Item 1.
Business
Except for historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, statements regarding future events and the Company’s plans and expectations. Actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Form 10-K or incorporated herein by reference, including those set forth in Management’s Discussion and Analysis or Plan of Operation.
As used in this annual report, “we”, “us”, “our”, “Ensurapet, “Company” or “our company” refers to Ensurapet and its subsidiaries.
General Information
Ensurapet, Inc. is a Nevada corporation that was incorporated on July 26, 2005. We are a development stage company. We were created to provide beneficial pet and horse resource centers-VetpetMD, Spot the Pet, and Purrfect Pet Club-via the worldwide web in order to sell pet merchandise as an online affiliate of a leading pet retailer, lost and found registration services (Pet ID tags), global positioning system technologies to locate lost pets and horses, and lastly liability, life, and health insurance policies to cover property damage and veterinary expenses from and on pets and horses in the United States, United Kingdom and in other pet and horse concentrated countries.
Our classes of stock include both preferred and common. We are presently authorized to issue 500,000,000 shares of $.001 par value common stock and 100,000 preferred stock class “D” and 3,000,000 preferred class “G” par value $.001. Our common stock under the symbol “EPTI” is listed, traded and quoted on the NASDAQ Over-the-Counter Bulletin Board (OTCBB: symbol EPTI) . All common stock shares are equal to each other with respect to liquidation and dividend rights. Holders of voting shares are entitled to one vote for each share they own at any shareholders’ meeting. Holders of shares of common stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore, and upon liquidation are entitled to participate pro-rata in a distribution of assets available for such a distribution to shareholders. There are no conversion rights, pre-emptive or other subscription rights or privileges with respect to common shares.
Our executive offices which we operate from are located at 177 Riverside Ave, Ste. F., #1152, Newport Beach, California 92663 and our telephone number is 877-440-7387. Our computer technology division is based in Canton, Ohio.
We make available free of charge at www.ensurapet.com (in the “Investor Relations” section) links to materials we file with, or furnish to, the U.S. Securities and Exchange Commission, or SEC, including our Annual Reports on Form 10-KSB, Form 10-K, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.
Overview of Our Businesses
We are a provider of pet health information services to pet owners, veterinarians, animal healthcare professionals, and pet service providers, which includes life and health insurance for pets, horses, and other companion animals through our public online portals. The online animal healthcare information, decision-support applications, communications services, and insurance applications that we provide:
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enable pet owners to obtain detailed information on a particular disease or condition, analyze symptoms, locate veterinarians, store their pet’s healthcare information, receive periodic e-newsletter featuring Dr. Carol, and participate in online communities with pet owners and veterinarians;
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make it easier for veterinarians, technicians, and pet service professionals to access clinical reference sources, stay abreast of the latest news, learn about treatment options, and communicate with peers; and
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enable pet owners, veterinarians, insurance agents, employer and employer/group organizations to provide their employees and members with access to our pet life and health insurance plans for companion animals which provide them with benefits so they can make better treatment choices.
The Ensurapet Beneficial Resource Centers consist of the public portals that we own, such as www.VetpetMD.com. These along with our other pet owner portals help owners take an active role in managing their pet’s health by providing objective healthcare and lifestyle information.
Ensurapet through its companion pet and horse-owner beneficial resource centers provides services and sells tangible products to build a company owned database of emails. From this database we shall educate, inform which will lead to the online sale of pet insurance products (life, liability and health). The objective is to reduce the cost of acquiring a policyholder. We sell products, services and/or provide online services to pet owners, to establish an online relationship with pet owners.
Our Online Services
Overview
Our content and services are making our public portals among the leading online companion animal health destinations for pet owners, veterinarians, technicians, and other animal service providers. These websites are 100% owned by Ensurapet.
Portal Site
Description
www.ensurapet.com
Our main directional landing page
www.vetpetmd.com
Our flagship pet owner portal features Dr. Carol and the pet clinic where more than 1,000 illnesses are cataloged as a reference source. This site offers daily news articles that are written by animal/veterinary journalists and reviewed by our professional staff/partners. We look to expand this website in 2007 and incorporate an online pet pharmacy.
www.purrfectpetclub.com
Our living with pets portal provides humorous and fun content including online shopping to more than 10,000 products.
www.spotthepet.com
Our pet locater portal provides ID tag registration for our pet with 24 hour 7 days a week monitoring.
www.purrfectpetinsurance.com
Is a life and health insurance site for owners of dogs and cats who want to insure against loss and veterinary expenses. Our pet insurance policies are the first plan to provide the coverage for life guarantee. Liability coverage should be available summer 2008 and form part of our plan coverage. By adding liability to every plan will make our policies the first and only pet coverage to do so in the United States.
www.purrfecthorseinsurance.com
A health insurance site for owners of non-racing horses, i.e. the family horse. This coverage should be available either late 2009.
Technology Infrastructure
Our Internet based services are delivered through websites designed to address the life and health issues of companion animals for their owners, veterinarians, technicians, and other animal service providers with easy to use interfaces, search functions, and navigation capabilities. We use customized content management and publishing technology to develop, edit, publish, manage, organize, and optimize the content for our websites. The insurance product specific site deploys dot-net technology that provides policyholders with complete access and account management capabilities, such as, coverage changes or deletions, policy cancellations, and claims processing. Our development and engineering costs totaled $0 in 2008, $24,225 in 2007, $565,434 in 2006 and $0 in 2005.
Continued development of our technology infrastructure is critical to our success. Our development team works closely with marketing and administration to create not only valuable content but interactive tools, and other applications for use across all of our portals that improve our content management capabilities.
Competition
The Internet portal markets which we participate in are intensely competitive, continually evolving and in some cases subject to rapid change. Some of our competitors have greater financial, technical, marketing and other resources than we do and some are better known than we are. We cannot provide assurance that we will be able to compete successfully against these organizations. Since there are no substantial barriers to entry into the markets in which we participate, we expect that additional competitors will continue to enter these markets. With that said, the pet insurance market remains minimally competitive with an estimated 9 insurance providers. The barriers to entry in providing this product from licensing to capital/surplus should slow entry of competitors. Further, since we provide both the Internet portal markets and the insurance product we are uniquely position in the marketplace unlike any of our competitors.
Other Information
Intellectual Property
We rely upon a combination of trade secret, copyright and trademark laws, license agreements, confidentiality procedures, employee and client nondisclosure agreements and technical measures to protect the intellectual property used in our business.
We use trademarks, trade names and service marks for pet healthcare information services and technology solutions, including Ensurapet, VetpetMD ™, Spot the Pet ™ , Purrfect Pet Insurance ™ , Purrfect Horse Insurance ™ , and Purrfect Pet Club ™ . We also use other registered and unregistered trademarks and service marks for our various products and services. In addition to our trademark registrations and applications, we have registered the domain names that either are or may be relevant to conducting our business names, including “vetpetmd.com,” “ensurapet.com,” and “spotthepet.com,.”
Government Regulation
Introduction
This section of the Annual Report contains a description of laws and regulations applicable to us, either directly or through their effect on our veterinary and insurance industry customers. Both existing and future laws and regulations affecting the veterinary care, information technology, insurance, and Internet industries could create unexpected liabilities for us, cause us to incur additional costs and restrict our operations. Many of the laws that affect, us and particularly those applying to insurance and veterinary care, are very complex and may be subject to varying interpretations by courts and other governmental authorities. We cannot provide assurance that we will be able to accurately anticipate the application of these laws and regulations to our operations.
Insurance Regulation
The sale and solicitation of pet health insurance is highly regulated by the individual State Insurance Departments. Coverage is written on a property casualty insurer since pets are viewed as property even thought it is a health and replacement (life) insurance plan. We presently issue policies on a Surplus Lines Insurance Company authorized in the State of Michigan. The Insurance Agency has two licensed agents two of these agents are licensed in all states. Policies are issued through a group/association-The Purrfect Pet Club-with certificates of coverage issued to pet owners. The advantage is the regulatory unitary treatment state regulators usually afford these programs which allow members throughout the United States to insure their pet.
Consumer Protection Regulation
General. Advertising and promotional activities presented to visitors on our websites are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. We are also subject to various other federal and state consumer protection laws, including the ones described below. Further, we are subject to insurance marketing laws by the Department of Insurance within each state.
CAN-SPAM Act. On January 1, 2004, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, became effective. The CAN-SPAM Act regulates commercial emails, provides a right on the part of the recipient to request the sender to stop sending messages, and establishes penalties for the sending of email messages that are intended to deceive the recipient as to source or content. Under the CAN-SPAM Act, senders of commercial emails (and other persons who initiate those emails) are required to make sure that those emails do not contain false or misleading transmission information. Commercial emails are required to include a valid return email address and other subject heading information so that the sender and the Internet location from which the message has been sent are accurately identified. Recipients must be furnished with an electronic method of informing the sender of the recipient’s decision to not receive further commercial emails. In addition, the email must include a postal address of the sender and notice that the email is an advertisement. The CAN-SPAM Act may apply to the e-newsletters that our public portals distribute to members and to some of our other commercial email communications. However, there may be additional FTC regulations indicating that our e-newsletters are outside the scope of the CAN-SPAM Act. At this time, we are applying the CAN-SPAM requirements to these email communications, and believe that our email practices comply with the requirements of the CAN-SPAM Act. Many states have also enacted anti-spam laws. The CAN-SPAM Act preempts many of these statutes. To the extent that these laws are not preempted, we believe that our email practices comply with these laws.
