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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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x

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

For the quarterly period ended March 31, 2003

OR

o

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 0-23946

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PEDIATRIC SERVICES OF AMERICA, INC.

(Exact name of
Registrant as specified in its charter)

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| | Delaware(State or other jurisdiction ofincorporation or organization) |  | 58-1873345(I.R.S. EmployerIdentification No.) | 
| | --------------------------------------------------------------------- |  | --------------------------------------------- | 

310 Technology Parkway, Norcross GA 30092-2929(Address of principal executive offices,
including zip code)

(770) 441-1580(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.

Yes x       No o

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

Yes o        No
x

As of May 8, 2003, the Registrant had 6,862,237 shares of Common Stock, $0.01 Par Value, outstanding.

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Page 1 of 29



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FORM 10-QPEDIATRIC SERVICES OF AMERICA, INC.

INDEX



|        |  |                                                                                                           | PageNumber
|------- |  | --------------------------------------------------------------------------------------------------------- | ----------
|PART I  |  | FINANCIAL INFORMATION                                                                                     |           
|        |  |                                                                                                           |           
|ITEM 1: |  | Financial Statements                                                                                      |           
|        |  |                                                                                                           |           
|        |  | Condensed Consolidated Balance Sheetsas of March 31, 2003 and September 30, 2002                          | 3         
|        |  |                                                                                                           |           
|        |  | Condensed Consolidated Statements of Operationsfor the three and six months ended March 31, 2003 and 2002 | 5         
|        |  |                                                                                                           |           
|        |  | Condensed Consolidated Statements of Cash Flowsfor the six months ended March 31, 2003 and 2002           | 6         
|        |  |                                                                                                           |           
|        |  | Notes to Condensed Consolidated Financial Statements                                                      | 7         
|        |  |                                                                                                           |           
|ITEM 2: |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     | 13        
|        |  |                                                                                                           |           
|ITEM 3: |  | Quantitative and Qualitative Disclosures about Market Risk                                                | 24        
|        |  |                                                                                                           |           
|ITEM 4: |  | Controls and Procedures                                                                                   | 24        
|        |  |                                                                                                           |           
|        |  |                                                                                                           |           
|        |  |                                                                                                           |           
|PART II |  | OTHER INFORMATION                                                                                         |           
|        |  |                                                                                                           |           
|ITEM 1: |  | Legal Proceedings                                                                                         | 24        
|        |  |                                                                                                           |           
|ITEM 4: |  | Submission of Matters to a Vote of Security Holders                                                       | 25        
|        |  |                                                                                                           |           
|ITEM 6: |  | Exhibits and Reports on Form 8-K                                                                          | 26        

|SIGNATURES     | 27
|-------------- | --
|               |   
|CERTIFICATIONS | 28
|               |   

2



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PART I - FINANCIAL INFORMATION

ITEM
1.

FINANCIAL STATEMENTS

PEDIATRIC SERVICES OF AMERICA,
INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)



|                                                                                             |  | March 31,2003 |         | September 30,2002 |  
|-------------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | -
|                                                                                             |  |               |         |                   |  
|                                                                                             |  | (Unaudited)   |         |                   |  
|                                                                                             |  |               |         |                   |  
|Assets                                                                                       |  |               |         |                   |  
|Current Assets:                                                                              |  |               |         |                   |  
|Cash and cash equivalents                                                                    |  | $             | 5,692   |                   | $
|Accounts receivable, less allowance for doubtful accounts of $4,763 and $5,364, respectively |  |               | 36,667  |                   |  
|Prepaid expenses                                                                             |  |               | 1,529   |                   |  
|Workers compensation loss fund                                                              |  |               | 1,242   |                   |  
|Income taxes receivable                                                                      |  |               |        |                   |  
|Deferred income taxes                                                                        |  |               | 4,626   |                   |  
|Inventory                                                                                    |  |               | 3,972   |                   |  
|Other current assets                                                                         |  |               | 530     |                   |  
|                                                                                             |  |               |         |                   |  
|Total current assets                                                                         |  |               | 54,258  |                   |  
|Property and equipment:                                                                      |  |               |         |                   |  
|Home care equipment held for rental                                                          |  |               | 31,517  |                   |  
|Furniture and fixtures                                                                       |  |               | 11,289  |                   |  
|Vehicles                                                                                     |  |               | 700     |                   |  
|Leasehold improvements                                                                       |  |               | 1,914   |                   |  
|                                                                                             |  |               |         |                   |  
|                                                                                             |  |               | 45,420  |                   |  
|Accumlated depreciation and amortization                                                     |  |               | (36,838 | )                 |  
|                                                                                             |  |               |         |                   |  
|                                                                                             |  |               | 8,582   |                   |  
|Other assets:                                                                                |  |               |         |                   |  
|Goodwill, less accumulated amortization of $9,613                                            |  |               | 36,539  |                   |  
|Certificates of need, less accumulated amortization of $592 and $581, respectively           |  |               | 81      |                   |  
|Deferred financing fees, less accumulated amortization of $725 and $699, respectively        |  |               | 429     |                   |  
|Non-compete agreements, less accumulated amortization of $1,149 and $1,136, respectively     |  |               | 131     |                   |  
|Deferred income taxes                                                                        |  |               | 4,214   |                   |  
|Workers compensation bond collateral                                                        |  |               | 2,766   |                   |  
|Other                                                                                        |  |               | 264     |                   |  
|                                                                                             |  |               |         |                   |  
|                                                                                             |  |               | 44,424  |                   |  
|                                                                                             |  |               |         |                   |  
|Total assets                                                                                 |  | $             | 107,264 |                   | $
|                                                                                             |  |               |         |                   |  

See accompanying notes.

3



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PEDIATRIC SERVICES OF AMERICA, INC.CONDENSED CONSOLIDATED BALANCE
SHEETS(Continued)(In thousands)



|                                                                                                                                                            |  | March 31,2003 |         | September 30,2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | -
|                                                                                                                                                            |  |               |         |                   |  
|                                                                                                                                                            |  | (Unaudited)   |         |                   |  
|                                                                                                                                                            |  |               |         |                   |  
|Liabilities and stockholders equity                                                                                                                        |  |               |         |                   |  
|Current liabilities:                                                                                                                                        |  |               |         |                   |  
|Accounts payable                                                                                                                                            |  | $             | 6,639   |                   | $
|Accrued compensation                                                                                                                                        |  |               | 5,071   |                   |  
|Income taxes payable                                                                                                                                        |  |               | 845     |                   |  
|Accrued insurance                                                                                                                                           |  |               | 7,513   |                   |  
|Refunds payable                                                                                                                                             |  |               | 1,168   |                   |  
|Accrued interest                                                                                                                                            |  |               | 1,094   |                   |  
|Other accrued liabilities                                                                                                                                   |  |               | 2,558   |                   |  
|Deferred revenue                                                                                                                                            |  |               | 724     |                   |  
|Current maturities of long-term obligations to related parties                                                                                              |  |               |        |                   |  
|Current maturities of long-term obligations                                                                                                                 |  |               | 153     |                   |  
|                                                                                                                                                            |  |               |         |                   |  
|Total current liabilities                                                                                                                                   |  |               | 25,765  |                   |  
|Long-term obligations, net of current maturities                                                                                                            |  |               | 23,545  |                   |  
|Stockholders equity:                                                                                                                                       |  |               |         |                   |  
|Preferred stock, $.01 par value, 2,000 shares authorized, no shares issued and outstanding                                                                  |  |               |        |                   |  
|Common stock, $.01 par value, 80,000 shares authorized 6,862 and 6,838 shares issued and outstanding at
March 31, 2003 and September 30, 2002, respectively |  |               | 69      |                   |  
|Additional paid-in capital                                                                                                                                  |  |               | 49,166  |                   |  
|Retained earnings                                                                                                                                           |  |               | 8,719   |                   |  
|                                                                                                                                                            |  |               |         |                   |  
|Total stockholders equity                                                                                                                                  |  |               | 57,954  |                   |  
|                                                                                                                                                            |  |               |         |                   |  
|Total liabilities and stockholders equity                                                                                                                  |  | $             | 107,264 |                   | $
|                                                                                                                                                            |  |               |         |                   |  

See accompanying notes.

