4 million of identified intangibles, consisting of acquired technology ($2.1 million), customer lists ($2.1 million), non-compete agreements ($1.3 million), and tradenames and trademarks ($3.9 million), and that we amortize these amounts over estimated useful lives of seven, ten, three, and indefinite years, respectively. For 2005, the pro forma amounts assume that we recorded approximately $12.5 million of identified intangibles, consisting of acquired technology ($2.8 million), customer lists ($3.7 million), vendor program ($0.1 million), non-compete agreements ($2.0 million), and tradenames and trademarks ($3.9 million), and that we amortize these amounts over estimated average useful lives of five, ten, seven, three, and indefinite years, respectively.

	C.	To increase general and administrative costs for the increased salary of our new chief executive officer and executive officers of KVI Capital and Goldleaf Technologies based on the employment agreements executed as part of these acquisitions.

	D.	To increase interest expense for additional debt we acquired to fund the purchase prices of KVI Capital, Captiva and Goldleaf Technologies. We have estimated interest expense assuming a weighted average interest rate for the two debt instruments used to complete the transactions: the $10.0 million Lightyear Series C redeemable preferred stock at 10% (as received in exchange for a $10.0 million subordinated note we originally issued) and the $18.0 million Bank of America credit facility. Therefore, the pro forma interest expense was calculated using an interest rate of 7.5% for 2006 and 8.3% for 2005 and includes accretion of the debt discount (related to common stock warrants issued to Lightyear in connection with the $10.0 million financing) using the effective interest method.

F-34

	E.	To record income tax effects of the pro forma adjustments at our effective rate of 39%.

	F.	To reduce preferred dividends for the elimination of Goldleaf Technologies dividends ($2.9 million in 2005). As a result of our acquisition of Goldleaf Technologies, it no longer has a preferred stockholder. Therefore, on a pro forma basis, no preferred stock dividends would have existed in 2005 related to Goldleaf Technologies.

	G.	To reflect our issuance of our common stock as part of the consideration we paid for the following acquisitions, with the stock prices being valued at $7.35 (Goldleaf Technologies), $6.10 (Captiva) and $8.65 (KVI Capital), per share, respectively, the stock prices as of the actual measurement dates, respectively:

			Shares Issued

• Goldleaf Technologies			54,468
• Captiva			151,515
• KVI Capital			23,121

The pro forma statement of operations data for the year ended December 31, 2005 do not include stock compensation expense for the new stock options issued in conjunction with the Captiva and GTI acquisitions. The stock option grants made on October 20, 2005 (related to Captiva) and January 31, 2006 (related to GTI) totaled 920,000. Had these option grants been issued as of January 1, 2005, the estimated fair value using the Black-Scholes model would have been $7.45 and $8.05 per share, respectively. Until January 1, 2006, the Company accounted for stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and did not utilize the fair value method. If the Company expensed options under SFAS No. 123, Accounting for Stock-Based Compensation, during 2005 and if the Company had acquired Captiva and GTI on January 1, 2005, an estimated additional $1.3 million of compensation expense would have been expensed during the year ended December 31, 2005. Beginning January 1, 2006, the Company began to expense the remaining unvested fair value of all stock options, including those issued as part of the GTI and Captiva transactions.

Captiva organized and began operations on April 1, 2005. On June 1, 2005, Captiva acquired all operating assets of Total Bank Technology, LLC (“TBT”). The year ended December 31, 2005 consists of the full five months results of TBT (January 1 – May 31, 2005 presented separately) prior to the acquisition by Captiva along with the results of Captiva from April 1, 2005 through December 31, 2005, including the results of TBT for the months of June through December 2005. Had Captiva been in existence as of January 1, 2004, the 2004 and 2005 results would have reflected additional expenses for the management team and facilities expense of Captiva.

The pro forma financial data are presented for informational purposes. You should not rely on the pro forma amounts as being indicative of the financial position or the results of operations of the consolidated companies that would have actually occurred had the acquisitions been effective during the periods presented or of the future financial position or future results of operations of the consolidated companies. You should read this information in conjunction with the accompanying notes thereto and with the historical consolidated financial statements and accompanying notes of the company included elsewhere in this document.

