Pethealth Inc.
TSX VENTURE : PTZ

Pethealth Inc.

November 10, 2005 14:21 ET

Pethealth Inc. Announces Results for the Third Quarter Ended September 30, 2005

OAKVILLE, ONTARIO--(CCNMatthews - Nov. 10, 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 September 30, 2005.

Financial Highlights

Quarter ended September 30, 2005

- Total revenue for the quarter ended September 30, 2005 was $3.8 million, representing a 26% increase over revenue of $3.0 million for the quarter ended September 30, 2004.

- Net loss for the three months ended September 30, 2005 was $190,120 as compared to a net loss of $50,419 for the quarter ended September 30, 2004.

- Q3, 2005 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $980,596 compared with EBITDA of $688,077 for the quarter ended September 30, 2004, a 43% increase.

- Gross written premiums related to the Company's pet insurance operations were $7.93 million for the quarter ended September 30, 2005, an increase of 17% over the same period in the prior year.

Nine months ended September 30, 2005

- Total revenue for the nine months ended September 30, 2005 was $10.5 million, up 25% over the nine months ended September 30, 2004.

- Net loss for the nine months ended September 30, 2005 was $365,734, a 55% increase from the net loss of $235,471 for the same period in the prior year.

- For the nine months ended September 30, 2005 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $2,827,128, compared to EBITDA of $1,731,741 for the same period last year, a 63% increase.

- Gross written premiums for the nine months ended September 30, 2005 were $22.5 million, up 20% from the gross written premiums from the same period in the prior year.

- At September 30, 2005, the Company had cash resources of $3.2 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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September 30, 2005
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Non-
Insurance Insurance Total
---------------------------------------
Revenues $ 3,294,823 $ 481,451 $ 3,776,274
Inter-segment revenue 27,600 27,600
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Total revenues $ 3,294,823 $ 509,051 $ 3,803,874

Cost of sales 422,000 422,000
Marketing 1,360,267 106,129 1,466,396
Inter-segment marketing 27,600 27,600
Employment 907,465 266,534 1,173,999
S,G&A 542,951 127,807 670,758
Other 217,244 15,997 233,241
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Total expenses $ 3,055,527 $ 938,467 $ 3,993,994

Net income (loss) $ 239,296 $(429,416) $ (190,120)
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---------------------------------------
Add:
Capital asset amortization 143,970 15,997 159,967
Deferred acquisition
cost amortization 1,010,749 1,010,749
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EBITDA $ 1,394,015 $(413,419) $ 980,596
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September 30, 2004
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Non-
Insurance Insurance Total
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Revenues $ 2,748,910 $ 243,042 $ 2,991,952
Inter-segment revenue 13,757 13,757
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Total revenues $ 2,748,910 $ 256,799 $ 3,005,709

Cost of sales 181,285 181,285
Marketing 886,143 56,200 942,343
Inter-segment marketing 13,757 13,757
Employment 823,164 205,568 1,028,732
S,G&A 492,221 190,298 682,519
Other 195,614 11,878 207,492
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Total expenses $ 2,410,899 $ 645,229 $ 3,056,128

Net income (loss) $ 338,011 $(388,430) $ (50,419)
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Add:
Capital asset amortization 106,902 11,878 118,780
Deferred acquisition
cost amortization 619,716 619,716
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EBITDA $ 1,064,629 $(376,552) $ 688,077
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For the Nine Months ended
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September 30, 2005
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Non-
Insurance Insurance Total
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Revenues $ 9,336,191 $ 1,163,855 $10,500,046
Inter-segment revenue 66,068 66,068
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Total revenues $ 9,336,191 $ 1,229,923 $10,566,114

Cost of sales 977,931 977,931
Marketing 3,692,788 156,860 3,849,648
Inter-segment marketing 66,068 66,068
Employment 2,642,251 688,699 3,330,950
S,G&A 1,683,586 375,071 2,058,657
Other 603,305 45,289 648,594
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Total expenses $ 8,687,998 $ 2,243,850 $10,931,848