Regulation of Advertisements Sent by Fax. Section 227 of the Communications Act, which codifies the provisions of the Telephone Consumer Protection Act of 1991 (or TCPA), prohibits the transmission of an “unsolicited advertisement” via facsimile to a third party without the consent of that third party. An “unsolicited advertisement” is defined broadly to include any material advertising the commercial availability or quality of any property, goods or services. In 2005, the Junk Fax Prevention Act (or JFPA) was signed into law, which codified a previous interpretation of the TCPA by the Federal Communications Commission (or FCC) that a commercial fax is not “unsolicited” if the transmitting entity has an “established business relationship,” as defined by the JFPA and applicable FCC regulations, with the recipient.
On April 5, 2006, the FCC issued its final rules under the JFPA. The rules became effective on August 1, 2006. In the rules, the FCC confirmed that transactional faxes are permitted. It defined a transactional fax as one that facilitates, completes or confirms the commercial transaction that the recipient has previously agreed to enter into with the sender. The FCC stated that these faxes are not advertisements that are prohibited by the TCPA. The FCC recognized that, if a transactional fax has a de minimis amount of advertising information on it, that alone does not convert a transactional fax into an unsolicited advertisement.
In addressing the so-called “EBR exemption” to the TCPA’s prohibition on unsolicited facsimile advertisements, the FCC adopted the JFPA’s definition of an “established business relationship” or “EBR,” which includes a voluntary two-way communication between a person and a business. The FCC rules make clear that, if the person made an inquiry or application to a sender, it must be about a product or service offered by the entity for it to qualify as an EBR. The FCC rules also do not prohibit faxed communications that contain only information, such as news articles, updates or other similar general information.
States from time to time have enacted, or have attempted to enact, their own requirements pertaining to the transmission of commercial faxes. These state requirements often, but not always, track the terms of the TCPA, the JFPA, and the FCC’s regulations. To the extent state commercial fax requirements have conflicted with federal requirements, they have to date been successfully challenged. We cannot predict the outcome of the FCC’s future rulemaking proceedings, the extent to which states may successfully enact more restrictive commercial fax laws in the future, or the outcomes of any judicial challenges to those laws.
COPPA. The Children’s Online Privacy Protection Act, or COPPA, applies to operators of commercial websites and online services directed to U.S. children under the age of 13 that collect personal information from children, and to operators of general audience sites with actual knowledge that they are collecting information from U.S. children under the age of 13. Our sites are not directed at children and our general audience site, vsurance/vetpetMD, states that no one under the applicable age is entitled to use the site. In addition, we employ a kick-out procedure whereby users identifying themselves as being under the age of 13 during the registration process are not allowed to register for the site’s member only services, such as message boards and live chat events. COPPA, however, can be applied broadly and is subject to interpretation by courts and other governmental authorities. The failure to accurately anticipate the application or interpretation of this law could create liability for us, result in adverse publicity and negatively affect our business.
Regulation of Contests and Sweepstakes. We may conduct contests and sweepstakes in some of our marketing channels. The federal Deceptive Mail Prevention and Enforcement Act and some state prize, gift or sweepstakes statutes may apply to these promotions. We believe that we will be in compliance with any applicable law or regulation when and if we run these promotions.
FACTA. In an effort to reduce the risk of identity theft from the improper disposal of consumer information, Congress recently passed the Fair and Accurate Credit Transactions Act (or FACTA) which requires businesses to take reasonable measures to prevent unauthorized access to such information. FACTA’s disposal standards are flexible and allow businesses discretion in determining what measures are reasonable based upon the sensitivity of the information, the costs and benefits of different disposal methods and relevant changes in technology. We believe that we are in compliance with FACTA.
Data Protection Regulation. With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, many states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers. Generally, these laws are limited to electronic data and make some exemptions for smaller breaches. Congress has also been considering similar federal legislation relating to data breaches. The FTC has also prosecuted some data breach cases as unfair and/or deceptive acts or practices under the Federal Trade Commission Act. We intend to continue to comprehensively protect all consumer data and to comply with all applicable laws regarding the protection of this data.
Other Consumer Protection Regulation. The FTC and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the presentation of Web site content, comply with certain standards for notice, choice, security and access. Courts may also adopt these developing standards. In many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities. We believe that we are in compliance with these consumer protection standards, but a determination by a state or federal agency or court that any of our practices do not meet these standards could result in liability and adversely affect our business. New interpretations of these standards could also require us to incur additional costs and restrict our business operations.
Employees
As of December 31, 2008, we had approximately 4 independent contractors/consultants.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
Item 1A.
Item 1A.
Risk Factors
This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in some or all of our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our financial condition, results of operations and cash flows or on the trading prices of the Common Stock that we have issued or securities we may issue in the future. We have also included a detailed discussion of risks and uncertainties arising from governmental regulation of our businesses, one of the most significant risks we face, in the section “Business - Governmental Regulation” above. The risks and uncertainties described in this Annual Report are not the only ones facing us. Additional risks and uncertainties that are not currently known to us or that we currently believe are immaterial may also adversely affect our business and operations.
We have incurred and may continue to incur losses
Our operating results have been impacted significantly due to the loan with Samir Financial and may continue to do so in the future as the need for capital continues. Our net loss for 2008 totaled $(572,756). Many companies with business plans based on providing pet health insurance have failed to be profitable and some have ceased operations. Even if demand for users exists, we cannot assure you that our business will be profitable.
In addition and while a veterinary health care expenses exceed $18 billion yearly as reported by the American Veterinary Medical Association (AVMA) with 2% of the 135 million dog and cat owners insuring their pets as reported by the American Animal Hospital Association (AAHA), our online businesses, specifically VetpetMD and Purrfect Pet Club have a limited operating history and participate in a new market even though its management collectively has over 30 years experience in the pet insurance industry.
We have a significant financial indebtedness
On December 15, 2005, we executed a Loan and Security Agreement with Samir Financial, LLC (the “Lender”) for $4,000,000. This loan was due in full at the end of twelve months (December 14, 2006). We were unable to pay off this loan at that time. Samir Financial has agreed to extend the loan until June 15, 2007 in exchange for a $500,000 extension fee. At December 31, 2006, we had not paid the extension fee. A portion of the fee was paid - $200,000 - in January 2007; however, a balance of $300,000 remains outstanding. The loan payoff at June 15, 2007, will be $5,000,000. Security for this loan is all company assets and a controlling stock position if the loan were to be in default.
On April 9, 2008, the lender entered into an agreement with the Company and forgave $4,000,000 in exchange for 3,000,000 restricted common shares. Further, the Company was to repay then lender $1,000,000 on or before July 9, 2008 and the remaining balance of $1,000,000 would remain on the books as a liability for a period of 14 months paid as follows: the first payment was due and payable on July 1, 2009; the second payment was due and payable on October 1, 2009; with subsequent payments due and payable. The lender agreed not to charge the company any interest (non-interest bearing loan). The Company was to make quarterly payments to the lender of $250,000 on the dates shown above. The three million restricted shares of the company’s common stock was issued subject to SEC Rule 144 restrictions as well as an executed 12 month lock up agreement. As of this filing the Company failed to make any payments as agreed and is in default.
If we are unable to provide content and services that attract and retain users to The Beneficial Resource Center Network on a consistent basis, our advertising and sponsorship revenue could be reduce, but more importantly, the database of pet owners who would be potential policyholders could be greatly reduced
Users of The Beneficial Resource Center Network have numerous other online and offline sources of pet healthcare information services. Our ability to compete for user traffic on our public portals depends upon our ability to make available a variety of pet health and veterinary content, decision-support applications and other services that meet the needs of a variety of types users, including pet owners, veterinarians, technicians, and other pet service professionals, with a variety of reasons for seeking information. Our ability to do so depends, in turn, on:
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our ability to hire and retain qualified authors, journalists and independent writers;
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our ability to license quality content from third parties; and
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our ability to monitor and respond to increases and decreases in user interest in specific topics.
We cannot assure you that we will be able to continue to develop or acquire needed content, applications and tools at a reasonable cost. In addition, since consumer users of our public portals may be attracted to The Beneficial Resource Center Network as a result of a specific condition or for a specific purpose, it is difficult for us to predict the rate at which they will return to the public portals. Because we generate revenue by, among other things other than through the sale of pet insurance plans, selling sponsorships of specific pages, sections or events on VetpetMD, a decline in user traffic levels or a reduction in the number of pages viewed by users could cause our revenue to decrease and could have a material adverse effect on our results of operations.
Risks Related to Use of the Internet and to Our Technological Infrastructure
Our Internet-based services are dependent on the development and maintenance of the Internet infrastructure
Our ability to deliver our Internet-based services is dependent on the development and maintenance of the infrastructure of the Internet by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of complementary products such as high-speed modems, for providing reliable Internet access and services. The Internet has experienced, and is likely to continue to experience, significant growth in the number of users and the amount of traffic. If the Internet continues to experience increased usage, the Internet infrastructure may be unable to support the demands placed on it. In addition, the reliability and performance of the Internet may be harmed by increased usage or by denial-of-service attacks.
The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services. In addition, customers who utilize our Web-based services depend on Internet service providers, online service providers and other Web site operators for access to our Web sites. All of these providers have experienced significant outages in the past and could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Any significant interruptions in our services or increases in response time could result in a loss of potential or existing users of and advertisers and sponsors on our Web sites and, if sustained or repeated, could reduce the attractiveness of our services.
