UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

For the Transition Period from               to

 

Commission file number 0-23181

 

PAULA FINANCIAL

(Exact name of registrant as specified in its charter)

 

 

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.

 

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Number of shares of Common Stock, $.01 par value, outstanding as of close of business on October 31, 2003: 6,239,879 shares.

 

 

PAULA FINANCIAL

INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed consolidated balance sheets as of September 30, 2003 and December 31, 2002 (unaudited)
	Condensed consolidated statements of income for the three and nine months ended September 30, 2003 and 2002 (unaudited)
	Condensed consolidated statements of cash flows for the nine months ended September 30, 2003 and 2002 (unaudited)
	Notes to condensed consolidated financial statements for the three and nine months ended September 30, 2003 (unaudited)
Item 2.	Management’s Discussion and Analysis of Consolidated 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 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURE

 

 

PART I                               FINANCIAL INFORMATION

Item 1.                                     Financial Statements

 

PAULA FINANCIAL AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)

 

		September 30, 2003			December 31, 2002
		(Unaudited)			(*)
Assets
Current Assets:
Cash (restricted: 2003, $2,622; 2002, $851)		$	3,162		$	1,290
Accounts receivable, net of allowance for uncollectible accounts (2003, $80; 2002, $140)		1,046			875
Commissions receivable		2,451			1,284
Income tax receivable		—			141
Other receivables		84			92
Deferred income taxes		1,352			1,274
Other assets		277			262
		8,372			5,218
Non-Current Assets:
Property and equipment, net		262			266
Investment in related party		703			703
Goodwill		1,940			1,452
Other amortizable intangible assets, net		2,503			1,194
Deferred income taxes		4,799			5,368
Other assets		172			99
		$	18,751		$	14,300
Liabilities and Stockholders’ Equity
Current Liabilities:
Due to underwriters and assureds		$	3,678		$	1,890
Accounts payable and accrued expenses		957			760
Employment related accrued expenses		798			403
Acquisition related accruals		891			238
Income tax payable		116			—
Notes payable to bank		1,300			1,300
		7,740			4,591
Non-Current Liabilities:
Acquisition related accruals		1,745			600
Notes payable to bank		476			1,450
		$	9,961		$	6,641
Stockholders’ Equity:
Preferred stock, $0.01 par value.  (Authorized 4,058,823 shares, none issued and outstanding)		$	—		$	—
Common stock, $0.01 par value (Authorized 15,000,000 shares, issued: 2003  7,127,029; 2002  7,023,379)		71			70
Additional paid-in-capital		13,960			68,294
Accumulated earnings (deficit), after January 1, 2003, net of $54,405  deficit eliminated)		885			(54,405		)
Unearned compensation		(41		)	(26		)
Employee loans for stock purchase		(189		)	(397		)
		14,686			13,536
Treasury stock, at cost (2003, 887,150; 2002, 873,500 shares)		(5,896		)	(5,877		)
		8,790			7,659
		$	18,751		$	14,300

 

*  Derived from audited financial statements.

 

See notes to condensed consolidated financial statements.

 

2

 

PAULA FINANCIAL AND SUBSIDIARIES

Condensed Consolidated Statements of Income
(In thousands, except share and per share data)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
		(Unaudited)						(Unaudited)
Income:
Commissions		$	4,458		$	3,312		$	11,980		$	8,244
Contingent commissions		543			156			1,725			1,247
Net investment income		1			20			5			28
Service fees		226			12			418			47
Other		2			20			20			126
		5,230			3,520			14,148			9,692
Expenses:
Salaries and related expenses		2,714			2,310			7,516			5,546
Interest expense		32			58			113			190
Amortization expense		158			97			381			389
Other expenses		1,483			803			4,571			2,642
		4,387			3,268			12,581			8,767
Income from continuing operations before income taxes		843			252			1,567			925
Income tax expense		367			105			682			396
Income from continuing operations		$	476		$	147		$	885		$	529
Discontinued operations:
Loss from operations of discontinued underwriting segment (including loss on disposal in 2002 of $275)		—			(71		)	—			(278		)
Income tax benefit		—			(30		)	—			(118		)
Loss on discontinued operations		—			(41		)	—			(160		)
Net income		$	476		$	106		$	885		$	369
Earnings per share:
Income from continuing operations		$	0.08		$	0.03		$	0.14		$	0.09
Loss on discontinued operations		—			$	(0.01	)	—			$	(0.03	)
Net income		$	0.08		$	0.02		$	0.14		$	0.06
Weighed average shares outstanding		6,239,879			6,089,879			6,217,682			6,091,397
Earnings per share - assuming dilution
Income from continuing operations		$	0.07		$	0.03		$	0.14		$	0.09
Loss on discontinued operations		—			$	(0.01	)	—			$	(0.03	)
Net income		$	0.07		$	0.02		$	0.14		$	0.06
Weighted average shares outstanding -  assuming dilution		6,485,212			6,125,340			6,443,380			6,113,261

 

See notes to condensed consolidated financial statements.

