<PAGE>
 
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

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

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                      OR

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

                For the transition period from ______ to ______

                        COMMISSION FILE NUMBER 0-23946

                      PEDIATRIC SERVICES OF AMERICA, INC.
            (Exact name of Registrant as specified in its charter)

           DELAWARE                                              58-1873345
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                  310 TECHNOLOGY PARKWAY, NORCROSS GA  30092
         (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 [ ]

As of May 11, 1998 the Registrant had 7,144,884 shares of Common Stock, $0.01
par value, outstanding.
--------------------------------------------------------------------------------
                                 Page 1 of  29
                         Index of Exhibits on page 20
<PAGE>
 
                                   FORM 10-Q
                                        
                      PEDIATRIC SERVICES OF AMERICA, INC.
                                     INDEX


                                                                          PAGE 
PART I    FINANCIAL INFORMATION                                          NUMBER

ITEM 1:   Financial Statements

          Condensed Consolidated Balance Sheets as of
               March 31, 1998 and September 30, 1997......................  3

          Condensed Consolidated Statements of Income for
               the three and six months ended March 31, 1998 and 1997.....  5

          Condensed Consolidated Statements of Cash Flows for
               the six months ended March 31, 1998 and 1997...............  6

          Notes to Condensed Consolidated Financial
               Statements.................................................  7

ITEM 2:   Management's Discussion and Analysis of Financial
               Condition and Results of Operations........................  9


PART II   OTHER INFORMATION

ITEM 6:   Exhibits and Reports on Form 8-K................................ 17

          Signatures...................................................... 19

          Index of Exhibits............................................... 20

                                                                               2
<PAGE>
 
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                      PEDIATRIC SERVICES OF AMERICA, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                              (UNAUDITED)       (AUDITED)
                                                               MARCH 31,        SEPTEMBER 30,
                                                                 1998               1997
                                                              ----------        -------------
<S>                                                           <C>                <C> 
ASSETS                                                        
Current assets:                                               
  Cash and cash equivalents.................................   $    311             $   501
  Accounts receivable, less allowances for doubtful accounts                                
        of $12,324 and $10,036, respectively................    100,691              75,458 
  Prepaid expenses..........................................        738                 508 
  Deferred income taxes.....................................      2,665               3,880 
  Other current assets......................................      4,680               3,481 
                                                               --------             ------- 
Total current assets........................................    109,085              83,828 
                                                              
Property and equipment:                                       
  Home care equipment held for rental.......................     26,611              24,104   
  Furniture and fixtures....................................      9,603               6,979   
  Vehicles..................................................        876                 731   
  Leasehold improvements....................................      1,139                 581   
                                                                -------             -------   
                                                                 38,229              32,395   
  Accumulated depreciation and amortization.................    (18,210)            (15,678)  
                                                                -------             -------   
                                                                 20,019              16,717   
Other assets:                                                 
  Goodwill, less accumulated amortization of $5,026           
     and $3,695, respectively...............................     85,987             50,421
  Certificates of need, less accumulated amortization of                                  
   $382 and $279, respectively..............................      3,165              1,543 
  Deferred financing fees, less accumulated amortization of   
     $282 and $192, respectively............................        576                632
  Non-compete agreements, less accumulated amortization of    
     $797 and $719, respectively............................        263                321
  Other.....................................................        473                372
                                                               --------           --------
Total assets................................................   $219,568           $153,834
                                                               ========           ========
</TABLE>

See accompanying notes to condensed consolidated financial statements

                                                                               3
<PAGE>
 
                      PEDIATRIC SERVICES OF AMERICA, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                         (UNAUDITED)         (AUDITED)
                                                                          MARCH 31,        SEPTEMBER 30,
                                                                            1998               1997
                                                                        -------------      -------------
<S>                                                                      <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.....................................................  $  7,892           $  6,302
  Accrued compensation.................................................     6,725              5,147
  Accrued insurance....................................................     2,864              2,393
  Other accrued liabilities............................................     4,059              3,559
  Deferred revenue.....................................................       826                853
  Income taxes payable.................................................     1,101              1,119
  Current maturities of long-term obligations from related                                           
    parties............................................................     1,462              2,163 
  Current maturities of long-term obligations..........................       749                 99 
                                                                         --------           --------    
Total current liabilities..............................................    25,678             21,635 
                                                                       
Long-term obligations from related parties net of current              
   maturities..........................................................     3,510              3,887 
Long-term obligations, net of current maturities.......................   100,110             61,125 
Deferred income taxes..................................................     5,336              4,691  
Minority interest in subsidiary........................................       789                816
                                                                       
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;                                                
     7,139 shares at March 31, 1998 and 6,258 shares at                                                
     September 30, 1997 issued and outstanding, respectively...........        71                 63   
  Additional paid-in capital...........................................    59,947             41,746   
  Retained earnings....................................................    24,127             19,871   
                                                                         --------           --------    
Total stockholders' equity.............................................    84,145             61,680   
                                                                         --------           --------   
                                                                       
Total liabilities and stockholders' equity.............................  $219,568           $153,834   
                                                                         ========           ========   
</TABLE>

