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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB/A
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 333-110630
 HARTVILLE GROUP, INC.
 (Name of Small Business Issuer in its Charter)
 
 NEVADA
(State or other jurisdiction of
incorporation or organization)
    
    94-3360099
(I.R.S. Employer
Identification No.)3840 GREENTREE AVENUE SW
CANTON OHIO
(Address of principal executive offices)
    
    44706
(Zip Code)
 Issuers Telephone Number: (330) 484-8080
 Securities registered under Section 12(b) of the Exchange Act:
 (Title of each class)
NONE
    
    (Name of each exchange on which registered)
N/A
 Securities registered under Section 12(g) of the Exchange Act:
 COMMON STOCK, PAR VALUE $.001
(Title of each class)
 
 o þ
 o
 o þ
     o þ




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PART IItem 1. DESCRIPTION OF BUSINESSItem 2. DESCRIPTION OF PROPERTYItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSItem 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 8a CONTROLS AND PROCEDURESPART IIIItem 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACTItem 10. EXECUTIVE COMPENSATIONItem 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTItem 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 13. EXHIBITS AND REPORTS ON FORM 8-KItem 14. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESSIGNATURESEXHIBIT INDEXEX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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
    
    Changes in existing product liability, tort or warranty laws or the
introduction of new laws, regulations or policies that could affect
our business practices: these laws, regulations or policies could
impact our industry as a whole, or could impact only those portions
in which we are currently active.
    
    Changes in economic conditions, including changes in interest
rates, financial market performance and our industry: these types
of changes can impact the economy in general, resulting in a
downward trend that impacts not only our business, but all
companies with which we compete; or, the changes can impact only
those parts of the economy upon which we rely in a unique fashion,
including, insurance related businesses.
    
    Changes in government regulations: these regulations could have a
negative impact on our earnings; for example, laws relating to
insurance regulation that could increase our costs of operations.
    
    Changes in relationships with major customers and/or suppliers: an
adverse change in our relationships with major customers and/or
suppliers would have a negative impact on our earnings and
financial position.
    
    Armed conflicts and other military actions: the considerable
political and economic uncertainties resulting from these events,
could adversely affect our order intake and sales, particularly in
the insurance market.
    
    Factors that we have discussed in previous public reports and other
documents filed with the Securities and Exchange Commission.
  
 Item 1. DESCRIPTION OF BUSINESS
 The Company




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Basic
    
    $1,500/$8,000Value
    
    $3,500/$11,000Choice
    
    $5,000/$13,000Best
    
    $2,500/$13,000




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www.petshealthplan.com
  History




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Government Regulation and Licenses
    The Competition




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Employees
  Recent Events
 fatum
   
 Item 2. Description of Property




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Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to Vote of Security Holders




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Part II
 
 Item 5. Market for Common Equity and Related Stockholder Matters
  Quarter Ended
    
    High
    
    LowMarch 31, 2003
    
    $
    0.71
    
    
    $
    0.63June 30, 2003
    
    $
    1.01
    
    
    $
    0.95September 30, 2003
    
    $
    1.65
    
    
    $
    1.48December 31, 2003
    
    $
    5.18
    
    
    $
    5.25March 31, 2004
    
    $
    4.35
    
    
    $
    4.26June 30, 2004
    
    $
    6.60
    
    
    $
    6.50September 30, 2004
    
    $
    3.55
    
    
    $
    3.50December 31, 2004
    
    $
    1.75
    
    
    $
    1.72
   Recent Sales of Unregistered Securities




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Item 6. Managements Discussion and Analysis of Financial Condition and Results of
Operations




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Liquidity and Capital Resources.
  General:




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Results of Operations




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New Accounting Standards




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Item 7. Financial Statements and Supplementary Data
  
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
      
 Item 8a.Controls and Procedures




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Internal Control over Financial Reporting
   
    
    Inadequate technical accounting expertise within the accounting department.
There was not adequate technical accounting expertise within our accounting department.
The personnel resources and technical accounting expertise in the accounting department
were not sufficient to adequately resolve complex accounting processes, such as the
disclosures required under US GAAP for insurance companies.
    
