What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-12 · 112 added, 102 removed, 584 unchanged (27% of the section changed)

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Among others, these risks relate to:

• Our results of operations, including adverse impacts from the COVID-19 pandemic, our significant net losses since inception, our ability to achieve or maintain profitability in the future, and our ability to maintain our rate of revenue growth;

• Our ability to grow our member base, including by attracting new members from internet searches and from leads generated from Territory Partners, veterinarians and other third parties, to retain these members, and to recover our member acquisition costs;

• Our engagement of Territory Partners as independent contractors rather than employees;

• The pricing of our subscription, the actual levels of our veterinary invoice expense (which may increase with use of our patented software for direct payment of invoices), and our ability to timely and accurately process valid invoices and to identify improper invoices;

• Our need to maintain certain levels of surplus capital under applicable insurance regulations;

• Competitive challenges and our ability to maintain and enhance our brand;

• Emerging claim and coverage issues;

• Our ability to maintain and scale our infrastructure, to invest in or acquire businesses, products and technologies, and otherwise to manage our growth;

• Our reliance on key personnel, strategic relationships and a Canadian insurance company for our Canadian operations;

• Variations in our operating results, fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the economy;

• Our efforts to establish multiple insurance subsidiaries;

• Our ability to maintain effective internal controls and security measures;

• Our acceptance of automatic fund transfers and credit card and debit card payments;

• Owning an office building;

• Our ability to protect our intellectual property (IP), to avoid violating IP rights of other, and to maintain relationships with third parties providing necessary IP and technology to us;

• Litigation or regulatory proceedings;

• Compliance with covenants in our current credit agreement and limitations that may arise in connection with any future indebtedness we may incur;

• Tax liabilities and our ability to use net operating loss carryforwards;

• Compliance with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, the internet, email and texting, and accounting matters;

• Our common stock, including trading price declines from missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents.

• Our results of operations may be adversely affected by the ongoing COVID-19 pandemic and future variants of the virus;

• We have incurred significant net losses since inception and may not be able to maintain profitability or our rate of revenue growth in the future;

• Our ability to grow and retain our member base, including uncertainties in the assumptions we use to determine our new pet acquisition spend, variable costs of attracting new members from internet searches and from leads generated from Territory Partners, veterinarians and other third parties;

• We rely heavily on our Territory Partners and engage them as independent contractors rather than employees;

• The actual levels of our veterinary invoice expense (which may increase with use of our patented software for direct payment of invoices) and our ability to timely and accurately process valid invoices and to identify improper invoices;

• We are required to maintain certain levels of surplus capital under applicable insurance regulations;

• We face a number of competitive challenges and our business and operating results could suffer if we are unable to maintain and enhance our brand;

• We may not be able to maintain and scale our infrastructure, to invest in or acquire businesses, products or technologies, or otherwise manage our growth;

• Changes in legal, judicial, social and other environmental conditions could result in unexpected claim and coverage liability;

• We rely on key personnel, strategic partners and a Canadian insurance company for our Canadian operations and we may not be able to maintain these relationships;

• Fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the economy can all cause our operating results to vary;

• We may not be successful in our efforts to establish multiple insurance subsidiaries;

• We may not be able to maintain effective internal controls and security measures;

• Risks and uncertainties related to our acceptance of automatic fund transfers and credit card and debit card payments;

• We have limited experience owning an office building;

• We may not be able to protect our intellectual property (IP), avoid violating IP rights of others, or maintain relationships with third parties providing necessary IP and technology to us;

• The outcome of litigation or regulatory proceedings may restrict our ability to conduct our business;

• We may not be able to utilize net operating loss carryforwards and our tax liabilities could increase beyond our expectations;

• We are required to comply with numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, the internet, email and texting, and accounting matters;

• The value of our common stock may decline, including as a result of missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents.

Risks Related to Our Business and Industry

Our results of operations may be adversely impacted by the COVID-19 pandemic.

The global spread of the COVID-19 pandemic and related containment efforts have created significant economic disruption.

To date, the pandemic has not had a material adverse impact on our business, although it could impact growth rates in the future.

• The COVID-19 pandemic and related public health measures have resulted in significant unemployment.

The related economic impact on consumers may result in decreased new enrollments in our subscription and increased cancellations.

• The global work-from-home operating environment has restricted some of our Territory Partners from conducting face-to-face visits with veterinarians and their staff.