We rely on bandwidth providers, data center providers, other third parties and our own systems for key aspects of the process of providing products and services to our users, and any failure or interruption in the services provided by these third parties or our own systems could harm our business
Our online services are designed to operate 24 hours a day, seven days a week, without interruption. However, we have experienced and expect that we will in the future experience interruptions and delays in services and availability from time to time. We rely on internal systems as well as third-party vendors, including data center providers and bandwidth providers, to provide our online services. We do not maintain redundant systems or facilities for some of these services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users. To operate without interruption, both we and our service providers must guard against:
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damage from fire, power loss and other natural disasters;
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communications failures;
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software and hardware errors, failures and crashes;
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security breaches, computer viruses and similar disruptive problems; and
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other potential interruptions.
Any disruption in the network access or co-location services provided by these third-party providers or any failure of or by these third-party providers or our own systems to handle current or higher volume of use could significantly harm our business. We exercise little control over these third-party vendors, which increases our vulnerability to problems with services they provide.
Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our brand and our business and could expose us to liabilities to third parties. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
Implementation of additions to or changes in hardware and software platforms used to deliver our online services may result in performance problems and may not provide the additional functionality that was expected
From time to time, we implement additions to or changes in the hardware and software platforms we use for providing our online services. During and after the implementation of additions or changes, a platform may not perform as expected, which could result in interruptions in operations, an increase in response time or an inability to track performance metrics. In addition, in connection with integrating acquired businesses, we may move their operations to our hardware and software platforms or make other changes, any of which could result in interruptions in those operations. Any significant interruption in our ability to operate any of our online services could have an adverse effect on our relationships with users and clients and, as a result, on our financial results. We rely on a combination of purchasing, licensing, internal development, and acquisitions to develop our hardware and software platforms. Our implementation of additions to or changes in these platforms may cost more than originally expected, may take longer than originally expected, and may require more testing than originally anticipated. In addition, we cannot provide assurance that additions to or changes in these platforms will provide the additional functionality and other benefits that were originally expected.
If the systems we use to provide online portals experience security breaches or are otherwise perceived to be insecure, our business could suffer
We retain and transmit confidential information, including personal health records, in the processing centers and other facilities we use to provide online services. It is critical that these facilities and infrastructure remain secure and be perceived by the marketplace as secure. A security breach could damage our reputation or result in liability. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or the systems that they interface with, could reduce demand for our services and could subject us to legal claims from our clients and users, including for breach of contract or breach of warranty.
Failure To Achieve And Maintain Effective Internal Controls In Accordance With Section 404 Of The Sarbanes-Oxley Act Could Have A Material Adverse Effect On Our Business And Operating Results.
It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures. If we are unable to comply with these requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires of publicly traded companies.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning with our annual report on Form 10-K for our fiscal period ending December 31, 2007, we will be required to prepare assessments regarding internal controls over financial reporting and beginning with our annual report on Form 10-K for our fiscal period ending December 31, 2008, furnish a report by our management on our internal control over financial reporting. We have begun the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While our management is expending significant resources in an effort to complete this important project, there can be no assurance that we will be able to achieve our objective on a timely basis. There also can be no assurance that our auditors will be able to issue an unqualified opinion on management’s assessment of the effectiveness of our internal control over financial reporting. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our stock price.
In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.
In the event that a material weakness is identified, we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
The Report Of Our Independent Registered Public Accounting Firm Contains Explanatory Language That Substantial Doubt Exists About Our Ability To Continue As A Going Concern
The independent auditor’s report on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. The report states that we depend on the continued contributions of our executive officers to work effectively as a team, to execute our business strategy and to manage our business. The loss of key personnel, or their failure to work effectively, could have a material adverse effect on our business, financial condition, and results of operations. If we are unable to obtain sufficient financing in the near term or achieve profitability, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the value of our common shares.
Operating History And Lack Of Profits Which Could Lead To Wide Fluctuations In Our Share Price. The Price At Which You Purchase Our Common Shares May Not Be Indicative Of The Price That Will Prevail In The Trading Market. You May Be Unable To Sell Your Common Shares At Or Above Your Purchase Price, Which May Result In Substantial Losses To You. The Market Price For Our Common Shares Is Particularly Volatile Given Our Status As A Relatively Unknown Company With A Small And Thinly Traded Public Float.
The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.
Volatility In Our Common Share Price May Subject Us To Securities Litigation, Thereby Diverting Our Resources That May Have A Material Effect On Our Profitability And Results Of Operations.
As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
Item 1B.
Item 1B.
Unresolved Staff Comments
No t applicable
Item 2.
Item 2.
Properties
Our executive offices which we operated from were located at 540 N Golden Circle, Suite 304, Santa Ana, California 92705; however, the Company had insufficient operating capital to maintain the lease payments and vacated the premises on or about December 15, 2008. Presently the Company utilizes the facilities located at 177 Riverside Ave, Ste. F, #1152, Newport Beach, CA 92663 for its mailing and delivery with the services of its independent consulting management team. Our telephone number is 877-440-7387. The lease on the former office which was vacated was a two year lease at the Theme Building $4,885.80 per month. Our computer technology division is based in Canton, Ohio. We believe that our offices and other facilities in Ohio, general, in good operating condition and adequate for our current technology operations and that additional leased space can be obtained on acceptable terms if needed.
Item 3.
Item 3.
Legal Proceedings
There is a case #070C014621B involving Kathy Ranson seller of Animal-ID in the First Judicial Court in the State of Nevada. The Company plans to contest and seek to have the judgment set-aside in the amount of $210,000.00 based on fraud and failure to deliver assets unencumbered as described in the Purchase Agreement.
There is a case #08L009199 involving Samir Financial LLC in the Circuit Court of Cook County, Illinois. The lender is seeking a judgment for breech of timely payments under the contract in the amount of $2,000,000. The Company is in default and is attempting to negotiate a settlement or reinstatement.
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders
During the year of 2008, the following matters were submitted to a vote of security holders of Ensurapet: First: the appointment of Lawrence Scharfman, CPA as the Company’s independent certified public accountants was ratified; and Second; the amendment to the Articles of Incorporation to keep the authorized shares of common stock to 500,000,000, par value $.001 and establish a class “G” preferred shares with voting rights that converted to common shares 30:1, that is, every one share of preferred “G” equaled thirty common shares.
PART II
Item 5.
Item 5.
Market for Registrant’s Common equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded in the National Association of Securities Dealers Inter-dealer Quotation System over-the-counter bulletin board market (the “OTCBB) and can be accessed under the symbol “EPTI.OB” We began trading on the OTCBB on February 27, 2008. On April 18, 2008 the high and low bid quotation for our common stock, representing inter-dealer quotations, without adjustment for retail markup, markdown or commission (and may not represent actual transactions) was $1.01.
At December 31, 2008, there were 100,000 preferred shares and 40,000,000 common shares; however, after reflecting all material events through the date of this filing inclusive of capitalization restructure, there areas of the date of this filing, 3,100,000 preferred shares and 40,000,000 shares of our common stock of issued and outstanding and there were an estimated 880 shareholders of record of the Company’s common stock. The number of record holders was determined from the records of our transfer agent and an estimate of the number of beneficial owners of common and preferred stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividend Policy
We may never pay any dividends to our shareholders. We did not declare any dividends for the year ended December 31, 2008. Our Board of Directors does
not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
Recent sales of unregistered securities
We disclosed in our registration statement (SEC File number 333-132028), a schedule of securities as part of our process in the valuation of privately held securities issued as compensation. We continued to value stock related matters on a going forward bases using a similar format. The following represent the transactions that involved securities.
December 2008 Life Cycle Stage (Forty Second Development Period) - Share value was established at $0.0005
Authorized by the Company on December 1, 2008, 3,000,000 preferred class “G” shares were subscribed pursuant to a Regulation D 506 offering wherein the Company would receive $50,000. These funds were necessary to pay outstanding policyholder claims, surplus lines tax, legal, and other expenses necessary to carry on services to policyholders. The funds were delivered to the Company on February 27, 2009, following due diligence and deliverables cited in the Reg D 506.
Item 6.
Item 6.
Selected Financial Data
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of operations” and with the consolidated financial statements and notes thereto, which are included elsewhere in the Annual Report.
The development and deployment of our public portals-The Beneficial Resource Center Network-is represented by the investment in assets in 2006. Software decreased from $460,434 to $122,214 as a result of amortization; furthermore, the pet medical database remained unchanged since it had not been fully deployed on the system with all of its features; however, in 2009 as the VetpetMD database becomes deployed these cost will then be amortized in accordance with GAAP.
The most significant liability is our loan to the lender-Samir Financial-who provided the development capital. On April 9, 2008, the loan amounted to $6,000,000 and Samir accepted 3,000,000 common shares as payment of $4,000,000 and carried the remaining balance on an interest free note. The Company further re-classed certain payables which were due key inside shareholders as liabilities in dispute. This reclassification occurred because it is the Company’s position that these debts are contingent liabilities by virtue of upcoming stock settlements not yet recorded but discussed and due to vendors’ failure to deliver assets and services billed. The current portion of long-term debt above the monies due Samir Financial of $1,000,000 are $263,875. This amount represents the lawsuit with Animal-ID that will be disputed by the Company-remedy being having the judgment ($225,100) set-aside-and two nominal shareholder loans. Our objective in 2008 was to raise sufficient equity based capital in order to run a profitable operation so that sufficient earnings would be available to repay these liabilities. This did not occur. It is unknown now in 2009 if we will be able to do so and there is no guarantee that management will be able to raise capital at all.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Consolidated Results of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements that involve risk and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors” and included elsewhere in this Annual Report. Further historic disclosures can be found on Form 10-Q for September 30, 2008, 10-K for December 31, 2007, 2006, and in the 2006 registration statement (SEC File number 333-132028).
