For more information, please contact either listing below:

Prospect Medical Holdings, Inc.
Linda Hodges,
Executive Vice President
(714) 796-4271           
linda.hodges@prospectmedical.com

Investor Relations Counsel:
The Equity Group Inc.
Devin Sullivan
(212) 836-9608
dsullivan@equityny.com

FOR IMMEDIATE RELEASE

PROSPECT MEDICAL HOLDINGS REPORTS FISCAL 2008 SECOND QUARTER AND SIX MONTH FINANCIAL RESULTS

Conference Call Scheduled For June 20, 2008 at 1:00 pm ET / 10:00 am PT

Q2 FY 2008 Highlights Compared to Q2 FY 2007

  • Revenues rose 162% to $87.3 million from $33.3 million
  • Operating income rose to $6.4 million from an operating loss of $1.8 million
  • Net income, prior to $2.0 million non-cash dividend to preferred stockholders, was $728,000, compared to a net loss of $1.1 million
  • After $2.0 million non-cash dividend to preferred stockholders, net loss attributable to common stockholders was $1.3 million, or $0.11 per share, compared to a net loss attributable to common stockholders of $1.1 million, or $0.14 per share

Los Angeles, CA — June 16, 2008 — Prospect Medical Holdings, Inc. (AMEX: PZZ) ("Prospect"), which manages the medical care of approximately 228,000 HMO enrollees and operates four community hospitals in southern California, today announced financial results for its fiscal 2008 second quarter ended March 31, 2008. These results include the operations of the two acquired entities since their respective dates of acquisition; specifically the ProMed Entities ("ProMed"), which Prospect acquired on June 1, 2007, and Alta Hospitals System, LLC (f/k/a Alta Healthcare System, Inc.) ("Alta"), which Prospect acquired on August 8, 2007.

SECOND QUARTER CONSOLIDATED RESULTS OVERVIEW

Consolidated revenues for the second quarter of fiscal 2008 rose 162% to $87.3 million from $33.3 million in the same period last year. Higher revenues primarily reflected a $32.4 million contribution from Alta and a $23.2 million contribution from ProMed.

Operating income for the second quarter of fiscal 2008 rose to $6.4 million from an operating loss of $1.8 million in the second quarter of fiscal 2007, due primarily to inclusion of the operations of Alta and ProMed. Included in operating expenses for the 2008 quarterly period is approximately $1.5 million related to the Alta restatement, special investigation and lender forbearance activities.

Interest expense and amortization of deferred financing costs rose to $5.4 million in the fiscal 2008 second quarter from $234,000 in the second quarter of fiscal 2007, due to debt associated with the acquisitions of ProMed and Alta. Included in interest expense for the 2008 quarterly period is approximately $0.8 million in forbearance fees paid to lenders.

Net income for the fiscal 2008 second quarter, prior to the $2.0 million non-cash dividend to preferred stockholders, was $728,000 compared to a net loss of $1.1 million in the same period last year. Following the $2.0 million non-cash dividend to preferred stockholders, as compared to no such dividend in the same period last year, the net loss attributable to common stockholders for the fiscal 2008 second quarter was $1.3 million, or $0.11 per share, compared to a net loss attributable to common stockholders of $1.1 million, or $0.14 per share, in the second quarter of fiscal 2007.


SEGMENT RESULTS

IPA Management ($ in 000s)

($ in 000s) (unaudited) Three Months Ended Six Months Ended
March 31, March 31,
2008 2007 2008 2007
Total managed care revenues  $54,947  $33,327  $109,921  $68,155
Total managed care cost
of revenues		    42,830    26,170    87,220    52,206
Gross margin    12,117    7,157    22,701    15,949
               
General and Administrative    13,026    9,082    24,714    17,158
Depreciation and Amortization    1,212    391    2,414    783
Total non-medical expenses    14,238    9,473    27,128    17,941
               
Operating income from unconsolidated joint venture    694    500    1,169    763
               
Operating loss    $(1,427)    $(1,816)    $(3,258)    $(1,229)

Higher revenues for the second quarter of fiscal 2008 were due primarily to a $23.2 million revenue contribution from ProMed as compared to no such contribution in the second quarter of fiscal 2007, offset by a $1.5 million decrease in capitation revenues from Prospect’s legacy IPA business.

