Message #15 From:
NewsBot Date: August 14, 2006 01:05:00 PM
HTVL News Hartville Group Announces Financial Results for the Second Quarter of 2006; 33% Higher Revenues; 44% Lower Cash Losses
CANTON, Ohio--(BUSINESS WIRE)--Aug. 14, 2006--Hartville Group, Inc. (OTCBB:HTVL) today announced financial results for the Company's second quarter of 2006.
Gross revenue for the three months ending June 30, 2006 of $1.4 million was $339,000 (33%) higher than the $1.0 million of gross revenue for the comparative period of 2005. This included $551,000 in reinsurance and commission income for the three months ending June 30, 2006, a 121% increase from the $250,000 reported in the comparative period of 2005. The net loss for the three months ending June 30, 2006 was $2.7 million, or $(0.14) per fully diluted share based on 19.6 million shares compared to a net loss of $2.3 million, or $(0.16) per fully diluted share based on 14.5 million shares for the comparative period of 2005. Adjusting the net losses for non-cash expenses of $1.7 million and $670,000, the cash loss was $915,000 and $1.6 million for the three months ending June 30, 2006 and 2005, respectively, which reflects a $731,000 (44%) improvement.
Gross revenue for the six months ending June 30, 2006 of $2.7 million was $585,000 (28%) higher than the $2.1 million of gross revenue for the comparative period of 2005. This included $1.1 million in reinsurance and commission income for the six months ending June 30, 2006, a 182% increase from the $382,000 reported in the comparative period of 2005. The net loss for the six months ending June 30, 2006 was $5.1 million, or $(0.28) per fully diluted share based on 18.6 million shares compared to a net loss of $4.4 million, or $(0.30) per fully diluted share based on 14.6 million shares for the comparative period of 2005. Adjusting the net losses for non-cash expenses of $3.2 million and $1.3 million, the cash loss was $2.0 million and $3.1 million for the six months ending June 30, 2006 and 2005, respectively, which reflects a $1.1 million (36%) improvement.
The Company also recently announced the successful completion of a financial restructuring which substantially reduced the Company's debt and provided significant working capital to fund further operations. Effective August 1, 2006, the Company entered into a Conversion Agreement and Release with the holders of the two year convertible debentures due November 2006. In redeeming this debt, the Company issued 35,169,377 shares of common stock and paid $1,373,303. As a result of this transaction, the Company now has approximately 55 million shares outstanding. As part of the financial restructuring, the Company issued $5,063,291 of Original Issue Discount Secured Convertible Debentures due July 2009 in order to provide additional working capital and to facilitate the retirement of the $12 million of convertible debt.
"The wide-ranging operational improvements we have attained over the past 18 months are illustrated by our positive increase in commissions earned by Petsmarketing and the Reinsurance profit earned by Hartville Re," commented Dennis Rushovich, the Company's chief executive officer. "We have experienced year-over-year improvements compared to last year's results, as well as sequential improvements from our already improved first quarter of this year. Also, both the launch of key marketing initiatives, and the positive operational progress, were essential to the completion of our recently-announced successful financial restructuring. As well as substantially reducing the Company's debt burden, those restructuring transactions provided significant working capital to fund further operations."
BUSINESS SEGMENT RESULTS
Reinsurance Company
Three Month Results
Total premiums were $1.8 million of which $913,000 was retained by Hartville Re for the three months ending June 30, 2006, compared to the three months ending June 30, 2005, where total premiums were $1.6 million of which Hartville Re retained $786,000. The premium amount retained increased by $126,000 (16%) which was due primarily to the increase in total premiums. Total premiums for the three months ending June 30, 2006 are more than the comparative period of 2005 due to an increase of 3,190 (14%) of pets insured and also an increase in the average premium per pet.
Losses for the three months ending June 30, 2006 of $511,000 were $20,000 (3.8%) lower than losses of $531,000 for the comparative period of 2005. Ceded costs for the three months ending June 30, 2006 of $306,000 was $58,000 (23%) higher than ceded costs of $248,000 for the comparative period of 2005. The higher ceded cost was a result of the higher retained premium and the 2.5% premium fee paid to the Company's agency for handling claims.
Six Month Results
Total premiums were $3.7 million of which $1.8 million was retained by Hartville Re for the six months ending June 30, 2006, compared to the six months ending June 30, 2005, where total premiums were $3.1 million of which Hartville Re retained $1.6 million. The premium amount retained increased by $209,000 (13%) which was due primarily to the increase in total premiums. Total premiums for the six months ending June 30, 2006 are more than the comparative period of 2005 due to an increase of 3,190 (14%) of pets insured and also an increase in the average premium per pet.