25. SUBSEQUENT EVENT

On March 14, 2007, the Company acquired the operating assets of Community Banking Systems, Ltd. (“CBS”), a Texas limited partnership, for total cash consideration of approximately $4.6 million. In addition to the consideration at closing, the selling shareholders may be entitled to contingent consideration based on the financial performance of the business during the next two years. The acquisition is being accounted for as a business combination in accordance with SFAS No. 141, Business Combinations, therefore the operating results of CBS will be consolidated with those of the Company beginning on the date of acquisition.

F-35

SCHEDULE II

GOLDLEAF FINANCIAL SOLUTIONS, INC.

VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Period		Additions Charged to Costs and Expenses (1)		Deductions (Charge Offs)(1)		Balance at End of Period

Year ended December 31, 2006
Allowance for doubtful accounts	$	206,000	$	255,000	$	65,000	$	396,000

Year ended December 31, 2005
Allowance for doubtful accounts	$	242,000	$	138,000	$	174,000	$	206,000

Year ended December 31, 2004
Allowance for doubtful accounts	$	358,000	$	31,000	$	147,000	$	242,000


(1)	Additions to the allowance for doubtful accounts are included in general and administrative expense. All deductions or charge offs are charged against the allowance for doubtful accounts.

F-36

SIGNATURES

Pursuant to the requirements of Schedule 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PRIVATE BUSINESS, INC


	/s/ G. Lynn Boggs

	G. Lynn Boggs
	Chief Executive Officer


Date: March 28, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ G. Lynn Boggs	Chief Executive Officer and Director
		March 28, 2007
G. Lynn Boggs

/s/ J. Scott Craighead	Chief Financial Officer (Principal Financial and Accounting Officer)
		March 28, 2007
J. Scott Craighead

/s/ John D. Schneider, Jr.	Director
		March 28, 2007
John D. Schneider, Jr.

/s/ David W. Glenn	Director
		March 28, 2007
David W. Glenn

/s/ David B. Ingram	Director
		March 28, 2007
David B. Ingram

/s/ Robert A. McCabe, Jr.	Director
		March 28, 2007
Robert A. McCabe, Jr.

/s/ Lawrence A. Hough	Director
		March 28, 2007
Lawrence A. Hough

/s/ Bill Mathis	Director
		March 28, 2007
Bill Mathis

INDEX TO EXHIBITS

Exhibit Number			Description of Exhibit

3.1			Amended and Restated Charter of the Company (incorporated by reference to Exhibit 3.1 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 33375013) filed with the SEC on May 3, 1999).
3.1.1			Charter Amendment dated August 9, 2001 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
3.1.2			Charter Amendment dated August 9, 2001 (incorporated by reference to Exhibit 3.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
3.1.3			Charter Amendment dated January 16, 2004 (incorporated by reference to Exhibit B of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on December 29, 2003).
3.1.4			Charter Amendment dated January 23, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 26, 2006).
3.1.5			Charter Amendment dated January 24, 2006 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K with the SEC on January 26, 2006).
3.1.6			Charter Amendment dated May 4, 2006 and effective May 5, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2006).
3.1.7			Charter Amendment dated September 8, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2006).
3.2			Second Amended and Restated Bylaws of the Company incorporated by reference to Exhibit 3.2 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-722;75013) filed with the SEC on May 3, 1999).
3.2.1			Bylaws Amendment dated January 20, 2004 (incorporated by reference to Exhibit 3.2.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003).
4.1*			Form of Certificate of Common Stock of the Company.
10.1			Stock Purchase Agreement dated July 24, 1998 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-75013) filed with the SEC on March 25, 1999).
10.2			Form of Indemnification Agreement between Goldleaf and each of its officers and directors (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 (File No. 333-75013) filed with the SEC on March 25, 1999).
10.3			Form of Non-qualified Stock Option Agreement without change of control provision (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 333-75013) filed with the SEC on March 25, 1999).
10.4			Form of Non-qualified Stock Option Agreement with change of control provision (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-75013) filed with the SEC on March 25, 1999).
10.5			Goldleaf Financial Solutions, Inc. 1999 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement No. 333-75013 on Form S-1).
10.6			Cendant Termination and Non-Competition Agreement dated August 7, 1998 (incorporated by reference to Exhibit 10.9 of Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-75013) filed with the SEC on May 24, 1999).
10.7			Lease between Triple T Brentwood, Inc. as Landlord and Private Business, Inc. as Tenant (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999).
10.8			Goldleaf Financial Solutions, Inc. 2004 Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 23, 2004).
10.9			Employment Agreement dated July 1, 2004 between the Company and Henry M. Baroco (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
10.10			Incentive Stock Option Agreement dated August 4, 2004 between the Company and Henry M. Baroco (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
10.11			Amendment to Employment Agreement dated October 21, 2005 between the Company and Henry M. Baroco (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2005).

