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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


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 March 31, 2003

| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| | 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(State or other jurisdiction of
incorporation or organization) |  | 95-4097995(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 Noo.

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

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 40,594,135 shares
as of May 12, 2003.



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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                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|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                    
|                              |                                                                                               | Certification of Chief Executive Officer of VCA Antech, Inc
|                              |                                                                                               | Certification of Chief Financial Officer of VCA Antech, Inc
|                              |                                                                                               | EXHIBIT INDEX                                              
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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##### Table of Contents



VCA ANTECH, INC.
FORM 10-Q
MARCH 31, 2003

TABLE OF CONTENTS

|         |  |                                                                                                                 |             |   
|-------- |  | --------------------------------------------------------------------------------------------------------------- | ----------- | --
|         |  |                                                                                                                 | Page Number
|         |  |                                                                                                                 |            
|Part I.  |  | Financial Information                                                                                           |             |   
|Item 1.  |  | Financial Statements                                                                                            |             |   
|         |  | Condensed, Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002 (Unaudited)                   |             | 1 
|         |  | Condensed, Consolidated Statements of Operations for the Three Months
Ended March 31, 2003 and 2002 (Unaudited) |             | 2 
|         |  | Condensed, Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002
(Unaudited) |             | 3 
|         |  | Notes to Condensed, Consolidated Financial Statements                                                           |             | 4 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                           |             | 20
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |             | 44
|Item 4.  |  | Controls and Procedures                                                                                         |             | 44
|Part II. |  | Other Information                                                                                               |             |   
|Item 1.  |  | Legal Proceedings                                                                                               |             | 44
|Item 2.  |  | Changes in Securities                                                                                           |             | 45
|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                                                                                |             | 45
|         |  | Signature                                                                                                       |             | 46
|         |  | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of
2002              |             | 47
|         |  | Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of
2002              |             | 48
|         |  | Exhibit Index                                                                                                   |             | 49





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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEETS
As of March 31, 2003 and December 31, 2002
(Unaudited)
(In thousands, except par value)

|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |         |  |  | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | -------- | ------- | --------- | ------- | ------------ | ------- |  |  | 
|                                            |                                                                                                                                                             |                                            |                                      |          |         | March 31, |         | December 31,
|                                            |                                                                                                                                                             |                                            |                                      |          |         | 2003      |         | 2002        
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |             
|                                            |                                                                                                                                                             |                                            |                                      | ASSETS   |         |           |         |              |         |  |  | 
|Current assets:                             |                                                                                                                                                             |                                            |                                      |          |         |           |         |             
|                                            | Cash and cash equivalents                                                                                                                                   |                                            | $                                    | 24,675   |         |           | $       | 6,462        |        
|                                            | Trade accounts receivable, less allowance for uncollectible accounts of $6,705
and $6,408 at March 31, 2003 and December 31, 2002, respectively             |                                            |                                      | 23,827   |         |           |         | 20,727       |        
|                                            | Inventory, prepaid expenses and other                                                                                                                       |                                            |                                      | 8,787    |         |           |         | 8,643        |        
|                                            | Deferred income taxes                                                                                                                                       |                                            |                                      | 9,709    |         |           |         | 9,528        |        
|                                            | Prepaid income taxes                                                                                                                                        |                                            |                                      | 6,153    |         |           |         | 7,614        |        
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             | Total current assets                       |                                      |          | 73,151  |           |         |              | 52,974  | 
|Property and equipment, net                 |                                                                                                                                                             |                                            | 95,098                               |          |         |           | 95,303  |             
|Other assets:                               |                                                                                                                                                             |                                            |                                      |          |         |           |         |             
|                                            | Goodwill, net                                                                                                                                               |                                            |                                      | 348,569  |         |           |         | 342,614      |        
|                                            | Covenants not to compete, net                                                                                                                               |                                            |                                      | 4,666    |         |           |         | 4,735        |        
|                                            | Deferred financing costs, net                                                                                                                               |                                            |                                      | 6,174    |         |           |         | 6,778        |        
|                                            | Other                                                                                                                                                       |                                            |                                      | 5,583    |         |           |         | 5,024        |        
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             | Total assets                               |                                      | $        | 533,241 |           |         | $            | 507,428 | 
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |         |           |         |              |         |  | 
|Current liabilities:                        |                                                                                                                                                             |                                            |                                      |          |         |           |         |             
|                                            | Current portion of long-term obligations                                                                                                                    |                                            | $                                    | 2,340    |         |           | $       | 9,622        |        
|                                            | Accounts payable                                                                                                                                            |                                            |                                      | 11,767   |         |           |         | 10,223       |        
|                                            | Accrued payroll and related liabilities                                                                                                                     |                                            |                                      | 14,550   |         |           |         | 14,734       |        
|                                            | Accrued interest                                                                                                                                            |                                            |                                      | 5,781    |         |           |         | 1,565        |        
|                                            | Other accrued liabilities                                                                                                                                   |                                            |                                      | 14,636   |         |           |         | 13,464       |        
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             | Total current liabilities                  |                                      |          | 49,074  |           |         |              | 49,608  | 
|Long-term obligations, less current portion |                                                                                                                                                             |                                            | 337,457                              |          |         |           | 371,935 |             
|Deferred income taxes                       |                                                                                                                                                             |                                            | 16,937                               |          |         |           | 15,376  |             
|Other liabilities                           |                                                                                                                                                             |                                            | 2,007                                |          |         |           | 2,007   |             
|Minority interest                           |                                                                                                                                                             |                                            | 5,123                                |          |         |           | 5,416   |             
|Stockholders equity:                       |                                                                                                                                                             |                                            |                                      |          |         |           |         |             
|                                            | Common stock, par value $0.001, 75,000 shares authorized, and 40,585 and 36,765
shares outstanding as of March 31, 2003 and December 31, 2002, respectively |                                            |                                      | 41       |         |           |         | 37           |        
|                                            | Additional paid-in capital                                                                                                                                  |                                            |                                      | 243,302  |         |           |         | 188,941      |        
|                                            | Accumulated deficit                                                                                                                                         |                                            |                                      | (120,571 | )       |           |         | (125,754     | )      
|                                            | Notes receivable from stockholders                                                                                                                          |                                            |                                      | (129     | )       |           |         | (138         | )      
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             | Total stockholders equity                 |                                      |          | 122,643 |           |         |              | 63,086  | 
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        
|                                            |                                                                                                                                                             | Total liabilities and stockholders equity |                                      | $        | 533,241 |           |         | $            | 507,428 | 
|                                            |                                                                                                                                                             |                                            |                                      |          |         |           |         |              |        

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

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VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
(In thousands, except per share amounts)

|                                                                                                                                     |                                          |   |                    |        |      |   |         |        | 
|------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | - | ------------------ | ------ | ---- | - | ------- | ------ | 
|                                                                                                                                     |                                          |   | Three Months Ended
|                                                                                                                                     |                                          |   | March 31,         
|                                                                                                                                     |                                          |   |                   
|                                                                                                                                     |                                          |   | 2003               |        | 2002
|                                                                                                                                     |                                          |   |                    |        |     
|Revenue                                                                                                                              |                                          | $ | 116,000            |        |      | $ | 104,695 |       
|Direct costs (excludes operating depreciation of $2,754 and $2,246
for the three months ended March 31, 2003 and 2002, respectively) |                                          |   | 79,751             |        |      |   | 72,588  |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|                                                                                                                                     |                                          |   | 36,249             |        |      |   | 32,107  |       
|Selling, general and administrative expense                                                                                          |                                          |   | 9,363              |        |      |   | 8,622   |       
|Depreciation and amortization                                                                                                        |                                          |   | 3,577              |        |      |   | 3,163   |       
|Gain on sale of assets                                                                                                               |                                          |   | 238                |        |      |   |        |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|                                                                                                                                     | Operating income                         |   |                    | 23,547 |      |   |         | 20,322 | 
|Interest expense, net                                                                                                                |                                          |   | 6,992              |        |      |   | 9,989   |       
|Debt retirement costs                                                                                                                |                                          |   | 7,417              |        |      |   |        |       
|Other (income) expense                                                                                                               |                                          |   | 127                |        |      |   | (93     | )     
|Minority interest in income of subsidiaries                                                                                          |                                          |   | 361                |        |      |   | 402     |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|                                                                                                                                     | Income before provision for income taxes |   |                    | 8,650  |      |   |         | 10,024 | 
|Provision for income taxes                                                                                                           |                                          |   | 3,467              |        |      |   | 4,389   |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|                                                                                                                                     | Net income                               |   | $                  | 5,183  |      |   | $       | 5,635  | 
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|Basic earnings per common share                                                                                                      |                                          | $ | 0.13               |        |      | $ | 0.15    |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|Diluted earnings per common share                                                                                                    |                                          | $ | 0.13               |        |      | $ | 0.15    |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|Shares used for computing basic earnings per share                                                                                   |                                          |   | 39,021             |        |      |   | 36,736  |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       
|Shares used for computing diluted earnings per share                                                                                 |                                          |   | 39,417             |        |      |   | 37,081  |       
|                                                                                                                                     |                                          |   |                    |        |      |   |         |       

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

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VCA ANTECH, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
(In thousands)

|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ------------------ | ------- | ---- | ------ | ------ | ------ | -
|                                                 |                                                                                   |                                                                 |        | Three Months Ended
|                                                 |                                                                                   |                                                                 |        | March 31,         
|                                                 |                                                                                   |                                                                 |        |                   
|                                                 |                                                                                   |                                                                 |        | 2003               |         | 2002
|                                                 |                                                                                   |                                                                 |        |                    |         |     
|Cash flows from operating activities:            |                                                                                   |                                                                 |        |                    |         |      |        |       
|                                                 | Net income                                                                        |                                                                 | $      | 5,183              |         |      | $      | 5,635  |       
|                                                 | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                 |        |                    |         |      |        |        |       
|                                                 |                                                                                   | Depreciation and amortization                                   |        |                    | 3,577   |      |        |        | 3,163  |  
|                                                 |                                                                                   | Amortization of deferred financing costs and debt discount      |        |                    | 233     |      |        |        | 457    |  
|                                                 |                                                                                   | Provision for uncollectible accounts                            |        |                    | 928     |      |        |        | 620    |  
|                                                 |                                                                                   | Debt retirement costs                                           |        |                    | 7,417   |      |        |        |       |  
|                                                 |                                                                                   | Interest paid in kind on 15.5% senior notes                     |        |                    |        |      |        |        | 2,168  |  
|                                                 |                                                                                   | Gain on sale of assets                                          |        |                    | (238    | )    |        |        |       |  
|                                                 |                                                                                   | Minority interest in income of subsidiaries                     |        |                    | 361     |      |        |        | 402    |  
|                                                 |                                                                                   | Distributions to minority interest partners                     |        |                    | (409    | )    |        |        | (384   | )
|                                                 |                                                                                   | Increase in accounts receivable                                 |        |                    | (3,986  | )    |        |        | (4,119 | )
|                                                 |                                                                                   | Increase in inventory, prepaid expenses and other assets        |        |                    | (222    | )    |        |        | (230   | )
|                                                 |                                                                                   | Increase in accounts payable and other accrued liabilities      |        |                    | 2,662   |      |        |        | 1,738  |  
|                                                 |                                                                                   | Increase (decrease) in accrued payroll and related liabilities  |        |                    | (184    | )    |        |        | 1,283  |  
|                                                 |                                                                                   | Increase in accrued interest                                    |        |                    | 4,216   |      |        |        | 4,710  |  
|                                                 |                                                                                   | Decrease in prepaid income taxes                                |        |                    | 1,461   |      |        |        | 2,782  |  
|                                                 |                                                                                   | Increase in income taxes payable                                |        |                    |        |      |        |        | 1,663  |  
|                                                 |                                                                                   | Increase in deferred income tax asset                           |        |                    | (181    | )    |        |        |       |  
|                                                 |                                                                                   | Increase in deferred income tax liability                       |        |                    | 1,561   |      |        |        |       |  
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|                                                 | Net cash provided by operating activities                                         |                                                                 |        | 22,379             |         |      |        | 19,888 |       
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|Cash flows from investing activities:            |                                                                                   |                                                                 |        |                    |         |      |        |       
|                                                 |                                                                                   | Business acquisitions, net of cash acquired                     |        |                    | (6,011  | )    |        |        | (3,011 | )
|                                                 |                                                                                   | Real estate acquired in connection with business acquisitions   |        |                    | (88     | )    |        |        |       |  
|                                                 |                                                                                   | Property and equipment additions, net                           |        |                    | (2,825  | )    |        |        | (3,168 | )
|                                                 |                                                                                   | Proceeds from sale of assets                                    |        |                    | 353     |      |        |        |       |  
|                                                 |                                                                                   | Other                                                           |        |                    | 215     |      |        |        | (23    | )
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|                                                 | Net cash used in investing activities                                             |                                                                 |        | (8,356             | )       |      |        | (6,202 | )     
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|Cash flows from financing activities:            |                                                                                   |                                                                 |        |                    |         |      |        |       
|                                                 |                                                                                   | Repayment of long-term obligations, including redemption fees   |        |                    | (42,293 | )    |        |        | (1,253 | )
|                                                 |                                                                                   | Repayment of revolving credit facility                          |        |                    | (7,500  | )    |        |        |       |  
|                                                 |                                                                                   | Payment of deferred financing costs and recapitalization        |        |                    | (382    | )    |        |        | (1,682 | )
|                                                 |                                                                                   | Proceeds from issuance of common stock under stock option plans |        |                    | 20      |      |        |        |       |  
|                                                 |                                                                                   | Proceeds from issuance of common stock                          |        |                    | 54,345  |      |        |        |       |  
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|                                                 | Net cash provided by (used in) financing activities                               |                                                                 |        | 4,190              |         |      |        | (2,935 | )     
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|Increase in cash and cash equivalents            |                                                                                   |                                                                 | 18,213 |                    |         |      | 10,751 |       
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                 | 6,462  |                    |         |      | 7,103  |       
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       
|Cash and cash equivalents at end of period       |                                                                                   | $                                                               | 24,675 |                    |         | $    | 17,854 |       
|                                                 |                                                                                   |                                                                 |        |                    |         |      |        |        |       

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

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VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(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 generally accepted accounting principles 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 generally accepted accounting principles 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
months ended March 31, 2003 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 2002 Annual Report on Form 10-K.



|(2) |  | Acquisitions
|--- |  | ------------

During the three months ended March 31, 2003, the Company purchased five
animal hospitals and one veterinary diagnostic laboratory for an aggregate
consideration (including acquisition costs) of $6.1 million, consisting of
$5.6 million in cash and $522,000 in certain obligations to sellers and other
liabilities assumed. The purchase price was allocated as follows: $190,000 to
tangible assets, $5.5 million to goodwill and $400,000 to other intangible
assets. Goodwill was assigned to the animal hospital and laboratory reporting
units in the amounts of $5.2 million and $288,000, respectively. The Company
expects that $4.5 million of the goodwill recorded will be fully deductible for
income tax purposes.

During the three months ended March 31, 2003, the Company purchased the
total ownership interest of a partner in a non-wholly owned subsidiary of the
Company for approximately $763,000, consisting entirely of a note payable. The
Company recorded goodwill of $363,000 related to the purchase and expects that
it will be fully deductible for income tax purposes.

The Company also made payments of $450,000 during the three months ended
March 31, 2003 related to certain other obligations incurred at the time of
acquisition.



|(3) |  | Calculation of Earnings per Common Share
|--- |  | ----------------------------------------

Basic and diluted earnings per common share were computed as follows (in
thousands, except per share amounts):

|                                            |                                   |               |       |                    |     |      |       |        |     | 
|------------------------------------------- | --------------------------------- | ------------- | ----- | ------------------ | --- | ---- | ----- | ------ | --- | 
|                                            |                                   |               |       | Three Months Ended
|                                            |                                   |               |       | March 31,         
|                                            |                                   |               |       |                   
|                                            |                                   |               |       | 2003               |     | 2002
|                                            |                                   |               |       |                    |     |     
|Net income                                  |                                   | $             | 5,183 |                    |     | $    | 5,635 |       
|                                            |                                   |               |       |                    |     |      |       |       
|Weighted average common shares outstanding: |                                   |               |       |                    |     |      |       |       
|                                            | Basic                             |               |       | 39,021             |     |      |       | 36,736 |    
|                                            | Effect of dilutive common shares: |               |       |                    |     |      |       |        |    
|                                            |                                   | Stock options |       |                    | 396 |      |       |        | 345 | 
|                                            |                                   |               |       |                    |     |      |       |       
|                                            | Diluted                           |               |       | 39,417             |     |      |       | 37,081 |    
|                                            |                                   |               |       |                    |     |      |       |       
|Earnings per common share:                  |                                   |               |       |                    |     |      |       |       
|                                            | Basic                             |               | $     | 0.13               |     |      | $     | 0.15   |    
|                                            |                                   |               |       |                    |     |      |       |       
|                                            | Diluted                           |               | $     | 0.13               |     |      | $     | 0.15   |    
|                                            |                                   |               |       |                    |     |      |       |       

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|(4) |  | Comprehensive Income
|--- |  | --------------------

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

|                         |                                                          |   |                    |   |      |   |       |     |  
|------------------------ | -------------------------------------------------------- | - | ------------------ | - | ---- | - | ----- | --- | -
|                         |                                                          |   | Three Months Ended
|                         |                                                          |   | March 31,         
|                         |                                                          |   |                   
|                         |                                                          |   | 2003               |   | 2002
|                         |                                                          |   |                    |   |     
|Net income               |                                                          | $ | 5,183              |   |      | $ | 5,635 |    
|                         | Unrealized gain on hedging instruments                   |   |                    |  |      |   |       | 460 |  
|                         | Less portion of unrealized gain recognized in net income |   |                    |  |      |   |       | (93 | )
|                         |                                                          |   |                    |   |     
|Net comprehensive income |                                                          | $ | 5,183              |   |      | $ | 6,002 |    
|                         |                                                          |   |                    |   |     

All gains on hedging instruments during the three months ended March 31,
2002, are the result of an interest rate collar agreement. See Footnote 7,
Interest Rate Hedging Agreements/Other (Income) Expense,for additional
information. By the end of the agreement, these unrealized gains offset
against unrealized losses recognized in prior periods and in aggregate netted
to zero. Accordingly, there has been no income tax expense relating to these
unrealized gains recognized in the Companys net income or comprehensive
income.



|(5) |  | Lines of Business
|--- |  | -----------------

During the three months ended March 31, 2003 and 2002, 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 and
pharmaceutical products. Corporate provides selling, general and
administrative support for the other segments.