    Inadequate quarterly and year-end financial statement close and review process.
For each quarterly and fiscal year-end period, a financial statement close and review
process occurs. Our staffing for the quarterly and year-end financial statement close
process was not sufficient.
    
    The policy for the determination and identification of the types of costs that
should be capitalized in accordance with U.S. GAAP was inadequate, which affected our fixed
asset and deferred policy acquisition costs accounts. We lacked enough personnel with
sufficient expertise in the insurance accounting rules under U.S. GAAP.
 Remediation Activities




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Items 9, 10, 11, 12 and 14
  
 Item 13. Exhibits List and Reports on Form 8-K
 
  Exhibit No.
    
    Identification of Exhibit3.1(1)
    
    Amended and restated Articles of Incorporation3.2(1)
    
    By-Laws of Venturelist.com3.3(2)
    
    Certificate of Amendment to Articles of Incorporation.4.1(1)
    
    Form of Specimen of common stock10.1(3)
    
    Stock Purchase Agreement with Whiskers, Inc.10.2(3)
    
    Promissory Note with Samir Financial II, L.L.C.10.3(3)
    
    Loan and Security Agreement with Samir Financial II, L.L.C.10.4(3)
    
    Hartville Group, Inc. Common Stock Warrant10.5(4)
    
    Stock Purchase Agreement between Hartville Group, Inc. and certain investors.10.6(4)
    
    Common Stock Purchase Warrant between Hartville Group, Inc. and certain investors.10.6(5)
    
    Securities Purchase Agreement related to debentures and Warrants10.6(6)
    
    Securities Purchase Agreement, Form of Amendment to Securities Purchase Agreement and Form
of Securities Purchase Agreement14.(7)
    
    Code of Ethics23.1(*)
    
    Consents of Independent Auditors31.1(*)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.31.2(*)
    
    Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act.32.1(*)
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.32.2(*)
    
    Certification of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
 
 *
    
    Filed herein.(1)
    
    Filed as an Exhibit to Hartville Groups registration statement on Form SB-2
(File No. 333-48544) and herein Incorporated by reference.(2)
    
    Filed as an Exhibit to Hartville Groups Form 8-K filed on September 16, 2002.(3)
    
    Filed as an Exhibit to Hartville Groups Form 10-KSB/A, filed on January 9, 2004.(4)
    
    Filed as an Exhibit to Hartville Groups Form 8-K filed on November 10, 2003.(5)
    
    Filed as an Exhibit to the Registrants Form 8-K filed on September 8, 2004.(6)
    
    Filed as an Exhibit to the Registrants Form 8-K filed on November 26, 2004.(7)
    
    Filed as an Exhibit to Hartville Groups Form 10-KSB, filed on April 13, 2004.




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1.
    
    On January 28, 2004, Hartville Group, Inc. announced On January 28, 2004, Hartville Group, Inc.
announced that it has executed a Letter Option Agreement to purchase a property and casualty insurance
company.2.
    
    On February 18, 2004, the Company announced record financial results for the fourth quarter ended
December 31, 2003.3.
    
    On February 23, 2004, the Company announced that it had appointed two new directors to its Board of
Directors, Nick Leighton and Alan Kaufman, MD.4.
    
    On June 21, 2004, Hartville Group, Inc. announced that it has renewed its direct marketing contract
with Catalina Marketing Corporation5.
    
    On September 8, 2004, Hartville Group, Inc. completed an agreement with certain purchasers for the
issuance and sale by Hartville Group, Inc. of $3,000,000 principal amount of Debentures and Warrants
to purchase shares of the Companys Common Stock.6.
    
    On November 4, 2004, the Company announced that it had reached an agreement which allows the Company
to market its new pet health insurance brand, Healthy Bark & Purr, to PetMed Express customers.
Founded in 1996, PetMed Express, Inc..7.
    
