UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[x] ANNUAL REPORT UNDER PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______
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)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, Par Value $.001 Per Share
(Title of Class)
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[_].
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB/A or any amendment to this Form 10-KSB/A. [X]
Issuer's revenues for its most recent fiscal year: $0
As of March 30, 2004, 6,915,000 shares of the registrant's Common Stock
were outstanding. The aggregate market value of the voting common equity held by
non-affiliates (based on the closing sale price of such stock as reported on
March 30, 2004 by the NASD Over-the-Counter Bulletin Board) was approximately
$ n/a .
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (Check One):
Yes [_] No [X]
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business........................................... 1
Item 2. Description of Property........................................... 6
Item 3. Legal Proceedings................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............... 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.......... 7
Item 6. Management's Discussion and Analysis or Plan of Operations........ 9
Item 7. Financial Statements.............................................. 16
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.............................................. 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................. 16
Item 10. Executive Compensation............................................ 18
Item 11. Security Ownership of Certain Beneficial Owners and Management.... 19
Item 12. Certain Relationships and Related Transactions.................... 20
Item 13. Exhibits and Reports on Form 8-K.................................. 21
Item 14. Controls and Procedures........................................... 22
Item 15. Principal Accountant Fees and Services............................ 22
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Summary
The Company Purezza Group, Inc. (the "Company") is a Florida chartered
development stage corporation which conducts business from its headquarters in
Ft. Lauderdale, 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 waste water streams.
Phoslock was developed in 1996 by CSIRO, an Australian Government Agency,
a research tank of 6,500 scientists. The product is currently being used
successfully in Australia by Integrated Minerals Technology ("IMT"), a private
Australian company selected by CSIRO to promote the commercial applications of
the product. We have a sublicense agreement with Integrated Minerals Technology.
This permits us to manufacture, market and distribute the Phoslock product to
the United States, Canada, Mexico, Central America and South America. Currently,
we plan to focus our marketing efforts of Phoslock only in the United States
through an affiliated company. Although we have the rights to do so, we will not
attempt to market Phoslock in Canada, Mexico and Central and South America,
until at least our second year of operations.
The applications of Phoslock include removal of phosphorus in natural
waterways, sewage treatment plants, farm dams, constructed wetlands, piggeries,
feedlots, golf courses, dairy farms, acquaculture farms, aquariums, mining,
industrial effluent, power plants, commercial development, and recreational and
domestic consumer use.
Phoslock is a modified clay product of slurry powder granules. It works by
being spread onto water surface. It absorbs nutrients from the water column as
it settles to the bottom. Once it has passed through the water column, Phoslock
forms a stable sediment on the bed of the water body, which effectively traps
not only the nutrients that it has absorbed on the way down but those nutrients
already contained in bottom sediments.
To date, we have not generated any significant revenues. We will require
substantial additional financing to execute our business plan. The accompanying
financial statements include a "going concern" explanatory paragraph from our
accountants.
History and Recent Developments
The Company initially filed an SB-2 Registration Statement with the SEC on
April 1, 2002. The registration statement was a secondary offering by certain
existing shareholders of the Company. The registration statement covered 67,600
shares of the Company's common stock being offered by such selling shareholders
at a price of $1.10 per share. The registration statement was declared effective
on April 1, 2003. Since this was a secondary offering, the Company did not
receive any proceeds from the sale of such shares.
The operating capital for the Company was derived primarily from private
placements of the Company's restricted common stock as well as a convertible
debenture in the principal amount of $600,000, which is due and payable on May
24, 2004.
In January 2004, the Company's President, Leonard Perle, resigned as a
result of failing health. The Company filed an 8-K, which stated: "Leonard M.
Perle has informed the Company that due to failing health and at the advice of
his doctors, that he is resigning as President and from the Board of Directors
of Purezza Group, Inc. Mr. Perle has not informed the Company that his
resignation is because of a disagreement on any matter relating to the Company's
operations, policies or practices."
In reviewing its current operations, both managerial and financial, the
Company's board determined that its business may best be conducted as a private
company. Accordingly it has decided, to divest itself of its current operations
by "spinning" them off to its shareholders. The effect of this will be to create
a publicly traded "shell".
1
Employees
During 2003, the Company had two executive officers and no other
employees. Mr. Leonard M. Perle served as President, Chief Executive Officer and
Director of the Company. On October 1, 2001, the Company entered into an
employment contract with Mr. Perle. Pursuant to the agreement, the term is for
five years and the base compensation to be paid to Mr. Perle is as follows:
months one through twelve at $60,000 annually; months thirteen through nineteen
at $100,000 annually; months twenty through twenty-six at $150,000 annually; for
months twenty-seven through thirty-two at $200,000 annually; and months
thirty-three through sixty at $250,000
During 2003, Mr. Larry Legel served as Chief Administrative Officer, Chief
Financial Officer, Chief Accounting Officer, Secretary and Treasurer. Due to
health issues, Mr. Perle resigned as President, Chief Executive Officer and
Director effective January 27, 2004 and terminated the employment agreement on
the same date. Pursuant to the resignation of Mr. Perle effective January 27,
2004, Mr. Legel was elected President, Chief Executive Officer and Director in
addition to his then current titles. On February 25, 2004, the Company's board
approved the return of Leonard Perle's 900,000 shares of common stock, which had
previously been issued to him as executive compensation. These shares were
returned in connection with his resignation.
Under his employment agreement, Leonard Perle was granted 7,000,000
options exercisable at prices ranging from $0.50 to $7.00 per share, based on
meeting certain revenue or earnings levels (5,500,000 options based on specific
earnings levels, with a minimum $250,000 in earnings; and 1,500,000 options at
specific revenue levels, with a minimum $1 million in revenue). In connection
with Mr. Perle's resignation, these options were cancelled.
Risk Factors
WE MAY NEED SUBSTANTIAL ADDITIONAL FINANCING TO CONTINUE AS A GOING CONCERN. WE
HAVE NO PRESENT COMMITMENTS TO OBTAIN LONG-TERM FINANCING.
We have no significant assets or source of revenues. The Company intends
to develop or acquire a business or businesses which will require additional
financing. Currently, we do not have any funding commitments. Our failure to
obtain substantial additional financing would materially adversely affect our
ability to implement our business plan.
OUR COMMON STOCK TRADES ONLY SPORADICALLY AND HAS EXPERIENCED IN THE PAST, AND
IS EXPECTED TO EXPERIENCE IN THE FUTURE, SIGNIFICANT PRICE AND VOLUME
VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR
COMMON STOCK.
Because of the limited trading market for our common stock, and because of
expected price volatility, you may not be able to purchase or sell shares of our
common stock when you desire to do so. The inability to sell shares in a rapid
declining market may substantially increase an investor's risk of loss because
of such illiquidity and because the price of our common stock may suffer
declines because of its price volatility.
WE ARE NOT REQUIRED TO MEET OR MAINTAIN ANY LISTING STANDARDS FOR OUR COMMON
STOCK TO BE TRADED ON THE OTC BULLETIN BOARD.
The OTC Bulletin Board is separate and distinct from the The Nasdaq Stock
Market. Although the OTCBB is a regulated quotation service operated by The
Nasdaq Stock Market that displays real-time quotes, last sale prices, and volume
information in over-the-counter equity securities such as our common stock, we
are not required to meet or maintain any qualitative or quantitative standards
for our common stock to be traded on the OTCBB. Our common stock does not
presently meet the minimum listing standards of The Nasdaq Stock Market or any
other national securities exchange.
2
BECAUSE WE ARE A DEVELOPMENT STAGE COMPANY WITH A LIMITED OPERATING HISTORY, YOU
WILL BE UNABLE TO DETERMINE WHETHER WE WILL EVER BECOME PROFITABLE.
An investor cannot determine if we will ever become profitable. Future
losses are likely before our operations will become profitable, if ever. We are
a development stage company with limited operations and no revenue from our date
of inception on August 9, 2001 through December 31, 2003. In addition, during
that same period, we have incurred losses of $679,248. We anticipate that our
costs will increase over the next twelve months as we develop our business. As a
result, it is likely that our losses will continue to accumulate for this
foreseeable future as we further develop our business.
IF WE ARE UNABLE TO OBTAIN FINANCING TO SUPPORT OUR FUTURE GROWTH PLANS, WE MAY
HAVE TO CURTAIL OUR PLAN OF OPERATIONS AND THE VALUE OF YOUR INVESTMENT MAY BE
NEGATIVELY AFFECTED.
Our future business will involve substantial marketing and personnel
costs. If our revenue and existing cash are insufficient to implement our plan
of operations, we may need traditional bank financing or financing from a debt
or equity offering. However, if we are unable to obtain financing when needed,
we may be forced to curtail our operations and our growth plans, which could
negatively affect our revenues and potential profitability and the value of your
investment.