See accompanying notes to condensed consolidated financial statements

                                                                               4
<PAGE>
 
                      PEDIATRIC SERVICES OF AMERICA, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                 MARCH 31,                 MARCH 31,
                                                                (UNAUDITED)              (UNAUDITED)
                                                           --------------------     ---------------------
                                                             1998         1997         1998         1997
                                                           -------      -------     --------      ------- 
<S>                                                        <C>          <C>         <C>           <C> 
Net revenue.............................................   $79,479      $49,746     $141,038      $96,300
Costs and expenses:                                       
  Operating salaries, wages and employee benefits.......    31,017       21,461       57,098       41,196
  Other operating costs.................................    32,524       18,541       55,467       36,489
  Corporate general and administrative..................     6,070        2,973        9,907        5,745
  Provision for doubtful accounts.......................     2,095        1,607        3,928        2,982
  Depreciation and amortization.........................     2,297        1,481        4,144        2,897
                                                           -------      -------     --------      ------- 
Total costs and expenses................................    74,003       46,063      130,544       89,309
                                                           -------      -------     --------      -------
Operating income........................................     5,476        3,683       10,494        6,991
Interest expense........................................     1,926          787        3,392        1,361
                                                           -------      -------     --------      -------
Income before minority interest and income taxes........     3,550        2,896        7,102        5,630
Minority interest in loss of subsidiary.................        26            7           27           47
                                                           -------      -------     --------      -------
Income before income taxes..............................     3,576        2,903        7,129        5,677
Income taxes............................................     1,441        1,170        2,873        2,288
                                                           -------      -------     --------      -------
Net income..............................................   $ 2,135      $ 1,733     $  4,256      $ 3,389
                                                           =======      =======     ========      =======
BASIC SHARE DATA:                                                                                         
 Net income per common and common equivalent share......   $  0.30      $  0.28     $  0.63       $  0.54 
                                                           =======      =======     ========      ======= 
 Weighted average common shares outstanding.............     7,075        6,257        6,789        6,253 
                                                           =======      =======     ========      ======= 
DILUTED SHARE DATA:                                                                                       
 Net income per common and common equivalent share......   $  0.30      $  0.27     $   0.61      $  0.53 
                                                           =======      =======     ========      ======= 
 Weighted average common shares outstanding.............     7,234        6,436        6,971        6,434
                                                           =======      =======     ========      ======= 
</TABLE>

See accompanying notes to condensed consolidated financial statements

                                                                               5
<PAGE>
 
                      PEDIATRIC SERVICES OF AMERICA, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                                       MARCH 31,
                                                                                      (UNAUDITED)
                                                                                -----------------------
                                                                                  1998           1997
                                                                                --------       -------- 
<S>                                                                             <C>            <C> 
OPERATING ACTIVITIES                                                          
  Net income.................................................................   $  4,256       $  3,389
Adjustments to reconcile net income to net cash used in operating activities: 
  Depreciation and amortization..............................................      4,144          2,897
  Provision for doubtful accounts............................................      3,928          2,982
  Amortization of deferred financing fees....................................         90             48
  Deferred income taxes......................................................      2,418              -
  Minority interest in loss of subsidiary....................................        (27)           (47)
Changes in operating assets and liabilities, net of effects from              
 acquisitions of businesses:                                                  
  Accounts receivable........................................................    (27,663)       (12,950)
  Prepaid expenses and other current assets..................................       (809)          (810) 
  Accounts payable...........................................................        920         (1,668) 
  Income taxes payable.......................................................        (18)        (1,550) 
  Accrued liabilities........................................................      1,682            969  
                                                                                --------       -------- 
Net cash used in operating activities........................................    (11,079)        (6,740) 
                                                                              
INVESTING ACTIVITIES                                                          
  Purchases of property and equipment........................................     (3,804)        (3,567)
  Acquisitions of businesses.................................................    (23,356)        (7,247)
  Other, net.................................................................        (26)            (7)
                                                                                --------       -------- 
Net cash used in investing activities........................................    (27,186)       (10,821)
                                                                              
FINANCING ACTIVITIES                                                          
  Principal payments on long-term debt.......................................     (5,961)          (854)
  Borrowings on long-term debt...............................................     44,000         18,564 
  Deferred financing fees....................................................        (33)          (210) 
  Proceeds from exercise of stock options....................................         69             70 
                                                                                --------       -------- 
Net cash provided by financing activities....................................     38,075         17,570 
Increase (decrease) in cash and cash equivalents.............................       (190)             9 
Cash and cash equivalents at beginning of year...............................        501            770 
                                                                                --------       -------- 
Cash and cash equivalents at end of period...................................   $    311       $    779 
                                                                                ========       ========  
Supplemental disclosure of cash flow information:                                                       
  Cash paid for interest.....................................................   $  3,370       $  1,144 
                                                                                ========       ========  
  Cash paid for income taxes.................................................   $    577       $  3,848 
                                                                                ========       ======== 
</TABLE>

See accompanying notes to condensed consolidated financial statements

                                                                               6
<PAGE>
 
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 generally accepted
     accounting principles 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 generally
     accepted accounting principles for complete financial statements.  In the
     opinion of management, all adjustments (consisting only of normal recurring
     accruals) considered necessary for a fair presentation have been included.
     Results of operations for the three and six month periods ended March 31,
     1998 are not necessarily indicative of the results to be expected for the
     entire fiscal year ending September 30, 1998.  These condensed consolidated
     financial statements should be read in conjunction with the Company's
     audited financial statements for the year ended September 30, 1997 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 1997 Annual Report.

2.   NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 128, Earnings Per Share.  Statement
     128 replaced the previously reported primary and fully diluted earnings per
     share with basic and diluted earnings per share.  Unlike primary earnings
     per share, basic earnings per share excludes any dilutive effects of
     options, warrants, and convertible securities.  Diluted earnings per share
     is very similar to the previously reported fully diluted earnings per
     share. All earnings per share amounts for all periods have been presented,
     and where necessary, restated to conform to the Statement 128 requirements.
     The dilutive effect of the weighted average options included in the diluted
     earnings per share is 159,708 and 179,514 for the three months ended 
     March 31, 1998 and 1997, respectively and 182,126 and 181,617 for the six
     months ended March 31, 1998 and 1997, respectively.