    On November 26, 2004, Hartville Group, Inc. completed an agreement with certain purchasers for the
issuance and sale by Hartville Group, Inc. of $11,038,780 principal amount of Convertible Debentures
and Warrants to purchase shares of the Companys Common Stock.8.
    
    On December 6, 2004, the Company appointed two new directors to its Board of Directors, Michael A.
Amsalem and Dennis C. Rushovich.9.
    
    On August 9, 2004 the Company announced a presentation relating to the Company.10.
    
    On February 13, 2004 and April 19, 2004, the Company announced a change in its independent accountants.




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Hartville Group, Inc.RegistrantBy:
    
    /s/ Dennis C. RushovichDennis C. RushovichPresident (Principal Executive Officer )By:
    
    /s/ Christopher R. SachsChristopher R. SachsPrincipal Accounting Officer
  Signature and Capacity/s/ Dennis C. Rushovich
    
    Dated November 21, 2005Dennis C. RushovichPresident and Director/s/ Nicholas J. Leighton
    
    Dated November 21, 2005Nicholas J. LeightonDirector / Audit Committee Chairman/s/ Tomas A. Neuzil
    
    Dated November 21, 2005Tomas A. NeuzilSecretary and Director/s/ Michel Amsalem
    
    Dated November 21, 2005Michel AmsalemDirector/s/ Dennis C. Rushovich
    
    Dated November 21, 2005Dennis C. RushovichDirector/s/ Alan J. Kaufman
    
    Dated November 21, 2005Alan J. KaufmanDirector




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Report of Independent Registered Public Accounting Firm




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Independent Auditors Report




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December 31,
    
    
    December 31,2004
    
    
    2003As Restated
    
    
    As RestatedASSETSCurrent AssetsCash
    
    $
    6,104,053
    
    
    $
    7,653,463Commissions receivable
    
    
    159,130
    
    
    
    687,377Other receivables
    
    
    2,291,950
    
    
    
    381,613Prepaid taxes
    
    
    600,000
    
    
    
    Deferred Tax Asset
    
    
    
    
    
    
    300,000Prepaid expenses
    
    
    2,860,850
    
    
    
    69,588Total Current Assets
    
    
    12,015,983
    
    
    
    9,092,041Fixed AssetsProperty and equipment  net
    
    
    2,180,919
    
    
    
    264,417Deferred policy acquisition costs  net
    
    
    578,329
    
    
    
    2,759,248
    
    
    
    264,417Other AssetsLicensing fees. Less accumulated
depreciation of $42,473 and $32,886
    
    
    12,016
    
    
    
    21,603Other non-current assets
    
    
    76,263
    
    
    
    831,42088,279
    
    
    
    853,023Total Assets
    
    $
    14,863,510
    
    
    $
    10,209,481




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December 31,
    
    
    December 31,2004
    
    
    2003As Restated
    
    
    As RestatedLIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    779,117
    
    
    $
    8,456Reserve for claims
    
    
    168,175
    
    
    
    167,844Accrued expenses
    
    
    13,308
    
    
    
    172,877Premium deposits
    
    
    445,110
    
    
    
    1,539,648Unearned commissions
    
    
    19,284
    
    
    
    Accrued taxes
    
    
    
    
    
    
    389,839Current portion of long-term debt
    
    
    6,000
    
    
    
    5,821Total Current Liabilities
    
    
    1,430,994
    
    
    
    2,284,485Long-Term Debt (offset by discount of $1,032,980 on convertible securities in 2004)
    
    
    10,025,503
    
    
    
    25,703Total Liabilities
    
    
    11,456,497
    
    
    
    2,310,188Stockholders EquityCommon stock, 50,000,000 shares authorized:$.001 par value; 14,576,896 and 12,096,909 issued and outstanding at December 31,
2004 and 2003
    
    
    14,576
    
    
    
    12,097Additional paid in capital
    
    
    12,656,372
    
    
    
    9,006,838Retained earnings (deficit)
    
    
    (9,263,935
    )
    