• Veterinarians have reported that pets may contract COVID-19, and the extent to which COVID-19 may be communicable among humans, dogs and cats and its health impact on pets is somewhat uncertain.

An increase in COVID-19 among pets may cause our veterinary invoice expense to increase.

• While we are not currently experiencing any meaningful decreases in veterinary invoice expenses, many insurance companies within the property and casualty insurance space are providing refunds to policyholders in light of reduced claims trends they are experiencing, and it is possible that state insurance regulators may require us to provide refunds or otherwise change our behavior.

The global spread of the COVID-19 pandemic, including the spread of recent variants, and related containment efforts have created significant economic disruption.

While, to date, the pandemic has not had a material adverse impact on our business, it could impact our growth rates and our volume of claims in the future.

• The economic impact on consumers resulting from the COVID-19 pandemic, including the spread of recent variants, and related public health measures may result in decreased new enrollments in our subscription and increased cancellations, as consumers may shift their spending in response to economic uncertainty.

Such a shift could materially adversely affect us if we are unable to adjust our products to match consumer needs.

• Governmental lockdowns, restrictions or new regulations have and could in the future impact the ability of our Territory Partners to conduct face-to-face visits with veterinarians and their staff.

The extent and/or duration of these restrictions and limitations could impact our ability to promote and support our subscription through the veterinary channel.

• While we have not seen definitive evidence, some veterinarians have reported that pets may contract COVID-19.

The extent to which COVID-19 may be communicable among humans, dogs and cats and its health impact on pets is somewhat uncertain, and an increase in COVID-19 among pets may cause our veterinary invoice expense to increase.

• While we are not currently experiencing any meaningful decreases in veterinary invoice expenses, several insurance companies within the property and casualty insurance industry have provided refunds to policyholders in light of reduced claims trends they are experiencing, and it is possible that state insurance regulators may require us to provide refunds or otherwise change our behavior.

• The duration of the pandemic, whether it may recur, and its other long-term impacts are highly uncertain and cannot be predicted.

These risks and uncertainties make it challenging to manage our growth, maintain business relationships, price our subscription plans and otherwise plan for our business.

In accordance with local and state directives, we have shifted our operations from our corporate office facility located in Seattle, Washington, and substantially all of our personnel are working from home.

We have not conducted business in this manner previously, do not know how long we may need to continue in this manner, and may experience reduced productivity of our employees, greater exposure to cybersecurity threats, or other operational risks.

Similarly, many of our Territory Partners, our vendors, the businesses for which we write policies in our other business segment, and our strategic partners are working from home, and many veterinary hospitals are working at reduced staffing levels and hours of operation.

The extent to which these parties suffer inefficiencies or other risks from their work-from-home arrangements, and the extent to which those risks may impact us, is impossible to predict.

Beginning in spring 2020, in accordance with local and state directives, we shifted our operations from our corporate office facility located in Seattle, Washington and substantially all of our personnel began working from home.

As COVID-19 related restrictions eased and more people received vaccinations, we began the process of transitioning those personnel who are comfortable working in an office setting back to our corporate office facility but a significant number of our personnel continue to work from home.

While we learned that we can work very effectively in a fully-remote environment, the partial return to in-office work and the potential transition to permanent remote working arrangements for some employees may result in increased costs, decreased efficiency, deterioration of corporate culture, greater exposure to cybersecurity threats, or other operational risks.

Similarly, many of our Territory Partners, our vendors, the businesses for which we write policies in our other business segment, and our strategic partners may continue to work from home, and many veterinary hospitals are working at reduced staffing levels and hours of operation.

In addition, our management team has spent, and will likely continue to spend, significant time, attention and resources monitoring the COVID-19 pandemic and associated global economic uncertainty and seeking to manage its effects on our business and workforce.

Our efforts to re-open our corporate office facility safely may also expose our employees and other third parties to health risks and us to associated liability, and they will involve additional financial burdens.

The impacts of COVID-19 and related economic conditions on our results remain highly uncertain and in many ways outside of our control.

The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult, if possible, to anticipate.

We have incurred significant cumulative net losses since our inception and may not be able to maintain profitability in the future.

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We have funded our operations through equity financings, borrowings under a revolving line of credit and term loans and, since 2016, positive cash flows from operations.

Our ability to achieve and maintain profitability will depend in significant part on our obtaining new members, retaining our existing members and ensuring that our expenses, including our sales and marketing expenses, do not exceed our revenue.