Exhibit Number			Description of Exhibit

10.12			Employment Agreement dated September 15, 2006 between the Company and J. Scott Craighead (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2006).
10.13			Agreement and Plan of Merger dated October 20, 2005 among the Company, CSL Acquisition Corporation, Captiva Solutions, LLC, and certain of the Captiva Solutions, LLC members (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2005).
10.14			Registration Rights Agreement dated December 9, 2005 between the Company and certain of the Captiva Solutions, LLC members (incorporated by reference to Annex B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on November 17, 2005).
10.15			Goldleaf Financial Solutions, Inc. 2005 Long-Term Equity Incentive Plan (incorporated by reference to Annex E to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on November 17, 2005).
10.16			Employment Agreement dated December 9, 2005 between the Company and G. Lynn Boggs (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2005).
10.17			Stock Purchase Agreement dated January 23, 2006 among the Company and the Stockholders of Goldleaf Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 24, 2006).
10.18			Employment Agreement dated January 31, 2006 between the Company and Paul McCulloch (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2006).
10.19			Redemption and Recapitalization Agreement dated April 25, 2006 between the Company and Lightyear PBI Holdings, LLC (incorporated by reference to Exhibit 10.38 to the Company’s Registration Statement on Form S-1 (File No. 333-133542) filed with the SEC on April 26, 2006).
10.20			Amendment to Unsecured Promissory Note dated June 15, 2006 issued by Company to Paul McCulloch (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 16, 2006).
10.21			First Amendment to the Goldleaf Financial Solutions, Inc. 2005 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2006).
10.22			First Amendment to the Goldleaf Financial Solutions, Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2006).
10.23			Employment Agreement dated September 15, 2006 between the Company and Scott R. Meyerhoff (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2006).
10.24			Underwriting Agreement dated October 4, 2006 between the Company, Friedman, Billings, Ramsey & Co., Inc., and certain other underwriters (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2006).
10.25			Management Rights Agreement with The Lightyear Fund, L.P. dated October 11, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2006).
10.26			Amended and Restated Securityholders Agreement with Lightyear PBI Holdings, LLC dated October 11, 2006 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2006).
10.27			Second Amended and Restated Credit Agreement dated November 30, 2006 by and among the Company, Bank of America, N.A., The Peoples Bank, and Wachovia Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2006).
10.28			Form of Second Amended and Restated Revolving Credit Loan Note (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2006).
21			Subsidiaries of Goldleaf Financial Solutions, Inc.
23.1			Consent of Grant Thornton LLP.

Exhibit Number			Description of Exhibit

23.2			Consent of Ernst & Young LLP.
31.1			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
31.2			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
32.1			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer.
32.2			Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer.


*	The attachment referenced in this exhibit is not included in this filing but is available from Goldleaf upon request.

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Exhibit 21

SUBSIDIARIES OF GOLDLEAF FINANCIAL SOLUTIONS, INC.