    
    (1,119,642
    )3,407,013
    
    
    
    7,899,293Total Liabilities and Stockholders Equity
    
    $
    14,863,510
    
    
    $
    10,209,481




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December 31,
    
    
    December 31,2004
    
    
    2003As Restated
    
    
    As RestatedCommissions
    
    $
    1,930,645
    
    
    $
    1,952,452Premiums
    
    
    2,293,533
    
    
    
    1,710,2404,224,178
    
    
    
    3,662,692Losses and expenses
    
    
    1,620,635
    
    
    
    1,143,718Ceded costs
    
    
    573,418
    
    
    
    445,409General and administrative
    
    
    9,231,768
    
    
    
    2,410,59911,425,821
    
    
    
    3,999,726Operating (loss) income
    
    
    (7,201,643
    )
    
    
    (337,034
    )Other income
    
    
    67,260
    
    
    
    95,559Other expense
    
    
    (1,009,910
    )
    
    
    (Loss) income before taxes
    
    
    (8,144,293
    )
    
    
    (241,475
    )Provision for taxes
    
    
    
    
    
    
    50,000NET (LOSS) INCOME
    
    $
    (8,144,293
    )
    
    $
    (291,475
    )Net (loss) income per common share
    
    $
    (0.58
    )
    
    $
    (0.06
    )Weighted average common shares outstanding
    
    
    14,016,975
    
    
    
    4,886,616




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December 31,
    
    
    December 31,2004
    
    
    2003As Restated
    
    
    As RestatedCash flows from operating activitiesNet (Loss) Income
    
    $
    (8,144,293
    )
    
    $
    (291,475
    )Adjustments to reconciliation net loss to net cash provided by operating activitiesDepreciation
    
    
    536,627
    
    
    
    56,566Amortization
    
    
    45,242
    
    
    
    9,357Stock for services (Non-cash)
    
    
    1,859,911
    
    
    
    607,961Amortization of discount on debt
    
    
    
    
    
    
    (Increase) commissions receivable
    
    
    528,247
    
    
    
    (581,719
    )(Increase) Other receivables
    
    
    (1,910,337
    )
    
    
    (212,840
    )(Increase) decrease FIT Receivable
    
    
    (600,000
    )
    
    
    (Increase) decrease deferred tax asset
    
    
    300,000
    
    
    
    (300,000
    )(Increase) decrease Prepaid expenses
    
    
    (2,575,914
    )
    
    
    (18,230
    )(Increase) Licensing fees
    
    
    
    
    
    
    (4,490
    )Increase (decrease) Accounts payable
    
    
    770,661
    
    
    
    231,881Increase (decrease) Accrued expenses
    
    
    (159,569
    )
    
    
    111,348Increase Premium deposits
    
    
    (1,094,538
    )
    
    
    1,149,132(Decrease) Unearned Commission
    
    
    19,284
    
    
    
    (Decrease) Accrued taxes
    
    
    (389,839
    )
    
    
    389,839Increase Reserve for losses
    
    
    331
    
    
    
    (134,003
    )Increase (Decrease) due to fronting carrier
    
    
    
    
    
    
    (46,630
    )Net Cash Used for Operating Activities
    
    
    (10,814,187
    )
    
    
    966,697Cash Flows from Investing ActivitiesAcquired Deferred policy acquisition costs
    
    
    (613,984
    )
    
    
    Acquired Property and equipment
    
    
    (1,404,198
    )
    
    
    (187,737
    )Increase (decrease) Other non-current assets
    
    
    
    
    
    
    (545,463
    )Net Cash Used for Investing Activities
    
    
    (2,018,182
    )
    
    
    (733,200
    )Cash Flows from Financing ActivitiesProceeds from notes payable
    
    
    14,038,780
    
    
    
    3,033,056Payment on notes payable
    
    
    (3,005,821
    )
    
    
    (3,020,551
    )Decrease in stock purchase receivable
    
    
    
    
    
    
    50,000Sale of common stock
    
    
    250,000
    
    
    