We expect to make significant expenditures and investments in member acquisition and product initiatives and these expenditures may not result in additional growth.

Our ability to achieve and maintain profitability will depend, in significant part, on obtaining new members, retaining our existing members, maintaining relationships with our strategic partners, and ensuring that our expenses, including new pet acquisition expense, do not exceed our revenue.

We expect to make significant expenditures and investments in new pet acquisition and product initiatives and these expenditures may not result in additional growth.

Our recent growth in revenue and membership may not be sustainable or may decrease, and we may not generate sufficient revenue to maintain profitability.

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We believe that our continued revenue growth will depend on, among other factors, our ability to:

• improve our market penetration through cost-efficient and effective sales and marketing programs to attract new members;

• improve our market penetration through cost-efficient and effective pet acquisition programs to attract new members;

• convert leads into enrollments;

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• maintain positive relationships with and increase the number and efficiency of Territory Partners;

• create and maintain positive relationships with strategic partners, particularly partners who create software solutions for veterinary practices;

• create and maintain positive relationships with strategic partners, particularly partners who present us with new sales channels and those who create software solutions for veterinary practices;

• continue to offer products with a superior value with competitive features and rates;

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You should not rely on our historical rate of revenue growth as an indication of our future performance.

We base our decisions regarding member acquisition expenditures primarily on the projected internal rate of return on marketing spend.

Our estimates and assumptions may not accurately reflect our future results - we may overspend on member acquisition, and we may not be able to recover our member acquisition costs or generate profits from these investments.

We base our decisions regarding new pet acquisition expenditures primarily on the projected internal rate of return on marketing spend.

Our estimates and assumptions may not accurately reflect our future results - we may overspend on new pet acquisition, and we may not be able to recover our pet acquisition costs or generate profits from these investments.

We have made and plan to continue to make significant investments to grow our member base.

We spent $45.1 million on sales and marketing to acquire new members for the year ended December 31, 2020.

Our average pet acquisition cost and the number of new pets we enroll depends on a number of factors and assumptions, including the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our sales and marketing expenditures and the competitive environment.

We spent $69.5 million new pet acquisition expense to acquire new members for the year ended December 31, 2021.

Our average pet acquisition cost and the number of new pets we enroll depends on a number of factors and assumptions, including the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.

Our average pet acquisition cost has increased over time and has significantly varied in the past.

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We also regularly test new member acquisition channels and marketing initiatives, which often are more expensive than our traditional marketing channels and generally increase our average acquisition costs.

In addition, we base our decisions regarding our member acquisition expenditures primarily on our internal rate of return generated on an average pet.

In addition, we base our decisions regarding our new pet acquisition expenditures primarily on our internal rate of return generated on an average pet.

This analysis depends substantially on estimates and assumptions based on our historical experience with pets enrolled in earlier periods, including our key operating metrics.

If our estimates and assumptions regarding our internal rate of return and the lifetime value of the pets that we project to acquire and our related decisions regarding investments in member acquisition prove incorrect, or if our calculation of internal rate of return and lifetime value of the pets that we project to acquire differs significantly from that of pets acquired in prior periods, we may be unable to recover our member acquisition costs or generate profits from our investment in acquiring new members.

Moreover, if our member acquisition costs increase or we invest in member acquisition channels that do not ultimately result in any or an adequate number of new member enrollments, the return on our investment may be lower than we anticipate irrespective of the lifetime value of the pets that we project to acquire as a result of the new members.

If our estimates and assumptions regarding our internal rate of return and the lifetime value of the pets that we project to acquire and our related decisions regarding investments in new pet acquisition prove incorrect, or if our calculation of internal rate of return and lifetime value of the pets that we project to acquire differs significantly from that of pets acquired in prior periods, we may be unable to recover our new pet acquisition expenses or generate profits from our investment in acquiring new members.

Moreover, if our new pet acquisition expenses increase or we invest in member acquisition channels that do not ultimately result in the expected number of new member enrollments, the return on our investment may be lower than we anticipate irrespective of the lifetime value of the pets that we project to acquire as a result of the new members.

If we cannot generate profits from this investment, we may need to alter our growth strategy, and our growth rate and operating results may be adversely affected.

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If we are listed less prominently in, or removed altogether from, search result listings for any reason, the traffic to our websites would decline and we may not be able to replace this traffic, which in turn would harm our business, operating results and financial condition.

