<PAGE>   1

                        SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2001

                        Commission file number 000-25959

                             Private Business, Inc.
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


9010 Overlook Blvd., Brentwood, Tennessee                          37027
-----------------------------------------                          -----
(Address of principal executive offices)                         (Zip Code)


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


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

                               (1) Yes [x] No [ ]

                               (2) Yes [x] No [ ]

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

                  Class                    Outstanding as of August 13, 2001
                  -----                    ---------------------------------

       Common Stock, no par value                 13,897,914 shares
                                           ------------------




<PAGE>   2

                             PRIVATE BUSINESS, INC.

                                    FORM 10-Q

                         FOR QUARTER ENDED JUNE 30, 2001

                                      INDEX

<TABLE>
<CAPTION>
                                                                         Page No.
                                                                         --------
<S>                                                                      <C>
Part I - Consolidated Financial Statements

         Item 1 - Unaudited Condensed Consolidated Balance Sheets
                       As of June 30, 2001 and December 31, 2000              3

                  Unaudited Condensed Consolidated Statements of
                     Income for the three months ended June 30,
                     2001 and 2000                                            4

                  Unaudited Condensed Consolidated Statements of
                     Income for the six months ended June 30,
                     2001 and 2000                                            5

                  Unaudited Condensed Consolidated Statements of
                     Cash Flows for the six months ended June 30,
                     2001 and 2000                                            6

                  Notes to Unaudited Condensed Consolidated
                     Financial Statements                                    7 - 9

         Item 2 - Management's discussion and analysis of
                        financial condition and results of operations        10 - 17

         Item 3 - Quantitative and qualitative disclosures
                        about market risk                                    18

Part II - Other Information

         Item 6 -  Exhibits and reports on Form 8-K                          19

Signatures                                                                   20
</TABLE>

                                       2

<PAGE>   3

                             Private Business, Inc.
                Condensed Consolidated Balance Sheets - Unaudited

                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                     June 30,  December 31,
                                                                       2001        2000
                                                                     --------    --------
<S>                                                                  <C>         <C>
                                     Assets

Current Assets:
        Cash and cash equivalents                                    $    284    $  1,891
        Accounts receivable                                             5,725       6,160
        Accounts receivable - other                                       182         193
        Deferred tax assets                                               473         632
        Other current assets                                            1,583       1,625
                                                                     --------    --------
              Total current assets                                      8,247      10,501
                                                                     --------    --------

Property and Equipment, net                                            13,271      13,972

Other Assets:
        Software development costs, net                                 1,253         942
        Intangible and other assets, net                                5,316       5,017
                                                                     --------    --------
              Total other assets                                        6,569       5,959
                                                                     --------    --------
                                                                     $ 28,087    $ 30,432
                                                                     ========    ========

                  Liabilities and Stockholders' Deficit

Current Liabilities:
        Accounts payable                                             $  2,631    $  3,073
        Accrued liabilities                                             2,382       3,871
        Deferred revenue                                                  602         933
        Short-term borrowings                                           1,000          --
        Current portion of long-term debt                               4,607       4,031
                                                                     --------    --------
              Total current liabilities                                11,222      11,908
                                                                     --------    --------
Long-Term Debt, net of current portion                                 39,701      42,148
Deferred tax liabilities                                                  351         213
Other Liabilities                                                         122         129

Stockholders' Deficit:
        Common stock, no par value; 33,333,333 shares
              authorized; shares issued and outstanding, 9,221,538
              in 2001 and 9,170,256 in 2000                                --          --
        Additional paid-in capital                                    (22,221)    (22,509)
        Accumulated deficit                                            (1,088)     (1,457)
                                                                     --------    --------
              Total stockholders' deficit                             (23,309)    (23,966)
                                                                     --------    --------
                                                                     $ 28,087    $ 30,432
                                                                     ========    ========
</TABLE>



           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                        3


<PAGE>   4

                             Private Business, Inc.
            Condensed Consolidated Statements of Income - Unaudited
                    Three Months Ended June 30, 2001 and 2000