Overview
MD&A is a supplement to our consolidated financial statements and notes thereto included elsewhere in this Annual Report, and are provided to enhance your understanding of our results of operations and financial condition. Our MD&A is organized as follows:
·
Introduction. This section provides a general description of our company, background information on certain trends, strategies and other matters discussed in the MD&A, a description of the basis for presentation of our financial statements, a summary discussion of our plan of operations, and a discussion on our acquisition.
·
Critical Accounting Policies and Estimates. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimated and assumptions.
·
Results of Operation. This section provides our analysis and outlook for the significant line items on our statement of operations, as well as other information that we deem meaningful to understand our results of operations.
·
Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of December 31, 2008.
·
Recent Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future.
Introduction
Our Company
We are a provider of pet health information services to pet owners, veterinarians, animal healthcare professionals, and pet service providers, which includes life and health insurance for pets, horses, and other companion animals through our public online portals. We are organizing our business into these two operating segments as follows; however, since we remained a development stage company at December 31, 2008, we have represented the business as one operating segment at this time even though the Company has three operating subsidiaries:
·
Online and Other Services. The Ensurapet Beneficial Resource Centers consist of the public portals that we own, such as www.VetpetMD.com. These along with our other pet/animal owner portals help owners take an active role in managing their pet’s health by providing objective healthcare and lifestyle information. Our public portals generate revenue primarily through the sale of advertising and sponsorship products from Petsmart® as an affiliate.
·
Insurance Services. We sell several pet health insurance plans for dogs and cats that provide reimbursement of veterinary expenses incurred to treat an illness or injury and on some policies routine/preventive care treatment such as vaccinations: Protect 1, Protect 2, Protect 3, and Protect 4 all of which provided an accidental life insurance policy with an endorsement for death due to an illness. We are authorized to underwrite a pet replacement (life) insurance plan for dogs and cats with death benefit limits ranging from $1,000 to $10,000. We have not yet introduced this product to the marketplace but look to do so in late 2009.
·
Pet Club. We are an online pet club portal community that provides humorous and fun content including, blogs, podcasts, video, and online shopping to more than 10,000 pet products. This public portal should generate revenue primarily through group membership $24 per year in addition to the sale of advertising and sponsorship products from Petsmart® as an affiliate.
Background Information on Certain Trends and Strategies
Several key trends in the pet healthcare and Internet industries are influencing the use of pet/animal healthcare information services of the types we provide or are developing. Those trends, and the strategies we have developed in response, are described briefly below:
Use of the Internet by pet owners and veterinarians. The Internet has emerged as a major communications medium and has already fundamentally changed many sectors of the economy, including the marketing and sales of financial services, travel, and entertainment, among others. The Internet is also changing the pet/animal healthcare industry and has transformed how pet/animal owners and veterinarians find and utilize healthcare information. Since pet owners presently assume all of the financial responsibility veterinary costs, which are presently rising, the Internet serves as a valuable resource by providing them with immediate access to searchable and dynamic interactive content to check symptoms, assess risks, understand diseases, find veterinarians and evaluate treatment options. The Internet has also become a primary source of information for veterinarians seeking to improve clinical practice and is growing relative to traditional information sources, such as conferences, meetings and offline journals.
Increased Online Marketing and Education Spending for Pet Healthcare Products. Pharmaceutical, biotechnology and medical device companies spend large amounts each year marketing their products and educating pet owners and veterinarians about them, however, only a small portion of this amount is currently spent on online services. We believe that these companies, which look to be and comprise the majority of our advertisers and sponsors, are becoming increasingly aware of the effectiveness of the Internet relative to traditional media in providing health, clinical and product-related information to pet owners and veterinarians, and this increasing awareness will result in increasing demand for our services.
Changes in the Veterinary Profession with Pet Insurance. Ten years ago, there were two companies selling pet health insurance; at the present time there are more than nine companies. In 2002 less than 0.5% of pet-owning households carried insurance; today 2% of households have insured animals, which is more than double the number of pets from 2002. The American Pet Products Manufactures Association (APPMA) in 2002 reported that the pet insurance industry revenues were $80 million; by 2010 APPMA projects the revenues to reach $500 million which a much larger market for growth given the fact that there are more than 135 million dog and cat owners in the United States.
Basis of Presentation
Ensurapet, Inc. is a Nevada corporation formerly known as Vsurance, Inc., that was incorporated on July 26, 2005. We are a development stage company. We were created to provide beneficial pet and horse resource centers-VetpetMD, Spot the Pet, and Purrfect Pet Club-via the worldwide web in order to sell pet merchandise as an online affiliate of a leading pet retailer, lost and found registration services (Pet ID tags), global positioning system technologies to locate lost pets and horses, and lastly liability, life, and health insurance policies to cover property damage and veterinary expenses from and on pets and horses in the United States, United Kingdom and in other pet and horse concentrated countries. At December 31, 2008, there were 100,000 preferred shares and 40,000,000 common shares; however, after reflecting all material events through the date of this filing inclusive of capitalization restructure, there areas of the date of this filing, 3,100,000 preferred shares and 40,000,000 shares of our common stock of issued and outstanding and there were an estimated 880 shareholders of record of the Company’s common stock. Additionally the Samir Financial debt was reduced and $4,000,000 was taken as repayment in the form of 3,000,000 restricted common shares with a 12-month lock-up; however, this note is in default. These material events have all been reflected in this presentation.
Acquisitions
The Animal-ID acquisition which occurred during 2006 and reported in that periods annual report has been and will again be in litigation. The position of the Company is that the asset being the software was never delivered in its entirety to Ensurapet. It was determined that the sellers did not possess the all of the rights and that a key module was not owned by the sellers. The This acquisition resulted in a case #070C014621B involving one of the sellers, Kathy Ranson seller of Animal-ID in the First Judicial Court in the State of Nevada. The Company plans to contest and seek to have the judgment set-aside in the amount of $210,000.00 based on fraud and failure to deliver assets unencumbered as described in the Purchase Agreement.
Plan of Operations
We commenced operations June 2006 on a small scale as our public portals were under initial development. At that time the VetpetMD portal-www.vetpetmd.com-since the site was made public has had: 274,812 site hits; 46,241 page views; and established 6,605 visits of which 3,316 were unique visitors. The pet insurance site-www.purrfectinsurance.com-since going live has had: 858,418 site hits; 203,134 page views; and established 14,727 visits of which 8,171 were unique visitors. Our main home page-www.vsurance.com now www.ensurapet.com-delivered similar results: 559,125 site hits; 296,747 page views; and established 18,637 visits of which 8,964 were unique visitors. From this visitation we had 493 policyholders with annual written premium in excess of $30,000. As we ended the year our network of associations, employer groups, and insurance brokerage partnerships continued to grow. We acquired more than 90 relationships and had the potential to reach more than 30 million members who are potential pet owners. Company resources to capitalize on these achievements were stifled by the need to raise capital in order to repay the large indebtedness due Samir Financial. Further, with the decline of the United States banking industry and leading insurance giants such as AIG our insurance carrier discontinued offering our pet insurance product on December 19, 2008, due to inadequate reinsurance. The Company is presently look for another insurance carrier who will underwrite our policies but none have been located as of this filing. With that said, all policies have been canceled and the Company is presently only servicing claims.
In 2008 our plan was to: increase traffic to our public portals; expand VetpetMD to include an online pharmacy; grow our pet insurance sales through the introduction of our kennel coverage program, caring vet program, retail in-store offer, and expand our group/association network. This was not achieved due to inadequate capital. In order to build traffic and ramp up policy sales we required further capital; neither JPC Capital Partners nor Wakabayashi Fund LLC were able to raise the $5 million required by the Company. Additionally, with our stock being quoted on the OTCBB we needed to increase investor awareness and deliver returns for shareholders. Thus the Company engaged DME Capital on March 2008 to act as the Company’s public relations “IR Firm.” This contract has since been canceled with the collapse of our stock price and economic markets.
Our continuation as a going concern now depends upon our ability to raise capital solely. The Company must get a resolution to the Samir Financial lawsuit. This is the overall objective of this operating year 2009.
Critical Accounting Policies and Estimates
Our MD&A is based upon our consolidated financial statements and notes to consolidated financial statements, which were prepared in conformity with U.S. generally accepted accounting principles. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events, economic and political factors, and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in preparation of our financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements.
We evaluate our estimates on an ongoing basis, including those related to revenue recognition, the allowance for doubtful accounts, the carrying value of prepaid advertising, policy acquisition costs, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software and website development costs, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies.
We believe the following reflects our critical accounting policies and our more significant judgments and estimates used in the preparation of our consolidated financial statements:
·
Revenue Recognition. Revenue from advertising is recognized as advertisements are delivered. Revenue from sponsorship arrangements, content syndication and distribution arrangements, and licenses of pet healthcare management tools and public portals are recognized along with the revenue from the sale of pet health insurance policies are recognized on an accrual basis accounting.