If we decide to attempt to replace this traffic, we may be required to increase our sales and marketing expenditures, including by utilizing paid search advertising.

If we decide to attempt to replace this traffic, we may be required to increase our pet acquisition expenditures, including by utilizing paid search advertising.

Certain of our competitors have spent additional funds to promote their products in search results over us.

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To maintain our existing member base, we need to continue to reinforce the value of our subscription.

We utilize Territory Partners, who are paid fees based on enrollments in their regions, to communicate the benefits of medical insurance to veterinarians through, prior to the COVID-19 pandemic, in-person visits and more recently, through remote communications.

Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about these benefits, and potentially become members.

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We plan to expand the number of our Territory Partners and other lead-generation sources and to engage in other marketing activities, including direct to consumer advertising and increasing our social media footprint, which are likely to increase our acquisition costs.

In addition, these plans may face unexpected delays, costs or other challenges, such as decreased ability of Territory Partners to conduct in-person veterinarian or less effective development of other third-party relationships.

In addition, these plans may face unexpected delays, costs or other challenges, such as decreased ability of Territory Partners to conduct in-person visits with veterinarians.

We seek to convert consumers who visit our website and call our contact center into members.

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• the competitiveness of our subscription, including its perceived value, simplicity, and fairness;

• as we add more products, consumer confusion;

• changes in consumer shopping behaviors due to circumstances outside of our control, such as economic conditions, the COVID-19 pandemic and containment efforts, and consumers’ ability or willingness to pay for our product;

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We expect to continue to make significant expenditures relating to the retention of existing members, including an increase in the number of inside account managers and development and implementation of new technology platforms designed to encourage retention of these members.

If we do not retain our existing members or if our marketing initiatives do not result in enrolling more pets or result in enrolling pets that inherently have a lower retention rate, we may not be able to maintain our retention and new member acquisition rates.

Members we obtain through aggressive promotions or other channels that involve relatively less meaningful contact between us and the member are more likely to terminate their subscription.

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Our ability to generate leads through veterinary hospitals could be negatively impacted if our policy is perceived to be inadequate, unreliable, cumbersome or otherwise does not provide sufficient value, or if our process for paying veterinary invoices is unsatisfactory to the veterinarians and their clients.

If we fail to establish or are unable to maintain our existing member acquisition channels and/or continue to add new member acquisition channels, if the cost of our existing sources increases or does not scale as we anticipate, or if we are unable to continue to use any existing channels or programs in any jurisdiction, including our exam day offer program, our member levels and sales and marketing expenses may be adversely affected.

If we fail to establish or are unable to maintain our existing member acquisition channels and/or continue to add new member acquisition channels, if the cost of our existing sources increases or does not scale as we anticipate, or if we are unable to continue to use any existing channels or programs in any jurisdiction, including our exam day offer program, our member levels and pet acquisition expenses may be adversely affected.

Territory Partners are independent contractors and, as such, may pose additional risks to our business.

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Our use of capital may be constrained by risk-based capital regulations or contractual obligations.

Our subsidiary, APIC, is subject to risk-based capital regulations that require us to maintain certain levels of surplus to support our overall business operations in consideration of our size and risk profile.

Our insurance subsidiaries are subject to risk-based capital regulations that require us to maintain certain levels of surplus to support our overall business operations in consideration of our size and risk profile.

We have in the past and may in the future fail to maintain the amount of risk-based capital required to avoid additional regulatory oversight, which was $116.0 million as of December 31, 2021.

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Some of our competitors may be able to undertake more extensive marketing initiatives for their brands and services, devote more resources to website and systems development and make offers that are more attractive to potential employees, referral sources and third-party service providers.

To compete effectively, we believe we will need to continue to invest significant resources in sales and marketing, in improving our member service levels, in the online experience and functionalities of our website and in other technologies and infrastructure.

To compete effectively, we believe we will need to continue to invest significant resources in pet acquisition, in improving our member service levels, in the online experience and functionalities of our website and in other technologies and infrastructure.

Failure to compete effectively against our current or future competitors could result in loss of current or potential members, which could adversely affect our pricing, lower our revenue, prevent us from maintaining profitability and diminish our brand strength.

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Our success in this area will depend on a wide range of factors, some of which are out of our control, including the following:

• the efficacy and viability of our sales and marketing programs;

• the efficacy and viability of our pet acquisition programs;

• the perceived value of our subscription;

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In some instances, these changes may not become apparent until sometime after we have issued subscriptions that are affected by the changes.