4



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PEDIATRIC SERVICES OF AMERICA, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)



|                                                |  | Three Months EndedMarch 31, |        | Six Months EndedMarch 31, |  
|----------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|                                                |  |                             |        |                           |  
|                                                |  | 2003                        |        | 2002                      |  
|                                                |  |                             |        |                           |  
|                                                |  | (Unaudited)                 |        | (Unaudited)               |  
|Net Revenue                                     |  | $                           | 53,637 |                           | $
|Costs and expenses:                             |  |                             |        |                           |  
|Operating salaries, wages and employee benefits |  |                             | 23,545 |                           |  
|Other operating costs                           |  |                             | 21,890 |                           |  
|Corporate, general and administrative           |  |                             | 4,687  |                           |  
|Provision for doubtful accounts                 |  |                             | 132    |                           |  
|Depreciation and amortization                   |  |                             | 1,013  |                           |  
|                                                |  |                             |        |                           |  
|Total costs and expenses                        |  |                             | 51,267 |                           |  
|                                                |  |                             |        |                           |  
|Operating income                                |  |                             | 2,370  |                           |  
|Other income                                    |  |                             | 43     |                           |  
|Early extinguishment of debt                    |  |                             | 31     |                           |  
|Interest income                                 |  |                             | 35     |                           |  
|Interest expense                                |  |                             | (620   | )                         |  
|                                                |  |                             |        |                           |  
|Income before income tax expense                |  |                             | 1,859  |                           |  
|Income tax expense                              |  |                             | 731    |                           |  
|                                                |  |                             |        |                           |  
|Net income                                      |  | $                           | 1,128  |                           | $
|                                                |  |                             |        |                           |  
|Net income per share data:                      |  |                             |        |                           |  
|Basic                                           |  | $                           | 0.16   |                           | $
|                                                |  |                             |        |                           |  
|Diluted                                         |  | $                           | 0.16   |                           | $
|                                                |  |                             |        |                           |  
|Weighted average shares outstanding:            |  |                             |        |                           |  
|Basic                                           |  |                             | 6,858  |                           |  
|                                                |  |                             |        |                           |  
|Diluted                                         |  |                             | 7,063  |                           |  
|                                                |  |                             |        |                           |  

See accompanying notes.

5



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PEDIATRIC SERVICES OF AMERICA, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)



|                                                                                  |  | Six Months Ended March 31, |       
|--------------------------------------------------------------------------------- |  | -------------------------- | ------
|                                                                                  |  |                            |       
|                                                                                  |  | 2003                       |       
|                                                                                  |  |                            |       
|                                                                                  |  | (Unaudited)                |       
|Operating activities:                                                             |  |                            |       
|Net income                                                                        |  | $                          | 2,098 
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |       
|Depreciation and amortization                                                     |  |                            | 2,073 
|Provision for doubtful accounts                                                   |  |                            | 411   
|Amortization of deferred financing fees                                           |  |                            | 44    
|Early extinguishment of debt                                                      |  |                            | (31   
|Deferred income taxes                                                             |  |                            |      
|Changes in operating assets and liabilities, net of effects from acquisition:     |  |                            |       
|Accounts receivable                                                               |  |                            | (4,717
|Prepaid expenses                                                                  |  |                            | (586  
|Inventory                                                                         |  |                            | (660  
|Other assets                                                                      |  |                            | (272  
|Workers compensation loss fund                                                   |  |                            | (1,242
|Workers compensation bond collateral                                             |  |                            | (915  
|Accounts payable                                                                  |  |                            | 1,415 
|Income taxes                                                                      |  |                            | 1,286 
|Accrued liabilities                                                               |  |                            | 1,882 
|                                                                                  |  |                            |       
|Net cash provided by operating activities                                         |  |                            | 786   
|Investing activities:                                                             |  |                            |       
|Purchases of property and equipment                                               |  |                            | (1,329
|Acquisition of business                                                           |  |                            | (3,781
|                                                                                  |  |                            |       
|Net cash used in investing activities                                             |  |                            | (5,110
|Financing activities:                                                             |  |                            |       
|Principal payments and extinguishment of long-term debt                           |  |                            | (1,057
|Proceeds from exercise of stock options                                           |  |                            | 83    
|                                                                                  |  |                            |       
|Net cash used in financing activities                                             |  |                            | (974  
|                                                                                  |  |                            |       
|Decrease in cash and cash equivalents                                             |  |                            | (5,298
|Cash and cash equivalents at beginning of period                                  |  |                            | 10,990
|                                                                                  |  |                            |       
|Cash and cash equivalents at end of period                                        |  | $                          | 5,692 
|                                                                                  |  |                            |       
|Supplemental disclosure of cash flow information:                                 |  |                            |       
|Cash paid for interest                                                            |  | $                          | 1,351 
|                                                                                  |  |                            |       
|Cash paid for taxes                                                               |  | $                          | 173   
|                                                                                  |  |                            |       

See accompanying notes.

6



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- Unaudited

1.

Basis of Presentation

The accompanying
unaudited condensed consolidated financial statements of Pediatric Services of America, Inc. (the Company) and its majority-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United
States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Results of operations for the three and six months ended March 31, 2003 are not necessarily indicative
of the results to be expected for the entire fiscal year ending September 30, 2003. These condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended
September 30, 2002 included in the Companys Annual Report on Form 10-K for such year filed with the Securities and Exchange Commission. Principal accounting policies are set forth in the Companys 2002 Annual Report.

2.

Summary of Significant Accounting Policies

Description of Business

The Company provides a broad range of pediatric health
care services and equipment including nursing, respiratory therapy, rental and sale of durable medical equipment, pharmaceutical services and infusion therapy services. In addition, the Company provides pediatric rehabilitation services, day
treatment centers for medically fragile children, pediatric well care services and special needs educational services for pediatric patients. The Company also provides case management services in order to assist the family and patient by
coordinating the provision of services between the insurer or other payor, the physician, the hospital and other health care providers. The Companys services are designed to provide a high quality, lower cost alternative to prolonged
hospitalization for medically fragile children. As a complement to its pediatric respiratory and infusion therapy services, the Company also provides respiratory and infusion therapy and related services for adults.

Use of Estimates

The preparation of the condensed consolidated financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of net revenue and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material. Due to the nature of the
industry and the reimbursement environment in which the Company operates, certain estimates are required in recording net revenue and determining the provision for doubtful accounts. Inherent in these estimates is the risk that they will have to be
revised or updated as additional information becomes available to management.

Accounts Receivable

Accounts receivable include approximately $7.9 million and $7.2 million for which services have been rendered but the amounts were unbilled as of March 31, 2003 and September 30, 2002, respectively.
Such unbilled amounts are primarily a result of the time required to process bills for services rendered.

7



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -
(Continued)

Summary of Significant Accounting Policies - continued

Identifiable Intangible Assets

Amortization expense on identifiable intangible assets was approximately $0.047 million
and $0.042 million for the three months ended March 31, 2003 and 2002, respectively and approximately $0.094 million and $0.085 million for the six months ended March 31, 2003 and 2002, respectively. Estimated amortization expense of identifiable
intangible assets for each of the fiscal years ending September 30, is presented below:



|     |  | For The Year EndingSeptember 30, |        
|---- |  | -------------------------------- | -------
|     |  |                                  |        
|2003 |  | $                                | 200,000
|2004 |  | $                                | 140,000
|2005 |  | $                                | 140,000
|2006 |  | $                                | 122,000
|2007 |  | $                                | 80,000 

Concentration of Credit Risk

The Companys principal financial instruments subject to potential concentration of credit risk are cash and cash equivalents and accounts receivable. Cash and cash
equivalents are held primarily in one financial institution. The Company performs periodic evaluations of the relative credit standing of this financial institution.

The concentration of credit risk with respect to accounts receivable, which are primarily health care industry related, represent a risk to the Company given the current health care environment. The risk is somewhat limited due to the large
number of payors including governmental payors, insurance companies, and individuals and the diversity of geographic locations in which the Company operates. However, the Company has substantial geographic density in the eastern United States, which
it believes exposes the Company to payor initiated reimbursement changes.

Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current year presentation.

Workers Compensation Loss Fund

The Companys new insurance carrier requires the twelve month estimated loss reserve to be funded
entirely with cash over the first ten months of fiscal 2003. This cash requirement is estimated to be $2.1 million, which is reduced by the monthly loss fund payments. The new insurance carrier has the right to increase this cash requirement at the
end of the first twelve months if the claim experience is greater than anticipated.

Workers Compensation Bond Collateral

The Company has secured surety bonds of $4.0 million to satisfy its prior workers compensation carriers policy requirements. On November 4, 2002, the Company posted
$0.9 million cash to its workers compensation third party escrow account to satisfy the expiring $1.0 million letter of credit. As a result, the surety bonds are collateralized by $2.8 million cash posted to a third party escrow account.