·
Long-Lived Assets. Long-lived assets consist of property, software, and equipment, goodwill, if any and other intangible assets. Goodwill and other intangible assets could arise from acquisitions, specifically Animal-ID which was in escrow at December 31, 2006; however, this amount which had been recorded as goodwill was written off December 31, 2007, due to the litigation. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets, excluding goodwill, are amortized over their estimated useful lives, which we determined based on the consideration of several factors including the period of time the asset is expected to remain in service. We evaluate the carrying value and remaining useful lives of long-lived assets, excluding goodwill, whenever indicators of impairment are present. We will evaluate the carrying value of goodwill annually, and whenever indicators of impairment are present. We will use a discounted cash flow approach to determine the fair value of goodwill.
·
Deferred Tax Assets. The Company accounts for income taxes under the provisions of Statements of Financial Accounting Standards No. 109 “Accounting for Income Taxes”, which requires a company to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. The Company has no differences between book and tax accounting.
Results of Operations
For the year ending 2008 and 2007 we reported a Net Loss of $(572,756) and $(6,791,049) and Basic Earnings per Share of $(0.01) and $(3,747.82) respectfully.
We are a development stage company because we have not commenced any significant operations so far with the exception of a minimal number (1,412) of membership and certificates of insurance to Purrfect Pet Club members that amounted to more than $100,000 in annualized written premium. With that said, with the loss of our insurance carrier and cancellation of all pet health insurance policies the Company has no incoming revenues until such time as we can secure a new underwriter. The Company is presently servicing claims, which is a pure cost to the Company. The Company’s wholly-owned reinsurance company “Vsurance Re, Inc” was incorporated with the Nevis Office of the Registrar of Companies corporation number C-304999 but it no longer in good standing due to insufficient operating capital. The VetpetMD website is operational but its content has not been updated, thus visitation by online viewers has declined. Spot the Pet lost and found 24/7 ID program has been placed on hold. The Purrfect Pet Club with online pet merchandise sales is a viable entity but we need to renew the canceled membership in the absence of pet insurance. The Purrfect Pet Insurance online websites are operational for information purposes only-pet owners cannot enroll their pets in a plan at this time since we do not have an underwriter. The Company withdrew its Form “A” application with the Idaho Department of Insurance to purchase of the Universal Life Insurance Company charter as a result of insufficient capital to fund statutory reserves.
On January 31, 2008, the Company entered into a revised and new investment banking agreement with The October Fund on a best efforts basis to raise $4.9 million in capital in exchange for 2,200,000 commons shares. The agreement combined deliverables on the part of the company-policy sales-with capital investments as follows: $2 million in exchange for 1,463,414 common shares; $500,000 on or before November 7, 2008 in exchange for 248,780 common shares and annualized gross written premiums in-force of $1 million; $1,000,000 on or before January 5, 2009 in exchange for 243,903 common shares with the addition of 5,000 new pet insurance policies; and $1,400,000 on or before April 5, 2009 in exchange for 243,903 common shares with the addition of 8,000 new pet insurance policies. With the decline of the United States banking, investment banking, and insurance industry with the discontinuance in offering our pet insurance product on December 19, 2008, due to inadequate reinsurance the Company has not received any capital pursuant to the investment banking agreement. The focus of management remains on development of the company and in raising capital. The Company is presently looking for an investment banking firm that will invest capital and for an insurance carrier who will underwrite our policies. As of the date of this filing neither has been located.
Revenues-increased from $47,848 at December 31, 2007 to $61,384 at December 31, 2008, an increase of 28%, primarily as a result of the continued efforts in pet health insurance plan sales. These revenues ended at December 31, 2008, with the loss of the insurance carrier.
Operating Expenses-decreased from $6,277,217 at December 31, 2007 to $572,756 at December 31, 2008, a decrease of 90%, primarily as a result of the amortization of prepaid closing costs and the recent settlement of the note payable to Samir Financial (Footnote 4).
Net Income (Loss)-Net loss decreased from net income of $(6,791,049) at December 31, 2007 to $(572,756) at December 31, 2008, an decrease of 90%, primarily as a result of a slowing of operations, amortization of loan closing costs, and recent settlement of the loan with Samir Financial.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2008 we had total assets of $97,757 of which $1,975 was in cash. As a result of our current lack of capital and loan obligation to the Lender, wherein all company assets including cash is pledged as collateral, we are completely dependent upon further capital to implement our business plan; furthermore, the need for additional capital beyond any immediate offering is predicated because in order to write insurance policies we must maintain adequate surplus with state insurance departments. Regulation requires insurers to limit policy sales to only three times their surplus deposit, for example, having a surplus deposit of $2,000,000 we could write $6,000,000 in premium (policy sales). In the event that we cannot raise capital there is no foreseeable hope that the Company could locate another underwriting insurance carrier. While it is common practice to lose program underwriters and locating other markets for lines of business usually takes only a few months, given the United States economic condition now upon us in 2009combined with the financial peril of the Company makes this task even more challenging if not impossible.
Current Assets
Cash-decreased from $15,757 at December 31, 2007 to $1,975 at December 31, 2008, a decrease of $13,782 primarily as a result of no incoming capital or revenue only the cost of servicing non-incoming producing policyholder claims.
Commission receivable-decreased from $751 at December 31, 2007 to $0 at December 31, 2008, as a result of the termination of the pet health insurance program by the underwriting insurance carrier due to inadequate reinsurance coverage.
Prepaid expenses-remained unchanged from $0 at December 31, 2007 to $0 at December 31, 2008, as a result of the termination of the pet health insurance program by the underwriting insurance carrier due to inadequate reinsurance coverage and of the complete amortization of all prepaid closing cost with the note payable to Samir Financial (Footnote 4).
Total Current Assets-decreased from $16,508 at December 31, 2007 to $1,975 at December 31, 2008, a decrease of $14,533 primarily as a result of the termination of the pet health insurance program by the underwriting insurance carrier due to inadequate reinsurance coverage.
Net Fixed Assets-decreased from $43,957 at December 31, 2007 to $17,693 at December 31, 2008, a decrease of $26,264, primarily as a result of depreciation and no new fixed asset purchases.
Other Assets-decreased from $252,790 at December 31, 2007 to $78,089 at December 31, 2008, a increase of $174,701, primarily as a result of amortization, write-off of the Animal-ID acquisition, no new asset purchases, and write down of the VetpetMD database.
Liabilities
Total Current Liabilities-increased from $3,005,831 at December 31, 2007 to $3,187,704 at December 31, 2008, an increase of $181,873 primarily as a result of debt financing to maintain operations. Further, the Company has reclassified certain liabilities and views them as contingent ices.
The Company anticipates that its cash requirements will continue to increase as it continues to expend substantial resources to build its infrastructure, develop its business plan and establish its sales and marketing network operations, customer support and administrative organizations. The Company available cash resources are scarce; more importantly having no incoming cash flow from operations combined with the inability so far of the engagements with investment banking firms to raise capital present a considerable risk that operations can continue. If the Company is unable to raise money in order to resume not just operations but profitable operations it will be unable to continue as a going concern. No assurances can be given that either equity or debt financing will be available.
Recent Accounting Pronouncements
The Company has generated only minimal revenues to date and at the close of 2008 no longer has the ability to sell pet health insurance policies. This factor among others including the delinquent Note payable that was originally due December 14, 2006, subsequently settled for a near term payment in July 2008 which was not made and stock that was issued raises substantial doubt about the Company’s ability to continue as a going concern. Management feels the Company’s continuation as a going concern depends solely upon its ability to obtain additional sources of capital and financing. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
We have no investments since we have not capitalized our reinsurance company yet; however, funds in excess of monthly operating costs are invested in money market accounts with an FDIC Insured Bank. At which time when we capitalize our reinsurance company the primary objective of our investment activities will be to preserve principal and maintain adequate liquidity, while at the same time maximizing the yield we receive from our investment portfolio in accordance with investment regulations set forth by the Department of Insurance. This objective will be accomplished by adherence to our investment policy, which establishes the list of eligible types of securities and credit requirements for each investment.
Item 8.
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ensurapet Inc. and Subsidiaries
The Board of Directors and Stockholders
We have audited the Balance sheet s of Ensurapet, Inc and Subsidiaries as of December 31, 2008 and 2007 and the related statements of operations, stockholders equity and cash flows for each of the two years in the period ended December 31, 2008, and from July 20, 2005 (inception) to December 31, 2008. These statements are responsibility of Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The Company has had difficulty in generating sufficient cash flow to meet its obligations and is dependent on management’s ability to develop profitable operations. These factors, among others may raise substantial doubt about their ability to continue as a going concern.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ensurapet, Inc and Subsidiaries as of December 31, 2008 and 2007, and the related statements of operations, stockholders equity and cash flows for each of the two years in the period ended December 31, 2008 and from July 20, 2005 (inception) to December 31, 2008, in conformity with generally accepted accounting principles.