    6,755,654Net Cash Provided from Financing Activities
    
    
    11,282,959
    
    
    
    6,818,159Net Decrease in Cash and Cash Equivalents
    
    
    (1,549,410
    )
    
    
    7,051,656Cash and Cash Equivalents  Beginning
    
    
    7,653,463
    
    
    
    601,807Cash and Cash Equivalents  Ending
    
    $
    6,104,053
    
    
    $
    7,653,463




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Hartville Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity
For the Years Ended December 31, 2004 and 2003
 Additional
    
    
    
    
    
    
    Stock
    
    
    TotalCommon
    
    
    Stock
    
    
    Paid in
    
    
    Retained
    
    
    Purchase
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Receivable
    
    
    EquityBalance December 31, 2002
    
    
    3,026,870
    
    
    
    3,027
    
    
    
    1,652,293
    
    
    
    (828,167
    )
    
    
    (50,000
    )
    
    
    777,153Sale of shares
    
    
    7,794,177
    
    
    
    7,794
    
    
    
    6,747,860
    
    
    
    
    
    
    
    
    
    
    
    6,755,654Stock issued for services
    
    
    1,275,862
    
    
    
    1,276
    
    
    
    594,524
    
    
    
    
    
    
    
    
    
    
    
    595,800Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    12,161
    
    
    
    
    
    
    
    
    
    
    
    12,161Receipt of stock receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,000Net income (loss) (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291,475
    )
    
    
    
    
    
    
    (291,475
    )Balance December 31, 2003, as restated
    
    
    12,096,909
    
    
    
    12,097
    
    
    
    9,006,838
    
    
    
    (1,119,642
    )
    
    
    
    
    
    
    7,899,293Sale of shares
    
    
    1,794,078
    
    
    
    1,794
    
    
    
    248,206
    
    
    
    
    
    
    
    
    
    
    
    250,000Beneficial conversion and
repricing impact on convertible
debt
    
    
    
    
    
    
    
    
    
    
    1,063,784
    
    
    
    
    
    
    
    
    
    
    
    1,063,784Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    1,081,203
    
    
    
    
    
    
    
    
    
    
    
    1,081,203Stock issued for cashless warrant
    
    
    85,309
    
    
    
    85
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    Shares issued for services
    
    
    600,000
    
    
    
    600
    
    
    
    1,256,426
    
    
    
    
    
    
    
    
    
    
    
    1,257,026Net income (loss) (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,144,293
    )
    
    
    
    
    
    
    (8,144,293
    )Balance December 31, 2004
    
    
    14,576,296
    
    
    
    14,576
    
    
    
    12,656,372
    
    
    
    (9,263,935
    )
    
    
    
    
    
    
    3,407,013
 See accompanying notes to financial statements




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis
of Presentation
  Development Stage Company




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Revenue Recognition Policies
     Cash and Cash Equivalents
  Trust Funds
  Income Taxes




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Deferred Policy Acquisition Costs
  Property and Equipment
  ©
 Net Income (Loss) per Share
   2004
    
    
    2003As Restated
    
    
    As RestatedNet Income (loss)
    
    $
    (8,144,293
    )
    
    $
    (291,475
    )Weighted average common shares outstanding
    
    
    14,016,975
    
    
    
    4,886,616Dilutive effect of outstanding warrants and options
    
    
    0
    
    
    
    Diluted common shares
    
    
    14,016,975
    
    
    
    4,886,616Basic net income (loss) per common share
    
    $
    (0.58
    )
    
    $
    (0.06
    )Diluted net income (loss) per common share
    
    
    (0.58
    )
    
    
    (0.06
    )
  Reserve for Claims




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Use of Estimates
  Stock Option Accounting
  Concentration of Credit Risks
  New Accounting Standards




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##### Table of Contents



NOTE 2  FIXED ASSETS
  December 31,
    
    
    December 31,2004
    
    
    2003Furniture and fixtures
    
    $
    72,841
    
    
    $
    51,784Equipment
    
    
    377,999
    
    
    