8



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -
(Continued)

Summary of Significant Accounting Policies - continued

Income Taxes

The liability method is used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

In the three and six months ended March 31, 2003, the Company had a current income tax expense of $0.7 million and $1.4 million, respectively. In the three and six
months ended March 31, 2002, the Company had a current income tax benefit of $0.1 million and a current income tax expense of $0.5 million, respectively, which was offset by the reduction of the valuation allowance related to the net deferred tax
asset resulting in zero income tax expense.

Stock Option Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Companys employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by SFAS 123, determined as if the Company had accounted for its employee stock options granted subsequent to December 31,
1994 under the fair value method. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the periods ending March 31, 2003 and 2002,
respectively: risk-free interest rates of 2.35% and 1.95%, a dividend yield of 0.0%; volatility factors of the expected market price of the Companys Common Stock of 126% and 138% and a weighted-average expected life of the option of four
years.

For purposes of the pro forma disclosures, the estimated fair value of the options is amortized over the options vesting
period. The Companys pro forma information follows (in thousands, except for net income per share information):



|                                                                        |  | Three Months EndedMarch 31, |   | Six Months EndedMarch 31, |   |       
|----------------------------------------------------------------------- |  | --------------------------- | - | ------------------------- | - | ------
|                                                                        |  |                             |   |                           |   |       
|                                                                        |  | 2003                        |   | 2002                      |   | 2003  
|                                                                        |  |                             |   |                           |   |       
|Net income                                                              |  |                             |   |                           |   |       
|As reported                                                             |  | $1,128                      |   | $ 1,139                   |   | $2,098
|Fair value based method compensation expense, net of related tax effect |  | (163                        | ) | (156                      | ) | (321  
|                                                                        |  |                             |   |                           |   |       
|Proforma net income                                                     |  | $965                        |   | $983                      |   | $1,777
|                                                                        |  |                             |   |                           |   |       
|Basic income per share                                                  |  |                             |   |                           |   |       
|As reported                                                             |  | $0.16                       |   | $0.17                     |   | $0.31 
|                                                                        |  |                             |   |                           |   |       
|Proforma                                                                |  | $0.14                       |   | $0.15                     |   | $0.26 
|                                                                        |  |                             |   |                           |   |       
|Diluted income per share                                                |  |                             |   |                           |   |       
|As reported                                                             |  | $0.16                       |   | $0.16                     |   | $0.30 
|                                                                        |  |                             |   |                           |   |       
|Proforma                                                                |  | $0.14                       |   | $0.14                     |   | $0.25 
|                                                                        |  |                             |   |                           |   |       

9



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -
(Continued)

Summary of Significant Accounting Policies  continued

Impact of Recently Issued Accounting Standards

In December 2002, the FASB issued SFAS 148, Accounting for
Stock-Based Compensation - Transition Disclosure, An Amendment of FASB Statement No. 123 (SFAS 148). This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of Statement No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The
provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002 and the interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The
Company will continue to apply Accounting Principles Board Opinion No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS 148 beginning with this
quarter ending March 31, 2003.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146
addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this Statement
are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this new Statement did not have a significant effect on the consolidated financial position, results of operations, or cash flows of the
Company.

3.

Long-Term Borrowing Arrangements

During the three months ended March 31, 2003, the Company repurchased $1.0 million of its 10% Senior Subordinated Notes due 2008 (the Notes). The Notes were
purchased in a private transaction for $0.95 million cash, plus accrued interest. The gain (net of the write-off of the related deferred financing fees) of approximately $0.03 million is reflected in the condensed consolidated statements of
operations for the three and six months ended March 31, 2003. The aggregate principal amount of the Notes outstanding as of the date of this filing is $23.4 million.

During the six months ended March 31, 2002, the Company completed a transaction to repurchase a total of $5.0 million of the Notes for $4.5 million cash plus accrued interest. The gain (net of the write-off of the related deferred financing
fees) of approximately $0.4 million is reflected in the condensed consolidated statements of operations for the six months ended March 31, 2002.

10



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -
(Continued)

4.

Basic and Diluted Net Income Per
Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the
period. Diluted net income per share is computed using the weighted average number of shares of common stock outstanding and the dilutive effect of common equivalent shares (calculated using the treasury stock method). The dilutive effect of the
weighted average options included in the diluted earnings per share is 204,867 and 470,987 for the three months ended March 31, 2003 and 2002, respectively and 219,696 and 445,006 for the six months ended March 31, 2003 and 2002,
respectively.

5.

Commitments and
Contingencies

As a result of operating in the health care industry, the Companys business entails an inherent risk of lawsuits alleging malpractice,
product liability or related legal theories, which can involve large claims and significant defense costs. The Company is, from time to time, subject to such suits arising in the ordinary course of business. The Company currently maintains
professional and commercial liability insurance intended to cover such claims. As of March 31, 2003, this insurance coverage is provided under a claims-made policy which, subject to the terms and conditions of the policy, provides
coverage for certain types of claims made against the Company during the term of the policy and does not provide coverage for losses occurring during the terms of the policy for which a claim is made subsequent to the termination of the policy.
Should the policy not be renewed or replaced with equivalent insurance, claims based on occurrences during its term but asserted subsequently would be uninsured.

As a result of a field audit by a Medicare carrier, the Company was notified of an asserted claim for recoupment of approximately $1.7 million of accounts receivable. The carrier claimed that incomplete clinical documentation was contained in
the patients medical record to substantiate the payments for the services provided. The Company has investigated the assertion and has determined that the alleged insufficiency relates to information that is required to be maintained in the
patients medical record.

The Company believes that a repayment of some amount is probable. At this point in time the Companys estimate of the
liability is based upon the status of its review to date, and the settlement of similar claims made against other home health care providers. Based upon this estimate, the Company accrued a $0.36 million liability in the condensed consolidated
financial statements for the six months ended March 31, 2003.

During January 2003, the Medicare carrier notified the Company that it had begun recoupment of
the $1.7 million under audit against weekly disbursements made to the Company. As of April 28, 2003, the Company was notified by a representative of the Medicare carrier that upon further review a significant number of the patients contained in the
original audit sample were deemed to have sufficient medical documentation and would be excluded from their reported findings and a revised amount of recoupment would be forthcoming. To date a formal notification of the revised amount has not yet
been received. Among the issues under examination was the Companys compliance with a local medical review policy (LMRP) requiring that a specific type of documentation be included in the patients medical record. As of April
1, 2003, the Medicare carrier rescinded the LMRP. While this action does not directly affect the audit sample, which pre-dates the rescission of the LMRP, the Company believes that arguments it intends to cite on appeal regarding the validity of the
LMRP may be bolstered by this rescission, however, the ultimate resolution of this issue cannot be predicted at this time. The Company continues to believe that its documentation for substantially all the remaining patients in the audit sample is
sufficient and will ultimately be determined as such, upon appeal. Consequently, the Company believes that its accrued liability of $0.36 million recorded in the six months ended March 31, 2003 will be adequate to resolve this claim. The ultimate
resolution of this asserted claim may be different from the current estimate and could have a material adverse effect on the Companys consolidated financial or liquidity position.

11



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PEDIATRIC SERVICES OF AMERICA, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -
(Continued)

Commitments and Contingencies  continued

The Company is subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such current pending legal proceedings at this time should not have a material adverse effect on
the Companys consolidated financial or liquidity position.

The Company has entered into employment agreements with certain employees of the Company
which provide, amongst other things, salary, benefits and perquisites, as well as additional compensation for certain changes in control of the Company or a failure of the Company to comply with any material terms of the agreements.

6.

Acquisition of a Business

On January 10, 2003 the Company acquired the Pennsylvania assets of Health Med One, Inc., a Pennsylvania corporation doing business as Advanced Health Care, for a purchase
price of $3.75 million in cash. The acquisition included Advanced Health Cares pediatric private duty nursing facilities in York, Harrisburg, Allentown and Philadelphia, Pennsylvania. Pro-forma revenues from these locations are estimated to be
in excess of $7.0 million annually.

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Item 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) relating to future financial
performance of Pediatric Services of America, Inc. (the Company). When used in this Form 10-Q, the words may, could, should, would, believe, feel,
expects, anticipate, estimate, intend, plan, potential and similar expressions may be indicative of forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Companys control. The Company cautions that various factors, including the factors described hereunder and those discussed in the Companys other filings with the
Securities and Exchange Commission, as well as general economic conditions, industry trends, the Companys ability to collect for equipment sold or rented, assimilate and manage previously acquired field operations, collect accounts receivable,
including receivables related to acquired businesses and receivables under appeal, hire and retain qualified personnel and comply with and respond to billing requirements issues, including those related to the Companys billing and collection
system, nurse shortages, competitive bidding, HIPAA regulations, Average Wholesale Price (AWP) reductions, adverse litigation, workers compensation losses, availability and cost of medical malpractice insurance and reduced state
funding levels and nursing hours authorized by Medicaid programs, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the Company made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of an unanticipated event. New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on
the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements of the Company included in this quarterly report.