As a result, the full extent of liability under our subscriptions may not be known for many years after subscription begins.

As a result, the full extent of liability under our subscriptions may not be known for many years after the subscription begins.

Our operating results may vary, which could make period-to-period comparisons less meaningful, and make our future results difficult to predict.

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Any such consolidation, acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and lead to pricing pressure and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, financial condition, cash flows and results of operations.

Changes in the economy may affect consumer spending on our subscription and this may negatively impact our business, operating results and financial condition.

Our business may be affected by changes in the economic environment.

Medical insurance for cats and dogs is a discretionary purchase, and members may reduce or eliminate their discretionary spending during an economic downturn, resulting in an increase in terminations and a reduction in the number of new member enrollments.

We may experience a material increase in terminations or a material reduction in our member retention rate in the future, especially in the event of a prolonged recessionary period or a downturn in economic conditions.

Conversely, consumers may have more income to pay veterinary costs out-of-pocket and less desire to purchase our subscription during a period of economic growth.

In addition, media prices may increase during a period of economic growth, which could increase our new pet acquisition expenses.

As a result, our business, operating results and financial condition may be significantly affected by changes in the economic environment.

We depend on key personnel to operate our business and, if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

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If an investment or acquisition fails to meet our expectations, our business, operating results and financial condition may suffer.

We may not realize the benefits of our current and planned transactions with Aflac.

In October 2020, we entered into a Strategic Alliance Agreement, a Stock Purchase Agreement and a Shareholder Agreement with Aflac Incorporated (Aflac).

Aflac purchased an aggregate of $200.0 million of our common stock.

The Strategic Alliance Agreement sets forth the structure for an alliance with Aflac, including its intended benefits to us relating to brand, access and distribution as well as go-to-market matters.

We and Aflac have agreed to negotiate in good faith and to act reasonably with each other in order to agree on such terms as are necessary to fully implement the alliance.

However, we may be unable to establish the terms for and implement the alliance and, as a result, we may not realize the intended benefits of the alliance.

In addition, we have agreed not to develop with a third party any worksite employee benefit regarding its pet insurance in the United States or Japan and to work exclusively with Aflac to develop opportunities in Japan’s pet insurance marketplace, which may prevent us from pursuing alternative opportunities.

If we are unable to implement the terms of the alliance, Aflac's obligations in the Shareholder Agreement, including standstill obligations and contractual holding period requirements, would terminate, which may have an adverse effect on our stock price and otherwise cause our business to suffer.

We depend on relationships with strategic partners, and our inability to maintain our existing and secure new relationships with strategic partners could harm our revenue and operating results.

A portion of our revenue is attributable to a variety of different types of strategic partnership arrangements.

These partnerships involve various risks, depending on their structure, including the following:

• we may be unable to maintain or secure favorable relationships with strategic partners;

We may not realize the benefits of our current and planned strategic relationships.

Our growth strategy includes developing and maintaining strategic relationships with various third parties.

For example, in October 2020, we entered into a Strategic Alliance Agreement and certain related agreements with Aflac Incorporated (Aflac).

We generally pursue strategic relationships with industry leaders that may offer us expanded access to segments of the pet insurance market.

For these efforts to be successful, we must successfully enter into agreements with these third parties on terms that are attractive to us, and then successfully implement the arrangement, which requires integrating and coordinating their resources and capabilities with our own, which may present challenges relating to technology integration, marketing, regulatory matters, customer support, and other operational matters.

We may be unsuccessful in entering into agreements with acceptable partners, negotiating favorable terms in these agreements, or implementing the relationship.

In addition, our strategic relationships may require us to agree to exclusivity or other terms that may limit our ability to pursue opportunities we might otherwise pursue.

For example, we have agreed with Aflac not to develop with a third party any worksite employee benefit regarding its pet insurance in the United States or Japan and to work exclusively with Aflac to develop opportunities in Japan’s pet insurance marketplace, which may prevent us from pursuing alternative opportunities.

In connection with our strategic relationships, we have in the past and may in the future provide equity consideration, impose contractual holding periods for such securities, impose standstill obligations or include other requirements that terminate in the event the strategic relationship ceases, which may have an adverse effect on our stock price and otherwise cause our business to suffer.