BECAUSE NEITHER OUR MANAGEMENT NOR OUR EXCLUSIVE SALES AGENT HAS RELEVANT
EXPERIENCE OR BACKGROUND IN AN ENVIRONMENTAL CLEANUP BASED BUSINESS, WE MAY BE
UNABLE TO DEVELOP PROFITABLE OPERATIONS.
Although the Australian-based licensor of Phoslock has environmental
solutions experience upon which we intend to rely, neither our management nor
our exclusive sales agent has any such experience. Accordingly, we may be unable
to compete effectively against companies that have experienced management or
sales personnel in the environmental clean-up area or develop profitable
operations.
OUR MANAGEMENT CURRENTLY DEVOTES LIMITED TIME TO OUR BUSINESS AND MAY CONTINUE
TO DO SO IN THE FUTURE, WHICH MAY PREVENT US FROM IMPLEMENTING OUR PLAN OF
OPERATIONS.
We currently have no full-time employees. As of January 2004, our
President/Chairman of the Board, Leonard Perle, resigned due to health reasons.
Our Secretary/Director, Larry Legel, assumed the role of President following Mr.
Perle's resignation. Mr. Legel will only devote a portion of his time to our
business and the remainder of his time will be devoted to his accounting
practice. Mr. Legel will continue to spend limited time on our business in the
future. The amount of time our management devotes to our business may be
inadequate to implement our plan of operations.
OUR PLANNED INTERNATIONAL BUSINESS WILL BE SUBJECT TO FOREIGN REGULATION,
FOREIGN JURISDICTION, AND FOREIGN POLITICAL EVENTS AND UPHEAVALS THAT MAY LEAD
TO INCREASED COSTS AND DECREASED REVENUES.
We eventually plan to conduct business in Canada, Mexico, and countries
located in Central and South America, which will subject us to foreign business
risks. These countries have different standards and controls related to the
environment, currency fluctuations, exchange controls, customs, foreign tax
increases, import and export, investment and taxation. These countries may also
be subject to economic upheavals or political crisis, instability, or political
changes in control. Our compliance with and reaction to foreign rules and
regulations or foreign political events may force us to decrease or eliminate
our business in certain foreign countries, which would negatively affect our
revenues and potential profitability.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY UNITED STATES REGULATORY COSTS WHICH
WOULD NEGATIVELY AFFECT OUR POTENTIAL PROFITABILITY.
Our use of the Phoslock product subjects us to U.S. environmental
regulations. Our shipment of raw materials to our manufacturers will subject us
to U.S. transportation regulations. The manufacture of the Phoslock product will
subject our manufacturers and us to the regulations of the Occupational Safety
and Hazardous Administration. Because the two primary substances used to make
3
the Phoslock product are approved substances by the United States Environmental
Protection Agency, we believe that we are not subject to Environmental
Protection Agency approval; however, there are no assurances that we will not
become subject to that agency's regulations. Regulation of our business may
result in increased costs and delays or fines and restrictions which may have an
adverse affect on our potential profitability.
IF WE FAIL TO MEET OUR DEBT OBLIGATIONS ON A DEBENTURE AGREEMENT OUR FINANCIAL
CONDITION AND OPERATIONS WILL BE NEGATIVELY AFFECTED.
We received $600,000 of financing in accordance with a debenture
agreement which obligates us to pay 8% interest on the unpaid principal balance
relating to a $600,000 debenture note, $600,000 of which remains unpaid as of
December 31, 2003. Should we default upon the debenture note, we will be
required to make full repayment of the debenture note and interest outstanding
to the debenture holder, which will negatively affect our financial condition
and ability to conduct our operations.
SHOULD EITHER OUR AGREEMENT WITH OUR AUSTRALIAN BASED LICENSOR OR THEIR
AGREEMENT WITH AN AUSTRALIAN GOVERNMENT AGENCY BE TERMINATED, WE WILL HAVE TO
SEEK AN ALTERNATIVE BUSINESS OR CEASE OUR OPERATIONS, IN WHICH CASE YOU COULD
LOSE YOUR ENTIRE INVESTMENT.
Our legal right to manufacture and market Phoslock is based upon our
license agreement with an Australia-based licensor. Their right to sublicense
Phoslock to us is based upon their agreement with an Australian government
agency that owns the Phoslock patent. If either of those agreements is
terminated due to a breach of contract claim or for any other reason, we will
not have the ability to conduct our planned business. Accordingly, if we failed
to find an alternative business, our operations would cease to exist and you
would lose your entire investment.
WE MAY BE UNABLE TO MEET OUR MINIMUM ROYALTY PAYMENTS TO OUR LICENSOR, WHICH
WILL NEGATIVELY AFFECT OUR FINANCIAL CONDITION, AND MAY LEAD TO LOSSES.
Under our sublicense agreement, we are required to make minimum royalty
payments to our Australian based licensor, regardless of the amount of Phoslock
we sell. However, our operations may not generate sufficient revenues to pay
these minimum royalty payments. Accordingly, the minimum royalty payments will
increase our operating costs which may lead to losses and/or may negatively
affect our operations. In addition, if we fail to make the minimum royalty
payments, we will be in violation of the agreement with our licensor, which
could lead to termination of the agreement and loss of your entire investment.
OUR AGREEMENT WITH OUR LICENSOR IMPOSES RESTRICTIONS ON OUR ABILITY TO MARKET
AND PROMOTE THE PHOSLOCK PRODUCT, WHICH MAY RESTRICT OUR ABILITY TO CONDUCT A
SUCCESSFUL MARKETING CAMPAIGN.
Our sublicense agreement requires us to use promotional materials
supplied by or approved by the Licensor. Accordingly, although we may present
promotional materials to our Licensor which we believe will successfully market
the Phoslock product, our Licensor may disapprove of the materials, which may
negatively affect our ability to conduct a successful marketing campaign.
WE MAY EXPERIENCE LOGISTICAL DIFFICULTIES IN THE SHIPMENT OF RAW MATERIALS TO
MANUFACTURERS OF THE PHOSLOCK PRODUCT, WHICH COULD LEAD TO PRODUCT MANUFACTURING
AND DELIVERY DELAYS, INCREASED COSTS, AND POSSIBLE ADVERSE EFFECT UPON OUR BRAND
NAME REPUTATION.
We have no current plan to maintain an inventory of the Phoslock
product; accordingly, we must rely upon effectively coordinating the shipment of
raw materials to our potential manufacturers on a per order basis. Because we
plan to have the materials shipped from various locations, including China,
there may be significant delays in raw material shipments to our manufacturers,
product delivery delays, increased costs, and negative effects upon our brand
name reputation.
4
BECAUSE THE AUSTRALIAN GOVERNMENT AGENCY PATENT OWNER HAS FAILED TO FILE FOR
PATENT PROTECTION IN THE COUNTRIES WHERE WE INTEND TO OPERATE, WE FACE RISKS
ASSOCIATED WITH PROTECTION OF THE PROPRIETARY PHOSLOCK PRODUCT THAT MAY
NEGATIVELY AFFECT OUR POTENTIAL PROFITABILITY.
Our success depends on the ability of the Australian government agency
patent owner to protect proprietary technology and intellectual property rights
regarding the Phoslock product; however, the Australian based government agency
that owns the patent for Phoslock has not filed for patent protection with the
appropriate governmental patent agencies in the United States, Canada, Mexico,
and Central and South America. Accordingly, we may be subject to patent
infringement claims which may lead to substantial litigation costs, possible
injunctions against further use of the product, or monetary judgments against
us, our licensor, or the Australian government agency patent owner, all of which
may negatively affect our potential profitability.
BECAUSE THE LICENSOR OF OUR SOLE PRODUCT IS LOCATED IN AUSTRALIA, IT WILL BE
DIFFICULT TO ENFORCE LIABILITIES OR PURSUE ANY LEGAL ACTION AGAINST THE
AUSTRALIAN BASED LICENSOR.
Because the licensor of the product we intend to market is located in
Australia, we may find it difficult or impossible to serve process within the
United States regarding any claims that we may bring against our licensor,
including any material breaches of our license agreement with that company. In
addition, you should not assume that courts in Australia would enforce judgments
of U.S. courts obtained in an action against our licensor based upon applicable
U.S. federal or state laws.
OUR OPERATIONS ARE SUBJECT TO POSSIBLE CONFLICTS OF INTEREST; THERE ARE NO
ASSURANCES THAT WE WILL RESOLVE THESE CONFLICTS IN A MANNER FAVORABLE TO OUR
MINORITY SHAREHOLDERS.
