<PAGE>

                                 United States
                       Securities and Exchange Commission
                             Washington, DC  20549

                                   Form 10-Q



     [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
                             Exchange Act of 1934

                 For the quarterly period ended June 30, 2001

                                      OR

     [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
                             Exchange Act of 1934

            For the transition period from __________to____________


                       Commission File Number 001-13460
                                              ---------


                       PhyAmerica Physician Group, Inc.
                       --------------------------------
            (Exact name of registrant as specified in its charter)

                Delaware                                         56-1379244
     -------------------------------                        -------------------
     (State or other jurisdiction of                           (IRS Employer
     Incorporation or organization)                         Identification No.)

         2828 Croasdaile Drive, Durham, NC                         27705
     ----------------------------------------                   -----------
     (Address of principal executive offices)                    (Zip Code)

                                 (919) 383-0355
                                 --------------
              (Registrant's telephone number including area code)

                                      None
                                      ----
   (Former name, former address and former fiscal year, if changed since last
                                    report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (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 ninety (90) days.

             [X] Yes                                       [ ] No

     As of July 31, 2001 there were outstanding 43,994,987 shares of common
stock, par value $.01 per share.

                                       1
<PAGE>

                       PHYAMERICA PHYSICIAN GROUP, INC.
                                     INDEX

<TABLE>

<C>       <S>
PART I    FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000

          Unaudited Consolidated Statements of Operations
            Three months ended June 30, 2001 and 2000

          Unaudited Consolidated Statements of Operations
            Six months ended June 30, 2001 and 2000

          Unaudited Consolidated Condensed Statements of Cash Flows
            Six months ended June 30, 2001 and 2000

          Notes to Consolidated Financial Statements (unaudited)


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


Item 3    Quantitative and Qualitative Disclosures About Market Risk



PART II   OTHER INFORMATION

Item 4    Submission of Matters to a Vote of Security Holders

Item 5    Other Information

Item 6    Exhibits and Reports on Form 8-K


PART III  SIGNATURES

</TABLE>

                                       2
<PAGE>

                                    PART I


Item 1

                       PHYAMERICA PHYSICIAN GROUP, INC.
                          Consolidated Balance Sheets
                     (In thousands, except per share data)

<TABLE>
<CAPTION>


                                                                               June 30,        December 31,
                                                                                 2001               2000
                                                                              -----------      ------------
                                                                              (Unaudited)
<S>                                                                           <C>               <C>
                                    Assets
Current assets:
  Cash and cash equivalents                                                     $   2,449         $     ---
  Trade accounts receivable, net                                                   25,196            32,514
  Reserves held by NCFE                                                            15,217            14,947
  Accounts receivable, other                                                          541             1,301
  Receivables from related party                                                    1,224               716
  Prepaid expenses and other current assets                                         8,075             4,693
                                                                                ---------         ---------
Total current assets                                                               52,702            54,171
                                                                                ---------         ---------
Property and equipment, at cost, less accumulated depreciation                     11,088            11,407
Excess of cost over fair value of net assets acquired, net                         17,704            19,340
Other assets                                                                        1,814             2,194
                                                                                ---------         ---------
Total assets                                                                    $  83,308         $  87,112
                                                                                =========         =========

            Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
  Current maturities and other short-term borrowings                            $   1,754         $   1,728
  Accounts payable                                                                 26,976            28,957
  Accrued physician fees and medical costs                                         17,607            18,054
  Accrued expenses                                                                  7,928             7,211
                                                                                ---------         ---------
Total current liabilities                                                          54,265            55,950
                                                                                =========         =========

Long-term debt, excluding current maturities                                      190,651           175,352
                                                                                ---------         ---------
Total liabilities                                                                 244,916           231,302
                                                                                =========         =========

Shareholders' equity (deficit):
Series D convertible preferred stock: shares authorized 1,200; no shares            ---               ---
 issued and outstanding

Common stock $.01 par value: shares authorized 100,000; shares issued
 and outstanding 43,695 and 42,573, respectively                                      437               430
Additional paid-in capital                                                        180,006           178,331
Common stock warrants                                                                 ---             1,675
Retained earnings (accumulated deficit)                                          (342,051)         (324,626)
                                                                                ---------         ---------
Total shareholders' equity (deficit)                                             (161,608)         (144,190)
                                                                                ---------         ---------
Total liabilities and shareholders' equity (deficit)                            $  83,308         $  87,112
                                                                                =========         =========

</TABLE>

         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                       PHYAMERICA PHYSICIAN GROUP, INC.
               Consolidated Statements of Operations - Unaudited
                     (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                           Three months ended
                                                                June 30
                                                         2001           2000
                                                       --------      ----------
                                                                     (Restated)
<S>                                                     <C>          <C>
Operating revenue, net                                  $83,194        $81,060

Costs and expenses:
  Physician and other provider services                  62,368         60,634
  Medical support services                               12,751         11,293
  Selling, general and administrative                    11,009         13,222
  Related party expense (income), net                       (91)           415
                                                        -------        -------
Total costs and expenses                                 86,037         85,564
                                                        -------        -------
Operating loss                                           (2,843)        (4,504)
                                                        -------        -------

Other income (expense):
  Interest expense                                       (5,319)        (4,064)
  Interest income                                           141             30
  Other related party income (expense), net                  76           (101)
  Other, net                                                387            (76)
                                                        -------        -------
Total other expense                                      (4,715)        (4,211)
                                                        -------        -------


Loss before income taxes                                 (7,558)        (8,715)

