Pethealth Inc.
TSX VENTURE : PTZ

Pethealth Inc.

August 11, 2005 09:57 ET

Pethealth Inc. Announces Results for the Second Quarter Ended June 30, 2005

OAKVILLE, ONTARIO--(CCNMatthews - Aug. 11, 2005) -

Not for dissemination in the United States of America or to United States news wire services.

Pethealth Inc. ("Pethealth" or "the Company") (TSX VENTURE:PTZ) today announced its financial results for the quarter ended June 30, 2005.

Financial Highlights

Quarter ended June 30, 2005

- Total revenue for the quarter ended June 30, 2005 was $3.5 million, representing a 22% increase over revenue of $2.9 million for the quarter ended June 30, 2004.

- Net loss for the three months ended June 30, 2005 was $107,109 as compared to a net loss of $109,171 for the quarter ended June 30, 2004.

- Q2, 2005 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $967,805 compared with EBITDA of $571,844 for the quarter ended June 30, 2004, a 69% increase.

- Gross written premiums related to the Company's pet insurance operations were $7.64 million for the quarter ended June 30, 2005, an increase of 21% over the same period in the prior year.

Six months ended June 30, 2005

- Total revenue for the six months ended June 30, 2005 was $6.72 million, up 24% over the six months ended June 30, 2004.

- Net loss for the six months ended June 30, 2005 was $175,614, a 5% improvement from the net loss of $185,052 for the same period in the prior year.

- For the six months ended June 30, 2005 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $1,846,532, compared to EBITDA of $1,043,664 for the same period last year, a 77% increase.

- Gross written premiums for the six months ended June 30, 2005 were $14.6 million, up 21% from the gross written premiums from the same period in the prior year.

- At June 30, 2005, the Company had cash resources of $3.9 million.

Pethealth Inc. reports its financial results in a single reportable segment. However, in order to provide readers of the financial results greater insight into the growing diversity of the Company's operations, it has elected to provide financial results by program line, that is, by its "insurance operations" and its "non-insurance operations". The Company's insurance operations currently consist of the distribution and administration of the PetCare, ShelterCare, QuickCare and CherryBlue pet insurance programs while non-insurance operations are made up of its 24PetWatch manufacturer-neutral pet registry, recovery and database management services, including the distribution of microchip technology, and the development and distribution of PetPoint, its animal shelter management software program. The following table details the operational results from each program line:



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For the Three Months ended
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June 30, 2005
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Insurance Non- Total
Insurance
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Revenues $3,152,077 $363,805 $3,515,882
Inter-segment revenue 22,732 22,732
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Total revenues $3,152,077 $386,537 $3,538,614

Cost of sales 301,052 301,052
Marketing 1,257,971 16,490 1,274,461
Inter-segment marketing 22,732 22,732
Employment 868,149 222,638 1,090,787
S,G&A 600,519 136,146 736,665
Other 204,019 16,007 220,026
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Total expenses $2,953,390 $692,333 $3,645,723

Net income (loss) $198,687 $(305,796) $(107,109)
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Add:
Capital asset amortization 144,058 16,007 160,065
Deferred acquisition cost amortization 914,849 914,849
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EBITDA $1,257,594 $(289,789) $967,805
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For the Three Months ended
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June 30, 2004
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Insurance Non- Total
Insurance
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Revenues $2,684,110 $197,468 $2,881,578
Inter-segment revenue 10,601 10,601
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Total revenues $2,684,110 $208,069 $2,892,179

Cost of sales 186,519 186,519
Marketing 789,392 68,535 857,927
Inter-segment marketing 10,601 10,601
Employment 827,017 195,145 1,022,162
S,G&A 534,099 236,885 770,984
Other 140,543 12,614 153,157
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Total expenses $2,301,652 $699,698 $3,001,350

Net income (loss) $382,458 $(491,629) $(109,171)
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Add:
Capital asset amortization 113,522 12,614 126,136

Deferred acquisition cost amortization 554,879 554,879
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EBITDA $1,050,859 $(479,015) $571,844
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For the Six Months ended
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June 30, 2005
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Insurance Non- Total
Insurance
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Revenues $6,041,368 $682,404 $6,723,772
Inter-segment revenue 38,468 38,468
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Total revenues $6,041,368 $720,872 $6,762,240

Cost of sales 555,931 555,931
Marketing 2,332,521 50,731 2,383,252
Inter-segment marketing 38,468 38,468
Employment 1,734,786 422,165 2,156,951
S,G&A 1,137,742 247,264 1,385,006
Other 388,954 29,292 418,246
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Total expenses $5,632,471 $1,305,383 $6,937,854