Our officers/directors are involved in other business activities and may,
in the future, become involved in such other business opportunities. If other
business opportunities become available, our officers/directors may face a
conflict in selecting between our business objectives and their own. We have not
formulated a policy for the resolution of such conflicts. Future transactions or
arrangements between or among our officers, directors and shareholders, and
companies they control, may result in conflicts of interest, which may have an
adverse affect on the rights of minority shareholders, our operations and our
financial condition.
OUR OPERATIONS ARE SUBJECT TO POSSIBLE CONFLICTS OF INTEREST REGARDING OUR
AGREEMENT AND RELATIONSHIP WITH OUR PRESIDENT'S SON; THERE ARE NO ASSURANCES
THAT WE WILL RESOLVE THESE CONFLICTS IN A MANNER FAVORABLE TO OUR MINORITY
SHAREHOLDERS.
Our President, Leonard Perle, is employed as a Vice-President of
Operations by Jeen International, which is solely owned by our President's son,
Adam Perle. Currently, we are leasing office space at Jeen International's
facility in Fairfield New Jersey. We also have an exclusive marketing agreement
with another company that is owned by Adam Perle, Pro-Finishes, Inc. This
agreement provides for commission payments to Pro-Finishes for sales of
Phoslock. In addition, Pro-Finishes, Inc. owns 900,000 shares of our common
stock. The Pro-Finishes, Inc. agreement was not negotiated at "arms length".
These agreements may create conflicts of interest that may not be resolved in a
manner favorable to our minority stockholders.
NO TESTING OF THE PHOSLOCK PRODUCT HAS OCCURRED ON ANY LAND OR WATER BODY
LOCATED IN OUR TARGET MARKETS; THERE IS NO ASSURANCE THAT SUCH TESTS IF
CONDUCTED WILL PROVIDE POSITIVE RESULTS.
Testing of the Phoslock product has been conducted upon two water bodies
located in Australia; although we plan to conduct testing of water bodies
located in the United States, Canada, Mexico, or Central or South America, no
testing has yet occurred. Because the chemical and biological components in an
Australian water body may be materially different from a water body located in
our target markets, there is no assurance that this product will be a successful
means of removing phosphorus and other contaminants in the natural and
industrial waters and waste water streams in our target markets.
5
BECAUSE THE PHOSLOCK PRODUCT IS NEW TO THE ENVIRONMENTAL CLEAN-UP MARKET IN OUR
TARGET MARKETS, WE MAY ENCOUNTER MARKET DIFFICULTIES UNLESS WE CAN DISTINGUISH
OUR ENVIRONMENTAL PRODUCT FROM OTHERS.
The Phoslock product has never been introduced in the countries where we
intend to market and distribute the Phoslock product. These countries have
traditionally used dredging and Aluminum Sulphate to reduce phosphorous levels.
As a result, we may have difficulty in introducing Phoslock as an environmental
solution in these countries, unless we can distinguish our product from others.
Although we plan to distinguish our product by emphasizing its effectiveness as
a Phosphorus removal agent and the cost savings it may offer to our customers,
there are no assurances that we will be successful in doing so.
THE DEVELOPMENTAL STAGE NATURE OF OUR EXCLUSIVE MARKETING AGENT MAY NEGATIVELY
AFFECT OUR REVENUES.
Although Pro-Finishes, Inc. was incorporated in 1997 in the State of New
Jersey, it has never conducted any business and has no experience marketing
environmental products or generally in the environmental cleanup business. You
must consider the risks and difficulties encountered by development stage
companies, such as that of our exclusive marketing agent, Pro-Finishes, Inc.,
including whether Pro-Finishes, Inc. will be able to overcome the challenge of
marketing a new environmental product in our target markets. You must consider
whether Pro-Finishes, Inc. can overcome the competitive advantages of other
marketing entities that market environmental products which have significantly
greater financial and personnel resources than Pro-Finishes, Inc. Accordingly,
if Pro-Finishes, Inc. is unsuccessful in marketing our products, our revenues
will be negatively affected.
BECAUSE OUR COMMON STOCK IS CONSIDERED A PENNY STOCK, ANY INVESTMENT IN OUR
COMMON STOCK IS A HIGH-RISK INVESTMENT AND IS SUBJECT TO RESTRICTIONS ON
MARKETABILITY; YOU MAY BE UNABLE TO SELL YOUR SHARES.
If our common stock becomes tradable in the secondary market, we will be
subject to the penny stock rules adopted by the Securities and Exchange
Commission that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may
cause a reduction in the trading activity of our common stock and as a result
you may be subject to the risk of being unable to sell your shares. In addition,
our shareholders will, in all likelihood, find it difficult to sell their
securities.
ITEM 2. DESCRIPTION OF PROPERTIES.
From August 1, 2001 to December 31, 2001, we operated from the offices of
Larry Legel. We were not charged rent for use of these offices. Since January 1,
2002, we have operated out of 2000 square feet of space located at 24 Madison
Road, Fairfield, New Jersey. We have occupied this space rent free from Jeen
International, which occupies approximately 40,000 square feet at the same
address. We originally agreed commencing April 1, 2002, to pay Jeen
International $250 per month for our leased space; however, Jeen International
waived this payment and we have to date not paid any lease payments. Our offices
are sufficient to conduct our operations. As of January 1, 2003, we will pay
Jeen International $1,000 per month on a month-to-month basis for our leased
space according to a verbal agreement between us and the president of Jeen
International. We have no intention of entering into a written lease agreement
with Jeen International; accordingly, there are no assurances that Jeen
International will permit our continued lease of the space at their offices.
We do not own any property nor do we have any plans to own any property in
the future. We do not intend to renovate, improve or develop properties. We are
not subject to competitive conditions for property and currently we have no
property to insure. We have no policy with respect to investments in real estate
or interests in real estate and no policy with respect to investments in real
estate mortgages. Further, we have no policy with respect to investments in
securities of or interests in persons primarily engaged in real estate
activities. We do not own any significant assets and plan to subcontract our
manufacturing of the Phoslock product.
ITEM 3. LEGAL PROCEEDINGS.
We are not aware of any pending or threatened legal proceedings in which
we are involved.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of our stockholders during the
fourth quarter of the fiscal year ended December 31, 2003.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS [AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES].
Our common stock is traded from time to time on the over-the-counter
market, and quotations may be found in NASD's Over-the-Counter Bulletin Board.
Shares of our common stock are traded under the symbol "PRZA". Our common stock
trades only sporadically and has experience in the past, and is expected to
experience in the future, significant price and volume volatility. Prior to
January 2004, our common stock was available for trading on the "pink sheets"
published by Pink Sheets LLC. Although our common stock was available on the
"pink sheets" beginning May 27, 2003, there were no bid or ask prices posted in
2003. In January 2004, our stock was available for trading on NASD's
Over-the-Counter Bulletin Board. The first market quotation on the
Over-the-Counter Bulletin Board was $0.02 bid price on February 12, 2004. The
quotations reflect inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions. The prices do not necessarily reflect actual
transactions.
2003 HIGH LOW
-------------- ---- ----
First Quarter n/a n/a
Second Quarter n/a n/a
Third Quarter n/a n/a
Fourth Quarter n/a n/a
As of December 31, 2003, we had 7,815,000 shares of our common stock
outstanding. There were 81 holders of record of our common stock at December 31,
2003. Our transfer agent is Fidelity Transfer Company, Salt Lake City, Utah.
We have neither paid nor declared cash distributions or dividends, and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently intend to retain all earnings, if and when generated, to
finance the development and expansion of our operations. The declaration of cash
dividends in the future will be determined by the board of directors based upon
our earnings, financial condition, capital requirements and other relevant
factors.
Recent Sales of Unregistered Securities.
At various times since August 9, 2001 through December 31, 2003, the
Company has issued shares of its common stock without registration under the
Securities Act of 1933, as amended ("Securities Act"), in reliance upon certain
exemptions from registration afforded under the Securities Act including,
without limitation, the exemption afforded under Section 4(2) of Securities Act,
or under Regulation D promulgated under the Securities Act.
The following shares were issued in connection with the organization of
the Company by the founders between September 30, 2001 and November 20, 2001.
o On September 30, 2001, the Company sold 5,000 shares of its common
stock to the Company's prior president, Larry Legel for $.001 per
share, for total consideration of $50.