Income taxes                                                ---            ---
                                                        -------        -------
Net loss                                                $(7,558)       $(8,715)
                                                        =======        =======

Net loss per common share:
Basic and diluted loss per share                        $ (0.17)         (0.20)

Shares used to compute loss per share, basic and
 diluted                                                 43,695         42,631


</TABLE>
         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                        PHYAMERICA PHYSICIAN GROUP, INC.
                Consolidated Statements of Operations - Unaudited
                      (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                               Six months ended
                                                                    June 30
                                                             2001            2000
                                                          ---------       ----------
                                                                          (Restated)
<S>                                                       <C>             <C>
Operating revenue, net                                     $166,530       $159,478

Costs and expenses:
  Physician and other provider services                     124,452        121,744
  Medical support services                                   25,415         22,118
  Selling, general and administrative                        23,900         26,611
  Related party expense, net                                    147            819
                                                           --------       --------
Total costs and expenses                                    173,914        171,292
                                                           --------       --------


Operating loss                                               (7,384)       (11,814)
                                                           --------       --------

Other income (expense):
  Interest expense                                          (10,601)        (7,944)
  Interest income                                               235             47
  Other related party income (expense), net                     (39)          (202)
  Other, net                                                    364           (103)
                                                           --------       --------
Total other expense                                         (10,041)        (8,202)
                                                           --------       --------


Loss before income taxes                                    (17,425)       (20,016)

Income taxes                                                    ---            ---
                                                           --------       --------

Net loss before cumulative effect of change in
 accounting principle                                       (17,425)       (20,016)

Cumulative effect of change in accounting principle             ---         (4,993)
                                                           --------       --------
Net loss                                                   $(17,425)      $(25,009)
                                                           ========       ========
Net loss per common share (basic and diluted):
Net loss before cumulative effect of change in
 accounting principle                                      $  (0.40)         (0.47)
Cumulative effect of change in accounting principle             ---          (0.12)

Net loss per share                                            (0.40)         (0.59)



Shares used to compute loss per share, basic and
 diluted                                                     43,516         42,601


</TABLE>

         See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                       PHYAMERICA PHYSICIAN GROUP, INC.
          Consolidated Condensed Statements of Cash Flows - Unaudited
                                (In thousands)

<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                                June 30,
                                                           2001         2000
                                                        ----------   ---------
<S>                                                      <C>          <C>
Net cash used in operating activities                    $(11,440)    $(20,762)
                                                         --------     --------

Cash flows from investing activities:
  Purchases of property and equipment, net                   (343)        (538)
  Acquisition of companies, net of cash acquired           (1,100)         ---
                                                         --------     --------
  Net cash used in investing activities                    (1,443)        (538)
                                                         ========     ========

Cash flows from financing activities:
  Borrowings of long-term debt, net                        15,325       21,270
  Net proceeds from issuances of common stock                   7           30
                                                         --------     --------
  Net cash provided by financing activities                15,332       21,300
                                                         --------     --------
  Net increase in cash and cash equivalents                 2,449          ---
Cash and cash equivalents at beginning of year                ---          ---
                                                         --------     --------
Cash and cash equivalents at end of period               $  2,449     $    ---
                                                         ========     ========



Supplemental disclosures of cash flow information:

  Cash payments during the period for:
   Interest                                              $ 10,601     $  8,216
   Income taxes                                               ---          213

</TABLE>



          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                       PHYAMERICA PHYSICIAN GROUP, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(1)  Basis of Presentation

The accompanying consolidated financial statements of PhyAmerica Physician
Group, Inc. (the "Company") are unaudited and, in the opinion of management,
include all adjustments which are necessary for a fair presentation.  The
unaudited consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.  Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2001.  The Company has made certain reclassifications to
financial information as of and for the three and six months ended June 30,
2000.  Such reclassifications have no impact on net loss or total shareholders'
deficit.  See Note 5 regarding restatement of the Statements of Operations for
the three and six months ended June 30, 2000.

(2)  Comprehensive Income

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", establishes rules for the reporting and display of comprehensive income
or loss and its components.  This Statement requires that unrealized gains or
losses on the Company's available-for-sale securities be included in other
comprehensive income.  For the quarters ended June 30, 2001 and 2000,
comprehensive income is equal to the Company's net loss.

(3)  Recently Adopted Accounting Pronouncements

In September 2000, the FASB issued Statement of Financial Accounting Standards
No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("A Replacement of FASB Statement 125") ("SFAS
140").  SFAS 140 provides the accounting and reporting guidance for transfers
and servicing of financial assets and extinguishments of liabilities.  The
disclosures in SFAS 140 were effective for fiscal years ending after December
15, 2000.  The adoption of SFAS 140 did not have a material impact on the
Company's financial condition or results from operations.

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities"  ("SFAS 133").  SFAS 133 requires entities to disclose information
for derivative financial instruments, and to recognize all derivatives as assets
or liabilities measured at fair value.  The Company adopted this pronouncement
and it had no impact on its financial position or results of operations.

In July 2001, the Financial Accounting Standards Board issued SFAS no. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001.  Statement 141 also
specifies the criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 is effective for the Company beginning on January 1, 2002 and will
require that all goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142.  Statement 142 will also
require that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
In connection with Statement 142's transitional goodwill

                                       7
<PAGE>

impairment evaluation, the Statement will require the Company to perform an
assessment of whether there is an indication that goodwill is impaired as of the
date of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's statement
of earnings. Because of the extensive effort needed to comply with adopting
Statements 141 and 142, it is not practicable to reasonably estimate the impact
of adopting these Statements on the Company's financial statements at the date
of this report, including whether it will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.