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 2002
Annual Report on Form 10-K. The Company evaluates performance of segments
based on operating income, 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.

5



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##### 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 March 31, 2003 |                                   |  |            |         |          |  |           |         |              |  |       |        |              |  |   |        |   |  |   |        
|                                  | Revenue                           |  | $          | 41,698  |          |  | $         | 76,728  |              |  | $     |       |              |  | $ | (2,426 | ) |  | $ | 116,000 | 
|                                  | Operating income (loss)           |  |            | 14,783  |          |  |           | 13,263  |              |  |       | (4,499 | )            |  |   |       |   |  |   | 23,547  | 
|                                  | Depreciation/amortization expense |  |            | 754     |          |  |           | 2,477   |              |  |       | 346    |              |  |   |       |   |  |   | 3,577   | 
|                                  | Capital expenditures              |  |            | 1,174   |          |  |           | 1,193   |              |  |       | 458    |              |  |   |       |   |  |   | 2,825   | 
|Three Months Ended March 31, 2002 |                                   |  |            |         |          |  |           |         |              |  |       |        |              |  |   |        |   |  |   |        
|                                  | Revenue                           |  | $          | 37,657  |          |  | $         | 68,644  |              |  | $     | 500    |              |  | $ | (2,106 | ) |  | $ | 104,695 | 
|                                  | Operating income (loss)           |  |            | 12,725  |          |  |           | 10,862  |              |  |       | (3,265 | )            |  |   |       |   |  |   | 20,322  | 
|                                  | Depreciation/amortization expense |  |            | 697     |          |  |           | 2,136   |              |  |       | 330    |              |  |   |       |   |  |   | 3,163   | 
|                                  | Capital expenditures              |  |            | 605     |          |  |           | 2,137   |              |  |       | 426    |              |  |   |       |   |  |   | 3,168   | 
|At March 31, 2003                 |                                   |  |            |         |          |  |           |         |              |  |       |        |              |  |   |        |   |  |   |        
|                                  | Identifiable assets               |  |            | 122,267 |          |  |           | 356,735 |              |  |       | 54,239 |              |  |   |       |   |  |   | 533,241 | 
|At December 31, 2002              |                                   |  |            |         |          |  |           |         |              |  |       |        |              |  |   |        |   |  |   |        
|                                  | Identifiable assets               |  |            | 117,443 |          |  |           | 350,980 |              |  |       | 39,005 |              |  |   |       |   |  |   | 507,428 | 

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

|                                                  |  |                    |        |      |  |   |        |  
|------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                  |  | Three Months Ended
|                                                  |  | March 31,         
|                                                  |  |                   
|                                                  |  | 2003               |        | 2002
|                                                  |  |                    |        |     
|Total segment operating income after eliminations |  | $                  | 23,547 |      |  | $ | 20,322 |  
|Interest expense, net                             |  |                    | 6,992  |      |  |   | 9,989  |  
|Other (income) expense                            |  |                    | 127    |      |  |   | (93    | )
|Debt retirement costs                             |  |                    | 7,417  |      |  |   |       |  
|Minority interest in income of subsidiaries       |  |                    | 361    |      |  |   | 402    |  
|                                                  |  |                    |        |      |  |   |        |  
|Income before provision for income taxes          |  | $                  | 8,650  |      |  | $ | 10,024 |  
|                                                  |  |                    |        |      |  |   |        |  



|(6) |  | Secondary Offering and Debt Retirement
|--- |  | --------------------------------------

In February 2003, the Company completed a secondary offering of 10.1
million shares of its common stock. As part of this offering, the Company
granted its underwriters an over-allotment option to purchase an additional 1.5
million shares of its common stock that was exercised in full in February 2003.
In conjunction with these transactions, the Company sold 3.8 million primary
shares of its common stock in exchange for net proceeds of approximately $54.3
million. The Company used approximately $42.7 million of the net proceeds to
voluntarily retire the remaining principal amount outstanding of its 15.5%
senior notes due 2010 at a price of 110% of the principal amount plus accrued
and unpaid interest resulting in debt retirement costs of approximately $7.4
million. The Company will use the remaining $11.6 million of net proceeds for
general corporate purposes.



|(7) |  | Interest Rate Hedging Agreements/Other (Income) Expense
|--- |  | -------------------------------------------------------

Under the provisions of the Credit and Guaranty Agreement dated September
20, 2000, the Company was required to enter into an arrangement to hedge
interest rate exposure for a minimum notional amount of $62.0 million and a
minimum term of two years. On November 13, 2000, the Company entered into a
no-fee interest rate collar agreement with Wells Fargo Bank which expired on
November 15, 2002, (Collar Agreement). The Collar Agreement was based on the
London interbank offer rate (LIBOR), which reset monthly and had a cap and
floor notional amount of $62.5 million with a cap and floor interest rate of
7.5% and 5.9%, respectively. The Collar

6



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##### Table of Contents



Agreement qualified for hedge accounting and the Company considered it a cash flow hedging instrument. The
Company made payments under this agreement amounting to $615,000 for the three
months ended March 31, 2002 resulting from LIBOR rates being below the floor
interest rate of 5.9%. These payments have been reported as part of interest
expense.

In November 2002, the Company entered into a no-fee swap agreement with
Wells Fargo Bank which expires November 29, 2004 (Swap Agreement). The Swap
Agreement swaps monthly variable LIBOR rates for a fixed rate of 2.22% on a
notional amount of $40.0 million. The Swap Agreement qualifies for hedge
accounting and the Company considers it a cash flow hedging instrument. During
the three months ended March 31, 2003, the Company has made payments under this
agreement of $85,000 resulting from LIBOR rates being below the fixed interest
rate of 2.22%. These payments have been reported as part of interest expense.

The valuations of the Swap Agreement and the Collar Agreement were
determined by Wells Fargo Bank. At March 31, 2003 and December 31, 2002, the
difference between the fair market value of the Swap Agreement and the notional
amount resulted in a liability from interest rate hedging activities of
$440,000 and $313,000, respectively. During the three months ended March 31,
2003 and 2002, the Company recognized a non-cash loss related to interest rate
hedging activities of $127,000 and a non-cash gain related to interest rate
hedging activities of $93,000, respectively. These non-cash charges are
included in other (income) expense of the Companys Condensed, Consolidated
Statements of Operations.



|(8) |  | Goodwill and Other Intangible Assets
|--- |  | ------------------------------------

Goodwill represents the purchase price paid and liabilities assumed for
animal hospital and laboratory acquisitions in excess of the fair market value
of the net tangible assets acquired. Other intangible assets represent
covenants not to compete and client lists, both of which are associated with
acquisitions.

The following table presents the changes in the carrying amount of
goodwill for the three months ended March 31, 2003 (in thousands):

|                                                 |  |            |        |          |  |        |         |  |  |   |         | 
|------------------------------------------------ |  | ---------- | ------ | -------- |  | ------ | ------- |  |  | - | ------- | 
|                                                 |  |            |        |          |  | Animal |         |  |  |  
|                                                 |  | Laboratory |        | Hospital |  | Total 
|                                                 |  |            |        |          |  |       
|Balance as of January 1, 2003                    |  | $          | 87,313 |          |  | $      | 255,301 |  |  | $ | 342,614 | 
|Goodwill acquired and purchase price adjustments |  |            | 288    |          |  |        | 5,667   |  |  |   | 5,955   | 
|                                                 |  |            |        |          |  |        |         |  |  |   |         | 
|Balance as of March 31, 2003                     |  | $          | 87,601 |          |  | $      | 260,968 |  |  | $ | 348,569 | 
|                                                 |  |            |        |          |  |        |         |  |  |   |         | 

In addition to goodwill, the Company has other intangible assets as
follows (in thousands):

|                         |  |                      |        |              |  |              |        |   |  |   |       | 
|------------------------ |  | -------------------- | ------ | ------------ |  | ------------ | ------ | - |  | - | ----- | 
|                         |  | As of March 31, 2003
|                         |  |                     
|                         |  | Gross Carrying       |        | Accumulated  |  | Net Carrying
|                         |  | Amount               |        | Amortization |  | Amount      
|                         |  |                      |        |              |  |             
|Covenants not to compete |  | $                    | 13,365 |              |  | $            | (8,699 | ) |  | $ | 4,666 | 
|Client lists             |  |                      | 586    |              |  |              | (486   | ) |  |   | 100   | 
|                         |  |                      |        |              |  |             
|Total                    |  | $                    | 13,951 |              |  | $            | (9,185 | ) |  | $ | 4,766 | 
|                         |  |                      |        |              |  |             

The aggregate amortization related to other intangible assets was as
follows (in thousands):

|                               |  |                    |     |      |  |   |     | 
|------------------------------ |  | ------------------ | --- | ---- |  | - | --- | 
|                               |  | Three Months Ended
|                               |  | March 31,         
|                               |  |                   
|                               |  | 2003               |     | 2002
|                               |  |                    |     |     
|Aggregate amortization expense |  | $                  | 477 |      |  | $ | 585 | 
|                               |  |                    |     |      |  |   |     | 

7



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##### Table of Contents



Based on balances at March 31, 2003, estimated amortization expense for
other intangible assets for the next five fiscal years is as follows (in
thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 1,714 | 
|2004 |  |   | 1,315 | 
|2005 |  |   | 924   | 
|2006 |  |   | 555   | 
|2007 |  |   | 345   | 



|(9) |  | Accounting Pronouncements
|--- |  | -------------------------



| | a. |  | Asset Retirement Obligations
| | -- |  | ----------------------------

In June 2001, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (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 adopted SFAS No.
143 on January 1, 2003 without a material impact on its financial statements.



| | b. |  | 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.

Under SFAS No. 145, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of Accounting
Principles Board Opinion (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.

In February 2003, the Company redeemed the remaining principal amount
outstanding of its 15.5% senior notes. This voluntary repayment resulted in
the recognition of a loss on the early extinguishment of debt of $7.4 million.
The Company does not believe the loss meets the criteria of APB No. 30 as it
has historically and may continue to change its capital structure to take
advantage of current
market conditions. As a result of adopting SFAS No. 145 on January 1,
2003, the Company recorded the debt retirement costs as a component of income
from recurring operations.

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 March
31, 2003, the Company had no capital lease obligations. Although the Company
may enter into capital leases in the future, management does not expect SFAS
No. 145 to have a material impact on its financial statements.



| | c. |  | Costs Associated with Exit or Disposal 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.

8



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##### Table of Contents



SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. Currently, the Company has no plans to exit
or dispose of any of its business activities that would require the use of SFAS
No. 146 nor does it anticipate that SFAS No. 146 will change any of its
business practices.



| | d. |  | Guarantors Accounting and Disclosure Requirements for Guarantees
| | -- |  | -----------------------------------------------------------------

In January 2003, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 requires a company
to recognize a liability for the obligations it has undertaken in issuing a
guarantee. This liability would be recorded at the inception of a guarantee
and would be measured at fair value. The measurement provisions of this
statement apply prospectively to guarantees issued or modified after December
31, 2002 for periods ending after December 15, 2002. The Company does not have
any obligations subject to the provisions of FIN No. 45.



| | e. |  | Consolidations of Variable Interest Entities
| | -- |  | --------------------------------------------

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities,requiring that companies consolidate variable interest
entities if they are the primary beneficiaries, as defined under FIN No. 46, of
the activities of the variable interest entities. Companies are required to
apply FIN No. 46 immediately for all variable interest entities created after
January 31, 2003 and as of the beginning of the first interim period beginning
after June 15, 2003 for all other variable interest entities.

The Company provides management services to certain veterinary medical
groups in states with laws that prohibit business corporations from providing,
or holding themselves out as providers of, veterinary medical care. As of
March 31, 2003, the Company operated in eleven of these states. In these
states, the Company provides management services to veterinary medical groups
pursuant to long-term management agreements (the Management Agreements),
ranging from 10 to 40 years with non-binding renewal options, where allowable.
Pursuant to these Management Agreements, the veterinary medical groups are each
solely responsible for all aspects of the practice of veterinary medicine, as
defined by their respective state. The Company is responsible for providing
the following services:



| |  |  | availability of all facilities and equipment;                      
| | - |  | -------------------------------------------------------------------
|
| |  |  | day-to-day financial and administrative supervision and management;
|
| |  |  | maintenance of patient records;                                    
|
| |  |  | recruitment of veterinary and hospital staff;                      
|
| |  |  | marketing; and                                                     
|
| |  |  | malpractice and general insurance.                                 

Currently, the Company does not consolidate the operations of the
veterinary medical groups since it has no ownership interests in the veterinary
medical groups. However, it is reasonably possible that the operations of the
veterinary medical groups should be consolidated under FIN No. 46. If the
veterinary medical groups were to be consolidated into the Companys operating
results, there would be no effect on operating income and the Company would not
be exposed to additional losses. A comparative analysis of the Companys
animal hospital operations both as currently reported and as would be reported
if we consolidated the veterinary medical groups is as follows (in thousands):

|                                                |  |                                           |        |                 |  |            |        |  |  |   |       | 
|----------------------------------------------- |  | ----------------------------------------- | ------ | --------------- |  | ---------- | ------ |  |  | - | ----- | 
|                                                |  | For the Three Months Ended March 31, 2003
|                                                |  |                                          
|                                                |  | As Reported                               |        | As Consolidated |  | Difference
|                                                |  |                                           |        |                 |  |           
|Revenue                                         |  | $                                         | 76,728 |                 |  | $          | 86,307 |  |  | $ | 9,579 | 
|Direct costs (excluding operating depreciation) |  | $                                         | 58,721 |                 |  | $          | 68,300 |  |  | $ | 9,579 | 
|Operating income                                |  | $                                         | 13,263 |                 |  | $          | 13,263 |  |  | $ |      | 

9



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##### Table of Contents





| | f. |  | Consideration Received from a Vendor
| | -- |  | ------------------------------------

In November 2002, FASBs Emerging Issues Task Force (EITF) reached a
consensus regarding two issues raised by EITF Issue No. 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor.The EITF concluded that:



| |  |  | cash received by a vendor is presumed to
be a reduction of the cost of the vendors products or
services, however that presumption is overcome when the
consideration is either a) a payment for assets or
services, in which case the consideration is characterized
as revenue, or b) a reimbursement of specific and
identifiable costs incurred on behalf of the vendor in
selling the vendors products or services, in which case
the consideration is a reduction of that cost; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | rebates offered to a customer or reseller
should be recognized as a reduction of the cost of sales
based on a systematic and rational allocation provided
that the amounts recognized are probable and reasonably
estimable.                                                                                                                                                                                                                                                              

EITF Issue No. 02-16 is effective for changes made to existing agreements
or new agreements entered into on or after January 1, 2003. The Company has
adopted EITF Issue No. 02-16 and does not expect it to have a material impact
on its financial statements in the future.



| | g. |  | Accounting for Derivative Instruments and Hedging
Activities
| | -- |  | ------------------------------------------------------------

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.SFAS No. 149 clarifies
financial accounting and reporting requirements for derivative instruments and
hedging activities as set forth under SFAS No. 133. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships entered into after June 30, 2003. The Company is still
evaluating whether or not SFAS No. 149 will have a material impact on the way
the Company accounts for its interest rate hedging agreements.



|(10) |  | Stock-Based Compensation
|---- |  | ------------------------

The Company has granted stock options to various employees and accounts
for these options under APB Opinion No. 25, Accounting for Stock Issued to
Employees.Under this method, when options are issued with a strike price
equal to or greater than the market price on the date of issuance, there is no
impact on earnings either on the date of issuance or thereafter regardless of
strike price. This method is not a fair-value-based method of accounting as
defined by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, and Amendment of FASB Statement No. 123.Fair-value-based methods
of accounting require compensation expense to be recognized annually equal to
the fair value of the options granted divided by their vesting period. Had the
Company accounted for their stock options under SFAS No. 148 and the
fair-value-based method of accounting, the Companys net income and earnings
per share on a pro forma basis would be as indicated below (in thousands,
except per share amounts):

10



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##### Table of Contents



|                           |                                                                                                                                             |   |                    |       |      |   |       |       |  
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ----- | ---- | - | ----- | ----- | -
|                           |                                                                                                                                             |   | Three Months Ended
|                           |                                                                                                                                             |   | March 31,         
|                           |                                                                                                                                             |   |                   
|                           |                                                                                                                                             |   | 2003               |       | 2002
|                           |                                                                                                                                             |   |                    |       |     
|As reported                |                                                                                                                                             | $ | 5,183              |       |      | $ | 5,635 |      
|                           | Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects |   |                    | (213  | )    |   |       | (14   | )
|                           |                                                                                                                                             |   |                    |       |      |   |       |      
|                           | Pro forma net income available to common stockholders                                                                                       |   | $                  | 4,970 |      |   | $     | 5,621 |  
|                           |                                                                                                                                             |   |                    |       |      |   |       |      
|Earnings per common share: |                                                                                                                                             |   |                    |       |      |   |       |      
|                           | Basic  as reported                                                                                                                         |   | $                  | 0.13  |      |   | $     | 0.15  |  
|                           | Basic  pro forma                                                                                                                           |   | $                  | 0.13  |      |   | $     | 0.15  |  
|                           | Diluted  as reported                                                                                                                       |   | $                  | 0.13  |      |   | $     | 0.15  |  
|                           | Diluted  pro forma                                                                                                                         |   | $                  | 0.13  |      |   | $     | 0.15  |  



|(11) |  | Commitments and Contingencies
|---- |  | -----------------------------



| | a. |  | State Laws
| | -- |  | ----------

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 60 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.