7
o On September 30, 2001, the Company sold 900,000 shares of its common
stock to Leonard Perle at $.001 per share, for total consideration
of $900. Mr. Perle became the Company's President on January 20,
2002.
o On September 30, 2001, the Company sold 900,000, shares of its
common stock to Pro-Finishes, Inc. for $.001 per share, for total
consideration of $900. The president of Pro-Finishes, Inc., Adam
Perle, is the son of the company's former President, Leonard Perle.
o On September 30, 2001, the Company sold 500,000 shares of its common
stock to International Equities Group, Inc., a Florida corporation
100% owned by Joseph Safina, for $.001 per share, for total
consideration of $500.
o On September 30, 2001, the Company sold 1,500,000 shares of its
common stock to DFM Management, Ltd., a limited partnership that is
99% owned by Joseph Safina, for $.001 per share, for total
consideration of $1,500.
o On November 20, 2001, the Company sold 5,000 shares of its common
stock at $.001 per share, for total consideration of $5 to Larry and
Brenda Legel as Tenants by the Entirety.
o On November 20, 2001, the Company sold 25,000 shares of its common
stock at $.001 per share, for total consideration of $25 to Glacier
Marketing International, Inc., a Florida corporation 100% owned by
Larry Legel.
o On November 20, 2001, the Company sold 5,000 shares of its common
stock at $.001 per share, for total consideration of $5 to Glacier
Marketing International, Inc.
o On November 20, 2001, the Company sold 10,000 shares of its common
stock at $.001 per share, for total consideration of $10 to Jasper
Marketing, Inc., a Florida corporation 100% owned by Larry Legel.
The following shares were issued between August 31, 2001 and December 31, 2003
in connection with capital raising and other activities of the Company.
o On August 31, 2001, the Company sold 850,000 shares of its common
stock to Gregory Nagel at $0.017 per share, for total consideration
of $14,386 pursuant to a Debenture and Common Stock Agreement.
o On September 30, 2001, the Company sold 530,000 shares of its common
stock to Integrated Mineral Technology Limited at $.001 per share,
for total consideration of $530.
o On September 30, 2001, the Company sold 5,325,000 shares of its
common stock to 13 persons at $0.001 per share, for a total
consideration of $5,325.
o On November 15, 2001, the Company sold 3,000 shares of its common
stock to one person, at $1.00 per share, for total consideration of
$3,000.
o On November 16, 2001, the Company sold 25,000 shares of its common
stock to Lloyd Claycomb at $.001 per share, for total consideration
of $25.
o On November 19, 2001, the Company sold 541,000 shares of its common
stock to 5 persons at $.001 per share, for a total consideration of
$541.
o On November 20, 2001, the Company issued 5,000 shares to a law firm
in partial payment for legal services rendered. The shares issued to
the law firm were valued at $0.02 per share, for total consideration
of $100.
o On November 20, 2001, the Company sold 149,500 shares of its common
stock to 6 persons at $1.00 per share, for a total consideration of
$149,500.
8
o On November 27, 2001, the Company sold 131,500 shares of its common
stock to 11 persons at $1.00 per share, for a total consideration of
$131,500.
o On December 14, 2001, the Company sold 30,000 shares of its common
stock to 3 persons at $1.00 per share, for a total consideration of
$30,000.
o On February 25, 2002, we entered into an Amended Convertible
Debenture and Common Stock Agreement with Mr. Gregory Nagel in which
we received $600,000 in proceeds from Mr. Nagel. In connection with
the Convertible Debenture and Common Stock Agreement, we issued a
Debenture Note payable for $600,000 convertible to 60,000 shares of
our common stock at $10 per share at any time up to May 24, 2004,
otherwise payable at 8% interest annually, plus principal payable on
May 24, 2004.
o In August 2002, the Company repurchased 3,625,000 shares of the
Company's common stock from 9 shareholders for the original amount
paid, or $3,625 in cash. Such shares were immediately canceled by
the Company.
During the quarter ended December 31, 2003, the Company issued options to
purchase common stock as follows:
o Larry Legel, President and CEO, 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. Option date is October 20, 2003. The grant
was for services rendered and to be rendered.
o Snazari 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. Option date is October 27, 2003. Grant was in
consideration of contribution of working capital.
o 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. Option date is October 27, 2003. Grant was in
consideration of contribution of working capital.
o 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. Option date is November 5, 2003. Grant was in
consideration of contribution of working capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements
The following discussion may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such statements are intended to be
covered by the safe harbors created by such provisions. These statements include
the plans and objectives of management for future growth of the Company,
including plans and objectives related to the consummation of acquisitions and
future private and public issuances of the Company's equity and debt securities.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-KSB/A will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
9
The words "we," "us" and "our" refer to the Company. The words or phrases
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward-looking statements." Actual results could
differ materially from those projected in the forward looking statements as a
result of a number of risks and uncertainties, including but not limited to: (a)
possible lack of demand for our Phoslock product; (b) competitive products and
pricing; (c) limited amount of resources devoted to advertising; (d) our failure
to implement certain steps in our Plan of Operations within the time period we
originally planned to accomplish; (e) because we are a development stage company
with a limited operating history and a poor financial condition, you will be
unable to determine whether we will ever become profitable; (f) if we are unable
to obtain financing to support our future growth plans, we will have to curtail
our operations and our growth plans; (g) we are subject to extensive United
States and foreign regulation which may increase our costs and lead to delays,
fines or restrictions on our business; (h) should our agreement with our
Australian-based licensor or our licensor's agreement with an Australian
government agency be terminated, we will have to find an alternative business or
cease our operations; (i) if we are unable to make royalty payments to our
licensor, our sub-license agreement may be terminated, as well as our business;
and (j) other risks that are discussed in our Form SB-2 Registration Statement
which is available for review at the Securities and Exchange Commission's Edgar
system at www.sec.gov.
Plan of Operations
We will need approximately $218,000 to implement our Plan of Operations,
not including substantial royalty payment obligations that we will incur under
the terms of our sub-license agreement with Integrated Mineral Technology Pty
Ltd, as follows: (a) we are required to make minimum royalty payments of
$850,000 to our Australian-based licensor, if and only if we sell specified
amounts of the Phoslock product; and (b) separate and apart from the minimum
royalty payments, we are required to make royalty payments totaling in excess of
$18 million from 2004 until the end of the 18 year agreement. We are required to
make these royalty payments whether or not we sell Phoslock. Our obligation to
pay our licensor $250,000 in royalties for the year ending December 31, 2003 has
been waived by our licensor.
We have $253,598 of cash available as of December 31, 2003 for anticipated
expenses of $218,000 as detailed in our Plan of Operations. Although we have
sufficient funds to meet the anticipated expenses detailed in our Plan of
Operations, we do not have sufficient funds to meet our other obligations which
consist of the royalty payments detailed above. We anticipate that even if our
current cash requirements change we will not have sufficient cash regarding any
required royalty payments for a period of 12 months through our existing capital
and revenue from product sales; moreover, there are no assurances that our
estimated expenses or revenue expectations will be correct. In the event that
our cash or our revenues are insufficient to meet our needs, we will seek
financing through traditional bank financing or a debt or equity offering.
However, because we are a development stage company with no operating history
and a poor financial condition, we may be unsuccessful in obtaining such
financing or the amount of the financing may be minimal and therefore inadequate
to implement our Plan of Operations. In addition, if we only have limited funds
by which to conduct our operations, we may be unable to conduct any marketing or
advertising, which will negatively impact development of our brand name and
reputation, and future product sales. In the event that we do not receive
financing or our financial resources are inadequate to meet our capital needs,
or if we do not adequately implement an alternative Plan of Operations that
enables us to conduct operations without having received adequate financing, we
may have to liquidate our business and undertake any or all of the following
actions:
o Sell or dispose of our assets, if any;
o Pay our liabilities in order of priority, if we have available cash
to pay such liabilities;
o If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal
to the net market value of our net assets;
o File a Certificate of Dissolution with the State of Florida to
Dissolve our corporation and close our business;
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic
and other required reports with the Securities and Exchange
Commission, if, in fact, we are a reporting company at that time;
and
o Make the appropriate filings with the National Association of
Security Dealers to affect a delisting of our common stock, if, in
fact, our common stock is trading on the Over-the-Counter Bulletin
Board at that time.
10
Based upon our current assets, however, we will not have the ability to
distribute any cash to our shareholders.
If we have any liabilities that we are unable to satisfy and we qualify
for protection under the U.S. Bankruptcy Code, we may voluntarily file for
reorganization under Chapter 11 or liquidation under Chapter 7. If our creditors
or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will take
priority over our shareholders. If we fail to file for bankruptcy under Chapter
7 or Chapter 11 and we have creditors, such creditors may institute proceedings
against us seeking forfeiture of our assets, if any.
We do not know and cannot determine which, if any, of these actions we
will be forced to take. If any of these foregoing events occur, shareholders
could lose their entire investment in our shares.