(4)  Segment Information


During the quarters ended June 30, 2001 and 2000, the Company had 4 reportable
segments:  Emergency Physician Management, Government Services, Billing and
Business Management Services and Divested Businesses.  The Emergency Physician
Management Group contracts principally with hospitals to identify and recruit
physicians as candidates for admission to a client's medical staff and to
coordinate the on-going scheduling of independent contractor physicians who
provide clinical coverage in designated areas.  While the Company also provides
Obstetrics, Gynecology and Pediatrics Emergency Physician Management, the
provision of contract management services to hospital emergency departments
represents the Company's principal hospital-based service. The Government
Services segment provides similar services to governmental agencies such as the
Department of Defense and state and local governments.  The Billing and Business
Management Services segment provides support to independent contractor
physicians, independent practices and other health care practitioners. These
services are often provided as part of the Company's Emergency Physician
Management Group and are also marketed independently to unaffiliated providers.
Divested Businesses consist of 2 health plans which were divested during 1998
and the wrap up of businesses divested prior to 1998. The Company also has a
Corporate Group included in "All Other" that provides administrative services to
the operating segments.  "All Other" also includes amounts related to
eliminations.  As part of its evaluation of the carrying value of goodwill,
management recorded an adjustment to reduce goodwill by approximately $250,000
during the quarter ended June 30, 2001 which was recorded in the Emergency
Physician Management Segment.

                           Quarter ended June 30, 2001

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                  Emergency                                     Total
                                  Physician     Gov't             Divested   Reportable     All
        (In Thousands)           Management   Services   Billing  Segments    Segments     Other
                                                                                                    Totals
-------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>        <C>      <C>        <C>          <C>      <C>
Revenue from external sources       $71,576     $5,466    $6,152    $  ---      $83,194   $  ---   $83,194
-------------------------------------------------------------------------------------------------------------
Intersegment revenues                   ---        ---     7,468       ---        7,468      ---     7,468
-------------------------------------------------------------------------------------------------------------
Interest expense                      4,865        255       ---       ---        5,120      199     5,319
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization         1,371          6       255       ---        1,632     (141)    1,491
-------------------------------------------------------------------------------------------------------------
Segment profit (loss)                (8,856)      (247)    2,397       (55)      (6,761)    (797)   (7,558)
-------------------------------------------------------------------------------------------------------------
Segment assets                      $69,033     $2,970    $6,213    $2,266      $80,482   $2,826   $83,308
-------------------------------------------------------------------------------------------------------------
</TABLE>

                     Quarter ended June 30, 2000  (Restated)

<TABLE>
<CAPTION>
                                  Emergency                                    Total
                                  Physician     Gov't             Divested  Reportable     All
(In Thousands)                   Management   Services   Billing  Segments   Segments     Other
                                                                                                    Totals
-------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>        <C>      <C>       <C>          <C>       <C>
Revenue from external sources       $71,016     $4,654    $5,431    $  ---     $81,101   $   (41)  $81,060
-------------------------------------------------------------------------------------------------------------
Intersegment revenues               $   ---     $  ---    $7,009    $  ---     $ 7,009   $   ---   $ 7,009
-------------------------------------------------------------------------------------------------------------
Interest expense                    $ 2,976     $1,040    $   64    $  ---     $ 4,080   $   (16)  $ 4,064
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization       $ 1,371     $    7    $  204    $    1     $ 1,583   $    32   $ 1,615
-------------------------------------------------------------------------------------------------------------
Segment profit (loss)               $(6,800)    $ (483)   $2,056    $    2     $(5,225)  $(3,490)  $(8,715)
-------------------------------------------------------------------------------------------------------------
Segment assets                      $65,128     $3,607    $7,228    $2,426     $78,389   $(1,022)  $77,367
-------------------------------------------------------------------------------------------------------------
</TABLE>

                                       8
<PAGE>

                          Six months ended June 30, 2001


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                  Emergency                                     Total
                                  Physician     Gov't             Divested   Reportable     All
(In Thousands)                   Management   Services   Billing  Segments    Segments     Other
                                                                                                     Totals
-------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>        <C>      <C>        <C>          <C>       <C>
Revenue from external sources      $143,373    $10,949   $12,208    $  ---     $166,530   $   ---   $166,530
-------------------------------------------------------------------------------------------------------------
Intersegment revenues              $    ---    $   ---   $14,774    $  ---     $ 14,774   $   ---   $ 14,774
-------------------------------------------------------------------------------------------------------------
Interest expense                   $  9,635    $   531   $   ---    $  ---     $ 10,166   $   435   $ 10,601
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization      $  2,717    $    12   $   511    $  ---     $  3,240   $   (73)  $  3,167
-------------------------------------------------------------------------------------------------------------
Segment profit (loss)              $(17,664)   $  (456)  $ 4,530    $  (43)    $(13,633)  $(3,792)  $(17,425)
-------------------------------------------------------------------------------------------------------------
Segment assets                     $ 69,033    $ 2,970   $ 6,213    $2,266     $ 80,482   $ 2,826   $ 83,308
-------------------------------------------------------------------------------------------------------------
</TABLE>