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, has
appointed a licensed veterinarian to act on behalf of each facility. All
veterinary doctors practicing in the Companys clinics are required to maintain
valid state licenses to practice.



| | b. |  | Other Contingencies
| | -- |  | -------------------

The Company has certain contingent liabilities resulting from litigation
and claims incident to the ordinary course of its business. Management
believes that the probable resolution of such contingencies will not
significantly affect the Companys financial position or results of operations.

On November 30, 2001, two majority stockholders of a company that merged
with Zoasis in June 2000 filed a civil complaint against VCA, Zoasis and Robert
Antin. Robert Antin, VCAs Chief Executive Officer, President and Chairman of
the Board, is the majority stockholder of Zoasis and serves on its Board of
Directors. The complaint alleges securities fraud under California law, common
law fraud, negligent misrepresentation and declaratory judgment arising from
the plaintiffs investment in Zoasis. Zoasis filed a counter claim alleging
breach of contract and claim and delivery. On March 25, 2003, the parties
settled all claims in the litigation and executed a Settlement Agreement,
Mutual Release and Covenant Not to Sue. Under the settlement, the parties
dismissed their claims in the litigation with prejudice and VCA paid to
plaintiffs $2.0 million. Concurrent with the settlement, plaintiffs
surrendered all of their Zoasis common stock. The $2.0 million settlement and
other related legal fees were fully accrued at December 31, 2002.



|(12) |  | Reclassifications
|---- |  | -----------------

Certain 2002 balances have been reclassified to conform to the 2003
financial statement presentation.

11



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##### Table of Contents





|(13) |  | Subsequent Events
|---- |  | -----------------

From April 1, 2003 through May 12, 2003, the Company has acquired ten
animal hospitals, four of which were merged into existing animal hospitals, and
one veterinary diagnostic laboratory, which was merged into an existing
laboratory, for an aggregate consideration (including acquisition costs) of
$9.6 million for the animal hospitals, consisting of $9.0 million in cash and
the assumption of liabilities of $555,000, and $155,000 for the laboratory,
consisting of $150,000 in cash and the assumption of liabilities of $5,000.

On May 7, 2003, the Company entered into an additional no-fee swap
agreement with Wells Fargo Bank which expires May 31, 2005. Effective May 30,
2003, the agreement swaps monthly variable LIBOR rates for a fixed rate of
1.72% on a notional amount of $20.0 million. The agreement qualifies for hedge
accounting.



|(14) |  | Condensed, Consolidating Information
|---- |  | ------------------------------------

The Company has 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 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 wholly-owned Guarantor and the
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 the 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.

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

CONDENSED, CONSOLIDATED BALANCE SHEETS
As of March 31, 2003
(Unaudited)
(In thousands)

|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------------------------ | ------ | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------ | ------ | ------ | ------ |  | ----- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        | Non-   |        |  |       |          |          |   |         |         
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         | Guarantor   |         | Guarantor    |        |        |        |  |       |          |          |  
|                                            |                                          |                                            |        | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |             
|Current assets:                             |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Cash and cash equivalents                |                                            | $      |         |         |       | $        | 22,242       |         |              | $       | 2,257       |         |              | $      | 176    |        |  | $     |         |          |   | $       | 24,675   |        
|                                            | Trade accounts receivable, net           |                                            |        |         |         |       |          | 7            |         |              |         | 23,216      |         |              |        | 604    |        |  |       |         |          |   |         | 23,827   |        
|                                            | Inventory, prepaid expenses and other    |                                            |        |         |         |       |          | 2,490        |         |              |         | 5,765       |         |              |        | 532    |        |  |       |         |          |   |         | 8,787    |        
|                                            | Deferred income taxes                    |                                            |        |         |         |       |          | 9,709        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 9,709    |        
|                                            | Prepaid income taxes                     |                                            |        |         |         |       |          | 6,153        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 6,153    |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total current assets                       |        |          |        |       |          |              | 40,601  |              |         |             | 31,238  |              |        |        | 1,312  |  |       |          |         |   |         |          | 73,151  | 
|                                            | Property and equipment, net              |                                            |        |         |         |       |          | 6,834        |         |              |         | 86,761      |         |              |        | 1,503  |        |  |       |         |          |   |         | 95,098   |        
|                                            | Goodwill, net                            |                                            |        |         |         |       |          |             |         |              |         | 327,791     |         |              |        | 20,778 |        |  |       |         |          |   |         | 348,569  |        
|                                            | Covenants not to compete, net            |                                            |        |         |         |       |          |             |         |              |         | 4,027       |         |              |        | 639    |        |  |       |         |          |   |         | 4,666    |        
|                                            | Deferred financing costs, net            |                                            |        |         |         |       |          | 6,174        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 6,174    |        
|                                            | Other                                    |                                            |        | 122      |         |       |          | 508          |         |              |         | 3,027       |         |              |        | 1,926  |        |  |       |         |          |   |         | 5,583    |        
|                                            | Investment in subsidiaries               |                                            |        | 164,987  |         |       |          | 256,256      |         |              |         | 22,717      |         |              |        |       |        |  |       | (443,960 | )        |   |         |         |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total assets                               |        | $        | 165,109 |       |          | $            | 310,373 |              |         | $           | 475,561 |              |        | $      | 26,158 |  |       | $        | (443,960 | ) |         | $        | 533,241 | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|Current liabilities:                        |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Current portion of long-term obligations |                                            | $      |         |         |       | $        | 1,740        |         |              | $       | 600         |         |              | $      |       |        |  | $     |         |          |   | $       | 2,340    |        
|                                            | Accounts payable                         |                                            |        |         |         |       |          | 7,853        |         |              |         | 3,914       |         |              |        |       |        |  |       |         |          |   |         | 11,767   |        
|                                            | Accrued payroll and related liabilities  |                                            |        |         |         |       |          | 8,618        |         |              |         | 5,602       |         |              |        | 330    |        |  |       |         |          |   |         | 14,550   |        
|                                            | Accrued interest                         |                                            |        |         |         |       |          | 5,747        |         |              |         | 34          |         |              |        |       |        |  |       |         |          |   |         | 5,781    |        
|                                            | Other accrued liabilities                |                                            |        |         |         |       |          | 10,917       |         |              |         | 3,660       |         |              |        | 59     |        |  |       |         |          |   |         | 14,636   |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total current liabilities                  |        |          |        |       |          |              | 34,875  |              |         |             | 13,810  |              |        |        | 389    |  |       |          |         |   |         |          | 49,074  | 
|Long-term obligations, less current portion |                                          |                                            |       |          |         |       | 335,459  |              |         |              | 1,998   |             |         |              |       |        |        |  |      |          |          |   | 337,457 |         
|Deferred income taxes                       |                                          |                                            |       |          |         |       | 16,937   |              |         |              |        |             |         |              |       |        |        |  |      |          |          |   | 16,937  |         
|Other liabilities                           |                                          |                                            |       |          |         |       | 2,007    |              |         |              |        |             |         |              |       |        |        |  |      |          |          |   | 2,007   |         
|Intercompany payable/(receivable)           |                                          |                                            | 42,466 |          |         |       | (243,892 | )            |         |              | 203,497 |             |         |              | (2,071 | )      |        |  |      |          |          |   |        |         
|Minority interest                           |                                          |                                            |       |          |         |       |         |              |         |              |        |             |         |              |       |        |        |  | 5,123 |          |          |   | 5,123   |         
|Stockholders equity:                       |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Common stock                             |                                            |        | 41       |         |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 41       |        
|                                            | Additional paid-in capital               |                                            |        | 243,302  |         |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 243,302  |        
|                                            | Accumulated equity (deficit)             |                                            |        | (120,571 | )       |       |          | 164,987      |         |              |         | 256,256     |         |              |        | 27,840 |        |  |       | (449,083 | )        |   |         | (120,571 | )      
|                                            | Notes receivable from stockholders       |                                            |        | (129     | )       |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | (129     | )      
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total
stockholders equity                 |        |          | 122,643 |       |          |              | 164,987 |              |         |             | 256,256 |              |        |        | 27,840 |  |       |          | (449,083 | ) |         |          | 122,643 | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total liabilities and stockholders
equity |        | $        | 165,109 |       |          | $            | 310,373 |              |         | $           | 475,561 |              |        | $      | 26,158 |  |       | $        | (443,960 | ) |         | $        | 533,241 | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        

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##### Table of Contents



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

CONDENSED, CONSOLIDATED BALANCE SHEETS
As of December 31, 2002
(In thousands)

|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------------------------ | ------ | -------- | ------- | ----- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------- | ------------ | ------ | ------ | ------ |  | ----- | -------- | -------- | - | ------- | -------- | ------- | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        | Non-   |        |  |       |          |          |   |         |         
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         | Guarantor   |         | Guarantor    |        |        |        |  |       |          |          |  
|                                            |                                          |                                            |        | VCA      |         | Vicar |          | Subsidiaries |         | Subsidiaries |         | Elimination |         | Consolidated
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |             
|Current assets:                             |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Cash and cash equivalents                |                                            | $      |         |         |       | $        | 5,083        |         |              | $       | 1,233       |         |              | $      | 146    |        |  | $     |         |          |   | $       | 6,462    |        
|                                            | Trade accounts receivable, net           |                                            |        |         |         |       |          | 5            |         |              |         | 20,085      |         |              |        | 637    |        |  |       |         |          |   |         | 20,727   |        
|                                            | Inventory, prepaid expenses and other    |                                            |        |         |         |       |          | 2,684        |         |              |         | 5,414       |         |              |        | 545    |        |  |       |         |          |   |         | 8,643    |        
|                                            | Deferred income taxes                    |                                            |        |         |         |       |          | 9,528        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 9,528    |        
|                                            | Prepaid income taxes                     |                                            |        |         |         |       |          | 7,614        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 7,614    |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total current assets                       |        |          |        |       |          |              | 24,914  |              |         |             | 26,732  |              |        |        | 1,328  |  |       |          |         |   |         |          | 52,974  | 
|                                            | Property and equipment, net              |                                            |        |         |         |       |          | 6,727        |         |              |         | 86,077      |         |              |        | 2,499  |        |  |       |         |          |   |         | 95,303   |        
|                                            | Goodwill, net                            |                                            |        |         |         |       |          |             |         |              |         | 321,887     |         |              |        | 20,727 |        |  |       |         |          |   |         | 342,614  |        
|                                            | Covenants not to compete, net            |                                            |        |         |         |       |          |             |         |              |         | 4,098       |         |              |        | 637    |        |  |       |         |          |   |         | 4,735    |        
|                                            | Deferred financing costs, net            |                                            |        | 386      |         |       |          | 6,392        |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 6,778    |        
|                                            | Other                                    |                                            |        | 139      |         |       |          | 447          |         |              |         | 2,679       |         |              |        | 1,759  |        |  |       |         |          |   |         | 5,024    |        
|                                            | Investment in subsidiaries               |                                            |        | 155,115  |         |       |          | 239,671      |         |              |         | 23,403      |         |              |        |       |        |  |       | (418,189 | )        |   |         |         |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total assets                               |        | $        | 155,640 |       |          | $            | 278,151 |              |         | $           | 464,876 |              |        | $      | 26,950 |  |       | $        | (418,189 | ) |         | $        | 507,428 | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|Current liabilities:                        |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Current portion of long-term obligations |                                            | $      |         |         |       | $        | 9,240        |         |              | $       | 382         |         |              | $      |       |        |  | $     |         |          |   | $       | 9,622    |        
|                                            | Accounts payable                         |                                            |        |         |         |       |          | 6,706        |         |              |         | 3,517       |         |              |        |       |        |  |       |         |          |   |         | 10,223   |        
|                                            | Accrued payroll and related liabilities  |                                            |        |         |         |       |          | 7,068        |         |              |         | 7,339       |         |              |        | 327    |        |  |       |         |          |   |         | 14,734   |        
|                                            | Accrued interest                         |                                            |        |         |         |       |          | 1,547        |         |              |         | 18          |         |              |        |       |        |  |       |         |          |   |         | 1,565    |        
|                                            | Other accrued liabilities                |                                            |        |         |         |       |          | 10,325       |         |              |         | 3,124       |         |              |        | 15     |        |  |       |         |          |   |         | 13,464   |        
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total current liabilities                  |        |          |        |       |          |              | 34,886  |              |         |             | 14,380  |              |        |        | 342    |  |       |          |         |   |         |          | 49,608  | 
|Long-term obligations, less current portion |                                          |                                            | 35,145 |          |         |       | 335,895  |              |         |              | 895     |             |         |              |       |        |        |  |      |          |          |   | 371,935 |         
|Deferred income taxes                       |                                          |                                            |       |          |         |       | 15,376   |              |         |              |        |             |         |              |       |        |        |  |      |          |          |   | 15,376  |         
|Other liabilities                           |                                          |                                            |       |          |         |       | 2,007    |              |         |              |        |             |         |              |       |        |        |  |      |          |          |   | 2,007   |         
|Intercompany payable/(receivable)           |                                          |                                            | 57,409 |          |         |       | (265,128 | )            |         |              | 209,930 |             |         |              | (2,211 | )      |        |  |      |          |          |   |        |         
|Minority interest                           |                                          |                                            |       |          |         |       |         |              |         |              |        |             |         |              |       |        |        |  | 5,416 |          |          |   | 5,416   |         
|Stockholders equity:                       |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |         
|                                            | Common stock                             |                                            |        | 37       |         |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 37       |        
|                                            | Additional paid-in capital               |                                            |        | 188,941  |         |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | 188,941  |        
|                                            | Accumulated equity (deficit)             |                                            |        | (125,754 | )       |       |          | 155,115      |         |              |         | 239,671     |         |              |        | 28,819 |        |  |       | (423,605 | )        |   |         | (125,754 | )      
|                                            | Notes receivable from stockholders       |                                            |        | (138     | )       |       |          |             |         |              |         |            |         |              |        |       |        |  |       |         |          |   |         | (138     | )      
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total stockholders equity                 |        |          | 63,086  |       |          |              | 155,115 |              |         |             | 239,671 |              |        |        | 28,819 |  |       |          | (423,605 | ) |         |          | 63,086  | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        
|                                            |                                          | Total liabilities and stockholders
equity |        | $        | 155,640 |       |          | $            | 278,151 |              |         | $           | 464,876 |              |        | $      | 26,950 |  |       | $        | (418,189 | ) |         | $        | 507,428 | 
|                                            |                                          |                                            |        |          |         |       |          |              |         |              |         |             |         |              |        |        |        |  |       |          |          |   |         |          |        

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##### Table of Contents



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

CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2003
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ----- | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------ | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   | Non-  |       |  |   |         |         |   |   |        
|                                            |                                                                |   |        |       |       |   |              |        |              |   | Guarantor   |        | Guarantor    |   |       |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |       | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |             
|Revenue                                     |                                                                | $ |       |       |       | $ |             |        |              | $ | 108,008     |        |              | $ | 8,218 |       |  | $ | (226    | )       |   | $ | 116,000 |       
|Direct costs                                |                                                                |   |       |       |       |   |             |        |              |   | 73,858      |        |              |   | 6,119 |       |  |   | (226    | )       |   |   | 79,751  |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |       |       |   |             |        |              |   | 34,150      |        |              |   | 2,099 |       |  |   |        |         |   |   | 36,249  |       
|Selling, general and administrative         |                                                                |   |       |       |       |   | 4,153        |        |              |   | 4,867       |        |              |   | 343   |       |  |   |        |         |   |   | 9,363   |       
|Depreciation and amortization               |                                                                |   |       |       |       |   | 346          |        |              |   | 3,077       |        |              |   | 154   |       |  |   |        |         |   |   | 3,577   |       
|Gain on sale of assets                      |                                                                |   |       |       |       |   |             |        |              |   | (238        | )      |              |   |      |       |  |   |        |         |   |   | (238    | )     
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |      |       |   |              | (4,499 | )            |   |             | 26,444 |              |   |       | 1,602 |  |   |         |        |   |   |         | 23,547 | 
|Interest expense, net                       |                                                                |   | 531    |       |       |   | 6,464        |        |              |   | 29          |        |              |   | (32   | )     |  |   |        |         |   |   | 6,992   |       
|Other expense                               |                                                                |   |       |       |       |   | 127          |        |              |   |            |        |              |   |      |       |  |   |        |         |   |   | 127     |       
|Debt retirement costs                       |                                                                |   | 7,417  |       |       |   |             |        |              |   |            |        |              |   |      |       |  |   |        |         |   |   | 7,417   |       
|Equity interest in income of subsidiaries   |                                                                |   | 9,872  |       |       |   | 16,585       |        |              |   | 1,273       |        |              |   |      |       |  |   | (27,730 | )       |   |   |        |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | 1,924 |       |   |              | 5,495  |              |   |             | 27,688 |              |   |       | 1,634 |  |   |         | (27,730 | ) |   |         | 9,011  | 
|Minority interest in income of subsidiaries |                                                                |   |       |       |       |   |             |        |              |   |            |        |              |   |      |       |  |   | 361     |         |   |   | 361     |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before provision for income taxes                       |   |        | 1,924 |       |   |              | 5,495  |              |   |             | 27,688 |              |   |       | 1,634 |  |   |         | (28,091 | ) |   |         | 8,650  | 
|Provision (benefit) for income taxes        |                                                                |   | (3,259 | )     |       |   | (4,377       | )      |              |   | 11,103      |        |              |   |      |       |  |   |        |         |   |   | 3,467   |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Net income                                                     |   | $      | 5,183 |       |   | $            | 9,872  |              |   | $           | 16,585 |              |   | $     | 1,634 |  |   | $       | (28,091 | ) |   | $       | 5,183  | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       