Our Plan of Operations to Date
We have accomplished the following to date regarding our Plan of Operations:
o Formulated our business, marketing, and operational plans;
o Raised capital from the sale of our common stock;
o Negotiated and completed agreements with the licensor of the
Phoslock product, Integrated Mineral Technology Pty Ltd;
o Negotiated and completed agreements with our exclusive sales agent,
Pro-Finishes, Inc.;
o Established a website at www.purezza.com to refer potential
customers to information regarding our business;
o Duplicated the Phoslock product and sent samples to our licensor for
testing and approval which were approved by our licensor;
o Our licensor, Integrated Mineral Technology Pty Ltd, contracted with
Exponent Environmental Group, Inc. to prepare an application to the
Environmental Protection Agency on our behalf to register Phoslock
as a new chemical under the Toxic Substances Act. This application
was filed on January 4, 2003 and approved on March 7, 2003;
o Our sub-manufacturer, Heterene Corporation, manufactured 8,360
pounds of Phoslock to provide samples to prospective customers or
for possible future orders; and
o In November 2002, we originally attempted sales of our Phoslock
product, but we then determined that we did not have approval of the
Environmental Protection Agency.
o In August, 2003 we started to send out samples of our products under
limited sales efforts and in October, 2003, we modified our sales
efforts because of the changes in our product Phoslock, from a
slurry formula to a granule formula.
Our Plan of Operations
We originally planned to implement our Plan of Operations from July, 2002
to July, 2003; however, our Plan of Operations was delayed because we did not
receive approval from the Environmental Protection Agency to register Phoslock
as a new chemical under the Agency's Toxic Substances Act until March 7, 2003.
We plan to accomplish our Plan of Operations outlined below over fifteen months
11
beginning May, 2004 and continuing until July, 2005. During our fifteen month
Plan of Operations, we will market the Phoslock product only in the United
States. We will not market Phoslock in Canada, Mexico, Central and South America
until at least August, 2006.
October, 2003 - February, 2004
Steps Required to obtain our Raw Materials
Steps required to obtain our raw materials have been dramatically
simplified due to the fact that all of the Phoslock production will come from
the new Kunming, China plant and there will be no need for the Company to obtain
its own raw materials.
February 2003 - October 2003
Steps Required for Sub-Manufacturing of Phoslock
Steps required for sub-Manufacturing of Phoslock have been dramatically
changed due to the fact that from now on all of the Phoslock production will
come from the new Kunming, China plant and no sub-manufacturing of Phoslock by
the Company will be necessary.
October, 2003 - April, 2004
Identifying Prospective Customers
Our exclusive sales agent, Pro-Finishes, Inc. will identify prospective
customers by cold calling on companies and government agencies that use large
amounts of water or are located near or on large water bodies and from leads
derived from our advertising. In order to achieve this, Pro-Finishes, Inc. will
contact the technical person associated with potential customers such as
companies and municipalities that are affected by environmental water problems,
send brochures demonstrating usage of Phoslock, and schedule appointments with
interested parties. There is no cost affiliated with the identification process.
Pro-Finishes, Inc. is compensated by commission only if a sale is made by them.
To date, we have not established any customers.
October 2003 - December 2003
Meetings with Prospective Customers
Pro-Finishes, Inc. will arrange meetings with prospective customers based
on the identification process described above and will make sales presentations
throughout our fifteen month Plan of Operations. Pro-Finishes, Inc. will offer
free testing of water and perform a comparison test against treatment of the
water with Phoslock. Pro-Finishes, Inc. will conduct sales presentations at
customer locations to demonstrate the advantages of Phoslock. We pay
Pro-Finishes, Inc. a 10% commission on sales. To date, we have not established
any customers.
Hiring Sales Persons
Pro-Finishes, Inc. plans to hire three sales persons on a full-time basis
to sell the Phoslock product in May. Pro-Finishes, Inc.'s president will attempt
to recruit three full-time sales persons from his affiliated company, Jeen
International, Inc. Sales persons will be compensated on a commission basis.
Pro-Finishes, Inc. sales representatives will be paid a 5% commission on product
sales.
October, 2003 - December, 2004
Marketing
We began marketing our product on November 1, 2002. To date, our marketing
has consisted solely of responding to inquiries about our product and
cold-calling prospective customers consisting of municipalities, industrial
concerns and state and federal governmental agencies. To date, we have not
established any customers or sold any Phoslock through Pro-Finishes, Inc. or
through our President/Chief Executive Officer.
12
Attending Trade Shows
We originally planned to attend at least three trade shows a year
beginning in February 2003 that specialize in water purification products or
environmental clean-up products; however, now we will not commence our
attendance at trade shows until we obtain a sufficient customer base. Our plan
is to have our President and a Pro-Finishes, Inc. representative attend the
trade shows to introduce the Phoslock products. We plan to have available the
following written materials and displays at these trade shows: (a) brochures
which are currently available; (b) video tapes of who would use Phoslock and how
it is used, which have not yet been made. We estimate the cost will be
approximately $15,000 for travel, lodging, attendance fees and set-up costs for
each trade show.
Disseminating Press Releases
Our President will draft press releases to be disseminated to
environmental journals regarding the Phoslock product, their uses, and any
testing results associated with Phoslock. Because all work will be performed
in-house, we anticipate minimal or no cost with drafting and disseminating press
releases. We originally planned on disseminating press releases beginning in
March 2003; however, now we will not commence distributing press releases until
we obtain a sufficient customer base or otherwise generate sufficient revenues.
To date, we have not disseminated any press releases.
Print and/or Internet Advertising
Our President will draft advertisements that highlight the advantages of
the Phoslock products. We will consult with the publications with which we will
advertise as to graphics and content of the advertisements. Advertisements will
appear in environmental publications and trade magazines. We anticipate spending
approximately $75,000 in advertising costs during this time period. To date, we
have placed no advertisements in environmental publications or trade magazines.
We originally planned to begin this step in our Plan of Operations during
March 2003; however, we now will not begin this step in our Plan of Operations
until we have made sales of our Phoslock product
Review of our Operations by our Licensor's Technical Advisory Board
Previous to the changes, due to the fact that the Company will purchase
all of the new Phoslock products from the new Phoslock plant in Kunming, China,
our licensor's Technical Advisory Board conducted an annual review of our
operations and sub-manufacturing facility in order to determine whether:
o The manufacture of the Phoslock product by our sub-manufacturer
conformed to the product specifications of our licensor;
o The manufacturing equipment used in the manufacturing process by our
sub-manufacturer was capable of manufacturing according to our
licensor's product specifications;
o Our quality control standards conformed to our licensor's quality
control standards;
o The sub-manufacturer of the Phoslock product that we used had the
technical skills and experience to manufacture Phoslock; and
o We were using our best efforts to sell the Phoslock product.
The first visit for a review of our operations by our licensor's Technical
advisory Board was scheduled for February 2002, but rescheduled to July 1, 2002
by our licensor and then rescheduled again to late October, 2002 by our
licensor. On October, 22 and 23, 2002, members of our Licensor's Technical
Advisory Board who are the Chief Executive Officer and Technical Director of our
licensor, visited our headquarters in Fairfield, New Jersey. Our licensor
assumed all costs of this visit. During their visit, the Technical Advisory
Board members met with our President, Mr. Leonard Perle, the President of
Pro-Finishes, Inc., Mr. Adam Perle, and Pro-Finishes, Inc. sales representatives
that will assist in marketing Phoslock throughout our licensed territory. The
licensor representatives provided a detailed commentary on the development and
applications of Phoslock.
13
In addition, the licensor representatives and our President, Mr. Leonard
Perle, conducted the following conference calls with: (a) representatives of
Exponent, Inc., the consultant which arranged for and prepared an application to
the United States Environmental Protection Agency to register Phoslock as a new
chemical under that agency's Toxic Substance Control Act to ascertain the status
of the preparation of the application and any information needed for its
preparation; and (b) a representative of a Florida municipality as a prospective
customer which is in control of a lake with algae problems.
The Technical Advisory Board members visited Heterene Corporation which
was to sub-manufacture the Phoslock product on our behalf. The licensor
representatives met with Heterene Corporation's Chief Engineer, Herbert Frank,
inspected the plant and viewed the tank and mixing areas where Phoslock was to
be manufactured. The licensor representatives discussed with Mr. Frank the
current operations of the Heterene plant and processing taking place to
manufacture Heterene's products. Additionally, the Technical Advisory Board
members reviewed the procedures necessary to utilize the same equipment Heterene
is using for manufacture of its products, which was to be used to manufacture
Phoslock, including the relevant cleaning protocols. The Technical Advisory
Board members concluded that the plant contained almost all of the equipment to
manufacture Phoslock and that Heterene had the technical skills and experience
to manufacture Phoslock. The next visit by the Technical Advisory Board which
had been scheduled for October, 2003 or November, 2003, will not have to be done
because the Corporation will be purchasing our product directly from the new
Phoslock granule plant in Kunming, China.