    222,996Software
    
    
    2,277,678
    
    
    
    107,129Leasehold Improvements
    
    
    47,781
    
    
    
    44,5202,776,299
    
    
    
    426,429Less: accumulated depreciation
    
    
    (595,380
    )
    
    
    (162,012
    )$
    2,180,919
    
    
    $
    264,417
 NOTE 3  DEFERRED POLICY ACQUISITION COSTS
  December 31,
    
    
    December 31,2004
    
    
    2003Balance at January 1
    
    $
    
    
    
    $
    Acquisition costs incurred
    
    
    1,988,306
    
    
    
    605,598Amortization of acquisition costs
    
    
    (1,409,977
    )
    
    
    (605,598
    )Balance at December 31
    
    $
    578,329
    
    
    $
    0
 NOTE 4  RESERVE FOR CLAIMS
  December 31,
    
    
    December 31,2004
    
    
    2003(as restated)
    
    
    (as restated)Net balance, beginning of year
    
    $
    167,844
    
    
    $
    15,000Incurred losses related to:Current year
    
    
    1,405,200
    
    
    
    685,914Prior year
    
    
    215,435
    
    
    
    457,804Total incurred
    
    
    1,620,635
    
    
    
    1,143,718Paid losses related to:Current year
    
    
    (1,243,823
    )
    
    
    (563,070
    )Prior year
    
    
    (376,481
    )
    
    
    (427,804
    )Total paid
    
    
    (1,620,304
    )
    
    
    (990,874
    )Net balance, end of year
    
    $
    168,175
    
    
    $
    167,844




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NOTE 4  RESERVE FOR CLAIMS (continued)
 Reserve for Claims is Represented by:
 December 31, 2004
    
    
    December 31, 2003As restated
    
    
    As restatedReserve for reported claims
    
    
    10,870
    
    
    
    167,844Reserve for losses
incurred but not reported
    
    
    157,305
    
    
    
    $
    168,175
    
    
    $
    167,844
 NOTE 5  DEBT
 Notes Payable
     Long-term Debt




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##### Table of Contents



Amount2005
    
    $
    6,6292006
    
    $
    11,045,4092007
    
    $
    7,0262008
    
    $
    5,4192009 and thereafter
    
    $
    0
 NOTE 6  COMMITMENTS
   NOTE 6  COMMITMENTS (continued)




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##### Table of Contents



Amount2005
    
    $
    232,2862006
    
    $
    189,3442007
    
    $
    183,0802008
    
    $
    160,7022009
    
    $
    147,732Thereafter
    
    $
    750,000Total
    
    $
    1,663,144
   NOTE 7- RELATED PARTY TRANSACTIONS
  NOTE 8  INCOME TAXES
  2004
    
    
    2003Current
    
    $
    
    
    
    $
    300,000Deferred expense (benefit)
    
    
    
    
    
    
    (300,000
    )State taxes
    
    
    
    
    
    
    50,000$
    
    
    
    $
    50,000




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##### Table of Contents



2004
    
    
    2003(as
restated)
    
    

(as
restated)Federal statutory tax rate
    
    $
    (2,769,060
    )
    
    $
    (82,100
    )Change in valuation allowance
    
    
    2,769,060
    
    
    
    82,100State tax expenses
    
    
    
    
    
    
    50,000Tax provision
    
    $
    
    
    
    $
    50,000




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##### Table of Contents



HARTVILLE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003 (as restated)
 NOTE 8  INCOME TAXES (continued)
  2004
    
    
    2003(as
restated)
    
    

(as
restated)Deferred tax assets:Reserve discounting
    
    $
    2,399
    
    
    $
    Policy acquisition costs
capitalized for tax purposes
    
    
    
    
    
    
    300,000Net operating loss carryforward
    
    
    2,963,293
    
    
    
    2,965,692
    
    
    
    300,000Deferred tax liabilitiesDeferred policy acquisition costs
    
    
    (196,632
    )
    
    
    Valuation allowance
    
    
    (2,769,060
    )
    