3.   INTEREST RATE SWAP AGREEMENT

     At March 31, 1998, the Company had one interest rate swap agreement with a
     commercial bank (the "Counter Party"), having a cumulative notional
     principal amount of $25 million.  The Company pays a fixed rate of 6.61%
     plus the applicable margin that varies from a minimum of 1.0% to a maximum
     of 1.75% and is based on the calculation of a leverage ratio.  The interest
     rate differential to be received or paid is recognized over the life of the
     agreement as an adjustment to interest expense.  The interest rate swap
     terminates in June 2002.  The Company is exposed to credit loss in the
     event of non-performance by the Counter Party to the interest rate swap
     agreement.  However, the Company does not anticipate such non-performance.

                                                                               7
<PAGE>
 
4.   ACQUISITIONS

     On October 31, 1997, the Company purchased the assets and assumed certain
     liabilities of Pediatric Physical Therapy, Inc. ("PPT"), a physical therapy
     company in St. Louis, Missouri, for a total purchase price of $50,000,
     consisting of $30,000 cash and $20,000 in the form of a note payable by the
     Company. The Company assumed approximately $200,000 in indebtedness.

     On November 7, 1997, the Company purchased substantially all of the assets
     of Intra-Care, Inc. ("IC"), a home infusion and pharmaceutical company in
     Little Falls, New Jersey, for a total purchase price of $7.5 million.  The
     purchase price consisted of $4.5 million in cash and $3.0 million in the
     form of shares of the Company's Common Stock.  The shares of Common Stock
     have been placed in escrow and will be released upon the satisfaction of
     certain conditions.  The parties agreed to an earnout formula based on the
     earnings for the 1998 calendar year, whereby IC is paid in cash if it meets
     or exceeds certain targets or IC repays the Company in Common Stock if it
     fails to meet certain targets.

     On November 11, 1997, one of the Company's consolidated subsidiaries,
     Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of
     American Insurance Examiners, Inc. ("AIE"), a paramedical testing company
     in Los Angeles, California, for a total cash purchase price of $1.225
     million.

     On November 21, 1997, the Company purchased substantially all of the assets
     of Kids and Nurses, Inc. ("KAN"), a company specializing in prescribed
     pediatrics extended care facilities.  The total purchase price was $2.5
     million consisting of shares of the Company's Common Stock.  A portion of
     the shares have been placed in escrow for a period of one year from the
     closing date and will be released upon the satisfaction of certain
     conditions.  At closing, the Company assumed and paid $750,000 of
     indebtedness.

     On December 1, 1997, the Company purchased substantially all of the assets
     of Cyber Home Medical Equipment Corp., Inc. ("CHM"), a home medical
     equipment company, in Rockville Center, New York, for a total purchase
     price of $1.25 million.  The purchase price consisted of $550,000 in cash,
     $300,000 in the form of a note payable by the Company and $400,000 in the
     form of shares of the Company's Common Stock.  The shares of Common Stock
     have been placed in an escrow account for the term of one year from
     December 1, 1997 and will be released upon the satisfaction of certain
     conditions.  The note will be paid quarterly over a three year period.

     On December 15, 1997, one of the Company's consolidated subsidiaries, IMR,
     purchased certain paramedical testing assets of ChoicePoint Services, Inc.
     ("PMI")  for $21.7 million consisting of $11.7 million in cash and $10.0
     million in the form of shares of the Company's Common Stock.  The Company
     provided the seller with a one-year price protection upon disposition for
     the Company's Common Stock issued at closing.

     On December 29, 1997, the Company purchased all of the assets and assumed
     certain liabilities of Kid's Nurses, Inc. ("KN"), a pediatric nursing
     company in St. Louis, Missouri, for a total purchase price of $350,000.
     The purchase price consisted of $250,000 in cash, $50,000 in the form of a
     note payable by the Company and $50,000 in the form of shares of the
     Company's Common Stock.  The shares have been placed in an escrow account
     until December 29, 1998 and will be released upon the satisfaction of
     certain conditions.  The note will be paid annually over a two year period.

                                                                               8
<PAGE>
 
     On January 12, 1998, the Company purchased substantially all of the assets
     and assumed certain liabilities of Texas Air Supply Home Medical Equipment,
     Inc. ("TAS"), a home medical equipment and supply company in Ft. Worth,
     Texas, for a total purchase price of $1.0 million, consisting of $750,000
     cash and $250,000 in the form of shares of the Company's Common Stock.  The
     shares of Common Stock have been placed in escrow and will be released upon
     the satisfaction of certain conditions.  The Company paid at  closing
     $500,000 of indebtedness of TAS.

     On January 30, 1998, the Company purchased the stock of Pediatric Nursing
     Service, inc. ("PNS"), a pediatric nursing company in Parsippany, New
     Jersey, for a total purchase price of $2.4 million, consisting of
     $1,800,000 cash and $600,000 in the form of shares of the Company's Common
     Stock.  The shares of Common  Stock have been placed in escrow and will be
     released upon the satisfaction of certain conditions.  The Company granted
     the sellers a price protection upon disposition of the shares of Common
     Stock for a period of 30 days after they are released from escrow.

