##### Table of Contents



---

---

FORM 10-Q

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-16783

VCA ANTECH, INC.(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4097995                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

12401 West Olympic Boulevard
Los Angeles, California 90064-1022
(Address of principal executive offices)

(310) 571-6500
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:Common stock, $0.001 par value

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 [X] No [   ].

Indicate the number of shares outstanding of each of the issuers class of
common stock as of the latest practicable date: Common stock, $0.001 par value
36,753,221 shares as of August 9, 2002.

1



---

TABLE OF CONTENTS



|                              |                                                                                               |                                                       |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED, CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES                                                                
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



---



##### Table of Contents



VCA ANTECH, INC.
FORM 10-Q
JUNE 30, 2002

TABLE OF CONTENTS

|         |  |                                                                                       |  |                                                                                                                        |    |  |             | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- | -- |  | ----------- | 
|         |  |                                                                                       |  |                                                                                                                        |    |  | Page Number | 
|Part I.  |  | Financial Information                                                                 |  |                                                                                                                        |    | 
|        
|Item 1.  |  | Financial Statements                                                                  |  |                                                                                                                        | 3  | 
|        
|         |  |                                                                                       |  | Condensed, Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 (Unaudited)                           |    |  | 3           | 
|        
|         |  |                                                                                       |  | Condensed, Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2002 and 2001 (Unaudited) |    |  | 4           | 
|        
|         |  |                                                                                       |  | Condensed, Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 (Unaudited)           |    |  | 5           | 
|        
|         |  |                                                                                       |  | Notes to Condensed, Consolidated Financial Statements                                                                  |    |  | 6           | 
|        
|Item 2.  |  | Managements Discussion and Analysis
of Financial Condition and Results of Operations |  |                                                                                                                        | 21 | 
|        
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                        | 43 | 
|        
|Part II. |  | Other Information                                                                     |  |                                                                                                                        |    | 
|        
|Item 1.  |  | Legal Proceedings                                                                     |  |                                                                                                                        | 44 | 
|        
|Item 2.  |  | Changes in Securities                                                                 |  |                                                                                                                        | 44 | 
|        
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  |                                                                                                                        | 45 | 
|        
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                        | 45 | 
|        
|Item 5.  |  | Other Information                                                                     |  |                                                                                                                        | 45 | 
|        
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                        | 46 | 
|        
|         |  |                                                                                       |  | Signature                                                                                                              |    |  | 47          | 

2



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
As of June 30, 2002 and December 31, 2001
(Unaudited)
(In thousands, except par value)

|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |          |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | -------- | ------- | ------------ | ------- | -------- | ------- | 
|                                            |                                                                                                                                                        |                                            |         | June 30, |         | December 31,
|                                            |                                                                                                                                                        |                                            |         | 2002     |         | 2001        
|                                            |                                                                                                                                                        |                                            |         |          |         |             
|ASSETS                                      |                                                                                                                                                        |                                            |         |          |         |              |         |         
|Current assets:                             |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            | Cash and cash equivalents                                                                                                                              |                                            | $       | 17,704   |         |              | $       | 7,103    |        
|                                            | Trade accounts receivable, less allowance for uncollectible accounts of
$5,698 and $5,241 at June 30, 2002 and December 31, 2001,
respectively         |                                            |         | 22,493   |         |              |         | 18,036   |        
|                                            | Inventory, prepaid expenses and other                                                                                                                  |                                            |         | 7,297    |         |              |         | 6,879    |        
|                                            | Deferred income taxes                                                                                                                                  |                                            |         | 8,310    |         |              |         | 7,364    |        
|                                            | Prepaid income taxes                                                                                                                                   |                                            |         |         |         |              |         | 2,782    |        
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total current assets                       |         |          | 55,804  |              |         |          | 42,164  | 
|Property and equipment, net                 |                                                                                                                                                        |                                            | 90,268  |          |         |              | 89,244  |         
|Other assets:                               |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            | Goodwill, net                                                                                                                                          |                                            |         | 325,730  |         |              |         | 317,262  |        
|                                            | Covenants not to compete and other intangibles, net                                                                                                    |                                            |         | 4,590    |         |              |         | 4,827    |        
|                                            | Deferred financing costs, net                                                                                                                          |                                            |         | 10,459   |         |              |         | 11,380   |        
|                                            | Other assets                                                                                                                                           |                                            |         | 4,741    |         |              |         | 3,644    |        
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total assets                               |         | $        | 491,592 |              |         | $        | 468,521 | 
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                                                                                                                                        |                                            |         |          |         |              |         |         
|Current liabilities:                        |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            | Current portion of long-term obligations                                                                                                               |                                            | $       | 5,364    |         |              | $       | 5,159    |        
|                                            | Accounts payable                                                                                                                                       |                                            |         | 7,122    |         |              |         | 7,313    |        
|                                            | Accrued payroll and related liabilities                                                                                                                |                                            |         | 11,479   |         |              |         | 11,717   |        
|                                            | Accrued interest                                                                                                                                       |                                            |         | 1,984    |         |              |         | 2,254    |        
|                                            | Income taxes payable                                                                                                                                   |                                            |         | 1,901    |         |              |         |         |        
|                                            | Other accrued liabilities                                                                                                                              |                                            |         | 12,953   |         |              |         | 16,351   |        
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total current liabilities                  |         |          | 40,803  |              |         |          | 42,794  | 
|Long-term obligations, less current portion |                                                                                                                                                        |                                            | 381,493 |          |         |              | 379,173 |         
|Deferred income taxes                       |                                                                                                                                                        |                                            | 6,182   |          |         |              | 1,684   |         
|Minority interest                           |                                                                                                                                                        |                                            | 6,239   |          |         |              | 5,106   |         
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total liabilities                          |         |          | 434,717 |              |         |          | 428,757 | 
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|Stockholders equity:                       |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            | Common stock, par value $0.001, 75,000 shares authorized, 36,753 and
36,736 shares outstanding as of June 30, 2002 and December 31, 2001,
respectively |                                            |         | 37       |         |              |         | 37       |        
|                                            | Additional paid-in capital                                                                                                                             |                                            |         | 188,857  |         |              |         | 188,840  |        
|                                            | Accumulated deficit                                                                                                                                    |                                            |         | (130,464 | )       |              |         | (146,594 | )      
|                                            | Accumulated
comprehensive loss  unrealized loss on investment                                                                                         |                                            |         | (959     | )       |              |         | (1,855   | )      
|                                            | Notes receivable from stockholders                                                                                                                     |                                            |         | (596     | )       |              |         | (664     | )      
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total stockholders equity                 |         |          | 56,875  |              |         |          | 39,764  | 
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         
|                                            |                                                                                                                                                        | Total liabilities and stockholders equity |         | $        | 491,592 |              |         | $        | 468,521 | 
|                                            |                                                                                                                                                        |                                            |         |          |         |              |         |         

The accompanying notes are an integral part of these condensed, consolidated balance sheets.

3



---



##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2002 and 2001
(Unaudited)
(In thousands, except per share amounts)

|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------- | ---- | - | ------- | ------ |  | - | ------- | ------- | -
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   | Three Months Ended |        | Six Months Ended
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   | June 30,           |        | June 30,        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                 
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   | 2002               |        | 2001             |   | 2002    |         | 2001
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |     
|Revenue                                                                                                                                                                                                                                                                                                                                    |                                                    | $ | 117,225            |        |                  | $ | 107,049 |         |      | $ | 221,920 |        |  | $ | 202,729 |        
|Direct costs (includes non-cash compensation of $564 and
$1,129 for the three and six months ended June 30,
2001, respectively; excludes operating depreciation of
$2,360 and $2,083 for the three months ended June 30,
2002 and 2001, respectively, and $4,608 and $4,078 for
the six months ended June 30, 2002 and
2001, respectively) |                                                    |   | 77,004             |        |                  |   | 73,311  |         |      |   | 149,592 |        |  |   | 142,773 |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   | 40,221             |        |                  |   | 33,738  |         |      |   | 72,328  |        |  |   | 59,956  |        
|Selling, general and administrative expense (includes non-
cash compensation of $2,480 and $4,959 for the three
and six months ended June 30, 2001, respectively)                                                                                                                                                                          |                                                    |   | 8,539              |        |                  |   | 10,216  |         |      |   | 17,161  |        |  |   | 20,774  |        
|Depreciation and amortization                                                                                                                                                                                                                                                                                                              |                                                    |   | 3,139              |        |                  |   | 6,435   |         |      |   | 6,302   |        |  |   | 12,689  |        
|Write-down and loss on sale of assets                                                                                                                                                                                                                                                                                                      |                                                    |   |                   |        |                  |   | 8,694   |         |      |   |        |        |  |   | 8,837   |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Operating income                                   |   |                    | 28,543 |                  |   |         | 8,393   |      |   |         | 48,865 |  |   |         | 17,656  |  
|Net interest expense                                                                                                                                                                                                                                                                                                                       |                                                    |   | 10,344             |        |                  |   | 10,917  |         |      |   | 20,333  |        |  |   | 22,070  |        
|Other (income) expense                                                                                                                                                                                                                                                                                                                     |                                                    |   | (61                | )      |                  |   | 229     |         |      |   | (154    | )      |  |   | 229     |        
|Minority interest in income of subsidiaries                                                                                                                                                                                                                                                                                                |                                                    |   | 528                |        |                  |   | 425     |         |      |   | 930     |        |  |   | 700     |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Income (loss) before provision for income taxes    |   |                    | 17,732 |                  |   |         | (3,178  | )    |   |         | 27,756 |  |   |         | (5,343  | )
|Provision for income taxes                                                                                                                                                                                                                                                                                                                 |                                                    |   | 7,237              |        |                  |   | 2,642   |         |      |   | 11,626  |        |  |   | 3,466   |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Net income (loss)                                  |   | $                  | 10,495 |                  |   | $       | (5,820  | )    |   | $       | 16,130 |  |   | $       | (8,809  | )
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|Increase in carrying amount of redeemable preferred stock                                                                                                                                                                                                                                                                                  |                                                    |   |                   |        |                  |   | 5,193   |         |      |   |        |        |  |   | 10,221  |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Net income (loss) available to common stockholders |   | $                  | 10,495 |                  |   | $       | (11,013 | )    |   | $       | 16,130 |  |   | $       | (19,030 | )
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Basic earnings (loss) per common share             |   | $                  | 0.29   |                  |   | $       | (0.63   | )    |   | $       | 0.44   |  |   | $       | (1.09   | )
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|                                                                                                                                                                                                                                                                                                                                           | Diluted earnings (loss) per common share           |   | $                  | 0.28   |                  |   | $       | (0.63   | )    |   | $       | 0.43   |  |   | $       | (1.09   | )
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|Shares used for computing basic earnings (loss) per share                                                                                                                                                                                                                                                                                  |                                                    |   | 36,739             |        |                  |   | 17,524  |         |      |   | 36,738  |        |  |   | 17,524  |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        
|Shares used for computing diluted earnings (loss) per share                                                                                                                                                                                                                                                                                |                                                    |   | 37,087             |        |                  |   | 17,524  |         |      |   | 37,084  |        |  |   | 17,524  |        
|                                                                                                                                                                                                                                                                                                                                           |                                                    |   |                    |        |                  |   |         |         |      |   |         |        |  |   |         |        

The accompanying notes are an integral part of these condensed, consolidated financial statements.

4



---



##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
(In thousands)

|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |         |   |         |  
|------------------------------------------------ | ----------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------- | ---------------- | ------ | ------ | ------- | - | ------- | -
|                                                 |                                           |                                                                                          |                                                                     |         | Six Months Ended
|                                                 |                                           |                                                                                          |                                                                     |         | June 30,        
|                                                 |                                           |                                                                                          |                                                                     |         |                 
|                                                 |                                           |                                                                                          |                                                                     |         | 2002             |        | 2001  
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |       
|Cash flows from operating activities:            |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 | Net income (loss)                         |                                                                                          | $                                                                   | 16,130  |                  |        | $      | (8,809  | )
|                                                 |                                           | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                     |         |                  |        |        |         |   |        
|                                                 |                                           |                                                                                          | Depreciation and amortization                                       |         |                  | 6,302  |        |         |   | 12,689  |  
|                                                 |                                           |                                                                                          | Amortization of deferred financing costs and debt discount          |         |                  | 847    |        |         |   | 1,101   |  
|                                                 |                                           |                                                                                          | Provision for uncollectible accounts                                |         |                  | 1,420  |        |         |   | 1,363   |  
|                                                 |                                           |                                                                                          | Non-cash compensation                                               |         |                  |       |        |         |   | 6,088   |  
|                                                 |                                           |                                                                                          | Interest paid in kind on senior subordinated notes                  |         |                  | 4,645  |        |         |   | 8,066   |  
|                                                 |                                           |                                                                                          | Write-down and loss on sale of assets                               |         |                  |       |        |         |   | 8,837   |  
|                                                 |                                           |                                                                                          | Minority interest in income of subsidiaries                         |         |                  | 930    |        |         |   | 700     |  
|                                                 |                                           |                                                                                          | Distributions to minority interest partners                         |         |                  | (805   | )      |         |   | (606    | )
|                                                 |                                           |                                                                                          | Increase in accounts receivable                                     |         |                  | (5,845 | )      |         |   | (3,437  | )
|                                                 |                                           |                                                                                          | Decrease (increase) in inventory, prepaid expenses and other assets |         |                  | (362   | )      |         |   | 1,349   |  
|                                                 |                                           |                                                                                          | Increase in accounts payable and accrued liabilities                |         |                  | 825    |        |         |   | 1,576   |  
|                                                 |                                           |                                                                                          | Increase (decrease) in accrued payroll and related liabilities      |         |                  | (238   | )      |         |   | 1,776   |  
|                                                 |                                           |                                                                                          | Decrease in accrued interest                                        |         |                  | (270   | )      |         |   | (755    | )
|                                                 |                                           |                                                                                          | Decrease in prepaid income taxes                                    |         |                  | 2,782  |        |         |   | 1,906   |  
|                                                 |                                           |                                                                                          | Increase in income taxes payable                                    |         |                  | 1,901  |        |         |   |        |  
|                                                 |                                           |                                                                                          | Decrease
(increase) in deferred income tax asset                    |         |                  | (946   | )      |         |   | 90      |  
|                                                 |                                           |                                                                                          | Increase in deferred income tax liability                           |         |                  | 4,498  |        |         |   | 671     |  
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 | Net cash provided by operating activities |                                                                                          |                                                                     | 31,814  |                  |        |        | 32,605  |  
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|Cash flows from investing activities:            |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 |                                           |                                                                                          | Business acquisitions, net of cash acquired                         |         |                  | (9,997 | )      |         |   | (13,539 | )
|                                                 |                                           |                                                                                          | Real estate acquired in connection with business acquisitions       |         |                  |       |        |         |   | (675    | )
|                                                 |                                           |                                                                                          | Property and equipment additions, net                               |         |                  | (6,204 | )      |         |   | (6,304  | )
|                                                 |                                           |                                                                                          | Proceeds from sale of assets                                        |         |                  |       |        |         |   | 370     |  
|                                                 |                                           |                                                                                          | Other                                                               |         |                  | 129    |        |         |   | 57      |  
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 | Net cash used in investing activities     |                                                                                          |                                                                     | (16,072 | )                |        |        | (20,091 | )
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|Cash flows from financing activities:            |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 |                                           |                                                                                          | Repayment of long-term obligations                                  |         |                  | (2,485 | )      |         |   | (2,779  | )
|                                                 |                                           |                                                                                          | Payment of accrued financing and recapitalization costs             |         |                  | (2,673 | )      |         |   | (1,088  | )
|                                                 |                                           |                                                                                          | Proceeds from issuance of common stock under stock option plans     |         |                  | 17     |        |         |   |        |  
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|                                                 | Net cash used in financing activities     |                                                                                          |                                                                     | (5,141  | )                |        |        | (3,867  | )
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|Increase in cash and cash equivalents            |                                           |                                                                                          | 10,601                                                              |         |                  |        | 8,647  |        
|Cash and cash equivalents at beginning of period |                                           |                                                                                          | 7,103                                                               |         |                  |        | 10,519 |        
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        
|Cash and cash equivalents at end of period       |                                           | $                                                                                        | 17,704                                                              |         |                  | $      | 19,166 |        
|                                                 |                                           |                                                                                          |                                                                     |         |                  |        |        |        

The accompanying notes are an integral part of these condensed, consolidated financial statements.

5



---



##### Table of Contents






VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

(1) General

The accompanying unaudited, condensed, consolidated financial statements
of VCA Antech, Inc. and subsidiaries (the Company or VCA) have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and in accordance with the
rules and regulations of the United States Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements as permitted under applicable rules and regulations. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. The results of operations for the three and
six months ended June 30, 2002 are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the Companys
consolidated financial statements and footnotes thereto included in the
Companys 2001 Annual Report on Form 10-K.

(2) Acquisitions

During the second quarter of 2002, the Company purchased eight animal
hospitals, for an aggregate consideration (including acquisition costs) of
$6.8 million, consisting of $6.6 million in cash and the assumption of
liabilities totaling $200,000. The $6.8 million aggregate purchase price was
allocated as follows: $185,000 to tangible assets, $6.2 million to goodwill
and $450,000 to other intangible assets.

During the first quarter of 2002, the Company purchased three animal
hospitals, for an aggregate consideration (including acquisition costs) of $2.5
million, consisting of $2.2 million in cash and the assumption of liabilities
totaling $300,000. The $2.5 million aggregate purchase price was allocated as
follows: $64,000 to tangible assets, $2.3 million to goodwill and $147,000 to
other intangible assets.

(3) Calculation of Per Share Amounts

Below is a reconciliation of the income (loss) and shares used in the
computations of the basic and diluted earnings (loss) per share (EPS) (in
thousands, except per share amounts):

|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |        |   | 
|------------------------------------------------------------------ | -------------------------------------------- | ------------- | ------ | ------------------ | --- | ---------------- | ------- | ------ | - | ---- | ------ | ------ | --- | - | ------- | ------ | - | 
|                                                                   |                                              |               |        | Three Months Ended |     | Six Months Ended
|                                                                   |                                              |               |        | June 30,           |     | June 30,        
|                                                                   |                                              |               |        |                    |     |                 
|                                                                   |                                              |               |        | 2002               |     | 2001             |         | 2002   |   | 2001
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |     
|Net income (loss)                                                  |                                              | $             | 10,495 |                    |     | $                | (5,820  | )      |   | $    | 16,130 |        |     | $ | (8,809  | )     
|Increase in carrying amount of redeemable
preferred stock          |                                              |               |       |                    |     |                  | (5,193  | )      |   |      |       |        |     |   | (10,221 | )     
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|Income (loss) available to common shareholders
(basic and diluted) |                                              | $             | 10,495 |                    |     | $                | (11,013 | )      |   | $    | 16,130 |        |     | $ | (19,030 | )     
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|Weighted average common shares outstanding:                        |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|                                                                   | Basic                                        |               |        | 36,739             |     |                  |         | 17,524 |   |      |        | 36,738 |     |   |         | 17,524 |  
|                                                                   | Effect of dilutive common stock equivalents: |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |        |  
|                                                                   |                                              | Stock options |        |                    | 348 |                  |         |        |  |      |        |        | 346 |   |         |        |  | 
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|                                                                   | Diluted                                      |               |        | 37,087             |     |                  |         | 17,524 |   |      |        | 37,084 |     |   |         | 17,524 |  
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|Earnings (loss) per share:                                         |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|                                                                   | Basic                                        |               | $      | 0.29               |     |                  | $       | (0.63  | ) |      | $      | 0.44   |     |   | $       | (1.09  | )
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       
|                                                                   | Diluted                                      |               | $      | 0.28               |     |                  | $       | (0.63  | ) |      | $      | 0.43   |     |   | $       | (1.09  | )
|                                                                   |                                              |               |        |                    |     |                  |         |        |   |      |        |        |     |   |         |       

6



---



##### Table of Contents



The anti-dilutive effect of 1,150,000 of common stock equivalents from
outstanding warrants has been excluded from EPS calculations for both the three
and six months ended June 30, 2001. Additionally, the anti-dilutive effect of
722,000 and 698,000 shares from outstanding stock options have been excluded
from EPS calculations for the three months and six months ended June 30, 2001,
respectively.

(4) Comprehensive Income (Loss)

Below is a calculation of comprehensive income (loss) (in thousands):

|                                                                            |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                            |  | Three Months Ended |        | Six Months Ended
|                                                                            |  | June 30,           |        | June 30,        
|                                                                            |  |                    |        |                 
|                                                                            |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                                                            |  |                    |        |                  |  |      |        |     
|Net income (loss)                                                           |  | $                  | 10,495 |                  |  | $    | (5,820 | )    |  | $ | 16,130 |   |  | $ | (8,809 | )
|Cumulative effect of change to new accounting
principle                     |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   | (525   | )
|Unrealized gain (loss) on hedging instruments                               |  |                    | 590    |                  |  |      | (843   | )    |  |   | 1,050  |   |  |   | (843   | )
|Less portion of unrealized (gain) loss
recognized as
other (income) expense |  |                    | (61    | )                |  |      | 229    |      |  |   | (154   | ) |  |   | 229    |  
|                                                                            |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net comprehensive income (loss)                                             |  | $                  | 11,024 |                  |  | $    | (6,434 | )    |  | $ | 17,026 |   |  | $ | (9,948 | )
|                                                                            |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  

All gains and losses on hedging instruments are the result of an interest
rate collar agreement. See footnote (7), Derivatives  for additional
information. By the end of the agreement, these unrealized gains will offset
against unrealized losses recognized in prior periods and will in aggregate net
to zero. Accordingly, there has been no income tax benefit or expense relating
to these unrealized gains and losses recognized in the Companys net income
(loss) or comprehensive income (loss).