    
    Net deferred tax assets
    
    $
    
    
    
    $
    300,000
   NOTE 9  OPERATING SEGMENTS
   December 31,
    
    December 31,2004
    
    2003Year ended
    
    (as restated)
    
    (as restated)Holding CompanyRevenues
    
    $
    
    
    
    $
    Administrative
Expenses
    
    
    3,950,787
    
    
    
    412,642Net Loss
    
    
    (4,903,376
    )
    
    
    (358,873
    )Insurance AgencyRevenues
    
    
    1,930,645
    
    
    
    1,952,452Administrative
Expenses
    
    
    5,211,755
    
    
    
    1,944,914Net Loss
    
    
    (3,276,534
    )
    
    
    (3,682
    )ReinsuranceRevenues
    
    
    2,293,533
    
    
    
    1,710,240Administrative
Expenses
    
    
    69,226
    
    
    
    53,043Net Income
    
    
    35,617
    
    
    
    71,080




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##### Table of Contents



HARTVILLE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003 (as restated)
 NOTE 10  TERMINATION OF PROPOSED INSURANCE COMPANY ACQUISITION
  NOTE 11  NON-QUALIFIED STOCK OPTION PLAN




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##### Table of Contents



HARTVILLE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003 (as restated)
 NOTE
12  RESTATEMENT OF 2004 FINANCIALS




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##### Table of Contents



HARTVILLE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003 (as restated)
 Consolidated Statements of IncomeAs previouslyFor the Year Ended December 31, 2004
    
    reported
    
    Adjustments
    
    As restatedPremiums
    
    $
    3,732,412
    
    
    $
    (1,438,879
    )
    
    $
    2,293,533Losses and expenses
    
    
    2,599,606
    
    
    
    (978,971
    )
    
    
    1,620,635Ceded Costs
    
    
    933,140
    
    
    
    (359,722
    )
    
    
    573,418Operating (loss) income
    
    
    (7,101,457
    )
    
    
    (100,186
    )
    
    
    (7,201,643
    )Income before taxes
    
    
    (8,044,107
    )
    
    
    (100,186
    )
    
    
    (8,144,293
    )NET (LOSS) INCOME
    
    $
    (8,044,107
    )
    
    $
    (100,186
    )
    
    $
    (8,144,293
    )
 Consolidated Balance SheetAs previouslyDecember 31, 2004
    
    reported
    
    Adjustments
    
    As restatedOther receivable
    
    $
    2,368,071
    
    
    $
    (76,121
    )
    
    $
    2,291,950Total assets
    
    
    14,939,631
    
    
    
    (76,121
    )
    
    
    14,863,510Reserve for claims
    
    
    176,998
    
    
    
    (8,823
    )
    
    
    168,175Premium deposits
    
    
    
    
    
    
    445,110
    
    
    
    445,110Total current liabilities
    
    
    994,707
    
    
    
    436,287
    
    
    
    1,430,994Total liabilities
    
    
    11,020,210
    
    
    
    436,287
    
    
    
    11,456,497Retained earnings (deficit)
    
    
    (8,751,527
    )
    
    
    (512,408
    )
    
    
    (9,263,935
    )Total shareholders equity
    
    
    3,919,421
    
    
    
    (512,408
    )
    
    
    3,407,013Total liabilities and shareholders equity
    
    $
    14,939,631
    
    
    $
    (76,121
    )
    
    $
    14,863,510
 Consolidated Statements of IncomeAs previouslyFor the Year Ended December 31, 2003
    
    reported
    
    Adjustments
    
    As restatedPremiums
    
    $
    2,859,398
    
    
    $
    (1,149,158
    )
    
    $
    1,710,240Losses and expenses
    
    
    1,588,185
    
    
    
    (444,467
    )
    
    
    1,143,718Ceded Costs
    
    
    737,878
    
    
    
    (292,469
    )
    
    
    445,409Operating (loss) income
    
    
    75,188
    
    
    
    (412,222
    )
    