<TABLE>
<CAPTION>
                                               2001      2000
                                              -------   -------
                                            (in thousands, except
                                                per share data)
<S>                                           <C>       <C>
Revenues:
        Royalties                             $10,181   $12,170
        Software license                          218       541
        Maintenance and other                   1,849     1,477
                                              -------   -------
                                               12,248    14,188
Operating Expenses:
        General and administrative              4,832     4,185
        Selling and marketing                   4,908     5,713
        Research and development                  124       520
        Amortization                              307       184
        Other operating                            74       347
                                              -------   -------
                                               10,245    10,949
                                              -------   -------
Operating Income                                2,003     3,239

Other Expenses:
        Interest expense, net                     944     1,033
                                              -------   -------
Income Before Income Taxes                      1,059     2,206

Income Tax Provision                              413       860
                                              -------   -------
Net Income                                    $   646   $ 1,346
                                              =======   =======
Earnings Per Share:
        Basic                                 $  0.07   $  0.15
                                              =======   =======
        Diluted                               $  0.07   $  0.15
                                              =======   =======
Weighted Average Common Shares Outstanding:
        Basic                                   9,222     9,155
                                              =======   =======
        Diluted                                 9,243     9,247
                                              =======   =======
</TABLE>






           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                        4


<PAGE>   5

                             Private Business, Inc.
            Condensed Consolidated Statements of Income - Unaudited
                     Six Months Ended June 30, 2001 and 2000


<TABLE>
<CAPTION>
                                               2001      2000
                                              -------   -------
                                            (in thousands, except
                                                per share data)
<S>                                           <C>       <C>
Revenues:
        Royalties                             $20,214   $23,517
        Software license                          496     1,102
        Maintenance and other                   3,665     3,031
                                              -------   -------
                                               24,375    27,650
Operating Expenses:
        General and administrative             10,375     8,187
        Selling and marketing                  10,188    11,862
        Research and development                  484       940
        Amortization                              574       369
        Other operating                           149       427
                                              -------   -------
                                               21,770    21,785
                                              -------   -------
Operating Income                                2,605     5,865

Other Expenses:
        Interest expense, net                   2,000     2,259
                                              -------   -------
Income Before Income Taxes                        605     3,606

Income Tax Provision                              236     1,406
                                              -------   -------
Net Income                                    $   369   $ 2,200
                                              =======   =======
Earnings Per Share:
        Basic                                 $  0.04   $  0.24
                                              =======   =======
        Diluted                               $  0.04   $  0.24
                                              =======   =======
Weighted Average Common Shares Outstanding:
        Basic                                   9,208     9,149
                                              =======   =======
        Diluted                                 9,238     9,335
                                              =======   =======
</TABLE>







           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.



                                        5


<PAGE>   6

                             Private Business, Inc.
           Condensed Consolidated Statements of Cash Flows - Unaudited
                     Six Months Ended June 30, 2001 and 2000

                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                        2001       2000
                                                                      -------    -------
<S>                                                                   <C>        <C>
Cash Flows from Operating Activities:
        Net  income                                                   $   369    $ 2,200
        Adjustments to reconcile net income to net cash provided by
              operating activities:
                    Depreciation and amortization                       2,105      1,422
                    Deferred taxes                                        297        986
                    Non-cash deferred charges                             179         --
                    Loss on sale and writeoff of fixed assets              --        267

        Changes in assets and liabilities:
              Accounts receivable                                         446        369
              Other current assets                                         42       (104)
              Other noncurrent assets                                    (546)        23
              Accounts payable                                           (442)       707
              Accrued and other liabilities                            (1,496)    (2,821)
              Deferred revenue                                           (331)      (607)
              Other noncurrent liabilities                                 --        238
                                                                      -------    -------
                          Net cash provided by operating activities       623      2,680
                                                                      -------    -------
Cash Flows from Investing Activities:
        Additions to property and equipment                              (829)    (3,974)
        Software development costs                                       (638)      (208)
        Proceeds from sale of land and fixed assets                        --        997
                                                                      -------    -------
                          Net cash used in investing activities        (1,467)    (3,185)
                                                                      -------    -------
Cash Flows from Financing Activities:
        Payments on long-term debt                                     (1,871)    (5,591)
        Proceeds from short-term borrowings                             1,000         --
        Proceeds from exercise of employee stock options                   21        150
        Proceeds from issuance of stock through employee stock
           purchase plan                                                   87         --
                                                                      -------    -------
                          Net cash used in financing activities          (763)    (5,441)
                                                                      -------    -------
Net change in cash                                                     (1,607)    (5,946)
Cash at beginning of period                                             1,891      5,953
                                                                      -------    -------
Cash at end of period                                                 $   284    $     7
                                                                      =======    =======
Supplemental Cash Flow Information:
        Cash paid for income taxes during the period                  $   239    $   137
                                                                      =======    =======
        Cash paid for interest during the period                      $ 2,052    $ 2,560
                                                                      =======    =======
</TABLE>