Recent Developments

Home Healthcare Industry Events & Updates

During the second quarter of fiscal 2003 a number of state legislatures were in session dealing with record budget deficits and contemplating cuts to Medicaid funding, some of which, if enacted, would reduce
reimbursement levels for services provided by the Company. As is typically the case, many of the original proposals highlighted in the media were substantially modified either in committee or in the general sessions of the various legislatures. As
of the date of this filing, the Company is not aware of any enacted state changes that would have a material adverse effect on the Companys consolidated financial or liquidity position; however, many states are still considering rate or volume
reductions which, if enacted could have a significant impact on the Companys consolidated financial or liquidity position. In an effort to impact these legislative issues, the Company engaged consultants in selective markets to directly
present the Companys cost saving strategies and related rate requests to the Medicaid programs. In addition, the Companys local market staff routinely advocates to the appropriate community and regulatory authorities on behalf of the
Company and its patients.

In addition, a few states are experiencing internal problems with the administration of their Medicaid programs, which are
temporarily disrupting payments of claims for services rendered by the Company.

Company Events & Updates

As a result of a field audit by a Medicare carrier, the Company was notified of an asserted claim for recoupment of approximately $1.7 million of accounts receivable. The carrier claimed that
incomplete clinical documentation was contained in the patients medical record to substantiate the payments for the services provided.

13



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The Company has investigated the assertion and has determined that the alleged insufficiency relates to information that is required to be maintained in the
patients medical record.

The Company believes that a repayment of some amount is probable. At this point in time the Companys estimate of the
liability is based upon the status of its review to date, and the settlement of similar claims made against other home health care providers. Based upon this estimate, the Company accrued a $0.36 million liability in the condensed consolidated
financial statements for the six months ended March 31, 2003.

During January 2003, a Medicare carrier notified the Company that it had begun recoupment of
the $1.7 million under audit against weekly disbursements made to the Company. As of April 28, 2003, the Company was notified by a representative of the Medicare carrier that upon further review a significant number of the patients contained in the
original audit sample were deemed to have sufficient medical documentation and would be excluded from their reported findings and a revised amount of recoupment would be forthcoming. To date a formal notification of the revised amount has not yet
been received. Among the issues under examination was the Companys compliance with a local medical review policy (LMRP) requiring that a specific type of documentation be included in the patients medical record. As of April
1, 2003, the Medicare carrier rescinded the LMRP. While this action does not directly affect the audit sample, which pre-dates the rescission of the LMRP, the Company believes that arguments it intends to cite on appeal regarding the validity of the
LMRP may be bolstered by this rescission, however, the ultimate resolution of this issue cannot be predicted at this time. The Company continues to believe that its documentation for substantially all the remaining patients in the audit sample is
sufficient and will ultimately be determined as such, upon appeal. Consequently, the Company believes that its accrued liability of $0.36 million recorded in the six months ended March 31, 2003 will be adequate to resolve this claim. The ultimate
resolution of this asserted claim may be different from the current estimate and could have a material adverse effect on the Companys consolidated financial or liquidity position.

On January 10, 2003, the Company acquired the Pennsylvania assets of Health Med One, Inc., a Pennsylvania corporation doing business as Advanced Health Care, for a purchase price of $3.75 million in cash. The
acquisition includes Advanced Health Cares pediatric private duty nursing facilities in York, Harrisburg, Allentown and Philadelphia, Pennsylvania. Pro-forma revenues from these locations are estimated to be in excess of $7.0 million
annually.

During the three months ended March 31, 2003, the Company repurchased $1.0 million of its Notes. The Notes were purchased in a private transaction
for $0.95 million cash, plus accrued interest. The gain (net of the write-off of the related deferred financing fees) of approximately $0.03 million is reflected in the condensed consolidated statements of operations for the three and six months
ended March 31, 2003. The aggregate principal amount of the Notes outstanding as of the date of this filing is $23.4 million.

The Company anticipates opening
a new pilot Prescribed Pediatric Extended Care center, (PPEC) in North Carolina during the third quarter of this fiscal year. This PPEC will be an important step in establishing the PPEC concept in the state of North Carolina where the
Company owns and operates seven private duty nursing locations as well as pharmacy and respiratory businesses. The Company believes that the potential exists to create a statewide network of centers in North Carolina and may use this relationship
model in other states.

The Companys management will continue to assess its various growth opportunities, ranging from evaluation of acquisition
alternatives in key markets, geographical expansion through the use of start-up branch offices, marketing initiatives impact on existing branch office growth and technology improvements in order to ration capital available from
operations.

Risk Management

On October 1, 2002, the Company completed its annual
renewal of its risk management program and implemented several changes. Due to the exiting of St. Paul Fire and Marine Insurance Company from the medical malpractice insurance marketplace, the Company has entered into a new insurance program for
medical malpractice, commercial and general liability coverage with Arch Specialty Insurance Company, rated A- by AM Best Company. Material changes included an increase in per claim deductible limits from $250,000 to $1,000,000. The annual aggregate
also changed from $750,000 to no annual aggregate. The policy amount remains at $10,000,000 with a

14



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slight increase in annual premiums. However, the Company chose to decline renewal of a $10,000,000 umbrella policy due to significant price increases.

The Companys third party actuary has completed an analysis of the Companys medical malpractice loss history and has quantified liability
recognition for fiscal 2003 under the new policy terms. Under the new medical malpractice policy, if the Companys loss experience worsens it could have a material adverse effect on the Companys financial results and liquidity position.
In recognition of the increased exposure, the Company has further re-engineered its risk management processes. The Companys Risk Committee continues to monitor incident reporting and claim adjustment activity, and also reviews existing patient
census and discharges high-risk cases where legally permissible. The Company continues to educate location staff on risk management procedures including appropriate nurse staffing decisions.

Operations

The Company continues to experience downward pressure on its operating margins. The most notable factors
include: (1) nurse shortages, (2) increased insurance costs, (3) selected reductions in pharmacy reimbursements and increased product acquisition costs, (4) negative risk loss experience, (5) select state Medicaid program funding reductions and a
decrease in Medicaid nursing hours authorized and (6) increased revenue from existing start-up locations offset by increased costs from locations which opened during fiscal 2003. The Company has implemented a number of programs to try to improve
operating margins which include: staffing reductions at selected locations including the corporate office, primarily through position eliminations, reductions in workforce and attrition; certain supplier relationships have been adjusted to yield
cost savings while still satisfying business requirements; andfull implementation of the nurse scheduling system. In addition, the Company has engaged consultants and commenced negotiations with a number of
state Medicaid programs to identify additional opportunities for the Companys private duty nursing and PPEC services which could provide the states with lower cost alternatives to existing care plans.

The Company continues to pursue a managed care marketing strategy which focuses on select key markets with unfulfilled market share potential. The Companys regional managed care sales personnel
work directly with branch office directors to increase local market share. Initiatives include: (1) identification of the dominant local market managed care companies and their provider networks, (2) coordinated marketing and contracting efforts,
(3) relationship development and expansion with key referral sources, (4) appropriate patient intakes, (5) development of clinical outcome reporting to satisfy contractual obligations and demonstrate cost savings to the payor, and (6) effective
coordination with local market Medicaid programs. The Company recently made senior management changes in its managed care marketing organization in an effort to accelerate progress on these initiatives.

The Company is aware of ongoing changes in the infusion drug delivery alternatives available to various payors. If some of these alternatives are selected by various payors, there could be
significant reductions to the Companys future pharmacy revenues. In addition, the Company remains exposed to significant revenue fluctuations as a result of change in service or usage levels by a limited number of hemophilia factor patients.
The Company is expanding its capability to distribute injectable medication nationally and continues to assess opportunities for these injectables in selected payor patient populations. The Companys marketing strategy is to capitalize on core
product opportunities within these patient populations, as well as to expand product offerings. Start-up operations are underway for pharmacy, diabetic and respiratory therapy supply distribution programs.

