U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2004
Commission File Number: 333-85306
PUREZZA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-1129912
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
936A Beachland Boulevard Suite 13, Vero Beach, FL 32963
-------------------------------------------------------
(Address of principal executive offices)
(772) 231-7544
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|.
As of October 22, 2004, there were 58,000,000 shares of common stock, par value
$0.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of September 30, 2004
(unaudited) 1
Consolidated Condensed Statements of Operations for the
three month and nine month periods ended September 30, 2004
and 2003 and for the period from August 9, 2001 (inception)
through September 30, 2004 (unaudited) 2
Consolidated Condensed Statements of Cash Flows for the
nine month periods ended September 30, 2004 and 2003 and for the
period from August 9, 2001 (inception) through September 30, 2004
(unaudited) 3
Notes to Condensed Financial Statements (unaudited) 4-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
Item 3. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 2 Changes in Securities 20
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
Certifications 23-25
Part I - Financial Information
Item 1. Financial Statements
Statements made in this Form 10-QSB (the "Quarterly Report") that are not
historical or current facts are "forward-looking statements" made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements often can be identified by the
use of terms such as "may", "will", "expect", "believe", "anticipate",
"estimate", "approximate", or "continue", or the negative thereof. Purezza
Group, Inc. (the "Company") intends that such forward-looking statements be
subject to the safe harbors for such statements. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. Any forward-looking statements represent
management's best judgment as to what may occur in the future. However,
forward-looking statements are subject to risks, uncertainties and important
factors beyond the control of the Company that could cause actual results and
events to differ materially from historical results of operations and events and
those presently anticipated or projected. These factors include adverse economic
conditions, entry of new and stronger competitors, inadequate capital and
unexpected costs. Except as required by law, the Company disclaims any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED FINANCIAL STATEMENTS
For the nine months ended September 30, 2004
(Unaudited)
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEET
September 30,
2004
(unaudited)
-------------
ASSETS
Current Assets:
Cash $ 43,804
-----------
Total Current Assets 43,804
-----------
Total Assets $ 43,804
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accrued expenses $ 4,025
-----------
Total Current Liabilities 4,025
Stockholders' Equity
Common stock (100,000,000 shares authorized, 58,000
58,000,000 issued and outstanding)
Additional paid in capital 1,023,522
Deficit accumulated during the development stage (1,041,743)
-----------
Total Stockholders' Equity 39,779
-----------
Total Liabilities and Stockholders' Equity $ 43,804
===========
The accompanying notes are an integral part of the financial statements.
1
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Nine Months August 9, 2001
Ending Sept. 30, Ending Sept. (Inception)
----------------------------- --------------------------- Through
2004 2003 2004 2003 Sept. 30, 2004
---------- ---------- ---------- ---------- --------------
Revenue $ -- $ -- $ -- $ -- $ --
General and administrative
expenses 15,816 -- 90,221 -- 90,221
---------- ---------- ---------- ---------- ----------
Loss from continuing
operations (15,816) -- (90,221) -- (90,221)
Disposed operations:
Loss from disposal of
product line and related
assets -- -- (227,556) -- (227,556)
Income (loss) from operations of
disposed product line -- 20,726 (44,537) (111,278) (723,966)
Income tax benefit (expense) -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Income (loss) from disposed
operations -- 20,726 (272,093) (111,278) (951,522)
---------- ---------- ---------- ---------- -----------
Net loss $ (15,816) $ 20,726 $ (362,314) $ (111,278) $(1,041,743)
========== ========== ========== ========== ===========
Net loss per share:
Continuing operations $ (0.00) $ 0.00 $ (0.00) $ (0.00)
Loss from disposal of
product line and related
assets (0.00) (0.00) (0.01) (0.00)
Income (loss) from operations
of disposed product line (0.00) 0.00 (0.00) (0.01)
---------- ---------- ---------- ----------
$ (0.00) $ 0.00 $ (0.01) $ (0.01)
========== ========== ========== ==========
Weighted average number of
shares outstanding,
basic and diluted 53,396,739 7,815,000 34,163,905 7,815,000
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
2
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ending August 9, 2001