     On February 10, 1998, the Company purchased substantially all of the assets
     and assumed certain liabilities of Strictly Pediatrics, L.L.C. ("SP"), a
     home nursing and supply company in Austin, Texas, for a total purchase
     price of $15,000 in cash.  The Company assumed and paid approximately
     $129,000 of  indebtedness.

     On March 1, 1998 the Company purchased the stock of Medical Equipment &
     Supply, Inc. ("MES"), in Austin, Texas, for a total purchase price of $2.0
     million, consisting of $670,000 cash and $1,340,000 in the form of shares
     of the Company's Common Stock.  The shares of Common Stock have been placed
     in escrow and will be released upon the satisfaction of certain conditions.
     The Company granted the sellers a price protection upon disposition of the
     shares of Common Stock for a period of  30 days after they are released
     from escrow.

     The purchase method of accounting was used to record each of the above
     acquisitions.  Accordingly, the purchase price was allocated to the assets
     acquired and liabilities assumed based on estimated fair values at the
     purchase dates.  Operating results for the acquired companies have been
     included in the Company's consolidated results of operations from the
     respective purchase dates.

     The acquisitions of PPT, IC, AIE, KAN, CHM, PMI, KN,TAS, PNS, SP and MES
     are not considered significant as defined by Regulation S-X Rule 1-02(w)
     and, therefore, the consolidated financial statements do not reflect pro
     forma financial information for these acquisitions.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

     This Quarterly Report on Form 10-Q contains certain statements of a
     forward-looking nature relating to future events or the future financial
     performance of the Company.  Such statements are only predictions and the
     actual events or results may differ materially from the results discussed
     in the forward-looking statements.  Factors that could cause or contribute
     to such differences include those discussed below as well as those
     discussed in the Company's filings with the Securities and Exchange
     Commission.

                                                                               9
<PAGE>
 
     RESULTS OF OPERATIONS

     The historical condensed consolidated statements of income of the
     Company for the three and six month periods ended March 31, 1998 contained
     in this report and the following discussion thereof, include the effect of
     the Company's acquisitions of PPT, IC, AIE, KAN, CHM, PMI, KN, TAS, PNS, SP
     and MES subsequent to the respective dates of acquisition.

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

<TABLE>
<CAPTION>
                                                                                             PERIOD-TO-PERIOD
                                                                                              PERCENTAGE OF
                                           PERCENTAGE OF NET REVENUE                        INCREASE (DECREASE)
                                      ------------------------------------------  ---------------------------------------
                                           THREE MONTHS         SIX MONTHS          THREE MONTHS          SIX MONTHS
                                              ENDED                ENDED                ENDED                ENDED
                                            MARCH 31,             MARCH 31,            MARCH 31,            MARCH 31,
                                      --------------------  --------------------  ------------------   ------------------ 
                                           1998       1997       1998      1997     1998  TO  1997       1998  TO  1997   
                                          ------    -------    -------   -------  ------------------   ------------------ 
<S>                                   <C>         <C>        <C>       <C>         <C>                 <C> 
Net revenue.........................        100%       100%       100%       100%        59.8%               46.5%
Operating salaries, wages and                                                                        
 employee benefits..................       39.0       43.1       40.5       42.8         44.5                38.6
Other operating costs...............       40.9       37.3       39.3       37.9         75.4                52.0
Corporate, general and
 administrative.....................        7.6        6.0        7.0        6.0        104.2                72.4
Provision for doubtful accounts.....        2.6        3.2        2.8        3.1         30.3                31.7
Depreciation and amortization.......        2.9        3.0        2.9        3.0         55.1                43.1
                                            ---        ---        ---        ---        -----               -----
Operating income....................        7.0        7.4        7.5        7.2         48.7                50.1
Interest expense....................        2.4        1.6        2.4        1.4        144.9               149.2
                                            ---        ---        ---        ---        -----               -----
                                                                                                     
Income before income taxes and
 minority interest..................        4.6        5.8        5.1        5.8         22.6                26.1
Minority interest in loss of          
 subsidiary.........................        0.0        0.0        0.0        0.0        273.6               (41.5)
                                            ---        ---        ---        ---        -----               -----
Income before income taxes..........        4.6        5.8        5.1        5.8         23.2                25.6
Income taxes........................        1.8        2.4        2.0        2.4         23.2                25.6
                                            ---        ---        ---        ---        -----               -----
Net income..........................        2.8%       3.4%       3.1%       3.4%        23.1%               25.6%
                                            ===        ===        ===        ===        =====               =====
</TABLE> 

                                                                              10
<PAGE>
 
The following table sets forth for the periods indicated, the percentage of net
revenue represented by the following items:

<TABLE> 
<CAPTION> 
                                                                THREE MONTHS               SIX MONTHS
                                                                    ENDED                     ENDED
                                                                   MARCH 31,                 MARCH 31,
                                                              1998         1997          1998        1997
PEDIATRIC HOME HEALTH CARE:                                 -------      -------       -------     -------
<S>                                                         <C>          <C>           <C>         <C> 
   Nursing..........................................        $22,418      $14,234       $44,973     $28,544
   Respiratory Therapy Equipment....................          6,891        5,914        11,643      10,817 
   Home Medical Equipment...........................            777          338         1,574         717 
   Pharmacy and Other...............................          9,878        6,264        17,980      12,256 
         Total Pediatric Home Health Care...........        -------      -------       -------     -------
                                                             39,964       26,750        76,170      52,334
                                                            -------      -------       -------     -------
ADULT HOME HEALTH CARE:

   Nursing..........................................          4,714        7,187         8,825      13,041
   Respiratory Therapy Equipment....................          5,504        5,735        11,491      11,504 
   Home Medical Equipment...........................          1,507        1,418         3,071       2,855 
   Pharmacy and Other...............................          5,613        2,501         9,660       4,244 
                                                            -------      -------      --------     ------- 
         Total Adult Home Health Care...............         17,338       16,841        33,047      31,644 
                                                            -------      -------      --------     ------- 
         Total Medical Testing Services.............         22,177        6,155        31,821      12,322
                                                            -------      -------      --------     -------
         Total Net Revenue..........................        $79,479      $49,746      $141,038     $96,300 
                                                            =======      =======      ========     ======= 
</TABLE> 


THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.