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

CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002
(Unaudited)
(In thousands)

|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------- | - | ------ | ----- | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------ | - | ----- | ----- |  | - | ------- | ------- | - | - | ------- | ------ | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   | Non-  |       |  |   |         |         |   |   |        
|                                            |                                                                |   |        |       |       |   |              |        |              |   | Guarantor   |        | Guarantor    |   |       |       |  |   |         |         |  
|                                            |                                                                |   | VCA    |       | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |             
|Revenue                                     |                                                                | $ |       |       |       | $ | 500          |        |              | $ | 96,426      |        |              | $ | 7,961 |       |  | $ | (192    | )       |   | $ | 104,695 |       
|Direct costs                                |                                                                |   |       |       |       |   |             |        |              |   | 66,977      |        |              |   | 5,803 |       |  |   | (192    | )       |   |   | 72,588  |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            |                                                                |   |       |       |       |   | 500          |        |              |   | 29,449      |        |              |   | 2,158 |       |  |   |        |         |   |   | 32,107  |       
|Selling, general and administrative         |                                                                |   |       |       |       |   | 3,435        |        |              |   | 4,881       |        |              |   | 306   |       |  |   |        |         |   |   | 8,622   |       
|Depreciation and amortization               |                                                                |   |       |       |       |   | 330          |        |              |   | 2,665       |        |              |   | 168   |       |  |   |        |         |   |   | 3,163   |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Operating income (loss)                                        |   |        |      |       |   |              | (3,265 | )            |   |             | 21,903 |              |   |       | 1,684 |  |   |         |        |   |   |         | 20,322 | 
|Interest expense, net                       |                                                                |   | 2,141  |       |       |   | 7,845        |        |              |   | 30          |        |              |   | (27   | )     |  |   |        |         |   |   | 9,989   |       
|Other income                                |                                                                |   |       |       |       |   | 93           |        |              |   |            |        |              |   |      |       |  |   |        |         |   |   | 93      |       
|Equity interest in income of subsidiaries   |                                                                |   | 6,755  |       |       |   | 12,527       |        |              |   | 1,309       |        |              |   |      |       |  |   | (20,591 | )       |   |   |        |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before minority interest and
provision for income taxes |   |        | 4,614 |       |   |              | 1,510  |              |   |             | 23,182 |              |   |       | 1,711 |  |   |         | (20,591 | ) |   |         | 10,426 | 
|Minority interest in income of
subsidiaries |                                                                |   |       |       |       |   |             |        |              |   |            |        |              |   |      |       |  |   | 402     |         |   |   | 402     |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Income before provision for
income taxes                       |   |        | 4,614 |       |   |              | 1,510  |              |   |             | 23,182 |              |   |       | 1,711 |  |   |         | (20,993 | ) |   |         | 10,024 | 
|Provision (benefit) for income taxes        |                                                                |   | (1,021 | )     |       |   | (5,245       | )      |              |   | 10,655      |        |              |   |      |       |  |   |        |         |   |   | 4,389   |       
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       
|                                            | Net income                                                     |   | $      | 5,635 |       |   | $            | 6,755  |              |   | $           | 12,527 |              |   | $     | 1,711 |  |   | $       | (20,993 | ) |   | $       | 5,635  | 
|                                            |                                                                |   |        |       |       |   |              |        |              |   |             |        |              |   |       |       |  |   |         |         |   |   |         |       

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

CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2003
(Unaudited)
(In thousands)

|                                      |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |              |  |      |        |   |  |   |         |   |  |   |        |  
|------------------------------------- | ------------------------------------------------------------------------------------------- |  | --- | ------- | ----- |  | ------------ | ------- | ------------ |  | ----------- | ------- | ------------ |  | ---- | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                      |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |              |  | Non- |        |   |  |   |         |   |  |  
|                                      |                                                                                             |  |     |         |       |  |              |         |              |  | Guarantor   |         | Guarantor    |  |      |        |   |  |   |         |  
|                                      |                                                                                             |  | VCA |         | Vicar |  | Subsidiaries |         | Subsidiaries |  | Elimination |         | Consolidated
|                                      |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |             
|Cash flows from operating activities: |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |              |  |      |        |   |  |   |         |   |  |   |       
|                                      | Net income                                                                                  |  | $   | 5,183   |       |  | $            | 9,872   |              |  | $           | 16,585  |              |  | $    | 1,634  |   |  | $ | (28,091 | ) |  | $ | 5,183  |  
|                                      | Adjustments to reconcile net income to net
cash provided by (used in) operating activities: |  |     |         |       |  |              |         |              |  |             |         |              |  |      |        |   |  |   |         |   |  |   |        |  
|                                      | Equity interest in earnings of
subsidiaries                                                 |  |     | (9,872  | )     |  |              | (16,585 | )            |  |             | (1,273  | )            |  |      |       |   |  |   | 27,730  |   |  |   |       |  
|                                      | Depreciation and amortization                                                               |  |     |        |       |  |              | 346     |              |  |             | 3,077   |              |  |      | 154    |   |  |   |        |   |  |   | 3,577  |  
|                                      | Amortization of deferred financing costs
and debt discount                                  |  |     | 14      |       |  |              | 219     |              |  |             |        |              |  |      |       |   |  |   |        |   |  |   | 233    |  
|                                      | Provision for uncollectible accounts                                                        |  |     |        |       |  |              |        |              |  |             | 848     |              |  |      | 80     |   |  |   |        |   |  |   | 928    |  
|                                      | Debt retirement costs                                                                       |  |     | 7,417   |       |  |              |        |              |  |             |        |              |  |      |       |   |  |   |        |   |  |   | 7,417  |  
|                                      | Gain of sale of assets                                                                      |  |     |        |       |  |              |        |              |  |             | (238    | )            |  |      |       |   |  |   |        |   |  |   | (238   | )
|                                      | Minority interest in income of
subsidiaries                                                 |  |     |        |       |  |              |        |              |  |             |        |              |  |      |       |   |  |   | 361     |   |  |   | 361    |  
|                                      | Distributions to minority interest
partners                                                 |  |     |        |       |  |              | (409    | )            |  |             |        |              |  |      |       |   |  |   |        |   |  |   | (409   | )
|                                      | Increase in accounts receivable                                                             |  |     |        |       |  |              | (2      | )            |  |             | (3,937  | )            |  |      | (47    | ) |  |   |        |   |  |   | (3,986 | )
|                                      | Decrease (increase) in inventory, prepaid
expenses and other assets                         |  |     | 17      |       |  |              | 106     |              |  |             | (358    | )            |  |      | 13     |   |  |   |        |   |  |   | (222   | )
|                                      | Increase in accounts payable and accrued
liabilities                                        |  |     |        |       |  |              | 1,739   |              |  |             | 879     |              |  |      | 44     |   |  |   |        |   |  |   | 2,662  |  
|                                      | Increase (decrease) in accrued payroll
and accrued liabilities                              |  |     |        |       |  |              | 1,550   |              |  |             | (1,737  | )            |  |      | 3      |   |  |   |        |   |  |   | (184   | )
|                                      | Increase in accrued interest                                                                |  |     |        |       |  |              | 4,200   |              |  |             | 16      |              |  |      |       |   |  |   |        |   |  |   | 4,216  |  
|                                      | Decrease in prepaid income taxes                                                            |  |     |        |       |  |              | 1,461   |              |  |             |        |              |  |      |       |   |  |   |        |   |  |   | 1,461  |  
|                                      | Increase in deferred income tax asset                                                       |  |     |        |       |  |              | (181    | )            |  |             |        |              |  |      |       |   |  |   |        |   |  |   | (181   | )
|                                      | Increase in deferred income
tax liability                                                   |  |     |        |       |  |              | 1,561   |              |  |             |        |              |  |      |       |   |  |   |        |   |  |   | 1,561  |  
|                                      | Increase in intercompany
payable/(receivable)                                               |  |     | (14,932 | )     |  |              | 28,626  |              |  |             | (11,843 | )            |  |      | (1,851 | ) |  |   |        |   |  |   |       |  
|                                      |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |              |  |      |        |   |  |   |         |   |  |   |        |  
|                                      | Net cash provided by (used in)
operating activities                                         |  |     | (12,173 | )     |  |              | 32,503  |              |  |             | 2,019   |              |  |      | 30     |   |  |   |        |   |  |   | 22,379 |  
|                                      |                                                                                             |  |     |         |       |  |              |         |              |  |             |         |              |  |      |        |   |  |   |         |   |  |   |        |  

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

CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Three Months Ended March 31, 2003
(Unaudited)
(In thousands)

|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|------------------------------------------------ | --------------------------------------------------------------- | - | --- | ------- | ----- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------ | - | ---- | - |  | - | - | - |  | - | ------ | ------- | -
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   | Non- |   |  |   |   |   |  |   |       
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   | Guarantor   |        | Guarantor    |   |      |   |  |   |   |   | 
|                                                 |                                                                 |   | VCA |         | Vicar |   | Subsidiaries |        | Subsidiaries |   | Elimination |        | Consolidated
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |             
|Cash flows from investing activities:            |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |        
|                                                 | Business acquisitions, net of
cash acquired                     |   | $   |        |       |   | $            | (6,011 | )            |   | $           |       |              |   | $    |  |  |   | $ |  |  |   | $      | (6,011  | )
|                                                 | Real estate acquired in connection with
acquisitions            |   |     |        |       |   |              | (88    | )            |   |             |       |              |   |      |  |  |   |   |  |  |   |        | (88     | )
|                                                 | Property and equipment additions, net                           |   |     |        |       |   |              | (1,651 | )            |   |             | (1,174 | )            |   |      |  |  |   |   |  |  |   |        | (2,825  | )
|                                                 | Proceeds from sale of assets                                    |   |     |        |       |   |              | 353    |              |   |             |       |              |   |      |  |  |   |   |  |  |   |        | 353     |  
|                                                 | Other                                                           |   |     | (2      | )     |   |              | 38     |              |   |             | 179    |              |   |      |  |  |   |   |  |  |   |        | 215     |  
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|                                                 | Net cash used in investing activities                           |   |     | (2      | )     |   |              | (7,359 | )            |   |             | (995   | )            |   |      |  |  |   |   |  |  |   |        | (8,356  | )
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|Cash flows from financing activities:            |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |        
|                                                 | Repayment of long-term obligations,
including redemption fees   |   |     | (41,808 | )     |   |              | (485   | )            |   |             |       |              |   |      |  |  |   |   |  |  |   |        | (42,293 | )
|                                                 | Repayment of revolving credit facility                          |   |     |        |       |   |              | (7,500 | )            |   |             |       |              |   |      |  |  |   |   |  |  |   |        | (7,500  | )
|                                                 | Payment of financing costs                                      |   |     | (382    | )     |   |              |       |              |   |             |       |              |   |      |  |  |   |   |  |  |   |        | (382    | )
|                                                 | Proceeds from issuance of common
stock under stock option plans |   |     | 20      |       |   |              |       |              |   |             |       |              |   |      |  |  |   |   |  |  |   |        | 20      |  
|                                                 | Proceeds from issuance of common
stock                          |   |     | 54,345  |       |   |              |       |              |   |             |       |              |   |      |  |  |   |   |  |  |   |        | 54,345  |  
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|                                                 | Net cash provided by (used in)
financing activities             |   |     | 12,175  |       |   |              | (7,985 | )            |   |             |       |              |   |      |  |  |   |   |  |  |   |        | 4,190   |  
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|Increase in cash and cash equivalents            |                                                                 |   |    |         |       |   | 17,159       |        |              |   | 1,024       |        |              |   | 30   |   |  |   |  |   |  |   | 18,213 |        
|Cash and cash equivalents at beginning
of period |                                                                 |   |    |         |       |   | 5,083        |        |              |   | 1,233       |        |              |   | 146  |   |  |   |  |   |  |   | 6,462  |        
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  
|Cash and cash equivalents at end of
period       |                                                                 | $ |    |         |       | $ | 22,242       |        |              | $ | 2,257       |        |              | $ | 176  |   |  | $ |  |   |  | $ | 24,675 |        
|                                                 |                                                                 |   |     |         |       |   |              |        |              |   |             |        |              |   |      |   |  |   |   |   |  |   |        |         |  

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VCA ANTECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002(Unaudited)
(In thousands)

|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | - | ----- | ------ | ----- | ------ | ------------ | ------- | ------------ | ------ | ----------- | ------- | ------------ | ---- | ----- | ------ | - | - | ------- | ------ | - | ------ | ----- | ------ | -
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      | Non-  |        |   |   |         |        |   |        |      
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        | Guarantor   |         | Guarantor    |      |       |        |   |   |         |        |  
|                                                 |                                                                                             |                                                                    |   | VCA   |        | Vicar |        | Subsidiaries |         | Subsidiaries |        | Elimination |         | Consolidated
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |             
|Cash from operating activities:                  |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |      
|                                                 | Net income                                                                                  |                                                                    | $ | 5,635 |        |       | $      | 6,755        |         |              | $      | 12,527      |         |              | $    | 1,711 |        |   | $ | (20,993 | )      |   | $      | 5,635 |       
|                                                 | Adjustments to reconcile net income to net
cash provided by (used in) operating activities: |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|                                                 |                                                                                             | Equity interest in earnings of subsidiaries                        |   |       | (6,755 | )     |        |              | (12,527 | )            |        |             | (1,309  | )            |      |       |       |   |   |         | 20,591 |   |        |       |       |  
|                                                 |                                                                                             | Depreciation and amortization                                      |   |       |       |       |        |              | 330     |              |        |             | 2,665   |              |      |       | 168    |   |   |         |       |   |        |       | 3,163  |  
|                                                 |                                                                                             | Amortization of deferred financing costs
and debt discount         |   |       |       |       |        |              | 457     |              |        |             |        |              |      |       |       |   |   |         |       |   |        |       | 457    |  
|                                                 |                                                                                             | Provision for uncollectible accounts                               |   |       |       |       |        |              |        |              |        |             | 556     |              |      |       | 64     |   |   |         |       |   |        |       | 620    |  
|                                                 |                                                                                             | Interest paid in kind on 15.5% senior
notes                        |   |       | 2,168  |       |        |              |        |              |        |             |        |              |      |       |       |   |   |         |       |   |        |       | 2,168  |  
|                                                 |                                                                                             | Minority interest in income of subsidiaries                        |   |       |       |       |        |              |        |              |        |             |        |              |      |       |       |   |   |         | 402    |   |        |       | 402    |  
|                                                 |                                                                                             | Distributions to minority interest partners                        |   |       |       |       |        |              | (384    | )            |        |             |        |              |      |       |       |   |   |         |       |   |        |       | (384   | )
|                                                 |                                                                                             | Increase in accounts receivable                                    |   |       |       |       |        |              | (10     | )            |        |             | (3,744  | )            |      |       | (365   | ) |   |         |       |   |        |       | (4,119 | )
|                                                 |                                                                                             | Decrease (increase) in inventory, prepaid
expense and other assets |   |       |       |       |        |              | 117     |              |        |             | (372    | )            |      |       | 25     |   |   |         |       |   |        |       | (230   | )
|                                                 |                                                                                             | Increase in accounts payable and accrued
liabilities               |   |       |       |       |        |              | 7,038   |              |        |             | 660     |              |      |       | 33     |   |   |         |       |   |        |       | 7,731  |  
|                                                 |                                                                                             | Decrease in prepaid income taxes                                   |   |       |       |       |        |              | 2,782   |              |        |             |        |              |      |       |       |   |   |         |       |   |        |       | 2,782  |  
|                                                 |                                                                                             | Increase (decrease) in income tax payable                          |   |       |       |       |        |              | 1,663   |              |        |             |        |              |      |       |       |   |   |         |       |   |        |       | 1,663  |  
|                                                 |                                                                                             | Increase (decrease) in intercompany
payable (receivable)           |   |       | (1,048 | )     |        |              | 14,672  |              |        |             | (11,777 | )            |      |       | (1,847 | ) |   |         |       |   |        |       |       |  
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|                                                 |                                                                                             | Net cash provided by (used in) operating
activities                |   |       |       |       |        |              | 20,893  |              |        |             | (794    | )            |      |       | (211   | ) |   |         |       |   |        |       | 19,888 |  
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|Cash flows from investing activities:            |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |      
|                                                 |                                                                                             | Business acquisitions, net of cash acquired                        |   |       |       |       |        |              | (3,011  | )            |        |             |        |              |      |       |       |   |   |         |       |   |        |       | (3,011 | )
|                                                 |                                                                                             | Property and equipment additions, net                              |   |       |       |       |        |              | (2,563  | )            |        |             | (605    | )            |      |       |       |   |   |         |       |   |        |       | (3,168 | )
|                                                 |                                                                                             | Other                                                              |   |       |       |       |        |              | (31     | )            |        |             | 8       |              |      |       |       |   |   |         |       |   |        |       | (23    | )
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|                                                 |                                                                                             | Net cash used in investing activities                              |   |       |       |       |        |              | (5,605  | )            |        |             | (597    | )            |      |       |       |   |   |         |       |   |        |       | (6,202 | )
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|Cash flows from financing activities:            |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |      
|                                                 |                                                                                             | Repayment of long-term obligations                                 |   |       |       |       |        |              | (1,253  | )            |        |             |        |              |      |       |       |   |   |         |       |   |        |       | (1,253 | )
|                                                 |                                                                                             | Payment of deferred financing and
recapitalization costs           |   |       |       |       |        |              | (1,682  | )            |        |             |        |              |      |       |       |   |   |         |       |   |        |       | (1,682 | )
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|                                                 |                                                                                             | Net cash used in financing activities                              |   |       |       |       |        |              | (2,935  | )            |        |             |        |              |      |       |       |   |   |         |       |   |        |       | (2,935 | )
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|Increase (decrease) in cash and cash
equivalents |                                                                                             |                                                                    |  |       |        |       | 12,353 |              |         |              | (1,391 | )           |         |              | (211 | )     |        |   |  |         |        |   | 10,751 |      
|Cash and cash equivalents at beginning of year   |                                                                                             |                                                                    |  |       |        |       | 3,467  |              |         |              | 3,260  |             |         |              | 376  |       |        |   |  |         |        |   | 7,103  |      
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       
|Cash and cash equivalents at end of year         |                                                                                             | $                                                                  |  |       |        | $     | 15,820 |              |         | $            | 1,869  |             |         | $            | 165  |       |        | $ |  |         |        | $ | 17,854 |      
|                                                 |                                                                                             |                                                                    |   |       |        |       |        |              |         |              |        |             |         |              |      |       |        |   |   |         |        |   |        |       |       

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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 May 12, 2003, and we undertake no duty to update this
information. Should events occur subsequent to May 12, 2003 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 as an earnings
release included as an exhibit to a Form 8-K, each of which will be available
at the Securities and Exchange Commissions website at www.sec.gov. More
information about potential factors that could affect our business and
financial results is included in the section entitled Risk Factors.