Strategic partnerships also involve various risks, depending on their structure, including the following:

• our strategic partners may not be successful in creating leads;

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• bad publicity and other issues faced by our strategic partners could negatively impact us.

Any inability to secure, maintain or effectively manage these complicated relationships with strategic partners could have a material adverse effect on our revenue and operating results.

Our business and financial condition is subject to risks related to our writing of policies unaffiliated third parties.

If we are unsuccessful in our strategic relationships, we may not realize the intended benefits of these relationship, lose the investment we have made in these relationships, face difficulty entering into other relationships, and our business may suffer.

Our business and financial condition is subject to risks related to our writing of policies for unaffiliated third parties.

Our other business segment includes revenues and expenses involving contractual relationships with unaffiliated third parties and related marketing to enterprises.

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Any delay in entry into a new relationship or suspension of member enrollment and renewals could have a material adverse effect on our operating results and financial condition.

Changes in the foreign exchange rates may adversely affect our revenue and operating results.

Changes in foreign exchange rates may adversely affect our revenue and operating results.

We offer our subscription in Canada and in the future may offer it in other countries, which exposes us to the risk of changes in currency exchange rates.

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Fluctuations in the relative strength of the US dollar has in the past and could in the future adversely affect our revenue and operating results.

We are expanding our operations internationally, and we may therefore become subject to a number of risks associated with international expansion and operations.

As part of our growth plan, we have explored, and expect to continue to explore, opportunities to expand our operations internationally.

For instance, we entered the Australian market through a joint venture and we are actively exploring entering other countries.

We have limited history of marketing, selling, administrating and supporting our subscription for consumers outside of the United States, Canada, and Puerto Rico.

In general, international sales and operations may be subject to a number of risks, including the following:

• regulatory rules and practices, foreign exchange controls, tariffs, tax laws and treaties that are different than those we operate under currently;

• the costs and resources required to modify our subscription appropriately to suit the needs and expectations of residents and veterinarians in such foreign countries;

• our data analytics platform may have limited applicability in foreign countries, which may impact our ability to develop adequate underwriting criteria and accurately price subscriptions in such countries;

• increased expenses incurred in establishing and maintaining office space and equipment for our international operations;

• technological incompatibility between our patented proprietary software and software used by veterinarians;

• difficulties in modifying our business model or subscription in a manner suitable for any particular foreign country, including any modifications to our Territory Partner model to the extent we determine that our existing model is not suitable for use in foreign countries;

• our lack of experience in marketing to consumers and veterinarians and online marketing in foreign countries;

• our relative lack of industry connections in many foreign countries;

• difficulties in managing operations due to language barriers, distance and time zone differences, staffing, cultural differences and business infrastructure constraints, including difficulty in obtaining foreign and domestic visas;

• the uncertainty of protection for intellectual property rights in some countries;

• general economic and political conditions in these foreign markets.

These and other factors could harm our ability to gain future international revenue and, consequently, materially impact our business and operating results.

The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources, detracting from management attention and financial resources otherwise available to our existing business.

Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business and could have an adverse effect on our operating results and financial condition.

Our decision to set up multiple insurance subsidiaries may complicate our business and harm our results of operations.

Currently, APIC, our wholly-owned subsidiary, underwrites memberships for our U.S.

subscription product, and Omega, a third party, underwrites memberships for our Canadian subscription product.

We are in the process of setting up additional wholly owned insurance companies in the U.S.

and Canada to underwrite our subscription and in the future we may decide to set up and operate additional wholly-owned insurance companies in the U.S., Canada or a different country.

subscription products, and Omega, a third party, underwrites memberships for our Canadian subscription products.

We have set up two new wholly-owned insurance companies in the U.S.

and are in the process of setting up an additional insurance company in Canada and in the future we may decide to set up and operate additional wholly-owned insurance companies in the U.S., Canada or a different country.

The pursuit of acquiring or forming a new insurance subsidiary may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the formation or acquisition is completed.

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Pursuant to Sections 382 and 383 of the Code, annual use of our net operating loss carryforwards and credit carryforwards may be limited by previous and future ownership changes.

Changes in the economy may affect consumer spending on our subscription and this may negatively impact our business, operating results and financial condition.

Our business may be affected by changes in the economic environment.

Conversely, consumers may have more income to pay veterinary costs out-of-pocket and less desire to purchase our subscription during a period of economic growth.

In addition, media prices may increase during a period of economic growth, which could increase our sales and marketing expenses.