<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  -------------
                                    FORM 10-Q

             (Mark One)

              /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

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

                   FOR THE TRANSITION PERIOD FROM      TO

                         COMMISSION FILE NUMBER 0-23181

                                 PAULA FINANCIAL

             (Exact name of registrant as specified in its charter)

                  DELAWARE                              95-4640368
       (State or other jurisdiction of              (I.R.S. Employer
        incorporation or organization)            identification number)

                                 PAULA FINANCIAL
                        300 NORTH LAKE AVENUE, SUITE 300
                               PASADENA, CA 91101
                    (Address of principle executive offices)
                                 (626) 304-0401
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes /X/  No / /

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Number of shares of Common
Stock, $.01 par value, outstanding as of close of business on April 28, 2000:
5,586,867 shares.

--------------------------------------------------------------------------------

<PAGE>





PAULA FINANCIAL
INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

<S>                                                                                     <C>
PART I. FINANCIAL INFORMATION                                                           PAGE

Item 1.  Financial Statements

         Condensed consolidated balance sheets as of
                  March 31, 2000 and December 31, 1999 (unaudited) .......................2

         Condensed consolidated statements of operations for the three
                  months ended March 31, 2000 and 1999 (unaudited)........................3

         Condensed consolidated statements of comprehensive income (loss) for
                  the three months ended March 31, 2000 and 1999 (unaudited)..............4

         Condensed consolidated statements of cash flows for the three months
                  ended March 31, 2000 and 1999 (unaudited)...............................5

         Notes to condensed consolidated financial statements for the three
                  months ended March 31, 2000 (unaudited) ................................6

Item 2.  Management's Discussion and Analysis of Consolidated Financial
                  Condition and Results of Operations.....................................7

Item 3.  Quantitative and Qualitative Disclosures About Market Risks.....................10

PART II. OTHER INFORMATION

         Item 5.  Other Information......................................................11

         Item 6.  Exhibits and Reports on Form 8-K.......................................11

SIGNATURE................................................................................12
</TABLE>


<PAGE>


PART I   FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                        PAULA FINANCIAL AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                      March 31,          December 31,
                                                          ASSETS                        2000                 1999
                                                                                 ------------------    -----------------
                                                                                     (Unaudited)            (*)
<S>                                                                                   <C>               <C>
Investments:
   Fixed maturities, available for sale, at market
      (amortized cost: 2000, $143,804; 1999, $138,294)                                $ 136,199         $ 130,703
   Equity securities, at market
      Preferred stock (cost: 2000, $999; 1999, $999)                                        820               828
      Common stock (cost: 2000, $3,252; 1999, $3,252)                                     2,585             2,357
   Invested cash, at cost (approximates market)                                          27,400               948
         Total investments                                                            ---------         ---------
                                                                                        167,004           134,836
                                                                                      ---------         ---------

Cash (restricted: 2000, $3,145; 1999, $2,204)                                             8,574             6,323
Accounts receivable, net of allowance for uncollectible
     accounts (2000, $735; 1999, $758)                                                   31,264            28,196
Reinsurance settlement receivable                                                          --              41,989
Reinsurance recoverable on paid and unpaid losses and
     loss adjustment expenses                                                            11,301            11,519
Deferred income taxes                                                                    18,057            17,547
Other assets                                                                             20,230            19,408
                                                                                      ---------        ----------
                                                                                      $ 256,430         $ 259,818
                                                                                      =========         =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Unpaid losses and loss adjustment expenses                                            $ 153,725         $ 158,944
Unearned premiums                                                                        26,368            21,213
Accrued policyholder dividends                                                              479               237
Accounts payable and accrued expenses                                                     9,356            10,599
Notes payable                                                                            15,692            16,632
                                                                                      ---------         ---------
                                                                                        205,620           207,625
                                                                                      ---------         ---------
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value.  Authorized 4,058,823
    shares, none issued and outstanding                                                     --                --
Common stock, $0.01 par value
   (Authorized 15,000,000 shares, issued: 2000,
      6,338,167; 1999, 6,338,767)                                                            63                63
Additional paid-in-capital                                                               67,386            67,386
Accumulated deficit                                                                      (5,521)          (4,488)
Accumulated other comprehensive income (loss):
   Net unrealized gain on investments                                                    (5,578)          (5,715)
                                                                                       ---------        ---------
                                                                                         56,350            57,246
Treasury stock, at cost (2000, 751,300 ; 1999, 631,300 shares)                           (5,540)          (5,053)
                                                                                       ---------        ---------
                                                                                          50,810           52,193
                                                                                       ---------        ---------
                                                                                       $ 256,430        $ 259,818
                                                                                       =========        =========
</TABLE>

*  Derived from audited financial statements.