Higher managed care cost of revenue for the fiscal 2008 second quarter was primarily the result of the ProMed acquisition, as well as higher physician salaries, offset by lower enrollment in Prospect’s legacy IPA business. Higher general and administrative (“G&A”) expenses for the fiscal 2008 second quarter was primarily due to the inclusion of ProMed in the current period, which added approximately $2.1 million, as well as increases in staffing, and higher costs related to audit, legal and Sarbanes-Oxley Act compliance associated with the larger enterprise in 2008. All costs of Prospect, the Holding Company, are included in the IPA Management Segment.

Depreciation and amortization increased primarily as a result of increased amortization of intangible assets related to the acquisition of ProMed.

Income from unconsolidated joint venture increased as a result of higher profitability from participation in the CalOptima OneCare program for Medicare/MediCal eligible beneficiaries.

Hospital Services

Prospect‘s “Hospital Services” segment consists of Alta’s four community based hospitals in southern California. Prospect acquired Alta in August 2007. Prospect did not have a Hospital Services segment during the first quarter of fiscal 2007.

($ in 000s) (unaudited) Three Months Ended Six Months Ended
March 31, March 31,
Net patient revenues    $32,396   $59,682
Operating expenses:        
      Hospital operating expenses    20,967    38,968
      General and administrative      2,911      5,535
      Depreciation and amortization    707    1,432
Total operating expenses    24,585    45,935
Operating income    $7,811    $13,747

Sam Lee, Chairman and Chief Executive Officer of Prospect, commented, “The filing of Prospect’s 10-Q for fiscal 2008 second quarter marks the end of a challenging period and signals the beginning of what we believe will be an important new era of growth. We are very pleased with our return to profitability prior to the non-cash preferred stock dividend, positive operating cash flow, and cash and equivalents of $23.7 million at March 31, 2008. With the acquisitions of ProMed and Alta, Prospect is now a company of significantly greater size, scale and, we believe, potential than at any time in its history. We are making, and expect to continue to make, notable progress in our legacy (excluding ProMed) IPA operations, rationalizing expenses and further strengthening our management team with the addition of seasoned, functional executives. In addition, we believe that the various one-time and unusual costs and expenses we have incurred during the first three quarters of fiscal 2008 will decline substantially in the fiscal 2008 fourth quarter, ending September 30, 2008.”

RESUMPTION OF TRADING

As previously announced, Prospect has submitted to the AMEX the Company’s plan for regaining compliance with the AMEX’s continued listing requirements no later than July 28, 2008. With the filing of its Form 10-K for the 2007 fiscal year, Form 10-Q for the fiscal 2008 first quarter, and Form 10-Q for the fiscal 2008 second quarter, Prospect believes that the Company is now in compliance with all applicable SEC filing requirements and corresponding AMEX continued listing requirements. The Company believes it qualifies for trading in its stock to be resumed, subject, however, to AMEX review of the Company's recent SEC filings and any further issues that the AMEX may raise.

CONFERENCE CALL

Management will host a conference call on Friday, June 20, 2008 at 1:00 pm ET / 10:00 am PT to discuss this news release and other recent corporate developments. Interested parties may participate in the call by dialing (866) 267-2584 (Domestic) or (706) 634-4739 (International) approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Prospect Medical conference call. In addition, the conference call will be broadcast live over the Internet at Investor.Shareholder.com. To listen to the live call on the Internet, go to the web site at least 15 minutes early to register, download and install any necessary audio software. If you are unable to participate in the live call, the conference call will be archived and can be accessed for approximately 30 days.

ABOUT THE COMPANY

Prospect Medical Holdings operates four community-based hospitals in the greater Los Angeles area and manages the medical care of individuals enrolled in HMO plans in Southern California, through a network of approximately 14,000 specialist and primary care physicians.

This press release contains forward-looking statements. Additional written or oral forward-looking statements may be made by Prospect from time to time, in filings with the Securities and Exchange Commission, or otherwise. Statements contained herein that are not historical facts are forward-looking statements. Investors are cautioned that forward-looking statements, including the statements regarding anticipated or expected results, involve risks and uncertainties which may affect the Company's business and prospects, including those outlined in Prospect's Form 10-K filed on June 2, 2008 and its Form 10-Q filed on June 16, 2008, as well as risks and uncertainties arising from Prospect's acquisition of Alta and ProMed, the debt incurred by Prospect in connection with those acquisitions, and the ability of the Company to regain compliance with the AMEX’s continued listing requirements. Any forward-looking statements contained in this press release represent our estimates only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.