Overview

We are 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 most states and
completing acquisitions for a total of 160 animal hospitals. At March 31,
2003, our laboratory network consisted of 20 laboratories serving all 50 states
and our animal hospital network consisted of 233 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.

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

|               |                                          |  |                    |    |      |  |  |    | 
|-------------- | ---------------------------------------- |  | ------------------ | -- | ---- |  |  | -- | 
|               |                                          |  | Three Months Ended
|               |                                          |  | March 31,         
|               |                                          |  |                   
|               |                                          |  | 2003               |    | 2002
|               |                                          |  |                    |    |     
|Laboratories : |                                          |  |                    |    |      |  |  |   
|               | Beginning of period                      |  |                    | 19 |      |  |  | 16 | 
|               | Acquisitions and new facilities          |  |                    | 1  |      |  |  |   | 
|               | Relocated into other labs operated by us |  |                    |   |      |  |  |   | 
|               |                                          |  |                    |    |      |  |  |    | 
|               | End of period                            |  |                    | 20 |      |  |  | 16 | 
|               |                                          |  |                    |    |      |  |  |    | 

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|                  |                                         |  |                    |     |      |  |  |     |  
|----------------- | --------------------------------------- |  | ------------------ | --- | ---- |  |  | --- | -
|                  |                                         |  |                   
|                  |                                         |  | Three Months Ended
|                  |                                         |  | March 31,         
|                  |                                         |  |                   
|                  |                                         |  | 2003               |     | 2002
|                  |                                         |  |                    |     |     
|Animal hospitals: |                                         |  |                    |     |      |  |  |    
|                  | Beginning of period                     |  |                    | 229 |      |  |  | 214 |  
|                  | Acquisitions                            |  |                    | 5   |      |  |  | 3   |  
|                  | Relocated into hospitals operated by us |  |                    |    |      |  |  | (1  | )
|                  | Sold or closed                          |  |                    | (1  | )    |  |  |    |  
|                  |                                         |  |                    |     |      |  |  |     |  
|                  | End of period                           |  |                    | 233 |      |  |  | 216 |  
|                  |                                         |  |                    |     |      |  |  |     |  
|                  | Owned at end of period                  |  |                    | 173 |      |  |  | 161 |  
|                  | Managed at end of period                |  |                    | 60  |      |  |  | 55  |  

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 generally accepted accounting
principles in the United States, or GAAP. 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 are believed 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

We recognize revenue 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.

We report our revenue net of discounts.

Laboratory Revenue

A portion of laboratory revenue is intercompany revenue that was generated
by providing laboratory services to our animal hospitals. Laboratory internal
revenue growth for the quarter ended March 31, 2003 was calculated using
laboratory revenue as reported, adjusted to exclude revenue for the newly
acquired laboratories that we did not own for the entire period presented, as
compared to our laboratory revenue as reported for the prior comparable period.

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.

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Animal Hospital Revenue

Animal hospital revenue is comprised of revenue of the animal hospitals
that we own and the management fees for 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 own or lease the
hospital facility from a third party. 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, when we analyze revenue and same-facility revenue growth for
animal hospitals, we use combined revenue and an adjusted same-facility measure
that are calculated using the combined revenue of animal hospitals owned and
managed for the entire periods presented. We feel that combined revenue and
adjusted same-facility revenue are important measures because they reflect the
overall performance of all animal hospitals owned and managed. We have
provided reconciliations of these non-GAAP revenue measures to the GAAP revenue
measures in Results of Operations.

Adjusted same-facility revenue growth and same-facility revenue growth
based on GAAP include revenue generated by customers referred from our
relocated or combined animal hospitals, including those combined upon
acquisition.

Other Revenue

We received consulting fees from Heinz Pet Products relating to the
marketing of its proprietary pet food. As of September 2002, the consulting
agreement with Heinz Pet Products had expired.

Direct Costs

Laboratory direct costs are comprised of all costs of laboratory services,
including salaries of veterinarians, specialists, 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, certain
marketing and promotional expense 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.

When we analyze animal hospital direct costs we use the combined direct
costs of animal hospitals owned and managed for the entire periods presented.
We feel that combined direct costs is an important measure because it reflects
the overall performance of all animal hospitals owned and managed. We have
provided a reconciliation of combined direct costs to the animal hospital
direct costs as reported in Results of Operations.

Selling, General and Administrative Expense

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 and accounting personnel and selling, marketing and promotional
expense. Animal hospital selling, general and administrative expense consists
primarily of field management, certain administrative and accounting personnel,
recruiting and certain marketing expense. Corporate selling, general and
administrative expense consists of administrative expense at our headquarters,
including the salaries of corporate officers, rent, accounting, finance, legal
and other professional expense and occupancy costs.

Adjusted EBITDA

Adjusted EBITDA is operating income before depreciation and amortization.
Adjusted EBITDA is not a measure of financial performance under GAAP. Adjusted
EBITDA should not be considered in isolation or as a

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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 that Adjusted EBITDA is a primary performance
measure as it reflects earnings before the impact of depreciation and amortization and
certain other significant items. We believe that operating income is the most
comparable GAAP measure to Adjusted EBITDA. Adjusted 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. Our calculation
of Adjusted EBITDA may not be comparable to similarly titled measures reported
by other companies.

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. 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 and amortized over the expected life of the software, generally
three to five years. 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 generally accepted accounting principles, or GAAP, in the United
States, management is required to make critical accounting estimates that
directly impact our consolidated financial statements and related disclosures.
Critical accounting estimates are estimates that meet two criteria: (1) the
estimates require that we make assumptions about matters that are highly
uncertain at the time the estimates are made; and (2) there exist different
estimates that could reasonably be used in the current period, or changes in
the estimates used are reasonably likely to occur from period to period, both
of which would have a material impact on the presentation of the financial
condition or our results of our operations. 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. Management has discussed these critical
accounting policies, the basis for their underlying assumptions and estimates
and the nature of our related disclosures herein with our audit committee.

Workers Compensation Expense

Workers compensation expense is the cost to insure our company against
losses related to injuries incurred by our employees in the normal course of
their duties. Our workers compensation insurance policies are self-insurance
retention programs, which mean that we bear the significant portion of the
financial risk associated with claims losses, while the insurance company bears
only the financial risk of large individual losses and large aggregate losses.

As a result of utilizing self-insurance retention policies, we must
estimate the amount that we will ultimately pay for losses associated with
workers compensation claims, or claims losses for the policy period. These
estimated claims losses must be recorded as expense during the policy period.
Claims losses can vary substantially and, because they can take years to
develop fully, can be difficult to estimate. These estimates are based on
complex judgments regarding the probable number of claims that will be filed
and the nature of those claims. Both of those variables are highly uncertain
and combine to form a factor referred to as the loss pick. The loss pick
factor is multiplied by our payroll cost to determine what the projected costs
for claims and our related expense will be.

We estimate the loss pick by reviewing a minimum of five years of our
historical claims loss data and analyzing the trend of the development of
claims over time. We also review and adjust the loss pick for other major
factors such as the risk control environment and claims handling. The risk
control environment includes proper safety training, safe working environment,
availability of safety equipment for specific tasks, and management emphasis
and monitoring of safe practices. Claims handling includes proper reporting of
claims, proper care given to injured employees, availability of return-to-work
programs, and oversight of the claims process by both the insurance claims
handler and our own management. We review our loss pick on a quarterly basis
considering the current loss trend and any changes in the environment as
indicated above. The loss pick is then applied to our actual payroll costs to
estimate the claims loss portion of our workers compensation expense for the
given period.

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Our insurance carrier required us to pre-fund claims losses at a loss pick
of 1.54% for the policy year ending September 30, 2002 and gave us a maximum
loss pick of 2.49%, above which the carrier is responsible for paying all
claims. For the policy year ending September 30, 2003, we are required to
pre-fund claims losses at a loss pick of 1.59% and have a maximum loss pick of
2.55%. The ranges set forth by the insurance carrier reflect the most probable
potentials for our workers compensation claims losses. The increase in the
insurance carriers range reflects the trend over the last several years toward
increasing workers compensation costs. Based on these ranges and the factors
described above, we chose a loss pick of 2.04% for the policy year ended
September 30, 2002 and 2.00% for the policy year ending September 30, 2003.
The decrease in our loss pick reflects the implementation of programs to reduce
the risks in our operating environment and the improving trends in our
historical claims losses.

The following table reflects the ranges for the loss picks and the loss
picks used by us in the estimate of our workers compensation costs (in
thousands):

|                                                                       |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |       | 
|---------------------------------------------------------------------- | ----------------------------------- | - | --------- | ------- | -------- | - | ---------------------- | ----- | -------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                       |                                     |   |           |         |          |   | Probable Expense Range
|                                                                       |                                     |   | Estimated | Expense |          |  
|                                                                       |                                     |   | Payroll   |         | Recorded |   | Low-end                |       | High-end
|                                                                       |                                     |   |           |         |          |   |                        |       |         
|Policy year ended September 30, 2002:                                  |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      
|Loss pick percentage                                                   |                                     |   |           |         |          |   | 2.04                   | %     |          |   | 1.54  | %     |  |   | 2.49  | %    
|Calculated loss pick in dollars                                        |                                     | $ | 169,022   |         |          | $ | 3,441                  |       |          | $ | 2,603 |       |  | $ | 4,208 |      
|Premiums and other fees                                                |                                     |   |           |         |          |   | 1,387                  |       |          |   | 1,353 |       |  |   | 1,419 |      
|                                                                       |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      
|                                                                       | Total workers compensation expense |   |           |         |          |   | $                      | 4,828 |          |   | $     | 3,956 |  |   | $     | 5,627 | 
|                                                                       |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      
|Policy year ending September 30, 2003
(6 months of a 12-month policy): |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      
|Loss pick percentage                                                   |                                     |   |           |         |          |   | 2.00                   | %     |          |   | 1.59  | %     |  |   | 2.55  | %    
|Calculated loss pick in dollars                                        |                                     | $ | 88,275    |         |          | $ | 1,766                  |       |          | $ | 1,404 |       |  | $ | 2,251 |      
|Premiums and other fees                                                |                                     |   |           |         |          |   | 780                    |       |          |   | 765   |       |  |   | 800   |      
|                                                                       |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      
|                                                                       | Total workers compensation expense |   |           |         |          |   | $                      | 2,546 |          |   | $     | 2,169 |  |   | $     | 3,051 | 
|                                                                       |                                     |   |           |         |          |   |                        |       |          |   |       |       |  |   |       |      

We recognize workers compensation expense in direct costs and selling,
general and administrative expense of our segments, based on their respective
payroll cost and the loss pick percentage discussed and shown above, to
calculate the claims loss portion of the expense. The difference between the
minimum amount of claims losses pre-funded to the insurance carrier and the
amount expensed is accrued and included in other liabilities. If our estimates
prove to be incorrect as the losses develop over several years, we will either
have to pay additional claims losses or will receive a refund from our
insurance carrier. This could result in a need for us to recognize additional
expense or have expense reduced in future periods within the range shown above.

The insurance policies in place for 2000 and prior years did not have
large deductibles and we have accrued for the maximum possible expense under
these policies.

Impairment of Goodwill

Our goodwill represents the purchase price paid and liabilities assumed
for animal hospital and laboratory acquisitions in excess of the fair market
value of the net tangible assets acquired. The total amount of our net
goodwill at March 31, 2003 was $348.6 million, consisting of $87.6 million for
our laboratory operating segment and $261.0 million for our animal hospital
operating segment.

On January 1, 2002, we implemented Statement of Financial Accounting
Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets. With that
implementation, we began an annual process of estimating the fair market value
of our laboratory and animal hospital operating segments and comparing that
estimated fair market value against the net book value of those operating
segments, as reflected in our financial statements, to determine if our
goodwill is fairly stated or if its value is impaired. If the estimated fair
value of our operating segments exceeds their net book value, there is no
impact to our financial position, the results of our operations or our
liquidity. If the estimated fair value of our operating segments is less than
the net book value, then we have to recognize an impairment loss equal to the
difference between the net book value of our goodwill and the operating segment
at its estimated fair market value. This impairment loss would be recognized
in our earnings in the period the estimate

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was made, however, there would be no related cash impact. Because the
impairment loss would be a non-cash event, it would not trigger a default on
our debt covenants.

At December 31, 2002, we estimated the fair value of our operating
segments and that estimated fair value exceeded our operating segments net
book value, resulting in a conclusion that our goodwill was fairly stated. For
the period from December 31, 2002 through the date of this filing, there have
been no significant changes in the operating environment of our operating
segments or in the other variables used in our estimate of fair value that
would cause us to believe that the fair value of our operating segments might
have materially changed since our evaluation at December 31, 2002.

Fair Market Valuations.In the estimation process, we may use valuations
of the fair market value of our laboratory and animal hospital operating
segments. Independent valuation experts, or in-house individuals possessing
the appropriate skill and knowledge, prepare the valuations. There are two
approaches used in conducting a fair market valuation, a market-based approach
and a discounted cash flow approach. The estimated fair market value we used
for our reporting units is a blending of these approaches. These approaches
also serve as a reasonableness check against each other.

The market-based approach uses the enterprise value of selected publicly
traded companies that are similar to each operating segment to estimate the
operating segments fair market value. The similarities include but are not
limited to business structure and nature of service provided. The enterprise
value of comparable companies equals the sum of their stock price times the
total number of diluted shares and the fair market value of their outstanding
debt. The enterprise value is then used to create specific valuation multiples
of Adjusted EBITDA that can be applied to each operating segment.

In our valuation process, five to ten comparable companies were used to
create ranges for specific valuation multiples that were then used to estimate
the enterprise value of each operating segment. Different companies could have
been reasonably selected, however, we do not feel that a different selection
would have a material impact on the results of the test. In the future, the
enterprise value of the companies selected may change dramatically based on
changes in their stock price and fair market value of their debt.
Historically, the stock market has shown volatility and over the last year the
stock price of many companies has decreased substantially. If this trend
continues, it may have a material impact on the valuation of our operating
segments and the value of our goodwill.

The enterprise value of the comparable companies is based on the current
stock price for those companies as they are being traded under normal
circumstances. Any attempt to purchase all of the common stock would result in
a dramatic increase in the price of those shares. This increase is known as
the control premium, and it represents the premium that would have to be paid
to take control of the business in the open market. In the fair market
valuations, a control premium is applied to the enterprise value to arrive at
the estimated fair market value. The control premium is estimated based on
actual control premiums used for comparable companies who are involved with or
have recently completed an acquisition process. While the control premium is
based on actual control premiums paid in recent acquisitions of comparable
companies, a different control premium could have been reasonably selected in
our valuation process. Based on the comparable companies, the range of
reasonable premiums was 25%  30%, from which 25% was used in our valuation
process. We believe that different premiums would not have had a material
impact on our valuation process. In the future, the control premium may
decrease based on market conditions which could have a material impact on the
results of our valuation process.

The discounted cash flow approach estimates the projected aggregate sum of
future net cash flows generated by each operating segment. The aggregate net
cash flows are discounted for time-value of money and risk. The time-value of
money reflects the fact that a dollar today is worth more than a dollar in the
future. The risk factor reflects the risk that our operating segments may not
generate the future net cash flows that we are projecting for a variety of
reasons as discussed in the Risk Factorssection included herein. The
time-value of money and the risk factor combine to form a discount rate that is
used for discounting the future projected net cash flow of each operating
segment.

Both the projected net cash flows of our operating segments and the
discount rate used involve the use of estimates and assumptions. While
different estimates and assumptions could have been reasonably made in the
valuation process, we do not believe that they would have had a material
impact on the results of the process. In the future, these factors may change
based on changes in our operating performance and/or operating environment.

25



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##### Table of Contents



Review for Impairment.We had an independent valuation expert estimate
the fair market value of our laboratory and animal hospital operating segments
as of January 1, 2002. At December 31, 2002, we had an independent valuation
expert estimate the fair market value of our animal hospital operating segment,
while we performed an internal assessment that concluded that the fair market
value of the laboratory operating segment exceeded the value of its net book
assets. The results of this work showed that the value of our net goodwill was
fairly stated in our financial statements and that there are currently no
impairment issues.

We did not perform a valuation of our laboratory operating segment as of
December 31, 2002 based on managements assessment that the fair market value
of the operating segment exceeded the value of its net book assets. This
assessment was based on the large margin between the laboratorys estimated
fair market value at January 1, 2002 and the net book value of its assets at
that time and the fact that there were no significant subsequent changes in the
laboratorys operations or operating environment.

We had an independent valuation expert estimate the fair market value of
the animal hospital operating segment at December 31, 2002 because we acquired
25 animal hospitals during 2002 that resulted in an increase of $22.1 million
in the net value of our goodwill. There were no other significant changes in
the animal hospitals operations or operating environment.