September 30, (Inception)
------------------------------- Through
2004 2003 Sept. 30, 2004
----------- ----------- --------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss $ (362,314) $ (111,278) $(1,041,743)
Adjustments to reconcile net loss to net
cash flows from operations:
Stock issued for services 47,000 -- 47,100
Depreciation expense 641 1,525 3,220
Impairment of license -- -- 150,000
Non-cash portion of loss on
disposal of product line 854 -- 854
Increase (decrease) in:
Accounts payable -- -- --
Accrued expenses 4,025 (3,158) 4,025
Accrued interest -- (67,991) --
----------- ----------- -----------
Net cash flows from operating
activities (309,794) (180,902) (836,544)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of license -- -- (150,000)
Purchase of computer -- -- (4,074)
----------- ----------- -----------
Net cash flows from investing activities -- -- (154,074)
CASH FLOWS FROM FINANCING
ACTIVITIES
Sale of common stock 100,000 -- 438,047
Repurchase of common stock -- -- (3,625)
Proceeds from convertible debenture -- -- 600,000
----------- ----------- -----------
Net cash flows from financing activities 100,000 -- 1,034,422
----------- ----------- -----------
Net increase (decrease) in cash (209,794) (180,902) 43,804
Cash, beginning of period 253,598 476,717 --
----------- ----------- -----------
Cash, end of period $ 43,804 $ 295,815 $ 43,804
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
3
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Purezza Group,
Inc. (the "Company") are presented in accordance with the requirements for
Form 10-Q and Article 10 of Regulation S-X and Regulation S-B. Accordingly,
they do not include all of the disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments (all
of which were of a normal recurring nature) considered necessary to fairly
present the financial position, results of operations, and cash flows of
the Company on a consistent basis, have been made.
These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in
the preparation of the Company's Annual Financial Statements for the years
ending December 31, 2003 and 2002. Operating results for the nine months
ending September 30, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004.
The Company recommends that the accompanying financial statements for the
interim period be read in conjunction with the financial statements and
notes for the years ending December 31, 2003, and 2002, previously filed.
Use of estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the statements
of financial condition and revenues and expenses for the year then ended.
Actual results may differ significantly from those estimates.
Disposed Operations
The Company has adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No.
144 modifies previous disclosures and requires additional disclosures for
discontinued operations and the assets associated with discontinued
operations.
Net Loss Per Share
Basic loss per weighted average common share is computed by dividing the
net loss by the weighted average number of common shares outstanding during
the period.
Stock Compensation For Services Rendered
The Company may issue shares of common stock in exchange for services
rendered. The costs of the services are valued according to generally
accepted accounting principles and will be charged to operations.
Fair Value of Financial Instruments
The Company has no financial instruments, other than cash.
4
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 2 - NATURE OF BUSINESS
Purezza Group, Inc. ("the Company") is a Florida chartered development
stage corporation headquartered in Vero Beach, Florida. The Company was
incorporated on August 9, 2001 to market a product called Phoslock.
Phoslock is a patented product that efficiently removes phosphorus and
other oxyanions in natural and industrial waters and wastewater streams.
Prior to April 22, 2004, the Company's activities consisted of capital
transactions, organization, and development of the Company's Phoslock
product line.
On April 23, 2004 the Company transferred all of its assets including, cash
on hand, the Phoslock product line, and all of the Company's rights under a
license agreement for the use of the Phoslock product line, to Purezza
Marketing, Inc. ("PMI"), a wholly owned subsidiary of the Company. The
Company's license agreement was with Integrated Mineral Technology Limited
("Integrated"), an Australian entity, and provided for certain fixed
royalty payments by the Company. As part of the Company's asset transfer to
PMI, PMI assumed all liabilities under the license agreement, which
assumption was consented to by Integrated. Since the original cost of the
license had already been expensed in a prior year and the previously
required royalty payments had been waived through 2003, there is no effect
on the balance sheet as of June 30, 2004 due to the license transfer and
assumption.