   See notes to condensed consolidated financial statements.




                                       2
<PAGE>


                        PAULA FINANCIAL AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                         THREE MONTHS ENDED
                                                              MARCH 31,

                                                        2000            1999
                                                     ------------    ------------
                                                             (Unaudited)
<S>                                                      <C>             <C>
      INCOME:
      Net premiums earned:
         Workers' compensation                           $27,415         $16,502
         Group medical and life                              211             185
      Commissions                                          1,421             832
      Net investment income                                2,507           2,740
      Net realized investment gains (losses)                (117)            101
      Other                                                  268             207
                                                     ------------    ------------
                                                          31,705          20,567
                                                     ------------    ------------

      EXPENSES:
      Losses and loss adjustment
         expenses incurred                                23,426          11,238
      Dividends provided for policyholders                   248             151
      Operating                                            9,545           7,176
                                                     ------------    ------------
                                                          33,219          18,565
                                                     ------------    ------------
      Equity in net loss of unconsolidated
          affiliate                                          (94)            (84)
                                                     ------------    ------------

      Income (loss) before income taxes                   (1,608)          1,918
      Income tax expense (benefit)                          (575)            639
                                                     ------------    ------------
            NET INCOME (LOSS)                            ($1,033)         $1,279
                                                      ============   ============

      Earnings per share                                  ($0.18)          $0.22

      Weighed average shares outstanding               5,636,977       5,928,995

      Earnings per share - assuming dilution              ($0.18)          $0.22

      Weighted average shares outstanding -
           assuming dilution                           5,636,977       5,937,049

</TABLE>

See notes to condensed consolidated financial statements.




                                       3
<PAGE>


                        PAULA FINANCIAL AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (In thousands)

<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED
                                                           MARCH 31,
                                                       2000          1999
                                                    -----------    ----------
                                                          (Unaudited)

<S>                                                 <C>            <C>
        Net income (loss)                           ($1,033)       $1,279

        Other comprehensive income (loss),
          net of tax
           Unrealized gains on investments:
             Unrealized holding gains (losses)
               arising during period (tax impact:
               2000, $45; 1999, $570)                    86        (1,106)
             Reclassifications adjustment for
                gains included in net income
                (tax impact:  2000, $26;
                1999,  $101)                             51          (197)
                                                    -----------   ----------
                                                        137        (1,303)
                                                    -----------   ----------
              COMPREHENSIVE INCOME (LOSS)             ($896)         ($24)
                                                    ===========   ==========
</TABLE>

See notes to condensed consolidated financial statements.


                                       4

<PAGE>


                        PAULA FINANCIAL AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    THREE MONTHS ENDED
                                                                                        MARCH 31,
                                                                                   2000           1999
                                                                                -----------    -----------
                                                                                       (Unaudited)
<S>                                                                             <C>                   <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net income (loss)                                                               ($1,033)         $1,279
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
   ACTIVITIES:
   Depreciation and amortization                                                       433            395
   Amortization of fixed maturity premium, net                                         165            139
   Equity in net loss of unconsolidated affiliate                                       94             84
   Loss on sale of property and equipment                                                5              4
   Loss (gain) on sales and calls of investments                                       117           (101)
   Decrease (increase) in receivables                                               39,071         (9,839)
   (Increase) decrease in deferred income taxes                                       (581)           623
   (Decrease) increase in unpaid losses and loss adjustment expenses                (5,219)         1,487
   Increase in accrued policyholder dividends                                          242            151
   Decrease in accounts payable and accrued expenses                                (1,243)        (2,905)
   Increase in unearned premiums                                                     5,155          1,607
   Other, net                                                                         (934)          (338)
                                                                                -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                 36,272         (7,414)
                                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of available for sale fixed maturities                         1,033         14,146
   Proceeds from maturities and calls of available for sale fixed
   maturities                                                                        1,034          2,728
   Proceeds from sale of property and equipment                                          5             15
   Purchase of available for sale fixed maturities                                  (7,857)        (4,980)
   Purchase of property and equipment                                                 (357)          (490)