 

3

 

PAULA FINANCIAL AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(In thousands)

 

		Nine Months Ended September 30,
		2003			2002
		(Unaudited)
Cash flow from operating activities:
Net income		$	885		$	369
Loss from discontinued operations		—			160
Income from continuing operations		885			529
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		489			374
Loss on sale of property and equipment		—			3
Increase in receivables		(1,189		)	(924		)
Decrease in deferred income taxes		491			337
Increase in accounts payable and accrued expenses		2,496			1,579
Other, net		123			713
Net cash provided by operating activities		3,295			2,611
Cash flows used in investing activities:
Purchase of property and equipment		(104		)	(233		)
Purchase of book of business		(380		)	(221		)
Net cash used in investing activities		(484		)	(454		)
Cash flows used in financing activities:
Payments on notes payable		(975		)	(976		)
Payments received on employee loans for stock purchase		36			85
Retirement of common stock		—			(4		)
Issuance of common stock		—			—
Funding of discontinued operations		—			(278		)
Net cash used in financing activities		(939		)	(1,173		)
Net increase in cash and invested cash		1,872			984
Cash and invested cash at beginning of period		1,290			1,997
Cash and invested cash at end of period		$	3,162		$	2,981

 

See notes to condensed consolidated financial statements.

 

4

 

PAULA FINANCIAL AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2003 (Unaudited)

 

Note A - Basis of Presentation

 

PAULA Financial and subsidiaries (the “Company”) is a California-based specialty distributor of commercial insurance products.  The Company’s agency operations place a full array of commercial insurance products for their customers.  In addition, the Company owns a third party administration operation which has minimal operations.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, including normally occurring accruals, considered necessary for a fair presentation have been included.

 

The Company’s operating results tend to be cyclical. Consequently, operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the year ended December 31, 2003.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

 

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure, an amendment of SFAS 123”.  Among other provisions, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements.  For the three and nine months ended September 30, 2003, the differences between the as reported net income and income per share amounts and the related pro forma amounts are not material to the consolidated financial statements.

 

Note B – Change in Stockholders’ Equity

 

Effective January 1, 2003, the Company implemented a quasi-reorganization of its capital accounts.  At December 31, 2002, the Company had an accumulated deficit of $54.4 million which was primarily generated by the Company’s underwriting operations, PAULA Insurance Company (“PICO”).  PICO was disposed of in 2002 (see Note D – Discontinued Operations).  After approval by the stockholders on May 21, 2003, the Company effected the quasi-reorganization pursuant to which the Company eliminated its accumulated deficit and charged the corresponding amount to additional paid-in-capital.

 

5

 

In the first quarter of 2003, the Company issued 80,000 shares of restricted stock.  As of September 30, 2003, 50,000 shares were unvested.  Of the 80,000 shares issued, 60,000 shares related to the addition to the Company’s crop insurance platform of Roudebush & Avina Insurance Agency, Inc. (“R&A”).  R&A is based in Modesto, California and specializes in providing crop insurance to commercial wine grape growers.  Since 2002, the Company has made efforts to dramatically expand crop insurance sales, primarily through producer recruitment.  As part of the agreement, the Company purchased R&A’s existing book of business.  Balances owing under the arrangement will be paid over a five year period.  As of September 30, 2003, the obligation related to this transaction was $526,000 with $126,000 of the balance due in the next twelve months.  Of the total purchase price, $503,000 has been allocated to other amortizable intangible assets, with the remaining $323,000 allocated to goodwill.  Other amortizable intangible assets relate to expiration lists and covenants not to compete.

 

Additionally, in the first nine months of 2003, the Company received payments on employee loans for stock purchase totaling $36,000, wrote off loans totaling $145,000 and increased the valuation allowance on the remaining loans by $27,000.

 

Note C – Comprehensive Income

 

The Company has not included a statement of comprehensive income in the accompanying consolidated financial statements as the Company does not have any other comprehensive income adjustments.