Concurrently with the asset transfer to PMI, the Company distributed on a
pro rata basis all of its stock ownership in PMI to the holders of its
common stock (the "Distribution"). As a result of this transfer and the
Distribution, PMI will operate independently from the Company and as a
successor to the Company's business and operations. The Distribution was
accounted for as a disposed operation pursuant to Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".
As a result of the asset transfer and the Distribution, the Company no
longer has any meaningful business assets, operations or sources of
revenue. The Company plans to pursue and negotiate a business combination
or other strategic transaction. Ultimately, the continuation of the Company
as a going concern is dependent upon the establishment of profitable
operations. Because the achievement of these plans in dependent on future
events, there can be no assurance that future profitable operations will
occur as planned.
5
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY
On April 2, 2004, the Company cancelled 900,000 shares of common stock
issued to its former President, Leonard M. Perle, who resigned for health
reasons. On April 2, 2004, the Company issued 900,000 shares of common
stock to Larry Legal as executive compensation for services rendered having
a fair value of $9,000.
During April 2004, the Company cancelled 800,000 shares of common stock
previously issued to Pro Finishes, Inc. for marketing services. The Company
issued 800,000 shares of common stock to International Equities Group, Inc.
("IEG") during April 2004 as compensation for marketing services rendered
having a fair value of $8,000.
In an equity for debt transaction dated April 23, 2004, International
Equities Group, Inc. ("IEG") converted a $600,000 Debenture Note
Payable into 37,185,000 shares of the Company's common stock.
On April 23, 2004, Keating Reverse Merger Fund, LLC ("KRM Fund"), pursuant
to a Stock Purchase Agreement, acquired from IEG 37,185,000 shares of the
Company's common stock. Effective as of the closing of the Stock Purchase
Agreement, Larry Legel resigned as the Chairman of the Company's Board of
Directors and as its President, and Kevin R. Keating was appointed as the
sole Director, President, Treasurer and Secretary of the Company.
Concurrently, the principal executive office of the Company was moved to
936A Beachland Boulevard, Suite 13, Vero Beach, FL 32963.
In order to fund the Company's working capital needs, on April 26, 2004,
the Company sold to KRM Fund 5,000,000 shares of common stock at a purchase
price of $0.01 per share, for an aggregate consideration of $50,000.
On April 26, 2004, 2,000,000 shares of the Company's common stock were
issued to Kevin R. Keating, the Company's sole officer and director, as
compensation for services valued by the Company at $20,000. On April 26,
2004, 500,000 shares of the Company's common stock were issued to Bertrand
T. Ungar for consulting services valued by the Company at $5,000.
In order to fund the Company's working capital needs, on September 15,
2004, the Company sold to KRM Fund 5,000,000 shares of common stock at a
purchase price of $0.01 per share, for an aggregate consideration of
$50,000.
On September 15, 2004, 500,000 shares of the Company's common stock were
issued to a financial consulting firm, as compensation for services valued
by the Company at $5,000.
6
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY (continued)
The following summarizes changes in the Company's stockholders' equity since
the end of its most recent fiscal year:
Deficit
Accumulated
Additional During the Total
Common Stock Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
----------- ----------- ----------- ----------- -------------
Balance,
January 1, 2004 7,815,000 $ 7,815 $ 326,707 $ (679,429) $ (344,907)
Cancellation of shares
April 2004 (1,700,000) (1,700) 1,700 -- --
Issuance of shares
for services, April
2004, $0.01 per share 1,700,000 1,700 15,300 -- 17,000
Debenture converted to
stock, April 2004, $0.017
per share 37,185,000 37,185 562,815 -- 600,000
Issuance of stock for
cash, April 2004, $0.01
per share 5,000,000 5,000 45,000 -- 50,000
Issuance of stock for
services, April 2004, $0.01
per share 2,500,000 2,500 22,500 -- 25,000
Issuance of stock for cash and
services, Sept 2004, $0.01
per share 5,500,000 5,500 49,500 -- 55,000
Net loss -- -- -- (362,314) (362,314)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 2004 52,500,000 $ 52,500 $ 974,022 $(1,041,743) $ 39,779
=========== =========== =========== =========== ===========
7
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 4 - OPTIONS
During the quarter ending December 31, 2003, the Company issued
options to purchase common stock as follows:
to Larry Legel, former President, Chief Executive Officer, Chief
Administrative Officer, Director, Secretary, Treasurer and Chief Financial
Officer, in the amount of 150,000 options at a strike price of $0.10 per
share. The options may be exercised at any time for five years. The option
date is October 20, 2003. The expiration date is October 20, 2008. The options
were issued to Director/Officer in consideration for services rendered, and in
anticipation of future services to be rendered.