/s/ Lawrence Scharfman, CPA
Lawrence Scharfman CPA
Boynton Beach, FL
March ,
EnsurApet, Inc. and Subsidiaries (formerly Vsurance, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 2008 and December 31, 2007
See accompanying notes to financial statements
EnsurApet, Inc. and Subsidiaries (formerly Vsurance, Inc. and Subsidiary)
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 2008 and December 31, 2007
See accompanying notes to financial statements
EnsurApet, Inc. and Subsidiaries (formerly Vsurance, Inc. and Subsidiaries)
(A Development Stage Company)
Consolidated Statements of Income
For the Years ending December 31, 2008 and 2007
and From July 20, 2005 (Inception) through December 31, 2008
See accompanying notes to financial statements
EnsurApet, Inc. and Subsidiaries (formerly Vsurance, Inc. and Subsidiaries)
(A Development Stage Company)
Consolidated Statements of Cash Flow
For the Years ending December 31, 2008 and 2007
and From July 20, 2005 (Inception) through December 31, 2008
See accompanying notes to financial statements
See accompanying notes to financial statements
EnsurApet, Inc. and Subsidiaries (formerly Vsurance, Inc. and Subsidiaries)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Vsurance, Inc. and wholly owned Subsidiary, Vsurance Insurance Agency, Inc. (the Company) are development stage companies as defined under Statements of Financial Accounting Standards No. 7. Vsurance, Inc. was incorporated on July 26, 2005, in the State of Nevada. Purfect Pet Insurance Agency, Inc. was incorporated on July 20, 2005, in the State of Ohio. Purfect Pet Insurance Agency changed its name to Vsurance Insurance Agency, Inc., re-domiciled to New Mexico on December 31, 2005, and later re-domiciled to Arkansas on June 13, 2006. Vsurance is a development stage Company. Vsurance intends to provide beneficial pet / horse resource centers-VetpetMD, Spot the Pet, and Purfect Pet Club-via the worldwide web in order to sell pet merchandise as an online affiliate of a leading pet retailer, lost and found registration services (Pet ID tags), global positioning system technologies to locate lost pets and horses, and lastly liability, life, and health insurance policies to cover property damage and veterinary expenses from and on pets and horses in the United States, United Kingdom and in other pet and horse concentrated countries.
On January 17, 2006, the Company formed Purrfect Pet Club, a Michigan corporation. This subsidiary served was placed into service in 2007 and active members were able to purchase the pet health insurance plans offered by the parent company Ensurapet. Members paid a monthly membership fee of $2 and had access to the online portal for humorous pet news, blogging, and online shopping. All revenues passed through to the parent company via an intercompany agreement.
The consolidated financial statements include the accounts of the Vsurance, Inc., Vsurance Insurance Agency and Purrfect Pet Club. All significant inter-company accounts and transactions have been eliminated in consolidation.
The statements reflect the reverse stock splits of July 27, 2007 of 80 to 1 and the January 31, 2008 of 1,000 to 1. The statements also reflect the conversion of the Samir Financial loan on April 9, 2008 into a $2,000,000 loan and 3,000,000 shares of common stock valued at $4,000,000.
Revenue Recognition
Ensurapet uses an accrual basis accounting.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company accounts for income taxes under the provisions of Statements of Financial Accounting Standards No. 109 “Accounting for Income Taxes”, which requires a company to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. The Company has no differences between book and tax accounting.
Property and Equipment
Property and equipment are carried at cost. Maintenance, repairs and renewals are expensed as incurred. Depreciation of property and equipment is provided for over their estimated useful life.
Estimated useful lives
Used Office Equipment
Years
Computer Equipment
Years
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Concentration of Credit Risks
During 2006 and 2007, the Company had deposits in banks in excess of the FDIC insurance limit but it did not in 2008.
NOTE 2 - OTHER NONCURRENT ASSETS
Software
Software represents internal use insurance operating software and development utilities software valued on August 20, 2005, at $22,500. The Company in exchange for 745,000 shares of Preferred Class A stock received for internal use insurance operating software on August 20, 2005, valued at $22,350. The Company in exchange for 5,000 shares of Preferred Class A stock received development utilities software valued at $150. During the six months ended December 31, 2006, the Company spent an additional $660,122 with a third party vender in continued development of input software for use with the initial software. The Company capitalizes costs incurred during the application development stage and amortizes these costs to expense over the software’s useful life. Costs incurred during the preliminary project stage and costs incurred during the post-implementation and operation stage are be expensed as incurred. The Company has begun amortizing these costs. The utilities software valued at $150 useful life is 1 year. The internal insurance operating software has a 2 year life. The straight-lined method is used. Amortization for the year ended December 31, 2008, 2007 and 2006, and since inception was $122,201, $338,220, 219,021 and $560,408 respectively.
Trademarks
Trademarks represent the third party costs in connection with the filing of trademark applications and related research. The Company evaluates, at least annually, for potential impairment, this recorded amount, by means of a cash flow analysis in accordance with SFAS 142.
Vet MD Data Base
Vet MD Data Base represents third party costs incurred in the development of an internet based veterinary medicine reference library. These cost will be amortized over a, to be determined useful life, when placed into service. The Company hopes to have this data base complete and in service by the end of 2007. The Company in 2008 determined the useful life to be 24-months and amortized $52,500 in the period ending December 31, 2008.
Goodwill
On June 2, 2006 the Company entered into an agreement to purchase 100% of the outstanding stock of Animal ID LLC for $415,000. The final agreement for the acquisition was completed on February 2, 2007. The purchase price consists of $20,000 cash, $165,000 in the Company’s common stock and a note for $230, 000. The upon closing the acquired company had no assets and minimal liabilities. The entire purchase price represents Goodwill and will be accounted for in accordance with SFAS 142. At December 31, 2007, management wrote the balance off an impaired.
Insurance Agency Licenses
Insurance Agency Licenses represents 102 admitted and surplus lines insurance licenses assigned to it by a shareholder and a consultant. Due to the difficulty in valuing these licenses the Company has assigned a carrying value of $0.
Prepaid Expenses
Prepaid expenses represent prepaid promotional expenses from a contract entered into in January 2007. The Company issued 1,000,000 shares of its Common stock for services valued at $750,000. The services are to be delivered over a three year period. The prepaid portion of this contract is being amortized over its 36 month life on the straight line basis. The prepaid marketing fees were determined my management to be of no value in the second quarter of 2007. The balance of the prepaid fees at that time was written off.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
Lease hold Improvements were not in service during 2007. The Company abandoned its Little Rock office at June 30, 2007. The balance of the leasehold improvement was written off to Abandonment loss.
Depreciation expense for the years ended December 31, 2008, 2007, 2006, and since inception was $26,264, $95,329, $11,574 and $107,153 respectively.
NOTE 4 - ACCOUNTS PAYABLE IN DISPUTE
The balance represents trade payable arising since inception that the Company is disputing and hope to be able to reduce and satisfy the balance with issues of the Company’s common stock during 2008.
NOTE 5 - NOTES PAYABLE
On April 17, 2006, the Company borrowed $50,000 under a line of credit agreement. The loan is due upon demand, unsecured with interest at bank’s prime plus 2 points. The balance outstanding at September 30, 2007 and December 31, 2006 was $50,784 and $49,173 respectively.
On December 15, 2005, the Company executed a Loan and Security Agreement with Samir Financial, LLC for $4,000,000. This loan is due in full at the end of twelve months. All interest and expenses have been prepaid. The stated interest rate is 30% per annum. The effective interest rate is 129% per annum. Security is all company assets including un-disbursed funds. Closing fees totaling $1,250,000 were paid at closing by the company which netted $1,750,000 in proceeds that will be disbursed in accordance with a draw down schedule ($1,750,000 at closing less closing fees of $1,250,000 at closing: $250,000 on January 31, 2006; $250,000 on February 28, 2006; $250,000 on March 31, 2006 and $300,000 on April 30, 2006 resulted in net cash proceeds to the Company of $1,550,000. The closing fees totaling $1,250,000 together with the prepaid interest of $1,200,000 totaling $2,450,000 were all prepaid at closing thereby netting the Company, from the $4,000,000 loan, the sum of $1, 550, 000. Fees at closing were; $800,000 closing fee which were expensed, $100,000 collateral Management fee, $100,000 audit fees, $200,000 good faith deposit and $50,000 Legal fees and expenses which were all capitalized at closing since they were non-refundable and represents items which apply to the live of the loan. The capitalized amounts totaling $450,000 are being amortized over the twelve month life of the loan using the effective interest rate method. These items were fully amortized at December 31, 2006.
In connection with the above loan the lender has agreed on December 14, 2005 and again on January 31, 2006 to purchase 1,200,000 and 600,000 shares of Preferred A stock for $500,000 and $300,000 reduction of the loan respectively. Under the terms of the agreement the shares have been issued to the lender. In addition the agreement requires the shares to be repurchased by the Company at the lenders cost and returned to the Company if the loan is not repaid when due on December 15, 2006. The loan was not repaid timely and the Company has forfeited its right to compensation for these shares. In December 2006, the lender agreed verbally to extend the loan for an additional six months for a $500,000 extension fee. There is still $300,000 of this fee outstanding at September 30, 2007. This fee is being amortized over the six month extension period. On September 15, 2007, the principal guarantor of this loan did hereby forgive, assume, obligate itself, and indemnify the Company for any and all amounts associated and incurred with this loan above $2,000,000. The Company has not obtained release from the lender for the amounts assumed by the principal guarantor; accordingly it will continue to carry the amount on its books until release is received. On April 9, 2008, the Company entered into an agreement with the lender to exchange $4,000,000 of the debt was exchanged for 3,000,000 shares of the Company’s common stock and A new $2,000,000 note due $1,000,000 due July 9, 2008 and the balance beginning to amortize at the rate of $250,000 per quarter on July 1, 2009. This transaction was recorded as of December 31, 2007. This note is in default.
The balance of the loan at December 31, 2007, as restated, and December 31, 2006, was $2,000,000 and $5,541,667 respectively.
On December 5, 2006 the Company borrowed $25,000 from a shareholder. The note is due March 1, 2007 and is at 30% interest. The loan was not repaid on its due date. The balance outstanding on the loan at December 31, 2007 and 2006 was $38,775 and $25,000 respectively. This note is in default.