Source & Availability of Clinical Personnel

During the 13 weeks ending March 27, 2003, the Company experienced a
decrease in total hours ordered and case hours staffed. The un-staffed hours increased to approximately 12% of total hours ordered as compared to the prior rolling 13 week period ending December 26, 2002 which was 10%. The Company experienced a
reduction in the number of hours staffed in the Northeast due to inclement weather affecting our location operations. The Company continues to aggressively compete for nurses to staff hours ordered, retain nurses with select wage and benefit
improvements and implement employee satisfaction initiatives. To date, management has seen inconsistent results in a number of markets and will continue to assess and respond accordingly. Management anticipates that with the full implementation of
the nurse

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scheduling system, improvements in both un-staffed hours and gross margin levels should occur over time; however, there can be no assurance that this will
occur.

The following table represents the approximate total hours for the time periods indicated:



|                                         |  | Total hoursordered |  | Total hoursdeclined |  | Total casehours staffed |  | Total casehours un-staffed | 
|---------------------------------------- |  | ------------------ |  | ------------------- |  | ----------------------- |  | -------------------------- | 
|                                         |  |                    |  |                     |  |                         |  |                            | 
|Rolling 13 weeks ended December 26, 2002 |  | 905,480            |  | 88,497              |  | 723,529                 |  | 93,454                     | 
|Rolling 13 weeks ended March 27, 2003    |  | 895,630            |  | 87,554              |  | 699,806                 |  | 108,270                    | 

Critical Accounting Policies

Net Revenue

Due to the nature of the health care industry and the reimbursement environment in which the Company
operates, certain estimates are required to record net revenues and accounts receivable at their realizable values. Inherent in these estimates is the risk that they will need to be revised or updated, with the changes recorded in subsequent periods
as additional information becomes available to management. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to
amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. As of March 31, 2003, the Company had no material claims, disputes or unsettled matters with
third-party payors, nor were there any material pending settlements with third-party payors except as disclosed under the Recent Developments section above.

Net revenue represents the estimated net realizable amounts from patients, third-party payors and others for patient services rendered and products provided. Such revenue is recognized as the treatment plan is
administered to the patient and recorded at amounts estimated to be received under reimbursement arrangements with payors. Net revenues to be reimbursed by contracts with third-party payors are recorded at an amount to be realized under these
contractual arrangements. Revenues from Medicaid and Medicare are generally based on reimbursement of the reasonable direct and indirect costs of providing services to program participants. In certain situations, the services and products are
recorded separately. In other situations, the services and products are billed and reimbursed on a per diem or contract basis whereby the insurance carrier pays the Company one combined amount for treatment. Because the reimbursement arrangements in
these situations are based on a per diem or contract amount, the Company does not maintain records that provide a breakdown between the service and product components.

The Company has developed a methodology to record the estimated revenue as a result of the inherent time lag between certain patient treatments and input of the related information into its billing and collection
system. This methodology measures relative changes in the time and overall activity level at each branch office location and aggregates these measurements to estimate the impact to consolidated net revenue. As of September 30, 2002 the estimated
revenue was approximately 0.5% of revenue for fiscal year ended 2002. Any unforeseen volatility to either the time or activity level at specific branch offices has the potential to significantly impact the estimate.

In other select cases, patient treatments may cease for a number of reasons including re-hospitalizations, changes in treatment needs, or death, and a time lag may exist before
this information is reflected in the Companys billing and collection system. The Company has developed a methodology that measures the relative magnitude of these events over recent time periods and applies this methodology to reduce net
revenues recognized in the current period.

Allowance for Doubtful Accounts

In
determining the adequacy of the allowance and related provision for doubtful accounts, the Company has developed a process that combines statistical analysis of historical collection and write-off activity with a detailed review of existing account
balances meeting certain criteria and their likelihood of being collected at the amounts

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recorded. This detailed review involves both the assigned corporate reimbursement department personnel and the respective branch office location personnel
assessing each patient claim that falls within prescribed age and amount criteria. These assessments are aggregated and compared to the results of the statistical analysis to provide additional support to management in making the estimate of the
allowance for doubtful accounts. Inherent in this estimate is the risk that it will need to be revised or updated, with the changes recorded in subsequent periods, as additional information becomes available to management.

Goodwill and Other Acquired Intangible Assets

The Statement of Financial Accounting Standards
(SFAS) No. 142 eliminates goodwill amortization from the consolidated statements of operations and requires an evaluation of goodwill for impairment on an annual basis, and more frequently if circumstances indicate a possible impairment.
The Company performs its annual impairment test in the fourth quarter of each fiscal year. For these evaluations, the Company is using an implied fair value approach, which uses a discounted cash flow analysis and other valuation methodologies.
These evaluations use many assumptions and estimates in determining an impairment loss, including certain assumptions and estimates related to future earnings. The Company completed the impairment test and, at September 30, 2002, there was no
resulting impairment. Subsequent impairments, if any, would be classified as operating expense.

Intangible assets that meet certain criteria will qualify for
recording on the consolidated balance sheet and will continue to be amortized in the consolidated statements of operations. Such intangible assets will be subject to a periodic impairment test based on estimated fair value.

Accrued Insurance

The Companys insurance broker retained the services of an independent actuary
to prepare an actuarial analysis of the Companys development of reported and incurred but not reported claims. These estimates are updated quarterly and are used in the valuation of the accrued insurance liability. Inherent in these estimates
is the risk that they will need to be revised or updated, with the changes recorded in subsequent periods, as additional information becomes available to management.

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Results of Operations

The following table is derived from
the Companys unaudited condensed consolidated statements of operations for the periods indicated and presents results of operations as a percentage of net revenue and the percentage change in the dollar of each item from the comparative prior
period:



|                                                |  | Percentage of Net Revenue  |   | Period-to-Period PercentageIncrease (Decrease) |  
|----------------------------------------------- |  | -------------------------- | - | ---------------------------------------------- | -
|                                                |  |                            |   |                                                |  
|                                                |  | Three MonthsendedMarch 31, |   | Six MonthsendedMarch 31,                       |  
|                                                |  |                            |   |                                                |  
|                                                |  | 2003                       |   | 2002                                           |  
|                                                |  |                            |   |                                                |  
|Net revenue                                     |  | 100.0                      | % | 100.0                                          | %
|Operating salaries, wages and employee benefits |  | 43.9                       |   | 46.8                                           |  
|Other operating costs                           |  | 40.8                       |   | 37.4                                           |  
|Corporate, general and administrative           |  | 8.7                        |   | 9.2                                            |  
|Provision for doubtful accounts                 |  | 0.2                        |   | 0.7                                            |  
|Depreciation and amortization                   |  | 1.9                        |   | 2.1                                            |  
|                                                |  |                            |   |                                                |  
|Operating income                                |  | 4.5                        |   | 3.8                                            |  
|Other income                                    |  | 0.1                        |   |                                               |  
|Early extinguishment of debt                    |  | 0.1                        |   |                                               |  
|Interest income                                 |  | 0.1                        |   | 0.0                                            |  
|Interest expense                                |  | (1.2                       | ) | (1.5                                           | )
|                                                |  |                            |   |                                                |  
|Income before income tax expense                |  | 3.6                        | % | 2.3                                            | %
|                                                |  |                            |   |                                                |  

The Company provides a broad range of health care services and products
principally for children and, to a lesser extent, young adults and geriatric patients. The following table summarizes both services and products based upon estimated percentages ofnet revenue to total net
revenue of each major category from continuing operations offered by the Company for the periods indicated.The prior period includes reclassifications.



|                                                         |  | Three MonthsEndedMarch 31, |        | Six MonthsEndedMarch 31, |  
|-------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | -
|                                                         |  |                            |        |                          |  
|(In thousands)                                           |  | 2003                       |        | 2002                     |  
|                                                         |  |                            |        |                          |  
|Pediatric Home Health Care                               |  |                            |        |                          |  
|Nursing                                                  |  | $                          | 21,918 |                          | $
|Respiratory Therapy Equipment and Home Medical Equipment |  |                            | 4,623  |                          |  
|PPEC                                                     |  |                            | 1,656  |                          |  
|Pharmacy and Other                                       |  |                            | 13,635 |                          |  
|                                                         |  |                            |        |                          |  
|Total Pediatric Home Health Care                         |  |                            | 41,832 |                          |  
|                                                         |  |                            |        |                          |  
|Adult Home Health Care:                                  |  |                            |        |                          |  
|Nursing                                                  |  |                            | 2,697  |                          |  
|Respiratory Therapy Equipment and Home Medical Equipment |  |                            | 5,202  |                          |  
|PPEC                                                     |  |                            |       |                          |  
|Pharmacy and Other                                       |  |                            | 3,906  |                          |  
|                                                         |  |                            |        |                          |  
|Total Adult Home Health Care                             |  |                            | 11,805 |                          |  
|                                                         |  |                            |        |                          |  
|Total Net Revenue                                        |  | $                          | 53,637 |                          | $
|                                                         |  |                            |        |                          |  

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Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Net revenue increased $5.6 million, or 12%, to $53.6 million in the three months ended March 31, 2003 from $48.1 million in the three months ended March 31, 2002. Pediatric home health care net revenue increased by $4.1
million for the three months ended March 31, 2003, due to a number of factors, including, the acquisition of pediatric private duty nursing facilities in Pennsylvania, increased pharmacy deliveries to new and existing hemophilia factor patients,
seasonal Synagis and other core products and increased provision of core respiratory products and services as compared to the three months ended March 31, 2002. Adult health care net revenue increased $1.5 million for the three months ended March
31, 2003, primarily as a result of an increase in the provision of core products and services to respiratory therapy patients and increased pharmacy deliveries. In the three months ended March 31, 2003, the Company derived approximately 51% of its
net revenue from commercial insurers and other private payors, 42% from Medicaid and 7% from Medicare.