                    Six months ended June 30, 2000  (Restated)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                  Emergency                                    Total
                                  Physician     Gov't             Divested  Reportable     All
(In Thousands)                   Management   Services   Billing  Segments   Segments     Other
                                                                                                    Totals
-------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>        <C>      <C>       <C>          <C>       <C>
Revenue from external sources      $140,269    $ 9,128   $10,104    $  ---    $159,501   $   (23)  $159,478
-------------------------------------------------------------------------------------------------------------
Intersegment revenues              $    ---    $   ---   $13,481    $  ---    $ 13,481   $   ---   $ 13,481
-------------------------------------------------------------------------------------------------------------
Interest expense                   $  5,869    $ 1,952   $   157    $  ---    $  7,978   $   (34)  $  7,944
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization      $  2,744    $    13   $   407    $    1    $  3,165   $    60   $  3,225
-------------------------------------------------------------------------------------------------------------
Segment profit (loss)              $(16,011)   $(1,113)  $ 3,106    $  ---    $(14,018)  $(5,998)  $(20,016)
-------------------------------------------------------------------------------------------------------------
Segment assets                     $ 65,128    $ 3,607   $ 7,228    $2,426    $ 78,389   $(1,022)  $ 77,367
-------------------------------------------------------------------------------------------------------------
</TABLE>


(5)  Revenue Recognition

     On December 3, 1999, the Securities and Exchange Commission ("the
Commission") issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain views of the
Commission in applying accounting principles generally accepted in the United
States of America to revenue recognition in financial statements. SAB 101
provides interpretative guidance on unbilled accounts receivable and related
revenue recognition within the Company's industry. The Commission's guidance
required the accounting change to be adopted by the Company in the quarter ended
December 31, 2000 and reflected as a cumulative effect of a change in accounting
principle as of January 1, 2000. Therefore, consistent with the Commission's
guidance and changing industry practice for services provided under a percentage
of collections basis within its billing segment, the Company began recognizing
revenue at the time of collection on January 1, 2000. The impact of this change
in accounting principle was to increase the Company's net loss for 2000 by
approximately $5.0 million. The Statements of Operations for the quarter ended
June 30, 2000 have been restated to reflect the adoption of SAB 101. Excluding
the cumulative effect of $5.0 million, the impact of restating the Statements of
Operations for the quarter ended June 30, 2000 was to decrease the Company's net
loss for that quarter by approximately $0.2 million. There is no effect on cash
flow resulting from this change. The impact for the six month period ended June
30, 2000 was less than $0.1 million.

(6)  Shareholders' Equity (Deficit)

     In the first quarter of 2001, common stock and additional paid-in capital
increased $7,000 and $1.2 million respectively, due to the exercise of warrants.
In the second quarter of 2001, the remaining unexercised warrants expired.  The
$0.4 million value ascribed to them at issuance was moved to Additional Paid-In
Capital.

                                       9
<PAGE>

Item 2


                        PHYAMERICA PHYSICIAN GROUP, INC.
                    Management's Discussion And Analysis Of
                 Financial Condition And Results Of Operations

RESULTS OF OPERATIONS

SECOND QUARTER ENDED JUNE 30, 2001 COMPARED TO THE SECOND QUARTER ENDED JUNE 30,
2000


Operating Revenue, Net.

     Net operating revenue in the second quarter of 2001 was $83.2 million, an
increase of $2.1 million, or 2.6%, from operating revenues of $81.1 million as
compared to the second quarter of 2000.

     The increase in the revenue of the core businesses was due to an increase
in the number of visits processed by the billing company, an overall increase in
collections for each occasion of service rendered in the Emergency Physician
Management Business and increased net revenue in both the Government Services
Group and in Billing and Business Management Services. As compared to the same
period a year ago, Emergency Physician Management experienced an increase of
approximately $0.5 million or 1%. Government Services increased approximately
$0.8 million or 17% and Billing and Business Management Services increased by
approximately $0.7 million or 13%.

Physician and Other Provider Services Costs and Expenses

     Physician and other provider services costs and expenses consist primarily
of fees paid to physicians and other health care providers.  Physician and other
provider services costs and expenses increased by approximately $1.7 million, or
2.8% to approximately $62.4 million in the second quarter of 2001 from
approximately $60.6 million in the second quarter of 2000. This was due to
increased expenses related to physician coverage during this quarter in the
Emergency Physician Management Business and increased expenses in the Government
Services Group that resulted in the generation of increased revenue.

Medical Support Services Costs and Expenses

     Medical support services costs and expenses include all other direct costs
and expenses of practice management activities, as well as billing, collection
and Physician Business Management Services costs and expenses. Medical support
services costs and expenses increased by $1.5 million, or 13.3%, to $12.8
million in the second quarter of 2001 from $11.3 million in the second quarter
of 2000. The increase was due to increased costs of support personnel related to
growth in the billing operations.

Selling, General and Administrative Costs and Expenses

     Selling, general and administrative costs and expenses decreased by $2.2
million or 16.7%, to $11.0 million in the second quarter of 2001 from $13.2
million in the second quarter of 2000. The decrease was due primarily to non-
recurring adjustments related to prepaid insurance, fringe benefit costs and
program costs for NCFE.

                                       10
<PAGE>

Related Party Income (Expense), Net

     Related party income expense, net decreased by $0.5 million to income of
$0.1 million in the second quarter of 2001 from $0.4 million of expense in the
second quarter of 2000.  The decrease was due to reimbursement for aircraft
expenses and revenues from subletting of real estate.