September, 2002 - November, 2003
Testing Procedures
The need for testing procedures has been eliminated due to the fact that
all of the Phoslock product will come from the new Kunming, China plant and
there will be no need for the testing procedures previously required when the
Company produced its own Phoslock product.
Future Production Costs
Future production costs will be significantly reduced, due to the fact
that all of the Phoslock product will be produced at the new Kunming, China
plant and through mass production, costs per ton will be less. The amount of
savings has not yet been determined.
Future Equipment Costs
Future equipment costs for testing equipment will be eliminated completely
due to the fact that the Company will no longer be producing its own Phoslock
product, but will be buying product directly from the new Kunming, China plant.
Pricing of Phoslock
The anticipated prices at which we intend to sell Phoslock to our
customers were at one time:
Amount of Phoslock Order Price
------------------------ --------------
Less than 1 ton $2,000 per ton
From 1 ton to 10 tons $2,000 per ton
From 11 tons to 50 tons $1,900 per ton
From 50 tons to 100 tons or more $1,900 per ton
14
At this time those prices are being reduced due to the fact that we will
receive savings as a result of the new Phoslock granule product which will be
available when production commences at the new plant in Kunming, China in May,
2004.
Summary of Total Costs:
Accomplish our Plan of Operations - $218,000
Attending trade shows - $15,000
Advertising - $75,000
Working Capital Needs of $28,000 consisting of: (a) $1,000 per month rent
paid to Jeen International for total annual rent of $12,000; (b)$500 per month
cost paid to Jeen International for part-time tasks by one of their 4
secretaries for a total annual cost of $6,000; (c) annual telephone and other
office expenses of $10,000.
Chief Executive Officer's Salary for one year - $100,000
Recent Developments
The resignation of the Company's President, Leonard Perle effective
January 27, 2004 due to health reasons will adversely affect the Company's
ability to execute and complete its plan of operations.
Liquidity and Capital Resources
Our source of the funds to accomplish our Plan of Operations will be
derived from our current cash of $253,598 as of December 31, 2003. We derived
our cash resources from a $600,000 debenture investment and private placement
sales of our common stock, prior to the filing of a registration statement.
At December 31, 2003, we had a negative working capital of $344,000. Since
inception of the Company, we have generated zero revenues and incurred losses
from operations. In order to execute the Company's Plan of Operation, the
Company will need to raise additional financing.
Critical Accounting Policies
Because we have no operations and are not engaged in any significant
transactions, we currently have no critical accounting policies.
15
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements required by this item are filed
herewith following the signature page to this report:
PAGE
Report of Independent Auditors F-2
Balance Sheets as of December 31, 2003 and 2002 F-3
Statements of Operations for the years ended December 31, 2003
and 2002 F-4
Statements of Stockholders' Deficit for the years ended
December 31, 2003 and 2002 F-5
Statements of Cash Flows for the years ended December 31, 2003
and 2002 F-6
Notes to Financial Statements F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with Durland & Company, CPAs, P.A., whether
or not resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
Durland & Company's satisfaction, would have caused it to make reference to the
subject matter of the disagreement(s) in connection with its report.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions and ages of our
executive officers and directors. All of our directors serve until the next
annual meeting of stockholders or until their successors are elected and
qualify. Officers are elected by the board of directors and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the board of directors. There is no family relationship between
any director, executive officer or person nominated or chosen by Purezza to
become a director or executive officer.
NAME AGE POSITION TERM
--------------------------------- ------------- -------------------------------------------- -----------------------
Leonard M. Perle (1) 67 President, Chief Executive Officer, and 1 Year
Chairman of the Board
Larry Legel 56 Chief Financial Officer, Secretary, 1 Year
Treasurer and Director
------------
(1) Leonard Perle resigned as President, Chief Executive Officer and Director
effective January 27, 200 due to health reasons. Effective January 27,
2004, Larry was elected President and Chief Executive Officer replacing
Mr. Perle.
16
Leonard Perle has been our President, Chief Executive Officer and Chairman
of the Board Officer since January 20, 2002. From approximately April 1996 to
present, Mr. Perle has been the Vice President of Operations of Jeen
International Corporation, a chemical manufacturer and distributor located in
Fairfield, New Jersey and incorporated in New Jersey. Jeen International is
solely owned by Mr. Perle's son, Adam Perle. Since our inception, Mr. Perle has
devoted approximately 75% of his time to his position at Jeen International and
only 25% of his time to our business. Commencing in April 2003, Mr. Perle will
devote approximately 90% of his time to our business, and only 10% to Jeen
International. From 1969 to 1996, Mr. Perle was the president of Protameen
Chemical Company, a chemical manufacturer and distributor located in Totowa, New
Jersey. Mr. Perle received a Bachelors Degree in Chemistry from Brooklyn College
in 1961.
Larry Legel has been a member of our Board of Directors since our
inception. From our inception to January 19, 2002, Mr. Legel was our President,
Chief Executive Officer, Chief Financial Officer, Secretary, and Treasurer. Mr.
Legel spent approximately 25% of his time as our President/Chief Executive
Officer until January 19, 2002, when he resigned his position as our
President/Chief Executive Officer in order that we could hire a President/Chief
Executive Officer that could devote most of his time to those positions. Mr.
Legel continues in his capacity as our Chief Financial Officer, Secretary, and
Treasurer, and is also our Chief Accounting Officer. Mr. Legel has been licensed
as a Certified Public Accountant in the State of Florida since 1974 and has
operated and owned his own Certified Public Accounting firm since 1974. Mr.
Legel now spends approximately 25% of his time to our business and 75% to his
accounting practice. Mr. Legel received a Bachelors Degree in Business
Administration from Wayne State University in 1969.
Audit Committee and Audit Committee Financial Expert
The Company is not a "listed company" under SEC rules and is therefore not
required to have an audit committee comprised of independent directors. The
Company does not currently have an audit committee, however, for certain
purposes of the rules and regulations of the SEC, the Company's board of
directors is deemed to be its audit committee. The Company's board of directors
has determined that its members do not include a person who is an "audit
committee financial expert" within the meaning of the rules and regulations of
the SEC. The board of directors has determined that each of its members is able
to read and understand fundamental financial statements and has substantial
business experience that results in that member's financial sophistication.
Accordingly, the board of directors believes that each of its members have the
sufficient knowledge and experience necessary to fulfill the duties and
obligations that an audit committee would have.
The Company has not adopted a code of ethics that applies to the Chief
Executive Officer and Chief Financial Officer because it has no meaningful
operations. The Company does not believe that a formal written code of ethics is
necessary at this time.
Conflicts of Interest
Certain conflicts of interest existed at December 31, 2003 and may
continue to exist between the Company and its officers and directors due to the
fact that each has other business interests to which they devote their primary
attention. Each officer and director may continue to do so notwithstanding the
fact that management time should be devoted to the business of the Company.
Certain conflicts of interest may exist between the Company and its
management, and conflicts may develop in the future. The Company has not
established policies or procedures for the resolution of current or potential
conflicts of interests between the Company, its officers and directors or
affiliated entities. There can be no assurance that management will resolve all
conflicts of interest in favor of the Company, and failure by management to
conduct the Company's business in the Company's best interest may result in
liability to the management. The officers and directors are accountable to the
Company as fiduciaries, which means that they are required to exercise good
faith and integrity in handling the Company's affairs. Shareholders who believe
that the Company has been harmed by failure of an officer or director to
appropriately resolve any conflict of interest may, subject to applicable rule
of civil procedure, be able to bring a class action or derivative suit to
enforce their rights and the Company's rights.
17
Board Meetings and Committees
The Directors and Officers will not receive remuneration from the Company
unless approved by the Board of Directors or pursuant to an employment contract.
Directors may be paid their expenses, if any, of attendance at such meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the Company in any other
capacity and receiving compensation therefor. No compensation has been paid to
the Directors. The Board of Directors may designate from among its members an
executive committee and one or more other committees. No such committees have
been appointed.
Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that directors, executive officers and persons who own more than 10% of the
outstanding common stock of certain reporting companies file initial reports of
ownership and reports of changes in ownership in such common stock with the
Securities and Exchange Commission ("SEC"). Officers, directors and stockholders
who own more than 10% of the outstanding common stock of certain reporting
companies are required by the SEC to furnish such companies with copies of all
Section 16(a) reports they file. The Company is not required to comply with
Section 16(a). Accordingly, stock ownership information contained in this report
is based on what is known to the Company.