     Net revenue increased $29.7 million, or 60%, to $79.5 million in the three
months ended March 31, 1998 from $49.8 million in the same period in the prior
year.  The Company's acquisitions and start up operations accounted for
approximately $23.3 million, or 78%, of the increase and internal growth
accounted for the remaining $6.4 million, or 22%, of the increase.  Overall,
for branch offices that have been under the Company's management for more than
one year, the internal growth in net revenue was 13% for the three months ended
March 31, 1998.  Of  the $29.7 million increase in net revenue in the second
quarter of fiscal 1998,  pediatric health care net revenue accounted for $13.2
million, or 44%, of the increase.  Increased pediatric health care net revenue
for the three months ended March 31, 1998 was attributable to the Company's
acquisitions and start up operations which accounted for approximately $4.7
million, or 20%, of the total acquisitions and startup increase and to marketing
efforts which resulted in an increase in patients served rather than any
significant increase in rates charged.  The net increase in adult health care
net revenue (attributable to young adult and geriatric patients) accounted for
$0.5 million, or 2% of  the total increase in net revenue for the three months
ended March 31, 1998.   Increased adult net revenue for the three months ended
March 31, 1998 was attributable to the Company's acquisitions which accounted
for approximately $4.3 million, a 19% increase. This was largely offset by a
decline in internal revenue for adult health care of $3.8 million.  Effective
January 1, 1998, there was a 25% reduction in the Medicare reimbursement rate
for oxygen and related services.  This 

                                                                              11
<PAGE>
 
served to reduce the Company's revenue by approximately $0.9 million. In
addition, paramedical testing services net revenue accounted for $16.0 million,
or 54% of the increase in net revenue for the quarter, primarily due to the
acquisition of PMI. This acquisition accounted for $14.3 million, or 61%, of the
increase. In the three months ended March 31, 1998, the Company derived
approximately 72% of its net revenues from commercial insurers and other private
payors, 22% from Medicaid and 6% from Medicare.

     Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$9.6 million, or 45%, to $31.0 million in the three months ended March 31, 1998
from $21.4 million in the same period in the prior year. The increase was
primarily due to the Company's acquisitions and start up operations which added
approximately $8.1 million, or 85% of the increase. As a percentage of net
revenue, operating salaries, wages and employee benefits for the three months
ended March 31, 1998 decreased to 39% from 43% in the comparable period of the
prior year due to a shift in the business mix.  As a result of acquisitions
completed by the Company, particularly the December 1997 acquisition of PMI, the
Company's historical results of operations are not necessarily indicative of
future results.  PMI has a much lower operating salaries, wages and employee
benefits component as compared to the Company's other operations, thereby
decreasing the Company's overall ratio.

     Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses, independent contractor payments and cost of sales.
The cost of sales consists primarily of the cost of pharmacy products.  Other
operating costs increased $14.0 million, or 75%, to $32.5 million in the three
months ended March 31, 1998 from $18.5 million in the comparable period in 1997.
Of this increase, $10.2 million, or 73%, relates to the Company's acquisitions.
As a percentage of net revenue, other operating costs for the three months ended
March 31, 1998 increased to 41% from 37% in the comparable period of the prior
year.  This was due to a shift in the business mix towards paramedical testing
which is more service oriented, as well as the leverage of incremental revenue
against the fixed cost component of other operating costs.

     Corporate, general and administrative costs increased $3.1 million, or
104%, to $6.1 million for the three months ended March 31, 1998 from $3.0
million in the same period in the prior year.  The increase was primarily due to
the allocation of some of the paramedical testing expenses to corporate, general
and administrative costs.  This allocation may change as the methodology becomes
more refined.  As a percentage of net revenue, corporate, general and
administrative costs for the three months ended March 31,1998 increased to 8%
from 6% in the comparable period of the prior year.

     Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable.  During the three months
ended March 31, 1998, the Company's provision for doubtful accounts increased
approximately $0.5 million, or 30%, to $2.1 million from $1.6 million in the
same period in 1997.  The increase is primarily due to the increase in total net
revenue and an increase in days sales outstanding ("DSO"), which increased to
114 days in the fiscal 1998 period from 107 days in the prior year period.  As a
percentage of net revenue, the provision for doubtful accounts decreased
slightly due to the full quarter of PMI revenue that has lower DSO and
significantly higher projected collectability compared to the three months ended
March 31, 1997.

     Depreciation and amortization expenses increased $0.8 million, or 55%, to
$2.3 million in the three months ended March 31, 1998 from $1.5 million in the
same period in 1997.  The increase was primarily due to capital expenditures for
the purchase of rental equipment and the amortization of goodwill from the
Company's 

                                                                              12
<PAGE>
 
acquisitions. As a percentage of the Company's total net revenue, depreciation
and amortization costs were comparable for the three months ended March 31, 1998
and 1997.