Net income (loss) $408,897 $(584,511) $(175,614)
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Add:
Capital asset amortization 263,621 29,292 292,913
Deferred acquisition cost
amortization 1,729,233 1,729,233
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EBITDA $2,401,751 $(555,219) $1,846,532
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For the Six Months ended
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June 30, 2004
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Insurance Non- Total
Insurance
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Revenues $5,139,435 $290,481 $5,429,916
Inter-segment revenue 19,952 19,952
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Total revenues $5,139,435 $310,433 $5,449,868

Cost of sales 270,230 270,230
Marketing 1,446,116 116,057 1,562,173
Inter-segment marketing 19,952 19,952
Employment 1,685,680 345,615 2,031,295
S,G&A 1,112,341 326,798 1,439,139
Other 287,800 24,331 312,131
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Total expenses $4,551,889 $1,083,031 $5,634,920

Net income (loss) $587,546 $(772,598) $(185,052)
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Add:
Capital asset amortization 218,973 24,331 243,304
Deferred acquisition cost amortization 985,412 985,412
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EBITDA $1,791,931 $(748,267) $1,043,664
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Insurance Operations:

The Company is the largest provider of pet insurance to the companion animal market in Canada and the second largest in North America.

Pet insurance revenues are earned primarily through commission and management fees generated from the placement of core and ShelterCare pet insurance policies at a blended commission rate of approximately 37%. Commission and management fee revenues earned from core policies increased by 28% to $2,392,317 over Q2 2004 while commissions and management fees earned from ShelterCare policies in force declined by 32%. The growth in revenues earned from core policies is the result of the 25% year on year increase in the number of core policies in force which stood at 109,437 at June 30, 2005. The reduction in commission and management fees earned on the placement of ShelterCare policies was due to the decision taken in Q4 2004 to reduce the prepaid portion of the policies from 60 days to 30 days. New ShelterCare enrolments were 70,507, up by 29% over the same quarter last year.

The Company recorded a quarterly administration cost per policy of $8.77 per quarter, down from $10.63 in Q2, 2004. This 18% reduction is the result of the Company's continued efforts to leverage its infrastructure and to create operational efficiencies. The Company believes that this cost per policy, whether measured on an absolute basis or as a percentage of premiums, is the best in the industry. Acquisition cost per policy was US$64 compared to US$67 in the prior year.

During the quarter, the Company recorded marketing expenses of $1,257,971 vs. $789,392 in the prior year. The 59% increase is primarily the result of previously capitalized direct response marketing costs being amortized into the period. During the period, $914,849 was amortized and expensed relating to previously capitalized direct response marketing vs. $554,879 in the prior year.

The pet insurance operations contributed $198,687 of net income to the consolidated results during the quarter and $408,897 for the year to date. This compares to net income of $382,458 and $587,546 in the prior year.

For the three months ended June 30, 2005, EBITDA from the Company's pet insurance operations was $1,257,594, an increase of 20% from EBITDA of $1,050,859 from the same period last year. For the six months ended June 30, 2005, EBITDA from the Company's pet insurance operations was $2,401,751, an increase of 34% from EBITDA of $1,791,931 from the same period last year.

Non-Insurance Operations:

During 2002, the Company determined that to maximise long term shareholder value it would have to take advantage of opportunities to develop complementary products and services within the North American companion animal market. These new services, while outside of its core business of insurance, would be selected on the basis of their ability to not only create new revenue streams but also to enhance the Company's pet insurance business either by providing for a greater number of policy sales or by consolidating the channels through which it was currently distributing its pet insurance programs.

Additionally, it was determined by the Company that, while some of the initiatives undertaken in their initial stage would not necessarily be revenue generating, they would need to provide a platform on which other significant revenue streams could ultimately be created.

24PetWatch

The Company's first move into non-insurance operations was in the area of RFID (microchip) technology where the Company, after conducting research in both Canada and the United States, determined that pet insurance and RFID technology for companion animals was complementary and that the business models being used in the microchipping space were unrobust and outdated. Whereas traditional providers of microchips had relied on the one-time sale of the technology and a one-time registration fee, Pethealth believed that the technology being commoditised should be priced to user groups as such and should be linked to a number of value added services which Pethealth could provide either off of its existing insurance platform or with limited additional investment. It is the Company's view that RFID technology is set to become more commonplace in the mind of the consumer, not only in terms of the consumer's day-to-day purchasing activity, but also with respect to the way in which this technology will be linked to services which would provide them with greater control and convenience in managing their pets' day-to-day activities.

Thus Pethealth's interest in the promotion of greater usage of RFID technology is not with respect to the sale of the technology itself, but in the sale of related services that can be sold to the owner of pets implanted with a microchip. However, to achieve this, the Company realised it was going to as a first stage create greater user group confidence amongst clinics and shelters in the use of microchip technology. As such, the Pethealth model is initially based on providing lower cost technology to clinics and shelters and to tie that technology to free registration for pet owners.

