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, 2006

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.)

400 Corporate Pointe, Suite 525 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 ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No ý

The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of May 8, was 6,922,828.

PROSPECT MEDICAL HOLDINGS, INC.

Index

	Part I – Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2006 (unaudited) and September 30, 2005

	Condensed Consolidated Statements of Income for the three-month and six-month periods ended March 31, 2006 and 2005 (unaudited)

	Condensed Consolidated Statements of Cash Flows for the six-month periods ended March 31, 2006 and 2005 (unaudited)

	Notes to Condensed Consolidated Financial Statements (unaudited)

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

	Part II - Other Information

Item 1.	Legal Proceedings

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

Item 3.	Defaults Upon Senior Securities

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

Item 5.	Other information

Item 6.	Exhibits

Signatures

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PROSPECT MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2006			September 30 2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,033,876		$	16,949,304
Investments, primarily restricted certificates of deposit	835,153			1,100,000
Risk pool receivables	450,000			57,267
Other receivables, net of allowances of $667,000 and $802,000 at March 31, 2006 and September 30, 2005	866,159			1,940,536
Notes receivable, current portion	49,676			52,160
Prepaid expenses and other	735,115			646,932
Refundable income taxes	1,393,252			—
Deferred income taxes, net	1,537,970			1,904,137
Total current assets	21,901,201				22,650,336

Property, improvements and equipment:
Land	40,620			40,620
Leasehold improvements	986,827			726,973
Equipment	3,311,815			3,342,385
Furniture and fixtures	561,134			546,523
	4,900,396			4,656,501
Less accumulated depreciation and amortization	(3,713,051		)	(3,454,282		)
Property, improvements and equipment, net	1,187,345			1,202,219

Notes receivable, long term portion	558,034			572,979
Deposits	546,438			583,226
Goodwill	38,623,322			31,404,328
Other intangible assets, net	1,726,164			1,317,614
Total assets	$	64,542,504		$	57,730,702

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued medical claims and other health care costs payable	$	11,695,000		$	11,532,328
Accounts payable and other accrued liabilities	8,389,769			9,799,968
Current maturities of long-term debt and capital leases	4,800,000			2,000,000
Total current liabilities	24,884,769			23,332,296

Long-term debt, less current maturities	8,100,000			6,166,667
Deferred income taxes	1,066,930			1,045,696
Other long-term liabilities	185,000			185,000
Total liabilities	34,236,699			30,729,659
Minority interest	71,389			65,405

Shareholders’ equity:
Common stock, $0.01 par value; 40,000,000 shares authorized; 6,922,828 and 6,640,362 shares issued and outstanding at March 31, 2006 and September 30, 2005	69,228			66,403
Additional paid-in capital	19,337,428			18,373,487
Retained earnings	10,827,760			8,495,748
Total shareholders’ equity	30,234,416			26,935,638

Total liabilities and shareholders’ equity	$	64,542,504		$	57,730,702

See accompanying notes.

PROSPECT MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three months ended
March 31,

Six months ended
March 31,

2006

2005

2006

2005

Revenues

34,572,146