At December 31, 2002 the net book value of our laboratory operating
segment was $117.4 million and the net book value of our animal hospital
operating segment was $351.0 million. The following tables reflect the results
of the valuations used in our goodwill impairment reviews as of January 1, 2002
and December 31, 2002 and the significant estimates made in that process
(dollars in millions):

|                      |  |                   |  |             |            |          |  |               |              |          |  |          |               |         |  |  |    |   |  | 
|--------------------- |  | ----------------- |  | ----------- | ---------- | -------- |  | ------------- | ------------ | -------- |  | -------- | ------------- | ------- |  |  | -- | - |  | 
|Market-based Approach
|                     
|                      |  |                   |  |             |            |          |  |               |              | Adjusted |  |          |               |         |  |  |    |  
|                      |  |                   |  |             |            |          |  |               |              | EBITDA   |  | Adjusted |               | Control
|                      |  | Valuation         |  | Estimated   |            | Multiple |  | EBIT Multiple |              | Premium 
|                      |  | Date              |  | Value Range |            | Range    |  | Range         |              | Used    
|                      |  |                   |  |             |            |          |  |               |              |         
|Laboratory            |  | January 1, 2002   |  | $           | 586 - $641 |          |  |               | 9.0x - 12.0x |          |  |          | 10.0x - 13.0x |         |  |  | 25 | %
|Animal Hospital       |  | January 1, 2002   |  | $           | 492 - $524 |          |  |               | 7.0x - 8.5x  |          |  |          | 8.5x - 10.0x  |         |  |  | 25 | %
|                      |  | December 31, 2002 |  | $           | 440 - $476 |          |  |               | 5.0x - 6.5x  |          |  |          | 6.5x - 8.0x   |         |  |  | 25 | %

|                              |  |                   |  |             |            |             |  |               |              |   |  |  |                |   |  | 
|----------------------------- |  | ----------------- |  | ----------- | ---------- | ----------- |  | ------------- | ------------ | - |  |  | -------------- | - |  | 
|Discounted Cash Flow Approach
|                             
|                              |  | Valuation         |  | Estimated   |            | Growth Rate |  | Discount Rate
|                              |  | Date              |  | Value Range |            | Range       |  | Range        
|                              |  |                   |  |             |            |             |  |              
|Laboratory                    |  | January 1, 2002   |  | $           | 500 - $658 |             |  |               | 4.00% - 5.00 | % |  |  | 10.50% - 11.50 | %
|Animal Hospital               |  | January 1, 2002   |  | $           | 437 - $533 |             |  |               | 3.75% - 4.25 | % |  |  | 10.50% - 11.50 | %
|                              |  | December 31, 2002 |  | $           | 441 - $548 |             |  |               | 6.25% - 6.75 | % |  |  | 10.75% - 11.25 | %

The decrease in the animal hospital operating segment estimated value
range from January 1, 2002 to December 31, 2002 under the market-based approach
reflects the decrease in the stock price of comparable companies that occurred
in 2002. While the decrease was significant, the valuation still exceeded the
net book value of the assets by a large margin. The stock price of the
comparable companies for the laboratory operating segment also decreased
significantly in 2002, however the impact of the decrease on the valuation
model would not have resulted in an impairment of our goodwill.

We will review our goodwill for impairment again at December 31, 2003 or
upon material changes in our operating environment. We do not anticipate that
there will be significant changes in our operations and/or operating
environments in the year to come other than possible acquisitions.

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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, including the settlement payment for the Zoasis
Corporation litigation and our insurance policy coverage for such matters, we
have accrued $3.1 million as of March 31, 2003 for legal settlements as part of
other accrued liabilities. We believe that our present insurance coverage and
reserves are sufficient to cover currently known claims, but we cannot assure
that we will not incur liabilities in excess of recorded reserves.

Allowance for Uncollectible Accounts

Provision for uncollectible accounts is estimated based primarily upon age
of accounts receivable. Accounts receivable balances are routinely reviewed in
conjunction with collection efforts, historical collection rates and other
economic conditions which might ultimately affect the collectibility of
accounts when considering the adequacy of the amounts recorded as allowance for
uncollectible accounts. Significant changes in client mix or economic
conditions could affect our collection of accounts receivable, cash flows and
results of operations.

Income Taxes

We make estimates in recording our provision for income taxes, including
our determination of deferred tax assets, deferred tax liabilities and any
valuation allowance against a deferred tax asset.

We operate in multiple states with varying tax laws. Our Federal income
tax returns have been examined by the Internal Revenue Service through our
fiscal year 1998, which resulted in no adjustment to our financial statements.
We must make estimates to record tax reserves which are adequate to cover any
future potential audit adjustments.

Results of Operations

The following table sets forth components of our statements of operations
data expressed as a percentage of revenue for the indicated periods:

|                                            |                 |                  |      |      |                    |   |      |      |       |   | 
|------------------------------------------- | --------------- | ---------------- | ---- | ---- | ------------------ | - | ---- | ---- | ----- | - | 
|                                            |                 |                  |      |      | Three Months Ended
|                                            |                 |                  |      |      | March 31,         
|                                            |                 |                  |      |      |                   
|                                            |                 |                  |      |      | 2003               |   | 2002
|                                            |                 |                  |      |      |                    |   |     
|Revenue:                                    |                 |                  |      |      |                    |   |      |     
|                                            | Laboratory      |                  |      | 36.0 | %                  |   |      | 36.0 | %    
|                                            | Animal hospital |                  |      | 66.1 |                    |   |      | 65.5 |      
|                                            | Other           |                  |      |     |                    |   |      | 0.5  |      
|                                            | Intercompany    |                  |      | (2.1 | )                  |   |      | (2.0 | )    
|                                            |                 |                  |      |      |                    |   |      |      |      
|                                            |                 | Total revenue    |      |      | 100.0              |   |      |      | 100.0 |  
|Direct costs                                |                 |                  | 68.7 |      |                    |   | 69.3 |     
|Selling, general and administrative         |                 |                  | 8.1  |      |                    |   | 8.3  |     
|Depreciation and amortization               |                 |                  | 3.1  |      |                    |   | 3.0  |     
|Gain on sale of assets                      |                 |                  | 0.2  |      |                    |   |     |     
|                                            |                 |                  |      |      |                    |   |      |      |      
|                                            |                 | Operating income |      |      | 20.3               |   |      |      | 19.4 
|Interest expense, net                       |                 |                  | 6.0  |      |                    |   | 9.5  |     
|Debt retirement costs                       |                 |                  | 6.4  |      |                    |   |     |     
|Other (income) expense                      |                 |                  | 0.1  |      |                    |   | (0.1 | )   
|Minority interest in income of subsidiaries |                 |                  | 0.3  |      |                    |   | 0.4  |     
|Provision for income taxes                  |                 |                  | 3.0  |      |                    |   | 4.2  |     
|                                            |                 |                  |      |      |                    |   |      |      |      
|                                            |                 | Net income       |      |      | 4.5                | % |      |      | 5.4   | % | 
|                                            |                 |                  |      |      |                    |   |      |      |      

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

|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |        | 
|--------------------------------- | ----------------------------------- | ----------------------- | - | ---------- | ------ | -------- | - | --------- | ------ | ------------ | - | ----- | ------ | ------- | - | ------ | - |  | - | ------- | ------ | 
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   | Inter- |   |  |   |        
|                                  |                                     |                         |   |            |        |          |   | Animal    |        |              |   |       |        | company |   |        |   | 
|                                  |                                     |                         |   | Laboratory |        | Hospital |   | Corporate |        | Eliminations |   | Total
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |      
|Three Months Ended March 31, 2003 |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                  | Revenue                             |                         | $ | 41,698     |        |          | $ | 76,728    |        |              | $ |      |        |         | $ | (2,426 | ) |  | $ | 116,000 |       
|                                  | Direct costs                        |                         |   | 23,456     |        |          |   | 58,721    |        |              |   |      |        |         |   | (2,426 | ) |  |   | 79,751  |       
|                                  | Selling, general and administrative |                         |   | 2,707      |        |          |   | 2,503     |        |              |   | 4,153 |        |         |   |       |   |  |   | 9,363   |       
|                                  | Gain on sale of assets              |                         |   | 2          |        |          |   | 236       |        |              |   |      |        |         |   |       |   |  |   | 238     |       
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  |                                     | Adjusted EBITDA (1)     |   |            | 15,537 |          |   |           | 15,740 |              |   |       | (4,153 | )       |   |        |  |  |   |         | 27,124 | 
|                                  | Depreciation and amortization       |                         |   | 754        |        |          |   | 2,477     |        |              |   | 346   |        |         |   |       |   |  |   | 3,577   |       
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  |                                     | Operating income (loss) |   | $          | 14,783 |          |   | $         | 13,263 |              |   | $     | (4,499 | )       |   | $      |  |  |   | $       | 23,547 | 
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  | Adjusted EBITDA (1) margin          |                         |   | 37.3       | %      |          |   | 20.5      | %      |              |   | (3.6  | )%     |         |   |       |   |  |   | 23.4    | %     
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  | Operating income margin             |                         |   | 35.5       | %      |          |   | 17.3      | %      |              |   | (3.9  | )%     |         |   |       |   |  |   | 20.3    | %     
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|Three Months Ended March 31, 2002 |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |        
|                                  | Revenue                             |                         | $ | 37,657     |        |          | $ | 68,644    |        |              | $ | 500   |        |         | $ | (2,106 | ) |  | $ | 104,695 |       
|                                  | Direct costs                        |                         |   | 21,562     |        |          |   | 53,132    |        |              |   |      |        |         |   | (2,106 | ) |  |   | 72,588  |       
|                                  | Selling, general and administrative |                         |   | 2,673      |        |          |   | 2,514     |        |              |   | 3,435 |        |         |   |       |   |  |   | 8,622   |       
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  |                                     | Adjusted EBITDA (1)     |   |            | 13,422 |          |   |           | 12,998 |              |   |       | (2,935 | )       |   |        |  |  |   |         | 23,485 | 
|                                  | Depreciation and amortization       |                         |   | 697        |        |          |   | 2,136     |        |              |   | 330   |        |         |   |       |   |  |   | 3,163   |       
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  |                                     | Operating income (loss) |   | $          | 12,725 |          |   | $         | 10,862 |              |   | $     | (3,265 | )       |   | $      |  |  |   | $       | 20,322 | 
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  | Adjusted EBITDA (1) margin          |                         |   | 35.6       | %      |          |   | 18.9      | %      |              |   | (2.8  | )%     |         |   |       |   |  |   | 22.4    | %     
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       
|                                  | Operating income margin             |                         |   | 33.8       | %      |          |   | 15.8      | %      |              |   | (3.1  | )%     |         |   |       |   |  |   | 19.4    | %     
|                                  |                                     |                         |   |            |        |          |   |           |        |              |   |       |        |         |   |        |   |  |   |         |       



|(1) |  | Adjusted EBITDA is operating income before depreciation and
amortization. Adjusted EBITDA is not a measure of financial
performance under GAAP. Although Adjusted 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 that Adjusted EBITDA is a primary performance
measure as it reflects earnings before the impact of depreciation and
amortization and certain other significant items. We believe that
operating income is the most comparable GAAP measure to Adjusted
EBITDA. Adjusted EBITDA is also an important component of our
financial ratios included in our debt covenants, which provides us with
a measure of our ability to service our debt. Our calculation of
Adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue

The following table summarizes our revenue (in thousands):

|                |               |   |                              |         |      |   |          |         |  |  |      |      |  
|--------------- | ------------- | - | ---------------------------- | ------- | ---- | - | -------- | ------- |  |  | ---- | ---- | -
|                |               |   | Three Months Ended March 31,
|                |               |   |                             
|                |               |   | 2003                         |         | 2002 |   | % Change
|                |               |   |                              |         |      |   |         
|Laboratory      |               | $ | 41,698                       |         |      | $ | 37,657   |         |  |  | 10.7 | %   
|Animal hospital |               |   | 76,728                       |         |      |   | 68,644   |         |  |  | 11.8 | %   
|Other           |               |   |                             |         |      |   | 500      |         |  |  |      |     
|Intercompany    |               |   | (2,426                       | )       |      |   | (2,106   | )       |  |  |      |     
|                |               |   |                              |         |      |   |          |         |  |  |      |     
|                | Total revenue |   | $                            | 116,000 |      |   | $        | 104,695 |  |  |      | 10.8 | %
|                |               |   |                              |         |      |   |          |         |  |  |      |     

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Laboratory Revenue

Laboratory revenue increased $4.0 million for the three months ended March
31, 2003 compared to the same period in the prior year. The components of the
increase in laboratory revenue are detailed below (in thousands, except average
price per requisition):

|                           |                                     |   |                              |        |      |   |          |        |  |  |      |      |  
|-------------------------- | ----------------------------------- | - | ---------------------------- | ------ | ---- | - | -------- | ------ |  |  | ---- | ---- | -
|                           |                                     |   | Three Months Ended March 31,
|                           |                                     |   |                             
|                           |                                     |   | 2003                         |        | 2002 |   | % Change
|                           |                                     |   |                              |        |      |   |         
|Laboratory Revenue:        |                                     |   |                              |        |      |   |          |        |  |  |      |     
|Internal growth:           |                                     |   |                              |        |      |   |          |        |  |  |      |     
|                           | Number of requisitions              |   |                              | 1,835  |      |   |          | 1,777  |  |  |      | 3.3  | %
|                           | Average revenue per requisition (1) |   | $                            | 22.59  |      |   | $        | 20.92  |  |  |      | 8.0  | %
|                           |                                     |   |                              |        |      |   |          |        |  |  |      |      |  
|Total internal revenue (2) |                                     | $ | 41,448                       |        |      | $ | 37,168   |        |  |  | 11.5 | %   
|Billing day adjustment     |                                     |   |                             |        |      |   | 489      |        |  |  |      |     
|Acquired revenue           |                                     |   | 250                          |        |      |   |         |        |  |  |      |     
|                           |                                     |   |                              |        |      |   |          |        |  |  |      |     
|                           | Total                               |   | $                            | 41,698 |      |   | $        | 37,657 |  |  |      | 10.7 | %
|                           |                                     |   |                              |        |      |   |          |        |  |  |      |     



|(1) |  | Computed by dividing total internal revenue by the number of
requisitions.
|--- |  | --------------------------------------------------------------------------
|   
|(2) |  | Numbers may not calculate exactly due to rounding.                        

Laboratory revenue and requisitions generated from internal growth, as
referred to in the above table, have been adjusted to exclude revenue and
requisitions for newly acquired laboratories, those laboratories that we did
not own for the entire periods presented. The increase in requisitions from
internal growth during the three months ended March 31, 2003 are the result of
a trend within the veterinarian community where there is a continued growing
emphasis on the importance of diagnostic testing. In addition, our marketing
programs include comprehensive education to our veterinarian clients, which
have contributed to the growth in our revenue in both volume and breadth of
tests performed.

The increase in the average revenue per requisition during the three
months ended March 31, 2003 is attributable to our sales and marketing efforts
of our pet health and wellness programs, which have contributed to an increase
in the number of tests performed per requisition, as well as a change in the
mix of tests to more comprehensive and expensive tests. Also contributing to
our increase in average revenue per requisition are price increases. The
prices of most tests were increased 4% to 5% in February 2003.

As the result of acquiring laboratories in November 2002 and February
2003, we generated an additional $250,000 of revenue (referred to in the above
table as acquired revenue) during the three months ended March 31, 2003 in
comparison to the same period in the prior year.

The billing day adjustment, referred to in the above table, reflects the
impact of one more billing day for the three months ended March 31, 2002
compared to the current period.

Animal Hospital Revenue

The following table reconciles our animal hospital revenue, as reported
under GAAP, to the combined revenue of animal hospitals that we owned and
managed, referred to as combined animal hospital revenue, as if we had
consolidated the operating results of the animal hospitals we managed into our
operating results (in thousands):

|                                         |                              |   |                              |        |      |   |          |        |  |  |      |      |  
|---------------------------------------- | ---------------------------- | - | ---------------------------- | ------ | ---- | - | -------- | ------ |  |  | ---- | ---- | -
|                                         |                              |   | Three Months Ended March 31,
|                                         |                              |   |                             
|                                         |                              |   | 2003                         |        | 2002 |   | % Change
|                                         |                              |   |                              |        |      |   |         
|Animal Hospital Revenue:                 |                              |   |                              |        |      |   |          |        |  |  |      |     
|As reported                              |                              | $ | 76,728                       |        |      | $ | 68,644   |        |  |  | 11.8 | %   
|Less: Management fees (1)                |                              |   | (10,944                      | )      |      |   | (9,705   | )      |  |  |      |     
|Add: Revenue of animal hospitals managed |                              |   | 20,523                       |        |      |   | 18,315   |        |  |  |      |     
|                                         |                              |   |                              |        |      |   |          |        |  |  |      |     
|                                         | Combined animal hospital (2) |   | $                            | 86,307 |      |   | $        | 77,254 |  |  |      | 11.7 | %
|                                         |                              |   |                              |        |      |   |          |        |  |  |      |     

|    |  |                                                                                
|--- |  | -------------------------------------------------------------------------------
|(1) |  | Paid to us by veterinary medical groups.                                       
|   
|(2) |  | Represents the combined animal hospital
revenue of hospitals owned and managed.

29



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The combined animal hospital revenue increased $9.1 million for the three
months ended March 31, 2003 compared to the same period in the prior year. The
components of the increase are summarized in the following table (in thousands,
except average price per order):

|                                       |                             |   |                              |        |      |   |          |        |  |  |     |      |   
|-------------------------------------- | --------------------------- | - | ---------------------------- | ------ | ---- | - | -------- | ------ |  |  | --- | ---- | --
|                                       |                             |   | Three Months Ended March 31,
|                                       |                             |   |                             
|                                       |                             |   | 2003                         |        | 2002 |   | % Change
|                                       |                             |   |                              |        |      |   |         
|Animal Hospital Revenue:               |                             |   |                              |        |      |   |          |        |  |  |     |     
|Adjusted same-facility:                |                             |   |                              |        |      |   |          |        |  |  |     |     
|                                       | Orders (1)                  |   |                              | 743    |      |   |          | 761    |  |  |     | (2.4 | )%
|                                       | Average price per order (2) |   | $                            | 106.90 |      |   | $        | 101.18 |  |  |     | 5.7  | % 
|                                       |                             |   |                              |        |      |   |          |        |  |  |     |     
|Adjusted same-facility revenue (1) (3) |                             | $ | 79,424                       |        |      | $ | 76,999   |        |  |  | 3.1 | %   
|Net acquired revenue (1)               |                             |   | 6,883                        |        |      |   | 255      |        |  |  |     |     
|                                       |                             |   |                              |        |      |   |          |        |  |  |     |     
|                                       | Combined animal hospital    |   | $                            | 86,307 |      |   | $        | 77,254 |  |  |     |      |   
|                                       |                             |   |                              |        |      |   |          |        |  |  |     |     



|(1) |  | Adjusted same-facility revenue and orders and net acquired revenue
are non-GAAP measures of combined animal hospitals owned and managed.
These non-GAAP measures are reconciled to the GAAP measures in tables
below.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Computed by dividing adjusted same-facility revenue by adjusted
same-facility orders.                                                                                                                                
|   
|(3) |  | Numbers may not calculate exactly due to rounding.                                                                                                                                                                   

Our animal hospital segment has placed a greater emphasis on providing
high-quality veterinary care and comprehensive wellness programs,
which has contributed
to the increase in the average price per
order and the increase in adjusted same-facility revenue for the three months
ended March 31, 2003. The decrease in the total number of orders
for the current quarter primarily related to a decrease in the number
of orders for sales of flea products and vaccines.