           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.



                                        6


<PAGE>   7

                             PRIVATE BUSINESS, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

A.   Basis of Presentation

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

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

     These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2000.

     Certain prior period amounts have been reclassified to conform with current
period presentation.

B.   Net 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 period. Diluted earnings per share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during the period, which includes the additional dilution related to
conversion of stock options as computed under the treasury stock method for the
three and six months ended June 30, 2001 and 2000.

     The following table represents information necessary to calculate earnings
per share for the three and six months ended June 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                Three Months       Six Months
                                                               Ended June 30,    Ended June 30,
                                                              ---------------   ---------------
(in thousands)                                                 2001     2000     2001     2000
                                                              ------   ------   ------   ------
<S>                                                           <C>      <C>      <C>      <C>
Net income available to common stockholders                   $  646   $1,346   $  369   $2,200
                                                              ======   ======   ======   ======

Weighed average common shares outstanding                      9,222    9,155    9,208    9,149
Plus additional shares from common stock equivalent shares:
   Options                                                        21       92       30      186
                                                              ------   ------   ------   ------
Adjusted weighted average common shares outstanding            9,243    9,247    9,238    9,335
                                                              ======   ======   ======   ======
</TABLE>




                                       7
<PAGE>   8

C.   Comprehensive Income

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

D.   Merger and Stock Split

       On August 9, 2001, the Company completed the merger of Towne Services,
Inc. ("Towne") into Private Business. A Form S-4 registration and joint proxy
statement/prospectus statement of Private Business and Towne was filed with the
Securities and Exchange Commission ("SEC") on May 1, 2001. The merger was
structured as a tax-free exchange of approximately 4,617,640 common shares of
Private Business for all of the issued and outstanding Towne common shares and
common share equivalents. As a result of the merger, Private Business'
shareholders own 67% of the outstanding shares of the new combined entity. In
conjunction with the merger, a one-for-three reverse stock split of the
Company's common stock occurred before exchanging the Company's common shares
for the Towne common shares and common share equivalents. All shares and per
share amounts in these condensed consolidated financial statements have been
restated for the effect of the reverse stock split.

E.   CEO Change, Severance and Option Grants

       On February 1, 2001, the Company announced the departure of the current
CEO and the hiring of a new CEO. The former CEO, as part of his employment and
severance agreement, was entitled to a severance payment of $315,000, which was
paid and expensed by the Company in February 2001. The former CEO will serve as
a consultant for a minimum of six months from the date of termination. As part
of his consulting agreement, the former CEO was granted options to purchase
100,000 shares of the Company's common stock at $3.75 per share, the fair market
value as of that date. Options to purchase 66,667 of the shares will vest
ratably each month from February 2001 to January 2002, while the remaining
33,333 shares vest ratably each month from July 2001 to January 2002. The
options expire 10 years from the date of the grant. The fair value of these
options of approximately $288,000 has been calculated in accordance with SFAS
No. 123, using a risk-free rate of 5.10%, an expected dividend yield of 0% and
an expected volatility of 75%. This fair value will be expensed to general and
administrative expense over the vesting period ($264,000 expensed in 2001 and
$24,000 expensed in 2002). Approximately $72,000 and $120,000 was expensed for
the second quarter and first half of 2001, respectively.