     Interest expense increased $1.1 million, or 145%, to $1.9 million in the
three months ended March 31, 1998 from $0.8 million in the same period in the
prior year.  The increase was primarily the result of a $59 million increase in
the Company's average debt outstanding at March 31, 1998 compared to the same
period in the prior year.  This additional debt was used to finance acquisitions
and the Company's working capital requirements.

     Income tax expense increased $0.3 million, or 23% to $1.5 million in the
three months ended March 31, 1998 from $1.2 million in the same period in the
prior year. This increase is due to an increase in the taxable income of the
Company.

SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997.

     Net revenue increased $44.7 million, or 46% to $141.0 million in the six
months ended March 31, 1998 from $96.3 million in the same period in the prior
year. The Company's acquisitions and start-up operations accounted for
approximately $33.3 million, or 74% of the increase and internal growth
accounted for the remaining $11.4 million, or 26% of the increase. Overall, for
branch offices that have been under the Company's management for more than one
year, the internal growth in net revenue was 12% for the six months ended March
31, 1998. Of the $44.7 million increase in net revenue for the six months ended
for March 31, 1998, pediatric net revenue accounted for $23.8 million, or 53% of
the increase. Increased pediatric net revenue for the six months ended March 31,
1998 was attributable to the Company's acquisitions which accounted for
approximately $9.2 million, or 28%, of the total acquisitions and start up
increase and to marketing efforts which resulted in an increase in patients
served rather than any significant increase in rates charged. Adult net revenue
accounted for $1.4 million, or 3% of the increase in net revenue for the six
months ended March 31, 1998. Increased adult net revenue for the six months
ended March 31, 1998 was attributable to the Company's acquisitions which
accounted for approximately $7.4 million, or 22% of the increase. This was
largely offset by a decline in internal revenue for adult health care of $6.0
million. Effective January 1, 1998, there was a 25% reduction in the Medicare
reimbursement rate for oxygen and related services. This served to reduce the
Company's revenue by approximately $0.9 million. In addition, paramedical
testing services net revenue accounted for $19.5 million, or 44%, of the
increase in net revenue for the six month period, primarily due to the
acquisition of PMI. This acquisition accounted for $16.7 million, or 50%, of the
increase. The Company derived approximately 70% of its net revenues from
commercial insurers and other private payors, 23% from Medicaid and 7% from
Medicare.

     Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$15.9 million or 39% to $57.1 million in the six months ended March 31, 1998
from $41.2 million in the same period in the prior year. The increase was
primarily due to the Company's acquisitions and start up operations which added
approximately $11.9 million, or 75%, of the increase. As a percentage of net
revenue, operating salaries, wages and employee benefits for the six months
ended March 31, 1998 decreased to 41% from 43%. As a result of acquisitions
completed by the Company, particularly the December 1997 acquisition of PMI, the
Company's historical results of operations are not necessarily indicative of
future results. PMI has a much lower operating salaries, wages and employee
benefits component as compared to the Company's other operations, thereby
decreasing the Company's overall ratio.

                                                                              13
<PAGE>
 
     Other operating costs include medical supplies, branch office rents,
utilities, vehicle expenses, independent contractor payments and cost of sales.
Other operating costs increased $19.0 million, or 52%, to $55.5 million in the
six months ended March 31, 1998 from $36.5 million in the comparable period in
1997. Of this increase, $14.7 million or 77%, relates to the Company's
acquisitions. As a percentage of net revenue, other operating costs for the six
months ended March 31, 1998 increased to 39% from 38% in the comparable period
of the prior year. This was due to a shift in the business mix towards
paramedical testing, which is more service oriented, as well as the leverage of
incremental revenue against the fixed cost component of other operating costs.

     Corporate, general and administrative costs increased $4.2 million, or 72%,
to $9.9 million in the six months ended March 31, 1998 from $5.7 million in the
same period in the prior year. The increase was primarily due to the allocation
of some of the paramedical testing expenses to corporate, general and
administrative costs. This allocation may change as the methodology becomes more
refined.

     Provision for doubtful accounts consists of the amount of billed revenue
that management estimates will become uncollectable.  During the six months
ended March 31, 1998, the Company's provision for doubtful accounts increased
approximately $0.9 million, or 32%, to $3.9 million from $3.0 million in the
same period in 1997. The increase is primarily due to the increase in total net
revenue and an increase in DSO.  As a percentage of net revenue, the provision
for doubtful accounts decreased slightly compared to the six months ended March
31, 1997 due to the full quarter of PMI revenue that has lower DSO and
significantly higher projected collectability.

     Depreciation and amortization expenses increased $1.2 million, or 43%, to
$4.1 million in the six months ended March 31, 1998 from $2.9 million in the
same period in 1997.  The increase was primarily due to capital expenditures for
the purchase of rental equipment and the amortization of goodwill from the
Company's acquisitions.  As a percentage of the Company's total net revenue,
depreciation and amortization costs were comparable for the six months ended
March 31, 1998 and 1997.

     Interest expense increased $2.0 million, or 149%, to $3.4 million in the
six months ended March 31, 1998 from $1.4 million in the same period in the
prior year.  The increase was primarily the result of a $51 million increase in
the Company's average debt outstanding at March 31, 1998, compared to the same
period in the prior year.  This additional debt was used to finance acquisitions
and the Company's working capital requirements.