Other Income (Expense)

     Other income (expense) increased $0.5 million to $4.7 million as compared
to the second quarter of 2000.  The change was due primarily to a $1.3 million
increase in interest expense.  The increased interest expense was due to a
higher level of outstanding amounts of debt incurred since the second quarter of
2000.  Increases in interest income (higher levels of invested cash), other
related party income/expense (refund check for malpractice premiums paid in
prior years) and other, net (various legal settlement receipts) partially offset
the increase in interest expense.  The costs associated with the sale of
eligible accounts receivable in the second quarter of 2001 and 2000 have been
included in selling, general and administrative expenses.

Benefit (provision) for income taxes.

     There was no benefit (provision) for income taxes for the second quarter of
2001 and 2000.  This is due to continued net operating losses.

Net Loss

     Primarily as a result of the foregoing, the Company reported a net loss of
approximately $7.6 million in the second quarter of 2001 compared to a net loss
of $8.7 million in the second quarter of 2000.


SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000

Operating Revenue, Net.

     Net operating revenue for the six months ended June 30, 2001 was $166.5
million, an increase of $7.1 million, or 4.4 %, from operating revenues of
$159.5 million as compared to the six months ended June 2000.

     The increase in the revenue of the core businesses was due to an overall
increase in visits by location, an overall increase in collections for each
occasion of service rendered in the Emergency Physician Management Business and
increased net revenue in both the Government Services Group and in Billing and
Business Management Services. As compared to the same period a year ago,
Emergency Physician Management experienced an increase of approximately $3.1
million or 2%. Government Services increased approximately $1.8 million or 20%
and Billing and Business Management Services increased by approximately $2.1
million or 21%.

Physician and Other Provider Services Costs and Expenses

     Physician and other provider services costs and expenses consist primarily
of fees paid to physicians and other health care providers.  Physician and other
provider services costs and expenses increased by approximately $2.7 million, or
2.2% to approximately $124.5 million for the six months ended June 30, 2001 from
approximately $121.7 million for the six months ended June 30, 2000.  This was
due to increased expenses related to other healthcare provider coverage during
this period in the Emergency Physician Management Business and increased
expenses in the Government Services Group that resulted in the generation of
increased revenue.



                                       11
<PAGE>

Medical Support Services Costs and Expenses

     Medical support services costs and expenses include all other direct costs
and expenses of practice management activities, as well as billing, collection
and physician business management services costs and expenses. Medical support
services costs and expenses increased by $3.3 million, or 14.9%, to $25.4
million for the six months ended June 30, 2001 from $22.1 million for the six
months ended June 30, 2000. The increase was due to increased costs of support
personnel related to growth in the billing operations.

Selling, General and Administrative Costs and Expenses

     Selling, general and administrative costs and expenses decreased by $2.7
million or 10.2%, to $23.9 million for the six months ended June 30, 2001 from
$26.6 million for the six months ended June 30, 2000. The decrease was due
primarily to non-recurring adjustments related to prepaid insurance, fringe
benefit costs and program costs for NCFE.

Related Party Income Expense, Net

     Related party expense, net decreased by $0.7 million, or 87.5%, to $0.1
million for the six months ended June 30, 2001 from $0.8 for the six months
ended June 30, 2000.  The decrease was due to reimbursement for aircraft
expenses and revenues from subletting of real estate.

Other Income (Expense)

     Other income (expense) increased by approximately $1.8 million to $10.0
million for the six months ended June 30, 2001 as compared to the same period in
2000.  The change was due primarily to a $2.7 million increase in interest
expense.  The increased interest expense was due to a higher level of
outstanding debt incurred since the end of the second quarter in 2000.
Increases in interest income (higher levels of invested cash), other related
party income/expense (refund check for malpractice premiums paid in prior years)
and other, net (various legal settlement receipts) partially offset the increase
in interest expense.

Benefit (provision) for income taxes.

     There was no benefit (provision) for income taxes for the second quarter of
2001 and 2000.  This is due to continued net operating losses.

Net Loss

     Primarily as a result of the foregoing, the Company reported a net loss of
approximately $17.4 million in the first six months of 2001 compared to a net
loss of $25.0 million in the first six months of 2000.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The Company's primary financing source consists of 3 accounts receivable
sale programs with affiliates of National Century Financial Enterprises, Inc.
("NCFE"). Under these programs, NCFE purchases qualified receivables generated
by the Company or acquired by the Company from independent contractor
physicians. The proceeds from these sales are used to fund the Company's working
capital needs. One program purchases receivables primarily generated by the
hospital contracts of the Company other than those acquired in the Sterling
acquisition (the "Coastal Program"), one program purchases receivables generated
by the hospital contracts acquired in the Sterling acquisition (the "Sterling
Program"), and a third program purchases receivables generated in the Government
Services Business (the "Government Program"). The Emergency Physician Management
business and the Government Services

                                       12
<PAGE>

business have not been able to generate sufficient receivables to sell to the
programs to finance the ongoing working capital needs of the Company. NCFE has
supported the Company by funding the purchase of receivables billed by the
Company and those to be billed in the future by the Company. As of June 30,
2001, the Company received $74 million related to billed receivables and
approximately $182 million related to future receivables. Financing related to
the purchase of future receivables is reflected as long-term debt in the
accompanying financial statements. The Sterling Program provides for the
purchase of up to $95 million of receivables and terminates on June 30, 2003.
The Government Program provides for the purchase of up to $50 million of
receivables and terminates on June 30, 2002. New Sale and Subservicing
Agreements for the Coastal Program were signed effective March 30, 2001. The new
agreements increase the funding availability to $150 million, fix the interest
rate at 10.5% and extend the termination date to June 30, 2004. Including the
new agreements, the purchase commitment has been increased to $295 million. Of
the total purchase commitments of $295 million on these facilities, there is
approximately $38 million of remaining availability for purchases as of June 30,
2001. As of June 30, 2001, NCFE held approximately $53 million in reserves.
These reserves are account balances maintained by a Trustee, to allow for
repurchase of receivables which may default or be underpaid by the insurance
carriers. Pursuant to the Sale Agreements, the Company pays a program fee
ranging from 10.5% to 12.50% per annum on the outstanding amount of uncollected
purchased current and rights to future receivables.