By providing free registration the Company is given direct access to pet owners registered with 24PetWatch, through which it can then promote other revenue generating services. These revenue generating services include not only the sale of its pet insurance, but also new and innovative services such as 24PetMedInfo, which provides pet owners the ability to have their pets' medical information linked to their pets' microchip number and is accessible to that pet owner at any time. It is the Company's intention to develop other revenue generating services as well.

During the quarter, the Company achieved revenues of $363,805 from the sale of 62,400 microchips and related readers to the animal shelter and veterinary communities, an increase in revenue of 89% from the sale of 28,740 microchips and related readers reported in Q2, 2004. During the six months ended June 30, 2005, the Company achieved revenues of $682,404 from the sale of 119,195 microchips and related readers, an increase in revenue of 135% from the sale of 43,405 microchips and related readers reported in 2004. Pethealth is now the largest provider of microchip technology for companion animals to clinics and shelters in Canada on a monthly basis and is the fastest growing company in the United States, with what the Company estimates at 22% of the companion animal market.

As at June 30, 2005, the Company had an aggregate of 315,290 pets registered in 24PetWatch and is now generating in excess of 63,000 registrations per quarter. In addition, the Company generated 70,507 new pet owner records through its ShelterCare insurance program. Both programs have been designed to be delivered electronically to pet owners through PetPoint.

PetPoint

In 2004 the Company incorporated Pethealth Software Solutions (USA) Inc., through which the Company now offers the first web-based management software application to animal shelters and rescue groups under the brand name PetPoint. PetPoint has been designed to help facilitate the growth of the Company's core insurance business through the Shelter channel in the most cost-effective way possible and to consolidate that channel of distribution. PetPoint is provided free to animal welfare organisations using the ShelterCare pet insurance program and the 24PetWatch microchip program.

As a hosted solution, Pethealth believes it is well positioned to provide further additional services to shelters through its ability to aggregate data which it collects on adopted pets. Additionally, it is the Company's belief that other private sector partners will want to associate themselves with the program, given the Company's unique ability to message to adopters of dogs and cats about the products and services that are available to them and the places where those products and services can be purchased. This will provide the Company in time with new revenue streams.

As of June 30, 2005, 65 shelters had licensed the PetPoint system and 21 had begun to use it to run their shelter's day-to-day operations. As of the date of this release, 75 shelters had licensed the system and 30 were using it in daily operations. Management now believes that approximately 100 shelters will be using PetPoint by year-end.

During Q2 2005, the electronic delivery of the ShelterCare insurance program generated savings of approximately $30,000, as 19% of the 70,507 pets enrolled in the ShelterCare program during the quarter were done electronicaly.

EVE

EVE is the first web-based software application which allows for claims under the PetCare programs to be adjusted online and for electronic registration of pets microchipped with 24PetWatch microchips. EVE allows the Company to reduce claims settlement times, eliminates the paperwork associated with both the claims process and microchip registration, and provides the Company with a distinct competitive advantage over other providers of pet insurance.

As of August 1, 2005, 34 clinics in Canada were using EVE. The first U.S. version was completed at the end of July and is now being offered to clinics in the United States. EVE is provided free to clinics using the Company's 24PetWatch program.

Consolidated Results

The Company had a net loss of $107,109 and $0.01 per share for the quarter compared to a net loss of $109,171 and $0.01 per share in Q2, 2004. The net loss for the year was inclusive of an 8.8% appreciation in the value of the Canadian dollar relative to the United States dollar that accounted for a reduction in revenue of $221,082 for the quarter and $423,702 for the year to date. Pethealth would have reported net income of $34,545 for the quarter and $99,557 had the value of the Canadian dollar relative to the American dollar remained the same as its value during the same periods in the prior year.

For the three months ended June 30, 2005, EBITDA was $967,805, an increase from EBITDA of $571,844 from the same period last year. For the six months ended June 30, 2005, EBITDA was $1,846,532 an increase of 77% from the $1,043,664 reported in the prior year. Prior to 2005, the Company reported EBITDA as net income adjusted for capital asset amortization. For periods ending after December 31, 2004, the Company has adjusted EBITDA to more closely reflect the operating cash flows and now presents EBITDA as net income adjusted for amortization of both capital assets and deferred acquisition cost.

At June 30, 2005, the Company had total assets of $15,018,222 including cash resources of $3,914,226.