Net acquired revenue represents revenue from hospitals acquired, sold or
closed on or subsequent to January 1, 2002.

Reconciliation Between Non-GAAP and GAAP Measures

In the above tables, we use non-GAAP measures to reflect the combined
performance of animal hospitals owned and managed. The tables below reconcile
those non-GAAP measures to their comparable GAAP measures (in thousands):

|                                                  |  |                              |         |      |  |          |         |   |  |  |     |  
|------------------------------------------------- |  | ---------------------------- | ------- | ---- |  | -------- | ------- | - |  |  | --- | -
|                                                  |  | Three Months Ended March 31,
|                                                  |  |                             
|                                                  |  | 2003                         |         | 2002 |  | % Change
|                                                  |  |                              |         |      |  |         
|Animal Hospital Revenue:                          |  |                              |         |      |  |          |         |   |  |  |     |  
|Adjusted same-facility revenue (1)                |  | $                            | 79,424  |      |  | $        | 76,999  |   |  |  | 3.1 | %
|Same-facility revenue of animal hospitals
managed |  |                              | (18,575 | )    |  |          | (18,315 | ) |  |  | 1.4 | %
|                                                  |  |                              |         |      |  |          |         |   |  |  |     |  
|Same-facility revenue of animal hospitals owned   |  |                              | 60,849  |      |  |          | 58,684  |   |  |  | 3.7 | %
|Same-facility management fees (2)                 |  |                              | 9,878   |      |  |          | 9,705   |   |  |  | 1.8 | %
|                                                  |  |                              |         |      |  |          |         |   |  |  |     |  
|Same-facility revenue                             |  | $                            | 70,727  |      |  | $        | 68,389  |   |  |  | 3.4 | %
|                                                  |  |                              |         |      |  |          |         |   |  |  |     |  



|(1) |  | Adjusted same-facility revenue is a non-GAAP measure of combined
animal hospitals owned and managed.
|--- |  | ----------------------------------------------------------------------------------------------------
|   
|(2) |  | Paid to us by veterinary medical groups.                                                            

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The following table reconciles the non-GAAP measure of orders for combined
animal hospitals owned and managed to the GAAP measure of orders for animal
hospitals owned (in thousands, except average price per order):

|                                                                     |                                                        |   |                              |        |      |   |          |        |   |  |      |      |   
|-------------------------------------------------------------------- | ------------------------------------------------------ | - | ---------------------------- | ------ | ---- | - | -------- | ------ | - |  | ---- | ---- | --
|                                                                     |                                                        |   | Three Months Ended March 31,
|                                                                     |                                                        |   |                             
|                                                                     |                                                        |   | 2003                         |        | 2002 |   | % Change
|                                                                     |                                                        |   |                              |        |      |   |         
|Same-facility:                                                       |                                                        |   |                              |        |      |   |          |        |   |  |      |     
|                                                                     | Orders for combined animal hospitals owned and
managed |   |                              | 743    |      |   |          | 761    |   |  |      | (2.4 | )%
|                                                                     | Orders for animal hospitals managed                    |   |                              | (183   | )    |   |          | (190   | ) |  |      | (3.7 | )%
|                                                                     |                                                        |   |                              |        |      |   |          |        |   |  |      |     
|                                                                     | Orders for animal hospitals owned                      |   |                              | 560    |      |   |          | 571    |   |  |      | (1.9 | )%
|                                                                     | Average price per order for animal hospitals owned (1) |   | $                            | 108.66 |      |   | $        | 102.77 |   |  |      | 5.7  | % 
|                                                                     |                                                        |   |                              |        |      |   |          |        |   |  |      |     
|Same-facility revenue for animal hospitals owned (2)                 |                                                        | $ | 60,849                       |        |      | $ | 58,684   |        |   |  | 3.7  | %   
|Same-facility management fees                                        |                                                        |   | 9,878                        |        |      |   | 9,705    |        |   |  | 1.8  | %   
|Acquired revenue and management fees from acquired
managed practices |                                                        |   | 6,001                        |        |      |   | 255      |        |   |  |      |     
|                                                                     |                                                        |   |                              |        |      |   |          |        |   |  |      |     
|Animal hospital as reported                                          |                                                        | $ | 76,728                       |        |      | $ | 68,644   |        |   |  | 11.8 | %   
|                                                                     |                                                        |   |                              |        |      |   |          |        |   |  |      |     



|(1) |  | Computed by dividing same-facility revenue for animal hospitals owned
by same-facility orders for animal
hospitals owned.
|--- |  | -------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Numbers may not calculate exactly due to rounding.                                                                       

The following table reconciles the non-GAAP measure of acquired revenue
for combined animal hospitals
owned and managed to the GAAP measure of acquired revenue (in thousands):

|                                                                 |  |                              |        |      |  |   |     | 
|---------------------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | --- | 
|                                                                 |  | Three Months Ended March 31,
|                                                                 |  |                             
|                                                                 |  | 2003                         |        | 2002
|                                                                 |  |                              |        |     
|Acquired revenue for combined animal hospitals owned
and managed |  | $                            | 6,883  |      |  | $ | 255 | 
|Less: acquired revenue for animal hospitals managed              |  |                              | (1,948 | )    |  |   |    | 
|                                                                 |  |                              |        |      |  |   |     | 
|Acquired revenue for animal hospitals owned                      |  | $                            | 4,935  |      |  | $ | 255 | 
|                                                                 |  |                              |        |      |  |   |     | 

Other Revenue

Other revenue consists of fees earned from a marketing consulting
agreement with Heinz Pet Products, which paid a monthly fee of approximately
$167,000 commencing October 1, 2000 through September 30, 2002. For the three
months ended March 31, 2002, we recognized revenue of $500,000 related to this
agreement. There were no consulting agreements effective in 2003.

Direct Costs

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

|                |                    |   |                              |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |     |  
|--------------- | ------------------ | - | ---------------------------- | ------ | ------- |  | ---- | ---- | ------- | - | -------- | ------ | ---- |  | ---- | ---- | - |  | ---- | --- | -
|                |                    |   | Three Months Ended March 31,
|                |                    |   |                             
|                |                    |   | 2003                         |        | 2002    |  |      |      |        
|                |                    |   |                              |        |         |  |      |      |        
|                |                    |   |                              |        |         |  | % of |      |         |   |          |        | % of |  |      |      |  
|                |                    |   | $                            |        | Revenue |  | $    |      | Revenue |   | % Change
|                |                    |   |                              |        |         |  |      |      |         |   |         
|Laboratory      |                    | $ | 23,456                       |        |         |  | 56.3 | %    |         | $ | 21,562   |        |      |  | 57.3 | %    |   |  | 8.8  | %  
|Animal hospital |                    |   | 58,721                       |        |         |  | 76.5 | %    |         |   | 53,132   |        |      |  | 77.4 | %    |   |  | 10.5 | %  
|Intercompany    |                    |   | (2,426                       | )      |         |  | (2.1 | )%   |         |   | (2,106   | )      |      |  | (2.0 | )%   |   |  | 15.2 | %  
|                |                    |   |                              |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |    
|                | Total direct costs |   | $                            | 79,751 |         |  |      | 68.8 | %       |   | $        | 72,588 |      |  |      | 69.3 | % |  |      | 9.9 | %
|                |                    |   |                              |        |         |  |      |      |         |   |          |        |      |  |      |      |   |  |      |    

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Laboratory Direct Costs

The decrease in laboratory direct costs as a percentage of laboratory
revenue during this period was primarily attributable to an increase in
laboratory revenue combined with operating leverage associated with our
laboratory business. Our operating leverage comes from the incremental margins
we realize on additional tests ordered by the same client, as well as when more
comprehensive tests are ordered. We are able to benefit from these incremental
margins due to the relative fixed cost nature of our laboratory business.

Animal Hospital Direct Costs

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

|                                              |  |                              |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  
|--------------------------------------------- |  | ---------------------------- | ------- | ------- |  | ---- | ---- | ------- |  | -------- | ------ | ---- |  |  | ---- | - |  |  | ---- | -
|                                              |  | Three Months Ended March 31,
|                                              |  |                             
|                                              |  | 2003                         |         | 2002   
|                                              |  |                              |         |        
|                                              |  |                              |         |         |  | % of |      |         |  |          |        | % of |  |  |      |  
|                                              |  | $                            |         | Revenue |  | $    |      | Revenue |  | % Change
|                                              |  |                              |         |         |  |      |      |         |  |         
|Animal Hospital Direct Costs:                 |  |                              |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  
|As reported                                   |  | $                            | 58,721  |         |  |      | 76.5 | %       |  | $        | 53,132 |      |  |  | 77.4 | % |  |  | 10.5 | %
|Add: Direct costs of animal hospitals
managed |  |                              | 20,523  |         |  |      |      |         |  |          | 18,315 |      |  |  |      |   |  |  |      |  
|Less: Management fees (1)                     |  |                              | (10,944 | )       |  |      |      |         |  |          | (9,705 | )    |  |  |      |   |  |  |      |  
|                                              |  |                              |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  
|Combined animal hospital                      |  | $                            | 68,300  |         |  |      | 79.1 | %       |  | $        | 61,742 |      |  |  | 79.9 | % |  |  | 10.6 | %
|                                              |  |                              |         |         |  |      |      |         |  |          |        |      |  |  |      |   |  |  |      |  



|(1) |  | Charged by us to veterinary medical groups.
|--- |  | -------------------------------------------

The decrease in combined animal hospital direct costs as a percentage of
applicable revenue was attributable to the increase in the combined animal
hospital revenue combined with the operating leverage associated with the
animal hospital business, as most of the costs associated with this business do
not increase proportionately with increases in the volume of services rendered.

Selling, General and Administrative Expense

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

|                |            |   |                              |       |      |         |      |     |   |   |         |       |          |  |     |     |   |  |      |     |  
|--------------- | ---------- | - | ---------------------------- | ----- | ---- | ------- | ---- | --- | - | - | ------- | ----- | -------- |  | --- | --- | - |  | ---- | --- | -
|                |            |   | Three Months Ended March 31,
|                |            |   |                             
|                |            |   | 2003                         |       | 2002 |         |      |     |  
|                |            |   |                              |       |      |         |      |     |  
|                |            |   |                              |       |      |         | % of |     |   |   |         |       | % of     |  |     |     |  
|                |            |   | $                            |       |      | Revenue |      | $   |   |   | Revenue |       | % Change
|                |            |   |                              |       |      |         |      |     |   |   |         |       |         
|Laboratory      |            | $ | 2,707                        |       |      |         | 6.5  | %   |   | $ | 2,673   |       |          |  | 7.1 | %   |   |  | 1.3  | %  
|Animal hospital |            |   | 2,503                        |       |      |         | 3.3  | %   |   |   | 2,514   |       |          |  | 3.7 | %   |   |  | (0.4 | )% 
|Corporate       |            |   | 4,153                        |       |      |         | 3.6  | %   |   |   | 3,435   |       |          |  | 3.3 | %   |   |  | 20.9 | %  
|                |            |   |                              |       |      |         |      |     |   |   |         |       |          |  |     |     |   |  |      |    
|                | Total SG&A |   | $                            | 9,363 |      |         |      | 8.1 | % |   | $       | 8,622 |          |  |     | 8.2 | % |  |      | 8.6 | %
|                |            |   |                              |       |      |         |      |     |   |   |         |       |          |  |     |     |   |  |      |    

Laboratory SG&A

The decrease in laboratory SG&A as a percentage of laboratory revenue
during the three months ended March 31, 2003 as compared to the same period in
the prior year was primarily attributable to a decrease in legal costs offset
by increases related to additional information technology personnel, commission
payments to sales representatives due to increased sales and marketing costs
incurred on our pet health and wellness programs.

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Animal Hospital SG&A

The decrease in animal hospital SG&A as a percentage of animal hospital
revenue during the three months ended March 31, 2003 as compared to the same
period in the prior year was primarily attributable to an increase in animal
hospital revenue combined with operating leverage associated with our animal
hospital business.

Corporate SG&A

The increase in corporate SG&A as a percentage of total revenue for the
three months ended March 31, 2003 as compared to the same period in the prior
year was primarily due to increased legal and accounting services and increased
liability insurance costs.

Depreciation and Amortization

Depreciation and amortization expense increased $414,000, or 13.1%, for
the three months ended March 31, 2003 compared to the same period in the prior
year. The increase in depreciation and amortization was due to the purchase of
property and equipment and the addition of non-competition agreements with
sellers in connection with the acquisition of animal hospitals and
laboratories.

Gain on Sale of Assets

During the three months ended March 31, 2003, we sold certain assets for a
gain of $238,000. The sales transactions consisted of real estate, one animal
hospital practice and other fixed assets.

Interest Expense, Net

Interest expense, net of interest income decreased $3.0 million, or 30.0%,
to $7.0 million for the three months ended March 31, 2003 from $10.0 million
for the three months ended March 31, 2002. The change in net interest expense
was primarily attributable to a decrease in the average debt balances
outstanding and a decrease in the weighted average interest rate during the
three months ended March 31, 2003 as compared to the same period in the prior
year.

Other (Income) Expense

Other expense was $127,000 for the three months ended March 31, 2003,
consisting of a non-cash loss on the interest rate swap agreement. Other
income was $93,000 for the three months ended March 31, 2002, consisting of a
non-cash gain on the interest rate collar agreement.

Debt Retirement Costs

On February 4, 2003, we voluntarily retired the entire principal amount of
our 15.5% senior notes with proceeds from the sale of our common stock sold in
our secondary offering. In conjunction with that transaction, we recorded debt
retirement costs of $7.4 million. The debt retirement costs consisted of the
write-off of deferred financing costs and debt discounts and the payment of
related transaction and retirement fees.

Minority Interest in Income of Subsidiaries

Minority interest in income of the consolidated subsidiaries was $361,000
and $402,000 for the three months ended March 31, 2003 and 2002, respectively.
Minority interest in income of subsidiaries represents our partners
proportionate share of net income generated by those subsidiaries that we do
not wholly own.

Provision for Income Taxes

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. During the three months ended March 31, 2003, our effective income tax
rate varied from the statutory rate primarily due to the non-deductibility of
the amortization of a portion of intangible assets.

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Liquidity and Capital Resources

Discussion of the Three Months Ended March 31, 2003

Our cash and cash equivalents increased to $24.7 million at March 31, 2003
compared to $6.5 million at December 31, 2002. The increase resulted from
$22.4 million provided by operating activities offset by $8.4 million used in
investing activities and $4.2 million provided by financing activities.

Net cash provided by operating activities increased to $22.4 million
during the three months ended March 31, 2003 compared to $19.9 million during
the three months ended March 31, 2002. This increase was primarily
attributable to an increase in operating income, offset by a $111,000 increase
in interest paid and a $682,000 increase in income taxes paid.

We used net cash of $8.4 million for investing activities during the three
months ended March 31, 2003 in which we:



| |  |  | paid $6.0 million related to the acquisition of five animal
hospitals and one laboratory and the settlement of certain
obligations incurred or agreed to on the date of acquisition;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | paid $2.8 million in property and equipment additions; and                                                                                                                          
|
| |  |  | received $568,000 from the sale of assets and other activities.                                                                                                                     

We received net cash of $4.2 million from financing activities during the
three months ended March 31, 2003 in which we:



| |  |  | received $54.3 million in net proceeds from the issuance of
3.8 million shares of our common stock;                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | paid $41.8 million to voluntarily redeem the entire principal
amount of our 15.5% senior notes at a redemption price of 110% of
the principal amount;
|
| |  |  | paid $485,000 for scheduled maturities of debt obligations;                                                                                          
|
| |  |  | repaid $7.5 million, the entire outstanding balance, of our revolving credit facility; and                                                           
|
| |  |  | paid $382,000 of financing costs.                                                                                                                    

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. At March 31, 2003, we had no borrowings outstanding under our
revolving credit facility. We believe these sources of funds will be
sufficient to continue our operations and planned capital expenditures and to
satisfy our scheduled principal and interest payments under debt 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 2003 include capital
expenditures for land, buildings and equipment of approximately $15.2 million.
In addition, we intend to use available liquidity to continue our growth
through the selective acquisition of animal hospitals, primarily for cash. 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. We continue to examine acquisition opportunities in the
laboratory field, which may impose additional cash requirements. Although we
intend to primarily use cash in our acquisitions, we may use debt or stock to
the extent we deem it appropriate.

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##### Table of Contents



In addition to the foregoing, we will use approximately $1.9 million of
cash for the remainder of 2003 to pay the mandatory principal payments due on
our outstanding indebtedness. However, we may elect to pre-pay certain debt
obligations.

Description of Indebtedness

Senior Term Notes and Revolving Credit Facility.At March 31, 2003, we
had $166.9 million principal amount outstanding under our senior term C notes
and no borrowings outstanding under our revolving credit facility.

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 revolving
credit facility range from 1.00% to 2.25% per annum and the margin for the
senior term C notes is 2.00%. The eurodollar rate margins for the revolving
credit facility range from 2.00% to 3.25% per annum and the margin for the
senior term C notes is 3.00%.

The senior term C notes mature in September 2008 and the revolving credit
facility matures in September 2006.

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 currently believe the most restrictive covenant is the
fixed-charge coverage ratio. Our credit agreement defines the fixed charge
coverage ratio as that ratio which is calculated on a last twelve-month basis
by dividing pro forma EBITDA, as defined by the agreement, by fixed charges.
Fixed charges are defined as cash interest expense, scheduled principal
payments on debt obligations, capital expenditures and provision for income
taxes. At March 31, 2003, we had a fixed charge coverage ratio of 1.41 to
1.00. The credit and guaranty agreement requires a fixed-charge coverage ratio
of no less than 1.10 to 1.00.