Prospect Medical Holdings, Inc.
Condensed Consolidated Statements of Operations
($ in 000s, except per share data) (unaudited)

Three Months Ended Six Months Ended
March 31, March 31,
2008 2007 2008 2007
Revenues
      Managed Care
      Revenues		  $54,947  $33,327  $109,921  $68,155
      Net Patient
      Revenues		 32,396            —  59,682            —
Total Revenues    87,343    33,327    169,603    68,155
Operating expenses:
      Managed Care
      Cost of Revenue		    42,830    26,171    87,220    52,206
      Hospital Operating
      Expenses		    20,967                —    38,968                —
      General and
      Administrative		    15,937   9,082    30,249    17,159
      Depreciation and
      Amortization		   1,919    391   3,846    783
Total Operating Expenses    81,653    35,644    160,283    70,148
               
Operating Income from Unconsolidated Joint Venture    694    500    1,169    764
Operating Income (loss)    6,384   (1,817)    10,489    (1,229)
Other Income (expense):
      Investment income    149   222    443   464
      Interest Expense and
      Amortization of deferred
      financing costs		    (5,383)    (234)    (9,679)    (502)
      Loss on Interest
      Rate Swaps		           —           —    (877)           —
Total expense, net   (5,234)    (12)   (10,113)  (38)
Income (loss) before income taxes   1,150   (1,829)   376   (1,267)
Provision (benefit) for income taxes  419    (737)    137   (511)
Net Income (loss) before minority interest   731     (1,092)    239    (756)
Minority Interest    3    (1)    8    2
Net Income (loss)    728    (1,091)   231   (758)
Dividend to preferred stockholders    (1,983)              —    (3,865)              —
   
Net loss attributable to common stockholders    (1,255)    (1,091)    ((3,634)    (758)
   
Per share data:
Net loss per share attributable
to common stockholders- historical:
      Basic:    ($0.11)    $0.14    ($0.31)    $0.10
      Diluted:    ($0.11)    $0.14    ($0.31)    $0.10
Weighted Average Shares Outstanding:
      Basic:    11,783    7,695    11,748    7,482
      Diluted:    11,783    7,695    11,748    7,482


Prospect Medical Holdings, Inc.
Condensed Consolidated Balance Sheets
($ in 000s)

  March 31,
2008
(Unaudited)		 September 30,
2007
 
ASSETS
Current Assets:
      Cash and Cash Equivalents    $23,639    $21,599
      Investments, Primarily Restricted
      Certificates Of Deposit		    637   637
      Patient accounts receivable, net of
      allowance for doubtful accounts
      of $4,510 and $4,447 at March 31, 2008
      and September 30, 2007		    19,431    15,840
      Government Program Receivables    2,478   4,274
      Risk Pool Receivables  185    179
      Other Receivables, Net of Allowances of
      $763 and $632 at March 31, 2008
       and September 30, 2007		 3,009    2,559
      Notes Receivable, Current Portion    60    59
      Refundable Income Taxes    3,514    5,041
      Deferred Income Taxes, Net    3,395   3,395
      Prepaid Expenses and Other Current Assets        4,980    3,816
Total Current Assets    61,328    57,399
     
Property, Improvements and Equipment:     
      Land and Land Improvements    18,499   18,493
      Buildings   22,353    22,233
      Leasehold Improvements    2,203    2,013
      Equipment    10,437    9,651
      Furniture and fixtures    1,004    998
     54,496    53,388
Less Accumulated Depreciation and Amortization  (6,815)    (5,094)
Property, Improvements and Equipment, Net    47,681    48,295
Notes Receivables, Less Current Portion    415    490
Deposits and Other Assets   1,068    914
Deferred Financing Costs, net   6,323    7,431
Goodwill    129,117    129,122
Other Intangible Assets, net    49,864    51,989
Total Assets    $295,796    $295,639
   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
      Accrued Medical Claims and
      Other Health Care Costs Payable		    $23,226    $22,639
      Accounts Payable And Other Accrued Liabilities    12,235    14,972
      Third-Party Settlements   939    1,034
      Accrued Salaries, Wages And Benefits    8,081    6,898
      Current Portion of Capital Leases   334    356
      Current Portion of Long-Term Debt    10,750   8,000
      Other Current Liabilities   5,624       1,251
Total Current Liabilities    61,189    55,150
Long-Term Debt, Less Current Portion   136,250    138,750
Deferred Income Taxes    24,022    28,669
Malpractice Reserve   664    645
Capital Leases, Net Of Current Portion    629    644
Interest Rate Swap Liability    10,716    1,934
Other Long-Term Liabilities    232    232
Total Liabilities    233,702    226,024
Minority interest    88    79
Total Shareholders' Equity    62,006    69,536
Total Liabilities and Shareholders' Equity    $295,796    $295,639

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