Net income (loss) $ 648,193 $(1,013,927) $ (365,734)
---------------------------------------
---------------------------------------
Add:
Capital asset amortization 407,591 45,289 452,880
Deferred acquisition
cost amortization 2,739,982 2,739,982
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EBITDA $ 3,795,766 $ (968,638) $ 2,827,128
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September 30, 2004
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Non-
Insurance Insurance Total
---------------------------------------
Revenues $ 7,888,345 $ 533,523 $ 8,421,868
Inter-segment revenue 333,70 33,709
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Total revenues $ 7,888,345 $ 67,232 $ 8,455,577

Cost of sales 451,515 451,515
Marketing 2,330,717 172,257 2,502,974
Inter-segment marketing 33,709 33,709
Employment 2,508,844 551,183 3,060,027
S,G&A 1,604,562 517,096 2,121,658
Other 484,956 36,209 521,165
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Total expenses $ 6,962,788 $ 1,728,260 $ 8,691,048

Net income (loss) $ 925,557 $(1,161,028) $ (235,471)
---------------------------------------
---------------------------------------
Add:
Capital asset amortization 325,875 36,209 362,084
Deferred acquisition
cost amortization 1,605,128 1,605,128
---------------------------------------
EBITDA $ 2,856,560 $(1,124,819) $ 1,731,741
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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 commissions and fees generated from the placement of core and ShelterCare pet insurance policies at a blended commission rate of approximately 37%. Commissions and fees revenues earned in Q3 2005 from core policies increased by 36% to $2,804,421 over Q3 2004 while commissions and fees earned from ShelterCare policies in force declined by 28%. The growth in revenues earned from core policies is the result of the 22% year on year increase in the number of core policies in force which stood at 115,308 at September 30, 2005. The reduction in commissions and 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 84,511, up by 27% over the same quarter last year.

The Company recorded an administration cost per policy of $8.50 per quarter, down from $9.23 in Q3, 2004. This 8% 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$66 compared to US$65 in the prior year.

During the quarter, the Company recorded marketing expenses of $1,360,267 vs. $886,143 in the prior year. The 54% increase is primarily the result of previously capitalized direct response marketing costs being amortized into the period. During the period, $1,010,749 was amortized and expensed relating to previously capitalized direct response marketing vs. $619,716 in the prior year.

The pet insurance operations contributed $239,296 of net income to the consolidated results during the quarter and $648,193 for the year to date. This compares to net income of $338,011 and $925,557 in the prior year.

For the three months ended September 30, 2005, EBITDA from the Company's pet insurance operations was $1,394,015, an increase of 31% from EBITDA of $1,064,629 from the same period last year. For the nine months ended September 30, 2005, EBITDA from the Company's pet insurance operations was $3,795,766, an increase of 33% from EBITDA of $2,856,560 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 $481,450 from the sale of 81,989 microchips and related readers to the animal shelter and veterinary communities, an increase in revenue of 98% from the sale of 40,925 microchips and related readers reported in Q3, 2004. During the nine months ended September 30, 2005, the Company achieved revenues of $1,163,854 from the sale of 201,420 microchips and related readers, an increase in revenue of 118% from the sale of 84,330 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 25% of the companion animal market.

As at September 30, 2005, the Company had an aggregate of 383,482 pets registered in 24PetWatch and is now generating in excess of 66,900 registrations per quarter. In addition, the Company generated 84,511 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 September 30, 2005, 94 shelters had licensed the PetPoint system and 48 had begun to use it to run their shelter's day-to-day operations. As of the date of this release, 116 shelters had licensed the system and 72 were using it in daily operations. Management now believes that approximately 100 shelters will be using PetPoint in their day-to-day operations by year-end.

During Q3 2005, the electronic delivery of the ShelterCare insurance program generated savings of approximately $62,500, as 33% of the 84,511 pets enrolled in the ShelterCare program during the quarter were done electronically.