"We are very pleased to be reporting record revenue, EBITDA and cash flows for the second quarter," said Mark Warren, President and Chief Executive Officer. "The front end distribution of our programs improved dramatically during the quarter as evidenced by the growth in ShelterCare insurance enrolments, microchip sales and registrations, while the implementation of PetPoint exceeded our expectations in this, the first full quarter since launching the program. The administration of our business continues to become more efficient each quarter as we leverage our current infrastructure. The challenge for management for the remainder of the year is to improve upon the cross-sale of our recurring revenue programs, including pet insurance, to our rapidly growing database of qualified pet owners."

The Company will host a conference call at 4pm on Thursday, August 11, 2005 to discuss the second quarter results. To participate, please call 1-888-789-0150.



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CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Quarter Ended
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June 30, June 30, Change
2005 2004 %
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Gross Premiums Written (i) $7,644,329 $6,339,691 21%
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Commission and Management Fees - Core 2,392,317 1,875,581 28%
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Commission and Management Fees
- ShelterCare 395,241 581,638 (32%)
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Administration Fees 339,101 185,171 83%
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Microchipping Revenue 363,805 197,468 90%
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Interest and Other Income 25,418 41,720 (39%)
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Total Revenue $3,515,882 $2,881,578 22%
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Cost of Sales - Microchipping 301,052 186,519 61%
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Marketing Expenses 1,274,461 857,927 49%
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Employment Expenses 1,090,787 1,022,162 7%
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Stock Option Expense 60,099 37,123 62%
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Administration Expenses 736,665 770,984 (4%)
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Foreign Exchange (138) (10,102) 99%
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Amortization 160,065 126,136 27%
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Net Loss $(107,109) $(109,171) (2%)
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EPS (0.01) (0.01)
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Add Back: Capital Asset Amortization 160,065 126,136 27%
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Add Back: Deferred Acquisition
Cost Amortization 914,849 554,879 65%
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EBITDA(ii) $967,805 $571,844 69%
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Cash Resources 3,914,226 6,789,316 (42%)
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Total Assets 15,018,222 15,342,155 (2%)
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Total Paid Policies in Force 135,753 125,241 8%
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Total Paid Core Policies in Force 109,437 87,270 25%
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Total Paid ShelterCare Policies in Force 26,316 37,971 (31%)
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CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Six Months Ended
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June 30, June 30, Change
2005 2004 %
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Gross Premiums Written (i) $14,615,886 $12,060,515 21%
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Commission and Management Fees - Core 4,638,744 3,523,730 32%
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Commission and Management Fees
- ShelterCare 749,690 1,179,910 (36%)
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Administration Fees 601,929 351,866 71%
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Microchipping Revenue 682,404 290,481 135%
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Interest and Other Income 51,005 83,929 (39%)
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Total Revenue $6,723,772 $5,429,916 24%
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Cost of Sales - Microchipping 555,931 270,230 106%
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Marketing Expenses 2,383,252 1,562,173 53%
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Employment Expenses 2,156,951 2,031,295 6%
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Stock Option Expense 126,564 77,071 64%
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Administration Expenses 1,385,006 1,439,139 (4%)
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Foreign Exchange (1,231) (8,244) 85%
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Amortization 292,913 243,304 20%
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Net Loss $(175,614) $(185,052) (5%)
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EPS (.01) (.01)
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Add Back: Capital Asset Amortization 292,913 243,304 20%
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Add Back: Deferred Acquisition Cost
Amortization 1,729,233 985,412 75%
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EBITDA(ii) $1,846,532 $1,043,664 77%
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Cash Resources 3,914,226 6,789,316 (42%)
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Total Assets 15,018,222 15,342,155 (2%)
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(i) The Company writes Gross Premiums and remits the carriers' portion to its pet insurance carriers. The Company's revenue consists of Commissions, Management and Administrative Fees, Microchip technology sales and Interest Income.

(ii) The Company believes the presentation of EBITDA is a useful means of providing investors with additional information in reviewing and analyzing the Company's operating results. EBITDA is considered to be a non-GAAP earnings measure and does not have any standardized meaning prescribed by GAAP. It is, therefore, unlikely to be comparable to similar measures presented by other issuers.

About Pethealth

Pethealth is a leading provider of pet insurance and pet related data management services to the North American companion animal industry. Pethealth offers a unique range of products and services for veterinarians, shelters and pet owners through a number of wholly owned subsidiaries using a range of brand names including PetCare, ShelterCare, QuickCare, CherryBlue, 24PetWatch, PetPoint, PetMedInfo and PetMedAlert.

Pethealth is based in Oakville, Ontario. To find out more about Pethealth, visit the web site at www.pethealthinc.com.

Statements contained in this news release, if not historical, are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from the results described in forward-looking statements.

The TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Pethealth Inc.
    Mark Warren
    President and CEO
    (905) 842-2615
    or
    Pethealth Inc.
    Glen Tennison
    Chief Financial Officer
    (905) 842-2615
    www.pethealthinc.com