ITEM 10. EXECUTIVE COMPENSATION
We have entered into an employment agreement with our President in which we are
obligated to compensate him in the future. The following Executive Compensation
Chart highlights the terms of compensation for our President. No other executive
officers received salary and bonus in excess of $100,000 for the prior three
fiscal years.
LONG TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ --------------------------------------- ------------------------------- ------------
NAME OTHER SECURITIES
AND ANNUAL RESTRICTED UNDERLYING
PRINCIPAL COMPENSATION STOCK AWARD(S) OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) ($) ($) SARS (#) (2) PAYOUTS ($) COMPENSATION ($)
----------------- ------ ------------- ----------- ------------- --------------- --------------- ------------ ----------------
Leonard M. Perle 2003 $ 100,000 N/A $ 0 N/A N/A N/A N/A
(CEO) (1)
2002 $ 60,000 N/A $ 0 N/A 7,000,000 N/A (3)
----------------- ------ ------------- ----------- ------------- --------------- --------------- ------------ ----------------
(1) Mr. Perle was appointed President, Chief Executive Officer and Director
effective January 20, 2002. Mr. Perle resigned as President, Chief
Executive Officer and Director effective January 27, 2004 due to health
reasons.
(2) Under his employment agreement, Leonard Perle was granted 7,000,000
options exercisable at prices ranging from $0.50 to $7.00 per share, based
upon the Company meeting certain revenue or earnings levels (5,500,000
options based on specific earnings levels, with a minimum $250,000 in
earnings; and 1,500,000 options at specific revenue levels, with a minimum
$1 million in revenue). Mr. Perle resigned from the Company effective
January 27, 2004. In connection with his resignation, all 7,000,000
options were cancelled.
18
(3) Under his employment agreement, Leonard Perle was granted 900,000 shares
of the Company's common stock. Mr. Perle resigned from the Company
effective January 27, 2004. In connection with his resignation, all
900,000 shares were cancelled.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We have set forth in the following table certain information regarding our
common stock beneficially owned on December 31, 2003 for (i) each shareholder we
know to be the beneficial owner of 5% or more of our outstanding common stock,
(ii) each of our executive officers and directors, and (iii) all executive
officers and directors as a group. In general, a person is deemed to be a
"beneficial owner" of a security if that person has or shares the power to vote
or direct the voting of such security, or the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which the person has the right to acquire beneficial
ownership within 60 days. To the best of our knowledge, all persons named have
sole voting and investment power with respect to such shares, except as
otherwise noted. There are not any pending or anticipated arrangements that may
cause a change in control of the Company. At December 31, 2003, 7,815,000 shares
of our common stock were outstanding.
----------------------------------------- ----------------------------------- -----------------------------------
NAME NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF TOTAL OUTSTANDING SHARES
----------------------------------------- ----------------------------------- -----------------------------------
Larry Legel 70,000 (1) 0.90%
1425 NE 57th Place
Fort Lauderdale, Florida 33334
----------------------------------------- ----------------------------------- -----------------------------------
Leonard Perle 900,000 (2) 11.52%
24 Madison Road
Fairfield, New Jersey 07004
----------------------------------------- ----------------------------------- -----------------------------------
Adam Perle 900,000 (3) 11.52%
24 Madison Road
Fairfield, New Jersey 07004
----------------------------------------- ----------------------------------- -----------------------------------
Joseph Safina 624,000 (4) 7.98%
1 E. Broward Boulevard, Suite 700
Fort Lauderdale, Florida 33301
----------------------------------------- ----------------------------------- -----------------------------------
Gregory Nagel 1,150,000 (5) 14.72%
5828 Sebastian, #109
San Antonio, Texas 78249
----------------------------------------- ----------------------------------- -----------------------------------
Joel Bidois 484,763 (6) 6.20%
24 Eagle View Place
Eagle Farm, Brisbane
Queen Land 40009 Australia
----------------------------------------- ----------------------------------- -----------------------------------
William P. Whalen 625,000 8.00%
69 Oriole Way
Westbury, New York 11590
----------------------------------------- ----------------------------------- -----------------------------------
Douglas W. Moreland 500,000 6.40%
1655 E. Layton Drive
Englewood, Colorado 80110
----------------------------------------- ----------------------------------- -----------------------------------
All Executive Officers and Directors as a 970,000 12.41%
group
----------------------------------------- ----------------------------------- -----------------------------------
19
(1) Larry Legel's ownership interest is composed of 30,000 shares of common
stock owned by Mr. Legel individually, 5,000 shares of common stock owned
with his wife as joint tenants, and 35,000 shares of common stock owned by
Glacier Marketing International, Inc., a Florida corporation 100% owned by
Mr. Legel. Glacier Marketing International is located at 5100 N. Federal
Highway, Suite 409, Fort Lauderdale, Florida. Excludes 150,000 options
granted to Mr. Legal in October 2003 at a strike price of $0.10 per share.
Excludes 900,000 shares of the Company's common stock received by Larry
Legel in connection with Leonard Perle's resignation on January 27, 2004.
(2) Excludes 7,000,000 shares of the Company's common stock issued to Leonard
Perle which he may exercise at certain revenue and earnings levels. Mr.
Perle resigned as President, Chief Executive Officer and Director
effective January 27, 2004 due to health reasons. In connection with his
resignation, the 900,000 shares of common stock and the 7,000,000 options
were cancelled.
(3) Adam Perle's ownership is composed of 900,000 shares directly owned by
Pro-Finishes, Inc., of which he is the sole owner. Adam Perle, is the son
of our President, Leonard Perle, who is employed by Jeen International,
Inc., a company solely owned by Adam Perle. In addition, Pro-Finishes,
Inc., a company solely owned by Adam Perle, is our exclusive sales agent.
Adam Perle is of majority age and does not live in the same household as
Leonard Perle. Neither Adam nor Leonard Perle derive any beneficial
ownership in our common stock from one another. In connection with the
termination of the sales agency agreement in April 2004, the 900,000
shares of common stock issued to Pro-Finishes, Inc. were cancelled, and
100,000 shares of common stock were issued to Adam Perle.
(4) Joseph Safina's indirect ownership interest is composed of: (a) 54,000
shares directly held by International Equities Group, Inc., a Florida
corporation; 50% owned by Mr. Safina and 50% owned by his wife, Jennifer
Safina; and (b) 570,000 shares directly held by DFM Management, Ltd., a
limited partnership created under the Texas Revised Limited Partnership
Act, 99% of which is owned by Mr. Safina as a limited partner of DFM
Management, Ltd. International Equities Group, Inc. is located at 1 East
Broward Boulevard, Suite 700, Fort Lauderdale, Florida 33301. DFM
Management, Ltd. is located at 1900 West Loop South, Suite 2050, Houston,
Texas 77027. Mr. Safina assisted us in negotiating our license agreement
with Integrated Mineral Technology, Ltd. There was no verbal or written
agreement involving Mr. Safina's negotiations with Integrated Mineral
Technology, Ltd. on our behalf or to compensate Mr. Safina for this
service, for which he received none.
(5) Excludes 1,000,000 options granted to Gregory Nagel in November 2003 at a
strike price of $1.00 per share.
(6) Joel Bidois' ownership interest is composed of: (a) 272,727 shares
directly held by Genesis Research Corporation which is 100% owned by Mr.
Bidois; and (b) 757,273 shares directly held by Integrated Mineral
Technology, Ltd. Mr. Bidois owns 28% of Integrated Mineral Technology,
Ltd. through JN Bidois Holdings Unit Trust Pty Ltd which is 100% owned by
Mr. Bidois and members of his family.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 2001, we sold 5,000 shares of common stock to our prior
president, Larry Legel for $.001 per share, for total consideration of $50.
On September 30, 2001, we sold 900,000 shares of our common stock to
Leonard Perle at $.001 per share, for total consideration of $900. Mr. Perle
became our President on December 21, 2001.
On September 30, 2001, we sold 900,000, shares of our common stock to
Pro-Finishes, Inc. for $.001 per share for total consideration of $900. The
president of Pro-Finishes, Inc., Adam Perle, is the son of our President,
Leonard Perle. Adam Perle is of majority age, lives in a separate residence from
Leonard Perle, and Leonard Perle derives no beneficial interest from shares
owned by Pro-Finishes, Inc.
20
On September 30, 2001, we sold 500,000 shares of our common stock to
International Equities Group, Inc., a Florida corporation 100% owned by Joseph
Safina, a beneficial owner of our common stock, for $.001 per share, for total
consideration of $500.