     Income tax expense increased $0.6 million, or 26%, to $2.9 million in the
six months ended March 31, 1998 from $2.3 million in the same period in the
prior year. This increase is due to an increase in the taxable income of the
Company.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's operating cash flows are affected significantly by changes in
accounts receivable, which have grown substantially over time, largely as a
result of the Company's net revenue growth.  For the six months ended March 31,
1998 and 1997, the Company's cash flows from operations were affected by
increases in accounts receivable balances of $27.7 million and $13.0 million,
respectively.  The Company's DSO was 114 

                                                                              14
<PAGE>
 
days and 107 days as of March 31, 1998, and March 31, 1997, respectively, based
on the annualized net revenue for the last quarter of the period. The increase
in DSO is primarily attributable to the growth experienced by the Company, the
impact of the acquired accounts receivable balances from the acquisitions, the
integration of the Company's billing and collection management system and the
increasing complexity of third-party payor billing procedures and the
corresponding lengthening of the collection period. The Company has taken
measures intended to improve DSO by hiring additional experienced reimbursement
personnel, improving training programs and implementing and integrating its new
billing and collection management system. Reductions in DSO will increase funds
available for expansion and growth.

     As of March 31, 1998, the Company has recorded a deferred tax asset in its
consolidated financial statements.  Management believes that it is more likely
than not that the deferred tax asset will be realized.  Under new guidance
issued by the Internal Revenue Service, in December 1996, the Company made an
election entitling it to mark its accounts receivable to market value for tax
purposes.  This election eliminated the deferred tax asset relating to the
allowance for doubtful accounts and established a new deferred tax liability to
reflect the new temporary differences.  During fiscal 1997, the 1996 tax return
and the 1993 through 1995 amended tax returns were filed for the Company and its
subsidiaries under this new guidance.  This election gave rise to expected cash
refunds of $2.0 million plus interest.  As of March 31, 1998, $1.8 million plus
interest had been received.  As of March 31, 1998, the net operating loss
carryforward of certain subsidiaries had been fully utilized.

     The Company's investments in property and equipment are attributable
largely to purchases of medical equipment that is rented to patients and
computer equipment related to the Company's new billing and receivable
management system. The Company intends to continue to expand its business
primarily through acquiring local and regional home health care companies,
opening offices in both new and existing markets and expanding the services
currently provided at its existing branch offices.  Acquisitions to date have
been financed with a combination of borrowings under the Credit Agreement,
shares of Common Stock of the Company and seller notes. The Company's
investments in the acquisition of businesses were $23.4 million and $7.2 million
respectively, for the six months ended March 31, 1998 and 1997.

     On April 16, 1998, the Company, in a private placement, issued $75 million
aggregate principal amount of 10% Senior Subordinated Notes due 2008 (the "Old
Notes").  After paying issuance costs of approximately $2.25 million, the
Company received proceeds of $72.75 million, which were used to repay a portion
of the indebtedness outstanding under its revolving credit facility.  There are
an additional $0.75 million in issuance costs remaining to be paid.  Interest on
the Old Notes accrues from the date of issuance, and is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1998.  The Old
Notes are redeemable for cash at any time on or after April 15, 2003, at the
option of the Company, in whole or in part, at certain redemption prices, plus
accrued and unpaid interest to the date of redemption.  In addition, at any time
prior to April 15, 2001, the Company may redeem up to 25% of the aggregate
principal amount of the Old Notes with the net proceeds from one or more public
offerings of Common Stock of the Company at a set redemption amount.  The Old
Notes place certain restrictions on the incurrence of additional indebtedness,
the creation of liens, sales of assets, mergers and consolidations and payment
of dividends, among other things.

     On May 12, 1998, the Company registered with the Securities and Exchange
Commission $75 million aggregate principal amount of 10% Senior Subordinated
Notes due 2008, Series A (the "New Notes").  The New Notes are being offered by
the Company to the Old Notes holders in an exchange ("Exchange Offer").  The

                                                                              15
<PAGE>
 
Company will not receive any proceeds from the Exchange Offer. The terms of the
New Notes are identical in all material respects to the Old Notes.

     In August 1997, the Company increased the amount of financing available
under the Credit Agreement to $100.0 million from $60.0 million, consisting of a
$100.0 million revolving loan with a $5.0 million swingline loan credit
subfacility.  The loan is due August 13, 2002.  The Credit Agreement was amended
April 16, 1998, effective upon the issuance of the Old Notes, changing the
commitment fees and the financial ratio requirements.  In addition, limitations
were put in place through September 1998, upon the cash component of the
consideration payable by the Company for acquisitions of new businesses.  A
commitment fee ranging from .225% to .450% per annum is charged on the average
daily unused portion of the loan facility.  The loan is collateralized by 100%
of the voting stock of the Company.  The loan requires the Company to maintain
certain financial ratios, and places restrictions on the sale and purchase of
assets, payment of dividends and other distributions relating to the Company's
outstanding capital stock.  At the Company's option, borrowings under the
revolving facility bear interest at (1) LIBOR plus an applicable margin that
varies from a minimum of 1.0% to a maximum of 1.75% and is based on the
calculation of a leverage ratio, or (2) the prime rate.  At the Company's
option, borrowings under the swingline loan credit subfacility bear interest at
either (1) a Quoted Rate established by the lender or (2) the prime rate.  At
March 31, 1998, the Company's applicable margin was 1.625%, and the interest
rates under this facility at March 31, 1998 ranged from 7.175% to 7.315%.
Outstanding borrowings under this facility at March 31,1998 were approximately
$100.0 million.  Pending consummation of the offering of the Old Notes, the
Company also entered into a revolving credit promissory note (the "Revolving
Note") whereby NationsBank, N.A. agreed to advance the Company up to $10 million
provided availability under the Credit Agreement had been exhausted.  The
Revolving Note was closed on February 26, 1998, and terminated upon the
consummation of the offering of the Old Notes.  Pricing and conditions to
funding for the Revolving Note were identical to those on the Credit Agreement,
and the Revolving Note was cross-defaulted to the Credit Agreement.