   Purchase of book of business                                                       --             (105)

   Investment in unconsolidated affiliate                                             --           (5,500)
                                                                                -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                 (6,142)         5,814
                                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings (repayments) under line of credit agreement, net                        (940)         5,500
   Payments on notes payable                                                          --              (25)
   Dividends paid                                                                     --             (237)
   Repurchase of common stock                                                         (487)          --
   Issuance of common stock                                                           --                2
                                                                                -----------    -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                 (1,427)         5,240
                                                                                -----------    -----------
NET INCREASE IN CASH AND INVESTED CASH                                              28,703          3,640
Cash and invested cash at beginning of period                                        7,271          6,717
                                                                                -----------    -----------
CASH AND INVESTED CASH AT END OF PERIOD                                            $35,974        $10,357
                                                                                ===========    ===========
</TABLE>

See notes to condensed consolidated financial statements.


                               5

<PAGE>


                        PAULA FINANCIAL AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

PAULA Financial and subsidiaries (the "Company") is an integrated insurance
organization specializing in the production, underwriting and servicing of
workers' compensation and accident and health insurance primarily for
agribusiness clients in California, Arizona, Oregon, Idaho, Alaska, Texas,
Florida, New Mexico and Nevada.

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

Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the year ended December 31, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.

NOTE B - NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and establishes standards for the reporting for
derivative instruments. It requires changes in the fair value of a derivative
instrument and the changes in fair value of assets or liabilities hedged by that
instrument to be included in income. To the extent that the hedge transaction is
effective, income is equally offset by both investments. Currently changes in
fair value of derivative instruments and hedged items are reported in net
unrealized gain (loss) on securities. The Company has not yet adopted SFAS 133.
However, the effect of adoption on the condensed consolidated financial
statements at March 31, 2000 would not be material.




                                       6
<PAGE>



PART I  FINANCIAL INFORMATION

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

OVERVIEW

The Company is a California-based specialty underwriter and distributor of
commercial insurance products which, through its subsidiary PAULA Insurance
Company ("PICO"), is one of the largest underwriters specializing in workers'
compensation insurance products and services for the agribusiness industry. The
Company sells complementary products through the Company's insurance agency
subsidiaries (collectively "Pan Am"), including group health and life products
provided by the Company's subsidiary PAULA Assurance Company ("PACO").

The Company's revenues have consisted primarily of premiums earned from workers'
compensation insurance underwriting, premiums earned from group medical
insurance, commission income, net investment income and other income. Premiums
earned during a period represent the portion of direct premiums written for
which all or a portion of the coverage period has expired, net of reinsurance.
Gross premiums written for the three months ended March 31, 2000 and 1999, were
$33.5 million and $29.5 million, respectively. Commission income is earned from
Pan Am's distribution of insurance for insurers other than PICO and PACO. Net
investment income represents earnings on the Company's investment portfolio,
less investment expenses. Other income consists of third party administration
fees and other miscellaneous items.

The Company's expenses have consisted of losses and loss adjustment expenses
incurred, dividends provided for policyholders and operating expenses. Losses
include reserves for future payments for medical care and rehabilitation costs
and indemnity payments for lost wages. Loss adjustment expenses include expenses
incurred in connection with services provided by third parties, including
expenses of independent medical examinations, surveillance costs, and legal
expenses as well as staff and related expenses incurred to administer and settle
claims. Loss and loss adjustment expenses are offset in part by estimated
recoveries from reinsurers under reinsurance treaties. Operating expenses
include commission expenses to third party insurance agencies and other expenses
that vary with premium volume, such as premium taxes, state guaranty fund
assessments and underwriting and marketing expense, as well as general and
administrative expenses, which are less closely related to premium volume.