Operating salaries, wages and employee benefits consist
primarily of branch office employee costs. Operating salaries, wages and employee benefits increased $1.1 million, or 5%, to $23.5 million in the three months ended March 31, 2003 from $22.5 million in the three months ended March 31, 2002. The
Company experienced increases in its labor costs for nursing and branch office staff for both existing and new start-up locations in the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. As a percentage of net
revenue, operating salaries, wages and employee benefits for the three months ended March 31, 2003 decreased to 44% from 47% for the three months ended March 31, 2002.

Other operating costs include medical supplies, branch office rent, utilities, vehicle expenses, allocated insurance costs and cost of sales. Cost of sales consists primarily of the costs of pharmaceuticals and related
services. Other operating costs increased $3.9 million, or 22%, to $21.9 million in the three months ended March 31, 2003 from $18.0 million in the three months ended March 31, 2002. The increase in other operating costs relates primarily to
increased pharmacy deliveries, business insurance costs, facility costs for new startup locations and medical supply usage. As a percentage of net revenue, other operating costs for the three months ended March 31, 2003 increased to 41% from 37% for
the three months ended March 31, 2002.

Corporate, general and administrative costs increased $0.3 million, or 6% to $4.7 million in the three months ended
March 31, 2003 from $4.4 million in the three months ended March 31, 2002. The increase relates primarily to increased managed care marketing personnel and increased professional service costs. As a percentage of net revenue, corporate, general and
administrative costs remained relatively constant at 9%.

Provision for doubtful accounts decreased $0.2 million, or 63% to $0.1 million in the three months
ended March 31, 2003 from $0.4 million in the three months ended March 31, 2002. Cash collections as a percentage of net revenue were 96% and 98% for the three months ended March 31, 2003 and 2002, respectively. In connection with the acquisition of
Advanced Health Cares Pennsylvania facilities, the Company has encountered delays in obtaining new provider numbers from the State, which has resulted in services performed remaining as unbilled accounts receivable of approximately $0.6
million until such provider numbers are obtained.

Depreciation and amortization remained relatively unchanged at $1.0 million in the three months ended March
31, 2003 as compared to the three months ended March 31, 2002. As a percentage of net revenue, depreciation and amortization remained relatively constant at 2%.

Interest expense decreased $0.1 million, or 13%, to $0.6 million in the three months ended March 31, 2003 from $0.7 million in the three months ended March 31, 2002. The Companys average debt outstanding decreased $3.8 million as the
Company completed several transactions to repurchase a portion of the Notes.

Interest income increased $0.01 million to $0.03 million in the three months
ended March 31, 2003 from $0.02 million in the three months ended March 31, 2002. The Company invested its excess cash balances in highly liquid guaranteed principal investments.

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Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002

Net revenue increased $9.0 million, or 9%, to $106.2 million in the six months ended March 31, 2003 from $97.2 million in the six months ended March 31, 2002. Pediatric home health care net revenue increased by $6.4
million for the six months ended March 31, 2003, due to a number of factors, including, the acquisition of pediatric private duty nursing facilities in Pennsylvania, increased pharmacy deliveries to new and existing hemophilia factor patients,
seasonal Synagis and other core products and increased provision of core respiratory products and services as compared to the six months ended March 31,2002. Adult health care net revenue increased $2.6 million for the six months ended March 31,
2003, primarily as a result of an increase in the provision of core products and services to respiratory therapy patients and increased pharmacy deliveries. In the six months ended March 31, 2003, the Company derived approximately 51% of its net
revenue from commercial insurers and other private payors, 42% from Medicaid and 7% from Medicare.

Operating salaries, wages and employee benefits consist
primarily of branch office employee costs. Operating salaries, wages and employee benefits increased $1.6 million, or 3%, to $46.7 million in the six months ended March 31, 2003 from $45.1 million in the six months ended March 31, 2002. The Company
experienced increases in its labor costs for nursing and branch office staff for both existing and new start-up locations in the six months ended March 31, 2003 as compared to the six months ended March 31, 2002. As a percentage of net revenue,
operating salaries, wages and employee benefits for the six months ended March 31, 2003 decreased to 44% from 46% for the six months ended March 31, 2002.

Other operating costs include medical supplies, branch office rent, utilities, vehicle expenses, allocated insurance costs and cost of sales. Cost of sales consists primarily of the costs of pharmaceuticals and related services. Other
operating costs increased $7.9 million, or 22%, to $43.1 million in the six months ended March 31, 2003 from $35.2 million in the six months ended March 31, 2002. The increase in other operating costs relates primarily to increased pharmacy
deliveries, business insurance costs, facility costs for new startup locations and medical supply usage. As a percentage of net revenue, other operating costs for the six months ended March 31, 2003 increased to 41% from 36% for the six months ended
March 31, 2002.

Corporate, general and administrative costs increased $0.2 million, or 3% to $9.4 million in the six months ended March 31, 2003 from $9.1
million in the six months ended March 31, 2002. The increase relates primarily to increased managed care marketing personnel and increased professional service costs. As a percentage of net revenue, corporate, general and administrative costs
remained relatively constant at 9%.

Provision for doubtful accounts decreased $0.3 million, or 38%, to $0.4 million in the six months ended March 31, 2003
from $0.7 million in the six months ended March 31, 2002. Cash collections as a percentage of net revenue were 97% and 99% for the six months ended March 31, 2003 and 2002, respectively. In connection with the acquisition of Advanced Health
Cares Pennsylvania facilities, the Company has encountered delays in obtaining new provider numbers from the State, which has resulted in services performed remaining as unbilled accounts receivable of approximately $0.6 million until such
provider numbers are obtained.

Depreciation and amortization remained relatively unchanged at $2.1 million in the six months ended March 31, 2003 as compared
to the six months ended March 31, 2002. As a percentage of net revenue, depreciation and amortization remained relatively constant at 2%.

Interest expense
decreased $0.2 million, or 11%, to $1.3 million in the six months ended March 31, 2003 from $1.4 million in the six months ended March 31, 2002. The Companys average debt outstanding decreased $3.7 million as the Company completed several
transactions to repurchase a portion of the Notes.

Interest income decreased $0.02 million to $0.07 million in the six months ended March 31, 2003 from $0.08
million in the six months ended March 31, 2002. The Company invested its excess cash balances in highly liquid guaranteed principal investments.

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Liquidity and Capital Resources

Company Events & Updates

During January 2003, a Medicare carrier notified the Company that it had begun recoupment of the $1.7 million under audit against weekly disbursements made to the
Company. As of April 28, 2003, the Company was notified by a representative of the Medicare carrier that upon further review a significant number of the patients contained in the original audit sample were deemed to have sufficient medical
documentation and would be excluded from their reported findings and a revised amount of recoupment would be forthcoming. To date a formal notification of the revised amount has not yet been received. Among the issues under examination was the
Companys compliance with a local medical review policy (LMRP) requiring that a specific type of documentation be included in the patients medical record. As of April 1, 2003, the Medicare carrier rescinded the LMRP. While
this action does not directly affect the audit sample, which pre-dates the rescission of the LMRP, the Company believes that arguments it intends to cite on appeal regarding the validity of the LMRP may be bolstered by this rescission, however, the
ultimate resolution of this issue cannot be predicted at this time. The Company continues to believe that its documentation for substantially all the remaining patients in the audit sample is sufficient and will ultimately be determined as such,
upon appeal. Consequently, the Company believes that its accrued liability of $0.36 million recorded in the six months ended March 31, 2003 will be adequate to resolve this claim. (See Recent Developments above).