     At April 30, 1998, total borrowings under the Credit Agreement, including
current portion, was approximately $27.0 million.

     At March 31, 1998, the Company had one interest rate swap agreement with a
commercial bank (the "Counter Party"), having a cumulative notional principal
amount of $25.0 million.  The Company pays a fixed rate of  6.61% plus the
applicable margin that varies from a minimum of 1.0% to a  maximum of 1.75% and
is based on the calculation of a leverage ratio.  The interest rate swap
terminates in June 2002.  The Company is exposed to credit loss in the event of
non-performance by the Counter Party to the interest rate swap agreement.
However, the Company does not anticipate such non-performance.

     A portion of the consideration paid by the Company for PMI consisted of
495,050 shares of the Company's Common Stock. Pursuant to the terms of the PMI
acquisition, the Company agreed to provide to ChoicePoint for a period of one
year after the acquisition, protection against a decrease in the value of any of
the Company's shares issued to and subsequently sold by ChoicePoint in the
marketplace. Under the terms of the agreement, each month the Company must
reimburse ChoicePoint in cash for any decrease in the price of the Company's
shares by paying ChoicePoint the difference between the actual sale price of any
shares sold by ChoicePoint and $20.20 (the average share price of the Company's
Common Stock on the Nasdaq National Market system for a 15-day period prior to
the closing of the transaction), multiplied by the number of shares sold. If any
net gain is realized by ChoicePoint in any month during the one-year period of
the agreement, then ChoicePoint will reimburse the Company for amounts
previously paid by the Company to the extent of such net gains.

                                                                              16
<PAGE>
 
     Management currently believes that internally generated funds and
borrowings under the Credit Agreement will be adequate to satisfy the Company's
working capital requirements, including anticipated expansion, for the
foreseeable future.

YEAR 2000 COMPLIANCE

     As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Management does not anticipate that the Company
will incur significant operating expenses or will be required to invest heavily
in computer system improvements relating to the uncertainties associated with
the year 2000 because the Company's current and planned systems are year 2000
compliant. The Company conducts business electronically with certain external
parties, including payors and vendors. Management does not know at this time
what, if any, impact year 2000 compliance may have on its payor and vendor
sources and the impact, if any, on the Company if such payors or vendors are not
fully compliant. Management is contacting external parties with which it
interacts to determine year 2000 compliance issues and when its payors or
vendors expect to be year 2000 compliant.

QUARTERLY OPERATING RESULTS AND SEASONALITY

     The Company's quarterly results may vary significantly depending primarily
on factors such as rehospitalizations of patients, the timing of new branch
office openings and pricing pressures due to legislative and regulatory
initiatives to contain health care costs.  The Company believes that its net
revenue is typically higher during the third and fourth quarters of its fiscal
year due to respiratory illnesses associated with the spring and summer months.
As a result of the above factors, the Company's operating results for any
particular quarter may not be indicative of the results for the full fiscal
year.

PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

          The following exhibits are filed with or incorporated by reference in
          this report.  Where such filing is made by incorporation by reference
          to a previously filed registration statement or report, such
          registration statement or report is identified in parentheses.  The
          Company will furnish any exhibit upon request to Pediatric Services of
          America, Inc., 310 Technology Parkway, Norcross, Georgia  30092.
          There is a charge of $.50 per page to cover expenses for copying and
          mailing.

          10.15  Amendment No. 1 to Credit Agreement, dated April 16, 1998, by
                 and among the Company and its wholly-owned subsidiary,
                 Pediatric Services of America, Inc., a Georgia corporation as
                 Borrower, the subsidiaries and affiliates identified therein,
                 the lenders identified therein, and NationsBank, N.A., as
                 Administrative Agent, filed herewith.

          11.1   Computation of Earnings Per Share (Three Months)

                                                                              17
<PAGE>
 
          11.2   Computation of Earnings Per Share (Six Months)

          27     Financial Data Schedule

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

     On April 20, 1998, the Registrant filed a report on Form 8-K under Item 5,
announcing that the Registrant had consummated a private offering of $75,000,000
aggregate principal amount of 10% Senior Subordinated Notes due April 15, 2008.

                                                                              18
<PAGE>
 
                                  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 14, 1998            By:    /s/ Stephen M. Mengert
                                    -------------------------------
                                      Stephen M. Mengert
                                      Senior Vice President,
                                      Chief Financial Officer,
                                      Treasurer and Secretary
                                      (Duly authorized officer and
                                      Principal Financial Officer)

                                                                              19
<PAGE>
 
                               INDEX OF EXHIBITS

                                                                     PAGE NO.
                                                                     --------
10.15     Amendment No. 1 to Credit Agreement, dated April 16, 
          1998, by and among the Company and its wholly-owned 
          subsidiary, Pediatric Services of America, Inc., a 
          Georgia corporation as Borrower, the subsidiaries and 
          affiliates identified therein, the lenders identified 
          therein, and NationsBank, N.A., as Administrative Agent, 
          filed herewith...............................................  21
 
11.1      Computation of Earnings per Share (Three Months).............  27
 
11.2      Computation of Earnings per Share (Six Months)...............  28
 
27        Financial Data Schedule......................................  29







                                                                              20