    
    (337,034
    )Income before taxes
    
    
    170,747
    
    
    
    (412,222
    )
    
    
    (241,475
    )NET (LOSS) INCOME
    
    $
    120,747
    
    
    $
    (412,222
    )
    
    $
    (291,475
    )
 Consolidated Balance SheetAs previouslyDecember 31, 2003
    
    reported
    
    Adjustments
    
    As restatedOther receivable
    
    $
    154,284
    
    
    $
    227,329
    
    
    $
    381,613Total assets
    
    
    9,982,152
    
    
    
    227,329
    
    
    
    10,209,481Reserve for claims
    
    
    301,847
    
    
    
    (134,003
    )
    
    
    167,844Premium deposits
    
    
    766,094
    
    
    
    773,554
    
    
    
    1,539,648Total current liabilities
    
    
    1,644,934
    
    
    
    639,551
    
    
    
    2,284,485Total liabilities
    
    
    1,670,637
    
    
    
    639,551
    
    
    
    2,310,188Retained earnings (deficit)
    
    
    (707,420
    )
    
    
    (412,222
    )
    
    
    (1,119,642
    )Total shareholders equity
    
    
    8,311,515
    
    
    
    (412,222
    )
    
    
    7,899,293Total liabilities and shareholders equity
    
    $
    9,982,152
    
    
    $
    227,329
    
    
    $
    10,209,481
 NOTE 13  RESTATEMENT OF 2003 FINANCIAL STATEMENTS
   Consolidated Statements of IncomeAs previouslyFiscal year ended December 31, 2003
    
    reported
    
    
    Adjustments
    
    
    As restatedGeneral and administrative expenses
    
    $
    1,370,928
    
    
    $
    1,039,671
    
    
    $
    2,410,599Operating income
    
    
    1,114,859
    
    
    
    (1,039,671
    )
    
    
    75,188Earnings before income taxes
    
    
    1,210,418
    
    
    
    (1,039,671
    )
    
    
    170,747Income taxes
    
    
    350,000
    
    
    
    (300,000
    )
    
    
    50,000Net income
    
    
    860,418
    
    
    
    (739,671
    )
    
    
    120,747Net earnings per common share  basic
    
    $
    .18
    
    
    $
    (0.16
    )
    
    $
    0.02Net earnings per common share  diluted
    
    $
    .18
    
    
    $
    (0.16
    )
    
    $
    0.02
 Consolidated Balance SheetAs PreviouslyDecember 31, 2003
    
    Reported
    
    
    Adjustments
    
    
    As RestatedProperty, plant and
equipment, net
    
    $
    242,484
    
    
    $
    21,933
    
    
    $
    264,417Deferred policy acquisition
costs, net
    
    
    886,566
    
    
    
    (886,566
    )
    
    
    Deferred income tax asset
    
    
    
    
    
    
    300,000
    
    
    
    300,000Total assets
    
    
    10,546,785
    
    
    
    (564,633
    )
    
    
    9,982,152Additional paid-in capital
    
    
    8,451,977
    
    
    
    554,861
    
    
    
    9,006,838Retained earnings (deficit)
    
    
    451,913
    
    
    
    (1,159,333
    )
    
    
    (707,420
    )Total shareholders equity
    
    
    8,915,987
    
    
    
    (604,472
    )
    
    
    8,311,515Total liabilities and
shareholders equity
    
    
    10,564,785
    
    
    
    (564,633
    )
    
    
    9,982,152
 Consolidated Statement of Cash FlowsAs PreviouslyFiscal year ended December 31, 2003
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet cash provided by operating activities
    
    $
    1,831,330
    
    
    $
    (864,633
    )
    
    $
    966,697Net cash used by investing activities
    
    
    1,597,833
    
    
    
    (864,633
    )
    
    
    733,200




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    DescriptionEX 23.1
    
    Consents of Independent AuditorsEX 31.1
    
    CertificationEX31.2
    
    CertificationEX32.1
    
    CertificationEX32.2
    
    Certification