On January 14, 2003, the Company completed a transaction to repurchase a total of $1.0 million of the Notes for $0.95 million cash, plus accrued interest. The gain (net of the
write-off of the related deferred financing fees) of approximately $0.03 million is reflected in the condensed consolidated statement of operations for the three and six months ended March 31, 2003.

The Indenture under which the Notes were issued allows the Company to repurchase the Notes at its discretion. All bids to repurchase have been based upon a number of factors including cash
availability, interest rates on invested cash, other capital investment alternatives, and relative ask prices quoted by the market maker. Each decision by the Company to repurchase has been arrived at independently using the above criteria and the
Company does not have a formal plan in place to repurchase the Notes.

On January 10, 2003, the Company acquired the Pennsylvania assets of Health Med One,
Inc., a Pennsylvania corporation doing business as Advanced Health Care for a purchase price of $3.75 million in cash. The acquisition includes Advanced Health Cares pediatric private duty nursing facilities in York, Harrisburg, Allentown and
Philadelphia, Pennsylvania. Pro-forma revenues from these locations are estimated to be in excess of $7.0 million annually.

Operations

Cash collections as a percentage of net revenue for the three months ended March 31, 2003 and 2002 were 96% and 98%, respectively. In connection with the acquisition of Advanced
Health Cares Pennsylvania facilities, the Company has encountered delays in obtaining new provider numbers from the State, which has resulted in services performed remaining as unbilled accounts receivable of approximately $0.6 million until
such provider numbers are obtained. While management anticipates the Company will continue to achieve its cash collection targets, there can be no assurance that disruptions to cash flow will not occur.

Among a number of states, one has encountered three missed deadlines by its contractor for implementation of a new computer system designed to standardize its technology platform and facilitate
faster claims payment. As a result, the percentage of Medicaid claims being paid in a timely manner has declined by half. While the Company has encountered only modest disruption of our payment cycles to date, the Company continues to monitor the
situation on a weekly basis and will aggressively pursue collection of monies due.

For the six months ended March 31, 2003, the Company purchased medical
equipment with technology upgrades to service existing patients, and made routine purchases of computer equipment to maintain and upgrade its technology infrastructure. The Company anticipates future capital expenditures for maintenance, support and
enhancements of existing technology, continued investments in new start up locations and continued durable medical equipment purchases. The Company anticipates funding these capital expenditures with cash flow from operations.

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For the three and six months ended March 31, 2003, the Company had a current income tax expense of $0.7 million and $1.4 million.

Risk Management

The Companys new insurance carrier requires the twelve
month estimated loss reserve to be funded entirely with cash over the first ten months of fiscal 2003. This cash requirement is estimated to be $2.1 million, which is reduced by the monthly loss fund payments. The new insurance carrier has the right
to increase this cash requirement at the end of the first twelve months if the claim experience is greater than anticipated.

As a result of operating in the
health care industry, the Companys business entails an inherent risk of lawsuits alleging malpractice, product liability or related legal theories, which can involve large claims and significant defense costs. The Company is, from time to
time, subject to such suits arising in the ordinary course of business. The Company currently maintains professional and commercial liability insurance intended to cover such claims. As of March 31, 2003, this insurance coverage is provided under a
claims-made policy which provides, subject to the terms and conditions of the policy, coverage for certain types of claims made against the Company during the term of the policy and does not provide coverage for losses occurring during
the terms of the policy for which a claim is made subsequent to the termination of the policy. Should the policy not be renewed or replaced with equivalent insurance, claims based on occurrences during its term but asserted subsequently would be
uninsured. There can be no assurance that the coverage limits of the Companys insurance policy will be adequate.

In addition, the Company is subject to
accident claims arising out of the normal operation of its fleet of vans and small trucks, and maintains insurance intended to cover such claims. A successful claim against the Company in excess of the Companys insurance coverage could have an
adverse effect upon the Companys business. Claims against the Company, regardless of their merits or eventual outcome also may have an adverse effect upon the Companys reputation and business.

Capital Resources

Management currently believes that its liquidity position will be adequate to satisfy the
Companys working capital requirements, professional and commercial liability insurance loss funding, funding of start-up locations, selected acquisitions, workers compensation collateral requirements, and income tax payments. The
Companys current source of liquidity is cash on hand and cash flow from operations and as a result, the Company is exposed to fluctuations in cash collection results. The Company has engaged a financial advisor to review capital structure
alternatives necessary to support the Companys growth plans. These alternatives include recapitalization of its debt obligations to take advantage of potential interest rate arbitrage opportunities and financing of potential acquisitions.
However, there can be no assurance that external financing to satisfy a preferred alternative will be obtained.

Variation in Quarterly Operating Results

The Companys quarterly results may vary significantly depending primarily on factors such as re-hospitalizations of patients, seasonality and usage levels of
pharmaceutical products and respiratory services, the timing of new branch office openings and pricing pressures due to legislative and regulatory initiatives to contain health care costs. Because of these factors, the Companys operating
results for any particular quarter may not be indicative of the results for the full fiscal year.

Contingent Liabilities and Commitments

The Companys former workers compensation carrier requires the estimated loss reserve to be secured by surety bonds. As of March 31, 2003, the Company had posted $2.8
million cash as collateral for $4.0 million surety bonds. The carrier has the right to require the Company to post cash up to the loss reserve liability. In addition, all loss fund payments are made monthly from cash flow from operations.

The Companys new workers compensation insurance carrier requires the twelve month estimated loss reserve to be funded entirely with cash over the first ten
months of fiscal 2003. This cash requirement is estimated to be $2.1 million, which is reduced by the monthly loss fund payments. The new insurance carrier has the right to increase this cash requirement at the end of the first twelve months if the
claim experience is greater than anticipated.

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As a result of a field audit by a Medicare carrier, the Company was notified of an asserted claim for recoupment of approximately $1.7
million of accounts receivable. The carrier claimed that incomplete clinical documentation was contained in the patients medical record to substantiate the payments for the services provided. The Company has investigated the assertion and has
determined that the alleged insufficiency relates to information that is required to be maintained in the patients medical record.

The Company believes
that a repayment of some amount is probable. At this point in time the Companys estimate of the liability is based upon the status of its review to date, and the settlement of similar claims made against other home health care providers. Based
upon this estimate, the Company accrued a $0.36 million liability in the condensed consolidated financial statements for the six months ended March 31, 2003.

During January 2003, a Medicare carrier notified the Company that it had begun recoupment of the $1.7 million under audit against weekly disbursements made to the Company. As of April 28, 2003, the Company was notified by a representative of
the Medicare carrier that upon further review a significant number of the patients contained in the original audit sample were deemed to in fact have sufficient medical documentation and would be excluded from their reported findings and a revised
amount of recoupment would be forthcoming. To date a formal notification of the revised amount has not yet been received. Among the issues under examination was the Companys compliance with a local medical review policy (LMRP)
requiring that a specific type of documentation be included in the patients medical record. As of April 1, 2003, the Medicare carrier rescinded the LMRP. While this action does not directly affect the audit sample, which pre-dates the
rescission of the LMRP, the Company believes that arguments it intends to cite on appeal regarding the validity of the LMRP may be bolstered by this rescission, however, the ultimate resolution of this issue cannot be predicted at this time. The
Company continues to believe that its documentation for substantially all the remaining patients in the audit sample is sufficient and will ultimately be determined as such, upon appeal. Consequently, the Company believes that its accrued liability
of $0.36 million recorded in the six months ended March 31, 2003 will be adequate to resolve this claim. The ultimate resolution of this asserted claim may be different than the current estimate and could have a material adverse effect on the
Companys consolidated financial or liquidity position.

The Company has entered into employment agreements with certain employees of the Company which
provide, amongst other things, salary, benefits and perquisites, as well as additional compensation for certain changes in control of the Company or a failure of the Company to comply with any material terms of the agreements.

The following table represents a schedule of the Companys contractual obligations and commitments as of March 31, 2003:



|                         |  | Payments Due by Period(In thousands) |       
|------------------------ |  | ------------------------------------ | ------
|                         |  |                                      |       
|                         |  | Total                                |       
|                         |  |                                      |       
|Contractual Obligations: |  |                                      |       
|Long-term debt           |  |                                      |       
|Subordinated Notes       |  | $                                    | 23,350
|Other notes payable      |  |                                      | 348   
|Operating leases         |  |                                      | 14,759
|                         |  |                                      |       
|                         |  | $                                    | 38,457
|                         |  |                                      |       

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company faces a number of market risk exposures including risks related to cash and cash
equivalents, accounts receivable and interest rates. Cash and cash equivalents are held primarily in one financial institution. The Company performs periodic evaluations of the relative credit standing of this financial institution. The
concentration of credit risk with respect to accounts receivable, which are primarily health care industry related, represent a risk to the Company given the current environment in the health care industry. The risk is somewhat limited due to the
large number of payors including governmental payors, insurance companies, individuals and the diversity of geographic locations in which the Company operates. However, the Company has substantial geographic density in the eastern United States
which it believes exposes the Company to payor initiated reimbursement changes.

