SECURITIES AND EXCHANGE COMMISSION ~~WASHINGTON, D.C. 20549~~

WASHINGTON, D.C. 20549

_____________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Event Reported: ~~June~~ 10August 8, 2005

PAULA FINANCIAL (Exact name of registrant as specified in its charter)

Delaware	0-23181	95-4640368
(State or other jurisdiction of	(Commission	(I.R.S. Employer
incorporation or organization)	File Number)	identification number)

PAULA FINANCIAL

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

0-23181

(Commission File Number )

95-4640368

(I.R.S. Employer

identification number)

PAULA FINANCIAL

87 East Green Street, Suite 206

Pasadena, CA 91105

(Address of principal executive offices)

(626) 844-7100

(Registrant’s telephone number, including area code)

~~Check the appropriate box below if the Form 8-K filing is intended to~~Item ~~simultaneously~~4. ~~satisfy~~Changes ~~the~~in ~~filing~~Registrant’s ~~obligation~~Certifying ~~of the registrant under any of the following provisions:~~Accountant

~~o Written~~On August ~~communications~~8, ~~pursuant~~2005, toPAULA ~~Rule~~Financial’s ~~425~~(the ~~under~~“Company’s”) ~~the~~Audit ~~Securities~~Committee ~~Act~~appointed Stonefield Josephson, Inc. (17“SJ”) ~~CFR~~as ~~230~~the Company’s new independent auditors.~~425)~~ The transition to SJ will be effective immediately.

~~o Soliciting~~During ~~material~~the ~~pursuant~~two tomost ~~Rule~~recent ~~14a-12~~fiscal ~~under~~years and through the ~~Exchange~~date ~~Act~~hereof, neither the Company nor anyone on its behalf consulted SJ regarding those matters stated in Item 304(17a)(2) ~~CFR~~of ~~240.14a~~Regulation S-12B, including but not limited to either (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements or (ii) any matter that was either the subject of a “disagreement” or a “reportable event.” The registrant did not receive, and SJ did not provide, any written or oral advice that was an important factor in reaching a decision as to an accounting, auditing or financial reporting issue prior to its engagement by the registrant.

~~o Pre-commencement communications pursuant to Rule 14d-~~2~~(b) under the Exchange Act (17 CFR 240.14d-2(b))~~

~~o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))~~SIGNATURES

~~Item~~Pursuant to ~~4.01.~~the ~~Changes~~requirements inof the Securities Exchange Act of 1934, as amended, the Registrant’s ~~Certifying~~has ~~Accountant~~duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OnDate: August ~~June 10~~9, 2005~~, the Company~~ PAULA received notice that Ernst & Young LLP (“E&Y”), the Company’s former independent auditors, has declined to stand for re-election and their appointment as principal independent accountants was terminated.FINANCIAL

~~The Audit Committee has been~~ By: ~~informed of the termination and the Audit Committee has commenced the process~~/s/ ofDeborah ~~selecting an independent registered public accounting firm to replace E&Y~~S. Maddocks

~~During~~ Vice ~~the two most recent~~President ~~fiscal~~- years and for the subsequent interim period through June 10, 2005, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of E&Y would have caused E&Y to make reference thereto in their reports on the financial statements for such years. Additionally, E&Y’s audit reports on the consolidated financial statements of the Company as of and for the years ended December 31, 2004 and 2003 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.Finance

The Company requested E&Y to furnish a letter addressed to the Commission stating whether it agrees with the above statements. A copy of that letter, dated June 16, 2005, is filed as Exhibit 16.1 to this Form 8-K.3

There were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulations S-K occurring during the years ended December 31, 2004 and 2003 and for the subsequent interim period through March 31, 2005.

Item 9.01 Financial Statements and Exhibits

16.1 Letter from E&Y to the Securities and Exchange Commission dated June 16, 2005.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 16, 2005	PAULA FINANCIAL
	By:	/s/ Deborah S. Maddocks
		Vice President - Finance

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