On June 29, 2007 the Company borrowed $55,000 from a shareholder. The note was reduced in exchange for 6,000 class C preferred stock by $30,000; therefore, the loan amount is $25,000. The note is due June 29, 2010 with monthly interest payments as follows: first year $312.50; second year $250 and third year $250. This note is in default.
In connection with the Animal ID purchase the Company issued a $230,000 note payable to one of the former owners of Animal ID. The note calls for quarterly payments totaling $55,000 the first year, $70,000 the second year and $75,000 the third year. The note bears interest at 1.5% per month if in default. The lender received a default judgment on this loan in 2007 for $225, 100. The balance of the loan at December 31, 2007 and 2006, was $225,100 and $205,000 respectively. This note is in default.
On September 16, 2008 the Company borrowed $12,500 from Wicklow Properties Limited. The note is due March 16, 2009 in the amount of $13,750 at an interest rate of 20%. The loan was renewed until May 16, 2009 following the interest payment. Loan is secured by 5,000,000 common shares.
On October 8, 2008, the Company borrowed $26,500 from Philip Aitken. The note is due March 7, 2009 in the amount of $29,150 at an interest rate of 12% following closing costs of $1,500 legal and $1,060 due diligence. The loan is in default; however the Company hopes to renewed it until June 7, 2009 in the amount of $29,500 with the loan being loan secured by 5,000,000 common shares; however, there is no guarantee that this will occur.
NOTE 6 - INCOME TAXES
The Company has a net operating loss of approximately $10,000,000 available for carry-forward of up to twenty (20) years for federal purposes. Pursuant to Internal Revenue Code Section 382 and the regulations there under, the amounts of utilizable carryover may be limited as a result of ownership changes or even eliminated if business continuity requirements are not met. There were no temporary differences allowing no deferred tax liabilities to arise.
NOTE 7 - EQUITY
Earnings per share
The Company has adopted the provisions of SFAS 128 in the computation of earnings whereby the convertible Preferred Stock was deemed converted to common stock on date of issue.
Common Stock
The Company has 500,000,000, 500,000,000 and 250,000,000 shares of common stock authorized with 40,000,000, 3,112,750 and 3,692,380 share outstanding at December 31, 2008, 2007 and 2006 respectively. The common shares of the Company were reverse split 1 for 80 shares on July 11, 2007. The shares were further reversed split on January 31, 2008 1,000 to 1. Share values in these statements and footnotes indicate if they are per or post split shares.
Preferred Stock Class A
The Company has 8,000,000 shares of $0.001 par value authorized, with 0 and 6,015,150 shares outstanding at December 31, 2007 and December 31, 2006 respectively. The shares have no dividend rights and convert at the holder’s or the Company’s option to the Company’s Common Stock at the rate of 5 to 1. The shares vote with the common share holders at the same rate as the conversion rights. The shares have no liquation value, no liquidation rights, no dividend rights and no redemption rights. It is management’s intent to convert all shares of Preferred A to common. In connection with the note payable the lender has agreed on December 14, 2005 and again on January 31, 2006 to purchase 1,200,000 and 600,000 shares of Preferred A stock for a $500,000 and $300,000 reduction of the loan respectively. Under the terms of the agreement the shares have been issued to the lender. In addition the agreement requires the shares to be repurchased by the Company at the lenders cost and returned to the Company if the loan is not repaid when due on December 15, 2006. The loan was not repaid timely and the Company has forfeited it right to compensation for these shares. There were 0 and 6,015,150 shares outstanding at December 31, 2007 and 2006 respectively.
Preferred Stock Class B
The Company has 2,000,000 shares of $0.001 par value authorized, with 0 and 975,500 shares outstanding at both December 31, 2007 and December 31, 2006. The shares have no dividend rights and convert at the holder’s or the Company’s option to the Company’s Common Stock at the rate of 2 to 1. The shares vote with the common share holders at the same rate as the conversion rights. The shares have no liquation value, no liquidation rights, no dividend rights and no redemption rights. There were 0 and 975,500 shares outstanding at December 31, 2007 and 2006 respectively.
Preferred Stock Class C
The Company has 0 and 0 shares outstanding at December 31, 2007 or December 31, 2006. The shares have no dividend rights and convert at the holder’s or the Company’s discretion to the Company’s Common Stock at the rate of 25 to 1. The shares vote with the common share holders at the same rate as the conversion rights. The shares have no liquation value, no liquidation rights, no dividend rights and no redemption rights. There were no shares outstanding at December 31, 2007 and 2006.
Preferred Stock Class D
On July 11, 2007, the shareholders and Board of Directors created a Preferred Stock Class D. This class of preferred stock has non-dilutive voting rights, a par value of $0.001 per share, and 100,000 shares authorized. There were 100,000 and 0 shares outstanding at December 31, 2007 and 2006 respectively.
Preferred Stock Class E
In the fourth quarter of 2007 the Board of Directors created a Preferred Stock Class E. The shares have no dividend rights and convert at the holder’s or Company’s discretion to the Company’s common stock at the rate of 2.2 shares of preferred to one share of common. The shares were converted in the first quarter of 2008.
NOTE 8 - RELATED PARTY TRANSACTIONS
On December 5, 2006 the Company borrowed $25,000 from a shareholder. The note was due March 1, 2007 and is at 30% interest. The loan was not repaid on its due date. The balance of the loan at December 31, 2007 and 2006 was $38,775 and $25,000.
The Company also owed another shareholder and officer $334,737 for funds advanced.
The Company has leased over 4,000 square feet of office space from its President. The lease was abandoned on June 30, 2007.
NOTE 9 - OPERATING SEGMENTS
The Company organizes its business into three reportable segments: the parent company (Ensurapet, Inc., f/k/a Vsurance, Inc.), the insurance agency (Vsurance Insurance Agency, Inc.) and the pet club (Purrfect Pet Club); however, all assets and expenditures are reported through the parent company (Vsurance) through an intercompany agreement. Therefore, there are no supplemental schedules on the subsidiary that would breakdown assets, liabilities and operations for each of these segments.
NOTE 10 - ABANDONMENT LOSS
The Company decided on June 30, 2007, to abandon its Little Rock offices. A loss of $146,680 was recognized as the estimated cost of this decision. Also, in the second quarter of 2007 management determined that the prepaid marketing fees capitalized in the first quarter of 2007 were of no value. The $750,000 of fees were written off in the first half of 2007. The Company on December 31, 2007 wrote off the balance of Goodwill from Animal ID as fully impaired.
NOTE 11 - GOING CONCERN
The Company has not generated any revenues or profits to date. This factor among others including the pass due payables due and the Company’s inability to pay the secured loan due Samir Financial LLC raises substantial doubt about the Company’s ability to continue as a going concern. Management feels the Company’s continuation as a going concern depends upon its ability to obtain additional sources of capital and financing. Management feels it can raise the necessary working capital in 2009 to provide the necessary working capital, repay the delinquent notes payable. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE 12 - SUBSEQUENT EVENTS
On January 10, 2008, the Board of Directors awarded 60,000,000 shares of common stock to the CEO of the Company for services rendered during the most recent financial crisis. The shares were valued at the market value of the Company’s stock on the date of issue. Also, on January 15, 2008, the Board of Directors awarded 260,000 shares of Preferred stock an entity controlled by the CEO of the Company. These financial statements reflect this event.
On January 31, 2008 the Board of Directors affected a 1000 to 1 reverse split of common stock. These financial statements reflect this event.
On April 9, 2008, the Company entered into an agreement with the lender to exchange $4,000,000 of the debt was exchanged for 3,000,000 shares of the Company’s common stock and a new $2,000,000 note due $1,000,000 due July 9, 2008 and the balance beginning to amortize at the rate of $250,000 per quarter on July 1, 2009. These statements reflect this event.
On January 31, 2008, the Company entered into a subscription receivable agreement for the sale of $4,900,000 of the Company’s common stock. This event has been reflected in these statements.
On February 1, 2008 all shares of all classes of Preferred stock were converted to 12,710,000 shares of Common stock. This event has been reflected in these statements.
On December 15, 2008, the company established a class “G” preferred stock that converts 30:1 that is, for every 1 share of preferred class “G” equals 30 common shares. The articles of incorporation where not amended until March 2009. The Company raised $50,000 through a Reg D 506 offering wherein 5,000,000 preferred class “G” shares where issued. This event has not been reflected in these statements.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Our Chief Executive Officer and Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company’s operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the criteria set forth by the Board of Directors. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2008, our internal control over financial reporting was effective.
(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management is required to base its assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework, such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in Internal Control-Integrated Framework, is known as the COSO Report. Our Management has chosen the COSO framework on which to base its assessment; however, in 2007 this changed due to insufficient capital.
The Company’s chief executive officer-W. Russell Smith-assumed the responsibilities and activities of the chief financial officer (CFO). Mr. Smith has the knowledge and skills necessary to prepare financial statements since he possess a MBA with a five year accountancy degree. Mr. Smith as CEO performed the financial statement preparation duties of a CFO , this included he accountability of the insurance operating accounts but the actual insurance billings and claims adjudication were performed by two independent individuals, i.e., Claims Director for policyholder claim payments and Underwriting Director for policyholder insurance premium billings. Despite these changes, new procedures and evaluation, our management concluded that even with these changes in the Internal Controls and Procedures that our internal control over financial reporting was effective as of December 31, 2008.