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 November 10, 2005, 50 clinics in Canada and the United States 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 $190,120 and $0.01 per share for the quarter compared to a net loss of $50,419 and $0.01 per share in Q3, 2004. The net loss for the year was inclusive of an 6.9% appreciation in the value of the Canadian dollar relative to the United States dollar that accounted for a reduction in revenue of $232,841 for the quarter and $656,543 for the year to date. Pethealth would have reported net loss of $24,231 for the quarter and $75,326 for the nine months to date 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 September 30, 2005, EBITDA was $980,596, an increase from EBITDA of $688,077 from the same period last year. For the nine months ended September 30, 2005, EBITDA was $2,827,128 an increase of 63% from the $1,731,741 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 September 30, 2005, the Company had total assets of $14,748,588 including cash resources of $3,229,680.

"We are pleased to present our results for Q3," said Mark Warren, President and Chief Executive Officer. "We were encouraged by record core policy sales in the United States and the continued profitability of our insurance business. On the non-insurance side, we continue to make outstanding progress in laying the foundation for what will be a very exciting business for us over the coming quarters. This is not to say that the quarter was not without its challenges. Not only was our performance significantly impacted by the continued strengthening of the Canadian dollar, but we are also finding that the transformation from what has historically been largely an inbound-based call centre to a largely outbound-based call centre has been slower than we would have liked or anticipated."

The Company will host a conference call at 4pm on Thursday, November 10, 2005 to discuss the third quarter results. To participate, please call 1-877-461-2814.



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CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Quarter Ended
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Sept. 30, 2005 Sept. 30, 2004 Change %
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Gross Premiums Written(i) $ 7,931,967 $ 6,762,036 17%
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Commissions and Fees - Core 2,804,421 2,065,513 36%
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Commissions and Fees -
ShelterCare 464,262 648,791 (28%)
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Microchipping Revenue 481,450 243,042 98%
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Interest and Other Income 26,141 34,606 (24%)
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Total Revenue $ 3,776,274 $ 2,991,952 26%
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Cost of Sales - Microchipping 422,000 181,285 133%
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Marketing Expenses 1,466,396 942,343 56%
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Employment Expenses 1,173,999 1,028,732 14%
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Stock Option Expense 87,641 56,603 55%
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Administration Expenses 670,758 682,519 (2%)
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Foreign Exchange (14,367) 32,109 145%
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Amortization 159,967 118,780 35%
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Net Loss $ (190,120) $ (50,419) (277%)
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EPS (0.01) (0.01)
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Add Back: Capital Asset
Amortization 159,967 118,780 35%
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Add Back: Deferred Acquisition
Cost Amortization 1,010,749 619,716 63%
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EBITDA(ii) $ 980,596 $ 688,077 43%
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Cash Resources 3,229,680 5,220,045 (38%)
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Total Assets 14,748,588 15,203,748 (3%)
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Total Paid Policies in Force 143,792 137,872 4%
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Total Paid Core Policies
in Force 115,308 94,323 22%
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Total Paid ShelterCare
Policies in Force 28,484 43,549 (35%)
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CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Nine Months Ended
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Sept. 30, 2005 Sept. 30, 2004 Change %
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Gross Premiums Written(i) $ 22,547,854 $ 18,847,551 20%
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Commissions and Fees - Core 8,045,094 5,941,097 35%
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Commissions and Fees -
ShelterCare 1,213,952 1,828,701 (34%)
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Microchipping Revenue 1,163,854 533,523 118%
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Interest and Other Income 77,146 118,535 (35%)
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Total Revenue $ 10,500,046 $ 8,421,868 25%
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Cost of Sales - Microchipping 977,931 451,515 117%
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Marketing Expenses 3,849,648 2,502,974 54%
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Employment Expenses 3,330,950 3,060,027 9%
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Stock Option Expense 214,205 133,674 60%
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Administration Expenses 2,058,657 2,121,658 (3%)
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Foreign Exchange (18,491) 25,407 (173%)
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Amortization 452,880 362,084 25%
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Net Loss $ (365,734) $ (235,471) (55%)
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EPS (.01) (.01)
---------------------------------------------------------------------

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Add Back: Capital Asset
Amortization 452,880 362,084 25%
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Add Back: Deferred Acquisition
Cost Amortization 2,739,982 1,605,128 71%
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EBITDA(ii) $ 2,827,128 $ 1,731,741 63%
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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, 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.pethealth.com