Press

Press Releases 2005

Pethealth Inc. announces record annual results and its results for the fourth quarter ended December 31,2004.

Oakville, ON. – March 11, 2005. Pethealth Inc. ("Pethealth" or "the Company") (TSXV: PTZ) today announced its financial results for the year and quarter ended December 31, 2004.

Financial Highlights

YEAR ENDED DECEMBER 31, 2004

• Revenue for the year ended December 31, 2004 totalled $11.29-million, representing a 60% increase over revenue of $7.05-million for the year ended December 31, 2003.

• Net loss for the twelve months ended December 31, 2004 was $422,540, a 79% improvement from the net loss of $1,990,298 for the year ended December 31, 2003.

• 2004 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $74,664, compared with an EBITDA loss of $1,661,252 for the year ended December 31, 2003.

• Cash generated from operations for 2004 was $2,537,423 vs. an operating cash outflow of $789,580 in the prior year.

• Gross written premiums related to the Company’s pet insurance operations were $25.3-million for the year ended December 31, 2004, an increase of 43% over the same period in the prior year.

• Core paid policies in force, as of December 31, 2004, stood at 99,372, an increase over the previous year of 42%.

• ShelterCare paid policies in force were 23,815 at December 31, 2004 a decline of 35% from those in force at December 31, 2003 as the prepaid portion of the coverage was reduced from 60 days to 30 days.

• At December 31, 2004, the Company had a total of 123,187 paid policies in force, a 16% increase from the 106,260 paid policies in force at December 31, 2003.

• On January 21, 2004, the Company completed a $10-million private placement of convertible preference shares. Each $2.00, 6% preference share is convertible into 10 common shares of the Company at the option of the holder.

• At December 31, 2004, the Company had cash resources of $4.55-million.

QUARTER ENDED DECEMBER 31, 2004

• Revenue for the quarter ended December 31, 2004 totalled $2.86-million, up 41% over the quarter ended December 31, 2003.

• Net loss for the three months ended December 31, 2004 was $187,069 ($0.01 per share), a 47% improvement from the net loss of $349,681 ($0.01 per share) for Q4, 2003.

• Cash generated from operations for Q4 2004 was $673,278 vs. $199,771 in the fourth quarter last year.

• Gross written premiums for the quarter ended December 31, 2004 were $6.6-million, up 29% from Q4, 2003.

Of the Company’s total revenue in 2004, 85% was derived from commissions and management fees earned from the placement of pet insurance policies on behalf of its carriers down from 91% in 2003.

The Company’s total commission and management fee revenue for 2004 was $9,574,033 compared to commission and management fee revenue of $6,399,099 in the prior year, an increase of 50%. This increase is the result of both the continued growth in active core paid policies in force which, on average, increased by 57% over the average number in force during the previous year, and the early stages of a 6.8% premium increase on its U.S. core policies. The growth in commission and management fee revenue derived from total active paid policies was reduced by $405,500 during the year as a result of the 6.4% increase in the value of the Canadian dollar relative to the United States dollar. Nonetheless, the Company earned 66% of its commissions and management fees from the placement of pet insurance policies in the United States up from 58% in the prior year. The Company began selling pet insurance in March 1999 in Canada and May 2001 in the United States.

Commission and management fee revenue is generated from the placement of core and ShelterCare pet insurance policies at a blended commission rate of approximately 37%. During 2004, the Company’s pet insurance programs generated $25,309,163 in gross written premium, up 43% from the previous year. The Company’s retention rate at December 31, 2004, on its core policies is approximately 70% on the first annual renewal and 75% on the second annual renewal. The Company had 99,372 core policies and 23,815 ShelterCare polices in force at December 31, 2004. Core policies in force increased by 42% while ShelterCare policies in force declined by 35%.

The decrease in the number of ShelterCare paid policies in force is the direct result of a reduction in the prepaid portion of the policy from 60 days to 30 days. Under the terms of its agreement with Petfinder.com (“Petfinder”), Petfinder prepays a portion of the policy. The change in the program is not expected to have any adverse impact on the expansion of the program or on the conversion rates from the ShelterCare policies into the Company’s core polices which remained at 13.0% for the year. Further, the impact of this change on the policyholder is expected to be minimal as 89% of claims occur during the first 30 days of the program. For the current quarter and the year, the change resulted in a reduction in revenue of $187,000.

In Canada, the Company is now the number one seller of microchips to the veterinary and shelter communities in terms of monthly sales. In the United States, the Company offers the Allflex microchip technology and provides its manufacturer-neutral pet registry, recovery, and database management services in 48 states. At December 31, 2004, the Company had 212,492 pets registered on its pet registry database of which 9,252 of those pets also had a core pet insurance policy. During 2004, the Company achieved revenues of $802,443 from the sale of 138,775 microchips and related readers to the animal shelter and veterinary communities, an increase in revenue of 257% from the sale of 22,086 microchips and related readers reported in 2003.