This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report on Form 10-K.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
Effective February 8, 2008, the Board of Directors of Ensurapet, Inc. (the “Company”) accepted the resignation of J. Matt Lile, III from his position as President of the Company. To the knowledge of the Board of Directors and executive officers of the Company, Mr. Lile had no disagreement with the Company on any matter related to the Company’s operations, policies or practices.
The settlement and shareholder lockup agreements executed on April 9, 2008, with Samir Financial LLC were filed in an 8-K with the SEC on April 17, 2008.
Accounts payable in dispute ($1,201,880) are as follows: Animal-ID acquisition note $225,100; NicoTech Animal-ID software undelivered $12,805.95; Friday Eldridge Form A legal services provided by former director Mike Pickens $57,464.24; early stage investor held convertible security $500,000; and early development stage inside shareholding service providers-Coactive Systems (MIS) $316,509.87 and Spaner Marketing (Advertising) $90,000,
Advances to shareholders ($334,737), are as follows: early development stage inside shareholding service provider Coactive System (MIS) $165,000 and early development stage inside shareholding service provider Spaner Marketing (Advertising) $169,736.77.
The forward looking plan of management, of which there is no guarantee or assurance of achievement, is to raise $5,000,000 in capital for its pet health insurance operations and $3 million in capital to meet the surplus requirement by Insurance Department. Inclusive of these capital raises, stock issued in exchange for services and retirement of debt there will be 30,000,000 common shares issued and outstanding on a fully diluted basis. There will be only one class of preferred stock, series D of which 100,000 shall be issued and outstanding.
Effective January 21, 2009, the Board of Directors of Ensurapet, Inc., (the “Company”) accepted the resignations of Malcolm Pollard, Ann Perniciaro, and Allen Hayes for their position of directors. To the knowledge of the Board of Directors and executive offices of the Company neither director had any disagreement with the Company on any matter related to the Company’s operations, policies, or practices. Further a spinout has been proposed of the club.
PART III
Item 10.
Item 10.
Directors, Executive Officers, Promoters and Control Persons of the Registrant; Compliance with Section 16(A) of the Exchange Act
The chart below sets for the composition of our Board of Directors, Advisors, and its three committees and IT Advisory Council as of the date of this filing. Directors are elected for a period of one year and thereafter serve until the stockholders duly elect their successor. Officers and other employees serve at the will of the Board of Directors. All of our directors serve until their successors are elected and qualified by our shareholders, or until their earlier death, retirement, resignation or removal.
A = Advisor B = Board C = Committee chair M = Committee member
The following is a brief description of the business experience of our executive officers, directors and significant employees:
Business Experience of Officers and the Director
W. Russell Smith, III, CEO, CFO, Chairman and Secretary since 07/27/05 amended 01/21/09, age 45:
A licensed property and casualty insurance broker and reinsurance manager with over 13 years of experience in the pet insurance industry. During this tenure in the business of insuring household pets (1993 - 2007), Mr. Smith was instrumental in compiling the actuarial cost necessary in establishing premiums for the pet insurance policies and claim reporting guidelines to monitor loss experience. Accomplishments include the establishment of a pet reinsurance company, development of the computer operating system for pet insurance companies, cumulative sales growth of annual written premium of pet health policies on numerous programs to more than $20 million. Further, Mr. Smith has experience managing public companies. Mr. Smith is an experienced financial executive with over 13-years in the financial services industry and is a Summa Cum Laude graduate from Florida Metropolitan University with an MBA in business/accountancy. He also holds a BA in Business/Finance from Eckerd College.
Malcolm L. Pollard, JD, CPA, Director, Secretary and Treasurer since 8/31/05 through 01/21/09, age 67:
·
to present: Self employed attorney and certified public accountant, Erie Pennsylvania. Engaged in a varied practice involving tax, contracts, domestic relations, bankruptcy, startup ventures, quality and peer reviews, and generalized accounting practices.
·
to 1990: Served as the Divisional Controller and Administrative Manager for Great Lakes Evergreen Division of American Nursery Products, Madison, Ohio preparing financial reports and handling administrative matters for division of major agribusiness.
Ann Perniciaro, Director since 8/31/05 through 01/21/09, age 44:
·
to present: Self employed fashion designer, Birmingham Michigan. Provide fashion, style, and accessorizing advice to customers including the development of privately designed clothing products. Customer clientele includes not only celebrities, dignitaries, corporate executives, but retail labels such as Gucci, Ralph Lauren, and Max Mara.
Allen A. Hayes, MD, PhD, Director since 8/31/05 through 01/21/09, age 63:
·
to 2000: Under Harold Lasker MD on a part-time basis at South Oaks Hospital provided medical services for physically challenged.
·
to 2000: Independent medical practitioner in sports medicine at Rutgers University.
Item 11.
Item 11.
Executive Compensation
The following table sets forth our director and executive officers stock compensation package at the close of December 31, 2008, annual compensation, and those participating in the health benefits plan.
Officer and Director Summary Table (includes all classes of stock held)
SUMMARY COMPENSATION TABLE
OPTION EXERCISES AND STOCK VESTED TABLE
PENSION BENEFITS TABLE
NONQUALIFIED DEFERRED COMPENSATION TABLE
DIRECTOR COMPENSATION TABLE
OTHER COMPENSATION TABLE
PERQUISITES TABLE
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables are as follows: the first table shows the amount of our common stock beneficially owned by all of our directors and executive officers as a group as of December 31, 2008. Unless otherwise indicated, beneficial ownership is direct and the person indicated has sole voting and investment power.
*
Less than 1%.
Item 13.
Item 13.
Certain Relationships and Related Transactions
On December 5, 2006 the Company borrowed $25,000 from a shareholder. The note is due March 1, 2007 and is at 30% interest. The loan was not repaid on its due date. The balance of the loan at December 31, 2006 and 2005 was $25,000 and $0 respectively.
The Company has leased over 4,000 square feet of office space from its President. The lease was to began in 2007 and provides a lease rate at market value. This transaction was entered into for the benefit of those services being rendered-establishment of the agent network to PEOs, Associations, Unions, and Employers-and for extending office space to the company at a discounted rate for a minimum of five years-set forth in the schedule below-to launch operations of Ensurapet in exchange for 500,000 shares of Class A preferred stock. Rental space located in downtown little rock in a historic building on the national register of some 4,000 plus square feet with adjacent accommodations for management. This was later abandoned (see footnote 10).
Stock price of shares based on the registered offering $1.00; however, given the default status of the Company on the Samir loan and the need to forge ahead with operations if it is to raise capital the following price per share has been established for these restricted shares. With only 4,000 shares sold at the offering price of $1.00 all other common shares issued were promissory notes that converted that resulted in discounts to as little as $0.31 per share. Therefore, as a result of further financial deterioration the value of the shares is $80,000 or $0.16 per share. This property was location was terminated and the accrued balance of leasehold improvements was written off. To abandon these Little Rock offices a loss of $146,680 was recognized as the estimated cost of this decision.
Item 14.
Item 14.
Principal Accounting Fees and Services
Lawrence Scharfman CPA audited the Company’s financial statements for the period for December 31, 2006. Fees related to services performed by Lawrence Scharfman CPA were as follows:
(1)
Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements.
(2)
Tax fees principally included tax advice, tax planning and tax return preparation.
(3)
Other fees related to registration statement reviews and comments.
Lawrence Scharfman CPA audited the Company’s financial statements for the period for December 31, 2007 since December 31, 2006. Fees related to services performed by Lawrence Scharfman CPA were as follows:
(1)
Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements.
(2)
Tax fees principally included tax advice, tax planning and tax return preparation.
(3)
Other fees related to registration statement reviews and comments.
Lawrence Scharfman CPA audited the Company’s financial statements for the period for December 31, 2008 since December 31, 2006. Fees related to services performed by Lawrence Scharfman CPA were as follows:
(1)
Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements.
(2)
Tax fees principally included tax advice, tax planning and tax return preparation.
(3)
Other fees related to registration statement reviews and comments.
The Board of Directors has reviewed and discussed with the Company’s management and independent registered public accounting firm the audited consolidated financial statements of the Company contained in the Company’s Annual Report on Form 10-K for the Company’s 2008 fiscal year. The Board has also discussed with the auditors the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements.
The Board has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with its auditors its independence from the Company. The Board has considered whether the provision of services other than audit services is compatible with maintaining auditor independence.
Based on the review and discussions referred to above, the Board approved the inclusion of the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for its 2008 fiscal year for filing with the SEC.
The Board pre-approved all fees described above.
Item 15.
Item 15.
Exhibits
(1)
Previously filed as an Exhibit to Vsurance’s registration statement on Form SB-2 filed with the Securities and Exchange Commission on February 24, 2006.
(2)
Previously filed as Exhibit 10.2 Vsurance’s registration statement on Form SB-2/A filed with the Securities and Exchange Commission on May 30, 2006.
(3)
Previously filed as an Exhibit 99.1 Vsurance’s registration statement on Form SB-2/A filed with the Securities and Exchange Commission on June 23, 2006.
(4)
Previously filed as an Exhibit to Vsurance’s registration statement on Form SB-2/A filed with the Securities and Exchange Commission on September 22, 2006.
(5)
Previously filed as an Exhibit to Vsurance’s registration statement on Form SB-2/A filed with the Securities and Exchange Commission on October 13, 2006.
(6)
Filed herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ W. RUSSELL SMITH, III
April 15, 2009
W. Russell Smith, III
CEO, Executive Vice President and
Chief Financial Officer
ENSURAPET, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS