##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB
  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, 2006
 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 SWCANTON OHIO
    
    44706(Address of principal executive offices)
    
    (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
 þ o
 þ
 o þ
     o þ




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##### 



PART I
    
    
    3Item 1. Business Overview
    
    
    4Item 2. Description of Property
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    9Part II
    
    
    9Item 5. Market for Common Equity and Related Stockholder Matters
    
    
    9Item 6. Managements Discussion and Analysis or Plan of Operation
    
    
    10Item 7. Financial Statements
    
    
    18Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    18Item 8A. Controls and Procedures
    
    
    18Item 8B. Other Information
    
    
    19PART III
    
    
    20Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance
with Section 16(A) of the Exchange Act
    
    
    20Item 10. Executive Compensation
    
    
    20Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    20Item 12. Certain Relationships and Related Transactions, and Director Independence
    
    
    20Item 13. Exhibits
    
    
    20Item 14. Principal Accountant Fees and Services
    
    
    21SIGNATURES
    
    
    22CERTIFICATIONSEXHIBIT INDEX
    
    
    45EX-3.1EX-10.4EX-10.5EX-10.6EX-21EX-31.1EX-31.2EX-32.1
  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: changes in 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.
  3




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Item 1. Business Overview
  www.hartvillegroup.com
   Hartville Group, Inc.  Flow Chart of Hypothetical Example Using Current Agreements
 
 4




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Principal Product
  Distribution Methods
  The Competition
  Royalty Agreements and Trademarks
 ® ®
   Government Regulation and Licenses
   5




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Employees
  RISK FACTORS
 We will require continued financing to meet our working capital needs.
  Many other pet insurance companies have gone out of business and without development and growth we
may not be able to continue as a viable entity.
  We are dependent on property casualty insurance companies without which we may not be able to
operate our business.
  We have experienced net losses in the past, and we may be unable to achieve or maintain
profitability in the future.
  We are dependent on the proper functioning of our information systems.
  Our dependence on short term policies makes us vulnerable to loss of customers.
  Any failure by us to comply with applicable regulations may result in fines or injunctions against
the operation of our business and harm our financial results.
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Certain of our stockholders have registration rights that can cause us to file a registration
statement under the Securities Act covering resales of their stock, which sales could cause our
stock price to decline.
  Dilution of our stock is probable because of the number and price of warrants and convertible debt
outstanding.
  Volatility in our common share price may subject us to securities litigation, thereby diverting our
resources, which may have a material adverse affect on our results of operations.
  Securities and Exchange Commission rules concerning sales of low-priced securities may hinder the
purchase or sale of our common stock by investors.
  Our securities have been thinly traded on the over-the-counter bulletin board, which may not
provide liquidity for our investors.
  7




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Investors must contact a broker-dealer to trade Over-the-Counter Bulletin Board securities. As a
result, you may not be able to buy or sell our securities at the times that you may wish.
  We do not intend to pay dividends in the foreseeable future; therefore, you may never see a return
on your investment.
  Our stock price is volatile and you may not be able to sell your shares for more than what you
paid.
  If converted and exercised, holders of our convertible debentures and warrants could have
substantial control over us and this could negatively affect your investment.
  8




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Item 2. Description of Property
  
 Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Part II
 
 Item 5. Market for Common Equity and Related Stockholder Matters
  High
    
    LowFiscal 2005March 31, 2005
    
    $
    1.72
    
    
    $
    0.64June 30, 2005
    
    $
    0.69
    
    
    $
    0.64September 30, 2005
    
    $
    0.62
    
    
    $
    0.18December 31, 2005
    
    $
    0.20
    
    
    $
    0.10Fiscal 2006March 31, 2006
    
    $
    0.36
    
    
    $
    0.15June 30, 2006
    
    $
    0.21
    
    
    $
    0.07September 30, 2006
    
    $
    0.15
    
    
    $
    0.07December 31, 2006
    
    $
    0.21
    
    
    $
    0.10
  9




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Equity Compensation Plan Information
  Recent Sales of Unregistered Securities
 Extinguishment of Prior Years Debt
  July 2006 Debenture Issuance
   
 Item 6. Managements Discussion and Analysis or Plan of Operation
   Managements Plans
  10




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Refinancing Risk
  
    
    The convertible debt holders convert the debt into Common Stock
    
    The convertible debt holders extend the maturity dates of the convertible debt
    
    We refinance the convertible debt through existing or new investors
  Working Capital Risk
    Results of Operations
 Fiscal Year ended December 31, 2006 compared to fiscal year ended December 31, 2005
   11




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##### Table of Contents




    
    Compensation increased by approximately $1,092,000 due to the following factors:
 
    
    Increased $732,000 due to the valuation and expensing of 5,686,000 vested options to employees
 
    
    Increased $360,000 due to the valuation and expensing of 2,000,000 vested
shares of restricted stock issued to an employee
 
    
    Marketing expenses increased by approximately $605,000 due to the strategic partnership
with the ASPCA and the utilization of direct marketing campaigns
 
    
    Amortization has increased approximately $132,000 as a result of an increase in deferred
acquisition cost from increased marketing activities
 
    
    Professional, audit and legal fees decreased approximately $617,000 due mainly to the
cost of restating the financial statements in 2005 and from the Company discontinuing the
pursuit of acquiring a property & casualty insurance company
    Fiscal Year ended December 31, 2005 compared to fiscal year ended December 31, 2004
  12




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##### Table of Contents



HARTVILLE RE REINSURANCE PERCENTAGEQUARTER
    
    TIME FRAME
    
    2005
    
    2004First quarter
    
    January  March
    
    
    50
    %
    
    
    0
    %Second quarter
    
    April  June
    
    
    50
    %
    
    
    0
    %Third & Fourth quarters
    
    July  August 15
    
    
    50
    %
    
    
    100
    %August 15  December
    
    
    50
    %
    
    100% (existing policies)0% (new & renewed policies)
  COMMISSION PERCENTAGEQUARTER
    
    TIME FRAME
    
    2005
    
    2004First quarter
    
    January  March
    
    20%
    
    30%Second quarter
    
    April  June
    
    20%
    
    30%Third & Fourth quarters
    
    July  August 15
    
    20%
    
    30%August 15  December
    
    20%
    
    30% (existing policies)20% (new & renewed policies)
   
    
    Compensation and related benefits increased by $749,000 due to the expansion of staff
(primarily executive and IT).
    
    Professional fees increased by $410,000 due to services relating to: IT consulting,
restatement, outside management assistance, directors fees, and increased audit and
related fees, etc.
    
    Marketing expenses increased $358,000 due to testing in various markets
    
    Amortization expense increased $345,000 due to increased policy acquisition costs.
    
    Depreciation expense increased $291,000 for a proprietary software system which the
company began amortizing in July 2004.
    
    Contract personnel expense decreased $234,000 due to changed hiring practices and
reduced usage of temporary personnel agencies
    
    Royalties decreased $537,000 due to ending the AKC program and expiration of other
distribution programs
    
    Miscellaneous expenses decreased $428,000, resulting from adjustments to various
balance sheet items relating to prior years reinsurance treaties
    
    Legal fees decreased by $1,197,000 due to the 2004.search for a captive underwriting
source (through acquisition of an existing insurance carrier), which was abandoned in
early 2005
    
    Services related to stock issued for public relations and other consulting decreased
by $1,700,000.
   13




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Liquidity and Capital Resources
 Cash Requirements
     Sources and Uses of Cash  Operations
  
    
    The Company received approximately $2,300,000 On April 11,
2005, which represented the agreed-upon recoverable costs from the
property and casualty insurance company we decided not to acquire.
    
    Marketing expenses increased by approximately $605,000 due to
the strategic partnership with the ASPCA and the utilization of
direct marketing campaigns.
    
    Professional, audit, and legal fees decreased
approximately $617,000 due mainly to the cost of restating the
financial statements in 2005 and from the Company discontinuing the
pursuit of acquiring a property and casualty insurance company.
 Sources and Uses of Cash  Investing
  
    
    Additions to property and equipment favorably decreased approximately $268,000 due
mainly to the Company having leasehold improvements for the new office, which it moved to
in March 2005
 14




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
    
    Capitalized software development unfavorably increased approximately $77,000 due to
the Company developing a new software program for the administration of its insured pets
 Sources and Uses of Cash  Financing
  Notes Payable and Convertible Debentures
     15




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Debt Instruments, Guarantees and Related Covenants
  Cash Management
      Critical Accounting Policies
  16




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Reserve for Future Losses
   Favorable Claims
    
    
    UnfavorableAs Reported
    
    
    Loss Ratio
    
    
    Claims Loss RatioPremiums
    
    $
    3,372,310
    
    
    $
    3,372,310
    
    
    $
    3,372,310Losses
    
    
    (2,024,804
    )
    
    
    (1,931,874
    )
    
    
    (2,146,625
    )Ceded costs
    
    
    (1,116,042
    )
    
    
    (1,193,668
    )
    
    
    (1,086,293
    )Reinsurance results
    
    
    231,464
    
    
    
    246,768
    
    
    
    139,392Commission income
    
    
    3,346,753
    
    
    
    3,534,674
    
    
    
    3,280,502General and administrative
    
    
    (8,667,539
    )
    
    
    (8,593,146
    )
    
    
    (8,593,146
    )Operating (loss) income
    
    
    (5,089,322
    )
    
    
    (4,811,704
    )
    
    
    (5,173,252
    )Other income
    
    
    87,260
    
    
    
    87,260
    
    
    
    87,260Other expense
    
    
    (2,991,869
    )
    
    
    (2,991,869
    )
    
    
    (2,991,869
    )Loss on extinguishment of debt
    
    
    (3,169,032
    )
    
    
    (3,169,032
    )
    
    
    (3,169,032
    )(Loss) income before taxes
    
    
    (11,162,963
    )
    
    
    (10,885,345
    )
    
    
    (11,246,893
    )Provision for taxes
    
    
    
    
    
    
    
    
    
    
    NET (LOSS) INCOME
    
    $
    (11,162,963
    )
    
    $
    (10,885,345
    )
    
    $
    (11,246,893
    )Net (loss) income per common share
    
    $
    (0.33
    )
    
    $
    (0.32
    )
    
    $
    (0.33
    )Weighted average common shares outstanding
    
    
    33,870,651
    
    
    
    33,870,651
    
    
    
    33,870,651
  17




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Share-Based Compensation
   New Accounting Standards
  
 Item 7. Financial Statements
   Report of Independent Registered Public Accounting Firm
    
    
    23Consolidated Balance Sheets
    
    
    24Consolidated Statements of Operations
    
    
    25Consolidated Statements of Cash Flows
    
    
    26Consolidated Statements of Stockholders Equity
    
    
    27Notes to Consolidated Financial Statements
    
    
    28
 
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 8A. Controls and Procedures
   18




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Item 8B. Other Information
  19




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Item 9.
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(A) of the Exchange Act
  
 Item 10.
Executive Compensation
  
 Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 12.
Certain Relationships and Related Transactions, and Director Independence
  
 Item 13.
Exhibits
 Exhibit No.
    
    Identification of Exhibits
    
    Method of Filing3.1
    
    Amended and Restated Articles of Incorporation
    
    Filed with this report.3.2
    
    Amended and Restated Bylaws of Hartville Group, Inc.
    
    Incorporated by reference to
Exhibit 3.2 to the SB-2 filed
October 25, 2000.4.1
    
    Form of Common Stock Certificate
    
    Incorporated by reference to
Exhibit 4.1 to the SB-2 filed
October 25, 2000.4.2
    
    Securities Purchase Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 4.1 to the 8-K filed
August 4, 2006.4.3
    
    Form of Secured Convertible Debenture, dated July 31,
2006
    
    Incorporated by reference to
Exhibit 4.2 to the 8-K filed
August 4, 2006.4.4
    
    Form of Common Stock Purchase Warrant, dated July 31,
2006
    
    Incorporated by reference to
Exhibit 4.3 to the 8-K filed
August 4, 2006.4.5
    
    Registration Rights Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 4.4 to the 8-K filed
August 4, 2006.4.6
    
    Securities Purchase Agreement, dated February 17, 2007
    
    Incorporated by reference to
Exhibit 4.1 to the 8-K filed
February 20, 2007.4.7
    
    Form of Secured Convertible Debenture, dated February
14, 2007
    
    Incorporated by reference to
Exhibit 4.2 to the 8-K filed
August 4, 2006.4.8
    
    Form of Stock Purchase Agreement, dated February 17,
2007
    
    Incorporated by reference to
Exhibit 4.3 to the 8-K filed
August 4, 2006.4.9
    
    Registrations Rights Agreement, dated February 14, 2007
    
    Incorporated by reference to
Exhibit 4.4 to the 8-K filed
August 4, 2006.10.1
    
    Conversion Agreement and Release, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.1 to the 8-K filed
August 4, 2006.10.2
    
    Security Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.2 to the 8-K filed
August 4, 2006.
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Exhibit No.
    
    Identification of Exhibits
    
    Method of Filing10.3
    
    Form of Subsidiary Guarantee, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.3 to the 8-K filed
August 4, 2006.10.4
    
    Employment Agreement for Dennis C. Rushovich *
    
    Filed with this report.10.5
    
    Employment Agreement for Christopher R. Sachs *
    
    Filed with this report.10.6
    
    Employment Agreement for Christopher Edgar *
    
    Filed with this report.10.7
    
    Employment Agreement for Hirsch Ribakow *
    
    Incorporated by reference to
Exhibit 10.9 to the SB-2 filed
June 2, 2005.10.8
    
    Restricted Stock Agreement between Hartville Group,
Inc. and Christopher Edgar *
    
    Incorporated by reference to
Exhibit 10.4 to the 8-K filed
February 15, 2006.10.9
    
    2006 Stock Option Plan *
    
    Incorporated by reference to
Exhibit 10.1 to the 8-K filed
February 15, 2006.10.10
    
    Form of Stock Option Agreement under the 2006 Stock
Option Plan *
    
    Incorporated by reference to
Exhibit 10.2 to the 8-K filed
February 15, 2006.14.
    
    Code of Ethics
    
    Incorporated by reference to
Exhibit 14 to the 10-KSB filed
April 13, 2004.21.
    
    List of Subsidiaries
    
    Filed with this report.31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
    
    Filed with this report.31.2
    
    Certification of Principal Financial and Account
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act.
    
    Filed with this report.32.1
    
    Certification of the Chief Executive Officer and Chief
Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act.
    
    Filed with this report.
 
 *
    
    Management contract or compensatory plan or arrangement. 
 Item 14.
Principal Accountant Fees and Services
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Hartville Group, Inc. 
RegistrantBy:
    /s/ Dennis C. RushovichDennis C. RushovichPresident (Principal Executive Officer )By:
    /s/ Christopher R. SachsChristopher R. SachsPrincipal Financial and Accounting Officer  Signature and Capacity/s/ Dennis C. Rushovich
Dennis C. Rushovich
Director
    
    
    
    Dated April 2, 2007/s/ Nicholas J. Leighton
Nicholas J. Leighton
Director /Chairman of the Board/ Chairman
of Audit Committee
    
    
    
    Dated April 2, 2007/s/ Christopher R. Sachs
Christopher R. Sachs
Director
    
    
    
    Dated April 2, 2007/s/ Michel A. Amsalem
Michel A. Amsalem
Director
    
    
    
    Dated April 2, 2007
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Report of Independent Registered Public Accounting Firm
 
      
 23




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December 31,
    
    
    December 31,2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    2,387,852
    
    
    $
    4,125,579Other receivables
    
    
    523,592
    
    
    
    205,278Prepaid expenses
    
    
    1,023,156
    
    
    
    2,371,861Property and equipment  net
    
    
    862,587
    
    
    
    1,640,883Deferred policy acquisition costs  net
    
    
    1,236,007
    
    
    
    1,004,051Other assets
    
    
    171,027
    
    
    
    69,999Total Assets
    
    $
    6,204,221
    
    
    $
    9,417,651
 December 31,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accrued expenses
    
    $
    581,468
    
    
    $
    556,300Reserve for claims
    
    
    405,551
    
    
    
    377,573Premium deposits
    
    
    351,321
    
    
    
    1,691,743Payable to reinsurer
    
    
    18,600
    
    
    
    Unearned commissions
    
    
    253,800
    
    
    
    20,245Unearned premium
    
    
    564,239
    
    
    
    Debt (December 31, 2006 was offset by discount of $4,028,091 on convertible
securities issued on July 31, 2006 ; 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)
    
    
    1,048,544
    
    
    
    1,296,570Total Liabilities
    
    
    3,223,523
    
    
    
    3,942,431Stockholders EquityCommon stock, 200,000,000 and 50,000,000 shares authorized at December 31, 2006
and December 31, 2005, respectively: $.001 par value; 54,893,885 issued and
54,799,885 outstanding at December 31, 2006 and 14,983,703 issued and 14,889,703
outstanding at December 31, 2005
    
    
    54,894
    
    
    
    14,984Additional paid in capital
    
    
    31,440,264
    
    
    
    22,811,733Retained deficit
    
    
    (28,443,960
    )
    
    
    (17,280,997
    )Less: treasury stock at cost, 94,000 shares
    
    
    (70,500
    )
    
    
    (70,500
    )2,980,698
    
    
    
    5,475,220Total Liabilities and Stockholders Equity
    
    $
    6,204,221
    
    
    $
    9,417,651
  24




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December 31,
    
    
    December 31,2006
    
    
    2005Premiums
    
    $
    3,372,310
    
    
    $
    3,247,963Losses
    
    
    (2,024,804
    )
    
    
    (2,100,988
    )Ceded costs
    
    
    (1,116,042
    )
    
    
    (1,010,178
    )Reinsurance income
    
    
    231,464
    
    
    
    136,797Commission income
    
    
    3,346,753
    
    
    
    1,190,764General and administrative expenses
    
    
    (8,667,539
    )
    
    
    (7,354,907
    )Operating loss
    
    
    (5,089,322
    )
    
    
    (6,027,346
    )Other income
    
    
    87,260
    
    
    
    92,710Other expenses
    
    
    (2,991,869
    )
    
    
    (2,082,426
    )Loss on extinguishment of debt
    
    
    (3,169,032
    )
    
    
    Loss before taxes
    
    
    (11,162,963
    )
    
    
    (8,017,062
    )Provision for taxes
    
    
    
    
    
    
    Net loss
    
    $
    (11,162,963
    )
    
    $
    (8,017,062
    )Net loss per common share
    
    $
    (0.33
    )
    
    $
    (0.55
    )Weighted average common shares outstanding
    
    
    33,870,651
    
    
    
    14,590,645
  25




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##### Table of Contents



December 31,
    
    
    December 31,2006
    
    
    2005Cash flows from (for) operating activitiesNet loss
    
    $
    (11,162,963
    )
    
    $
    (8,017,062
    )Adjustments to derive cash flows:Depreciation
    
    
    843,059
    
    
    
    841,357Amortization
    
    
    555,825
    
    
    
    423,375Loss on disposal of property and equipment
    
    
    
    
    
    
    32,399Loss on extinguishment of debt
    
    
    3,169,032
    
    
    
    Share-based compensation
    
    
    1,120,958
    
    
    
    Amortization of discount on debt
    
    
    1,424,888
    
    
    
    88,411Amortization of debt issue cost
    
    
    4,005
    
    
    
    Changes in operating assets and liabilitiesCommissions receivable
    
    
    
    
    
    
    159,130Other receivables
    
    
    (318,314
    )
    
    
    2,016,172Prepaid taxes
    
    
    
    
    
    
    600,000Prepaid expenses
    
    
    1,667,288
    
    
    
    1,592,130Accounts payable and accrued expenses
    
    
    25,168
    
    
    
    (236,223
    )Premium deposits
    
    
    (1,340,422
    )
    
    
    1,246,633Payable to reinsurer
    
    
    18,600
    
    
    
    Unearned commission
    
    
    233,555
    
    
    
    961Unearned premium
    
    
    564,239
    
    
    
    Reserve for Claims
    
    
    27,978
    
    
    
    209,398Net Cash for Operating Activities
    
    
    (3,167,104
    )
    
    
    (1,043,319
    )Cash Flows from (for) Investing ActivitiesDeferred policy acquisition costs
    
    
    (786,933
    )
    
    
    (839,511
    )Additions to property and equipment
    
    
    (65,079
    )
    
    
    (333,473
    )Capitalized software development
    
    
    (76,729
    )
    
    
    Other
    
    
    
    
    
    
    8,446Net Cash for Investing Activities
    
    
    (928,741
    )
    
    
    (1,164,538
    )Cash Flows from (for) Financing ActivitiesProceeds from notes payable
    
    
    4,000,000
    
    
    
    263,163Payments on notes payable
    
    
    (1,615,046
    )
    
    
    (33,780
    )Debt issue cost
    
    
    (28,836
    )Proceeds from issuance of common stock to employee
    
    
    2,000
    
    
    
    Net Cash from Financing Activities
    
    
    2,358,118
    
    
    
    229,383Net Decrease in Cash and Cash Equivalents
    
    
    (1,737,727
    )
    
    
    (1,978,474
    )Cash and Cash Equivalents  Beginning of period
    
    
    4,125,579
    
    
    
    6,104,053Cash and Cash Equivalents  End of period
    
    $
    2,387,852
    
    
    $
    4,125,579
  26




---



##### Table of Contents



Additional
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Stock
    
    Paid in
    
    Retained
    
    Treasury
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Earnings
    
    Stock
    
    EquityBalance December 31, 2004
    
    
    14,576,296
    
    
    
    14,576
    
    
    
    12,656,372
    
    
    
    (9,263,935
    )
    
    
    
    
    
    
    3,407,013Beneficial conversion and repricing
impact on convertible securities
    
    
    
    
    
    
    
    
    
    
    10,155,769
    
    
    
    
    
    
    
    
    
    
    
    10,155,769Stock returned to the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70,500
    )
    
    
    (70,500
    )Stock issued for cashless warrant
exercised
    
    
    407,407
    
    
    
    408
    
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,017,062
    )
    
    
    
    
    
    
    (8,017,062
    )Balance December 31, 2005
    
    
    14,983,703
    
    
    
    14,984
    
    
    
    22,811,733
    
    
    
    (17,280,997
    )
    
    
    (70,500
    )
    
    
    5,475,220Issuance of stock to employee for
services
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    360,000
    
    
    
    
    
    
    
    
    
    
    
    362,000Options issued to employees for
services
    
    
    
    
    
    
    
    
    
    
    731,725
    
    
    
    
    
    
    
    
    
    
    
    731,725Warrants issued to non-employees for
services
    
    
    
    
    
    
    
    
    
    
    29,232
    
    
    
    
    
    
    
    
    
    
    
    29,232Stock issued for cashless warrant
exercised
    
    
    2,740,805
    
    
    
    2,741
    
    
    
    (2,741
    )
    
    
    
    
    
    
    
    
    
    
    Stock issued for extinguishment of debt
    
    
    35,169,377
    
    
    
    35,169
    
    
    
    3,481,769
    
    
    
    
    
    
    
    
    
    
    
    3,516,938Beneficial conversion impact on July 31,
2006 convertible securities
    
    
    
    
    
    
    
    
    
    
    4,028,546
    
    
    
    
    
    
    
    
    
    
    
    4,028,546Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,162,963
    )
    
    
    
    
    
    
    (11,162,963
    )Balance December 31, 2006
    
    
    54,893,885
    
    
    
    54,894
    
    
    
    31,440,264
    
    
    
    (28,443,960
    )
    
    
    (70,500
    )
    
    
    2,980,698
  27




---



##### Table of Contents



Hartville Group, Inc. and Subsidiaries
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006
 (audited)
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The Company
  Basis of Presentation and Principles of Consolidation
  Use of Estimates
  Revenue Recognition Policies
    Financial Instruments and Concentration of Credit Risks
   Cash and Cash Equivalents
  Restricted Cash  Trust Funds
  28




---



##### Table of Contents



Long-Lived Assets
  Leasehold improvements
    
    10 yearsFurniture and Fixtures
    
    7 yearsEquipment
    
    5 yearsSoftware
    
    3 years
   Deferred Acquisition Costs
  Reserve for Claims
 .
 Net loss per share
  Share-Based Awards
  Convertible Debentures
 29
    Table of Contents   Reclassifications
  New Accounting Standards
       30




---



##### Table of Contents



NOTE 2  MANAGEMENTS PLANS
  Refinancing Risk
  
    
    The convertible debt holders convert the debt into Common Stock
    
    The convertible debt holders extend the maturity dates of the convertible debt
    
    We refinance the convertible debt through existing or new investors
  Working Capital Risk
    NOTE 3  OTHER RECEIVABLES
  December 31,
    
    
    December 31,2006
    
    
    2005Insurance carriers
    
    $
    459,271
    
    
    $
    181,408Miscellaneous
    
    
    64,321
    
    
    
    23,870$
    523,592
    
    
    $
    205,278
  NOTE 4  PREPAID EXPENSES
  31




---



##### Table of Contents



December 31,
    
    
    December 31,2006
    
    
    2005Interest on November 11, 2004 convertible debt
    
    $
    
    
    
    $
    709,536Fees paid in conjunction with November 11, 2004 convertible debt
    
    
    
    
    
    
    596,811Interest on September 30, 2005 convertible debt
    
    
    
    
    
    
    852,427Interest on July 31, 2006 convertible debt
    
    
    925,753
    
    
    
    Miscellaneous
    
    
    97,403
    
    
    
    213,087$
    1,023,156
    
    
    $
    2,371,861
 NOTE 5  LONG-LIVED ASSETS
  December 31,
    
    
    December 31,2006
    
    
    2005Furniture and fixtures
    
    $
    166,554
    
    
    $
    166,554Equipment
    
    
    465,111
    
    
    
    404,414Software
    
    
    2,299,535
    
    
    
    2,295,803Leasehold improvements
    
    
    195,219
    
    
    
    195,2193,126,419
    
    
    
    3,061,990Less: accumulated depreciation
    
    
    (2,263,832
    )
    
    
    (1,421,107
    )$
    862,587
    
    
    $
    1,640,883
 NOTE 6  NET DEFERRED POLICY ACQUISITION COSTS
  December 31,
    
    
    December 31,2006
    
    
    2005Beginning balance, net
    
    $
    1,004,051
    
    
    $
    578,329Acquisition costs incurred
    
    
    786,933
    
    
    
    2,230,573Amortization of acquisition costs
    
    
    (554,977
    )
    
    
    (1,804,851
    )Ending balance, net
    
    $
    1,236,007
    
    
    $
    1,004,051
 NOTE 7  RESERVE FOR CLAIMS
  32




---



##### Table of Contents



December 31,
    
    
    December 31,2006
    
    
    2005Beginning balance, net
    
    $
    377,573
    
    
    $
    168,175Incurred losses related to:Current year
    
    
    2,141,205
    
    
    
    1,700,124Prior year
    
    
    (116,401
    )
    
    
    400,864Total incurred
    
    
    2,024,804
    
    
    
    2,100,988Paid losses related to:Current year
    
    
    (1,818,267
    )
    
    
    (1,325,655
    )Prior year
    
    
    (261,172
    )
    
    
    (565,935
    )Total paid
    
    
    (2,079,439
    )
    
    
    (1,891,590
    )Plus Ceded Reserve
    
    
    82,613
    
    
    
    Ending balance, net
    
    $
    405,551
    
    
    $
    377,573
 Reserve for Claims is represented by:
 December 31,
    
    
    December 31,2006
    
    
    2005Reported claims
    
    $
    8,644
    
    
    $
    3,363Incurred but not reported claims
    
    
    396,907
    
    
    
    374,210$
    405,551
    
    
    $
    377,573
 NOTE 8  DEBT
 Notes Payable
   Other Debt
 33




---



##### Table of Contents



November 2004 / September 2005 Debenture Issuance and Modifications
       November 2004 / September 2005 Extinguishment
  July 2006 Debenture Issuance
 34




---



##### Table of Contents



NOTE 9 OTHER EXPENSES
  35




---



##### Table of Contents



For the Years EndedDecember 31,
    
    
    December 31,2006
    
    
    2005Liquidated damages  October 2003 Stock Purchase
    
    $
    
    
    
    $
    316,602Interest expense on March 23, 2005 note
    
    
    9,088
    
    
    
    12,527Interest expense on capitalized lease
    
    
    2,285
    
    
    
    3,631Miscellaneous
    
    
    
    
    
    
    2,821Non Cash Expenses:Amortization of fees on November 2004
convertible debt
    
    
    366,497
    
    
    
    628,282Amortization of Prepaid Interest on November
2004 convertible debt
    
    
    462,569
    
    
    
    747,039Amortization of discount on November 2004
convertible debt
    
    
    1,408,210
    
    
    
    46,570Amortization of Prepaid Interest on September 30,
2005 convertible debt
    
    
    584,999
    
    
    
    250,714Amortization of discount on September 30, 2005
convertible debt
    
    
    16,223
    
    
    
    645Amortization of Prepaid Interest on July 31, 2006
convertible debt
    
    
    137,538
    
    
    
    Amortization of discount on July 31, 2006
convertible debt
    
    
    455
    
    
    
    Amortization of direct issue costs on July 31, 2006
convertible debt
    
    
    4,005
    
    
    
    Amortization on August 31, 2004 warrants
    
    
    
    
    
    
    41,196Loss on disposal of property and equipment
    
    
    
    
    
    
    32,399$
    2,991,869
    
    
    $
    2,082,426
  NOTE 10  LOSS ON EXTINGUISHMENT OF DEBT
   
    
    At issuance and modification
 
    
    Because of the beneficial conversion feature of these two debentures,
additional paid-in capital of $11,147,652 was recorded ($11,038,780 for the November
2004 debenture and $108,872 for the September 2005 debenture)
    
    Non-cash discounts of $11,147,652 were reflected as a reduction in the
outstanding balance of the Convertible Debentures, effectively making the initial
carrying value of the liability for these debentures to be $994,269
    
    Prepaid interest and expense of $3,668,970 were reflected as an asset on
the Companys balance sheet (prepaid interest of $1,538,970 and prepaid expense of
$1,026,859 for the November 2004 debenture and prepaid interest of $1,103,141 for
the September 2005 debenture)
 
    
    Quarterly accounting
 
    
    The non-cash discounts were being amortized over the life of the
debentures as an Other expense using the effective interest method, effectively
increasing the carrying value of the liability on the Companys balance sheet each
quarter (the cumulative amortization of the discounts at extinguishment was
$1,471,648)
    
    Prepaid asset was being amortized over the life of the debentures as an
Other expense (the cumulative amortization at extinguishment was $2,924,262)
 
    
    At extinguishment
 
    
    The carrying value for the liability on the Companys balance sheet for
these debentures was $2,465,917 ($994,269 initial carrying amount, plus $1,471,648
cumulative amortization of non-cash discounts)
 36




---



##### Table of Contents




    
    The balance of the prepaid asset was $744,708 ($3,668,970 initial asset
less $2,924,262 cumulative amortization)
   NOTE 11  LEASES
    For the year ended December 31,2007
    
    
    151,4742008
    
    
    151,4742009
    
    
    147,7322010
    
    
    150,0002011
    
    
    150,000Thereafter
    
    
    450,000$
    1,200,680
 NOTE 12  CEDED REINSURANCE
  37




---



##### Table of Contents



December 31,2006Gross amounts reinsuredPremiums
    
    $
    3,541,404Losses
    
    
    (2,117,806
    )Ceded costs
    
    
    (1,173,534
    )Reinsurance income (gross)
    
    
    250,064Ceded amountsPremiums
    
    
    169,094Losses
    
    
    (93,002
    )Ceded costs
    
    
    (57,492
    )Ceded reinsurance income
    
    
    18,600Net amounts reinsuredPremiums
    
    
    3,372,310Losses
    
    
    (2,024,804
    )Ceded costs
    
    
    (1,116,042
    )Reinsurance income (net)
    
    $
    231,464
 NOTE 13  NET LOSS PER SHARE
  Years EndingDecember 31,2006
    
    2005Net loss
    
    $
    (11,162,963
    )
    
    $
    (8,017,082
    )Weighted average common shares outstanding
    
    
    33,870,651
    
    
    
    14,590,645Dilutive effect of outstanding warrants and options
    
    
    
    
    
    
    Diluted common shares
    
    
    33,870,651
    
    
    
    14,590,645Basic net loss per share
    
    $
    (0.33
    )
    
    $
    (0.55
    )Diluted net loss per share
    
    $
    (0.33
    )
    
    $
    (0.55
    )
   38




---



##### Table of Contents



Outstanding and exercisable at December 31, 2006
    
    
    54,799,885Dollar
    
    Exerciseamount of
    
    price/Convertible
    
    Convertible
    
    Shares
    
    RemainingInstrument
    
    Description
    
    Debt
    
    price
    
    Exercisable
    
    life (years)Warrant
    
    August 31, 2004 Convertible debt
    
    
    N/A
    
    
    $
    0.60
    
    
    
    499,999
    
    
    
    2.7Warrant
    
    November 2004 Convertible debt
    
    
    N/A
    
    
    $
    0.01
    
    
    
    3,365,841
    
    
    
    2.9Warrant
    
    September 30, 2005 Convertible debt
    
    
    N/A
    
    
    $
    0.01
    
    
    
    4,016,872
    
    
    
    3.8Warrant
    
    Consulting Services
    
    
    N/A
    
    
    $
    5.00
    
    
    
    250,000
    
    
    
    2.4Warrant
    
    Consulting Services
    
    
    N/A
    
    
    $
    6.00
    
    
    
    250,000
    
    
    
    2.4Convertible Debt
    
    July 31, 2006
    
    
    5,063,291
    
    
    $
    0.10
    
    
    
    50,632,912
    
    
    
    2.6Warrant
    
    July 31, 2006 Convertible Debt
    
    
    N/A
    
    
    $
    0.10
    
    
    
    50,632,912
    
    
    
    3.6Options
    
    Employee options
    
    
    N/A
    
    
    $
    0.33
    
    
    
    1,948,000
    
    
    
    9.1Options
    
    Employee options
    
    
    N/A
    
    
    $
    0.11
    
    
    
    3,738,000
    
    
    
    9.7Potential additional shares as of December 31, 2006
    
    
    115,334,536Total potential shares as of December 31, 2006
    
    
    170,134,421
  WeightedaverageExercise
    
    exerciseNumber of
    
    price
    
    price pershares
    
    range
    
    shareOutstanding at December 31, 2003
    
    
    1,010,526
    
    
    $
    0.87-$1.90
    
    
    $
    1.59Granted
    
    
    6,503,618
    
    
    $
    0.95-$6.00
    
    
    $
    1.67Exercised
    
    
    (216,888
    )
    
    $
    0.87-$1.90
    
    
    $
    1.50Canceled
    
    
    (214,691
    )
    
    $
    0.87
    
    
    $
    0.87Outstanding at December 31, 2004
    
    
    7,082,565
    
    
    $
    0.95-$6.00
    
    
    $
    1.45Granted
    
    
    5,665,708
    
    
    $
    0.01-$0.69
    
    
    $
    0.03Exercised
    
    
    (407,407
    )
    
    $
    0.01
    
    
    $
    0.01Canceled
    
    
    (157,037
    )
    
    $
    0.01-$3.00
    
    
    $
    2.30Outstanding at December 31, 2005
    
    
    12,183,829
    
    
    $
    0.01-$6.00
    
    
    $
    0.39Granted
    
    
    50,682,909
    
    
    $
    0.10-$0.69
    
    
    $
    0.10Exercised
    
    
    (2,740,805
    )
    
    $
    0.01
    
    
    $
    0.01Canceled
    
    
    (1,110,309
    )
    
    $
    0.01-$3.00
    
    
    $
    1.76Outstanding at December 31, 2006
    
    
    59,015,624
    
    
    $
    0.01-$6.00
    
    
    $
    0.13
 NOTE 14  COMMITMENTS AND CONTINGENCIES
 Licensing Agreements
  39




---



##### Table of Contents



® ®
 Legal Proceedings
   NOTE 15  INCOME TAXES
  2006
    
    2005Federal statutory tax rate
    
    
    -34.0
    %
    
    
    -34.0
    %Change in net deferred income tax
assets, including effect of change
in valuation allowance
    
    
    34.0
    %
    
    
    34.0
    %Other
    
    
    
    
    
    
    Effective income tax rate
    
    
    0
    %
    
    
    0
    %
  40




---



##### Table of Contents



2006
    
    
    2005Deferred Income Tax Asset:Reserve discounting
    
    $
    
    
    
    $
    Policy acquisition costs capitalized for tax purposes
    
    
    389,926
    
    
    
    389,926Net operating loss carryforward
    
    
    5,384,050
    
    
    
    3,014,204Total deferred income tax assets
    
    
    5,773,976
    
    
    
    3,404,130Valuation allowance
    
    
    (4,798,882
    )
    
    
    (2,920,277
    )Net deferred income tax assets
    
    
    975,094
    
    
    
    3,404,130Deferred Income Tax Liabilities:Deferred policy acquisition costs
    
    
    (354,989
    )
    
    
    (341,377
    )Debt
discount for beneficial conversion feature
    
    
    (598,709
    )
    
    
    (2,920,277
    )Depreciation
    
    
    (21,396
    )
    
    
    (142,476
    )Total deferred income tax liabilities
    
    
    (975,094
    )
    
    
    (3,404,130
    )Net deferred income taxes
    
    $
    
    
    
    $
    
  NOTE 16  SHARE-BASED COMPENSATION
 Employee Share-Based Compensation
  Employee Share-Based Options
   FAS No. 123RExpense2006Risk-free interest rate
    
    
    4.69%-5.03%Expected life of options
    
    1 yearExpected dividend yield of stock
    
    
    0%Expected volatility of stock
    
    
    152%-273%Forfeiture rate
    
    
    0%
  41




---



##### Table of Contents



2006 Stock Option Plan
  2007
 First Quarter
    
    $
    3,929,000Second Quarter
    
    $
    3,929,000Third Quarter
    
    $
    2,060,000Fourth Quarter
    
    $
    2,060,000$
    11,978,000
  2006Weighted-
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateOptioned
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOptions authorized at January 1, 2006
    
    
    Granted
    
    
    18,031,000
    
    
    $
    0.14Exercised
    
    
    Forfeited
    
    
    (367,000
    )
    
    $
    0.19Expired
    
    
    Options authorized at December 31, 2006
    
    
    17,664,000
    
    
    $
    0.14
    
    
    
    9.7
    
    
    $
    1,956,640Exercisable at December 31, 2006
    
    
    5,686,000
    
    
    $
    0.19
    
    
    
    9.5
    
    
    $
    523,320
   43




---



##### Table of Contents



Weighted-Average Grant-Date FairNonvested Options
    
    Shares
    
    
    ValueNonvested at January 1, 2006
    
    
    
    
    
    $
    Granted
    
    
    18,031,000
    
    
    $
    0.10Vested
    
    
    (5,864,500
    )
    
    $
    0.12Forfeited
    
    
    (188,500
    )
    