The Company had a net loss of $422,540 for the year and $187,069 or $0.01 per share for the year and Q4 respectively. The net loss for the year was inclusive of (i) net legal fees of $246,000, resulting from the legal action brought by AVID Identification Systems, Inc. (“AVID”) and in the preparation of its counterclaim against AVID. The suit was dismissed on October 9, 2004; (ii) a 6.4% appreciation in the value of the Canadian dollar relative to the United States dollar accounted for a reduction in net income of $354,000 for the year and $121,000 for the quarter and (iii) the September 1, 2004 reduction in the prepaid portion for ShelterCare policies which accounted for a reduction in net income for the year and fourth quarter of $160,000. In the absence of these three items, Pethealth would have reported net income of $337,000 ($0.01 per share) for the year and $94,000 ($0.01 cents per share) for the fourth quarter.

The Company reduced its administration cost per policy to $8.90 per quarter down from $12.00 per quarter in the prior year. This 26% reduction is the result of the Company’s concerted efforts to leverage its infrastructure, operating more efficiently as it builds towards profitability. The Company believes its administrative cost per policy, whether measured on an absolute basis or as a percentage of premiums, is the best in the industry. The Company’s acquisition cost per policy also fell by $US 8.75 for the year and $US 6.00 for the quarter when compared to the same periods in the prior year. These results were achieved through more efficient distribution through the shelter, veterinary and on-line channels. A combination of information technology advances, created by the Company to deliver its programs more efficiently, and the expansion of the 24PetWatch microchip program were the primary reasons for the reduction.

At December 31, 2004, the Company had total assets of $14,826,665 including cash resources of $4,549,614.

“We are delighted to be reporting strong growth in both our pet insurance and microchip businesses during 2004 which resulted in positive EBITDA for the year,” said Mark Warren, President and Chief Executive Officer. “I am particularly pleased with the reduction in our administrative cost per policy which played a large role in our 2004 results and puts us in an excellent position going into 2005. The introduction of both PetPoint, our web-hosted shelter management software, and EVE, our .NET on-line claims adjudication software, will further enhance our information technology platform which provides us the ability to leverage our distribution channels and infrastructure even further. We continue to gain market share in both our pet insurance and microchip business, further building our unique position of being able to create the industry’s first database registry of comprehensive medical information for dogs and cats in North America. 2005 will be an exciting year.”

The Company will host a conference call at 3pm on Friday, March 11, 2005 to discuss the year-end and fourth quarter results. To participate, please call 1-888-789-0150.

Financial Highlights:

*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.

** EBITDA is inclusive of amortization of non-cash deferred marketing expenses and is presented before other capital amortization. This data 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.

*** Administration expenses include net legal fees of $246,000 expensed in the year, associated with the defence and counterclaim against Avid Identification Systems, Inc. (“AVID”).

About Pethealth
Founded in February 1998, Pethealth is Canada's number one provider of pet insurance and is number two in North America, currently offering its PetCare Pet Insurance Programs in 10 provinces, 48 states plus Washington, D.C. In addition to the PetCare Pet Insurance Programs, Pethealth offers its pet insurance programs under a variety of names, including QuickCare, ShelterCare and Union Plus Pet Insurance. In the United States, the PetCare Pet Insurance Programs are underwritten by Lincoln General Insurance Company, York, PA, and administered by PetCare Insurance Brokers Ltd. and PetCare Insurance Agency, Ltd., both wholly owned subsidiaries of the Company. In Canada, the Company's pet insurance is underwritten by ING Novex, a member of ING Group, and Kingsway General Insurance Company and offered through PetCare Insurance Brokers Ltd. In addition, Pethealth, through its wholly owned subsidiaries Pethealth Services Inc. and Pethealth Services (USA) Inc., distributes Allflex pet microchip supplies to the companion animal market in North America and operates the related pet recovery registry under the trade name 24PetWatch.

During 2004, the Company completed two innovations: PetPoint, the first web-hosted management software program for animal welfare organizations in North America, which allows shelters to easily offer the ShelterCare insurance and the 24PetWatch microchip programs electronically at the point of adoption; and EVE, the first web-based claims adjustment software for veterinary clinics in North America. This program, the first of its kind in the pet insurance industry, allows claims to be adjusted online at the veterinary clinic, thus simplifying the claims adjudication process.

Pethealth is based in Oakville, Ontario. To find out more about Pethealth Inc. (TSXV: PTZ), visit the web site at www.pethealthinc.com.

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

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.

For further information contact:
Mark Warren, President & C.E.O., Pethealth Inc. at (905) 339-4428
Glen Tennison, Chief Financial Officer, Pethealth Inc. at (905) 339-4429

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