UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2005

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 1-32203

Prospect Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		33-0564370
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6083 Bristol Parkway, Suite 100 Culver City, California		90230
(Address of principal executive offices)		(Zip Code)

(310) 338-8677
(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 o No ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No ý

The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of May 9, 2005, was 4,677,882.

PROSPECT MEDICAL HOLDINGS, INC.

Index

Part I – Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of March 31, 2005 (unaudited) and September 30, 2004	3

	Condensed Consolidated Statements of Income for the three-month and six-month periods ended March 31, 2005, and 2004 (unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the six-month periods ended March 31, 2005 and 2004 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

Part II – Other Information

Item 1.	Legal Proceedings	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 5.	Other information	26

Item 6.	Exhibits	27

Signatures			28

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PROSPECT MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31 2005			September 30 2004
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	11,609,154		$	20,330,754
Investments, primarily restricted certificates of deposit	1,150,802			512,687
Risk pool receivables	225,588			87,979
Other receivables, net of allowances of $676,000 and $662,000 at March 31, 2005 and September 30, 2004	1,201,168			1,122,864
Notes receivable, current portion	75,445			281,064
Prepaid expenses and other	913,348			607,077
Recoverable income taxes	1,089,046			0
Deferred income taxes, net	1,438,435			1,605,478
Total current assets	17,702,986			24,547,903

Property, improvements and equipment:
Land	40,620			40,620
Leasehold improvements	726,973			714,619
Equipment	3,456,672			3,291,307
Furniture and fixtures	513,593			536,869
	4,737,858			4,583,415
Less accumulated depreciation and amortization	(3,296,151		)	(2,977,411		)
Property, improvements and equipment, net	1,441,707			1,606,004

Notes receivable, long term portion	603,112			617,545
Prepaid expenses and other, long term portion	476,592			102,958
Goodwill	31,466,553			31,461,303
Other intangible assets, net	1,774,120			1,952,291

Total assets	$	53,465,070		$	60,288,004

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued medical claims and other health care costs payable	$	13,254,605		$	13,323,622
Accounts payable and other accrued liabilities	5,150,355			7,523,808
Current maturities of long-term debt and capital leases	2,000,000			6,841,887
Total current liabilities	20,404,960			27,689,317

Long-term debt, less current maturities	7,166,667			8,166,667
Deferred income taxes	887,246			796,427
Other long-term liabilities	185,000			685,000
Total liabilities	28,643,873			37,337,411

Minority interest	68,597			63,653

Shareholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 1,991,246 and 2,265,237 shares issued and outstanding at March 31, 2005 and September 30, 2004	19,912			22,652
Common stock, $0.01 par value; 40,000,000 shares authorized 4,630,111 and 4,344,525 shares issued and outstanding at March 31, 2005 and September 30, 2004	46,301			43,445
Additional paid-in capital	18,428,746			18,630,525
Deferred compensation	(174,092		)	(232,871		)
Retained earnings	6,431,733			4,423,189
Total shareholders’ equity	24,752,600			22,886,940

Total liabilities and shareholders’ equity	$	53,465,070		$	60,288,004

See accompanying notes.

PROSPECT MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Three months ended
March 31