       On August 10, 2001, the Company finalized an employment agreement with
the new CEO, which included restricted stock in lieu of salary and stock
options. According to the agreement, the CEO will receive a salary of $210,000
in the form of restricted stock effective February 1, 2001. After payroll taxes
and withholdings, the number of shares issued was 43,608. These shares will vest
1/11th per month for 2001 and the related compensation expense will be recorded
as the shares vest. Compensation expense of $87,500 has been recorded in the six
month period ended June 30, 2001 for the period of February 1, 2001 to



                                       8
<PAGE>   9
June 30, 2001. The CEO was also granted options to purchase 333,333 shares of
the Company's common stock. Options to purchase 166,667 shares vested
immediately and are exercisable at $3.00 per share, while the remaining
166,666 shares vest ratably each month February 2001 to January 2005 of
which 83,333 shares are exercisable at $12.00 per share and 83,333
shares are exercisable at $18.00 per share. The options expire 10 years
from the date of the grant.

F.   Bank Covenants

     The Company's credit facility is secured by a pledge of all Company assets
and imposes financial covenants and requirements and contains limitations on the
Company's ability to sell material assets, redeem capital stock and pay
dividends, among other actions. On June 30, 2001, the Company entered into an
amendment to its credit facility. The amendment modified the restrictive
financial covenants for the period ended June 30, 2001 and all future periods.
At June 30, 2001, the Company was in compliance with all covenants.

G.   New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board approved the
issuance of Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
These standards, issued in July 2001, establish accounting and reporting for
business combinations and intangible assets. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and
other intangible assets with indefinite lives will not be amortized, but will
be tested for impairment on an annual basis. These standards are effective for
the Company beginning on January 1, 2002. The Company has not quantified the
impact resulting from the adoption of these standards.







                                       9
<PAGE>   10

                             PRIVATE BUSINESS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                  OF OPERATIONS
               THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000

MATERIAL 2001 CORPORATE DEVELOPMENTS

         On February 1, 2001, we announced that Thomas L. Black, a co-founder
and former CEO of Private Business during its most rapid growth phase from 1991
to 1995, was named Chief Executive Officer and President replacing Kevin M.
McNamara and Jerry Cover, respectively. Mr. Black has been a director of Private
Business since its founding and most recently has been CEO of privately held
Tecniflex, Inc. An employment agreement with Mr. Black was finalized on August
13, 2001, which includes salary in the form of restricted stock and stock
options. The former CEO, who will serve as a consultant to the Company, received
a severance payment on February 1, 2001 of $315,000 and stock options to
purchase the Company's common stock. The former President received a severance
payment on June 30, 2001 of $210,000. All severance paid was expensed at the
effective date of the resignation.

         On August 9, 2001, we completed a merger of Towne Services, Inc.
("Towne") into Private Business. A Form S-4 registration and joint proxy
statement/prospectus statement of Private Business and Towne was filed with the
Securities and Exchange Commission on May 1, 2001. The merger was structured as
a tax-free exchange of approximately 4,617,640 of our common shares for all of
the issued and outstanding Towne common shares and common share equivalents. As
a result of the merger, Private Business' shareholders own 67% of the
outstanding shares of the new combined entity. In conjunction with the merger
agreement, a one for three reverse stock split of our common stock occurred
before exchanging our common shares for the Towne common shares and common share
equivalents. All shares and per share amounts in these condensed consolidated
financial statements have been restated for the effect of the reverse stock
split.

         In connection with the merger, three of Towne's directors, Glenn W.
Sturm, Richardson M. Roberts and Frank W. Brown, joined the Company's board of
directors, and Harry M. Baroco became the Company's Chief Operating Officer. In
addition, effective August 10, 2001, the Company's board named Mr. Gregory S.
Daily to fill a vacancy on the board.

OVERVIEW

         We are a leading provider of technology-driven solutions that address
the problems faced by community banks in managing accounts receivable financing
provided to their small business customers. Our solution to these problems is
called Business Manager(R) and is based on software, marketing services and
online electronic transaction processing. One element of this solution is our
proprietary software that enables our network of client banks to purchase
accounts receivable from their small business customers. The banks then process,
bill and track those receivables on an ongoing basis. As a major component of
our solution, we work with client banks to design, implement and manage the sale
of Business Manager accounts receivable financing services to their small
business customers. We also give our client banks the option of outsourcing to
us their application hosting and transaction processing through secure Internet
connections,



                                       10
<PAGE>   11

thereby allowing them to receive accounts receivable information and make
funding decisions electronically.