     Under a separate loan and security agreement, an affiliate of NCFE has
agreed to provide the Company with a revolving line of credit of up to $20
million through July 31, 2002.  Interest on outstanding amounts under this line
of credit is payable monthly at prime plus 3%.  The line of credit is secured by
substantially all of the Company's assets, including pledges of the Common stock
of each of its subsidiaries. There is no outstanding balance as of June 30,
2001.

     The Company has met its cash requirements during the periods covered by the
accompanying consolidated financial statements through the sale of certain
existing and future accounts receivable, as more fully discussed below.  The
Company's principal uses of cash have been to support operating activities.  Net
cash used in operating activities decreased by $9.3 million, or 44.9%, for the
six months ended June 30, 2001, to $11.4 million as compared to $20.8 million
for the six months ended June 30, 2000.  The Company's net use of cash to
support operating activities resulted primarily from operating losses, including
medical costs of providers, administrative expenses, legal and professional fees
and information technology initiatives.  Net cash used in investing activities
was $1.4 million for the six months ended June 30, 2001.  Net cash provided by
financing activities decreased by $6.0 million, or 28%, to $15.3 million for the
six months ended June 30, 2001, from $21.3 million for the six months ended June
30, 2000.  During the six months ended June 30, 2001, the Company had net
borrowings of $15.3 million as compared to $21.3 million for the six months
ended June 30, 2000.

     The Company expects to satisfy its anticipated demands and commitments for
cash in the next six months from the amounts available under the various
agreements with NCFE discussed above, as well as a reduction in cash used in
operations. As part of its ongoing effort to improve cash flow, the Company
undertook a comprehensive review of all hospital contracts and operating units.
Underperforming contracts and operations were renegotiated or terminated. The
Company also remains committed to increasing the implementation of the Practice
Partners Program(C) for compensating the independent contract physicians.
Practice Partners links the compensation of the participants to the
profitability of the hospital contract. The Company implemented new budgeting
and financial control systems to better monitor performance by its various
departments. New business development continues to be a focal point of the
organization. The primary objectives of these programs are to improve cash flow
and slow the growth of our dependence on outside cash sources. If the Company is
unable to achieve these objectives, it will likely experience a material
decrease in liquidity which would cause the Company to increase its reliance on
financing under the revolving line of credit provided by an affiliate of NCFE.
Until the Company significantly improves cash flow, it will be dependent upon
the continued weekly purchases of eligible and rights to future accounts
receivable by NCFE and the line of credit provided by an affiliate of NCFE in
order to meet its obligations.

     For the foreseeable future, to continue as a going concern, the Company
will depend upon NCFE to fund its working capital needs either by purchases of
current and future accounts receivable or through

                                       13
<PAGE>

the line of credit. The Company's accounts receivables sales programs with NCFE
have been extended to June 30, 2002 and beyond. Management believes that NCFE
will be able to fulfill the Company's needs. The consolidated financial
statements do not include any adjustments to the financial statements that might
be necessary should NCFE not provide the necessary working capital or should the
Company be unable to continue as a going concern.

OTHER TRENDS AND UNCERTAINTIES

     The healthcare industry has seen numerous consolidations and combinations
led by a number of major healthcare companies that continue to experience
financial difficulties.  Many of those companies have embarked on divestiture
programs to eliminate unprofitable operations. The Company divested its non-core
businesses during 1997 and 1998, expanded its core business through the
acquisition of Sterling in 1999 and in 2000 focused its efforts on improving
operations, increasing revenue and decreasing costs.  While there have been
improvements in operations within the Company's core business, the Company
continues to incur significant losses.

     Although the Company has continued its marketing efforts, the number of new
contracts obtained has been lower than that historically experienced by the
Company.  Management attributes the reduced rate of new business development to
several factors, including increased competition from local and regional groups,
increased payment and reimbursement pressures on hospitals, consolidation and
closures involving client hospitals and the Company's financial condition.
Since the beginning of 2001, the Company has had a net decrease of eight
contracts.  While the Company believes it has an excellent record in providing
services, it believes that its financial condition has been an impediment to the
awarding of new contracts that it would otherwise have received.  Hospital
administrators have expressed concerns about awarding and renewing contracts
both as to operational ability and financial viability of companies operating in
the Company's industry. The Company believes its success is dependent upon
retaining and renewing existing contracts, terminating poorly performing
contracts and obtaining new hospital contracts.

     The Emergency Physician Management Business is under pressure industry-wide
as government reimbursement programs and private insurance programs seek to
contain and reduce medical costs at the same time that the costs of delivering
those services continue to rise.  In late March 1997, the Health Care Financing
Administration ("HCFA") indicated that it would no longer allow companies to
obtain group provider numbers to bill Medicare claims for services rendered by
their independent contractor physicians. The Company took steps to individually
enroll the independent contractor physicians and to modify the contractual
arrangement with independent contractor physicians in order to comply with
HCFA's interpretation of the reimbursement regulations.  Efforts to individually
enroll the independent contractor physicians depend upon their cooperation.