9.875% Senior Subordinated Notes.On November 27, 2001, Vicar Operating,
Inc., our wholly-owned subsidiary, issued $170.0 million in principal amount of
senior subordinated notes due December 1, 2009, which were exchanged on June
13, 2002 for substantially similar securities that are registered under the
Securities Act. Interest on these senior subordinated notes is 9.875% per
annum, payable semi-annually in arrears in cash. At March 31, 2003, the
outstanding principal balance of these senior subordinated notes was $170.0
million. We and each existing and future domestic wholly-owned 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 governing these notes.

15.5% Senior Notes.On February 4, 2003, we used approximately $42.7
million of the net proceeds received from our secondary offering to redeem the
remaining principal amount outstanding of our 15.5% senior notes due 2010 at a
redemption price of 110% of the principal amount, plus accrued and unpaid
interest.

Other Debt.We had seller notes secured by assets of animal hospitals and
unsecured debt that total $2.9 million at March 31, 2003.

Contractual Obligations.There have been no significant changes to our
contractual obligations or commitments from those disclosed in our most
recently filed Form 10-K.

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##### Table of Contents



Interest Rate Hedging Agreements

In November 2002, we entered into a no-fee swap agreement with Wells Fargo
Bank which expires November 29, 2004. The agreement swaps monthly variable
LIBOR rates for a fixed rate of 2.22% on a notional amount of $40.0 million.
The agreement qualifies for hedge accounting.

At March 31, 2003, the difference between the fair market value of our
swap agreement and the notional amount resulted in a net liability to us of
$440,000 which is included in other accrued liabilities on our balance sheet.
The actual cash paid by us as a result of LIBOR rates falling below the fixed
rate of 2.22% is recorded as a component of earnings. For the three months
ended March 31, 2003, we made payments of $85,000 which are included in
interest expense.

On May 7, 2003, we entered into an additional no-fee swap agreement with
Wells Fargo Bank which expires May 31, 2005. Effective May 30, 2003, this swap
agreement swaps monthly variable LIBOR rates for a fixed rate of 1.72% on a
notional amount of $20.0 million. This swap agreement qualifies for hedge
accounting and we consider it a cash flow hedging instrument.

We are considering entering into additional interest rate strategies to
take advantage of the current rate environment. We have not yet determined
what those strategies will be or their possible impact.

New Accounting Pronouncements

Asset Retirement Obligations

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 adopted SFAS No. 143 on
January 1, 2003 without material impact on our 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.

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. Any gains or losses on extinguishment of debt that do not meet the
criteria of APB No. 30 shall be classified as a component of income from
recurring operations. In addition, any gains or losses on extinguishment of
debt that were classified as an extraordinary item in prior periods presented
that do not meet the criteria of APB No. 30 shall be reclassified as a
component of income from recurring operations. We adopted SFAS No. 145 on
January 1, 2003.

In February 2003, we redeemed the entire principal amount of our 15.5%
senior notes. This voluntary repayment resulted in the recognition of a loss
on the early extinguishment of debt of $7.4 million. We do not believe the
loss meets the criteria of APB No. 30 as we have historically and may continue
to change our capital structure to take advantage of current market conditions.
As a result of adopting SFAS No. 145, we recorded the debt retirement costs as
a component of income from recurring operations.

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 March
31, 2003, we had no capital lease obligations. Although we may enter into
capital leases in the future, we do not expect SFAS No. 145 to have a material
impact on our financial statements.

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Costs Associated with Exit or Disposal 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 EITF 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. Currently, we have no plans to exit or
dispose of any of our 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.

Guarantors Accounting and Disclosure Requirements for Guarantees

In January 2003, the FASB issued FASB Interpretation, or FIN, No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN No. 45 requires a company
to recognize a liability for the obligations it has undertaken in issuing a
guarantee. This liability would be recorded at the inception of a guarantee
and would be measured at fair value. The measurement provisions of this
statement apply prospectively to guarantees issued or modified after December
31, 2002 for periods ending after December 15, 2002. We do not have any
obligations subject to the provisions of FIN No. 45.

Consolidations of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities,requiring that companies consolidate variable interest
entities if they are the primary beneficiaries, as defined under FIN No. 46, of
the activities of the variable interest entities. Companies are required to
apply FIN No. 46 immediately for all variable interest entities created after
January 31, 2003 and as of the beginning of the first interim period beginning
after June 15, 2003 for all other variable interest entities.

We provide management services to certain veterinary medical groups in
states with laws that prohibit business corporations from providing, or holding
themselves out as providers of, veterinary medical care. As of March 31, 2003,
we operated in eleven of these states. In these states, we provide management
services to veterinary medical groups pursuant to long-term management
agreements ranging from 10 to 40 years with non-binding renewal options, where
allowable. Pursuant to the management agreements, the veterinary medical
groups are each solely responsible for all aspects of the practice of
veterinary medicine, as defined by their respective state. We are responsible
for providing the following services:



| |  |  | availability of all facilities and equipment;                      
| | - |  | -------------------------------------------------------------------
|
| |  |  | day-to-day financial and administrative supervision and management;
|
| |  |  | maintenance of patient records;                                    
|
| |  |  | recruitment of veterinary and hospital staff;                      
|
| |  |  | marketing; and                                                     
|
| |  |  | malpractice and general insurance.                                 

Currently, we do not consolidate the operations of the veterinary medical
groups since we have no ownership interests in the veterinary medical groups.
However, we are evaluating whether or not the operations of the veterinary
medical groups should be consolidated under FIN No. 46. If the veterinary
medical groups were to be consolidated into our operating results, there would
be no effect on operating income and we would not be exposed to additional
losses. We would consolidate the revenue and direct costs of the veterinary
medical groups
but would

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not recognize the management fees charged to them. See our
discussions regarding animal hospital revenue included herein in the Revenue
section for full details regarding the veterinary medical groups.

Consideration Received from a Vendor

In November 2002, FASBs Emerging Issues Task Force, or EITF, reached a
consensus regarding two issues raised by EITF Issue No. 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor.The EITF concluded that:



| |  |  | cash received by a vendor is presumed to be a reduction of
the cost of the vendors products or services, however that
presumption is overcome when the consideration is either (a) a
payment for assets or services, or b) a reimbursement of specific
and identifiable costs incurred on behalf of the vendor in selling
the vendors products or services, in which case the consideration
is a reduction of that cost; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | rebates offered to a customer or reseller should be
recognized or new agreements entered into on or after January 1,
2003. We have adopted EITF Issue No. 02-16 and we do not expect it
to have a material impact on our financial statements in the future.                                                                                                                                                                  

Accounting for Derivative Instruments and Hedging Activities

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.SFAS No. 149 clarifies
financial accounting and reporting requirements for derivative instruments and
hedging activities as set forth under SFAS No. 133. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships entered into after June 30, 2003. We are still evaluating
whether or not SFAS No. 149 will have a material impact on the way we account
for our interest rate hedging agreements.

Risk Factors

This Form 10-Q, including Risk Factorsset forth below, contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they 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 below.

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 having in the future. Our internal growth rate may decline and
could become negative. Our laboratory internal revenue growth has fluctuated
between 12.5% and 14.1% for each fiscal year from 2000 through 2002.
Similarly, our animal hospital adjusted same-facility revenue growth rate has
fluctuated between 3.6% 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.

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Demand for certain over the counter products could decline as their
product life cycle matures and the products become available in more
retail-oriented locations. Certain of these products are replaced and are
distributed through veterinary hospitals only. This cycle and the replacement
of existing products could affect veterinary visits. Demand for vaccinations
may also be impacted in the future as protocols for vaccinations change.
Vaccinations have been recommended by some in the profession to be given less
frequently. This may result in fewer visits and potentially less revenue.
Vaccine protocols for our company are established by our veterinarians who use their
independent professional judgment. Some of our veterinarians may change their
protocol in light of recent literature.

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 animal hospitals, operated laboratories servicing approximately
9,000 customers in 27 states and had approximately 1,150 full-time equivalent
employees. At March 31, 2003, we operated 233 animal hospitals, operated
laboratories servicing approximately 13,000 customers in all 50 states and had
approximately 3,800 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.

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

Approximately 57.2% 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.

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 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 and other intangible assets;                                                                                  
|
| |  |  | dependence on retention, hiring and training of key personnel, including specialists; 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

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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 March 31, 2003, our balance sheet reflected $348.6 million of goodwill,
which is a substantial portion of our total assets of $533.2 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 is below their carrying values. If we
determine that the fair market value of one of our reporting units is less than
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, we concluded
that the fair value of our reporting units exceeded their carrying value and
accordingly, as of that date, our net goodwill was fairly stated in our
financial statements and there are currently no 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 March 31, 2003, our debt, excluding unamortized discount, consisted
primarily of:



| |  |  | $166.9 million in principal amount outstanding under our senior credit facility;              
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | $170.0 million in principal amount outstanding under our 9.875% senior subordinated notes; and
|
| |  |  | $2.9 million in principal amount outstanding under our other debt.                            

The following table sets forth the scheduled principal and interest
payments that are due on our debt for each of the periods indicated, adjusted
to reflect the impact of the no-fee swap agreement entered into on May 7, 2003
(in thousands):

|                  |  |                        |         |            |  |             |        |             |  |         |        |   |  |   |         |           |  |   |         | 
|----------------- |  | ---------------------- | ------- | ---------- |  | ----------- | ------ | ----------- |  | ------- | ------ | - |  | - | ------- | --------- |  | - | ------- | 
|                  |  | Payments Due by Period
|                  |  |                       
|                  |  |                        |         |            |  | Less than   |        |             |  |         |        |   |  |   |         | More than
|                  |  | Total                  |         | 1 year (1) |  | 1 - 3 years |        | 3 - 5 years |  | 5 years
|                  |  |                        |         |            |  |             |        |             |  |        
|Long-term debt    |  | $                      | 339,804 |            |  | $           | 1,881  |             |  | $       | 4,237  |   |  | $ | 102,262 |           |  | $ | 231,424 | 
|Fixed interest    |  |                        | 119,527 |            |  |             | 17,212 |             |  |         | 34,609 |   |  |   | 34,053  |           |  |   | 33,653  | 
|Variable interest |  |                        | 56,935  |            |  |             | 8,239  |             |  |         | 23,795 |   |  |   | 22,336  |           |  |   | 2,565   | 
|Swap agreements   |  |                        | (1,974  | )          |  |             | (633   | )           |  |         | (1,341 | ) |  |   |        |           |  |   |        | 
|                  |  |                        |         |            |  |             |        |             |  |         |        |   |  |   |         |           |  |   |         | 
|                  |  | $                      | 514,292 |            |  | $           | 26,699 |             |  | $       | 61,300 |   |  | $ | 158,651 |           |  | $ | 267,642 | 
|                  |  |                        |         |            |  |             |        |             |  |         |        |   |  |   |         |           |  |   |         | 



|(1) |  | Includes the period April 1 through December 31, 2003.
|--- |  | ------------------------------------------------------

We have both fixed-rate and variable-rate debt. The interest payments on
our variable-rate debt are based on a variable-rate component plus a fixed
3.0%. Including the fixed 3.0%, we estimate that the total interest rate on
our variable-rate debt will be 6.6%, 7.0%, 7.5%, 8.0%, 8.5% and 8.5% for years
2003 through 2008, respectively. Our consolidated financial statements
included in our 2002 Annual Report on Form 10-K discuss these variable-rate
notes in more detail.

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In November 2002, we entered into a no-fee swap agreement with Wells Fargo
Bank which expires November 29, 2004. The agreement swaps monthly variable
LIBOR rates for a fixed rate of 2.22% on a notional amount of $40.0 million.
The agreement qualifies for hedge accounting.

On May 7, 2003 we entered into an additional no-fee swap agreement with
Wells Fargo Bank which expires May 31, 2005. Effective May 30, 2003, the
agreement swaps monthly variable LIBOR rates for a fixed rate of 1.72% on a
notional amount of $20.0 million. The agreement qualifies for hedge
accounting.

Our ability to make payments on our debt, and to fund acquisitions, will
depend upon 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 may 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 indenture and senior credit facility:



| |  |  | limit our funds available to repay the 9.875% 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 indenture 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.

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

The companion 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., which currently competes or intends to compete in most of the same
markets in which we operate. 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 that 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 March 31, 2003, 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. 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 March 31, 2003 we operated 60 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.

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 and
upgrade of our information technology systems and transportation network.
Sustained system failures or interruption

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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 electrical 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, whether as a result of severe weather conditions, as
we recently experienced in the eastern United States, a terrorist attack or any
other type of disruption, 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.

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.



| | Concentration of ownership among our existing executive officers, directors
and principal stockholders may prevent new investors from influencing
significant corporate decisions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our executive officers, directors and principal stockholders beneficially
own, in the aggregate, 25.4% of our outstanding common stock. As a result,
these stockholders are able to significantly affect our management, our
policies and all matters requiring stockholder approval. The directors
supported by these stockholders will be able to significantly affect decisions
relating to our capital structure, including decisions to issue additional
capital stock, implement stock repurchase programs and in our indebtedness.
This concentration of ownership 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.

Political and military events and the uncertainty resulting from them may
have a material adverse effect on our operating results.

The United States militarys continuing involvement in Iraq, the
terrorist attacks which took place in the United States on September 11, 2001,
the United States military campaign against terrorism, ongoing violence in the
Middle East and the increasing concern with respect to developments in North
Korea have created many economic and political uncertainties, some of which may
affect the markets in which we operate, our operations and profitability and
your investment. The potential near-term and long-term effect that political
uncertainty, armed conflict and possible terrorist and other attacks may have
for our customers, the markets for our services and the U.S. economy are
uncertain. The consequences of our involvement in Iraq and any terrorist
attacks or other armed conflicts 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2003, we had borrowings of $166.9 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 have entered
into two separate no-fee interest rate swap agreements. The first agreement is
for $40.0 million and commenced on November 29, 2002 and expires November 29,
2004. The second agreement is for $20.0 million and commenced on May 30, 2003
and expires May 31, 2005. These swap agreements have the effect of reducing
the amount of our debt exposed to variable interest rates from $166.9 million
to $106.9 million. Accordingly, for the nine months ending December 31, 2003,
for every 1.0% increase in the LIBOR rate we will pay an additional $1.1
million in interest expense and for every 1.0% decrease in the LIBOR rate we
will save $1.1 million in interest expense.

We are considering entering into additional interest rate strategies to
take advantage of the current rate environment. We have not yet determined
what those strategies may be or their possible impact.




ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of our annual report on Form 10-K,
we carried out an evaluation, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic reports with the Securities and Exchange Commission.

In accordance with the requirements of the Securities and Exchange
Commission, our Chief Executive Officer and Chief Financial Officer note that,
since the date of the most recent evaluation of our disclosure controls and
procedures to the date of our Annual Report on Form 10-K, there have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls or our internal controls
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple errors or mistakes. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

The litigation between VCA, Zoasis Corporation and Robert Antin and two
majority stockholders of a company that merged with Zoasis, was dismissed with
prejudice on April 17, 2003 pursuant to the previously announced settlement
agreement.

We are a party to various 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

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nature of the current
proceedings, including the settlement payment referenced above, and our
insurance policy coverage for such matters, we have accrued $3.1 million as of
March 31, 2003 for legal settlements as part of other accrued liabilities.




ITEM 2. CHANGES IN SECURITIES

None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None




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

None




ITEM 5. OTHER INFORMATION

None




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 January 17, 2003,
under item 5, announced the filing of a registration
statement for a secondary offering of 9,000,000 shares of VCA
Antech, Inc. common stock, updated financial guidance for the
fourth quarter ended December 31, 2002 and provided financial
guidance for the fiscal year 2003.                                                                                   
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Report on Form 8-K, filed January 30, 2003,
under item 5, VCA Antech, Inc. and certain stockholders
entered into an Underwriting Agreement for the sale of
10,050,000 shares of its common stock, announced the shares
offered were priced at $15.25 per share and entered into an
Acknowledgment and Waiver to allow for the repayment of the
outstanding principal balance of its 15.5% senior notes due
2010.
|
| | (3) |  | Report on Form 8-K, filed February 25, 2003,
under item 5, updated financial guidance for the fiscal year
2003 and under item 12, provided financial information for
the fourth quarter and fiscal year 2002.                                                                                                                                                                                                   
|
| | (4) |  | Report on Form 8-K, filed February 26, 2003,
under item 5, announced the closing of the sale of 1,507,500
shares of common stock pursuant to the exercise of the
underwriters over-allotment option in connection with the
recent public offering of VCA Antech, Inc.                                                                                                                                          
|
| | (5) |  | Report of Form 8-K, filed April 25, 2003, under
item 5, updated financial guidance for the fiscal year 2003,
and under item 12, provided financial guidance for the first
quarter of fiscal year 2003.                                                                                                                                                                                                          

45



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##### 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, May 12, 2003.

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

46



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##### Table of Contents






Certification of
Chief Executive Officer
of VCA Antech, Inc.

I, Robert L. Antin, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 12, 2003



|    |                                                             
|--- | ------------------------------------------------------------
|By: | /s/ Robert L. Antin

Robert L. Antin
Chief Executive Officer

47



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##### Table of Contents






Certification of
Chief Financial Officer
of VCA Antech, Inc.

I, Tomas W. Fuller, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of VCA Antech, Inc.;                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 12, 2003

|    |  |                                                             
|--- |  | ------------------------------------------------------------
|By: |  | /s/ Tomas W. Fuller

Tomas W. Fuller
Chief Financial Officer

48



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##### Table of Contents






EXHIBIT INDEX

|               |  |                                                              |  |  |  | 
|-------------- |  | ------------------------------------------------------------ |  |  |  | 
|Exhibit Number |  | Description                                                  |  |  |  | 
|               |  |                                                              |  |  |  | 
|Exhibit 99.1   |  | Certification of Chief Executive Officer of VCA Antech, Inc. |  |  |  | 
|               |  |                                                              |  |  |  | 
|Exhibit 99.2   |  | Certification of Chief Financial Officer of VCA Antech, Inc. |  |  |  | 

49