    $
    0.10Nonvested at December 31, 2006
    
    
    11,978,000
    
    
    $
    0.09
  2007
 First Quarter
    
    $
    363,680Second Quarter
    
    $
    363,680Third Quarter
    
    $
    192,666Fourth Quarter
    
    $
    192,666Total Unrecoginized Compensation Cost
    
    $
    1,112,692
 Non-Employee Share-Based Compensation
   FAS No. 123RExpense2006Risk-free interest rate
    
    3.32% - 4.82%Expected life of options
    
    1 yearExpected dividend yield of stock
    
    0%Expected volatility of stock
    
    75% - 385%Forfeiture rate
    
    0%
  43




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##### Table of Contents



NOTE 17  SEGMENT INFORMATION
   Holding
    
    Insurance
    
    ReinsuranceCompany
    
    Agency
    
    company
    
    TotalYear Ended December 31, 2006Gross Revenue
    
    $
    
    
    
    $
    3,346,753
    
    
    $
    3,372,310
    
    
    $
    6,719,063Operating income (loss)
    
    $
    (743,703
    )
    
    $
    (4,462,772
    )
    
    $
    117,153
    
    
    $
    (5,089,322
    )Operating income (loss) %
    
    
    0.0
    %
    
    
    -133.3
    %
    
    
    3.5
    %
    
    
    -75.7
    %Total assets
    
    $
    1,541,001
    
    
    $
    2,958,225
    
    
    $
    1,704,995
    
    
    $
    6,204,221Year Ended December 31, 2005Gross Revenue
    
    $
    
    
    
    $
    1,190,764
    
    
    $
    3,247,963
    
    
    $
    4,438,727Operating income (loss)
    
    $
    (1,166,829
    )
    
    $
    (4,928,639
    )
    
    $
    68,122
    
    
    $
    (6,027,346
    )Operating income (loss) %
    
    
    0.0
    %
    
    
    -413.9
    %
    
    
    2.1
    %
    
    
    -135.8
    %Total assets
    
    $
    3,551,393
    
    
    $
    3,615,741
    
    
    $
    2,250,517
    
    
    $
    9,417,651
 NOTE 18  SUBSEQUENT EVENTS
 PS Management Holdings litigation
  $4 Million Funding Commitment
   44




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Identification of Exhibits
    
    Method of Filing3.1
    
    Amended and Restated Articles of Incorporation
    
    Filed with this report.3.2
    
    Amended and Restated Bylaws of Hartville Group, Inc.
    
    Incorporated by reference to
Exhibit 3.2 to the SB-2 filed
October 25, 2000.4.1
    
    Form of Common Stock Certificate
    
    Incorporated by reference to
Exhibit 4.1 to the SB-2 filed
October 25, 2000.4.2
    
    Securities Purchase Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 4.1 to the 8-K filed
August 4, 2006.4.3
    
    Form of Secured Convertible Debenture, dated July 31,
2006
    
    Incorporated by reference to
Exhibit 4.2 to the 8-K filed
August 4, 2006.4.4
    
    Form of Common Stock Purchase Warrant, dated July 31,
2006
    
    Incorporated by reference to
Exhibit 4.3 to the 8-K filed
August 4, 2006.4.5
    
    Registration Rights Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 4.4 to the 8-K filed
August 4, 2006.4.6
    
    Securities Purchase Agreement, dated February 17, 2007
    
    Incorporated by reference to
Exhibit 4.1 to the 8-K filed
February 20, 2007.4.7
    
    Form of Secured Convertible Debenture, dated February
14, 2007
    
    Incorporated by reference to
Exhibit 4.2 to the 8-K filed
August 4, 2006.4.8
    
    Form of Stock Purchase Agreement, dated February 17,
2007
    
    Incorporated by reference to
Exhibit 4.3 to the 8-K filed
August 4, 2006.4.9
    
    Registrations Rights Agreement, dated February 14, 2007
    
    Incorporated by reference to
Exhibit 4.4 to the 8-K filed
August 4, 2006.10.1
    
    Conversion Agreement and Release, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.1 to the 8-K filed
August 4, 2006.10.2
    
    Security Agreement, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.2 to the 8-K filed
August 4, 2006.10.3
    
    Form of Subsidiary Guarantee, dated July 31, 2006
    
    Incorporated by reference to
Exhibit 10.3 to the 8-K filed
August 4, 2006.10.4
    
    Employment Agreement for Dennis C. Rushovich *
    
    Filed with this report.10.5
    
    Employment Agreement for Christopher R. Sachs *
    
    Filed with this report.10.6
    
    Employment Agreement for Christopher Edgar *
    
    Filed with this report.10.7
    
    Employment Agreement for Hirsch Ribakow *
    
    Incorporated by reference to
Exhibit 10.9 to the SB-2 filed
June 2, 2005.10.8
    
    Restricted Stock Agreement between Hartville Group,
Inc. and Christopher Edgar *
    
    Incorporated by reference to
Exhibit 10.4 to the 8-K filed
February 15, 2006.10.9
    
    2006 Stock Option Plan *
    
    Incorporated by reference to
Exhibit 10.1 to the 8-K filed
February 15, 2006.10.10
    
    Form of Stock Option Agreement under the 2006 Stock
Option Plan *
    
    Incorporated by reference to
Exhibit 10.2 to the 8-K filed
February 15, 2006.
 45




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##### Table of Contents



Exhibit No.
    
    Identification of Exhibits
    
    Method of Filing14.
    
    Code of Ethics
    
    Incorporated by reference to
Exhibit 14 to the 10-KSB filed
April 13, 2004.21.
    
    List of Subsidiaries
    
    Filed with this report.31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
    
    Filed with this report.31.2
    
    Certification of Principal Financial and Account
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act.
    
    Filed with this report.32.1
    
    Certification of the Chief Executive Officer and Chief
Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act.
    
    Filed with this report.
 
 *
    
    Management contract or compensatory plan or arrangement. 46