         We generate revenues from three main sources:

         -        royalties earned on client bank purchases of small business
                  accounts receivable.

         -        software license fees from new client banks.

         -        maintenance fees and other revenues, comprised primarily of
                  fees received for insurance brokerage services, paper-based
                  form sales, software maintenance, medical, leasing and
                  processing services.

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

         Software license fees consist of two components: the license fee and
customer training and support fee. These are one-time fees that we receive upon
the initial licensing of our Business Manager program to a community bank. Our
license agreements are executed with terms ranging from three to five years and
are renewable for subsequent terms. We recognize revenues from the license fee
at the time of initiation of the agreement and the customer training and support
fee ratably over the twelve-month service period subsequent to signing the
license agreement. Software license fees for new agreements range from
approximately $5,000 to $156,000 and are generally based on the asset size of
the client bank.

         Maintenance fees and other revenues include several ancillary products
and services we provide to client banks. Annual software maintenance fees are
generated from our client banks starting on the first anniversary date of the
Business Manager license agreement and annually thereafter. These revenues are
recognized ratably over a twelve month period beginning on the first anniversary
date of the agreement. Additionally, since 1995, we have brokered, through our
Private Business Insurance subsidiary, credit and fraud insurance products from
a national insurance company. We earn fees based on a percentage of the premium
that is paid to the insurance company. We also provide a standard set of forms
that client banks may purchase and use in the normal course of administering the
Business Manager program. Revenues related to these forms are recognized in the
period that they are shipped to the client bank. We offer processing services to
our client banks for an additional fee based on the volume of transactions
processed through the system. We also have some industry-focused applications
for the medical and dental markets and an equipment leasing program for



                                       11
<PAGE>   12

use by small business customers where we receive a commission on referred
leasing transactions funded by a third-party finance company.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                    Second Quarter       Year to Date
                                   ----------------    ----------------
                                    2001      2000      2001      2000
                                   ------    ------    ------    ------
<S>                                  <C>       <C>       <C>       <C>
Revenue:
       Royalties                     83.1%     85.8%     83.0%     85.1%
       Software license               1.8%      3.8%      2.0%      4.0%
       Maintenance and other         15.1%     10.4%     15.0%     10.9%
                                   ------    ------    ------    ------
                                    100.0%    100.0%    100.0%    100.0%

Operating Expenses:
      General and administrative     39.4%     29.5%     42.6%     29.6%
      Selling and marketing          40.1%     40.3%     41.8%     42.9%
      Research and development        1.0%      3.7%      2.0%      3.4%
      Amortization                    2.5%      1.3%      2.4%      1.3%
      Other operating                 0.6%      2.4%      0.6%      1.6%
                                   ------    ------    ------    ------
                                     83.7%     77.2%     89.3%     78.8%

Operating Income                     16.4%     22.8%     10.7%     21.2%

Other Expenses:
      Interest expense, net           7.7%      7.3%      8.2%      8.2%
                                   ------    ------    ------    ------
Income Before Income Taxes            8.7%     15.5%      2.5%     13.0%

Income Tax Provision                  3.4%      6.1%      1.0%      5.1%
                                   ------    ------    ------    ------
Net Income                            5.3%      9.4%      1.5%      7.9%
                                   ======    ======    ======    ======
</TABLE>






                                       12
<PAGE>   13

         Royalties. Royalties decreased 16.3% to $10.2 million for the second
quarter of 2001 and 14.0% to $20.2 million for the first six months of 2001
compared to $12.2 million and $23.5 million for the second quarter and first six
months of 2000, respectively. The decreases were primarily due to a reduction in
the total funding through our Business Manager program to $1.3 billion for the
second quarter of 2001 and $2.7 billion for the first half of 2001, compared to
$1.6 billion and $3.1 billion for the second quarter and first half of 2000,
respectively. There was also a decrease in the average fee realized for
royalties due to fewer initial sales funding through the program during 2001
compared to 2000. As a percentage of total revenue, royalties accounted for
83.1% for the second quarter of 2001 compared to 85.8% for 2000 and 82.9% for
the first six months of 2001 compared to 85.1% for 2000.