The Company's revenues are seasonal, and have historically tended to be highest
in the second and third quarters of each year. This is due primarily to the
seasonality of the size of the workforce employed by the Company's agribusiness
clients.


                                      7
<PAGE>


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1999:

GROSS PREMIUMS WRITTEN. The Company's premiums written for the three months
ended March 31, 2000 increased 13.3% to $33.5 million from $29.5 million for the
comparable 1999 period. The increase in gross premiums written relates primarily
growth in states outside of California, principally Texas.

NET PREMIUMS EARNED. The Company's net premiums earned for the three months
ended March 31, 2000 increased 65.6% to $27.6 million from $16.7 million for
comparable 1999 period. Net premiums earned in 1999 was reduced by $10.5 million
in premiums ceded under a reinsurance arrangement that was not in effect in the
first quarter of 2000.

COMMISSION INCOME. For the three months ended March 31, 2000 commission income
increased 70.8% to $1.4 million compared to $0.8 million for the comparable 1999
period. The increase is primarily a result of increased premiums placed with
insurance carriers other than PICO and PACO. Commissions paid to Pan Am on PICO
and PACO business are eliminated in the Company's consolidated financial
statements.

NET INVESTMENT INCOME. Net investment income decreased 8.5% to $2.5 million for
the three months ended March 31, 2000 from $2.7 million for the comparable 1999
period. Average invested assets decreased to $159.5 million for the three months
ended March 31, 2000 from $172.4 million for the comparable period in 1999. The
Company's average yield on its portfolio was 6.3% for the three month period in
2000 and 6.4% for the three month period in 1999.

LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED. The Company's net loss ratio for
the three months ended March 31, 2000 increased to 84.8% from 67.4% for the
comparable 1999 period. The 1999 loss ratio was impacted by a reinsurance
arrangement that was not in effect in the first quarter of 2000.

DIVIDENDS PROVIDED FOR POLICYHOLDERS. Dividends provided for policyholders as a
percentage of premiums earned for the three months ended March 31, 2000 and 1999
was 0.9%.

OPERATING EXPENSES. Operating expenses increased 33.0% to $9.5 million for the
three months ended March 31, 2000 from $7.2 million for the comparable 1999
period. Operating expenses in 1999 included the benefit of $2.2 million in
ceding commissions received in conjunction with a reinsurance arrangement that
was not in effect in 2000.

INCOME TAXES. Income tax benefit for the three months ended March 31, 2000 was
$0.6 million compared to income tax expense of $0.6 million for the comparable
1999 period. The effective combined income tax rates for the three months ended
March 31, 2000 and 1999 were 35.8% and 33.3%, respectively.

EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE. The equity in net loss of
unconsolidated affiliate represents the Company's share of the net loss of
Montlake Insurance Holdings, LLC. The Company is accounting for this investment
using the equity method.




                                       8
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES:

As a holding company, PAULA Financial's principal sources of funds are dividends
and expense reimbursements from its operating subsidiaries, proceeds from the
sale of its capital stock and income from its investment portfolio. PAULA
Financial's principal uses of funds are capital contributions to its
subsidiaries, payment of operating expenses, investments in new ventures,
dividends to its stockholders and repurchase of Company common stock.

On January 27, 2000, PICO received a $42.0 million cash settlement related to
various reinsurance treaties which were settled and commuted effective September
30, 1999.

California law places significant restrictions on the ability of the insurance
subsidiaries to pay dividends to PAULA Financial. Based on these restrictions
and the Company's results for the year ended December 31, 1999, PAULA Financial
would be able to receive $1.9 million in dividends in 2000 from its insurance
subsidiaries without obtaining prior regulatory approval from the California
Department of Insurance ("DOI"). No dividends were paid by the insurance
subsidiaries to PAULA Financial during the three months ended March 31, 2000.

