<PAGE>
_____________________________________________________________________________
_____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23181
PAULA FINANCIAL
(Exact name of registrant as specified in its charter)
DELAWARE 95-4640368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
PAULA FINANCIAL
300 NORTH LAKE AVENUE, SUITE 300
PASADENA, CA 91101
(Address of principle executive offices)
(626) 304-0401
(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 No X
--- ---
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 November 06,
1997: 6,322,127 shares.
_____________________________________________________________________________
_____________________________________________________________________________
<PAGE>
PAULA FINANCIAL
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed consolidated balance sheets as of
December 31, 1996 and September 30, 1997
(unaudited) ..........................................2
Condensed consolidated statements of income for the
three and nine months ended September 30, 1996 and
1997 (unaudited) .....................................3
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1996 and 1997
(unaudited) ..........................................4
Notes to condensed consolidated financial statements
for the three and nine months ended September 30,
1997 (unaudited) .....................................5
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations...........7
PART II. OTHER INFORMATION
Item 2. Changes in Securities...............................11
Item 5. Other Information...................................11
Item 6. Exhibits and Reports on Form 8-K....................11
SIGNATURE.........................................................12
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAULA FINANCIAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1997
------------ -------------
(*) (Unaudited)
<S> <C> <C>
Investments:
Fixed maturities, available for sale,
at market (amortized cost: 1996,
$80,252; 1997, $87,496)
$ 81,371 $ 89,027
Equity securities, at market
Common stock (cost: 1996, $734;
1997, $408) 777 405
Preferred stock (cost: 1996, $1,014;
1997, $3,025) 1,033 3,119
Invested cash, at cost (approximates
market) 3,611 10,396
----------- ------------
Total investments 86,792 102,947
----------- ------------
Cash (restricted: 1996, $832; 1997, $2,616) 7,096 8,832
Accounts receivable, net of allowance
for uncollectible accounts (1996,
$500; 1997, $563) 11,553 20,252
Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses 6,599 6,758
Deferred income taxes 4,829 4,392
Other assets 8,258 10,378
----------- ------------
$ 125,127 $ 153,559
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 55,720 $ 68,334
Unearned premiums 10,655 14,705
Accrued policyholder dividends 3,981 4,022
Accounts payable and accrued expenses 6,067 13,113
Notes payable 11,279 12,029
Obligation on stock held by ESOP 11,449 10,026
----------- ------------
99,151 122,229
----------- ------------
Series A Preferred Stock, convertible
and redeemable, $0.01 par value.
(Authorized 5,000,000 shares, issued
941,177 in 1996 and 1997) 21,402 23,663
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value
(Authorized 15,000,000 shares, issued:
1996, 2,167,456; 1997, 2,032,076) 22 20
Additional paid-in-capital 1,748 1,732
Retained earnings 16,668 16,488
Net unrealized gain on investments 778 1,135
----------- ------------
Subtotal 19,216 19,375
Less:
Treasury stock, at cost (264,196 shares
in 1996 and 132,098 shares in 1997) (2,972) (1,486)
Obligation on stock held by ESOP (11,449) (10,026)
Guarantee of notes payable of ESOP (221) (196)
----------- ------------
NET STOCKHOLDERS' EQUITY 4,574 7,667
----------- ------------
$ 125,127 $ 153,559
----------- ------------
----------- ------------
</TABLE>
* Derived from audited financial statements.
See notes to condensed consolidated financial statements.
2
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME:
Premiums earned:
Workers' compensation $ 15,961 $ 23,190 $ 37,721 $ 64,492
Group medical and life 212 228 683 703
Commissions 998 890 3,060 2,607
Net investment income 1,171 1,351 3,493 3,850
Net realized investment gains 13 173 440 173
Other 180 182 695 529
--------- --------- --------- ---------
18,535 26,014 46,092 72,354
--------- --------- --------- ---------
EXPENSES:
Losses and loss adjustment
expenses incurred 10,975 16,051 24,922 44,498
Dividends provided for policyholders 452 436 1,072 745
Operating 5,950 7,620 16,434 22,372
--------- --------- --------- ---------
17,377 24,107 42,428 67,615
--------- --------- --------- ---------
Income before income tax expense 1,158 1,907 3,664 4,739
Income tax expense 215 636 658 1,174
--------- --------- --------- ---------
NET INCOME $ 943 $ 1,271 $ 3,006 $ 3,565
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share $ 0.23 $ 0.31 $ 0.74 $ 0.87
Weighed average shares outstanding 4,048,586 4,119,312 4,049,206 4,118,603
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 3,006 $ 3,565
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 1,057 965
Amortization of fixed maturity premium, net 626 477
(Gain) loss on sale of property and equipment (17) 21
Gain on sales and calls of fixed maturities (440) (173)
Increase in accounts receivable (1,798) (8,699)
Increase in reinsurance recoverable (79) (159)
(Increase) decrease in deferred income taxes (215) 106
Increase (decrease) in unpaid losses and loss
adjustment expenses (790) 12,614
Increase (decrease) in accrued policyholder
dividends (705) 41
Increase (decrease) in accounts payable and
accrued expenses (2,264) 7,046
Increase in unearned premiums 5,535 4,050
Other, net (453) (819)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,463 19,035
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of common and preferred stocks - 499
Proceeds from sale of available for sale fixed
maturities 12,564 -
Proceeds from maturities and calls of
available for sale fixed maturities 4,900 11,605
Proceeds from sale of property and equipment 100 30
Purchase of available for sale preferred and
common stock (1,717) (3,202)
Purchase of available for sale fixed maturities (17,717) (19,326)
Purchase of property and equipment (630) (813)
Purchase of insurance agency (138) (41)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,638) (11,248)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreement, net 2,118 2,471
Payments on notes payable (1,651) (1,721)
Issuance of notes payable 453 -
Sale of common stock 356 46
Retirement of common stock (21) (62)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,255 734
--------- ---------
NET INCREASE IN CASH AND INVESTED CASH 2,080 8,521
Cash and invested cash at beginning of period 6,659 10,707
--------- ---------
CASH AND INVESTED CASH AT END OF PERIOD $ 8,739 $ 19,228
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 31, 1997 (UNAUDITED)
Note A - Basis of Presentation
PAULA Financial and subsidiaries (the "Company") is an integrated insurance
organization specializing in the production, underwriting and servicing of
workers' compensation and accident and health insurance for agribusiness
clients in California, Arizona, Oregon, Idaho, Alaska, Texas and Florida.
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles ("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.
Operating results for the three and nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Registration Statement on Form S-1, dated October 23, 1997.
Note B - New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), which is effective for
fiscal periods ending after December 15, 1997. At that time, the Company
will be required to change the method currently used to compute per share
results and to restate all prior periods. The impact of SFAS 128 is not
expected to have a material effect on the Company's earnings per share.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 is effective for periods ending after
December 15, 1997, including interim periods. SFAS 130 requires companies to
report comprehensive income and its components in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital. Comprehensive income
includes all changes in equity during a period except those resulting from
investments by stockholders and distributions to stockholders. The Company
has not determined the impact of SFAS 130.
5
<PAGE>
PAULA FINANCIAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Also, in June 1997, the FASB issued Statement of Financial Accounting
Standards, No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). This statement specifies revised guidelines for
determination of an entity's operating segments and the type and level of
financial information to be disclosed. SFAS 131 is effective for periods
ending after December 15, 1997, including interim periods. The Company has
not determined the impact of SFAS 131.
Note C - Initial Public Offering
On October 24, 1997, the Company completed its initial public offering by
selling 2,400,314 shares of its common stock to the underwriters of the
Company's initial public offering at $18.50 per share for net proceeds of
$41,285,000 after deducting estimated expenses of the offering.
Note D - Pro Forma Capitalization Table
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect the use of proceeds as
described in the Company's Registration Statement on Form S-1, dated October
23, 1997:
AS OF SEPT 30, 1997
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
Notes payable $ 12,029 $ 196
Obligation on stock held by ESOP 10,026 0
Preferred stock, $0.01 par value,
5,000,000 shares authorized;
941,177 shares outstanding
(0 as adjusted) 23,663 0
Stockholders' Equity:
Common stock, $0.01 par value,
15,000,000 shares authorized;
2,032,076 shares issued
(6,322,127 as adjusted) 20 63
Additional paid-in-capital 1,732 67,246
Retained earnings 16,488 14,454
Net unrealized gain on investments 1,135 1,135
Less:
Treasury stock, at cost 1,486 0
Guarantee of notes payable of ESOP 196 196
Obligation on stock held by ESOP 10,026 0
--------- ---------
Net stockholders' equity 7,667 82,702
--------- ---------
Total capitalization 53,385 82,898
--------- ---------
--------- ---------
6
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a California-based specialty underwriter and distributor of
commercial insurance products which, through its subsidiary PAULA Insurance
Company ("PICO"), is one of the largest underwriters specializing in workers'
compensation insurance products and services for the agribusiness industry.
The Company sells complementary products through the Company's insurance
agency subsidiaries (collectively "Pan Am"), including group health and life
products provided by the Company's subsidiary PAULA Assurance Company
("PACO"), and third-party claims administration services provided by the
Company's subsidiary Pan Pacific Benefit Adminstrators, Inc. to self-insured
group medical benefit plans.
The Company's revenues have consisted primarily of premiums earned from
workers' compensation insurance underwriting, premiums earned from group
medical insurance, commission income, net investment income and other income.
Premiums earned during a period represent the portion of direct premiums
written for which all or a portion of the coverage period has expired, net of
reinsurance. Premiums written for the three months ended September 30, 1997
and 1996, were $25.5 million and $17.6 million, respectively. Premiums
written for the nine months ended September 30, 1997 and 1996, were $71.4
million and $45.3 million, respectively. Commission income is earned from
Pan Am's distribution of insurance for insurers other than PICO and PACO.
Net investment income represents earnings on the Company's investment
portfolio, less investment expenses. Other income consists of third party
administration fees and other miscellaneous items.
The Company's expenses have consisted of losses and loss adjustment expenses
incurred, dividends provided for policyholders and operating expenses.
Losses include reserves for future payments for medical care and
rehabilitation costs and indemnity payments for lost wages. Loss adjustment
expenses include expenses incurred in connection with services provided by
third parties, including expenses of independent medical examinations,
surveillance costs, and legal expenses as well as staff and related expenses
incurred to administer and settle claims. Loss and loss adjustment expenses
are offset in part by estimated recoveries from reinsurers under excess of
loss reinsurance treaties. Operating expenses include commission expenses to
third party insurance agencies and other expenses that vary with premium
volume, such as premium taxes, state guaranty fund assessments and
underwriting and marketing expense, as well as general and administrative
expenses, which are less closely related to premium volume.
RESULTS OF OPERATIONS:
PREMIUMS WRITTEN. The Company's premiums written for the three months ended
September 30, 1997 increased 45.1% to $25.5 million from $17.6 million for
the comparable 1996 period. The Company's premiums written for the nine
months ended September 30, 1997 increased 57.5% to $71.4 million from $45.3
million for the comparable 1996 period. The growth in premiums written was
primarily attributable to the net addition of new policyholders and increased
policyholder payrolls, partially offset by lower premium rates resulting from
increased price competition.
7
<PAGE>
PREMIUMS EARNED. For the reasons described above for premiums written, the
Company's premiums earned for the three months ended September 30, 1997
increased 44.8% to $23.4 million from $16.2 million for comparable 1996
period and increased 69.8% to $65.2 million for the nine months ended
September 30, 1997 from $38.4 million for comparable 1996 period.
COMMISSION INCOME. Commission income decreased 10.8% to $0.9 million for the
three months ended September 30, 1997 from $1.0 million for the comparable
1996 period. Commission income decreased 14.8% to $2.6 million for the nine
months ended September 30, 1997 from $3.1 million for the comparable 1996
period. The decrease was primarily the result of decreased premiums placed
with carriers other than PICO and PACO, as a result of the Company's decision
to focus on writing PICO workers' compensation insurance.
NET INVESTMENT INCOME. Net investment income increased 15.4% to $1.4 million
for the three months ended September 30, 1997 from $1.2 million for the
comparable 1996 period. Net investment income increased 10.2% to $3.9
million for the nine months ended September 30, 1997 from $3.5 million for
the comparable 1996 period. The increase was the result of significant cash
flow increases from PICO's underwriting activity. Average invested assets
increased to $93.4 million for the nine months ended September 30, 1997 from
$83.0 million for the comparable period in 1996. The Company's average yield
on its portfolio was 5.5% for the nine month period in 1997 and 5.6% for the
nine month period in 1996.
LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED. The Company's loss ratio for
the three months ended September 30, 1997 increased slightly to 68.5% from
67.9% for the comparable 1996 period. The Company's loss ratio for the nine
months ended September 30, 1997 increased to 68.3% from 64.9% for the
comparable 1996 period. The Company's loss ratio for the nine months ended
September 30, 1996 was positively impacted by net recoveries from loss and
loss adjustment expense reserves for prior years of $3.3 million compared
with a positive impact of net recoveries from prior years of $0.6 million for
the comparable 1997 period.
DIVIDENDS PROVIDED FOR POLICYHOLDERS. Dividends provided for policyholders
decreased to $0.4 million for the three months ended September 30, 1997 from
$0.5 million for the comparable 1996 period and decreased as a percentage of
premiums earned for the three months ended September 30, 1997 to 1.9% from
2.8% for the comparable 1996 period. Dividends provided for policyholders
decreased 30.5% to $0.7 million for the nine months ended September 30, 1997
from $1.1 million for the comparable 1996 period and decreased as a
percentage of premiums earned for the nine months ended September 30, 1997 to
1.2% from 2.8% for the comparable 1996 period. With the advent of open
rating in California and an emphasis on, among other things, competitive
pricing at inception, the Company's dividends provided for policyholders
decreased significantly commencing in late 1995.
OPERATING EXPENSES. Operating expenses increased 28.1% to $7.6 million for the
three months ended September 30, 1997 from $6.0 million for the comparable 1996
period primarily due to a $1.4 million increase in commissions paid to
unaffiliated agencies. Operating expenses increased 36.1% to $22.4 million for
the nine months ended September 30, 1997 from $16.4 million for the comparable
1996 period largely due to a $3.6 million increase in variable expenses,
principally
8
<PAGE>
commissions. Fixed expenses also increased primarily due to an increase in
salary related expenses of $1.8 million for the nine months ended September
30, 1997 over the comparable 1996 period.
INCOME TAXES. Income tax expense for the three months ended September 30,
1997 increased to $0.6 million from $0.2 million for the comparable 1996
period. Income tax expense for the nine months ended September 30, 1997
increased to $1.2 million from $0.7 million for the comparable 1996 period.
The effective combined income tax rates for the nine months ended September
30, 1997 and 1996 were 24.8% and 18.0%, respectively. These rates are below
the combined statutory rate due to the significant portion of the Company's
investment portfolio consisting of tax-exempt securities.
LIQUIDITY AND CAPITAL RESOURCES:
As a holding company, PAULA Financial's principal sources of funds are
expense reimbursements and dividends from its operating subsidiaries,
proceeds from loans, and proceeds from the sale of its capital stock. PAULA
Financial's principal uses of funds are payments of operating expenses and
dividends to its stockholders and capital contributions to its subsidiaries.
As of September 30, 1997, the primary obligations of the Company were $10.0
million principal amount of borrowings under the Company's $15.0 million
revolving credit agreement (the "Credit Agreement"), $1.9 million principal
amount of notes due to former stockholders incurred to repurchase their
Common Stock and a liability of $10.0 million representing the Company's
commitments to repurchase Common Stock under the terms of the Company's ESOP.
In October, 1997, following the consummation of the initial public
offering, the Company's obligation to the ESOP was eliminated and the Company
repaid approximately $10.3 million in principal and interest under the Credit
Agreement and approximately $1.8 million of principal and interest on
stockholder notes. In addition, the Company contributed capital of
$10,000,000 to PICO and anticipates contributing additional capital of
approximately $11,800,000 to PICO over the next 18 months.
California law places significant restrictions on the ability of the
insurance subsidiaries to pay dividends to PAULA Financial. Based on these
restrictions and the Company's results, as of December 31, 1996, PAULA
Financial would be able to receive $5.4 million in dividends in 1997 from its
insurance subsidiaries without obtaining prior regulatory approval from the
California Department of Insurance ("DOI").
The Company expects to retain approximately $6.6 million from the proceeds of
its initial public offering at the parent company level. Management believes
that this cash, funds available under the Credit Agreement, expense
reimbursements and dividends from its operating subsidiaries will be
sufficient to meet the parent company's operating cash needs for at least
three years.
In March 1997, PAULA Financial entered into the Credit Agreement with a
commercial bank providing PAULA Financial with a revolving credit facility of
$15.0 million until December 31, 1999. At such time PAULA Financial may
elect to convert all or a portion of the borrowings then outstanding under
such facility into a term loan payable in quarterly installments and maturing
on December 31, 2001. Each of PAULA Financial's non-insurance subsidiaries
has guaranteed all obligations of PAULA Financial under the Credit Agreement.
As of October 31, 1997, the entire amount of the credit facility was
available to be drawn upon by the Company.
9
<PAGE>
The Company's investments consist primarily of taxable and tax-exempt United
States government and other investment grade securities and investment grade
fixed maturity commercial paper and, to a lesser extent, equity securities.
The Company does not generally invest in below investment grade fixed
maturity securities, mortgage loans or real estate. The Company has invested
in the equity securities of two of its unaffiliated distributors. The
Company's investments in fixed maturity securities are carried at market
value as such securities may be sold in response to changes in interest
rates, tax planning considerations or other aspects of asset/liability
management. As of September 30, 1997, the carrying value of the Company's
fixed maturity securities portfolio was $89.0 million and all of the
portfolio was rated "A" or better by S&P, Moody's or Fitch.
California workers' compensation insurance companies are required to maintain
some of their investments on deposit with the California DOI for the
protection of policyholders. Other states in which PICO is licensed have
also required PICO to post deposits for the protection of those states'
policyholders. Pursuant to applicable state laws, PICO had, as of September
30, 1997, securities with a book value of $67.1 million held by authorized
depositories pursuant to these deposit requirements. In addition to the
deposits, the Company's insurance company operating subsidiaries must
maintain capital and surplus levels related to premiums written and the risks
retained by the subsidiaries.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds.
During the three months ended September 30, 1997, the Company issued:
(i) 949,989 shares of Common Stock, par value $.01 per share
("Shares") and 941,177 shares of Series A Preferred Stock, par value
$.01 per share ("Preferred Shares") in exchange for the cancellation
of its predecessor's outstanding equity securities upon its
reincorporation from California to Delaware; (ii) 949,989 Shares
pursuant to a stock split in the form of a one for one stock dividend
on the Shares, and (iii) 2,000 Shares in consideration of services.
Such issuances were exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended.
Item 5: Other Information.
On October 24, 1997 the Company completed its initial public offering
by selling 2,400,314 Shares to the underwriters of the Company's IPO.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits.
11. Computation of Earnings Per Share
27. Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the three months
ended September 30, 1997.
11
<PAGE>
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, 1997 PAULA FINANCIAL
By: /s/ James A. Nicholson
----------------------
Senior Vice President and Chief Financial
Officer
12
<PAGE>
Exhibit 11
PAULA FINANCIAL AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1997 1996 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Income $ 943 $ 1,271 $ 3,006 $3,565
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares
outstanding during the period 1,893 1,902 1,893 1,902
Common stock equivalents - primary 2,156 2,217 2,156 2,217
------- ------- ------- -------
Common and common stock
equivalent shares outstanding
for purpose of calculating
primary net earnings per share 4,049 4,119 4,049 4,119
Incremental shares to reflect
full dilution 56 153 56 153
------- ------- ------- -------
Total shares for purposes of
calculating fully diluted
net earnings per share 4,105 4,272 4,105 4,272
------- ------- ------- -------
------- ------- ------- -------
Primary earnings per share $ 0.23 $ 0.31 $ 0.74 $ 0.87
------- ------- ------- -------
------- ------- ------- -------
Fully diluted earnings per share $ 0.23 $ 0.30 $ 0.73 $0.83
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 89,027
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,524
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 102,947
<CASH> 8,832
<RECOVER-REINSURE> 98
<DEFERRED-ACQUISITION> 2,056
<TOTAL-ASSETS> 153,559
<POLICY-LOSSES> 68,334
<UNEARNED-PREMIUMS> 14,705
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,022
<NOTES-PAYABLE> 12,029
23,663
0
<COMMON> 20
<OTHER-SE> 7,667
<TOTAL-LIABILITY-AND-EQUITY> 153,559
65,195
<INVESTMENT-INCOME> 3,850
<INVESTMENT-GAINS> 173
<OTHER-INCOME> 3,136
<BENEFITS> 44,498
<UNDERWRITING-AMORTIZATION> 22,374
<UNDERWRITING-OTHER> 745
<INCOME-PRETAX> 4,739
<INCOME-TAX> 1,174
<INCOME-CONTINUING> 3,565
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,565
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.83
<RESERVE-OPEN> 49,293
<PROVISION-CURRENT> 45,097
<PROVISION-PRIOR> (603)
<PAYMENTS-CURRENT> 12,176
<PAYMENTS-PRIOR> 19,921
<RESERVE-CLOSE> 61,690
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