         Software License. Software license fees decreased 59.7% to $218,000 and
55.1% to $495,000 for the second quarter and first half of 2001, respectively,
compared to $541,000 and $1.1 million for the comparable periods for 2000. The
decrease was primarily due to a decrease in the number of new software license
agreements entered into during 2001 compared to 2000. We believe the decrease
was due to several contributing factors, including our continued focus on
marketing more specifically to banks in targeted areas where we wish to better
penetrate and support the small business market. Further, we believe that with
the current economic slowdown and the fact that as we increase our market
penetration, it becomes more difficult to add new license agreements from the
smaller universe of potential bank clients. Software license fees accounted for
1.8% and 2.0% of total revenues for the three months and six months ended June
30, 2001, respectively, compared to 3.8% and 4.0% for the comparable periods in
2000.

         Maintenance and other. Maintenance and other fees increased 25.2% to
$1.8 million for the three months ended June 30, 2001 and 20.9% to $3.7 million
for the first six months of 2001, compared to $1.5 million and $3.0 million,
respectively, for the comparable periods for 2000. The increase was primarily
attributable to increases in our processing services. Our processing services
fee increased 709.3% to $364,000 for the second quarter of 2001 and 548.8% to
$807,000 for the first two quarters of 2001, compared to $45,000 and $124,000,
respectively, for the comparable periods in 2000. The increase was primarily as
a result of more of our client banks utilizing our processing services.
Maintenance and other fees accounted for 15.1% and 15.0% of total revenues for
the second quarter and first half of 2001, respectively, compared to 10.4% and
11.0% for the comparable periods in 2000.

         Total revenues. Total revenues for the second quarter and first half of
2001 decreased 13.7% to $12.2 million and 11.8% to $24.4 million, respectively,
compared to $14.2 million for the second quarter of 2000 and $27.7 million for
the first half of 2000. These decreases were primarily as a result of decreased
royalties and software license fees, which were partially offset by increased
maintenance and other fees.

         General and administrative. General and administrative expenses
increased 15.4% to $4.8 million and 26.7% to $10.4 million for three and six
months ended June



                                       13
<PAGE>   14

30, 2001, respectively, compared to $4.2 million and $8.2 million for the
comparable periods in 2000. General and administrative expenses include the cost
of our executive, finance, human resources, information and support services,
administrative functions and general operations. As a percentage of total
revenue, general and administrative expenses increased 9.9% to 39.4% and 13.0%
to 42.6% for the quarter and six months ended June 30, 2001, respectively,
compared to the same periods in 2000. The increases were primarily due to higher
consulting fees, depreciation and compensation costs related to our new
Technology and Service Center which we placed in service in May 2000 and
one-time severance costs for the former President, paid in June 2001, and the
former CEO paid in February 2001.

         Selling and marketing. Selling and marketing expenses decreased 14.1%
for both the second quarter and first six months of 2001 to $4.9 million and
$10.2 million, respectively, compared to $5.7 million and $11.9 million for the
three and six months ended June 30, 2000, respectively. Selling and marketing
expenses include the cost of wages and commissions paid to our dedicated
business development and bank sales force, travel costs of our sales force,
recruiting for new sales and marketing personnel and marketing fees associated
with direct and telemarketing programs. As a percentage of total revenue,
selling and marketing expenses decreased 0.2% to 40.1% and 1.1% to 41.8% for the
second quarter and first half of 2001, respectively, compared to 40.3% and 42.9%
for the comparable periods in 2000. The decreases were primarily due to a
reduction in sales staff as a result of continued focus on sales productivity
per sales person. This resulted in decreased compensation, commissions,
training, and travel expenses.

         Research and development. Research and development expenses decreased
76.1% to $124,000 and 48.5% to $484,000 for the second quarter and first six
months of 2001, respectively, compared to $520,000 and $940,000 for the year
earlier periods. These costs include the non-capitalizable direct costs
associated with developing new versions of the Business Manager system. The
decrease in costs was primarily due to larger amounts of research and
development costs capitalized as software development costs due to increased
activity related to capitalizable new product development in the second quarter
and first half of 2001 compared to the same periods in 2000. As a percentage of
total revenues, research and development expenses decreased to 1.0% and 2.0% in
the second quarter and first six months of 2001, respectively, compared to 3.7%
and 3.4% for the year earlier periods. The amount of software development costs
capitalized in the second quarter and first half of 2001 were $413,000 and
$638,000, respectively, compared to $111,000 and $208,000 for the same periods
in 2000.