Losses for the six months ending June 30, 2006 of $1.0 million were $210,000 (17%) lower than losses of $1.2 million for the comparative period of 2005. The lower losses for the six months ending June 30, 2006 were mainly from increased reserve for losses in 2005 when Hartville Re went from 0% reinsurance on new and renewal business at December 31, 2004 to 50% reinsurance on all business starting February 1, 2005. Ceded costs for the six months ending June 30, 2006 of $598,000 was $100,000 (20%) higher than ceded costs of $498,000 for the comparative period of 2005. The higher ceded cost was a result of the higher retained premium and the 2.5% premium fee paid to the Company's agency for handling claims.
Insurance Agency and Holding Company
Three Month Results
Commission income earned by Petsmarketing of $456,000 for the three months ending June 30, 2006 was $213,000 (88%) higher than commission income earned of $243,000 for the comparative period of 2005. This increase in commission income was due to the increase in total premiums, the increase of 2.5% in the agency's commission rate for handling claims, the implementation of the $10 annual policy holder fee, and the 5% premium tax passed through to customers (which was previously paid by Petsmarketing).
General and administrative (G&A) expenses of $2.0 for the three months ending June 30, 2006 were $151,000 (7.1%) lower than general and administrative expenses of $2.1 million for the comparative period of 2005. Adjusting G&A expenses for non-cash items of $489,000 and $322,000, the cash G&A expenses were $1.5 million and $1.8 million for the three months ending June 30, 2006 and 2005, respectively, which reflect a $318,000 (18%) decrease. Included in non-cash expenses were options issued to employees, depreciation, amortization and shares issued to an employee. Non-cash expenses increased $167,000 mainly due to the options issued to employees in February 2006 and shares issued to an employee, both accounted for under the new FAS No. 123(R), "Share-Based Payments," which we adopted effective January 1, 2006.
Included in G&A expenses were marketing expenses of $484,000 and $404,000 for the three months ending June 30, 2006 and 2005, respectively. Adjusting the marketing expenses for capitalization of deferred acquisition costs of $0 and $200,000, the cash marketing expenses were $484,000 and $604,000 for the three months ending June 30, 2006 and 2005, respectively, which reflects a $120,000 (20%) decrease. In the first quarter of 2005, the grocery store coupon program costs were capitalized as deferred policy acquisition costs.
Adjusting G&A expenses for non-cash items and after removing marketing, pure cash G&A expenses were $998,000 and $1.4 million which reflects a $398,000 (29%) decrease for the three months ending June 30, 2006 and 2005, respectively.
Six Month Results
Commission income earned by Petsmarketing of $875,000 for the six months ending June 30, 2006 was $376,000 (75%) higher than commission income earned of $499,000 for the comparative period of 2005. This increase in commission income was due to the increase in total premiums, increase of 2.5% in the agency's commission rate for handling claims, the implementation of the $10 annual policy holder fee, and the 5% premium tax passed through to customers, which was previously paid by Petsmarketing.
General and administrative expenses of $4.3 million for the six months ending June 30, 2006 were $401,000 (10%) higher than general and administrative expenses of $3.9 million for the comparative period of 2005. Adjusting G&A expenses for non-cash items of $1.2 million and $629,000, the cash G&A expenses were $3.1 million and $3.3 million for the six months ending June 30, 2006 and 2005, respectively, which reflects an $188,000 (5.8%) decrease. Included in non-cash expenses were options issued to employees, depreciation, amortization and shares issued to an employee. Non-cash expenses increased $590,000 mostly due to the options issued to employees in February 2006 and shares issued to an employee, both accounted for under the new FAS No. 123(R), "Share-Based Payments," which we adopted effective January 1, 2006.
Included in G&A expenses were marketing expenses of $1.0 million and $744,000 for the six months ending June 30, 2006 and 2005, respectively. Adjusting the marketing expenses for capitalization of deferred acquisition costs of $0 and $600,000, the cash marketing expenses were $1.0 million and $1.3 million for the six months ending June 30, 2006 and 2005, respectively, which reflects a $318,000 (24%) decrease. In the first and second quarters of 2005, the grocery store coupon program costs were capitalized as deferred policy acquisition costs.