 

Note D – Discontinued Operations

 

Historically, the Company also operated a workers’ compensation underwriting facility, PICO.  As of December 31, 2001, PICO’s Risk Based Capital fell into the “Mandatory Control Level.”  Consequently, on March 12, 2002 PICO and the California Department of Insurance (“California DOI”) entered into an Oversight Agreement which effectively gave the California DOI control over PICO’s operations.  As a result of these events, in the fourth quarter of 2001, the Company began accounting for its investment in PICO using the equity method.  In the fourth quarter of 2001, the Company wrote its investment in PICO down to $-0-.  Consequently, no direct PICO operating activity is included in the consolidated financial statements for the 2002 period.

 

On April 26, 2002, the California DOI obtained a conservation order which was followed on June 21, 2002 by a liquidation order.  Subsequent to the liquidation order, the Company provided limited operational support to PICO.  Given the continued activity with PICO through the third quarter of 2002, the Company was precluded from treating PICO as a discontinued operation for accounting purposes.

 

In the fourth quarter of 2002 the requirements of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144) for treating a segment as a discontinued operation were met.  Consequently, operating activity related to workers’ compensation underwriting has been reclassified as discontinued operations.  As a result, certain financial information previously issued has been adjusted to give effect to the classification of the PICO business as discontinued operations in accordance with SFAS 144.

 

Amounts related to discontinued operations in the 2002 period primarily relate to employee severance costs associated with the discontinuance of PICO operations.

 

6

 

Note E – Goodwill

 

The increase in goodwill in the first nine months of 2003 is related to the previously discussed purchase of R&A’s book of business as well as the purchase of a large account agribusiness book of business in July 2002.  As structured, the Company acquires the business as the related accounts are renewed.  The final purchase price determinations will be made in the fourth quarter of 2003 related to the 2002 acquisition and in the first quarter of 2004 related to the R&A acquisition.

 

Note F – Deferred Income Taxes

 

As of September 30, 2003 and December 31, 2002, the Company’s net deferred tax asset is comprised of the following:

 

		Sept 30 2003			Dec 31 2002
		(unaudited)
Deferred tax assets:
Net operating loss carry forward		$	27,371		$	27,996
Other		1,426			1,292
Gross deferred tax assets		28,797			29,288
Less valuation allowance		(22,646		)	(22,646		)
Deferred tax assets		$	6,151		$	6,642
Gross deferred tax liabilities		$	—		$	—
Net deferred tax asset		$	6,151		$	6,642

 

The net operating loss carry forward includes losses generated by PICO which are available to offset future taxable income of the Company.

 

Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income in the periods necessary to realize the net deferred tax asset.

 

7

 

PART I	FINANCIAL INFORMATION
Item 2.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

 

Overview

 

The Company’s revenues consist primarily of agency commission, contingent commission income, and service fees.  Commission income is earned from Pan Am’s insurance sales activity.  Associated premiums are primarily billed directly by the insurance carrier.  However, in certain instances, Pan Am will invoice the customer and remit the premium, less commission, to the insurance carrier.  The Company focuses its sales efforts on agribusiness and rural markets in California and Arizona.  Contingent commission is related to volume and profit sharing arrangements with insurance carriers.  Service fees are primarily received for the performance of services related to loss control and claims advocacy.

 

The Company’s expenses consist of salaries and related expenses, interest expense and other general and administrative expenses.

 

Results of Operations for the Three and Nine Months Ended September 30, 2003 Compared to the Three and Nine Months Ended September 30, 2002:

 

Commission income. For the three months ended September 30, 2003 commission income increased 35% to $4.5 million compared to $3.3 million for the comparable 2002 period.  For the nine months ended September 30, 2003 commission income increased 45% to $12.0 million compared to $8.2 million for the comparable 2002 period.  For the nine months, 40% of the increase is due to increases in the placement of crop insurance while 36% is due to increases in the workers compensation line of business.

 

Crop insurance has various renewal cycles depending on the underlying commodity.  In the third quarter of 2003, the 2003 crop year was substantially completed and the associated revenue was recognized.  Prior to the 2003 crop year, the Company’s revenue activity associated with this line of business was nominal.

 

Currently the California State Compensation Insurance Fund (“SCIF”) is the largest single market for workers’ compensation insurance in the state.  Consequently, the Company places a significant portion of its related business with SCIF.  Prior to August 2003, SCIF’s maximum commission rate was 8.0%.  Effective August 2003, the maximum commission rate is 5.5%.  Since commission rates are only adjusted at renewal, the full impact of this change will not be reflected in the Company’s consolidated financial statements until the last half of 2004.  Partially offsetting the reduced commission rate, SCIF increased premium rates in July 2003.

 

The Company is attempting to mitigate the impact of the SCIF commission adjustment in a number of significant ways.  First, the Company is actively engaged in offering alternative risk structures, including proprietary access to a Bermuda captive.  Second, the Company is diversifying its revenue base by expanding its property and casualty commissions and developing a significant crop insurance platform. Since 2002, the Company has made efforts to dramatically expand crop insurance sales, primarily through producer recruitment.  In March 2003, R&A joined the Company.  R&A is based

 

8

 

in Modesto, California and specializes in providing crop insurance to commercial wine grape growers.

 

The Company is now seeing the impact of its diversification efforts.  For the nine months ended September 30, 2003, workers’ compensation accounted for 43% of commission income as compared to 46% for the comparable 2002 period.

 

Contingent commission income. For the three months ended September 30, 2003 contingent commission income increased to $543,000 compared to $156,000 for the comparable 2002 period. For the nine months ended September 30, 2003 commission income increased 38% to $1.7 million compared to $1.2 million for the comparable 2002 period.  Contingent commission fluctuates from year to year based on the profitability of the underlying business and external market conditions which can result in changes to contingency programs offered by insurance carriers.

 

Service fees.  Service fee income increased to $226,000 for the three months ended September 30, 2003 from $12,000 for the comparable 2002 period.  For the nine months ended September 30, 2003 service fee income increased to $418,000 compared to $47,000 for the comparable 2002 period.  The increase in service fees is due to new service arrangements where the Company is paid for providing loss control and other field support services to selected accounts.

 

Salaries and related expenses.  Salaries and employee benefits increased 17% to $2.7 million for the three months ended September 30, 2003 from $2.3 million for the comparable 2002 period.  For the nine months ended September 30, 2003 salaries and employee benefits increased 36% to $7.5 million from $5.5 million for the comparable 2002 period.  The increase is due to three primary factors: the transfer of selected employees from PICO’s payroll to Pan Am in early to mid-2002, the addition of new employees beginning in July 2002 and the elimination of previous cost sharing arrangements that were in effect with PICO through mid-2002.  For the nine months ended September 30, 2003, salaries and related expenses was 53% of total revenues as compared to 57% for the comparable 2002 period.

 

Interest expenses.  Interest expense decreased 45% to $32,000 for the three months ended September 30, 2003 from $58,000 for the comparable 2002 period. For the nine months ended September 30, 2003 interest expense decreased 41% to $113,000 from $190,000 for the comparable 2002 period.  The decrease is due to the decline in the outstanding balance of the related note payable.

 

Operating expenses.  Operating expenses increased 82% to $1.6 million for the three months ended September 30, 2003 from $900,000 for the comparable 2002 period. For the nine months ended September 30, 2003 operating expenses increased 63% to $5.0 million compared to $3.0 million for the comparable 2002 period.  The increase is primarily due to the elimination of previous cost sharing arrangements that were in effect with PICO until mid-2002 as well as the costs associated with an increased number of employees, including insurance and facilities expense.  Also contributing to the increase in operating expenses are accruals associated with legal matters.

 

9

 

Income taxes on continuing operations.  Income tax expense for the three months ended September 30, 2003 was $367,000 compared to $105,000 for the comparable 2002 period.  Income tax expense for the nine months ended September 30, 2003 was $682,000 compared to $396,000 for the comparable 2002 period.  The effective combined income tax rates for the nine months ended September 30, 2003 and 2002 were 44% and 43%, respectively.

 

Loss from discontinued operations before taxes.  In 2002, these costs primarily included employee severance costs associated with the discontinuance of PICO operations.

 

Income taxes on discontinued operations.  Income tax benefit on discontinued operations for the three months ended September 30, 2002 was $30,000.  Income tax benefit on discontinued operations for the nine months ended September 30, 2002 was $118,000.  The effective combined income tax rates for the nine months ended September 30, 2002 was  42%.

 

Liquidity and Capital Resources:

 

As a holding company, PAULA Financial’s principal sources of funds are dividends and expense reimbursements from its operating subsidiaries and proceeds from the sale of its capital stock.  PAULA Financial’s principal uses of funds are capital contributions to its subsidiaries and payment of operating expenses.

 

As of December 31, 2002, the Company had an outstanding balance on its bank term loan of $2.8 million. Under the terms of the amended credit agreement, the loan balance will be paid over the next fifteen months with the final principal payment due January 1, 2005.  As of September 30, 2003, the outstanding balance was $1.8 million. Each of PAULA Financial’s subsidiaries has guaranteed all obligations of PAULA Financial under the Credit Agreement.

 

Management is in the process of finalizing the refinancing this loan under a revolving line of credit.  Management expects that the refinancing will be compete within the next several weeks.