         Amortization. Amortization expenses increased 66.8% to $307,000 and
55.6% to $574,000 for the second quarter and first six months of 2001,
respectively, compared to $184,000 and $369,000 for the comparable periods in
2000. These expenses include the cost of amortizing intangible assets including
trademarks, associated costs of goodwill software development costs and debt
issuance costs. The increase was primarily related to the increased activity and
capitalization of software development costs in late 2000 and the first half of
2001.



                                       14
<PAGE>   15

         Other operating expenses. Other operating expenses decreased $273,000
to $74,000 and $278,000 to $149,000 for the three and six months ended June 30,
2001, respectively. Other operating expenses include property tax and other
miscellaneous costs associated with providing support and services to our client
banks. The decrease was primarily due to the write-off in May 2000 of leasehold
improvements and furniture related to leased space we vacated when our new
Technology and Business Service Center opened.

         Operating income. As a result of the above factors, our operating
income decreased 38.2% to $2.0 million and 55.6% to $2.6 million for the second
quarter and first six months of 2001, respectively, compared to $3.2 million and
$5.9 million for the same periods in 2000. As a percentage of total revenue,
operating income decreased to 16.3% and 10.7% for the second quarter and first
half of 2001, respectively, compared to 22.8% and 21.2% for the same periods in
2000.

         Interest expense, net. Interest expense, net decreased 8.6% to $944,000
and 11.5% to $2.0 million for the three and six months ended June 30, 2001,
respectively, compared to $1.0 million and $2.3 million for the comparable
periods in 2000. The decrease was primarily due to the reduction of our debt and
more favorable interest rates. In addition to our normal debt service, we
reduced long-term debt by approximately $1.3 million at the end of the first
quarter 2000 using excess cash from operations as required by a year-end excess
cash provision in our debt agreement and an optional early payment of $3.0
million at the end of the second quarter 2000.

         Income tax provision. The income tax provision was approximately
$413,000 and $236,000 for the second quarter and first six months of 2001,
respectively, compared to $861,000 and $1.4 million for the same periods in
2000. As a percentage of income before taxes, the income tax provision was 39.0%
for both the second quarter and first six months of 2001.

LIQUIDITY AND CAPITAL RESOURCES

         Our primary sources of capital have historically been cash provided by
operations, long-term debt and investment from stockholders. During the first
six months of 2001 our operating activities provided cash of $623,000 while we
expended $1.5 million for investing activities, primarily for purchases of
equipment and software development. We currently estimate that total capital
expenditures for 2001 will be approximately $2.5 million.

         Cash used in financing activities totaled $763,000 for the first half
of 2001. These uses consisted of $1.9 million in repayments of long-term debt
partially offset by proceeds from the exercise of employee stock options, the
employee stock purchase plan and short-term borrowings.



                                       15
<PAGE>   16

         The credit facility includes term loans with balances as of June 30,
2001 of $16.4 million and $27.9 million, and also provides for a revolving line
of credit in the amount of $10.0 million, including a $3.0 million sublimit for
swing line advances and a $2.0 million sublimit for standby letters of credit.
There was $1.0 million outstanding on the revolving line of credit at June 30,
2001. The credit facility bears interest in accordance with a grid pricing
formula based on the achievement of various financial ratios. The formula calls
for advances to bear interest ranging from 1.25% to 2.75% above prime rate or
2.50% to 4.00% above the Eurodollar rate.