The Companys Notes, issued in 1998, have a fixed coupon rate of 10%. The
fair value of the Companys Notes is subject to change as a result of changes in market prices or interest rates. The Company estimates potential changes in the fair value of interest rate sensitive financial instruments based on the
hypothetical increase (or decrease) in interest rates. The Companys use of this methodology to quantify the market risk of such instruments should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions.
The quantitative information about market risk is necessarily limited because it does not take into account other factors such as the Companys financial performance and credit ratings.

Based on a hypothetical immediate 150 basis point increase in interest rates at March 31, 2003 and 2002, the market value of the Companys Notes would be reduced by approximately $1.2 million
and $1.8 million, respectively. Conversely, a 150 basis point decrease in interest rates would result in a net increase in the market value of the Companys Notes outstanding at March 31, 2003 and 2002 of approximately $1.2 million and $2.0
million, respectively.

ITEM 4.

CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and
procedures.   The Companys chief executive officer and chief financial officer are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) for the Company. The Companys disclosure controls and procedures include the Companys internal controls, as that term is used in Section 302 of the Sarbanes-Oxley Act of
2002 and described in the Securities and Exchange Commissions Release No. 34-46427 (August 29, 2002). The Companys chief executive officer and chief financial officer, after evaluating the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days before the filing date of this Quarterly Report on Form 10-Q, have concluded that the Companys disclosure controls and procedures are adequate and effective in timely alerting them to
material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings.

(b)Changes in internal controls.   There were no significant changes in the Companys internal controls or in other factors that could significantly affect
those controls subsequent to the date of the evaluation. As a result, there were no corrective actions to be taken.

PART II - OTHER
INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On March 11, 1999, a putative class action complaint was filed against the Company in the United States District Court for the
Northern District of Georgia. The Company and certain of its then current officers and directors were among the named defendants. To the Companys knowledge, no other putative class action complaints were filed within the 60-day time period
provided for in the Private Securities Litigation Reform Act. The plaintiffs and their counsel were appointed lead plaintiffs and lead counsel, and an amended complaint was filed on or about July 22, 1999. The amended complaint did not specify an
amount or range of damages that the plaintiffs were seeking. In general, the plaintiffs alleged that prior to the decline in the price of the Companys Common Stock on July 28, 1998, there were violations of the Federal Securities Laws arising
from misstatements of material information in and/or omissions of material information from certain of the Companys securities filings and other public disclosures principally related to its reporting of accounts receivable and the allowance
for doubtful accounts. The

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amended complaint purported to expand the class to include all persons who purchased the Companys Common Stock during the period from July 29, 1997
through and including July 29, 1998. On October 8, 1999, the Company and the individuals named as defendants moved to dismiss the amended complaint on both substantive and procedural grounds. On March 30, 2000, the Court denied the motions to
dismiss. On May 15, 2000, the Company and the individuals named as defendants filed their answer, denying liability.

On February 27, 2001, Plaintiffs
Motion for Class Certification was granted by the Court. Fact discovery in the case closed on July 31, 2001. On September 5, 2001, Plaintiffs moved for leave to file a Second Amended Complaint and to expand the class period. The proposed Second
Amended Complaint purported to expand the class to include all persons who purchased the Companys stock between November 11, 1996 and July 28, 1998. The Court denied Plaintiffs Motion on October 12, 2001.

In January, 2002, the parties entered into a Stipulation of Settlement settling all claims asserted in the lawsuit against all parties for a total of $3.2 million, subject to court
approval. On March 14, 2002, following a hearing on the fairness, reasonableness and adequacy of the proposed settlement, the Court entered an Order approving the settlement. The time for appeal of the Settlement Order has expired and no appeal has
been taken. Under the terms of the settlement, the $3.0 million contribution of the Company to the settlement was fully funded by its insurance carrier under its Directors and Officers insurance policy.

On July 28, 1999, a civil action was filed against the Company and certain of its current and former officers and directors in the United States District Court for the Middle District of Tennessee.
The action was filed by Phyllis T. Craighead and Healthmark Partners, LLC, as well as a liquidating trust apparently established to wind up the business affairs of their corporation, Kids & Nurses, Inc. In the original complaint, in general, the
plaintiffs alleged that the defendants violated Federal and Tennessee Securities Laws and committed common law fraud in connection with the Companys purchase of Kids & Nurses, Inc. in November, 1997. The plaintiffs sought actual damages in
an amount between $2.5 million and $3.5 million, plus punitive damages and the costs of litigation, including reasonable attorneys fees. On September 24, 1999, the defendants filed a motion to dismiss the complaint on both substantive and
procedural grounds. On December 20, 1999, the plaintiffs filed an amended complaint in which they withdrew their claims under the Federal Securities Laws, and added claims under Georgias securities laws. The plaintiffs also filed a brief in
response to the Companys motion to dismiss. On February 1, 2000, the defendants filed an amended motion to dismiss addressing the allegations of the amended complaint. On March 29, 2001, the motion to dismiss was denied without prejudice
pending a ruling by the Tennessee Supreme Court on an unrelated case. On May 2, 2001, the Company and the individuals named as defendants, filed their answer, denying liability. On May 8, 2002, the case was dismissed with prejudice, subject only to
the Plaintiffs reservation of their rights to participate in the Class Settlement.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2003 Annual Meeting of Shareholders of the Company was held on February 12,
2003. Proxies with regard to the matters to be voted upon at the Annual Meeting were solicited under Regulation 14A of the Securities Exchange Act of 1934, as amended. Set forth below is a brief description of each matter voted upon at the Annual
Meeting and the results of the voting on each matter:

Election of Joseph D. Sansone as director for a term of three years expiring at the 2006 Annual Meeting
of Shareholders.



|                  |  | Votes            |   | Broker           |  
|----------------- |  | ---------------- | - | ---------------- | -
|                  |  |                  |   |                  |  
|Nominee           |  | For              |   | Withheld         |  
|                  |  |                  |   |                  |  
|                  |  |                  |   |                  |  
|Joseph D. Sansone |  | 3,661,868 (54.7% | ) | 3,032,985 (45.3% | )

The terms of Messrs. Pinkas, Wissing, Finn and Axelrod continued
after the Annual Meeting.

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ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K.

(a)

Exhibits

No exhibits are filed as part of this
report.

(b)

Reports on Form
8-K

On January 7, 2003, the Company filed a Current Report on Form 8-K responding to an Amended Schedule 13D filed with the Securities and Exchange
Commission on December 30, 2003 by beneficial shareholder, David Nierenberg.

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SIGNATURES

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



|                   |  | PEDIATRIC SERVICES OF AMERICA, INC.(Registrant)
|------------------ |  | -----------------------------------------------
|Date: May 12, 2003 |  | By:                                            
|                   |  |                                                
|                   |  |                                                



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CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph D. Sansone, certify that:

1.

I have reviewed the quarterly report on Form 10-Q of Pediatric Services of America,
Inc.;

2.

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

3.

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

4.

The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the
Evaluation Date); and

c)

presented in this quarterly report
our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the
registrants board of directors (or person performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.

The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.



| |  |  |  |                                                                   
| |  |  |  | ------------------------------------------------------------------
| |  |  |  | /s/ JOSEPHD.SANSONE                                               
| |  |  |  |                                                                   
| |  |  |  | Joseph D. SansonePresident and Chief Executive OfficerMay 12, 2003

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CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James M. McNeill, certify that:

1.

I have reviewed the quarterly report on Form 10-Q of Pediatric Services of America, Inc.;

2.

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

3.

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

4.

The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this quarterly report is being prepared;

b)

evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the Evaluation Date); and

c)

presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the
registrants board of directors (or person performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.

The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.



| |  |  |  |                                                                             
| |  |  |  | ----------------------------------------------------------------------------
| |  |  |  | /s/ JAMESM.MCNEILL                                                          
| |  |  |  |                                                                             
| |  |  |  | James M. McNeillSenior Vice President andChief Financial OfficerMay 12, 2003

29