     Prior to July 1999, Sterling Healthcare Group, Inc. was also subject to
these enrollment requirements, but had not completed the individual enrollment
of its independent contractor physicians.  Effective with the Company's
acquisition of certain of the contracts and assets used in the operations of
Sterling Healthcare Group, Inc. ("Sterling Acquisition"), the US Bankruptcy
Court issued orders that allowed the Company additional time to individually
enroll the physicians, to continue to bill and collect using group provider
numbers and to enter into new contractual arrangements with the former Sterling
independent contractor physicians in order to comply with HCFA's interpretation
of the reimbursement regulations. The Company continues to make progress in the
re-enrollment process for the former Sterling independent contractors in order
to bring their enrollment into compliance with HCFA's requirements.  Although
the Court Orders have provided the Company some assurances that the independent
contractors will be reimbursed for their services, some delays in reimbursement
may occur and the Company may incur additional costs to complete this process;
however, the full financial impact is not known at this time.

     In certain states, the interpretation of laws prohibiting a corporation
from providing medical care may apply to the Company's business.  This affects
the ability to contract directly with a hospital to provide services.  In those
states, the Company forms a professional corporation or professional association
("PC/PA") to contract with the hospital.  Generally, the PC/PA has a sole
shareholder who is a physician and, in most cases, is a Company shareholder,
employee or officer.  The PC/PA, as well as the sole

                                       14
<PAGE>

shareholder of the PC/PA, enters into a share transfer agreement with the
Company that allows the Company, among other things, to change the sole
shareholder at the Company's will with no more than a nominal cost and no
significant adverse impact on the Company or the PC/PA. The PC/PA also contracts
with the Company via a services agreement for various management services such
as physician scheduling, making disbursements to physicians and vendors, or
providing accounting and tax services, etc. In exchange for these services, the
PC/PA assigns all accounts receivable to the Company. The Company has evaluated
these standardized agreements including their provisions as to the 10-year term
of the contractual relationship and termination provisions. Based on these
provisions, as well as the Company's control established through the share
transfer agreements, and the Company's ability to reset the financial terms of
the services agreements at will, the Company believes that these standardized
agreements meet the criteria contained in Emerging Issues Task Force Consensus
97-2 "Application of APB Opinion No. 16, Business Combinations, and FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to Physician
Practice Management Entities and Certain Other Entities with Contractual
Arrangements" that require consolidation.

     Successful competition in the industry will increasingly require better
information systems to rapidly provide more data and analysis related to the
practice of emergency medicine.  The Company continues to evaluate statistical
analysis software, scanning technology and expanded electronic claims submission
and remittance processing to reduce use of paper charts and claims and to speed
up the claims reimbursement process.  Increased use of information technology
may result in increased costs as the Company continues to evaluate and implement
technology products available in the market.

     The Company has attempted to stabilize its labor force, limit the use of
temporary personnel and non-physician independent contractors and minimize
professional fees.  Sterling's headquarters office in Miami, FL was closed in
January 2000 and functions were transferred to the Corporate Office in Durham,
NC.  During 2000 and during the first six months of 2001, some regional offices
were closed, consolidated or reduced in size.  Various administrative and
support functions historically provided by the Corporate Office in Durham, NC
have been significantly reduced, eliminated completely or redeployed to the
operating companies requiring those functions.

     Developments in the healthcare industry are also expected to continue to
impact the Company's financial performance and operating strategy.  These
developments include trends of medical expenses in HMOs and other businesses
where the risk of higher medical costs is assumed, as well as changing levels of
utilization in hospital-based and clinic operations.  The Company may experience
a reduction in visits as a result of utilization policies of managed care plans.
Additionally, the Company will continue to be subject to changes in premiums and
levels of reimbursement from payers including HMOs, insurance companies,
Medicare and Medicaid.

     Because the Company bills for a large number of emergency medicine visits,
it will always be subject to changes in premiums and levels of reimbursement
from payers including HMOs, insurance companies, Medicare and Medicaid. Efforts
by Medicare and Medicaid to reduce costs, including costs incurred due to
inaccurate or fraudulent billing practices, continue to be an area of exposure
to all organizations that render medical services reimbursed under these
programs.  The Company maintains compliance programs and procedures in order to
help discover and address any billing practices that may not comply with
Medicare regulations.  However, the Company may undergo audits similar to those
that have been initiated against other healthcare providers and billing
companies.  While no audits have been initiated against the Company, there can
be no assurance that the Company's billing procedures, if subjected to such an
audit, would be found to comply with all applicable regulatory requirements.

                                       15
<PAGE>

Item 3


Quantitative and Qualitative Disclosures About Market Risk.

The table below provides quantitative disclosure information about the Company's
market risk sensitive instruments as of June 30, 2001 and December 31, 2000. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The market risk sensitive instruments are categorized as
instruments entered into for other than trading purposes. The Company's primary
market risk exposure is associated with debt obligations arising from 3 accounts
receivable sale programs with affiliates of NCFE. These debt obligations are
maintained at fixed interest rates. The details on how these programs are
managed are described in the preceding section on Liquidity and Capital
Resources.