Adjusting G&A expenses for non-cash items and after removing marketing, pure cash G&A expenses were $2.0 million and $2.5 million which reflects a $471,000 (19%) decrease for the six months ending June 30, 2006 and 2005, respectively.
About Hartville Group, Inc.
Hartville Group, Inc. (Hartville Group) is a holding company whose wholly owned subsidiaries include Hartville Re Ltd. (Hartville), Petsmarketing Insurance.com Agency, Inc. (the Agency) and Wag N' Pet Club, Inc. Hartville is a reinsurance company that is registered in the Cayman Islands, British West Indies. Hartville was formed to reinsure pet health insurance that is being marketed by the Agency. The Agency is primarily a marketing/administration company concentrating on the sale of its proprietary health insurance plans for domestic pets. Its business plan calls for introducing its product effectively and efficiently through a variety of distribution systems. The Agency accepts applications and underwrites certificates electronically.
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in the Company's Form 10-K, Form 8-K and Form 10-Q reports. The Company undertakes no obligation to update or revise any forward-looking statement.
Tables Follow
Hartville Group, Inc. and Subsidiaries
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2006 and 2005
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Premiums $ 912,664 $ 786,277 $ 1,829,639 $ 1,620,470
Losses (511,160) (531,233) (1,030,578) (1,240,171)
Ceded costs (305,690) (247,750) (598,052) (497,581)
------------ ------------ ------------ ------------
Reinsurance income
(loss) 95,814 7,294 201,009 (117,282)
Commission income 455,619 242,521 875,276 499,124
General and
administrative
expenses (1,971,151) (2,122,439) (4,281,111) (3,879,995)
------------ ------------ ------------ ------------
Operating loss (1,419,718) (1,872,624) (3,204,826) (3,498,153)
------------ ------------ ------------ ------------
Other income 15,366 25,078 34,831 65,358
Other expenses (1,255,502) (468,764) (1,969,837) (977,418)
------------ ------------ ------------ ------------
Loss before taxes (2,659,854) (2,316,310) (5,139,832) (4,410,213)
Provision for
taxes - - - -
------------ ------------ ------------ ------------
Net loss $(2,659,854) $(2,316,310) $(5,139,832) $(4,410,213)
============ ============ ============ ============
Net loss per
common share $ (0.14) $ (0.16) $ (0.28) $ (0.30)
Weighted average
common shares
outstanding 19,630,508 14,546,340 18,618,007 14,561,235
Hartville Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2006 (Unaudited) and December 31, 2005
June 30, December 31,
2006 2005
(Unaudited)
------------- -------------
ASSETS
Cash and cash equivalents $ 2,041,280 $ 4,125,579
Commission receivable 26,000 -
Other receivables 138,996 205,278
Prepaid expenses 1,106,848 2,371,861
Property and equipment - net 1,225,114 1,640,883
Deferred policy acquisition costs - net 825,130 1,004,051
Licensing fees, less accumulated
amortization of $52,512 and $52,060 1,977 2,429
Other assets 68,067 67,570
------------- -------------
Total Assets $ 5,433,412 $ 9,417,651
============= =============
June 30, December 31,
2006 2005
(Unaudited)
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 394,079 $ 556,300
Reserve for claims 352,525 377,573
Premium deposits 1,704,446 1,691,743
Unearned commissions 14,063 20,245
Debt (June 30, 2006 was offset by
discount of $10,157,326 on convertible
securities issued in 2004 and $98,289 on
convertible securities issued on
September 30, 2005; December 31, 2005
was offset by discount of $10,992,210 on
convertible securities issued in 2004
and $108,227 on convertible securities
issued on September 30, 2005) 2,109,925 1,296,570
------------- -------------
Total Liabilities 4,575,038 3,942,431
Stockholders' Equity
Common stock, 200,000,000 and 50,000,000
shares authorized at June 30, 2006 and
December 31, 2005, respectively: $.001
par value; 19,724,508 issued and
19,630,508 outstanding at June 30, 2006
and 14,983,703 issued and 14,889,703
outstanding at December 31, 2005 19,725 14,984
Additional paid in capital 23,329,978 22,811,733
Retained deficit (22,420,829) (17,280,997)
Less: treasury stock at cost, 94,000
shares (70,500) (70,500)
------------- -------------
858,374 5,475,220
------------- -------------
Total Liabilities and Stockholders'
Equity $ 5,433,412 $ 9,417,651
============= =============