(5) Lines of Business

During the three and six months ended June 30, 2002 and 2001, the Company
had three reportable segments: Laboratory, Animal Hospital and Corporate.
These segments are strategic business units that have different products,
services and functions. The segments are managed separately because each is a
distinct and different business venture with unique challenges, rewards and
risks. The Laboratory segment provides testing services for veterinarians both
associated with the Company and independent of the Company. The Animal
Hospital segment provides veterinary services for companion animals and sells
related retail products. Corporate provides selling, general and
administrative support for the other segments and recognizes revenue associated
with a consulting agreement.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as detailed in the Companys
consolidated financial statements and footnotes thereto included in the 2001
Annual Report on Form 10-K. The Company evaluates performance of segments
based on profit or loss before income taxes, interest income, interest expense
and minority interest, which are evaluated on a consolidated level. For
purposes of reviewing the operating performance of the segments, all
intercompany sales and purchases are accounted for as if they were transactions
with independent third parties at current market prices.

7



---



##### Table of Contents



Below is a summary of certain financial data for each of the three
segments (in thousands):

|                                 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |         | 
|-------------------------------- | --------------------------------- |  | ---------- | ------- | -------- |  | --------- | ------- | ------------ |  | ----- | ------- | ------------ |  | - | ------ | - |  | - | ------- | 
|                                 |                                   |  |            |         |          |  | Animal    |         |              |  |       |         | Intercompany |  |   |        |  
|                                 |                                   |  | Laboratory |         | Hospital |  | Corporate |         | Eliminations |  | Total
|                                 |                                   |  |            |         |          |  |           |         |              |  |      
|Three Months Ended June 30, 2002 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Revenue                           |  | $          | 40,604  |          |  | $         | 78,621  |              |  | $     | 500     |              |  | $ | (2,500 | ) |  | $ | 117,225 | 
|                                 | Operating income (loss)           |  |            | 15,348  |          |  |           | 16,597  |              |  |       | (3,402  | )            |  |   |       |   |  |   | 28,543  | 
|                                 | Depreciation/amortization expense |  |            | 726     |          |  |           | 2,069   |              |  |       | 344     |              |  |   |       |   |  |   | 3,139   | 
|                                 | Capital expenditures              |  |            | 825     |          |  |           | 1,818   |              |  |       | 393     |              |  |   |       |   |  |   | 3,036   | 
|Three Months Ended June 30, 2001 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Revenue                           |  | $          | 35,707  |          |  | $         | 72,780  |              |  | $     | 500     |              |  | $ | (1,938 | ) |  | $ | 107,049 | 
|                                 | Operating income (loss)           |  |            | 10,095  |          |  |           | 11,800  |              |  |       | (13,502 | )            |  |   |       |   |  |   | 8,393   | 
|                                 | Depreciation/amortization expense |  |            | 1,143   |          |  |           | 3,647   |              |  |       | 1,645   |              |  |   |       |   |  |   | 6,435   | 
|                                 | Capital expenditures              |  |            | 414     |          |  |           | 2,525   |              |  |       | 1,063   |              |  |   |       |   |  |   | 4,002   | 
|Six Months Ended June 30, 2002   |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Revenue                           |  | $          | 78,261  |          |  | $         | 147,265 |              |  | $     | 1,000   |              |  | $ | (4,606 | ) |  | $ | 221,920 | 
|                                 | Operating income (loss)           |  |            | 28,073  |          |  |           | 27,294  |              |  |       | (6,502  | )            |  |   |       |   |  |   | 48,865  | 
|                                 | Depreciation/amortization expense |  |            | 1,423   |          |  |           | 4,205   |              |  |       | 674     |              |  |   |       |   |  |   | 6,302   | 
|                                 | Capital expenditures              |  |            | 1,430   |          |  |           | 3,955   |              |  |       | 819     |              |  |   |       |   |  |   | 6,204   | 
|Six Months Ended June 30, 2001   |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Revenue                           |  | $          | 68,384  |          |  | $         | 137,134 |              |  | $     | 1,000   |              |  | $ | (3,789 | ) |  | $ | 202,729 | 
|                                 | Operating income (loss)           |  |            | 18,015  |          |  |           | 18,311  |              |  |       | (18,670 | )            |  |   |       |   |  |   | 17,656  | 
|                                 | Depreciation/amortization expense |  |            | 2,304   |          |  |           | 7,141   |              |  |       | 3,244   |              |  |   |       |   |  |   | 12,689  | 
|                                 | Capital expenditures              |  |            | 878     |          |  |           | 3,903   |              |  |       | 1,523   |              |  |   |       |   |  |   | 6,304   | 
|At June 30, 2002                 |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Identifiable assets               |  | $          | 113,190 |          |  | $         | 333,484 |              |  | $     | 44,918  |              |  |   |       |   |  | $ | 491,592 | 
|At December 31, 2001             |                                   |  |            |         |          |  |           |         |              |  |       |         |              |  |   |        |   |  |   |        
|                                 | Identifiable assets               |  | $          | 110,466 |          |  | $         | 322,657 |              |  | $     | 35,398  |              |  |   |       |   |  | $ | 468,521 | 

Below is a reconciliation between total segment operating income after
eliminations and consolidated income (loss) before provision for income taxes
as reported on the condensed, consolidated statements of operations (in
thousands):

|                                                  |                                                 |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |        |  
|------------------------------------------------- | ----------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|                                                  |                                                 |   | Three Months Ended |        | Six Months Ended
|                                                  |                                                 |   | June 30,           |        | June 30,        
|                                                  |                                                 |   |                    |        |                 
|                                                  |                                                 |   | 2002               |        | 2001             |   | 2002   |        | 2001
|                                                  |                                                 |   |                    |        |                  |   |        |        |     
|Total segment operating income after eliminations |                                                 | $ | 28,543             |        |                  | $ | 8,393  |        |      | $ | 48,865 |        |  | $ | 17,656 |       
|Net interest expense                              |                                                 |   | 10,344             |        |                  |   | 10,917 |        |      |   | 20,333 |        |  |   | 22,070 |       
|Other (income) expense                            |                                                 |   | (61                | )      |                  |   | 229    |        |      |   | (154   | )      |  |   | 229    |       
|Minority interest in income of subsidiaries       |                                                 |   | 528                |        |                  |   | 425    |        |      |   | 930    |        |  |   | 700    |       
|                                                  |                                                 |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       
|                                                  | Income (loss) before provision for income
taxes |   | $                  | 17,732 |                  |   | $      | (3,178 | )    |   | $      | 27,756 |  |   | $      | (5,343 | )
|                                                  |                                                 |   |                    |        |                  |   |        |        |      |   |        |        |  |   |        |       

(6) Other (Income) Expense

As a result of changes in the time value of an interest rate collar
agreement, the Company recognized a non-cash gain of $61,000 and a non-cash
loss of $229,000 during the three months ended June 30, 2002 and 2001,
respectively, and recognized a non-cash gain of $154,000 and a non-cash loss of
$229,000 during the six months ended June 30, 2002 and 2001, respectively. See
footnote (7), Derivatives for additional information.

8



---



##### Table of Contents



(7) Derivatives

As a requirement of the Companys senior debt obligations, the Company
entered into a no-fee interest rate collar agreement with Wells Fargo Bank
effective November 15, 2000 and expiring November 15, 2002, (the Collar
Agreement). The Collar Agreement is based on the London interbank offer rate
(LIBOR), which resets monthly, and has a cap and floor notional amount of
$62.5 million, with a cap and floor interest rate of 7.5% and 5.9%,
respectively. As a result of LIBOR rates being below the floor interest rate
of 5.9%, the Company made payments under this agreement amounting to $639,000
and $214,000 for the three months ended June 30, 2002 and 2001, respectively,
and $1.3 million and $253,000 for the six months ended June 30, 2002 and 2001,
respectively. These payments have been reported as part of interest expense.

The Collar Agreement is accounted for as a cash flow hedge with its market
value reported as a liability on the balance sheet. This liability decreased
approximately $1.05 million to $970,000 at June 30, 2002 from $2.02 million at
December 31, 2001. Of this decrease, $896,000 has been recognized in
comprehensive income and the other $154,000 has been recognized in other
income. The valuation of the Collar Agreement is determined by Wells Fargo
Bank. As the result of adopting Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
in 2001, the Company recorded a cumulative adjustment to other comprehensive
income of approximately $525,000 during the six months ended June 30, 2001.

When the Collar Agreement expires on November 15, 2002, management intends
to enter into another derivative contract to hedge approximately 25% of the
Companys senior debt obligations outstanding against variable interest rates.
Management does not anticipate entering into any other derivative contracts at
this time.

(8) Accounting Pronouncements

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board, (the FASB)
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS No. 142 requires that these assets be reviewed for
impairment at least annually, or whenever there is an indication of impairment.
Intangible assets with finite lives will continue to be amortized over their
estimated useful lives and reviewed for impairment in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.

SFAS No. 142 requires companies to allocate their goodwill to identifiable
reporting units, which are then tested for impairment using a two-step process
detailed in the statement. The first step requires comparing the fair value of
each reporting unit with its carrying amount, including goodwill. If that fair
value exceeds the carrying amount, the second step of the process is not
necessary and there are no impairment issues. If that fair value does not
exceed that carrying amount, companies must perform the second step that
requires a hypothetical allocation of the fair value of the reporting unit to
the reporting units assets and liabilities as if the unit were just purchased
by the company at the fair value price. In this hypothetical sale, the
excess of the fair value of the reporting unit over its re-evaluated,
marked-to-market net assets would be the new basis for the reporting units
goodwill and a write down to this new value would be recognized as an expense.

The Company adopted SFAS No. 142 on January 1, 2002. In doing so, it
determined that it had two reporting units, Laboratory and Animal Hospital. On
April 15, 2002, an independent valuation group concluded that the fair value of
the Companys reporting units exceeded its carrying value and accordingly, as
of that date, there were no goodwill impairment issues. The Company plans to
perform a valuation of its reporting units annually, or upon significant
changes in the Companys business environment.

As of June 30, 2002 the Companys goodwill, net of accumulated
amortization was $325.7 million. The Company recorded $2.3 million and $4.6
million in goodwill amortization, for the three and six months ended June 30,
2001, respectively. Because of the adoption of SFAS No. 142 there was no
amortization of goodwill for the three and six months ended June 30, 2002.

9



---



##### Table of Contents



The following table presents net income (loss) and earnings (loss) per
share as if SFAS No. 142 had been adopted as of January 1, 2001 (in thousands):

|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |       |        |  
|------------------------------------------ | ------------------------------------------ | -------------------------- | ------ | ------------------ | ------ | ---------------- | ------ | ----- | ------ | ---- | ------ | ---- | ------ | - | ------ | ----- | ------ | -
|                                           |                                            |                            |        | Three Months Ended |        | Six Months Ended
|                                           |                                            |                            |        | June 30,           |        | June 30,        
|                                           |                                            |                            |        |                    |        |                 
|                                           |                                            |                            |        | 2002               |        | 2001             |        | 2002  |        | 2001
|                                           |                                            |                            |        |                    |        |                  |        |       |        |     
|Net income (loss)                          |                                            | $                          | 10,495 |                    |        | $                | (5,820 | )     |        | $    | 16,130 |      |        | $ | (8,809 | )    
|Add back goodwill amortization, net of tax |                                            |                            |       |                    |        |                  | 1,731  |       |        |      |       |      |        |   | 3,441  |      
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|                                           |                                            | Adjusted net income (loss) |        | $                  | 10,495 |                  |        | $     | (4,089 | )    |        | $    | 16,130 |   |        | $     | (5,368 | )
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|Basic earnings (loss) per share:           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|                                           | Reported net income (loss)                 |                            | $      | 0.29               |        |                  | $      | (0.63 | )      |      | $      | 0.44 |        |   | $      | (1.09 | )     
|                                           | Goodwill amortization, net of tax          |                            |        |                   |        |                  |        | 0.10  |        |      |        |     |        |   |        | 0.20  |       
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|                                           | Adjusted
basic earnings (loss) per share   |                            | $      | 0.29               |        |                  | $      | (0.53 | )      |      | $      | 0.44 |        |   | $      | (0.89 | )     
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|Diluted earnings (loss) per share:         |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|                                           | Reported net income (loss)                 |                            | $      | 0.28               |        |                  | $      | (0.63 | )      |      | $      | 0.43 |        |   | $      | (1.09 | )     
|                                           | Goodwill amortization, net of tax          |                            |        |                   |        |                  |        | 0.10  |        |      |        |     |        |   |        | 0.20  |       
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      
|                                           | Adjusted
diluted earnings (loss) per share |                            | $      | 0.28               |        |                  | $      | (0.53 | )      |      | $      | 0.43 |        |   | $      | (0.89 | )     
|                                           |                                            |                            |        |                    |        |                  |        |       |        |      |        |      |        |   |        |      

Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company will adopt SFAS
No. 143 in the first quarter of fiscal year 2003. The Company is evaluating
the impact the adoption of SFAS No. 143 will have on its consolidated financial
statements.

Impairment of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation for discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting
and reporting provisions relating to the impairment or disposal of long-lived
assets of Accounting Principles Board Opinion No. 30 (APB No. 30), Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The Company adopted SFAS No. 144 on January 1, 2002, with no
material impact to its financial statements.

Gains and Losses from Extinguishment of Debt and Capital Leases

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, to be applied in fiscal years beginning after May 15, 2002, with
early adoption encouraged.

Under SFAS No. 145, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of APB No. 30.
Under APB No. 30, events are considered extraordinary only if they possess a
high degree of abnormality and are not likely to recur in the foreseeable
future. Gains and losses that do not meet the unusual and infrequent criteria
are to be included as a component of operating income.

SFAS No. 145 also amends SFAS No. 13, Accounting for Leases. Under SFAS
No. 145, if a capital lease is modified such that it becomes an operating
lease, a gain or loss must be recognized similar to the accounting used for
sale-leaseback transactions as provided in SFAS No. 28 and No. 98. At June 30,
2002, the Company had capital lease obligations of $51,000. Although the
Company may enter into more capital leases, management does not expect SFAS No.
145 to have a material impact on its financial statements.

10



---



##### Table of Contents



Costs Associated with Exit or Disposal of Activities

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that
liabilities associated with exit or disposal activities be recognized when a
company is committed to future payment of those liabilities under a binding,
legal obligation. SFAS No. 146 nullifies Emerging Issues Task Force Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring),which required that exit and disposal costs be recognized as
liabilities when a company formalized its plan for exiting or disposing of an
activity even if no legal obligation had been established.

SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, however early adoption is encouraged.
Costs associated with exit or disposal activities will be recognized in income
from continuing operations before income taxes, unless these are costs
associated with discontinued operations, which would require disclosure as part
of discontinued operations, net of taxes. The Company has no plans to exit or
dispose of any of its business activities under the definition of SFAS No. 146,
nor does the Company anticipate that SFAS No. 146 will change any of its
business practices.

(9) Reclassifications

Certain 2001 balances have been reclassified to conform to the 2002
financial statement presentation.

(10) Commitments and Contingencies

The laws of many states prohibit business corporations from providing, or
holding themselves out as providers of, veterinary medical care. These laws
vary from state to state and are enforced by the courts and by regulatory
authorities with broad discretion. The Company operates 57 animal hospitals in
11 states with these laws. The Company may experience difficulty in expanding
operations into other states with similar laws. Given varying and uncertain
interpretations of the veterinary laws of each state, the Company may not be in
compliance with restrictions on the corporate practice of veterinary medicine
in all states. A determination that the Company is in violation of applicable
restrictions on the practice of veterinary medicine in any state in which it
operates could have a material adverse effect, particularly if the Company were
unable to restructure its operations to comply with the requirements of that
state.

The Company currently is a party to a lawsuit in the State of Ohio in
which that state has alleged that the management of a veterinary medical group
licensed to practice veterinary medicine in that state violates the Ohio
statute prohibiting business corporations from providing or holding themselves
out as providers of veterinary medical care. On March 20, 2001, the trial
court in the case entered summary judgment in favor of the State of Ohio and
issued an order enjoining the Company from operating in the State of Ohio in a
manner that is in violation of the state statute. In response, the Company has
restructured its operations in the State of Ohio in a manner believed to
conform to the state law and the courts order. The Attorney General of the
State of Ohio informed the Company that it disagrees with the Companys
position that the Company is in compliance with the courts order. In June
2001, the Company appeared at a status conference before the trial court at
which time the court directed the parties to meet together to attempt to settle
this matter. Consistent with the trial courts directive, the Company engaged
in discussions with the Attorney Generals office in the State of Ohio. The
parties appeared at an additional status conference in February 2002. The
parties were not able to reach a settlement prior to the February status
conference. At that status conference, the court ordered the parties to
participate in a court-supervised settlement conference that was held
on April 19, 2002. Pursuant to discussions with the Ohio
Attorney General at the settlement conference, the Company submitted
to the Ohio Attorney General a revised management agreement which
incorporates further revisions to the structure of our operations in
Ohio. The Attorney General currently is in the process of reviewing
the revised agreement. If a settlement
cannot be reached, the Company may be required to discontinue operations in the
state. The five animal hospitals in the State of Ohio had a net book value of
$6.4 million as of June 30, 2002. If the Company was required to discontinue
operations in the State of Ohio, it may not be able to dispose of the hospital
assets for their book value. The animal hospitals located in the State of Ohio
generated revenue and operating income of $1.1 million and $297,000,
respectively, for the six months ended June 30, 2002, and $2.1 million and
$409,000, for the year ended December 31, 2001.

11



---



##### Table of Contents



All of the states in which the Company operates impose various
registration requirements. To fulfill these requirements, each facility has
been registered with appropriate governmental agencies and, where required,
have appointed a licensed veterinarian to act on behalf of each facility. All
veterinarians practicing in animal hospitals owned or operated by the Company
are required to maintain valid state licenses to practice.

(11) Subsequent Events

From July 1, 2002 through August 9, 2002, the Company has acquired four
animal hospitals for an aggregate consideration (including acquisition costs)
of $2.4 million, consisting of $2.1 million in cash, and the assumption of
liabilities of $287,000.

(12) Condensed, Consolidating Information

In 2000, the Company established a legal structure comprised of a holding
company and an operating company. VCA is the holding company. Vicar
Operating, Inc. (Vicar) is the operating company and wholly-owned by VCA.
Vicar owns the capital stock of all of the Companys other subsidiaries.

In connection with Vicars issuance in November 2001 of $170.0 million of
9.875% senior subordinated notes, VCA and each existing and future domestic
wholly-owned restricted subsidiary of Vicar (the Guarantor Subsidiaries)
have, jointly and severally, fully and unconditionally guaranteed the 9.875%
senior subordinated notes. These guarantees are unsecured and subordinated in
right of payment to all existing and future indebtedness outstanding under the
senior debt credit agreement and any other indebtedness permitted to be
incurred by Vicar under the terms of the indenture agreement for the 9.875%
senior subordinated notes.

Vicars subsidiaries are composed of wholly-owned restricted subsidiaries
and partnerships. The partnerships may elect to serve as guarantors of Vicars
obligations, however, none of the partnerships have elected to do so (the
Non-Guarantor Subsidiaries). Vicar conducts all of its business through and
derives virtually all of its income from its subsidiaries. Therefore, Vicars
ability to make required payments with respect to its indebtedness (including
the 9.875% senior subordinated notes) and other obligations depends on the
financial results and condition of its subsidiaries and its ability to receive
funds from its subsidiaries.

Pursuant to Rule 3-10 of Regulation S-X, the following condensed,
consolidating information is for VCA, Vicar, the Guarantor and Non-Guarantor
Subsidiaries with respect to the 9.875% senior subordinated notes. This
condensed financial information has been prepared from the books and records
maintained by VCA, Vicar, the Guarantor and Non-Guarantor Subsidiaries. The
condensed financial information may not necessarily be indicative of results of
operations or financial position had the Guarantors and Non-Guarantor
Subsidiaries operated as independent entities. The separate financial
statements of the Guarantor Subsidiaries are not presented because management
has determined they would not be material to investors.

12



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of June 30, 2002
(Unaudited)
(In thousands)

|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------- | ------ | ------ | ------ |  | -------- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         | Guarantor   |         | Non-Guarantor |        |        |        |  |          |          |          |  
|                                            |                                                      |                                            |         | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated 
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |              
|Current assets:                             |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            | Cash and equivalents                                 |                                            | $       |         |         |       | $        | 16,172       |         |              | $       | 1,459       |         |               | $      | 73     |        |  | $        |         |          |   | $       | 17,704   |        
|                                            | Trade accounts receivable, net                       |                                            |         |         |         |       |          |             |         |              |         | 21,769      |         |               |        | 724    |        |  |          |         |          |   |         | 22,493   |        
|                                            | Inventory, prepaid expenses and other                |                                            |         |         |         |       |          | 707          |         |              |         | 6,045       |         |               |        | 545    |        |  |          |         |          |   |         | 7,297    |        
|                                            | Deferred income taxes                                |                                            |         |         |         |       |          | 8,310        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 8,310    |        
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                                      | Total current assets                       |         |          |        |       |          |              | 25,189  |              |         |             | 29,273  |               |        |        | 1,342  |  |          |          |         |   |         |          | 55,804  | 
|Property and equipment, net                 |                                                      |                                            |        |          |         |       | 8,466    |              |         |              | 79,214  |             |         |               | 2,588  |        |        |  |         |          |          |   | 90,268  |         
|Other assets:                               |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            | Goodwill, net                                        |                                            |         |         |         |       |          |             |         |              |         | 303,504     |         |               |        | 22,226 |        |  |          |         |          |   |         | 325,730  |        
|                                            | Covenants not to compete, and other
intangibles, net |                                            |         |         |         |       |          |             |         |              |         | 3,459       |         |               |        | 1,131  |        |  |          |         |          |   |         | 4,590    |        
|                                            | Deferred financing costs, net                        |                                            |         | 736      |         |       |          | 9,723        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 10,459   |        
|                                            | Other assets                                         |                                            |         | 337      |         |       |          | 467          |         |              |         | 2,170       |         |               |        | 1,767  |        |  |          |         |          |   |         | 4,741    |        
|Investment in subsidiaries                  |                                                      |                                            | 143,488 |          |         |       | 210,962  |              |         |              | 24,141  |             |         |               |       |        |        |  | (378,591 | )        |          |   |        |         
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            | Total assets                                         |                                            | $       | 144,561  |         |       | $        | 254,807      |         |              | $       | 441,761     |         |               | $      | 29,054 |        |  | $        | (378,591 | )        |   | $       | 491,592  |        
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|Current liabilities:                        |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            | Current portion of long-term
obligations             |                                            | $       |         |         |       | $        | 5,020        |         |              | $       | 339         |         |               | $      | 5      |        |  | $        |         |          |   | $       | 5,364    |        
|                                            | Accounts payable                                     |                                            |         |         |         |       |          | 4,411        |         |              |         | 2,711       |         |               |        |       |        |  |          |         |          |   |         | 7,122    |        
|                                            | Accrued payroll and related liabilities              |                                            |         |         |         |       |          | 4,501        |         |              |         | 6,654       |         |               |        | 324    |        |  |          |         |          |   |         | 11,479   |        
|                                            | Accrued interest                                     |                                            |         |         |         |       |          | 1,959        |         |              |         | 25          |         |               |        |       |        |  |          |         |          |   |         | 1,984    |        
|                                            | Income taxes payable                                 |                                            |         |         |         |       |          | 1,901        |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 1,901    |        
|                                            | Other accrued liabilities                            |                                            |         |         |         |       |          | 9,913        |         |              |         | 2,905       |         |               |        | 135    |        |  |          |         |          |   |         | 12,953   |        
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                                      | Total current liabilities                  |         |          |        |       |          |              | 27,705  |              |         |             | 12,634  |               |        |        | 464    |  |          |          |         |   |         |          | 40,803  | 
|Long-term obligations, less current
portion |                                                      |                                            | 58,860  |          |         |       | 321,633  |              |         |              | 1,000   |             |         |               |       |        |        |  |         |          |          |   | 381,493 |         
|Deferred income taxes                       |                                                      |                                            |        |          |         |       | 6,182    |              |         |              |        |             |         |               |       |        |        |  |         |          |          |   | 6,182   |         
|Minority interest                           |                                                      |                                            |        |          |         |       |         |              |         |              |        |             |         |               |       |        |        |  | 6,239    |          |          |   | 6,239   |         
|Intercompany payable (receivable)           |                                                      |                                            | 28,826  |          |         |       | (244,201 | )            |         |              | 217,165 |             |         |               | (1,790 | )      |        |  |         |          |          |   |        |         
|Stockholders equity:                       |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            | Common stock                                         |                                            |         | 37       |         |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 37       |        
|                                            | Additional paid-in capital                           |                                            |         | 188,857  |         |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | 188,857  |        
|                                            | Retained earnings (accumulated deficit)              |                                            |         | (130,464 | )       |       |          | 144,447      |         |              |         | 210,962     |         |               |        | 30,380 |        |  |          | (385,789 | )        |   |         | (130,464 | )      
|                                            | Accumulated comprehensive loss                       |                                            |         | (959     | )       |       |          | (959         | )       |              |         |            |         |               |        |       |        |  |          | 959      |          |   |         | (959     | )      
|                                            | Notes receivable from stockholders                   |                                            |         | (596     | )       |       |          |             |         |              |         |            |         |               |        |       |        |  |          |         |          |   |         | (596     | )      
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                                      | Total stockholders equity                 |         |          | 56,875  |       |          |              | 143,488 |              |         |             | 210,962 |               |        |        | 30,380 |  |          |          | (384,830 | ) |         |          | 56,875  | 
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         
|                                            |                                                      | Total liabilities and stockholders
equity |         | $        | 144,561 |       |          | $            | 254,807 |              |         | $           | 441,761 |               |        | $      | 29,054 |  |          | $        | (378,591 | ) |         | $        | 491,592 | 
|                                            |                                                      |                                            |         |          |         |       |          |              |         |              |         |             |         |               |        |        |        |  |          |          |          |   |         |         

13



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING BALANCE SHEETS
As of December 31, 2001
(Unaudited)
(In thousands)

|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------- | ----- | ------ | ------ |  | -------- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         | Guarantor   |         | Non-Guarantor |       |        |        |  |          |          |          |  
|                                            |                                          |                                            |         | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |              
|Current assets:                             |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            | Cash and equivalents                     |                                            | $       |         |         |       | $        | 3,467        |         |              | $       | 3,260       |         |               | $     | 376    |        |  | $        |         |          |   | $       | 7,103    |        
|                                            | Trade accounts receivable, net           |                                            |         |         |         |       |          |             |         |              |         | 17,702      |         |               |       | 334    |        |  |          |         |          |   |         | 18,036   |        
|                                            | Inventory, prepaid expenses and other    |                                            |         |         |         |       |          | 1,165        |         |              |         | 5,160       |         |               |       | 554    |        |  |          |         |          |   |         | 6,879    |        
|                                            | Deferred income taxes                    |                                            |         |         |         |       |          | 7,364        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 7,364    |        
|                                            | Prepaid income taxes                     |                                            |         |         |         |       |          | 2,782        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 2,782    |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current assets                       |         |          |        |       |          |              | 14,778  |              |         |             | 26,122  |               |       |        | 1,264  |  |          |          |         |   |         |          | 42,164  | 
|Property and equipment, net                 |                                          |                                            |        |          |         |       | 8,421    |              |         |              | 78,225  |             |         |               | 2,598 |        |        |  |         |          |          |   | 89,244  |         
|Other assets:                               |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            | Goodwill, net                            |                                            |         |         |         |       |          |             |         |              |         | 298,198     |         |               |       | 19,064 |        |  |          |         |          |   |         | 317,262  |        
|                                            | Covenants not to compete, net            |                                            |         |         |         |       |          |             |         |              |         | 4,211       |         |               |       | 616    |        |  |          |         |          |   |         | 4,827    |        
|                                            | Deferred financing costs, net            |                                            |         | 780      |         |       |          | 10,600       |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 11,380   |        
|                                            | Other assets                             |                                            |         | 320      |         |       |          | 498          |         |              |         | 1,986       |         |               |       | 840    |        |  |          |         |          |   |         | 3,644    |        
|Investment in subsidiaries                  |                                          |                                            | 123,842 |          |         |       | 179,391  |              |         |              | 19,920  |             |         |               |      |        |        |  | (323,153 | )        |          |   |        |         
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            | Total assets                             |                                            | $       | 124,942  |         |       | $        | 213,688      |         |              | $       | 428,662     |         |               | $     | 24,382 |        |  | $        | (323,153 | )        |   | $       | 468,521  |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|Current liabilities:                        |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            | Current portion of long-term obligations |                                            | $       |         |         |       | $        | 4,766        |         |              | $       | 389         |         |               | $     | 4      |        |  | $        |         |          |   | $       | 5,159    |        
|                                            | Accounts payable                         |                                            |         |         |         |       |          | 5,223        |         |              |         | 2,074       |         |               |       | 16     |        |  |          |         |          |   |         | 7,313    |        
|                                            | Accrued payroll and related liabilities  |                                            |         |         |         |       |          | 5,019        |         |              |         | 6,440       |         |               |       | 258    |        |  |          |         |          |   |         | 11,717   |        
|                                            | Accrued interest                         |                                            |         |         |         |       |          | 2,254        |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 2,254    |        
|                                            | Other accrued liabilities                |                                            |         |         |         |       |          | 13,373       |         |              |         | 2,968       |         |               |       | 10     |        |  |          |         |          |   |         | 16,351   |        
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total current liabilities                  |         |          |        |       |          |              | 30,635  |              |         |             | 11,871  |               |       |        | 288    |  |          |          |         |   |         |          | 42,794  | 
|Long-term obligations, less current
portion |                                          |                                            | 54,345  |          |         |       | 324,152  |              |         |              | 672     |             |         |               | 4     |        |        |  |         |          |          |   | 379,173 |         
|Deferred income taxes                       |                                          |                                            |        |          |         |       | 1,684    |              |         |              |        |             |         |               |      |        |        |  |         |          |          |   | 1,684   |         
|Minority interest                           |                                          |                                            |        |          |         |       |         |              |         |              |        |             |         |               |      |        |        |  | 5,106    |          |          |   | 5,106   |         
|Intercompany payable (receivable)           |                                          |                                            | 30,833  |          |         |       | (266,625 | )            |         |              | 236,728 |             |         |               | (936  | )      |        |  |         |          |          |   |        |         
|Stockholders equity:                       |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            | Common stock                             |                                            |         | 37       |         |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 37       |        
|                                            | Additional paid-in capital               |                                            |         | 188,840  |         |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | 188,840  |        
|                                            | Retained earnings (accumulated deficit)  |                                            |         | (146,594 | )       |       |          | 125,697      |         |              |         | 179,391     |         |               |       | 25,026 |        |  |          | (330,114 | )        |   |         | (146,594 | )      
|                                            | Accumulated comprehensive loss           |                                            |         | (1,855   | )       |       |          | (1,855       | )       |              |         |            |         |               |       |       |        |  |          | 1,855    |          |   |         | (1,855   | )      
|                                            | Notes receivable from stockholders       |                                            |         | (664     | )       |       |          |             |         |              |         |            |         |               |       |       |        |  |          |         |          |   |         | (664     | )      
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total stockholders equity                 |         |          | 39,764  |       |          |              | 123,842 |              |         |             | 179,391 |               |       |        | 25,026 |  |          |          | (328,259 | ) |         |          | 39,764  | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         
|                                            |                                          | Total liabilities and stockholders
equity |         | $        | 124,942 |       |          | $            | 213,688 |              |         | $           | 428,662 |               |       | $      | 24,382 |  |          | $        | (323,153 | ) |         | $        | 468,521 | 
|                                            |                                          |                                            |         |          |         |       |          |              |         |              |         |             |         |               |       |        |        |  |          |          |          |   |         |         

14



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ------ | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------- | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                            |                                                                |   |        |        |       |   |              |        |              |   | Guarantor   |        | Non-Guarantor |   |       |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |        | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated 
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |              
|Revenue                                     |                                                                | $ |       |        |       | $ | 500          |        |              | $ | 107,515     |        |               | $ | 9,453 |       |  | $ | (243    | )       |   | $ | 117,225 |       
|Direct costs                                |                                                                |   |       |        |       |   |             |        |              |   | 70,507      |        |               |   | 6,740 |       |  |   | (243    | )       |   |   | 77,004  |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |        |       |   | 500          |        |              |   | 37,008      |        |               |   | 2,713 |       |  |   |        |         |   |   | 40,221  |       
|Selling, general and administrative
expense |                                                                |   |       |        |       |   | 3,558        |        |              |   | 4,610       |        |               |   | 371   |       |  |   |        |         |   |   | 8,539   |       
|Depreciation and amortization               |                                                                |   |       |        |       |   | 344          |        |              |   | 2,614       |        |               |   | 181   |       |  |   |        |         |   |   | 3,139   |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |       |       |   |              | (3,402 | )            |   |             | 29,784 |               |   |       | 2,161 |  |   |         |        |   |   |         | 28,543 | 
|Net interest expense                        |                                                                |   | 2,386  |        |       |   | 7,956        |        |              |   | 32          |        |               |   | (30   | )     |  |   |        |         |   |   | 10,344  |       
|Other income                                |                                                                |   |       |        |       |   | (61          | )      |              |   |            |        |               |   |      |       |  |   |        |         |   |   | (61     | )     
|Equity interest in income of subsidiaries   |                                                                |   | 11,995 |        |       |   | 19,140       |        |              |   | 1,663       |        |               |   |      |       |  |   | (32,798 | )       |   |   |        |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | 9,609  |       |   |              | 7,843  |              |   |             | 31,415 |               |   |       | 2,191 |  |   |         | (32,798 | ) |   |         | 18,260 | 
|Minority interest in income of
subsidiaries |                                                                |   |       |        |       |   |             |        |              |   |            |        |               |   |      |       |  |   | 528     |         |   |   | 528     |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income (loss) before provision for
income taxes                |   |        | 9,609  |       |   |              | 7,843  |              |   |             | 31,415 |               |   |       | 2,191 |  |   |         | (33,326 | ) |   |         | 17,732 | 
|Provision (benefit) for income taxes        |                                                                |   | (886   | )      |       |   | (4,152       | )      |              |   | 12,275      |        |               |   |      |       |  |   |        |         |   |   | 7,237   |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Net income (loss)                                              |   | $      | 10,495 |       |   | $            | 11,995 |              |   | $           | 19,140 |               |   | $     | 2,191 |  |   | $       | (33,326 | ) |   | $       | 10,495 | 
|                                            |                                                                |   |        |        |       |   |              |        |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       

15



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2001
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |        |  
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ------ | ----- | - | ------------ | ------- | ------------ | - | ----------- | ------ | ------------- | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | -
|                                            |                                                                |   |        |        |       |   |              |         |              |   | Guarantor   |        | Non-Guarantor |   |       |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |        | Vicar |   | Subsidiaries |         | Subsidiaries |   | Elimination |        | Consolidated 
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |              
|Revenue                                     |                                                                | $ |       |        |       | $ | 500          |         |              | $ | 98,852      |        |               | $ | 7,866 |       |  | $ | (169    | )       |   | $ | 107,049 |       
|Direct costs                                |                                                                |   |       |        |       |   |             |         |              |   | 67,837      |        |               |   | 5,643 |       |  |   | (169    | )       |   |   | 73,311  |       
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |        |       |   | 500          |         |              |   | 31,015      |        |               |   | 2,223 |       |  |   |        |         |   |   | 33,738  |       
|Selling, general and administrative
expense |                                                                |   |       |        |       |   | 3,663        |         |              |   | 6,268       |        |               |   | 285   |       |  |   |        |         |   |   | 10,216  |       
|Depreciation and amortization               |                                                                |   |       |        |       |   | 1,645        |         |              |   | 4,548       |        |               |   | 242   |       |  |   |        |         |   |   | 6,435   |       
|Write-down and loss on sale of assets       |                                                                |   |       |        |       |   | 8,694        |         |              |   |            |        |               |   |      |       |  |   |        |         |   |   | 8,694   |       
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |       |       |   |              | (13,502 | )            |   |             | 20,199 |               |   |       | 1,696 |  |   |         |        |   |   |         | 8,393  |  
|Net interest expense                        |                                                                |   | 4,228  |        |       |   | 6,673        |         |              |   | 16          |        |               |   |      |       |  |   |        |         |   |   | 10,917  |       
|Other
expense                               |                                                                |   |       |        |       |   | 229          |         |              |   |            |        |               |   |      |       |  |   |        |         |   |   | 229     |       
|Equity interest in income of subsidiaries   |                                                                |   | (2,797 | )      |       |   | 11,585       |         |              |   | 1,271       |        |               |   |      |       |  |   | (10,059 | )       |   |   |        |       
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | (7,025 | )     |   |              | (8,819  | )            |   |             | 21,454 |               |   |       | 1,696 |  |   |         | (10,059 | ) |   |         | (2,753 | )
|Minority interest in income of
subsidiaries |                                                                |   |       |        |       |   |             |         |              |   |            |        |               |   |      |       |  |   | 425     |         |   |   | 425     |       
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income (loss) before provision for
income taxes                |   |        | (7,025 | )     |   |              | (8,819  | )            |   |             | 21,454 |               |   |       | 1,696 |  |   |         | (10,484 | ) |   |         | (3,178 | )
|Provision (benefit) for income taxes        |                                                                |   | (1,205 | )      |       |   | (6,022       | )       |              |   | 9,869       |        |               |   |      |       |  |   |        |         |   |   | 2,642   |       
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       
|                                            | Net income (loss)                                              |   | $      | (5,820 | )     |   | $            | (2,797  | )            |   | $           | 11,585 |               |   | $     | 1,696 |  |   | $       | (10,484 | ) |   | $       | (5,820 | )
|                                            |                                                                |   |        |        |       |   |              |         |              |   |             |        |               |   |       |       |  |   |         |         |   |   |         |       

16



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2002
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ------ | ----- | - | ------------ | ------ | ------------ | - | ------------- | ------ | ------------ | - | ------ | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                            |                                                                |   |        |        |       |   |              |        | Guarantor    |   | Non-Guarantor |        |              |   |        |       |  |   |        
|                                            |                                                                |   | VCA    |        | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination   |        | Consolidated
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |             
|Revenue                                     |                                                                | $ |       |        |       | $ | 1,000        |        |              | $ | 203,941       |        |              | $ | 17,414 |       |  | $ | (435    | )       |   | $ | 221,920 |       
|Direct costs                                |                                                                |   |       |        |       |   |             |        |              |   | 137,484       |        |              |   | 12,543 |       |  |   | (435    | )       |   |   | 149,592 |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |        |       |   | 1,000        |        |              |   | 66,457        |        |              |   | 4,871  |       |  |   |        |         |   |   | 72,328  |       
|Selling, general and administrative
expense |                                                                |   |       |        |       |   | 6,828        |        |              |   | 9,656         |        |              |   | 677    |       |  |   |        |         |   |   | 17,161  |       
|Depreciation and amortization               |                                                                |   |       |        |       |   | 674          |        |              |   | 5,279         |        |              |   | 349    |       |  |   |        |         |   |   | 6,302   |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |       |       |   |              | (6,502 | )            |   |               | 51,522 |              |   |        | 3,845 |  |   |         |        |   |   |         | 48,865 | 
|Net interest expense                        |                                                                |   | 4,527  |        |       |   | 15,801       |        |              |   | 62            |        |              |   | (57    | )     |  |   |        |         |   |   | 20,333  |       
|Other income                                |                                                                |   |       |        |       |   | (154         | )      |              |   |              |        |              |   |       |       |  |   |        |         |   |   | (154    | )     
|Equity interest in income of subsidiaries   |                                                                |   | 18,750 |        |       |   | 31,571       |        |              |   | 2,972         |        |              |   |       |       |  |   | (53,293 | )       |   |   |        |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | 14,223 |       |   |              | 9,422  |              |   |               | 54,432 |              |   |        | 3,902 |  |   |         | (53,293 | ) |   |         | 28,686 | 
|Minority interest in income of
subsidiaries |                                                                |   |       |        |       |   |             |        |              |   |              |        |              |   |       |       |  |   | 930     |         |   |   | 930     |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       
|                                            | Income (loss) before provision for
income taxes                |   |        | 14,223 |       |   |              | 9,422  |              |   |               | 54,432 |              |   |        | 3,902 |  |   |         | (54,223 | ) |   |         | 27,756 | 
|Provision (benefit) for income taxes        |                                                                |   | (1,907 | )      |       |   | (9,328       | )      |              |   | 22,861        |        |              |   |       |       |  |   |        |         |   |   | 11,626  |       
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       
|                                            | Net income (loss)                                              |   | $      | 16,130 |       |   | $            | 18,750 |              |   | $             | 31,571 |              |   | $      | 3,902 |  |   | $       | (54,223 | ) |   | $       | 16,130 | 
|                                            |                                                                |   |        |        |       |   |              |        |              |   |               |        |              |   |        |       |  |   |         |         |   |   |         |       

17



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2001
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |        |  
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ------- | ----- | - | ------------ | ------- | ------------ | - | ----------- | ------ | ------------- | - | ------ | ----- |  | - | ------- | ------- | - | - | ------- | ------ | -
|                                            |                                                                |   |        |         |       |   |              |         |              |   | Guarantor   |        | Non-Guarantor |   |        |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |         | Vicar |   | Subsidiaries |         | Subsidiaries |   | Elimination |        | Consolidated 
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |              
|Revenue                                     |                                                                | $ |       |         |       | $ | 1,000        |         |              | $ | 187,875     |        |               | $ | 14,172 |       |  | $ | (318    | )       |   | $ | 202,729 |       
|Direct costs                                |                                                                |   |       |         |       |   |             |         |              |   | 132,632     |        |               |   | 10,459 |       |  |   | (318    | )       |   |   | 142,773 |       
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |         |       |   | 1,000        |         |              |   | 55,243      |        |               |   | 3,713  |       |  |   |        |         |   |   | 59,956  |       
|Selling, general and administrative
expense |                                                                |   |       |         |       |   | 7,589        |         |              |   | 12,675      |        |               |   | 510    |       |  |   |        |         |   |   | 20,774  |       
|Depreciation and amortization               |                                                                |   |       |         |       |   | 3,244        |         |              |   | 8,975       |        |               |   | 470    |       |  |   |        |         |   |   | 12,689  |       
|Write-down and loss on sale of assets       |                                                                |   |       |         |       |   | 8,837        |         |              |   |            |        |               |   |       |       |  |   |        |         |   |   | 8,837   |       
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |        |       |   |              | (18,670 | )            |   |             | 33,593 |               |   |        | 2,733 |  |   |         |        |   |   |         | 17,656 |  
|Net interest expense                        |                                                                |   | 8,103  |         |       |   | 13,914       |         |              |   | 71          |        |               |   | (18    | )     |  |   |        |         |   |   | 22,070  |       
|Other
expense                               |                                                                |   |       |         |       |   | 229          |         |              |   |            |        |               |   |       |       |  |   |        |         |   |   | 229     |       
|Equity interest in income of subsidiaries   |                                                                |   | (3,260 | )       |       |   | 19,209       |         |              |   | 2,051       |        |               |   |       |       |  |   | (18,000 | )       |   |   |        |       
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | (11,363 | )     |   |              | (13,604 | )            |   |             | 35,573 |               |   |        | 2,751 |  |   |         | (18,000 | ) |   |         | (4,643 | )
|Minority interest in income of
subsidiaries |                                                                |   |       |         |       |   |             |         |              |   |            |        |               |   |       |       |  |   | 700     |         |   |   | 700     |       
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                            | Income (loss) before provision for
income taxes                |   |        | (11,363 | )     |   |              | (13,604 | )            |   |             | 35,573 |               |   |        | 2,751 |  |   |         | (18,700 | ) |   |         | (5,343 | )
|Provision (benefit) for income taxes        |                                                                |   | (2,554 | )       |       |   | (10,344      | )       |              |   | 16,364      |        |               |   |       |       |  |   |        |         |   |   | 3,466   |       
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       
|                                            | Net income (loss)                                              |   | $      | (8,809  | )     |   | $            | (3,260  | )            |   | $           | 19,209 |               |   | $      | 2,751 |  |   | $       | (18,700 | ) |   | $       | (8,809 | )
|                                            |                                                                |   |        |         |       |   |              |         |              |   |             |        |               |   |        |       |  |   |         |         |   |   |         |       

18



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIESNOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002
(Unaudited)
(In thousands)

|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |        |        |         |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ------- | -- | ------ | ------ | ------------ | ------- | ------------ | ------ | ----------- | ------ | ------------- | ----- | ------ | - | - | ------- | ------ | - | ------ | ------ | ------ | ------- | -
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        | Guarantor   |        | Non-Guarantor |       |        |   |   |         |        |   |       
|                                                    |                                                                                             |                                                                     |                                                                 |        | VCA     |    | Vicar  |        | Subsidiaries |         | Subsidiaries |        | Elimination |        | Consolidated 
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |              
|Cash from operating activities:                     |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|                                                    | Net income                                                                                  |                                                                     | $                                                               | 16,130 |         |    | $      | 18,750 |              |         | $            | 31,571 |             |        | $             | 3,902 |        |   | $ | (54,223 | )      |   | $      | 16,130 |       
|                                                    | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |        |       
|                                                    |                                                                                             | Equity interest in earnings of subsidiaries                         |                                                                 |        | (18,750 | )  |        |        | (31,571      | )       |              |        | (2,972      | )      |               |       |       |   |   |         | 53,293 |   |        |        |       |        
|                                                    |                                                                                             | Depreciation and amortization                                       |                                                                 |        |        |    |        |        | 674          |         |              |        | 5,279       |        |               |       | 349    |   |   |         |       |   |        |        | 6,302  |        
|                                                    |                                                                                             | Amortization of deferred financing costs and
debt discount          |                                                                 |        | 313     |    |        |        | 534          |         |              |        |            |        |               |       |       |   |   |         |       |   |        |        | 847    |        
|                                                    |                                                                                             | Provision for uncollectible accounts                                |                                                                 |        |        |    |        |        |             |         |              |        | 1,243       |        |               |       | 177    |   |   |         |       |   |        |        | 1,420  |        
|                                                    |                                                                                             | Interest paid in kind on senior subordinated
notes                  |                                                                 |        | 4,645   |    |        |        |             |         |              |        |            |        |               |       |       |   |   |         |       |   |        |        | 4,645  |        
|                                                    |                                                                                             | Minority interest in income of subsidiaries                         |                                                                 |        |        |    |        |        |             |         |              |        |            |        |               |       |       |   |   |         | 930    |   |        |        | 930    |        
|                                                    |                                                                                             | Distributions to minority interest partners                         |                                                                 |        |        |    |        |        | (805         | )       |              |        |            |        |               |       |       |   |   |         |       |   |        |        | (805   | )      
|                                                    |                                                                                             | Increase in accounts receivable                                     |                                                                 |        |        |    |        |        |             |         |              |        | (5,278      | )      |               |       | (567   | ) |   |         |       |   |        |        | (5,845 | )      
|                                                    |                                                                                             | Decrease (increase) in inventory, prepaid
expenses and other assets |                                                                 |        |        |    |        |        | 458          |         |              |        | (829        | )      |               |       | 9      |   |   |         |       |   |        |        | (362   | )      
|                                                    |                                                                                             | Increase (decrease) in accounts payable and
accrued liabilities     |                                                                 |        |        |    |        |        | (703         | )       |              |        | 1,462       |        |               |       | 66     |   |   |         |       |   |        |        | 825    |        
|                                                    |                                                                                             | Increase (decrease) in accrued payroll and
related liabilities      |                                                                 |        |        |    |        |        | (518         | )       |              |        | 280         |        |               |       |       |   |   |         |       |   |        |        | (238   | )      
|                                                    |                                                                                             | Increase (decrease) in accrued interest                             |                                                                 |        |        |    |        |        | (295         | )       |              |        | 25          |        |               |       |       |   |   |         |       |   |        |        | (270   | )      
|                                                    |                                                                                             | Decrease in prepaid income taxes                                    |                                                                 |        |        |    |        |        | 2,782        |         |              |        |            |        |               |       |       |   |   |         |       |   |        |        | 2,782  |        
|                                                    |                                                                                             | Increase in income tax payable                                      |                                                                 |        |        |    |        |        | 1,901        |         |              |        |            |        |               |       |       |   |   |         |       |   |        |        | 1,901  |        
|                                                    |                                                                                             | Increase in deferred income tax asset                               |                                                                 |        |        |    |        |        | (946         | )       |              |        |            |        |               |       |       |   |   |         |       |   |        |        | (946   | )      
|                                                    |                                                                                             | Increase in deferred income tax liability                           |                                                                 |        |        |    |        |        | 4,498        |         |              |        |            |        |               |       |       |   |   |         |       |   |        |        | 4,498  |        
|                                                    |                                                                                             | Increase (decrease) in intercompany payable
(receivable)            |                                                                 |        | (2,423  | )  |        |        | 37,875       |         |              |        | (31,213     | )      |               |       | (4,239 | ) |   |         |       |   |        |        |       |        
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|Net cash provided by (used in) operating activities |                                                                                             |                                                                     | (85                                                             | )      |         |    | 32,634 |        |              |         | (432         | )      |             |        | (303          | )     |        |   |  |         |        |   | 31,814 |       
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|Cash flows from investing activities:               |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|                                                    |                                                                                             | Business acquisitions, net of cash acquired                         |                                                                 |        |        |    |        |        | (9,997       | )       |              |        |            |        |               |       |       |   |   |         |       |   |        |        | (9,997 | )      
|                                                    |                                                                                             | Property and equipment additions, net                               |                                                                 |        |        |    |        |        | (4,774       | )       |              |        | (1,430      | )      |               |       |       |   |   |         |       |   |        |        | (6,204 | )      
|                                                    |                                                                                             | Other                                                               |                                                                 |        | 68      |    |        |        |             |         |              |        | 61          |        |               |       |       |   |   |         |       |   |        |        | 129    |        
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|                                                    |                                                                                             |                                                                     | Net cash provided by (used in) investing
activities             |        |         | 68 |        |        |              | (14,771 | )            |        |             | (1,369 | )             |       |        |  |   |         |        |  |        |        |        | (16,072 | )
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|Cash flows from financing activities:               |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|                                                    |                                                                                             | Repayment of long-term obligations                                  |                                                                 |        |        |    |        |        | (2,485       | )       |              |        |            |        |               |       |       |   |   |         |       |   |        |        | (2,485 | )      
|                                                    |                                                                                             | Payment of accrued financing and
recapitalization costs             |                                                                 |        |        |    |        |        | (2,673       | )       |              |        |            |        |               |       |       |   |   |         |       |   |        |        | (2,673 | )      
|                                                    |                                                                                             |                                                                     | Proceeds from issuance of common stock
under stock option plans |        |         | 17 |        |        |              |        |              |        |             |       |               |       |        |  |   |         |        |  |        |        |        | 17      |  
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|                                                    |                                                                                             |                                                                     | Net cash provided by (used in) financing
activities             |        |         | 17 |        |        |              | (5,158  | )            |        |             |       |               |       |        |  |   |         |        |  |        |        |        | (5,141  | )
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|Increase
(decrease) in cash and cash equivalents    |                                                                                             |                                                                     |                                                                |        |         |    | 12,705 |        |              |         | (1,801       | )      |             |        | (303          | )     |        |   |  |         |        |   | 10,601 |       
|Cash and cash equivalents at beginning of year      |                                                                                             |                                                                     |                                                                |        |         |    | 3,467  |        |              |         | 3,260        |        |             |        | 376           |       |        |   |  |         |        |   | 7,103  |       
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       
|Cash and cash equivalents at end of year            |                                                                                             | $                                                                   |                                                                |        |         | $  | 16,172 |        |              | $       | 1,459        |        |             | $      | 73            |       |        | $ |  |         |        | $ | 17,704 |       
|                                                    |                                                                                             |                                                                     |                                                                 |        |         |    |        |        |              |         |              |        |             |        |               |       |        |   |   |         |        |   |        |       

19



---



##### Table of Contents



VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2001
(Unaudited)
(In thousands)

|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |         |   |         |  
|---------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------ | --- | ------ | ------ | ------- | ------------ | ------- | ------------ | ------ | ----------- | ------- | ------------- | ----- |  | ------ | - | ------- | - | ------ | ------ | ------- | - | ------- | -
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        | Guarantor   |         | Non-Guarantor |       |  |        |   |         |   |        |       
|                                               |                                                     |                                                                                          |                                                                    |        | VCA |        | Vicar  |         | Subsidiaries |         | Subsidiaries |        | Elimination |         | Consolidated 
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |              
|Cash from operating activities:                |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net income (loss)                                   |                                                                                          | $                                                                  | (8,809 | )   |        | $      | (3,260  | )            |         | $            | 19,209 |             |         | $             | 2,751 |  |        | $ | (18,700 | ) |        | $      | (8,809  | )
|                                               |                                                     | Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |         |   |        
|                                               |                                                     |                                                                                          | Equity interest in earnings of subsidiaries                        |        |     | 3,260  |        |         |              | (19,209 | )            |        |             | (2,051  | )             |       |  |       |   |         |   | 18,000 |        |         |   |        |  
|                                               |                                                     |                                                                                          | Depreciation and amortization                                      |        |     |       |        |         |              | 3,244   |              |        |             | 8,975   |               |       |  | 470    |   |         |   |       |        |         |   | 12,689  |  
|                                               |                                                     |                                                                                          | Amortization of deferred financing costs
and debt discount         |        |     | 54     |        |         |              | 1,047   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 1,101   |  
|                                               |                                                     |                                                                                          | Provision for uncollectible accounts                               |        |     |       |        |         |              |        |              |        |             | 1,247   |               |       |  | 116    |   |         |   |       |        |         |   | 1,363   |  
|                                               |                                                     |                                                                                          | Non-cash compensation                                              |        |     |       |        |         |              | 616     |              |        |             | 5,472   |               |       |  |       |   |         |   |       |        |         |   | 6,088   |  
|                                               |                                                     |                                                                                          | Interest paid in kind on senior
subordinated notes                 |        |     | 8,066  |        |         |              |        |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 8,066   |  
|                                               |                                                     |                                                                                          | Write-down and loss on sale of assets                              |        |     |       |        |         |              | 8,837   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 8,837   |  
|                                               |                                                     |                                                                                          | Minority interest in income of subsidiaries                        |        |     |       |        |         |              |        |              |        |             |        |               |       |  |       |   |         |   | 700    |        |         |   | 700     |  
|                                               |                                                     |                                                                                          | Distributions to minority interest partners                        |        |     |       |        |         |              | (606    | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (606    | )
|                                               |                                                     |                                                                                          | Increase in accounts receivable                                    |        |     |       |        |         |              |        |              |        |             | (3,241  | )             |       |  | (196   | ) |         |   |       |        |         |   | (3,437  | )
|                                               |                                                     |                                                                                          | Decrease (increase) in inventory, prepaid
expense and other assets |        |     | (17    | )      |         |              | 1,224   |              |        |             | 213     |               |       |  | (71    | ) |         |   |       |        |         |   | 1,349   |  
|                                               |                                                     |                                                                                          | Increase in accounts payable and accrued
liabilities               |        |     |       |        |         |              | 684     |              |        |             | 883     |               |       |  | 9      |   |         |   |       |        |         |   | 1,576   |  
|                                               |                                                     |                                                                                          | Increase in accrued payroll and related
liabilities                |        |     |       |        |         |              | 938     |              |        |             | 838     |               |       |  |       |   |         |   |       |        |         |   | 1,776   |  
|                                               |                                                     |                                                                                          | Increase (decrease) in accrued interest                            |        |     |       |        |         |              | (909    | )            |        |             | 154     |               |       |  |       |   |         |   |       |        |         |   | (755    | )
|                                               |                                                     |                                                                                          | Increase in prepaid income taxes                                   |        |     |       |        |         |              | 1,906   |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 1,906   |  
|                                               |                                                     |                                                                                          | Decrease in deferred income tax asset                              |        |     |       |        |         |              | 90      |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 90      |  
|                                               |                                                     |                                                                                          | Increase in deferred income tax liability                          |        |     |       |        |         |              | 671     |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 671     |  
|                                               |                                                     |                                                                                          | Decrease (increase) in intercompany
payable (receivable)           |        |     | (2,554 | )      |         |              | 34,171  |              |        |             | (28,677 | )             |       |  | (2,940 | ) |         |   |       |        |         |   |        |  
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash provided by operating activities           |                                                                                          |                                                                    |       |     |        |        | 29,444  |              |         |              | 3,022  |             |         |               | 139   |  |        |   |        |   |        |        | 32,605  |  
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash flows from investing activities:          |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               |                                                     |                                                                                          | Business acquisitions, net of cash acquired                        |        |     |       |        |         |              | (13,539 | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (13,539 | )
|                                               |                                                     |                                                                                          | Real estate acquired in connection with
business acquisitions      |        |     |       |        |         |              | (675    | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (675    | )
|                                               |                                                     |                                                                                          | Property and equipment additions, net                              |        |     |       |        |         |              | (6,304  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (6,304  | )
|                                               |                                                     |                                                                                          | Proceeds from sale of assets                                       |        |     |       |        |         |              | 370     |              |        |             |        |               |       |  |       |   |         |   |       |        |         |   | 370     |  
|                                               |                                                     |                                                                                          | Other                                                              |        |     |       |        |         |              |        |              |        |             | 57      |               |       |  |       |   |         |   |       |        |         |   | 57      |  
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash provided by (used in) investing
activities |                                                                                          |                                                                    |       |     |        |        | (20,148 | )            |         |              | 57     |             |         |               |      |  |        |   |        |   |        |        | (20,091 | )
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash flows from financing activities:          |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               |                                                     |                                                                                          | Repayment of long-term obligations                                 |        |     |       |        |         |              | (2,779  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (2,779  | )
|                                               |                                                     |                                                                                          | Payment of accrued financing and
recapitalization costs            |        |     |       |        |         |              | (1,088  | )            |        |             |        |               |       |  |       |   |         |   |       |        |         |   | (1,088  | )
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|                                               | Net cash used in financing activities               |                                                                                          |                                                                    |       |     |        |        | (3,867  | )            |         |              |       |             |         |               |      |  |        |   |        |   |        |        | (3,867  | )
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Increase
in cash and cash equivalents          |                                                     |                                                                                          |                                                                   |        |     |        | 5,429  |         |              |         | 3,079        |        |             |         | 139           |       |  |        |  |         |   |        | 8,647  |        
|Cash and cash equivalents at beginning of year |                                                     |                                                                                          |                                                                   |        |     |        | 8,165  |         |              |         | 2,073        |        |             |         | 281           |       |  |        |  |         |   |        | 10,519 |        
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        
|Cash and cash equivalents at end of year       |                                                     | $                                                                                        |                                                                   |        |     | $      | 13,594 |         |              | $       | 5,152        |        |             | $       | 420           |       |  | $      |  |         |   | $      | 19,166 |        
|                                               |                                                     |                                                                                          |                                                                    |        |     |        |        |         |              |         |              |        |             |         |               |       |  |        |   |         |   |        |        |        

20



---



##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed,
consolidated financial statements provided under Part I, Item 1 of this
quarterly report on Form 10-Q. Certain statements contained herein may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve a number of
risks, uncertainties and other factors that could cause actual results to
differ materially, as discussed more fully herein.

The forward-looking information set forth in this quarterly report on Form
10-Q is as of August 9, 2002, and we undertake no duty to update this
information. Should events occur subsequent to August 9, 2002 that make it
necessary to update the forward-looking information contained in this Form
10-Q, the updated forward-looking information will be filed with the Securities
and Exchange Commission in a quarterly report on Form 10-Q or a current report
on Form 8-K, each of which will be available at our website at
www.vcaantech.com. More information about potential factors that could affect
our business and financial results is included in the section entitled Risk
Factors.

Overview

We operate a leading animal health care services company and operate the
largest networks of veterinary diagnostic laboratories and free-standing,
full-service animal hospitals in the United States. Our network of veterinary
diagnostic laboratories provides sophisticated testing and consulting services
used by veterinarians in the detection, diagnosis, evaluation, monitoring,
treatment and prevention of diseases and other conditions affecting animals.
Our animal hospitals offer a full range of general medical and surgical
services for companion animals. We treat diseases and injuries, offer
pharmaceutical products and perform a variety of pet wellness programs,
including routine vaccinations, health examinations, diagnostic testing,
spaying, neutering and dental care.

Our company was formed in 1986 by Robert Antin, Arthur Antin and Neil
Tauber, who have served since our inception as our Chief Executive Officer,
Chief Operating Officer and Senior Vice President of Development, respectively.
During the 1990s, we established a premier position in the veterinary
diagnostic laboratory and animal hospital markets through both internal growth
and acquisitions. By 1997, we achieved a critical mass, building a laboratory
network of 12 laboratories servicing animal hospitals in all 50 states and
completing acquisitions for a total of 160 animal hospitals. At June 30, 2002,
our laboratory network consisted of 18 laboratories serving all 50 states and
our animal hospital network consisted of 220 animal hospitals in 34 states. We
primarily focus on generating internal growth to increase revenue and
profitability. In order to augment internal growth, we may selectively acquire
laboratories and intend to acquire approximately 15 to 25 animal hospitals per
year, depending upon the attractiveness of candidates and the strategic fit
with our existing operations.

21



---



##### Table of Contents



The following table summarizes our growth in facilities for the periods
presented:

|                  |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |     |  
|----------------- | ---------------------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                  |                                          |  | Three Months Ended |     | Six Months Ended
|                  |                                          |  | June 30,           |     | June 30,        
|                  |                                          |  |                    |     |                 
|                  |                                          |  | 2002               |     | 2001             |  | 2002 |     | 2001
|                  |                                          |  |                    |     |                  |  |      |     |     
|Laboratories:     |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|                  | Beginning of period                      |  |                    | 16  |                  |  |      | 15  |      |  |  | 16  |   |  |  | 15  |  
|                  | Acquisitions and new facilities          |  |                    | 2   |                  |  |      |    |      |  |  | 2   |   |  |  |    |  
|                  | Relocated into other labs operated by us |  |                    |    |                  |  |      |    |      |  |  |    |   |  |  |    |  
|                  |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|                  | End of period                            |  |                    | 18  |                  |  |      | 15  |      |  |  | 18  |   |  |  | 15  |  
|                  |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|Animal hospitals: |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|                  | Beginning of period                      |  |                    | 216 |                  |  |      | 213 |      |  |  | 214 |   |  |  | 209 |  
|                  | Acquisitions                             |  |                    | 8   |                  |  |      | 4   |      |  |  | 11  |   |  |  | 13  |  
|                  | Relocated into hospitals operated by us  |  |                    | (4  | )                |  |      | (4  | )    |  |  | (5  | ) |  |  | (8  | )
|                  | Sold or closed                           |  |                    |    |                  |  |      | (2  | )    |  |  |    |   |  |  | (3  | )
|                  |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|                  | End of period                            |  |                    | 220 |                  |  |      | 211 |      |  |  | 220 |   |  |  | 211 |  
|                  |                                          |  |                    |     |                  |  |      |     |      |  |  |     |   |  |  |    
|                  | Owned at end of period                   |  |                    | 163 |                  |  |      | 160 |      |  |  | 163 |   |  |  | 160 |  
|                  | Managed at end of period                 |  |                    | 57  |                  |  |      | 51  |      |  |  | 57  |   |  |  | 51  |  

Basis of Reporting

General

Our discussion and analysis of our financial condition and results of
operations are based upon our condensed, consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. We report our operations in three segments:
laboratory, animal hospital and corporate. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expense, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

Revenue Recognition

Revenue is recognized only after the following criteria are met:



| |  |  | there exists adequate evidence of the transaction;                                      
| | - |  | ----------------------------------------------------------------------------------------
|
| |  |  | delivery of goods has occurred or services have been rendered; and                      
|
| |  |  | the price is not contingent on future activity and collectibility is reasonably assured.

Laboratory Revenue

A portion of laboratory revenue is intercompany revenue that was generated
by providing laboratory services to our animal hospitals. This revenue is
eliminated in the condensed, consolidated statements of operations.

Laboratory revenue is presented net of discounts. Some discounts, such as
those given to clients for prompt payment, are applied to clients accounts in
periods subsequent to the period the revenue was recognized. These discounts
which are not yet applied to clients accounts are estimated and deducted from
revenue in the period the related revenue was recognized. These estimates are
based upon historical experience. Errors in estimates would not have a
material effect on our financial statements.

22



---



##### Table of Contents



Animal Hospital Revenue

Animal hospital revenue is comprised of revenue of the animal hospitals
that we own and the management fees of animal hospitals that we manage.
Certain states prohibit business corporations from providing or holding
themselves out as providers of veterinary medical care. In these states, we
enter into arrangements with a veterinary medical group that provides all
veterinary medical care, while we manage the administrative functions
associated with the operation of the animal hospitals and we own or lease the
hospital facility. In return for our services, the veterinary medical group
pays us a management fee. We do not consolidate the operations of animal
hospitals that we manage. However, for purposes of calculating same-facility
revenue growth in our animal hospitals, we use the combined revenue of animal
hospitals owned and managed for the entire periods presented. Same-facility
revenue growth includes revenue generated by customers referred from our
relocated animal hospitals.

Other Revenue

Other revenue is comprised of consulting fees from Heinz Pet Products
relating to the marketing of its proprietary pet food.

Direct Costs

Laboratory direct costs are comprised of all costs of laboratory services,
including salaries of veterinarians, technicians and other non-administrative,
laboratory-based personnel, facilities rent, occupancy costs and supply costs.
Animal hospital direct costs are comprised of all costs of services and
products at the hospitals, including salaries of veterinarians, technicians and
all other hospital-based personnel employed by the hospitals we own, facilities
rent, occupancy costs, supply costs and costs of goods sold associated with the
retail sales of pet food and pet supplies. Direct costs do not
include salaries of veterinarians, technicians and certain other
hospital-based personnel employed by the hospitals we manage. As a
result, our direct costs are lower as a percentage of revenue than if
we had consolidated the operating results of the animal hospitals we
manage into our operating results.

Selling, General and Administrative

Our selling, general and administrative expense is divided between our
laboratory, animal hospital and corporate segments. Laboratory selling,
general and administrative expense consists primarily of sales and
administrative personnel and selling, marketing and promotional expense.
Animal hospital selling, general and administrative expense consists primarily
of field management and administrative personnel, recruiting and marketing
expense. Corporate selling, general and administrative expense consists of
administrative expense at our headquarters, including the salaries of corporate
officers, professional expense, rent and occupancy costs.

EBITDA and Adjusted EBITDA

EBITDA is operating income before depreciation and amortization. Adjusted
EBITDA for the 2001 periods represent EBITDA adjusted to exclude management
fees paid pursuant to our management services agreement with Leonard Green &
Partners which was terminated in November 2001, non-cash compensation and
write-down and loss on sale of assets. No adjustments have been made to the
EBITDA calculations for 2002. Corporate EBITDA is comprised of other revenue
less corporate selling, general and administrative expense, and in 2001 was
adjusted to exclude non-cash compensation.

EBITDA and Adjusted EBITDA are not measures of financial performance under
generally accepted accounting principles, or GAAP. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity. We
believe EBITDA is a useful measure of our operating performance as it reflects
earnings before the impact of items that may change from period to period for
reasons not directly related to our operations, such as the depreciation and
amortization, interest and taxes and other non-operating or non-recurring items
that occurred in 2001. EBITDA is also an important component of the financial
ratios included in our debt covenants and provides us with a measure of our
ability to service our debt and meet capital expenditure requirements from our
operating results. Our calculation of EBITDA may not be comparable to
similarly titled measures reported by other companies.

23



---



##### Table of Contents



Non-Cash Compensation

Certain stock options granted in 2000 qualified as variable stock options.
Related to these variable stock options, we recorded non-cash compensation of
approximately $3.0 million and $6.1 million in the three and six months ended
June 30, 2001, respectively. Non-cash compensation is included in laboratory
direct costs and in selling, general and administrative expense. In August
2001, all of these options were exercised or cancelled.

Software Development Costs

We frequently research, develop and implement new software to be used
internally, or enhance our existing internal software. We develop the software
using our own employees and/or outside consultants. Most costs associated with
the development of new software are expensed as incurred, particularly in the
preliminary planning stages and the post-implementation and training stages.
Costs related directly to the software design, coding, testing and installation
are capitalized. Costs related to upgrades or enhancements of existing systems
are capitalized if the modifications result in additional functionality.

Critical Accounting Policies and Significant Estimates

Under accounting principles generally accepted in the United States,
management is required to make assumptions and estimates that directly impact
our consolidated financial statements and related disclosures. Because of the
uncertainties inherent in making assumptions and estimates, actual results in
future periods may differ significantly from our assumptions and estimates.
Management bases its assumptions and estimates on historical experience and on
various other factors believed to be reasonable under the circumstances. The
following represent what management believes are the critical accounting
policies most affected by significant management estimates and judgments.

Workers Compensation Expense

On October 8, 2001, we entered into a one-year workers compensation
insurance policy with a $250,000 per-occurrence deductible and a stop-loss
aggregate deductible of $4.7 million. We have determined that $3.9 million is
a reasonable estimate of expected claims losses under this policy and we are
accruing for these losses over the twelve-month period ending September 30,
2002. In determining this estimate, in conjunction with the insurance
carrier, we reviewed our five-year history of total claims losses, ratio of
losses to premiums paid, payroll growth and the current risk control
environment. We are pre-funding estimated claims losses to the insurance
carrier of approximately $2.9 million.

Impairment of Goodwill

Goodwill relates to acquisitions and represents the purchase price paid
and liabilities assumed in excess of the fair market value of
tangible assets acquired.
Under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, we are required to allocate our
goodwill to identifiable reporting units, which are then tested for impairment
using a two-step process detailed in the statement. The first step requires
comparing the fair value of each reporting unit with its carrying amount,
including goodwill. If that fair value exceeds the carrying amount, the second
step of the process is not necessary and there are no impairment issues. If
that fair value does not exceed that carrying amount, companies must perform
the second step that requires a hypothetical allocation of the fair value of
the reporting unit to the reporting units assets and liabilities as if the
unit were just purchased by the company at the fair value price. In this
hypothetical sale, the excess of the fair value of the reporting unit over its
re-evaluated, marked-to-market net assets would be the new basis for the
reporting units goodwill and a write-down to this new value would be
recognized as an expense.

We have determined that we have two reporting units, Laboratory and Animal
Hospital. We hired independent valuation experts to estimate the fair market
value of these reporting units. The independent valuation experts concluded
that the estimated value for each reporting unit is greater than the carrying
amount of the net assets for those reporting units. Therefore, at this time no
impairment issues exist, and the second step of the test is not necessary. We
plan to perform a valuation of our reporting units annually or upon significant changes in our business environment.

24



---



##### Table of Contents



Impairment of Long-lived Assets

We adopted SFAS No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assetson January 1, 2002. Under SFAS No. 144, we will continually
evaluate whether events, circumstances or net losses at the entity level have
occurred that indicate the remaining estimated useful life of long-lived assets
may warrant revision or that the remaining balance of these assets may not be
recoverable. When factors indicate that these assets should be evaluated for
possible impairment, we will estimate the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the long-lived
assets in question. If that estimate is less than the carrying value of the
assets under review, we will recognize an impairment loss equal to that
difference.

Legal Settlements

We are a party to various legal proceedings. Although we cannot determine the ultimate disposition of
these proceedings, we can use judgment to reasonably estimate our liability for
legal settlement costs that may arise as a result of these proceedings. Based
on our prior experience, the nature of the current proceedings, and our
insurance policy coverage for such matters, we have accrued $700,000 as of June
30, 2002 for legal settlements as part of other accrued liabilities.

Results of Operations

The following table sets forth components of our statements of operations
data expressed as a percentage of revenue for the three and six months ended
June 30, 2002 and 2001:

|                                            |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |      |       |   
|------------------------------------------- | --------------- | ----------------- | ---- | ------------------ | ----- | ---------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | - | ---- | ---- | ----- | --
|                                            |                 |                   |      | Three Months Ended |       | Six Months Ended
|                                            |                 |                   |      | June 30,           |       | June 30,        
|                                            |                 |                   |      |                    |       |                 
|                                            |                 |                   |      | 2002               |       | 2001             |      | 2002 |       | 2001
|                                            |                 |                   |      |                    |       |                  |      |      |       |     
|Revenue:                                    |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |     
|                                            | Laboratory      |                   |      | 34.6               | %     |                  |      | 33.3 | %     |      |      | 35.3 | %     |   |      | 33.7 | %    
|                                            | Animal hospital |                   |      | 67.1               |       |                  |      | 68.0 |       |      |      | 66.4 |       |   |      | 67.6 |      
|                                            | Other           |                   |      | 0.4                |       |                  |      | 0.5  |       |      |      | 0.4  |       |   |      | 0.5  |      
|                                            | Intercompany    |                   |      | (2.1               | )     |                  |      | (1.8 | )     |      |      | (2.1 | )     |   |      | (1.8 | )    
|                                            |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |     
|                                            |                 | Total revenue     |      |                    | 100.0 |                  |      |      | 100.0 |      |      |      | 100.0 |   |      |      | 100.0 |   
|Direct costs                                |                 |                   | 65.7 |                    |       |                  | 68.5 |      |       |      | 67.4 |      |       |   | 70.4 |     
|Selling, general and administrative expense |                 |                   | 7.3  |                    |       |                  | 9.5  |      |       |      | 7.7  |      |       |   | 10.2 |     
|Depreciation and amortization               |                 |                   | 2.7  |                    |       |                  | 6.0  |      |       |      | 2.9  |      |       |   | 6.3  |     
|Write-down and loss on sale of assets       |                 |                   |     |                    |       |                  | 8.2  |      |       |      |     |      |       |   | 4.4  |     
|                                            |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |     
|                                            |                 | Operating income  |      |                    | 24.3  |                  |      |      | 7.8   |      |      |      | 22.0  |   |      |      | 8.7   |   
|Net interest expense                        |                 |                   | 8.8  |                    |       |                  | 10.2 |      |       |      | 9.2  |      |       |   | 10.9 |     
|Other (income) expense                      |                 |                   | (0.1 | )                  |       |                  | 0.2  |      |       |      | (0.1 | )    |       |   | 0.1  |     
|Minority interest in income of subsidiaries |                 |                   | 0.4  |                    |       |                  | 0.4  |      |       |      | 0.4  |      |       |   | 0.3  |     
|Provision for income taxes                  |                 |                   | 6.2  |                    |       |                  | 2.4  |      |       |      | 5.2  |      |       |   | 1.7  |     
|                                            |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |     
|                                            |                 | Net income (loss) |      |                    | 9.0   | %                |      |      | (5.4  | )%   |      |      | 7.3   | % |      |      | (4.3  | )%
|                                            |                 |                   |      |                    |       |                  |      |      |       |      |      |      |       |   |      |     

25



---



##### Table of Contents



The following table is a summary of the components of operating income by
segment (in thousands):

|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |         |        | 
|-------------------------------- | ----------------------------------- | ----------------------- | - | -------- | ------ | --------- | - | ------------ | ------ | ----- | - | ----- | ------- | ------- | - | ------ | - |  | - | ------- | ------ | 
|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   | Inter- |   |  |   |        
|                                 |                                     |                         |   |          |        |           |   | Animal       |        |       |   |       |         | company |   |        |   | 
|Three Months Ended June 30, 2002 |                                     | Laboratory              |   | Hospital |        | Corporate |   | Eliminations |        | Total
|                                 |                                     |                         |   |          |        |           |   |              |        |      
|                                 | Revenue                             |                         | $ | 40,604   |        |           | $ | 78,621       |        |       | $ | 500   |         |         | $ | (2,500 | ) |  | $ | 117,225 |       
|                                 | Direct costs                        |                         |   | 22,134   |        |           |   | 57,370       |        |       |   |      |         |         |   | (2,500 | ) |  |   | 77,004  |       
|                                 | Selling, general and administrative |                         |   | 2,396    |        |           |   | 2,585        |        |       |   | 3,558 |         |         |   |       |   |  |   | 8,539   |       
|                                 | Depreciation and amortization       |                         |   | 726      |        |           |   | 2,069        |        |       |   | 344   |         |         |   |       |   |  |   | 3,139   |       
|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |        
|                                 |                                     | Operating income (loss) |   | $        | 15,348 |           |   | $            | 16,597 |       |   | $     | (3,402  | )       |   | $      |  |  |   | $       | 28,543 | 
|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |        
|Three Months Ended June 30, 2001 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |        
|                                 | Revenue                             |                         | $ | 35,707   |        |           | $ | 72,780       |        |       | $ | 500   |         |         | $ | (1,938 | ) |  | $ | 107,049 |       
|                                 | Direct costs                        |                         |   | 21,166   |        |           |   | 54,083       |        |       |   |      |         |         |   | (1,938 | ) |  |   | 73,311  |       
|                                 | Selling, general and administrative |                         |   | 3,303    |        |           |   | 3,250        |        |       |   | 3,663 |         |         |   |       |   |  |   | 10,216  |       
|                                 | Depreciation and amortization       |                         |   | 1,143    |        |           |   | 3,647        |        |       |   | 1,645 |         |         |   |       |   |  |   | 6,435   |       
|                                 | Loss on sale of assets              |                         |   |         |        |           |   |             |        |       |   | 8,694 |         |         |   |       |   |  |   | 8,694   |       
|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |        
|                                 |                                     | Operating income (loss) |   | $        | 10,095 |           |   | $            | 11,800 |       |   | $     | (13,502 | )       |   | $      |  |  |   | $       | 8,393  | 
|                                 |                                     |                         |   |          |        |           |   |              |        |       |   |       |         |         |   |        |   |  |   |        

|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |        | 
|----------------------------------- | ----------------------- | ---------- | ------ | -------- |  | --------- | ------- | ------------ |  | ----- | ----- | ------- | ------- | - | ------ | - |  | - | ------- | ------ | 
|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   | Inter- |   |  |   |        
|                                    |                         |            |        |          |  |           | Animal  |              |  |       |       |         | company |   |        |   | 
|Six Months Ended June 30, 2002      |                         | Laboratory |        | Hospital |  | Corporate |         | Eliminations |  | Total
|                                    |                         |            |        |          |  |           |         |              |  |      
|Revenue                             |                         | $          | 78,261 |          |  | $         | 147,265 |              |  | $     | 1,000 |         |         | $ | (4,606 | ) |  | $ | 221,920 |       
|Direct costs                        |                         |            | 43,696 |          |  |           | 110,502 |              |  |       |      |         |         |   | (4,606 | ) |  |   | 149,592 |       
|Selling, general and
administrative |                         |            | 5,069  |          |  |           | 5,264   |              |  |       | 6,828 |         |         |   |       |   |  |   | 17,161  |       
|Depreciation and amortization       |                         |            | 1,423  |          |  |           | 4,205   |              |  |       | 674   |         |         |   |       |   |  |   | 6,302   |       
|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |       
|                                    | Operating income (loss) |            | $      | 28,073   |  |           | $       | 27,294       |  |       | $     | (6,502  | )       |   | $      |  |  |   | $       | 48,865 | 
|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |       
|Six Months Ended June 30, 2001      |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |       
|Revenue                             |                         | $          | 68,384 |          |  | $         | 137,134 |              |  | $     | 1,000 |         |         | $ | (3,789 | ) |  | $ | 202,729 |       
|Direct costs                        |                         |            | 41,485 |          |  |           | 105,077 |              |  |       |      |         |         |   | (3,789 | ) |  |   | 142,773 |       
|Selling, general and
administrative |                         |            | 6,580  |          |  |           | 6,605   |              |  |       | 7,589 |         |         |   |       |   |  |   | 20,774  |       
|Depreciation and amortization       |                         |            | 2,304  |          |  |           | 7,141   |              |  |       | 3,244 |         |         |   |       |   |  |   | 12,689  |       
|Loss on sale of assets              |                         |            |       |          |  |           |        |              |  |       | 8,837 |         |         |   |       |   |  |   | 8,837   |       
|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |       
|                                    | Operating income (loss) |            | $      | 18,015   |  |           | $       | 18,311       |  |       | $     | (18,670 | )       |   | $      |  |  |   | $       | 17,656 | 
|                                    |                         |            |        |          |  |           |         |              |  |       |       |         |         |   |        |   |  |   |         |       

Revenue

The following table summarizes our revenue (in thousands):

|                |               |   |                             |         |                           |   |          |         |      |  |      |     |          |   |         |         |  |   |         |         |  |  |      |     |  
|--------------- | ------------- | - | --------------------------- | ------- | ------------------------- | - | -------- | ------- | ---- |  | ---- | --- | -------- | - | ------- | ------- |  | - | ------- | ------- |  |  | ---- | --- | -
|                |               |   | Three Months Ended June 30, |         | Six Months Ended June 30,
|                |               |   |                             |         |                          
|                |               |   | 2002                        |         | 2001                      |   | % Change |         | 2002 |  | 2001 |     | % Change
|                |               |   |                             |         |                           |   |          |         |      |  |      |     |         
|Laboratory      |               | $ | 40,604                      |         |                           | $ | 35,707   |         |      |  | 13.7 | %   |          | $ | 78,261  |         |  | $ | 68,384  |         |  |  | 14.4 | %  
|Animal hospital |               |   | 78,621                      |         |                           |   | 72,780   |         |      |  | 8.0  | %   |          |   | 147,265 |         |  |   | 137,134 |         |  |  | 7.4  | %  
|Other           |               |   | 500                         |         |                           |   | 500      |         |      |  |      |     |          |   | 1,000   |         |  |   | 1,000   |         |  |  |      |    
|Intercompany    |               |   | (2,500                      | )       |                           |   | (1,938   | )       |      |  |      |     |          |   | (4,606  | )       |  |   | (3,789  | )       |  |  |      |    
|                |               |   |                             |         |                           |   |          |         |      |  |      |     |          |   |         |         |  |   |         |         |  |  |      |    
|                | Total revenue |   | $                           | 117,225 |                           |   | $        | 107,049 |      |  |      | 9.5 | %        |   | $       | 221,920 |  |   | $       | 202,729 |  |  |      | 9.5 | %
|                |               |   |                             |         |                           |   |          |         |      |  |      |     |          |   |         |         |  |   |         |         |  |  |      |    

26



---



##### Table of Contents



Laboratory Revenue

Laboratory revenue increased $4.9 million, or 13.7%, for the three months
ended June 30, 2002, and increased $9.9 million, or 14.4%, for the six months
ended June 30, 2002, comparable to the same periods in the prior year. These
increases, primarily all of which were from internal growth, resulted from the
increase in the overall number of tests and requisitions and an increase in the
average revenue per requisition. These increases primarily were the result of
the continued emphasis on selling our pet health and wellness programs and the
implementation of a price increase for most tests in February 2002. A small
portion of the increase for the six months ended June 30, 2002 is also due to
the fact that this period contained one extra billing day as compared to the
six months ended June 30, 2001.

Animal Hospital Revenue

The following table summarizes our animal hospital revenue as reported and
the combined revenue of animal hospitals that we owned and managed had we
consolidated the operating results of the animal hospitals we managed into our
operating results (in thousands):

|                                                              |  |                             |         |                           |  |        |         |      |  |      |     |        |  |   |         |   |  |   |         |   |  |  |     |  
|------------------------------------------------------------- |  | --------------------------- | ------- | ------------------------- |  | ------ | ------- | ---- |  | ---- | --- | ------ |  | - | ------- | - |  | - | ------- | - |  |  | --- | -
|                                                              |  | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                                              |  |                             |         |                          
|                                                              |  |                             |         |                           |  |        |         |      |  | %    |     |        |  |   |         |   |  |   |         | %
|                                                              |  | 2002                        |         | 2001                      |  | Change |         | 2002 |  | 2001 |     | Change
|                                                              |  |                             |         |                           |  |        |         |      |  |      |     |       
|Animal hospital revenue as reported                           |  | $                           | 78,621  |                           |  | $      | 72,780  |      |  |      | 8.0 | %      |  | $ | 147,265 |   |  | $ | 137,134 |   |  |  | 7.4 | %
|Less: Management fees paid to us by
veterinary medical groups |  |                             | (12,488 | )                         |  |        | (10,347 | )    |  |      |     |        |  |   | (22,193 | ) |  |   | (18,961 | ) |  |  |     |  
|Add: Revenue of animal hospitals managed                      |  |                             | 21,940  |                           |  |        | 18,633  |      |  |      |     |        |  |   | 40,255  |   |  |   | 34,999  |   |  |  |     |  
|                                                              |  |                             |         |                           |  |        |         |      |  |      |     |        |  |   |         |   |  |   |         |   |  |  |     |  
|Combined revenue of animal hospitals
owned and managed        |  | $                           | 88,073  |                           |  | $      | 81,066  |      |  |      | 8.6 | %      |  | $ | 165,327 |   |  | $ | 153,172 |   |  |  | 7.9 | %
|                                                              |  |                             |         |                           |  |        |         |      |  |      |     |        |  |   |         |   |  |   |         |   |  |  |     |  

Animal hospital revenue as reported increased $5.8 million, or 8.0%, for
the three months ended June 30, 2002 and $10.1 million, or 7.4%, for the six
months ended June 30, 2002 compared to the same periods in the prior year.
These increases in animal hospital revenue primarily resulted from the
acquisition of 19 animal hospitals that we owned, managed or relocated into
other hospitals owned by us subsequent to June 30, 2001. The increase in
animal hospital revenue was also due to same-facility revenue growth of 3.0%
and 2.4% for the three and six months ended June 30, 2002, respectively.
Same-facility revenue growth was primarily due to increases in the average
amount spent per visit and revenue generated by customers referred from our
relocated animal hospitals. The six month period ended June 30, 2002 contained
one less business day than the same period in the prior year.
Discussions in medical literature suggest that small animals may not
require as many or as frequent vaccinations as is currently accepted
practice. Any reduction in the number of visits to our hospitals will
negatively impact our ability to continue to achieve same-facility
revenue growth rates consistent with our current levels. In addition,
products and supplies that we currently sell are becoming available
in other distribution channels which may adversely affect our sales
and the number of client visits to our hospitals.

Direct Costs

The following table summarizes our direct costs and our direct costs as a
percentage of applicable revenue (in thousands):

|                |                    |   |                             |        |                           |  |      |      |         |   |          |        |      |  |         |      |   |  |         |     |          |   |         |         |  |  |      |      |      |   |         |         |  |  |      |      |   |  |     |     |  
|--------------- | ------------------ | - | --------------------------- | ------ | ------------------------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ------- | ---- | - |  | ------- | --- | -------- | - | ------- | ------- |  |  | ---- | ---- | ---- | - | ------- | ------- |  |  | ---- | ---- | - |  | --- | --- | -
|                |                    |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                |                    |   |                             |        |                          
|                |                    |   | 2002                        |        | 2001                      |  |      |      |         |   | 2002     |        | 2001 |  |         |     
|                |                    |   |                             |        |                           |  |      |      |         |   |          |        |      |  |         |     
|                |                    |   |                             |        |                           |  | % of |      |         |   |          |        | % of |  |         |      |   |  |         |     |          |   | % of    |         |  |  |      |      | % of |   |         |         | 
|                |                    |   | $                           |        | Revenue                   |  | $    |      | Revenue |   | % Change |        | $    |  | Revenue |      | $ |  | Revenue |     | % Change
|                |                    |   |                             |        |                           |  |      |      |         |   |          |        |      |  |         |      |   |  |         |     |         
|Laboratory      |                    | $ | 22,134                      |        |                           |  | 54.5 | %    |         | $ | 21,166   |        |      |  | 59.3    | %    |   |  | 4.6     | %   |          | $ | 43,696  |         |  |  | 55.8 | %    |      | $ | 41,485  |         |  |  | 60.7 | %    |   |  | 5.3 | %  
|Animal hospital |                    |   | 57,370                      |        |                           |  | 73.0 | %    |         |   | 54,083   |        |      |  | 74.3    | %    |   |  | 6.1     | %   |          |   | 110,502 |         |  |  | 75.0 | %    |      |   | 105,077 |         |  |  | 76.6 | %    |   |  | 5.2 | %  
|Intercompany    |                    |   | (2,500                      | )      |                           |  |      |      |         |   | (1,938   | )      |      |  |         |      |   |  |         |     |          |   | (4,606  | )       |  |  |      |      |      |   | (3,789  | )       |  |  |      |      |   |  |     |    
|                |                    |   |                             |        |                           |  |      |      |         |   |          |        |      |  |         |      |   |  |         |     |          |   |         |         |  |  |      |      |      |   |         |         |  |  |      |      |   |  |     |    
|                | Total
direct costs |   | $                           | 77,004 |                           |  |      | 65.7 | %       |   | $        | 73,311 |      |  |         | 68.5 | % |  |         | 5.0 | %        |   | $       | 149,592 |  |  |      | 67.4 | %    |   | $       | 142,773 |  |  |      | 70.4 | % |  |     | 4.8 | %
|                |                    |   |                             |        |                           |  |      |      |         |   |          |        |      |  |         |      |   |  |         |     |          |   |         |         |  |  |      |      |      |   |         |         |  |  |      |      |   |  |     |    

27



---



##### Table of Contents



Laboratory Direct Costs

Laboratory direct costs increased $1.0 million, or 4.6%, for the three
months ended June 30, 2002 and $2.2 million, or 5.3%, for the six months ended
June 30, 2002 compared to the same periods in the prior year. Laboratory
direct costs as a percentage of laboratory revenue was 54.5% and 59.3% for the
three months ended June 30, 2002 and 2001, respectively and 55.8% and 60.7% for
the six months ended June 30, 2002 and 2001, respectively. However, laboratory
direct costs for the three months and six months ended June 30, 2001 include
non-cash compensation of $564,000 and $1.1 million. Excluding non-cash
compensation, laboratory direct costs as a percentage of laboratory revenue
would have been 57.7% and 59.0% for the three and six months ended June 30,
2001. The current year decreases in laboratory direct costs as a percentage of
laboratory revenue as compared to the prior year periods primarily were
attributable to additional operating leverage gained on increases in laboratory
revenue.

Animal Hospital Direct Costs

The following table summarizes our animal hospital direct costs as
reported and the combined direct costs of animal hospitals owned and managed
had we consolidated the operating results of the animal hospitals we manage
into our operating results (in thousands):

|                                                                 |  |                             |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|---------------------------------------------------------------- |  | --------------------------- | ------- | ------- |  | ---- | ---- | ------- |  | -------- | ------- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                 |  | Three Months Ended June 30,
|                                                                 |  |                            
|                                                                 |  | 2002                        |         | 2001    |  |      |      |        
|                                                                 |  |                             |         |         |  |      |      |        
|                                                                 |  |                             |         |         |  | % of |      |         |  |          |         | % of |  |  |      |  
|                                                                 |  | $                           |         | Revenue |  | $    |      | Revenue |  | % Change
|                                                                 |  |                             |         |         |  |      |      |         |  |         
|Animal hospital direct costs as reported                         |  | $                           | 57,370  |         |  |      | 73.0 | %       |  | $        | 54,083  |      |  |  | 74.3 | % |  |  | 6.1 | %
|Add: Direct costs of animal hospitals managed                    |  |                             | 21,940  |         |  |      |      |         |  |          | 18,633  |      |  |  |      |   |  |  |     |  
|Less: Management fees charged by us to
veterinary medical groups |  |                             | (12,488 | )       |  |      |      |         |  |          | (10,347 | )    |  |  |      |   |  |  |     |  
|                                                                 |  |                             |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|Combined direct costs of animal
hospitals owned and managed      |  | $                           | 66,822  |         |  |      | 75.9 | %       |  | $        | 62,369  |      |  |  | 76.9 | % |  |  | 7.1 | %
|                                                                 |  |                             |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  

|                                                                 |  |                           |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|---------------------------------------------------------------- |  | ------------------------- | ------- | ------- |  | ---- | ---- | ------- |  | -------- | ------- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                 |  | Six Months Ended June 30,
|                                                                 |  |                          
|                                                                 |  | 2002                      |         | 2001    |  |      |      |        
|                                                                 |  |                           |         |         |  |      |      |        
|                                                                 |  |                           |         |         |  | % of |      |         |  |          |         | % of |  |  |      |  
|                                                                 |  | $                         |         | Revenue |  | $    |      | Revenue |  | % Change
|                                                                 |  |                           |         |         |  |      |      |         |  |         
|Animal hospital direct costs as reported                         |  | $                         | 110,502 |         |  |      | 75.0 | %       |  | $        | 105,077 |      |  |  | 76.6 | % |  |  | 5.2 | %
|Add: Direct costs of animal hospitals managed                    |  |                           | 40,255  |         |  |      |      |         |  |          | 34,999  |      |  |  |      |   |  |  |     |  
|Less: Management fees charged by us to
veterinary medical groups |  |                           | (22,193 | )       |  |      |      |         |  |          | (18,961 | )    |  |  |      |   |  |  |     |  
|                                                                 |  |                           |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  
|Combined direct costs of animal
hospitals owned and managed      |  | $                         | 128,564 |         |  |      | 77.8 | %       |  | $        | 121,115 |      |  |  | 79.1 | % |  |  | 6.2 | %
|                                                                 |  |                           |         |         |  |      |      |         |  |          |         |      |  |  |      |   |  |  |     |  

Animal hospital direct costs as reported increased $3.3 million, or 6.1%,
for the three months ended June 30, 2002 and $5.4 million, or 5.2%, for the six
months ended June 30, 2002 compared to the same periods in the prior year.
Animal hospital direct costs as a percentage of animal hospital revenue
decreased to 73.0% for the three months ended June 30, 2002 from 74.3% for the
prior year period and decreased to 75.0% for the six months ended June 30, 2002
from 76.6% for the prior year period. The decreases in animal hospital direct
costs as a percentage of animal hospital revenue during these periods primarily
were attributable to additional operating leverage gained on increases in
animal hospital revenue, because most of the costs associated with this
business do not increase proportionately with increases in the volume of
services rendered.

28



---



##### Table of Contents



Selling, General and Administrative Expense

The following table summarizes our selling, general and administrative
expense (SG&A) and our expense as a percentage of applicable revenue (in
thousands):

|                |            |   |                             |       |                           |  |      |     |         |   |          |        |      |  |         |     |   |  |         |       |          |   |       |        |  |  |     |     |      |   |       |        |  |  |     |      |   |  |       |       |   
|--------------- | ---------- | - | --------------------------- | ----- | ------------------------- |  | ---- | --- | ------- | - | -------- | ------ | ---- |  | ------- | --- | - |  | ------- | ----- | -------- | - | ----- | ------ |  |  | --- | --- | ---- | - | ----- | ------ |  |  | --- | ---- | - |  | ----- | ----- | --
|                |            |   | Three Months Ended June 30, |       | Six Months Ended June 30,
|                |            |   |                             |       |                          
|                |            |   | 2002                        |       | 2001                      |  |      |     |         |   | 2002     |        | 2001
|                |            |   |                             |       |                           |  |      |     |         |   |          |        |     
|                |            |   |                             |       |                           |  | % of |     |         |   |          |        | % of |  |         |     |   |  |         |       |          |   | % of  |        |  |  |     |     | % of |   |       |        | 
|                |            |   | $                           |       | Revenue                   |  | $    |     | Revenue |   | % Change |        | $    |  | Revenue |     | $ |  | Revenue |       | % Change
|                |            |   |                             |       |                           |  |      |     |         |   |          |        |      |  |         |     |   |  |         |       |         
|Laboratory      |            | $ | 2,396                       |       |                           |  | 5.9  | %   |         | $ | 3,303    |        |      |  | 9.3     | %   |   |  | (27.5   | )%    |          | $ | 5,069 |        |  |  | 6.5 | %   |      | $ | 6,580 |        |  |  | 9.6 | %    |   |  | (23.0 | )%   
|Animal hospital |            |   | 2,585                       |       |                           |  | 3.3  | %   |         |   | 3,250    |        |      |  | 4.5     | %   |   |  | (20.5   | )%    |          |   | 5,264 |        |  |  | 3.6 | %   |      |   | 6,605 |        |  |  | 4.8 | %    |   |  | (20.3 | )%   
|Corporate       |            |   | 3,558                       |       |                           |  | 3.0  | %   |         |   | 3,663    |        |      |  | 3.4     | %   |   |  | (2.9    | )%    |          |   | 6,828 |        |  |  | 3.1 | %   |      |   | 7,589 |        |  |  | 3.7 | %    |   |  | (10.0 | )%   
|                |            |   |                             |       |                           |  |      |     |         |   |          |        |      |  |         |     |   |  |         |       |          |   |       |        |  |  |     |     |      |   |       |        |  |  |     |      |   |  |       |      
|                | Total SG&A |   | $                           | 8,539 |                           |  |      | 7.3 | %       |   | $        | 10,216 |      |  |         | 9.5 | % |  |         | (16.4 | )%       |   | $     | 17,161 |  |  |     | 7.7 | %    |   | $     | 20,774 |  |  |     | 10.2 | % |  |       | (17.4 | )%
|                |            |   |                             |       |                           |  |      |     |         |   |          |        |      |  |         |     |   |  |         |       |          |   |       |        |  |  |     |     |      |   |       |        |  |  |     |      |   |  |       |      

Laboratory SG&A

Laboratory SG&A for the three months ended June 30, 2002 decreased
$907,000, or 27.5%, compared to the same prior year period. Laboratory SG&A
for the six months ended June 30, 2002 decreased $1.5 million, or 23.0%,
compared to the same prior year period. However, laboratory SG&A includes
non-cash compensation of $1.1 million for the three months ended June 30, 2001
and $2.3 million for the six months ended June 30, 2001. If non-cash
compensation were excluded from the three months ended June 30, 2001,
laboratory SG&A would have increased $241,000, or 11.2%, compared to the same
prior year period and would have been 6.0% of laboratory revenue as compared to
5.9% for the three months ended June 30, 2002. If non-cash compensation were
excluded from the six months ended June 30, 2001, laboratory SG&A would have
increased $784,000, or 18.3%, compared to the same prior year period and would
have been 6.3% of laboratory revenue as compared to 6.5% for the six months
ended June 30, 2002.

These increases in laboratory SG&A in 2002 as compared to 2001, as
adjusted to exclude non-cash compensation, were primarily due to the salaries
associated with new sales representatives, an increase in commission payments
to sales representatives (the result of increased sales), additional marketing
costs incurred on our pet health and wellness programs, and an increase in
legal settlement costs accrued in 2002.

Animal Hospital SG&A

Animal hospital SG&A for the three months ended June 30, 2002 decreased
$665,000, or 20.5%, compared to the same prior year period. Animal hospital
SG&A for the six months ended June 30, 2002 decreased $1.3 million, or 20.3%,
compared to the same prior year period. However, animal hospital SG&A includes
non-cash compensation of $1.0 million for the three months ended June 30, 2001
and $2.0 million for the six months ended June 30, 2001. If non-cash
compensation were excluded from the three months ended June 30, 2001, animal
hospital SG&A would have increased $359,000, or 16.1%, compared to the same
prior year period and would have been 3.1% as a percentage of animal hospital
revenue as compared to 3.3% for the three months ended June 30, 2002. If
non-cash compensation were excluded for the six months ended June 30, 2001,
animal hospital SG&A would have increased $707,000, or 15.5%, compared to the
same prior year period and would have been 3.3% of animal hospital revenue as
compared to 3.6% for the six months ended June 30, 2002.

These increases in animal hospital SG&A in 2002 as compared to 2001, as
adjusted to exclude non-cash compensation, primarily were due to the salaries
associated with the addition of regional medical directors.

29



---



##### Table of Contents



Corporate SG&A

Corporate SG&A for the three months ended June 30, 2002 decreased
$105,000, or 2.9%, compared to the same prior year period. Corporate SG&A for
the six months ended June 30, 2002 decreased $761,000 or 10.0%, compared to the
same prior year period. However, corporate SG&A for the three months ended
June 30, 2001 includes non-cash compensation of $308,000 and management fees of
$620,000 paid pursuant to our management agreement with Leonard Green &
Partners that was terminated in November 2001. Corporate SG&A for the six
months ended June 30, 2001 includes non-cash compensation of $616,000 and
management fees of $1.2 million, as described above. If non-cash compensation
and management fees were excluded from the three months ended June 30, 2001,
corporate SG&A would have increased $823,000, or 30.1%, compared to the same
prior year period, and would have been 2.6% as a percentage of total revenue as
compared to 3.0% for the three months ended June 30, 2002. If non-cash
compensation and management fees were excluded from the six months ended June
30, 2001, corporate SG&A would have increased $1.1 million, or 19.1%, compared
to the same prior year period and would have been 2.8% as a percentage of total
revenue as compared to 3.1% for the six months ended June 30, 2002.

These increases in corporate SG&A in 2002 as compared to 2001, as adjusted
to exclude non-cash compensation and management fees, were primarily due to the
fees associated with increased professional services and insurance costs as a
result of becoming a publicly traded company.

30



---



##### Table of Contents



Adjusted EBITDA

The following tables summarize our Adjusted EBITDA and our Adjusted EBITDA
as a percentage of applicable revenue (in thousands):

|                                                  |                       |   |                             |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |      |  
|------------------------------------------------- | --------------------- | - | --------------------------- | ------ | ------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                  |                       |   | Three Months Ended June 30,
|                                                  |                       |   |                            
|                                                  |                       |   | 2002                        |        | 2001    |  |      |      |        
|                                                  |                       |   |                             |        |         |  |      |      |        
|                                                  |                       |   |                             |        |         |  | % of |      |         |   |          |        | % of |  |      |      |  
|                                                  |                       |   | $                           |        | Revenue |  | $    |      | Revenue |   | % Change
|                                                  |                       |   |                             |        |         |  |      |      |         |   |         
|Laboratory Adjusted EBITDA (1)                    |                       | $ | 16,074                      |        |         |  | 39.6 | %    |         | $ | 12,950   |        |      |  | 36.3 | %    |   |  | 24.1 | %   
|Animal hospital Adjusted EBITDA (2)               |                       |   | 18,666                      |        |         |  | 23.7 | %    |         |   | 16,471   |        |      |  | 22.6 | %    |   |  | 13.3 | %   
|Other revenue                                     |                       |   | 500                         |        |         |  |      |      |         |   | 500      |        |      |  |      |      |   |  |      |     
|Corporate selling, general and
administrative (3) |                       |   | (3,558                      | )      |         |  | (3.0 | )%   |         |   | (2,735   | )      |      |  | (2.6 | )%   |   |  |      |     
|                                                  |                       |   |                             |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     
|                                                  | Total Adjusted EBITDA |   | $                           | 31,682 |         |  |      | 27.0 | %       |   | $        | 27,186 |      |  |      | 25.4 | % |  |      | 16.5 | %
|                                                  |                       |   |                             |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     



---

|(1) |  | For the three months ended June 30, 2001, laboratory EBITDA was adjusted to
exclude non-cash compensation of $1.7 million. There were no adjustments in
2002.                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | For the three months ended June 30, 2001, animal hospital EBITDA was adjusted
to exclude non-cash compensation of $1.0 million. There were no adjustments in
2002.                                                           
|   
|   
|   
|   
|(3) |  | For the three months ended June 30, 2001, corporate selling, general and
administrative expense was adjusted to exclude non-cash compensation of
$308,000 and management fees of $620,000. There were no adjustments in 2002.

|                                                  |                       |   |                           |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |      |  
|------------------------------------------------- | --------------------- | - | ------------------------- | ------ | ------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                  |                       |   | Six Months Ended June 30,
|                                                  |                       |   |                          
|                                                  |                       |   | 2002                      |        | 2001    |  |      |      |        
|                                                  |                       |   |                           |        |         |  |      |      |        
|                                                  |                       |   |                           |        |         |  | % of |      |         |   |          |        | % of |  |      |      |  
|                                                  |                       |   | $                         |        | Revenue |  | $    |      | Revenue |   | % Change
|                                                  |                       |   |                           |        |         |  |      |      |         |   |         
|Laboratory Adjusted EBITDA (1)                    |                       | $ | 29,496                    |        |         |  | 37.7 | %    |         | $ | 23,743   |        |      |  | 34.7 | %    |   |  | 24.2 | %   
|Animal hospital Adjusted EBITDA (2)               |                       |   | 31,499                    |        |         |  | 21.4 | %    |         |   | 27,500   |        |      |  | 20.1 | %    |   |  | 14.5 | %   
|Other revenue                                     |                       |   | 1,000                     |        |         |  |      |      |         |   | 1,000    |        |      |  |      |      |   |  |      |     
|Corporate selling, general and
administrative (3) |                       |   | (6,828                    | )      |         |  | (3.1 | )%   |         |   | (5,733   | )      |      |  | (2.8 | )%   |   |  |      |     
|                                                  |                       |   |                           |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     
|                                                  | Total Adjusted EBITDA |   | $                         | 55,167 |         |  |      | 24.9 | %       |   | $        | 46,510 |      |  |      | 22.9 | % |  |      | 18.6 | %
|                                                  |                       |   |                           |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     



---

|(1) |  | For the six months ended June 30, 2001, laboratory EBITDA was adjusted to
exclude non-cash compensation of $3.4 million. There were no adjustments in
2002.                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | For the six months ended June 30, 2001, animal hospital EBITDA was adjusted to
exclude non-cash compensation of $2.0 million. There were no adjustments in
2002.                                                               
|   
|   
|   
|   
|(3) |  | For the six months ended June 30, 2001, corporate selling, general and
administrative expense was adjusted to exclude non-cash compensation of
$616,000 and management fees of $1.2 million. There were no adjustments in
2002.

Depreciation and Amortization

Depreciation and amortization expense decreased $3.3 million, or 51.2%,
for the three months ended June 30, 2002 and decreased $6.4 million, or 50.3%,
for the six months ended June 30, 2002, compared to the same periods in the
prior year.

This decrease is primarily related to our implementation of SFAS No. 142.
As a result of that implementation, we no longer amortized goodwill as of
January 1, 2002. For a detailed discussion of SFAS No. 142, see New
Accounting Pronouncements. For the three and six months ended June 30, 2001
we had $2.3 million and $4.6 million of goodwill amortization expense,
respectively. In November 2001, we terminated non-competition agreements with
members of senior management. For the three and six months ended June 30,
2001, we had expense related to the amortization of non-competition agreements
of $1.3 million and $2.6 million, respectively.

Net Interest Expense

Net interest expense decreased $573,000, or 5.2%, to $10.3 million for the
three months ended June 30, 2002 from $10.9 million for the three months ended
June 30, 2001. Net interest expense decreased $1.7 million, or 7.9%, to $20.3
million for the six months ended June 30, 2002 from $22.1 million for the six
months ended June 30, 2001.

31



---



##### Table of Contents



The decrease in net interest expense primarily was due to the effect of
decreasing interest rates on our variable rate obligations, and the refinancing
of a portion of our higher-yield, fixed rate debt with lower-yield, fixed rate
debt.

Other (Income) Expense

Other (income) expense consisted of non-cash gains or losses on a hedging
instrument resulting from changes in the time value of our collar agreement.
See Footnote (7), Derivatives to the Notes to Condensed, Consolidated
Financial Statements for additional information.

Provision for Income Taxes in Income of Subsidiaries

Our effective income tax rate for each period can vary from the statutory
rate primarily due to the non-deductibility for income tax purposes of certain
items. In 2001, our effective income tax rate varied from the statutory rate
primarily due to the non-deductibility of the amortization of a portion of
goodwill, the recognition of non-cash compensation and the write-down of zero
tax basis assets. In 2002, our effective income tax rate is comparable to the
statutory rate.

Minority Interest in Income of Subsidiaries

Minority interest in income of subsidiaries represents our partners
proportionate share of net income generated by our subsidiaries that we do not
wholly own. The increases in minority interest for the three and six months
ended June 30, 2002 were the result of a change in the proportionate ownership
percentages of the subsidiaries, primarily due to an increase in the number of
partners.

Increase in Carrying Amount of Redeemable Preferred Stock

The holders of our series A redeemable preferred stock and our series B
redeemable preferred stock were entitled to receive dividends at a rate of 14%
and 12%, respectively. The dividends not paid in cash compounded quarterly.
The dividends earned during the three and six months ended June 30, 2001 were
added to the liquidation preference of the preferred stock. In November 2001,
we redeemed all of the outstanding series A and series B redeemable preferred
stock using proceeds from our initial public offering.

Liquidity and Capital Resources

Discussion of 2002

Cash and cash equivalents increased to $17.7 million at June 30, 2002 from
$7.1 million at December 31, 2001. The increase primarily resulted from $31.8
million provided by operating activities offset by $16.1 million used in
investing activities and $5.1 million used in financing activities.

Net cash of $31.8 million provided by operating activities consisted
primarily of $16.1 million of net income adjusted for non-cash expenses of
$13.2 million, a $2.8 million decrease in prepaid income taxes, a $1.9 million
increase in income taxes payable, a $3.6 million net change in deferred tax
assets and liabilities and $5.8 million used by other working capital changes.

Net cash of $16.1 million used in investing activities is composed
primarily of $6.2 million to purchase property and equipment and $10.0 million
related to the acquisition of animal hospitals.

Net cash of $5.1 million used in financing activities is composed
primarily of $2.5 million used to repay debt obligations and $2.7 million used
to pay accrued financing and recapitalization costs.

32



---



##### Table of Contents



Future Cash Requirements

We expect to fund our liquidity needs primarily from operating cash flows,
cash on hand and, if needed, borrowings under our $50.0 million revolving
credit facility, which we have not utilized as of June 30, 2002. We believe
these sources of funds will be sufficient to continue our operations and
planned capital expenditures and satisfy our scheduled principal and interest
payments under debt and capital lease obligations for at least the next 12
months. However, a significant portion of our cash requirements will be
determined by the pace and size of our acquisitions.

Estimated future uses of cash for the remainder of 2002 include capital
expenditures for land, buildings and equipment of approximately $8.8 million.
In addition, we intend to use available liquidity to continue our growth
through the selective acquisition of animal hospitals, primarily for cash. We
continue to examine acquisition opportunities in the laboratory field, which
may impose additional cash requirements. Our acquisition program contemplates
the acquisition of 15 to 25 animal hospitals per year and a planned cash
commitment of up to $30.0 million. However, we may purchase either fewer or
greater number of facilities depending upon opportunities that present
themselves and our cash requirements may change accordingly. In addition,
although we intend to primarily use cash in our acquisitions, we may use debt
or stock to the extent we deem it appropriate.

In addition to the foregoing, we will use approximately $2.7 million of
cash for the remainder of 2002 to pay the mandatory principal payments due on
our outstanding indebtedness. However, we may elect to pre-pay principal. See
Description of Indebtedness below for additional cash obligations.

Description of Indebtedness

In September 2000, we entered into a credit and guaranty agreement for
$300.0 million of senior secured credit facilities. The credit and guaranty
agreement includes a $50.0 million revolving credit facility as well as the
senior term A and B notes. The revolving credit facility and senior term A
notes mature in September 2006. The senior term B notes mature in September
2008. Borrowings under the credit and guaranty agreement bear interest, at our
option, on either the base rate, which is the higher of the administrative
agents prime rate or the Federal funds rate plus 0.5%, or the adjusted
eurodollar rate, which is the rate per annum obtained by dividing (1) the rate
of interest offered to the administrative agent on the London interbank market
by (2) a percentage equal to 100% minus the stated maximum rate of all reserve
requirements applicable to any member bank of the Federal Reserve System in
respect of eurocurrency liabilities. The base rate margins for the senior
term A notes and the revolving credit facility range from 1.00% to 2.25% per
annum and the margin for the senior term B notes is 2.75%. The eurodollar rate
margins for the senior term A notes and the revolving credit facility range
from 2.00% to 3.25% per annum and the margin for the senior term B notes is
3.75%. As of June 30, 2002, we have not utilized the revolving credit
facility. As of June 30, 2002, we have $22.6 million principal amount
outstanding under the senior term A notes and $120.5 million principal amount
outstanding under the senior term B notes.

In September 2000, we issued $20.0 million principal amount of senior
subordinated notes due on September 20, 2010. Interest on these senior
subordinated notes is 13.5% per annum, payable semi-annually in arrears in
cash. As of June 30, 2002, the outstanding principal balance of our senior
subordinated notes was $15.0 million. We and each existing and future domestic
wholly-owned restricted subsidiary of our subsidiary, Vicar, have jointly and
severally, fully and unconditionally guaranteed these notes. These guarantees
are unsecured and subordinated in right of payment to all existing and future
indebtedness outstanding under the credit and guaranty agreement and any other
indebtedness permitted to be incurred by Vicar under the terms of the indenture
agreement for these notes.

In September 2000, we issued $100.0 million principal amount of senior
notes due September 20, 2010. Interest on our senior notes is 15.5% per annum,
payable semi-annually in arrears in cash or by issuance of additional senior
notes. We have issued $21.0 million in additional senior notes to pay interest
since the issue date. As of June 30, 2002, the outstanding principal balance
of our senior notes was $64.3 million.

In November 2001, we issued $170.0 million principal amount of senior
subordinated notes due December 1, 2009, which were exchanged for substantially
similar securities that are registered under the Securities Act effective June
12, 2002. Interest on these senior subordinated notes is 9.875% per annum,
payable semi-annually in

33



---



##### Table of Contents



arrears in cash. As of June 30, 2002, the outstanding principal balance
of these senior subordinated notes was $170.0 million. We and each existing
and future domestic wholly-owned restricted subsidiary of Vicar have jointly
and severally, fully and unconditionally guaranteed these notes. These
guarantees are unsecured and subordinated in right of payment to all existing
and future indebtedness outstanding under the credit and guaranty agreement and
any other indebtedness permitted to be incurred by Vicar under the terms of the
indenture agreement for these notes.

The credit and guaranty agreement contains certain financial covenants
pertaining to interest coverage, fixed charge coverage and leverage ratios. In
addition, the credit and guaranty agreement has restrictions pertaining to
capital expenditures, acquisitions and the payment of dividends on all classes
of stock. We believe the most restrictive covenant is the fixed charge
coverage ratio, which is calculated on a last twelve-month basis by dividing
pro forma adjusted EBITDA by fixed charges. Fixed charges are defined as cash
interest expense, scheduled principal payments on debt obligations, capital
expenditures, management fees paid and provision for income taxes. At June 30,
2002, we had a fixed charge coverage ratio of 1.58 to 1.00. The credit and
guaranty agreement required a fixed charge coverage ratio of no less than 1.10
to 1.00 and requires a fixed charge coverage ratio of no less than 1.10 to 1.00
in future periods.

The following table indicates our current contractual annual cash
obligations:

|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |        |  |  |   |         | 
|--------------------------- |  | ----- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                            |  | Total |         | 2002 |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | Thereafter
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |           
|Long-term debt              |  | $     | 391,431 |      |  | $    | 5,159  |      |  | $    | 5,456  |      |  | $          | 6,160  |  |  | $ | 22,089  |  |  | $ | 21,971 |  |  | $ | 330,596 | 
|Fixed interest              |  |       | 198,889 |      |  |      | 20,880 |      |  |      | 19,270 |      |  |            | 19,245 |  |  |   | 26,720  |  |  |   | 26,196 |  |  |   | 86,578  | 
|Variable interest           |  |       | 78,744  |      |  |      | 10,020 |      |  |      | 12,160 |      |  |            | 13,378 |  |  |   | 12,914  |  |  |   | 12,079 |  |  |   | 18,193  | 
|Collar agreement            |  |       | 2,080   |      |  |      | 2,080  |      |  |      |       |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|PIK interest                |  |       | 37,104  |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   | 37,104  |  |  |   |       |  |  |   |        | 
|Capital lease obligations   |  |       | 79      |      |  |      | 79     |      |  |      |       |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|Operating leases            |  |       | 192,612 |      |  |      | 12,247 |      |  |      | 12,530 |      |  |            | 12,575 |  |  |   | 12,285  |  |  |   | 12,165 |  |  |   | 130,810 | 
|Other long-term
obligations |  |       | 2,424   |      |  |      | 2,424  |      |  |      |       |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |        |  |  |   |         | 
|                            |  | $     | 903,363 |      |  | $    | 52,889 |      |  | $    | 49,416 |      |  | $          | 51,358 |  |  | $ | 111,112 |  |  | $ | 72,411 |  |  | $ | 566,177 | 
|                            |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |         |  |  |   |        |  |  |   |         | 

We have both fixed rate and variable rate debt. Our variable rate debt is
based on a variable rate component plus a fixed margin. We projected the
variable rate component to be 3.35%, 5.13%, 6.38%, 6.50% and 6.65% for years
2002 through 2006, respectively. Our consolidated financial statements
included in our 2001 Annual Report on Form 10-K discuss these variable rate
notes in more detail.

Interest on our 15.5% senior notes is payable semi-annually, in cash or by
way of the issuance of additional senior notes payable semi-annually, in cash
at our option through March 2005. We have elected and intend to continue
electing the option of paying interest due in the form of issuing additional
senior notes through March 2005. These additional senior notes issued (PIK
interest) are payable in full in cash in September 2005 as reflected in the
above table. After March 2005, interest is payable semi-annually, in cash.

Our Collar Agreement

On November 13, 2000, we entered into a no-fee interest rate collar
agreement with Wells Fargo Bank effective November 15, 2000 and expiring
November 15, 2002. Our collar agreement is considered a cash flow hedge based
on the London interbank offer rate, or LIBOR, pays out monthly, resets monthly
and has a cap and floor notional amount of $62.5 million, with a cap rate of
7.5% and floor rate of 5.9%.

The actual cash paid by us as a result of LIBOR rates falling below the
floor of our collar agreement is recorded as a component of earnings. For the
six months ended June 30, 2002, we have made payments of $1.3 million which are
included in interest expense.

At June 30, 2002, the fair market value of our collar agreement was a net
liability to us of $970,000 and is included in other accrued liabilities on our
balance sheet.

34



---



##### Table of Contents



When the Collar Agreement expires on November 15, 2002, management intends
to enter into another derivative contract to hedge approximately 25% of our
senior debt obligations outstanding against variable interest rates.
Management does not anticipate entering into any other derivative contracts at
this time.

New Accounting Pronouncements

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board, (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives. SFAS No. 142 requires that
these assets be reviewed for impairment at least annually, or whenever there is
an indication of impairment. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives and reviewed for impairment
in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

SFAS No. 142 requires companies to allocate their goodwill to identifiable
reporting units, which are then tested for impairment using a two-step process
detailed in the statement. The first step requires comparing the fair value of
each reporting unit with its carrying amount, including goodwill. If that fair
value exceeds the carrying amount, the second step of the process is not
necessary and there are no impairment issues. If that fair value does not
exceed that carrying amount, companies must perform the second step that
requires a hypothetical allocation of the fair value of the reporting unit to
the reporting units assets and liabilities as if the unit were just purchased
by the company at the fair value price. In this hypothetical sale, the excess
of the fair value of the reporting unit over its re-evaluated, marked-to-market
net assets would be the new basis for the reporting units goodwill and a write
down to this new value would be recognized as an expense.

We adopted SFAS No. 142 on January 1, 2002. In doing so, we determined
that we have two reporting units, Laboratory and Animal Hospital. On April 15,
2002, an independent valuation group concluded that the fair value of our
reporting units exceeded their carrying value and accordingly, as of that date,
there were no goodwill impairment issues. We plan to perform a valuation of
our reporting units annually, or upon significant changes in our business
environment.

As of June 30, 2002 our goodwill, net of accumulated amortization, was
$325.7 million. We recorded $2.3 million and $4.6 million in goodwill
amortization, for the three and six months ended June 30, 2001, respectively.
Because of the adoption of SFAS No. 142 there was no amortization of goodwill
for the three and six months ended June 30, 2002.

Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. We will adopt SFAS No. 143
in the first quarter of fiscal year 2003. We are evaluating the impact of the
adoption of SFAS No. 143 will have on our financial statements.

Impairment of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation for discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to be Disposed of by Sale, and the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30 (APB
No. 30), Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. We adopted SFAS No. 144 on
January 1, 2002 without material impact on our financial statements.

35



---



##### Table of Contents



We will continually evaluate whether events, circumstances or net losses
at the entity level have occurred that indicate the remaining estimated useful
life of long-lived assets may warrant revision or that the remaining balance of
these assets may not be recoverable. When factors indicate that these assets
should be evaluated for possible impairment, we will estimate the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the long-lived assets in question. If that estimate is less
than the carrying value of the assets under review, we will recognize an
impairment loss equal to that difference.

Gains and Losses from Extinguishment of Debt and Capital Leases

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, to be applied in fiscal years beginning after May 15, 2002 with
early adoption encouraged.

Under SFAS No. 145, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of APB No. 30.
Under APB No. 30, events are considered extraordinary only if they possess a
high degree of abnormality and are not likely to recur in the foreseeable
future. Gains and losses that do not meet the unusual and infrequent criteria
are to be included as a component of operating income.

In 2001 and 2000, we refinanced certain of our debt and recognized
extraordinary losses from the early extinguishment of debt. Our adoption of
SFAS No. 145 will not change our accounting for these losses. We may refinance
or pay down certain debt in the future. Depending on the nature of those
transactions, related gains or losses may not qualify as extraordinary.

SFAS No. 145 also amends SFAS No. 13, Accounting for Leases. Under SFAS
No. 145, if a capital lease is modified such that it becomes an operating
lease, a gain or loss must be recognized similar to the accounting used for
sale-leaseback transactions as provided in SFAS No. 28 and No. 98. At June 30,
2002, we had capital lease obligations of $51,000. Although the Company may
enter into more capital leases, management does not expect SFAS No. 145 to have
a material impact on its financial statements.

Costs Associated with Exit or Disposal of Activities

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.SFAS No. 146 requires that liabilities
associated with exit or disposal activities be recognized when a company is
committed to future payment of those liabilities under a binding, legal
obligation. SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring),
which required that exit and disposal costs be recognized as liabilities when a
company formalized its plan for exiting or disposing of an activity even if no
legal obligation had been established.

SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, however early adoption is encouraged.
Currently, we have no plans to exit or dispose of any of its business
activities that would require the use of SFAS No. 146 nor do we anticipate that
SFAS No. 146 will change any of our business practices.

Outlook

In our second quarter of 2002, we reported earnings per diluted share of
$0.28, which was $0.03 above the street consensus. In light of these results,
we raised our targets for 2002. Our goal for 2002 net income has increased to
a range of $26 to $27 million and our goal for 2002 EBITDA is a range of $99 to
$102 million. Based upon 37.3 million shares expected to be outstanding,
annual earnings per diluted share for 2002 is currently expected to be $0.70.

Our future results of operations in this outlook involve a number of risks
and uncertainties. We believe that we have the service offerings, facilities,
personnel, and competitive and financial resources for continued business
success, but future revenue, costs, margins and profits are all influenced by a
number of factors, all of which are inherently difficult to forecast.

36



---



##### Table of Contents



Risk Factors

This Quarterly Report on Form 10-Q, including Risk Factors set forth
below, contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove
incorrect, could cause our results and the results of our consolidated
subsidiaries to differ materially from those expressed or implied by these
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any projections of earnings, revenue or other financial items; any statements
of the plans, strategies and objectives of management for future operations;
any statement concerning proposed new services or developments; any statements
regarding the future economic conditions or performance; any statements of
belief; and any statements of assumptions underlying any of the foregoing. The
risks, uncertainties and assumptions referred to above include difficulty of
managing our growth and integrating our new acquisitions and other risks that
are described from time to time in our Securities and Exchange Commission
reports, including but not limited to the items discussed in Risk Factors set
forth below. Should events occur subsequent to August 9, 2002 that make it
necessary to update the forward-looking information contained in this Form
10-Q, the updated forward-looking information will be filed with the Securities
and Exchange Commission in a quarterly report on Form 10-Q or a current report
on Form 8-K, each of which will be available at our website at
www.vcaantech.com.

If we are unable to effectively execute our growth strategy, we may not achieve
our desired economies of scale and our margins and profitability may decline.

Our success depends in part on our ability to build on our position as a
leading animal health care services company through a balanced program of
internal growth initiatives and selective acquisitions of established animal
hospitals and laboratories. If we cannot implement or effectively execute
these initiatives and acquisitions, our results of operations will be adversely
affected. Even if we effectively implement our growth strategy, we may not
achieve the economies of scale that we have experienced in the past or that we
anticipate. Our internal growth rate may decline and could become negative.
Our laboratory internal revenue growth has fluctuated between 9.1% and 12.6%
for each fiscal year from 1998 through 2001. Similarly, our animal hospital
same-facility revenue growth rate has fluctuated between 2.6% and 7.0% over the
same fiscal years. Our internal growth may continue to fluctuate and may be
below our historical rates. Any reductions in the rate of our internal growth
may cause our revenues and margins to decrease. Our historical growth rates
and margins are not necessarily indicative of future results.

Our business and results of operations may be adversely affected if we are
unable to manage our growth effectively.

Since January 1, 1996, we have experienced rapid growth and expansion.
Our failure to manage our growth effectively may increase our costs of
operations and hinder our ability to execute our business strategy. Our rapid
growth has placed, and will continue to place, a significant strain on our
management and operational systems and resources. At January 1, 1996, we
operated 59 hospitals, operated laboratories servicing approximately 9,000
customers in 27 states and had approximately 1,150 full-time equivalent
employees. At June 30, 2002, we operated 220 hospitals, operated laboratories
servicing approximately 13,000 customers in all 50 states and had approximately
3,500 full-time equivalent employees. If our business continues to grow, we
will need to improve and enhance our overall financial and managerial controls,
reporting systems and procedures, and expand, train and manage our workforce in
order to maintain control of expense and achieve desirable economies of scale.
We also will need to increase the capacity of our current systems to meet
additional demands.

Difficulties integrating new acquisitions may impose substantial costs and
cause other problems for us.

Our success depends on our ability to timely and cost-effectively acquire,
and integrate into our business, additional animal hospitals and laboratories.
Any difficulties in the integration process may result in increased expense,
loss of customers and a decline in profitability. We expect to acquire 15 to
25 animal hospitals per year, however, based on the opportunity, the number
could be higher. Historically we have experienced delays and increased costs
in integrating some hospitals primarily where we acquire a large number of
hospitals in a single region at or about the same time. In these cases, our
field management may spend a predominant amount of time integrating these new
hospitals and less time managing our existing hospitals in those regions.
During these periods, there may be less attention directed to marketing efforts
or staffing issues. In these circumstances, we also have

37



---



##### Table of Contents



experienced delays in converting the systems of acquired hospitals into our
systems, which results in increased payroll expense to collect our results and
delays in reporting our results, both for a particular region and on a
consolidated basis. These factors have resulted in decreased revenue,
increased costs and lower margins. We continue to face risks in connection
with our acquisitions including:



| |  |  | negative effects on our operating results;                                                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | impairments of goodwill;                                                                                                              
|
| |  |  | dependence on retention, hiring and training of key personnel, including specialists;                                                 
|
| |  |  | impairment of intangible assets; and                                                                                                  
|
| |  |  | contingent and latent risks associated with the past
operations of, and other unanticipated problems arising in, an
acquired business.

The process of integration may require a disproportionate amount of the
time and attention of our management, which may distract managements attention
from its day-to-day responsibilities. In addition, any interruption or
deterioration in service resulting from an acquisition may result in a
customers decision to stop using us. For these reasons, we may not realize
the anticipated benefits of an acquisition, either at all or in a timely
manner. If that happens and we incur significant costs, it could have a
material adverse impact on our business.

The carrying value of our goodwill
could be subject to impairment write-downs.

At June 30, 2002, our balance sheet reflected
$325.7 million of goodwill, which is a substantial portion of
our total assets of $491.6 million at that date. We expect that
the aggregate amount of goodwill on our balance sheet will increase
as a result of future acquisitions. We continually evaluate whether
events or circumstances have occurred that suggest that the fair
market value of each of our reporting units exceeds their carrying
values. If we determine that the fair market value of one of our
reporting units does not exceed its carrying value, this may result
in an impairment write-down of the goodwill for that reporting unit.
The impairment write-down would be reflected as expense and could
have a material adverse effect on our results of operations during
the period in which we recognize the expense. In 2002, an independent
valuation group concluded that the fair value of our goodwill
exceeded its carrying value and accordingly, as of that date,
there were no goodwill impairment issues. However, in the future we
may incur impairment charges related to the goodwill already recorded
or arising out of future acquisitions.

We require a significant amount of cash to service our debt and expand our
business as planned.

We have, and will continue to have, a substantial amount of debt. Our
substantial amount of debt requires us to dedicate a significant portion of our
cash flow from operations to pay down our indebtedness and related interest,
thereby reducing the funds available to use for working capital, capital
expenditures, acquisitions and general corporate purposes.

At June 30, 2002, our debt consisted of the following (in thousands):

|                                 |                        |   |         |         | 
|-------------------------------- | ---------------------- | - | ------- | ------- | 
|Senior term A                    |                        | $ | 22,589  |        
|Senior term B                    |                        |   | 120,472 |        
|13.5% senior subordinated notes  |                        |   | 15,000  |        
|9.875% senior subordinated notes |                        |   | 170,000 |        
|Senior notes                     |                        |   | 64,315  |        
|Other                            |                        |   | 1,734   |        
|                                 |                        |   |         |        
|                                 |                        |   | 394,110 |        
|Less  unamortized discount      |                        |   | (7,253  | )      
|                                 |                        |   |         |        
|                                 | Total debt obligations |   | $       | 386,857 | 
|                                 |                        |   |         |        

The following table sets forth the principal and interest due by us for
each of the years ending December 31:

|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |        | 
|----------------- | ----- | - | ------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                  |       |   | 2002   |        | 2003 |   | 2004   |        | 2005 |   | 2006  
|                  |       |   |        |        |      |   |        |        |      |   |       
|Long-term debt    |       | $ | 5,159  |        |      | $ | 5,456  |        |      | $ | 6,160  |        |  | $ | 22,089 |        |  | $ | 21,971 |       
|Fixed interest    |       |   | 20,880 |        |      |   | 19,270 |        |      |   | 19,245 |        |  |   | 26,720 |        |  |   | 26,196 |       
|Variable interest |       |   | 10,020 |        |      |   | 12,160 |        |      |   | 13,378 |        |  |   | 12,914 |        |  |   | 12,079 |       
|Collar agreement  |       |   | 2,080  |        |      |   |       |        |      |   |       |        |  |   |       |        |  |   |       |       
|PIK interest      |       |   |       |        |      |   |       |        |      |   |       |        |  |   | 37,104 |        |  |   |       |       
|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |       
|                  | Total |   | $      | 38,139 |      |   | $      | 36,886 |      |   | $      | 38,783 |  |   | $      | 98,827 |  |   | $      | 60,246 | 
|                  |       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |       

We have both fixed rate and variable rate debt. Our variable rate debt is
based on a variable rate component plus a fixed margin. We projected the
variable rate component to be 3.35%, 5.13%, 6.38%, 6.50% and 6.65% for years
2002 through 2006, respectively. Our consolidated financial statements
included in our Annual Report on Form 10-K discuss these variable rate notes in
more detail.

38



---



##### Table of Contents



Interest on our 15.5% senior notes is payable semi-annually, in cash or by
way of the issuance of additional senior notes payable semi-annually, in cash
at our option through March 2005. We have elected and intend to continue
electing the option of paying interest due in the form of issuing additional
senior notes through March 2005. These additional senior notes issued (PIK
interest) are payable in full in cash in September 2005 as reflected in the
above table. After March 2005, interest is payable semi-annually, in cash.

Our ability to make payments on our debt, and to fund acquisitions, will
depend on our ability to generate cash in the future. Insufficient cash flow
could place us at risk of default under our debt agreements or could prevent us
from expanding our business as planned. Our ability to generate cash is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. Our business may not generate
sufficient cash flow from operations, our strategy to increase operating
efficiencies may not be realized and future borrowings may not be available to
us under our senior credit facility in an amount sufficient to enable us to
service our debt or to fund our other liquidity needs. In order to meet our
debt obligations, we may need to refinance all or a portion of our debt. We
may not be able to refinance any of our debt on commercially reasonable terms
or at all.

Our debt instruments adversely affect our ability to run our business.

Our substantial amount of debt, as well as the guarantees of our
subsidiaries and the security interests in our assets and those of our
subsidiaries, could impair our ability to operate our business effectively and
may limit our ability to take advantage of business opportunities. For
example, our indentures and senior credit facility:



| |  |  | limit our funds available to repay the senior notes and
senior subordinated notes;                                                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limit our ability to borrow additional funds or to obtain
other financing in the future for working capital, capital
expenditures, acquisitions, investments and general corporate
purposes;
|
| |  |  | limit our ability to dispose of our assets, create liens on
our assets or to extend credit;                                                                                                 
|
| |  |  | make us more vulnerable to economic downturns and reduce our
flexibility in responding to changing business and economic
conditions;                                                        
|
| |  |  | limit our flexibility in planning for, or reacting to, changes in our business or industry;                                                                                                 
|
| |  |  | place us at a competitive disadvantage to our competitors with less debt; and                                                                                                               
|
| |  |  | restrict our ability to pay dividends, repurchase or redeem
our capital stock or debt, or merge or consolidate with another
entity.                                                         

The terms of our indentures and senior credit facility allow us, under
specified conditions, to incur further indebtedness, which would heighten the
foregoing risks. If compliance with our debt obligations materially hinders
our ability to operate our business and adapt to changing industry conditions,
we may lose market share, our revenue may decline and our operating results may
suffer.

Our failure to satisfy covenants in our debt instruments will cause a default
under those instruments.

In addition to imposing restrictions on our business and operations, our
debt instruments include a number of covenants relating to financial ratios and
tests. Our ability to comply with these covenants may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions. The breach of any of these covenants would result in a default
under these instruments. An event of default would permit our lenders and
other debtholders to declare all amounts borrowed from them to be due and
payable, together with accrued and unpaid interest. Moreover, these lenders
and other debtholders would have the option to terminate any obligation to make
further extensions of credit under these instruments. If we are unable to
repay debt to our senior lenders, these lenders and other debtholders could
proceed against our assets.

39



---



##### Table of Contents



Due to the fixed cost nature of our business, fluctuations in our revenue could
adversely affect our operating income.

Approximately 57% of our expense, particularly rent and personnel costs,
are fixed costs and are based in part on expectations of revenue. We may be
unable to reduce spending in a timely manner to compensate for any significant
fluctuations in our revenue. Accordingly, shortfalls in revenue may adversely
affect our operating income.

The significant competition in the animal health care services industry could
cause us to reduce prices or lose market share.

The animal health care services industry is highly competitive with few
barriers to entry. To compete successfully, we may be required to reduce
prices, increase our operating costs or take other measures that could have an
adverse effect on our financial condition, results of operations, margins and
cash flow. If we are unable to compete successfully, we may lose market share.

There are many clinical laboratory companies that provide a broad range of
laboratory testing services in the same markets we service. Our largest
competitor for outsourced laboratory testing services is Idexx Laboratories,
Inc. Also, Idexx and several other national companies provide on-site
diagnostic equipment that allows veterinarians to perform their own laboratory
tests.

Our primary competitors for our animal hospitals in most markets are
individual practitioners or small, regional, multi-clinic practices. Also,
regional pet care companies and some national companies, including operators of
super-stores, are developing multi-regional networks of animal hospitals in
markets in which we operate. Historically, when a competing animal hospital
opens in close proximity to one of our hospitals, we have reduced prices,
expanded our facility, retained additional qualified personnel, increased our
marketing efforts or taken other actions designed to retain and expand our
client base. As a result, our revenue may decline and our costs increase.

We may experience difficulties hiring skilled veterinarians due to shortages
which could disrupt our business.

As the pet population continues to grow, the need for skilled
veterinarians continues to increase. If we are unable to retain an adequate
number of skilled veterinarians, we may lose customers, our revenue may decline
and we may need to sell or close animal hospitals. As of June 30, 2002, there
were 28 veterinary schools in the country accredited by the American Veterinary
Medical Association. These schools graduate approximately 2,100 veterinarians
per year. There is a shortage of skilled veterinarians across the country,
particularly in some regional markets in which we operate animal hospitals
including Northern California. Attracting veterinarians to these regions may
be difficult, due to the rural environment, an unwillingness to relocate and
lower compensation. During these shortages in these regions, we may be unable
to hire enough qualified veterinarians to adequately staff our animal
hospitals, in which event we may lose market share and our revenues and
profitability may decline.

If we fail to comply with governmental regulations applicable to our business,
various governmental agencies may impose fines, institute litigation or
preclude us from operating in certain states.

The laws of many states prohibit business corporations from providing, or
holding themselves out as providers of, veterinary medical care. These laws
vary from state to state and are enforced by the courts and by regulatory
authorities with broad discretion. As of June 30, 2002 we operated 57 animal
hospitals in 11 states with these laws, including 21 in New York. We may
experience difficulty in expanding our operations into other states with
similar laws. Given varying and uncertain interpretations of the veterinary
laws of each state, we may not be in compliance with restrictions on the
corporate practice of veterinary medicine in all states. A determination that
we are in violation of applicable restrictions on the practice of veterinary
medicine in any state in which we operate could have a material adverse effect
on us, particularly if we were unable to restructure our operations to comply
with the requirements of that state.

We currently are a party to a lawsuit in the State of Ohio in which that
State has alleged that our management of a veterinary medical group licensed to
practice veterinary medicine in that state violates the Ohio statute
prohibiting business corporations from providing or holding themselves out as
providers of veterinary

40



---



##### Table of Contents



medical care. On March 20, 2001, the trial court in the case entered
summary judgment in favor of the State of Ohio and issued an order enjoining us
from operating in the State of Ohio in a manner that is in violation of the
State of Ohio statute. In response, we have restructured our operations in the
State of Ohio in a manner that we believe conforms to the State of Ohio law and
the courts order. The Attorney General of the State of Ohio has informed us
that it disagrees with our position that we are in compliance with the courts
order. In June 2001 we appeared at a status conference before the trial court,
at which time the court directed the parties to meet together to attempt to
settle this matter. Consistent with the trial courts directive, we engaged in
discussions with the Attorney Generals office in the State of Ohio. The
parties appeared at an additional status conference in February 2002. The
parties were not able to reach a settlement prior to the February status
conference. At that status conference, the court ordered the parties to
participate in a court-supervised settlement conference that was held
on April 19,
2002. Pursuant to discussions with the Ohio Attorney General at the
settlement conference, we submitted to the Ohio Attorney General a
revised management agreement which incorporates further revisions to
the structure of our operations in Ohio. The Attorney General
currently is in the process of reviewing the revised agreement. We may not be
able to reach a settlement, in which case we may be required to discontinue our
operations in the state. Our five animal hospitals in the State of Ohio have a
net book value of $6.4 million as of June 30, 2002. If we were required to
discontinue our operations in the State of Ohio, we may not be able to dispose
of the hospital assets for their book value. The animal hospitals located in
the State of Ohio generated revenue and operating income of $1.1 million and
$297,000, respectively, for the six months ended June 30, 2002, and $2.1
million and $409,000, for the year ended December 31, 2001.

All of the states in which we operate impose various registration
requirements. To fulfill these requirements, we have registered each of our
facilities with appropriate governmental agencies and, where required, have
appointed a licensed veterinarian to act on behalf of each facility. All
veterinarians practicing in our clinics are required to maintain valid state
licenses to practice.

Any failure in our information technology systems or disruption in our
transportation network could significantly increase testing turn-around time,
reduce our production capacity and otherwise disrupt our operations.

Our laboratory operations depend, in part, on the continued and
uninterrupted performance of our information technology systems and
transportation network. Our growth has necessitated continued expansion
upgrade of our information technology systems and transportation
network. Sustained system failures or interruption in our transportation
network or in one or more of our laboratory operations could disrupt our
ability to process laboratory requisitions, perform testing, provide test
results in a timely manner and/or bill the appropriate party. We could lose
customers and revenue as a result of a system or transportation network
failure.

Our computer systems are vulnerable to damage or interruption from a
variety of sources, including telecommunications failures, electricity
brownouts or blackouts, malicious human acts and natural disasters. Moreover,
despite network security measures, some of our servers are potentially
vulnerable to physical or electronic break-ins, computer viruses and similar
disruptive problems. Despite the precautions we have taken, unanticipated
problems affecting our systems could cause interruptions in our information
technology systems. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures in our systems.

In addition, over time we have significantly
customized the computer systems in our laboratory business. We rely
on a limited number of employees to upgrade and maintain these
systems. If we were to lose the services of some or all of these
employees, it may be time-consuming for new employees to become
familiar with our systems, and we may experience disruptions
in service during these periods.

Any substantial reduction in the number of available flights or delays in
the departure of flights will disrupt our transportation network and our
ability to provide test results in a timely manner. In addition, our Test
Express service, which services customers outside of major metropolitan areas,
is dependent on flight services in and out of Memphis and the transportation
network of Federal Express. Any sustained interruption in either flight
services in Memphis or the transportation network of Federal Express would
result in increased turn-around time for the reporting of test results to
customers serviced by our Test Express service.

We plan to relocate our largest
laboratory, which may cause disruptions to our business.

We plan to relocate
our laboratory in Farmingdale, New York to increase its capacity and
to improve its turn-around time to report laboratory results by
taking advantage of a location that is closer to major airports. We
have identified a location and begun the necessary renovations. We
currently plan to move into the new facility over the period of a
weekend in the fall, with minimal disruption to business. We may not
begin operations in this new facility either on time or within budget
due to unforeseen difficulties with construction schedules and the
relocation of information systems. If our relocation takes longer
than anticipated, we may be required to re-route laboratory services
to other laboratories which would increase our costs and cause delays
in turn-around time. Upon relocating, we may initially experience a
slower turn-around time due to unanticipated logistical problems in
transportation, telecommunications and data processing. If we cannot
execute this move efficiently, our laboratory operations, operational
efficiencies and service quality could suffer, we could lose
customers and our revenue could be adversely impacted.

The loss of Mr. Robert Antin, our Chairman, President and Chief Executive
Officer, could materially and adversely affect our business.

We are dependent upon the management and leadership of our Chairman,
President and Chief Executive Officer, Robert Antin. We have an employment
contract with Mr. Antin which may be terminated at the option of Mr. Antin. We
do not maintain any key man life insurance coverage for Mr. Antin. The loss of
Mr. Antin could materially adversely affect our business.

41



---



##### Table of Contents



Concentration of ownership among our existing executive officers, directors and
principal stockholders.

Our executive officers, directors and principal stockholders beneficially
own, in the aggregate, approximately 35.5% of our outstanding common stock. As
a result, these stockholders are able to exercise control over all matters
requiring stockholder approval and will have significant control over our
management and policies. The directors elected by these stockholders will be
able to make decisions affecting our capital structure, including decisions to
issue additional capital stock, implement stock repurchase programs and incur
indebtedness. This control may have the effect of deterring hostile takeovers,
delaying or preventing changes in control or changes in management, or limiting
the ability of our other stockholders to approve transactions that they may
deem to be in their best interests.

Terrorism and the uncertainty of war may have a material adverse effect on our
operating results.

Terrorist attacks, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, the response initiated by the United
States on October 7, 2001, and other acts of violence or war may affect the
markets in which we operate, our operations and profitability and your
investment. Further terrorist attacks against the United States or United
States businesses may occur. The potential near-term and long-term effect
these attacks may have for our customers, the markets for our services and the
U.S. economy are uncertain. The consequences of any terrorist attacks, or any
armed conflicts which may result, are unpredictable and we may not be able to
foresee events that could have an adverse effect on our markets, our business
or your investment.

42



---



##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have certain debt obligations as well as a collar agreement that are
exposed to market risk associated with variable interest rates. As of June 30,
2002, we had borrowings of $143.1 million under our
senior credit facility with fluctuating interest rates based on market
benchmarks such as LIBOR. To reduce the risk of increasing interest rates, we
entered into a no-fee interest rate collar agreement with a cap and floor
notional amount of $62.5 million, a cap rate of 7.5% and a floor rate of 5.9%,
both based on LIBOR. The collar agreement expires November 15, 2002.

Accordingly, for the period January 1, 2002 to November 15, 2002:



| |  |  | if the benchmark rate is below 5.9% and a change in the rate
does not cause the benchmark to exceed 5.9%, every one-half percent
increase in the benchmark rate will cause interest expense to
increase by $445,000, while a one-half percent decrease will cause
interest expense to decrease by $445,000;                                              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if the benchmark rate is equal to or between 5.9% and 7.5% and a
change in the rate does not cause the benchmark to exceed 7.5% or
drop below 5.9%, every one-half percent increase in the benchmark
rate will cause interest expense to increase by $718,000, while a
one-half percent decrease will cause interest expense to decrease by
$718,000; and
|
| |  |  | if the benchmark rate is above 7.5% and a change in the rate
does not cause the benchmark to drop below 7.5%, every one-half
percent increase in the benchmark rate would cause interest expense
to increase by $445,000, while a one-half percent decrease would
cause interest expense to decrease by $445,000.                                        

At June 30, 2002, the one month LIBOR rate was approximately 1.84%.

At November 15, 2002, we intend to enter into another interest hedging
agreement per the requirements of our debt obligations, the terms of which we
do not know and are unable to forecast.

43



---



##### Table of Contents






PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The Ohio Attorney Generals office filed a lawsuit on December 14, 1998,
in the Franklin County Court of Common Pleas in the State of Ohio in which the
state alleged that our management of a veterinary medical group licensed to
practice veterinary medicine in that state violates the Ohio statute
prohibiting business corporations from providing, or holding themselves out as
providers of, veterinary medical care. On March 20, 2001, the trial court in
the case entered summary judgment in favor of the State of Ohio and issued an
order enjoining us from operating in the State of Ohio in a manner that is in
violation of the state statute. In response, we have restructured our
operations in the State of Ohio in a manner that we believe conforms to the
state law and the courts order. The Attorney General of the State of Ohio
informed us that it disagrees with our position that we are in compliance with
the courts order. In June 2001, we appeared at a status conference before the
trial court at which time the court directed the parties to meet together to
attempt to settle this matter. Consistent with the trial courts directive, we
engaged in discussions with the Attorney Generals office in the State of Ohio.
The parties appeared at an additional status conference in February 2002. The
parties were not able to reach a settlement prior to the February status
conference. At that status conference, the court ordered the parties to
participate in a court-supervised settlement conference that was scheduled for
March 19, 2002. The court postponed the settlement conference until April 19,
2002. Pursuant to discussions with the Ohio Attorney General at the settlement
conference, we are in the process of further restructuring our operations in
Ohio. The next settlement conference has yet to be scheduled. If a settlement
cannot be reached, the company would be required to discontinue operations in
the state. Our five animal hospitals in the State of Ohio have a book value of
$6.4 million as of June 30, 2002. If we were required to discontinue our
operations in the State of Ohio, we may not be able to dispose of the hospital
assets for their book value. The animal hospitals located in the State of Ohio
generated revenue and operating income of $1.1 million and $297,000,
respectively, for the six months ended June 30, 2002, and $2.1 million and
$409,000, for the year ended December 31, 2001.

On November 30, 2001, two majority stockholders of a company that merged
with Zoasis.com, Inc. in June 2000 filed a civil complaint against VCA,
Zoasis.com, Inc. and Robert Antin. In the merger, the two stockholders
received a less than 10% interest in Zoasis. At the same time, VCA acquired a
less than 20% interest in Zoasis.com, Inc. for an investment of $5.0 million.
Robert Antin, VCAs Chief Executive Officer, President and Chairman of the
Board, is the majority stockholder of Zoasis.com and serves on its board of
directors. See Related Party Transactions. The complaint alleges securities fraud under California law, common
law fraud, negligent misrepresentation and declaratory judgment arising from
the plaintiffs investment in Zoasis.com. On December 31, 2001, we filed a
demurrer to the complaint. On February 25, 2002, the plaintiffs filed an
opposition to our demurrer, and on March 1, 2002, we filed our reply to
plaintiffs opposition. On March 7, 2002, our demurrer was denied. On March
22, 2002, we filed an answer to plaintiffs complaint denying all allegations
in the complaint, and we filed a counter claim alleging breach of contract and
claim and delivery. We currently are involved in the discovery
process. A status conference was held on May 9, 2002 at which
the judge ordered the parties to participate in mediation. Mediation
occurred on August 7, 2002, and no settlement was reached. The
court has scheduled a final status conference for November 22,
2002, and a trial date of December 2, 2002.

We are a party to various other legal proceedings that arise in the
ordinary course of business. Although we cannot determine the ultimate
disposition of these proceedings, we can use judgment to reasonably estimate
our liability for legal settlement costs that may arise as a result of these
proceedings. Based on our prior experience, the nature of the current
proceedings and our insurance policy coverage for such matters, we have accrued
a minimal amount for legal settlements as part of other accrued liabilities.




ITEM 2. CHANGES IN SECURITIES

None

44



---



##### Table of Contents






ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 10, 2002, we held our annual meeting of stockholders at which we
elected eight directors. Our directors were elected to one of three classes
with staggered terms as follows:



| |  |  | Class I    Will hold office until the 2003 annual meeting of
stockholders and thereafter for a term of three years. 
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | Class II    Will hold office until the 2004 annual meeting of
stockholders and thereafter for a term of three years.
|
| |  |  | Class III   Will hold office until the 2005 annual meeting of
stockholders and thereafter for a term of three years.

Accordingly, depending on the directors class status, a director will
hold office for a period of one, two or three years and until their respective
successors have been elected at the appropriate annual meeting of stockholders.

The names of the eight nominees elected to serve as our directors and the
results of the election are as follows:

|                           |  |       |   |           |            |          |            |         |   |                 |   |  |           |  |           |  |   |  |   | 
|-------------------------- |  | ----- | - | --------- | ---------- | -------- | ---------- | ------- | - | --------------- | - |  | --------- |  | --------- |  | - |  | - | 
|Candidates                 |  | Class |   | Yes Votes |            | No Votes |            | Abstain |   | Broker Non-Vote
|                           |  |       |   |           |            |          |            |         |   |                
|Arthur J. Antin            |  |       | I |           |            |          | 31,315,230 |         |   |                 |  |  |           |  | 1,202,078 |  |   |  |  | 
|John M. Baumer             |  |       | I |           |            |          | 32,513,508 |         |   |                 |  |  |           |  | 3,800     |  |   |  |  | 
|C. N. Franklin Reddick III |  |       | I |           |            |          | 32,513,433 |         |   |                 |  |  |           |  | 3,875     |  |   |  |  | 
|Robert L. Antin            |  | II    |   |           | 31,395,105 |          |            |         |  |                 |   |  | 1,122,203 |  |           |  |  | 
|John G. Danhakl            |  | II    |   |           | 32,516,508 |          |            |         |  |                 |   |  | 800       |  |           |  |  | 
|Melina Higgins             |  | II    |   |           | 32,513,433 |          |            |         |  |                 |   |  | 3,875     |  |           |  |  | 
|John Heil                  |  | III   |   |           | 32,513,508 |          |            |         |  |                 |   |  | 3,800     |  |           |  |  | 
|Peter J. Nolan             |  | III   |   |           | 32,516,508 |          |            |         |  |                 |   |  | 800       |  |           |  |  | 




ITEM 5. OTHER INFORMATION

None

45



---



##### Table of Contents






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|     |  |                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------
|99.1 |  | Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2 |  | Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)  Reports on Form 8-K:

| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Report on form 8-K, filed April 26, 2002, under item 5,
financial information for the first quarter of the fiscal year
ended December 31, 2002 and updated financial guidance for the
fiscal year 2002.                                                                                                                                                                 
|
| | Report on form 8-K, filed May 14, 2002, reporting under item 5,
Vicar Operating, Inc. offered to exchange $1,000 principal amount
of its 9.875% senior subordinated notes due 2009, which have been
registered under the Securities Act of 1933, as amended, for each
$1,000 principal amount of its outstanding 9.875% senior
subordinated notes due 2009.                 
|
| | (2) Report on form 8-K, filed May 14, 2002, reporting under item 5,
Vicar Operating, Inc. offered to exchange $1,000 principal amount
of its 9.875% senior subordinated notes due 2009, which have been
registered under the Securities Act of 1933, as amended, for each
$1,000 principal amount of its outstanding 9.875% senior
subordinated notes due 2009.             
|
| | (3) Report on form 8-K, filed June 13, 2002, reporting under item
5, Vicar Operating, Inc. completed its offer to exchange $1,000
principal amount of its 9.875% senior subordinated notes due 2009,
which have been registered under the Securities Act of 1933, as
amended, for each $1,000 principal amount of its outstanding 9.875%
senior subordinated notes due 2009.
|
| | (4) Report on form 8-K, filed June 19, 2002, reporting under item
4, dismissed Arthur Andersen LLP as the independent accountants of
VCA Antech, Inc and engaged KPMG, LLP as independent auditor to
audit financial statements for the fiscal year ending December 31,
2002.                                                                                               

46



---



##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Los Angeles, State of
California, on todays date, August 14, 2002.

| |      |  |                        
| | ---- |  | -----------------------
| | By:  |  | /s/ Tomas W. Fuller    
| |      |  |                        
| |      |  | Tomas W. Fuller        
| | Its: |  | Chief Financial Officer

47



---



##### Table of Contents






EXHIBIT INDEX

|            |      |             |  |                                                                                                     |  |  |  | 
|----------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------- |  |  |  | 
|EXHIBIT NO. |      | DESCRIPTION |  |                                                                                                     |  | 
|            |      |             |  |                                                                                                     |  | 
|            | 99.1 |             |  | Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            | 99.2 |             |  | Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

48