In March 1997, PAULA Financial entered into the Credit Agreement with a
commercial bank providing the Company with a revolving credit facility of $15.0
million until December 31, 1999. On December 31, 1999, PAULA Financial elected
to convert all the borrowings into a term loan payable in quarterly installments
and maturing on December 31, 2001. Balances outstanding under the term loan bear
interest at 8.5%. At the date of conversion, the line of credit had an
outstanding balance of $15.0 million. This use of the Credit Agreement was for
repurchase of the Company's common stock and investments in new ventures.

Since December 31, 1999, the Company has been out of compliance with certain of
its debt covenants. As a result, the bank has the right to call the note and
demand its immediate payment under the terms of the Credit Agreement. PAULA
Financial is current on the term loan's regularly scheduled principal and
interest payments. The Company continues to be engaged in negotiations with the
bank to obtain the waivers with respect to its non-compliance and to amend the
Credit Agreement, including modifications of certain covenants. If these
covenants are not amended, it is probable that the Company will continue to be
out of compliance with these covenants on measurements dates at least through
December 31, 2000. Each of PAULA Financial's non-insurance subsidiaries has
guaranteed all obligations of PAULA Financial under the Credit Agreement.

The Company's investments consist primarily of taxable and tax-exempt United
States government and other investment grade securities and investment grade
fixed maturity commercial paper and, to a lesser extent, equity securities. The
Company does not generally invest in below investment grade fixed maturity
securities, mortgage loans or real estate.

As of March 31, 2000, the carrying value of the Company's fixed maturity
securities portfolio was $136.2 million of which $135.9 million was rated. Of
the rated fixed maturities portfolio 94.2% was rated "A" or better by S&P,
Moody's or Fitch.


                                       9
<PAGE>


California workers' compensation insurance companies are required to maintain
some of their investments on deposit with the California DOI for the protection
of policyholders. Other states in which PICO is licensed have also required PICO
to post deposits for the protection of those states' policyholders. Pursuant to
applicable state laws, PICO had, as of March 31, 2000, securities with a par
value of $124.3 million held by authorized depositories pursuant to these
deposit requirements. In addition to the deposits, the Company's insurance
company operating subsidiaries must maintain regulated levels of capital and
surplus in relation to premiums written and the risks retained by the
subsidiaries.

FORWARD-LOOKING STATEMENTS

In connection with, and because it desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers to recognize the existence of certain forward-looking
statements in this Form 10-Q and in any other statement made by, or on behalf
of, the Company, whether or not in future filings with the Securities and
Exchange Commission. Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Some forward-looking statements may be
identified by the use of terms such as "expects," "believes," "anticipates,"
"intends," or "judgment." Forward-looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties, many of which are beyond the Company's
control and many of which, with respect to future business decisions, are
subject to change. Examples of such uncertainties and contingencies include,
among other important factors, those affecting the insurance industry in
general, such as the economic and interest rate environment, legislative and
regulatory developments and market pricing and competitive trends, and those
relating specifically to the Company and its businesses, such as the level of
its insurance premiums and fee income, the claims experience of its insurance
products, the performance of its investment portfolio, acquisitions of companies
or blocks of business, and the ratings by major rating organizations of its
insurance subsidiaries. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Company. The
Company disclaims any obligation to update forward-looking information.

Item 3:  Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes since the annual report Form 10-K filed
for the year ended December 31, 1999.




                                       10
<PAGE>

PART II.  OTHER INFORMATION

Item 5:  Other Information

In March 2000, the Board of Directors made the decision to reduce the number of
directors from eight to six. Consequently, Mr. Gerard Vecchio and Mr. R. Steven
Clark, both outside directors, resigned as directors for the Company. Neither
resignation was a result of any disagreement with the Company, its management or
the Board of Directors.

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

          (a) Exhibits.

                  11.       Computation of Earnings Per Share.

                  27.       Financial Data Schedule.

          (b) Reports on Form 8-K.

                  There were no reports filed on Form 8-K during the three
                  months ended March 31, 2000.


                                       11
<PAGE>


                                   SIGNATURES

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

Date:  May 12, 2000                   PAULA FINANCIAL


                                          By: /S/ JAMES A. NICHOLSON
                                              ----------------------
                                          Senior Vice President and
                                          Chief Financial Officer


                                       12