to Sanzari Family Trust, in the amount of 250,000 options at a strike price
of $1.00 per share. The options may be exercised at any time for three years.
The option date is October 27, 2003. The expiration date is October 27, 2006.
The options were issued in consideration of the option holder providing
working capital to the Company.
to TJP Management, Inc., in the amount of 250,000 options at a strike price
of $1.00 per share. The options may be exercised at any time for three years.
The option date is October 27, 2003. The expiration date is October 27, 2006.
The options were issued in consideration of the option holder providing
working capital to the Company.
to Gregory A. Nagel, in the amount of 1,000,000 options at a strike price
of $1.00 per share. The options may be exercised at any time for five years.
The option date is November 5, 2003. The expiration date is November 5, 2006.
The options were issued in consideration of the option holder providing
working capital to the Company.
The compensation costs for the above transactions were immaterial.
NOTE 5 - INCOME TAXES
At September 30, 2004, the Company had accumulated net operating loss
carryforwards for federal tax purposes of approximately $1,035,743 that are
available to offset future taxable income, if any, through 2023. Realization
of the net operating loss carryforwards is dependent upon future profitable
operations. In addition, the carryforwards may be limited upon a change of
control as described in Internal Revenue Code Section 382. Accordingly,
management has recorded a valuation allowance to reduce deferred tax assets
associated with net operating loss carryforwards to zero at September 30,
2004.
8
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 6 - RELATED PARTY TRANSACTIONS
The sole officer and director of the Company, Kevin R. Keating, is the father
of the principal stockholder of Keating Investments, LLC. Keating
Investments, LLC is the managing member of KRM Fund, which is the majority
shareholder of the Company. KRM Fund owns approximately 81.4% of the
outstanding shares of the Company's common stock as of September 30, 2004.
Kevin R. Keating is not affiliated with and has no equity interest in Keating
Investments, LLC or KRM Fund and disclaims any beneficial interest in the
shares of the Company's stock owned by KRM Fund. Similarly, Keating
Investments, LLC and KRM Fund disclaim any beneficial interest in the shares
of the Company's common stock currently owned by Kevin R. Keating.
On June 10, 2004, the Company entered into a contract with Vero Management,
L.L.C. ("Vero") for managerial and administrative services. Vero has not been
engaged to provide, and Vero does not render, legal, accounting, auditing,
investment banking or capital formation services. Kevin R. Keating, the sole
director of the Company, is the manager of Vero. The term of the contract is
for one year. In consideration of the services provided, Vero will be paid
$1,000 for each month in which services are rendered. For the current
quarter, $3,000 is included in general and administrative expense pursuant to
this agreement, $3,000 has been paid, and $1,000 remains in accounts payable
at September 30, 2004.
NOTE 7 - LETTER OF INTENT
On September 24, 2004, Purezza Group, Inc. ("Company") entered into a Letter
of Intent to acquire Puda Investment Holding Limited, a company incorporated
under the laws of the British Virgin Islands ("Puda"). Puda is the holding
company of Shanxi Puda Resources ("Shanxi"), a company formed in June 1995
and currently headquartered in Taiyuan City, Shanxi province, China.
Under the transactions contemplated under the Letter of Intent, the Company
will acquire all of the issued and outstanding shares of Puda's capital stock
from Puda's existing stockholders ("Puda Stockholders"). In the exchange, the
Company will issue shares of its common stock to the Puda Stockholders in
such amount so that, immediately after giving effect to the acquisition, the
Puda Stockholders will own in the aggregate 90% of the Company's issued and
outstanding shares of common stock. At the close of the transaction, it is
contemplated that a new board of directors will be designated by the Puda
Stockholders and that such Board will include one member to be designated by
Keating Reverse Merger Fund, LLC, the current principal shareholder of the
Company. After the payment of certain transaction related fees (including the
issuance of the Company's common stock to certain finders and advisors), the
current stockholders of the Company are expected to own approximately 5% of
the issued and outstanding common stock after completion of the transaction
with Puda.
9
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 7 - LETTER OF INTENT (continued)
The Company's completion of the acquisition is subject to the negotiation and
execution of a definitive acquisition agreement and the delivery of financial
statements of Puda and its subsidiaries prepared in accordance with generally
accepted accounting principles in the United States of America. Subject to the
satisfaction of the above conditions and other customary conditions, the
acquisition is presently expected to close in December 2004. However, there can
be no assurances that the acquisition will be completed.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this report, including statements concerning
the Company's future cash and financing requirements, and other statements
contained herein regarding matters that are not historical facts, are forward
looking statements; actual results may differ materially from those
anticipated.
Company Background
The Company was formed to market a product called Phoslock. Phoslock is a
patented product that efficiently removes phosphorus and other oxyanions in
natural and industrial waters and wastewater streams. Prior to April 22, 2004,
the Company's activities consisted of capital transactions, organization, and
development of the Company's Phoslock product line.
On April 23, 2004 the Company transferred all of its assets including, cash on
hand, the Phoslock product line, and all of the Company's rights under a
license agreement for the use of the Phoslock product line, to Purezza
Marketing, Inc. ("PMI"), a wholly owned subsidiary of the Company. The
Company's license agreement was with Integrated Mineral Technology Limited
("Integrated"), an Australian entity, and provided for certain fixed royalty
payments by the Company. As part of the Company's asset transfer to PMI, PMI
assumed all liabilities under the license agreement, which assumption was
consented to by Integrated.
Concurrently with the asset transfer to PMI, the Company distributed on a pro
rata basis all of its stock ownership in PMI to the holders of its common stock
(the "Distribution"). As a result of this transfer and the Distribution, PMI
will operate independently from the Company and as a successor to the Company's
business and operations.
As a result of the asset transfer and the Distribution, the Company no longer
has any meaningful business assets, operations or sources of revenue. The
Company plans to pursue and negotiate a business combination with an operating
company. Ultimately, the continuation of the Company as a going concern is
dependent upon the establishment of profitable operations. Because the
achievement of these plans in dependent on future events, namely, a business
combination with an operating company, there can be no assurance that future
profitable operations will occur as planned.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations
For the nine months ended September 30, 2004 the Company had no activities that
produced revenues from operations.
For the nine months ending September 30, 2004 and 2003, the Company had net
losses of $(362,314) and $(111,278) respectively. In 2004, the Company decided
to dispose of its existing business through a stock distribution of all of its
assets to its shareholders. These assets consisted of cash of $226,702 and
other assets with a net book value of $854, which were recorded as a loss on
disposed operations.
Liquidity and Capital Resources
The Company's total assets as September 30, 2004 are $43,804, which is
comprised of cash. The Company's current liabilities are $1,000. The Company
has no long-term debt. Total stockholders' equity as of September 30, 2004 is
$39,779.
On April 2, 2004, the Company cancelled 900,000 shares of common stock issued
to its former President, Leonard M. Perle, who resigned for health reasons. On
April 2, 2004, the Company issued 900,000 shares of common stock to Larry Legal
as executive compensation for services rendered having a fair value of $9,000.
During April 2004, the Company cancelled 800,000 shares of common stock
previously issued to Pro Finishes, Inc. for marketing services. The Company
issued 800,000 shares of common stock to International Equities Group, Inc.
("IEG") during April 2004 as compensation for marketing services rendered
having a fair value of $8,000.
In an equity for debt transaction dated April 23, 2004, International Equities
Group, Inc. ("IEG") converted a $600,000 Debenture Note Payable into 37,185,000
shares of the Company's common stock. On April 23, 2004, Keating Reverse Merger
Fund, LLC ("KRM Fund"), pursuant to a Stock Purchase Agreement, acquired from
IEG 37,185,000 shares of the Company's common stock.