 

The Company’s Board of Directors had previously approved a 1,000,000 share repurchase program.  As of September 30, 2003, the Company held 887,150 shares in treasury stock.  On February 20, 2003, the Board of Directors authorized an additional 2,000,000 shares for the share repurchase program.  The Company’s current credit agreement restricts its ability to repurchase capital stock.

 

FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” is not applicable to the Company.

 

Forward-Looking Statements

 

In connection with, and because it desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers to recognize the existence of certain forward-looking statements in this Form 10-Q and in any other statement made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission.  Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments.  Some forward-looking statements may be identified by the use of terms such as “expects,” “believes,” “anticipates,” “intends,” or “judgment.” Forward-looking statements are necessarily based upon estimates and

 

10

 

assumptions that are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and many of which, with respect to future business decisions, are subject to change.  Examples of such uncertainties and contingencies include, among other important factors, those affecting the insurance industry in general, such as the economic and interest rate environment, legislative and regulatory developments and market pricing and competitive trends, and those relating specifically to the Company and its businesses, such as the level of its commission and fee income and acquisitions of companies or blocks of business.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. The Company disclaims any obligation to update forward-looking information.

 

Item 3:  Quantitative and Qualitative Disclosures About Market Risk.

 

There have been no significant changes since the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2002.

 

Item 4:  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and Vice President Finance have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report.  Based on this evaluation, such officers have concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report were effective for ensuring that information required to be disclosed in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported in a timely manner.  There have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

 

11

 

PART II.  OTHER INFORMATION

 

Item 1:  Legal Proceedings:

 

As previously disclosed in the Company’s Form 10-K for the year ended December 31, 2002, Pan American Underwriters Insurance Agents and Brokers, Inc., the Company’s agency operation in Arizona (the “Arizona Company”), is a defendant in an action filed in Arizona Superior Court, Maricopa County, by two hospitals and two individuals seeking damages for the Arizona Company’s sale of SGP Benefit Plan, Inc. (“SGP”), a Multi-Employer Welfare Arrangement (“MEWA”) licensed by the State of California.  SGP operated in California and Arizona and has filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the Eastern Division of California.

 

At the time of the filing of the bankruptcy, SGP allegedly owed plaintiffs certain unpaid benefits under its plans.  Plaintiff’s allege that those benefits total approximately $935,000.  The plaintiffs contend that the MEWA required a license from the Arizona Department of Insurance, that the MEWA lacked such a license, and that the Arizona Company is liable for unpaid benefits pursuant to Arizona Revised Statute 20-402 (B) which provides for an agents liability when an unlicensed insurer fails to pay any claim or loss within the provisions of the insurance contract.

 

The Arizona Company has filed an answer to the complaint denying liability and has filed a counterclaim against the hospital plaintiffs and a cross complaint against a third party, Sunkist Growers, Inc. alleging that it is responsible in whole or part for any damages caused to plaintiffs.  Discovery has not yet begun in the action.

 

It is difficult to predict the outcome of any litigation, as the nature of litigation is always uncertain, but the Arizona Company believes that there exist substantial legal and factual defenses to plaintiffs’ claims and will consequently defend itself vigorously.

 

Item 5:  Other Information

 

Effective November 1, 2003, Mr. Karl T. Hansen ceased to be an employee of the Company and resigned his position as Executive Vice President of Pan American Underwriters, Inc. and as a director of the Company.  Mr. Hansen’s departure was not a result of any disagreement with the Company, its management or the Board of Directors.

 

Item 6:  Exhibits and Reports on Form 8-K:

 

(a)          Exhibits.

 

11.                                 Computation of Earnings Per Share.

 

31.1                           Rule 13a -14a /15d -14a Certification of Chief Executive Officer.

 

31.2                           Rule 13a -14a /15d -14a Certification of Chief Financial Officer.

 

32.1                           Section 1350 Certifications of Chief Executive Officer.

 

32.2                           Section 1350 Certifications of Chief Financial Officer.

 

(b)         Reports on Form 8-K.

 

12

 

On September 29, 2003, the Company filed a Form 8-K related to a change in auditors.  In response to a staff comment letter dated October 10, 2003, regarding the Company’s Form 8-K filed on September 29, 2003, on October 17, 2003 the Company filed an Amended Form 8-K.  In response to the staff’s supplemental request regarding the Company’s Form 8-KA filed on October 17, 2003, the Company filed an Amended Form 8-K on November 10, 2003.

 

Additionally, on September 2, 2003, the Company filed a Form 8-K related to the press release announcing operating results for the second quarter of 2003.

 

13

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:  November 13, 2002	PAULA FINANCIAL
	By:	/s/ Deborah S. Maddocks
	Vice President – Finance

 

14