         The $16.4 million loan is generally repayable in quarterly installments
of $864,000 through September 30, 2001 and then increasing annually from $1.2
million beginning December 31, 2001 to $1.4 million beginning December 31, 2003
until maturity (August 7, 2004). The $27.9 million loan is repayable in equal
quarterly installments of $72,000 until December 31, 2004, at which time the
required quarterly payments increase to $3.2 million until September 30, 2005
and $4.2 million until June 30, 2006 with a final payment of $1.2 million due at
maturity (August 7, 2006). The revolver has an annual commitment fee and matures
August 7, 2004. As of June 30, 2001, we had $16.4 million outstanding at 6.72%,
$27.9 million outstanding at 7.22%, $1.0 million outstanding at 8.50% and no
outstanding letters of credit.

         The credit facility is secured by a pledge of all of our assets and
imposes financial covenants and requirements on us and contains limitations on
our ability to sell material assets, redeem capital stock and pay dividends,
among other actions. On June 30, 2001, the Company entered into an amendment to
its credit facility. The amendment modified the restrictive financial covenants
for the period ended June 30, 2001 and all future periods. As of June 30, 2001,
we were in compliance with all the restrictive covenants.

         As of June 30, 2001, we had a working capital deficit of approximately
$3.0 million compared to a deficit of approximately $1.8 million as of December
31, 2000. The change in working capital resulted primarily from decreases in
accounts payable, accrued liabilities and deferred revenue partially offset by
decreases in accounts receivable and deferred tax assets and an increase in the
current portion of our borrowings. We believe that our line of credit
availability along with future operating cash flows and cash received from the
merger will be sufficient to meet our working capital and capital expenditure
requirements for the next twelve months.

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

NEW ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board approved the
issuance of Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
These standards, issued in July 2001, establish accounting and reporting for
business combinations and intangible assets. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and
other intangible assets with indefinite lives will not be amortized, but will
be tested for impairment on an annual basis. These standards are effective for
the Company beginning on January 1, 2002. The Company has not quantified the
impact resulting from the adoption of these standards.

NOTE REGARDING FORWARD LOOKING INFORMATION

         This interim report contains several "forward-looking statements"
concerning our operations, prospects, strategies and financial condition,
including our future economic performance, intent, plans and objectives, and the
likelihood of success in developing and expanding our business. These statements
are based upon a number of assumptions and



                                       16
<PAGE>   17

estimates which are subject to significant uncertainties, many of which are
beyond our control. Words such as "may," "would," "could," "will," "expect,"
"anticipate," "believe," "intend," "plan," and "estimate" are meant to identify
such forward-looking statements. Actual results may differ materially from those
expressed or implied by such forward-looking statements. The Company assumes no
obligation to update this information. Factors that could cause actual results
to differ materially are discussed in our filings with the Securities and
Exchange Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2000, and include, among other factors, the timely development and
market acceptance of products and technologies and competitive market
conditions.

INFLATION

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




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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is subject to market risk from exposure to changes in
interest rates based on our financing and cash management activities. Our
exposure relates primarily to our long-term debt obligations that expire in
2004 and 2006. In the event that interest rates associated with these debt
obligations were to increase 100 basis points, the annual impact on future cash
flows would be approximately $443,000.




















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<PAGE>   19

                           PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  3.1    - Amended and Restated Charter of the Company
                           (incorporated by reference to exhibit 3.1 to the
                           Company's registration statement on Form S-1)

                  3.2    - Amended and Restated By-laws of the Company
                           (incorporated by reference to exhibit 3.2 to the
                           Company's registration statement on Form S-1)

                  10.1   - Agreement and Plan of Merger between the Company
                           and Towne Services, Inc. (incorporated by reference
                           to annex 1 to the Company's registration statement on
                           Form S-4)

                  10.2   - Employment Agreement between the Company and Thomas
                           L. Black

                  10.4.4 - Amendment No. 4 to Credit Agreement dated as of
                           June 30, 2001

         (b)      Reports on Form 8-K

                               No reports on Form 8-K were filed by the Company
                  during the three months ended June 30,2001.




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<PAGE>   20

                                   SIGNATURES

         Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.


                                    PRIVATE BUSINESS, INC.
                                         (Registrant)



Date:    August 14, 2001            By: /s/ Thomas L. Black
      -----------------------           ----------------------------------------
                                        Thomas L. Black
                                        Chief Executive Officer



Date:    August 14, 2001            By: /s/ Fred P. Read
      -----------------------           ----------------------------------------
                                        Fred P. Read
                                        Chief Financial Officer