In order to fund the Company's working capital needs, on April 26, 2004, the
Company sold to KRM Fund 5,000,000 shares of common stock at a purchase price
of $0.01 per share, for an aggregate consideration of $50,000.
On April 26, 2004, 2,000,000 shares of the Company's common stock were issued
to Kevin R. Keating, the Company's sole officer and director, as compensation
for services valued by the Company at $20,000. On April 26, 2004, 500,000
shares of the Company's common stock were issued to Bertrand T. Ungar for
consulting services valued by the Company at $5,000.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
In order to fund the Company's working capital needs, on September 15, 2004,
the Company sold to KRM Fund 5,000,000 shares of common stock at a purchase
price of $0.01 per share, for an aggregate consideration of $50,000.
On September 15, 2004, 500,000 shares of the Company's common stock were issued
to a financial consulting firm, as compensation for services valued by the
Company at $5,000.
The following is a summary of the Company's cash flows from operating,
investing, and financing activities:
Nine months ended September 30,
2004 2003
--------- ---------
Operating activities $(309,794) $(180,902)
Investing activities -- --
Financing activities 100,000 --
--------- ---------
Net effect on cash $(209,794) $(180,902)
========= =========
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Plan of Operations
The Company's Plan of Operations is based on identifying and attracting a
suitable privately held company, one that has both a business history and
operating assets, with which to effect a business combination.
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in an operating business presented to it by
persons or firms who or which desire to seek the advantages of an issuer who
has complied with the reporting requirements of the Securities Act of 1934, as
amended ("1934 Act"). The Company will not restrict its search to any specific
business, industry, or geographical location, and may participate in a business
venture of virtually any kind or nature. This discussion of the proposed
business is purposefully general and is not meant to be restrictive of the
Company's virtually unlimited discretion to search for and enter into potential
business combinations. Management anticipates that it may be able to
participate in only one potential business combination because the Company has
nominal assets and limited financial resources.
The Company may seek a business combination with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The Company
may acquire assets and establish wholly owned subsidiaries in various
businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in which
to participate will be complex and extremely risky. Due to general economic
conditions, rapid technological advances being made in some industries and
shortages of available capital, the Company's management believes that there
are numerous firms seeking the benefits of an issuer who has complied with the
reporting requirements of the 1934 Act. Such benefits may include facilitating
or improving the terms on which additional equity financing may be sought,
providing incentive stock options or similar benefits to key employees, and
providing liquidity (subject to restrictions of applicable statutes) for
shareholders. Potentially, available business opportunities may occur in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex. The Company has, and will
continue to have, limited capital with which to provide the owners of business
opportunities with any significant cash or other assets. However, the Company's
management believes the Company will be able to offer owners of acquisition
candidates the opportunity to acquire a controlling ownership interest in an
issuer who has complied with the reporting requirements of the 1934 Act without
incurring the cost and time required to conduct an initial public offering.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The analysis of new business opportunities will be undertaken by, or under the
supervision of, the officers and directors of the Company. The Company's
management intends to concentrate on identifying preliminary prospective
business opportunities which may be brought to its attention through present
associations of the Company's officers and directors, or by the Company's
shareholders. The Company may engage financial advisors and investment banking
firms to assist it in identifying and analyzing prospective business
opportunities. Due to the limited financial resources of the Company, it is
likely that these advisors and firms will be compensated, generally on a
success basis, in the form of cash and the Company's stock.
In analyzing prospective business opportunities, the Company's management will
consider such matters as the available technical, financial and managerial
resources; working capital and other financial requirements; history of
operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development or exploration; specific risk factors not now foreseeable but which
then may be anticipated to impact the proposed activities of the Company; the
potential for growth or expansion; the potential for profit; the public
recognition of acceptance of products, services or trades; name identification;
and other relevant factors. Officers and directors of the Company expect to
interview and/or meet personally with management and key personnel of the
business opportunity as part of their investigation. To the extent possible,
the Company intends to utilize written reports and personal investigation to
evaluate the above factors, including such reports and investigations prepared
by its financial advisors.
As part of the Company's compliance with the reporting requirement of the 1934
Act, the Company intends to furnish information about significant acquisitions,
including audited financial statements for the target company, covering one,
two or three years depending upon the revenue of the target company.
Consequently, acquisition prospects that do not have or are unable to obtain
the required audited statements will not be appropriate for acquisition
candidates.
In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture,
or licensing agreement with another corporation or entity. The Company may
alternatively purchase the capital stock or the operating assets of an existing
business.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The structure of the business combination will depend on, among other factors:
o the nature of the target business,
o the Company's needs and desires and the needs and desires of those
persons controlling of the target business,
o the management of the target business, and
o the Company's relative negotiating strength compared to the strength of
the persons controlling the target business.
It is possible that, after the Company successfully consummates a merger or
acquisition with an unaffiliated entity, that entity may desire to employ or
retain one of the Company's officers or directors for the purposes of providing
services to the surviving entity. However, the Company has adopted a policy
whereby the offer of any post-transaction employment to current officers and
directors will not be a consideration in the Company's decision to undertake
any proposed transaction. Each member of the Company's management has agreed to
disclose to the Board of Directors any discussions concerning possible
employment by any entity that proposes to undertake a transaction with the
Company and further, to abstain from voting on the transaction. Therefore, as a
practical matter, if each member of the Board of Directors is offered
employment in any form from any prospective merger or acquisition candidate,
the proposed transaction will not be approved by the Board of Directors as a
result of the inability of the Board of Directors to affirmatively approve the
transaction. The transaction would then be subject to the approval of a
majority of the Company's existing shareholders.
Any merger or acquisition can be expected to have a significant dilutive effect
on the percentage of shares held by the Company's existing stockholders. The
target businesses that the Company will likely consider will, in all
probability, have significantly more assets than the Company has. Therefore, in
all likelihood, the Company's management will offer a controlling interest in
the Company to the owners of the target business. While the actual terms of a
transaction to which the Company may be a party cannot be predicted, the
Company expects that the parties to the business transaction will find it
desirable to avoid the creation of a taxable event and thereby structure the
acquisition in a so-called "tax-free" reorganization under Sections 368(a)(1)
or 351 of the Internal Revenue Code. In order to obtain tax-free treatment
under the Internal Revenue Code, the owners of the acquired business may need
to own 80% or more of the voting stock of the surviving entity. As a result,
the Company's stockholders would retain 20% or less of the issued and
outstanding shares of the surviving entity, which would result in significant
dilution in their ownership percentage of the entity after the combination and
may also result in a reduction in the net tangible book value per share of the
Company's existing stockholders. In addition, all or a majority of the
Company's current directors and officers will probably, as part of the terms of
the acquisition transaction, resign as directors and officers.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
To complete a merger or acquisition, the Company may also have to compensate
certain advisors, finders and investment banking firms for services rendered in
connection with the identification of private company targets and the
negotiation and completion of the transaction. Due to the Company's limited
resources, it is expect that all or a portion of this compensation will be in
the form of the Company's common stock, which will have a further dilutive
effect on the percentage of shares held by the Company's existing stockholders.
The Company will remain an insignificant player among the firms which engage in
business combinations. There are many established venture capital and financial
concerns which have significantly greater financial and personnel resources and
technical expertise than the Company has. In view of the Company's limited
financial resources and limited management availability, the Company will
continue to be at a significant disadvantage compared to other venture capital
and financial concerns that compete with the Company. The Company will also be
competing for acquisition opportunities with other public shell companies that
do not have an operating business.
The Company's activities following a business combination with a target company
will be dependent on the nature of the acquired business, as well as the
interest acquired. It may be expected that the acquired business will present
various risks to the Company's existing stockholders. We cannot yet
appropriately assess the risks of the business at the present time, even in
general terms, as we have not restricted the Company's search for a potential
target company to any one particular field of endeavor.
On September 24, 2004, the Company entered into a Letter of Intent to acquire
Puda Investment Holding Limited, a company incorporated under the laws of the
British Virgin Islands ("Puda"). Puda is the holding company of Shanxi Puda
Resources ("Shanxi"), a company formed in June 1995 and currently headquartered
in Taiyuan City, Shanxi province, China.
Under the transactions contemplated under the Letter of Intent, the Company
will acquire all of the issued and outstanding shares of Puda's capital stock
from Puda's existing stockholders ("Puda Stockholders"). In the exchange, the
Company will issue shares of its common stock to the Puda Stockholders in such
amount so that, immediately after giving effect to the acquisition, the Puda
Stockholders will own in the aggregate 90% of the Company's issued and
outstanding shares of common stock. At the close of the transaction, it is
contemplated that a new board of directors will be designated by the Puda
Stockholders and that such Board will include one member to be designated by
Keating Reverse Merger Fund, LLC, the current principal shareholder of the
Company. After the payment of certain transaction related fees (including the
issuance of the Company's common stock to certain finders and advisors), the
current stockholders of the Company are expected to own approximately 5% of the
issued and outstanding common stock after completion of the transaction with
Puda.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's completion of the acquisition is subject to the negotiation and
execution of a definitive acquisition agreement and the delivery of financial
statements of Puda and its subsidiaries prepared in accordance with generally
accepted accounting principles in the United States of America. Subject to the
satisfaction of the above conditions and other customary conditions, the
acquisition is presently expected to close in December 2004. However, there can
be no assurances that the acquisition will be completed.
Shanxi was formed in June, 1995 in Taiyuan City, Shanxi province, China by Ming
Zhao. Shanxi focuses on high value added coal processing products - coal coke
and coal washing products. Shanxi processes crude coal by using its
water-supported technology, and produces coal coke product. Currently, Shanxi
is the top coal washing product producer and supplier in Shanxi province, and
the third largest producer in China after Shengmei Group and China Coal Group,
which belong to Chinese government.
Shanxi's current major customers are: Taiyuan Iron & Steel (Group) Co., Ltd.,
which is an iron and steel complex producing steel plate and stainless steel;
Baotou Iron and Steel (Group) Company, Limited, which is a production base of
iron and steel; and Beijing Coal Coke Chemical Corporation, which is a coal gas
supplier in Beijing.
Shanxi province has the biggest coal reserves in China, and commands more than
50% of coal production in China.
18
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There was no change in the
Company's internal control over financial reporting during the Company's most
recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In order to fund the Company's working capital needs, on September
15, 2004, the Company sold to KRM Fund 5,000,000 shares of common
stock at a purchase price of $0.01 per share, for an aggregate
consideration of $50,000.
On September 15, 2004, 500,000 shares of the Company's common stock
were issued to an financial consulting firm, as compensation for
services valued by the Company at $5,000.
In connection with the above stock issuances, the Company did not pay
any underwriting discounts or commissions. None of the sales of
securities described or referred to above was registered under the
Securities Act of 1933, as amended (the "Securities Act"). Each of
the purchasers fell into one or more of the categories that follow:
an existing shareholder of the Company, a creditor of the Company, a
current or former officer or director of the Company, a service
provider to the Company, or an accredited investor with whom the
Company or an affiliate of the Company had a prior business
relationship. As a result, no general solicitation or advertising was
used in connection with the sales. In making the sales without
registration under the Securities Act, the Company relied upon one or
more of the exemptions from registration including those contained in
Sections 4(2) of the Securities Act, and in Regulation D promulgated
under the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31 Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934, as amended.
32 Certification of Chief Executive Officer and Chief Financial
Officer of the Company, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
The following current reports were filed during the quarter ended
September 30, 2004:
On September 23, 2004, the Company filed a Current Report on
Form 8-K disclosing the sale of unregistered securities under
Item 3.02 of the Form.
On September 27, 2004 the Company filed a Current Report on Form
8-K disclosing a Letter of Intent to acquire Puda Investment
Holding Limited.
21
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PUREZZA GROUP, INC.
By: /s/ Kevin R. Keating
------------------------
Principal Executive Officer
Principal Financial Officer
Date: November __, 2004
22