                                       Liabilities
                             ---------------------------------
                             June 30, 2001   December 31, 2000
                             ---------------------------------
Long-term Debt
    Fixed Rate                  $190,651          $175,352
    Weighted Average               11.02%            11.29%
     Interest Rate


     Forward-looking Information or Statements: Except for statements of
     -----------------------------------------
historical fact, statements made herein are forward-looking in nature and are
inherently subject to uncertainties.  The actual results of the Company may
differ materially from those reflected in the forward-looking statements based
on a number of important risk factors, including, but not limited to: the level
and timing of improvements in the operations of the Company's businesses; the
possibility that the Company may not be able to improve operations as planned;
the inability to obtain continued and/or additional necessary working capital
financing as needed; and other important factors discussed above under "Other
Trends and Uncertainties" and disclosed from time to time in the Company's Form
10-K, Form 10-Q and other periodic reports filed with the Securities and
Exchange Commission.

                                       16
<PAGE>

                                    PART II
OTHER INFORMATION
------------------

Item 4
------

     On May 31, 2001, the Company held its Annual Stockholders Meeting in
Durham, North Carolina. At this meeting, the shareholders:

     (1)  Ratified the Appointment of Directors to fill vacated seats on the
          Board of Directors.
     (2)  Elected Steven M. Scott, M.D. and Ernest Bacon to the Company's Board
          of Directors to hold office until the 2004 Annual Stockholders
          Meeting.
     (3)  Elected Sherman M. Podolsky, M.D., Bertram E. Walls, M.D. and Marc V.
          Weiner to the Company's Board of Directors to hold office until the
          2003 Annual Shareholders Meeting.
     (4)  Amend the Company's Certificate of Incorporation to delete paragraph
          12 in its entirety.
     (5)  Ratified the selection of KPMG LLP, as independent certified public
          accountants for the year ending December 31, 2001.

Indicated below are the results of the shareholders votes for the matters listed
above:

ISSUE                         VOTES
NUMBER       FOR             AGAINST          ABSTAIN
-----------------------------------------------------

1          39,191,800        740,483           68,236


ISSUE                                                 VOTES
NUMBER     NOMINEE                       FOR         AGAINST          ABSTAIN
-----------------------------------------------------------------------------

2          Steven M. Scott, M.D.      38,697,055    1,258,780         44,684
           Ernest Bacon               39,127,393      802,483         70,643

3          Sherman M. Podolsky, M.D.  39,093,852      856,670         49,997
           Bertram E. Walls, M.D.     39,134,752      710,970        154,797
           Marc V. Weiner             39,114,183      835,510         50,826


ISSUE                         VOTES
NUMBER       FOR             AGAINST          ABSTAIN
-----------------------------------------------------

4          39,329,520        607,120           63,879

ISSUE                         VOTES
NUMBER       FOR             AGAINST          ABSTAIN
-----------------------------------------------------

5          39,562,632        374,894           62,993


Item 5
-------

     Effective June 11, 2001, Marc V. Weiner was appointed Chief Operating
Officer of PhyAmerica Physician Services, Inc. ("PPS"). In this role, Mr. Weiner
will oversee all hospital contracts, field operations and back-office activities
such as enrollment, scheduling, credentialing and other client services. On June
11, 2001, Stanley K. Haines was appointed Executive Vice President and Chief
Financial Officer of the Company. Mr. Haines is responsible for all finance,
accounting and building services. Additionally, Christopher T. Lutes, Executive
Vice President, was appointed to head the New Business Development Group. Mr.
Lutes will guide all Company efforts at obtaining new business for the Company's
Emergency Physician Management Group.

     The company's chairman, chief executive officer and majority shareholder,
Steven M. Scott, M.D., made a proposal dated November 6, 2000 to acquire,
through a cash out merger transaction, the approximately 43% of the Company's
outstanding common stock that is not owned or controlled by him or his family
members or affiliates.  The consummation of the offer would mean that PhyAmerica
would become a privately held company.  The proposed offer price is equivalent
to $0.15 per share in cash or an aggregate price of approximately $2.76 million.
In response to the offer by Dr. Scott, the Company's Board of Directors
appointed 3 outside directors to a Special Committee to review and evaluate the
terms of the proposal and make a full recommendation to the Board.  The members
of the Special Committee were Mr. Jinks, Mr. Bacon and Mr. Charles Potter.
Subsequent to their appointments and commencement of activities, Mr. Potter and
Mr. Jinks resigned from the Board of Directors and all committees.  The
consummation of the proposed transaction to take the Company private is subject
to, amongst other things, the negotiation of a mutually acceptable definitive
merger agreement and the approval of the merger agreement by the holders of a
majority of outstanding shares of the Company's common stock at a Special
Meeting of the Shareholders.  The Special Committee engaged independent legal
counsel and independent financial advisors to advise it in connection with its
review and evaluation of the proposal.  As of June 30, 2001, the Special
Committee was continuing its analysis and had not reported its findings and
recommendation.  If the Special Committee recommends approval of the proposal
and if it is recommended by the Board of Directors, the Company will furnish a
detailed proxy statement to the shareholders.




                                       17
<PAGE>

Item 6. - Exhibits and Reports on Form 8-K


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

       None


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

       None



                                       18
<PAGE>

SIGNATURES


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

PHYAMERICA PHYSICIAN GROUP, INC.
--------------------------------
          (Registrant)

<TABLE>
<CAPTION>

Name                                                Title                          Date
-------------------------------------------------------------------------------------------------
<S>                                   <C>                                      <C>
/S/ Steven M. Scott, M.D.
----------------------------------
Steven M. Scott, M.D.                 Chairman of the Board of Directors       August 14, 2001
                                      President and Chief Executive Officer



/S/ Stanley K. Haines
----------------------------------
Stanley K. Haines                     Executive Vice President,                August 14, 2001
                                      Chief Financial Officer

</TABLE>


                                       19