PAULA Financial Reports Net Income for the First Quarter of 2004

PAULA Financial announced net income for the first quarter of 2004 of $0.08 per share compared to $0.05 per share for the 2003 period. Total revenue for the first quarter of 2004 was $5.2 million compared to $4.6 million for the 2003 period. Cash flows from operations were $1.9 million in the first quarter of 2004 compared to $1.4 million in the 2003 period.

Jeff Snider, Chairman and CEO, commented, “The positive first quarter results for 2004 reflect solid ongoing organic growth combined with the impact of revenue diversification efforts beginning mid-2002. As we have previously discussed, beginning in mid-2002, the Company made two acquisitions, both strategic, geared toward diversifying our revenue base. Historically, the Company’s largest revenue item has been small to mid-size workers’ compensation accounts. While workers’ compensation remains a key component of our business, we now have a significant presence in the crop insurance space. Additionally, we have seen growth in the accident and health, fee for services and package lines of business, further diversifying and thereby strengthening our mix of revenue. As a consequence, the Company has thus far successfully absorbed the impact of the softening of the California workers’ compensation market.”

Snider continued, “In addition to diversifying the mix of business, over the last twenty months the Company has been favored with a significant expansion of insurance placements on behalf of larger accounts — a result of focused selling efforts in the large deductible and alternative risk markets.

“The Company is also focused on a number of strategic initiatives, including acquisitions which take advantage of the Company’s significant tax assets. Expenses are well controlled, and even after some significant new hiring in 2003, payroll as a percentage of total revenue through the first quarter of 2004 is 52 percent compared to 51 percent a year ago. Certain senior executives have restructured their variable compensation plans to help finance the investment in new hires while maintaining expense levels which are proportional to prior periods. The Company is quite optimistic about its prospects even as analysts begin to opine about the return of the industry’s historic soft cycle. Our Vice President of Finance, Debbie Maddocks, also reports the Company’s ability to accumulate cash is better now than any period in the past several years,” concluded Snider.