PAULA Financial Provides Stockholder Update

Business Wire, June 20, 2008

PASADENA, Calif. -- PAULA Financial (Pink Sheets:PFCO) today provided an update of selected business matters related to the sale of assets to Ascension Insurance Services.

Chairman Snider stated, "We understand that the transition of employees, customers and all other assets defined by the terms of sale have been conveyed in an orderly manner."

Snider also reported that the first release of funds held in escrow had gone smoothly. "On May 22, 2008 the Company received $500,000 (leaving a balance of $1,500,000 in escrow) in accordance with the terms of the sale. The next scheduled escrow release date is August 22, 2008.

"Additionally, numerous receivables due to PFCO under the terms of the asset sale have been fulfilled on expectation," Snider continued.

A final settlement and accounting related to the working capital component of the asset sale was completed in May 2008 which resulted in a payment in favor of the buyer in the amount of $154,896. This amount was paid to buyer on May 5, 2008.

The Company's substantial tax assets (net operating loss carryforwards, or NOLs) are federal, and do not apply to the state of California. The applicable tax rate in California is 9.3%. The taxable gain on the sale is under review.

Second quarter 2008 events may also include resolution of various litigation items as well as recording certain employee matters related to the sale of assets.

The Company sold its sole operating business for $50,000,000 or $6.86 per common share in February 2008. A distribution of $3.89 per common share to stockholders was completed in March 2008. California tax, litigation, transaction costs and employee related charges could be as much as ($1.20) per common share. Additional liquidation, winding-up and indemnification expenses may also apply and are not contemplated in the above analysis.

Future distribution(s) to stockholders are contemplated. At its May 2008 meeting, the board resolved to wait until the August 2008 escrow release date has passed before determining the Company's next distribution to stockholders. The board of directors will publish an update on the status of the possibility of a next distribution at the end of August 2008, and will post such information on the Company's web site, www.pfco.cc.

The Company cautions readers to recognize the existence of certain forward-looking statements in this press release and in any other statement made by, or on behalf of, the Company. The Company disclaims any obligation to update forward-looking information.