Goldleaf Insurance, LLC (formerly named Private Business Insurance, LLC), a Tennessee limited liability company

Towne Services, Inc., a Georgia corporation

Forseon Corporation, a Delaware corporation (d/b/a RMSA)

Captiva Financial Solutions, LLC, a Tennessee limited liability company

Goldleaf Technologies, Inc., a Delaware corporation

Goldleaf Leasing, LLC (formerly named KVI Capital, LLC), a Tennessee limited liability company

EX-23.1 4 gf124368ex231.htm EXHIBIT 23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports, dated March 28, 2007, (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123 (Revised)) accompanying the 2006 consolidated financial statements and schedule included in the Annual Report of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) and subsidiaries on Form 10-K for each of the years in the period ended December 31, 2006. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Goldleaf Financial Solutions, Inc. and subsidiaries on Forms S-8 (File No. 333-72724; File No. 333-40520; File No. 333-116402; File No. 333-79345; File No. 333-79335; and File No. 333-13604).

/s/ Grant Thornton LLP

Raleigh, North Carolina
March 28, 2007

EX-23.2 5 gf124368ex232.htm EXHIBIT 23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the (1) Registration Statement (Forms S-8 No. 333-72724 and No. 333-40520) pertaining to the Private Business Inc. 2000 Employee Stock Purchase Plan, (2) Registration Statement (Form S-8 No. 333-116402) pertaining to the Private Business, Inc. 2004 Equity Incentive Plan, and (3) Registration Statement (Form S-8 No. 333-133604) pertaining to the Private Business, Inc. 2005 Long-Term Equity Incentive Plan, of our report dated February 18, 2005 (except for the Reclassifications paragraph on Note 1, as to which the date is August 1, 2006, and the Stock Split paragraph of Note 1, as to which the date is September 8, 2006), with respect to the 2004 consolidated financial statements and schedule of Goldleaf Financial Solutions, Inc. (formerly Private Business, Inc.) included in the Annual Report (Form 10-K) of Goldleaf Financial Solutions, Inc. for the year ended December 31, 2006.

/s/ Ernst & Young LLP

Nashville, Tennessee
March 28, 2007

EX-31.1 6 gf124368ex311.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, G. Lynn Boggs, certify that:

1. I have reviewed this annual report on Form 10-K of Goldleaf Financial Solutions Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	March 28, 2007	/s/ G. Lynn Boggs

		G. Lynn Boggs
		Chief Executive Officer

EX-31.2 7 gf124368ex312.htm EXHIBIT 31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, J. Scott Craighead, certify that:

1. I have reviewed this annual report on Form 10-K of Goldleaf Financial Solutions Inc.;

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	March 28, 2007	/s/ J. Scott Craighead

		J. Scott Craighead
		Chief Financial Officer

EX-32.1 8 gf124368ex321.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATION OF ANNUAL REPORT ON FORM 10-K
OF GOLDLEAF FINANCIAL SOLUTIONS INC.
FOR THE YEAR ENDED DECEMBER 31, 2006

The undersigned hereby certifies, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned’s best knowledge and belief, the Annual Report on Form 10-K for Goldleaf Financial Solutions, Inc. (“Issuer”) for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”):

	(a)	fully complies with the requirements of secion 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

The foregoing cerficication is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation langueage in such filing.

This Certification is executed as of March 28, 2007.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities Exchange Commission or its staff upon request.

			/s/ G. Lynn Boggs

			G. Lynn Boggs
			Chief Executive Officer

EX-32.2 9 gf124368ex322.htm EXHIBIT 32.2

Exhibit 32.2

CERTIFICATION OF ANNUAL REPORT ON FORM 10-K
OF GOLDLEAF FINANCIAL SOLUTIONS INC.
FOR THE YEAR ENDED DECEMBER 31, 2006

	(a)	fully complies with the requirements of secion 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

This Certification is executed as of March 28, 2007.

			/s/ J. Scott Craighead

			J. Scott Craighead
			Chief Financial Officer

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