On September 30, 2001, we sold 1,500,000 shares of our common stock to DFM
Management, Ltd., a limited partnership that is 99% owned by Joseph Safina, a
beneficial owner of our common stock, for $.001 per share, for total
consideration of $1,500.
On October 1, 2001, we entered into a Sales Representative Agreement with
Pro-Finishes, Inc. who became our exclusive Sales Representative to market
existing and future Phoslock products in the United States, Canada, and Mexico
in exchange for 10% of gross sales of the Phoslock product they sell.
Pro-Finishes, Inc.'s' owner and president, Adam Perle, is the son of our
president, Leonard Perle. The Pro-Finishes, Inc. agreement was not negotiated at
"arms length". Pro-Finishes, Inc. owns 900,000 shares of our common stock.
Our President, Leonard Perle, is employed as a Vice-President of
Operations by Jeen International, Inc., which is solely owned by our President's
son, Adam Perle. Currently, we are leasing office space at Jeen International's
facility in Fairfield, New Jersey. These agreements, arrangements, and stock
ownership may create conflicts of interest which favor the affiliated business
interests of our President or his son and may not be resolved in a manner
favorable to our minority stockholders.
On November 20, 2001, we sold 5,000 shares of our common stock at $.001
per share, for total consideration of $5 to Larry and Brenda Legel as Tenants by
the Entirety.
On November 20, 2001, we sold 25,000 shares of our common stock at $.001
per share, for total consideration of $25 to Glacier Marketing International,
Inc., a Florida corporation 100% owned by our then president, Larry Legel.
On November 20, 2001, we sold 5,000 shares of our common stock at $.001
per share, for total consideration of $5 to Glacier Marketing International,
Inc. ESOP.
On November 20, 2001, we sold 10,000 shares of our common stock at $.001
per share, for total consideration of $10 to Jasper Marketing, Inc., a Florida
corporation 100% owned by our previous president, Larry Legel.
Other than the above transactions or otherwise set forth in this report we
have not entered into any material transactions with any director, executive
officer, and nominee for director, beneficial owner of five percent or more of
our common stock, or family members of such persons. Also, we have not had any
transactions with any promoter. We are not a subsidiary of any company.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
10.1 Sales Representative Agreement with Pro-Finishes, Inc.
(1)
10.2 Phoslock License Agreement with annexures to agreement
(2)
10.3 Letter from Integrated Mineral Technology Limited (1)
21
10.4 Employment Agreement with Leonard Perle (1)
10.5 Debenture Agreement (1)
10.6 Agreement between Integrated Mineral Technology, Ltd.
and Exponent Environmental Group, Inc. (2)
31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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.
----------
(1) Denotes previously filed in the Form SB-2 filed with the Securities and
Exchange Commission on April 1, 2002 and hereby incorporated by reference.
(2) Denotes previously filed in the Form SB-2 Amendment filed with the
Securities and Exchange Commission on October 9, 2002 and hereby
incorporated by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the most recent quarter.
ITEM 14. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in our
periodic SEC filings as of December 31, 2003.
ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) AUDIT FEES
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's Form 10-KSB (17 CFR 249.308a) or 10-QSB (17 CFR
249.308b) or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal years was
$3,000 for the fiscal year ended December 31, 2002 and $2,500 for the fiscal
year ended December 31, 2003.
(2) AUDIT-RELATED FEES
There were no fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of the Company's financial
statements.
(3) TAX FEES
There were no fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning.
22
(4) ALL OTHER FEES
There were no other fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than the
services reported above.
RE-APPROVAL POLICIES AND PROCEDURES
Before the accountant is engaged by the issuer to render audit or
non-audit services, the engagement is approved by the Company's the board of
directors acting as the audit committee.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PUREZZA GROUP, INC.
Date: November 30, 2004 By: /s/ Kevin R. Keating
-----------------------------------------
Kevin R. Keating
President and Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on November 30, 2004.
Signatures Title
/s/ Kevin R. Keating President and Director
-------------------- (Principal Executive Officer)
Treasurer, Secretary
(Principal Financial and Accounting Officer)
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-2
Balance Sheet................................................................F-3
Statement of Operations......................................................F-4
Statement of Stockholders' Equity............................................F-5
Statement of Cash Flows......................................................F-6
Notes to Financial Statement.................................................F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Purezza Group, Inc.
(A Development Stage Enterprise)
Fairfield, New Jersey
We have audited the accompanying balance sheets of Purezza Group, Inc., a
development stage enterprise, as of December 31, 2003 and 2002, and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 2003 and 2002, and the periods from August 9, 2001 (Inception)
through December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Purezza Group, Inc. as of
December 31, 2003 and 2002 and the results of its operations and its cash flows
for the years ended December 31, 2003 and 2002, and the periods from August 9,
2001 (Inception) through December 31, 2003, in conformity with accounting
principles generally accepted in the United States.
/s/Durland & Company, CPAs, P.A.
--------------------------------
Durland & Company, CPAs, P.A.
Palm Beach, Florida
March 30, 2004
F-2
PURREZA GROUP, INC.
(A Development Stage Enterprise)
BALANCE SHEET
December 31,
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS
Cash $ 253,598 $ 476,717
--------- ---------
Total current assets 253,598 476,717
--------- ---------
PROPERTY AND EQUIPMENT
Equipment 1,495 3,019
--------- ---------
Total property and equipment 1,495 3,019
--------- ---------
OTHER ASSETS
License 0 0
--------- ---------
Total other assets 0 0
--------- ---------
Total Assets $ 255,093 $ 479,736
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0 $ 0
Accrued expenses payable 0 3,158
--------- ---------
Total current liabilities 0 3,158
LONG-TERM DEBT
Convertible debenture note payable 600,000 600,000
Accrued interest payable 0 67,989
--------- ---------
Total long-term debt 600,000 667,989
--------- ---------
Total Liabilities 600,000 671,147
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, authorized 100,000,000 shares;
7,815,000 and 7,815,000 shares issued and outstanding, respectively 7,815 7,815
Additional paid-in capital 326,707 326,707
Deficit accumulated during the development stage (679,429) (525,933)
--------- ---------
Total stockholders' equity (344,907) (191,411)
--------- ---------
Total Liabilities and Stockholders' Equity $ 255,093 $ 479,736
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
FROM
AUGUST 9,
2001
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
2003 2002 2003
------------ ------------ ------------
Revenues $ 0 $ 0 $ 0
------------ ------------ ------------
Expenses
General and administrative expenses 132,495 141,970 343,770
Professional fees 90,406 58,440 193,606
------------ ------------ ------------
Total expenses 222,901 200,410 537,376
------------ ------------ ------------
Loss from operations (222,901) (200,410) (537,376)
Other income (expense)
Impairment of license 0 (150,000) (150,000)
Interest income 1,418 4,387 7,948
Interest expense (waived in 2003) 67,989 (47,737) 0
------------ ------------ ------------
Total other income (expense) 69,407 (193,350) (142,052)
------------ ------------ ------------
Net loss $ (153,494) $ (393,760) $ (679,428)
============ ============ ============
Loss per weighted average common share
$ (0.02) $ (0.04)
============ ============
Number of weighted average common shares outstanding 7,815,000 10,069,452
============ ============
The accompanying notes are an integral part of the financial statements.
F-4
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
NUMBER OF COMMON PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES STOCK CAPITAL STAGE EQUITY
----------- ----------- ----------- ----------- -----------
BEGINNING BALANCE, August 9, 2001 0 $ 0 $ 0 $ 0 $ 0
Shares issued for cash-founders at $0.001/sh 10,271,000 10,271 0 0 10,271
Shares issued with debt at $0.017/sh 850,000 850 12,926 0 13,776
Shares issued for services at $0.02/sh 5,000 5 95 0 100
Shares issued for cash at $1.00/sh 314,000 314 313,686 0 314,000
Net loss 0 0 0 (132,174) (132,174)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 2001 11,440,000 11,440 326,707 (132,174) 205,973
Shares repurchased for cash (3,625,000) (3,625) 0 0 (3,625)
Net loss 0 0 0 (393,760) (393,760)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 2002 7,815,000 7,815 326,707 (525,934) (191,412)
Net loss 0 0 0 (153,494) (153,494)
----------- ----------- ----------- ----------- -----------
ENDING BALANCE, December 31, 2003 7,815,000 7,815 $ 326,707 $ (679,428) $ (344,906)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
FROM
AUGUST 9,
2001
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (153,494) $ (393,760) $ (679,428)
Adjustments to reconcile net loss to net cash used for
operating activities:
Stock issued for services 0 0 100
Depreciation expense 1,522 755 2,577
Impairment of license 0 150,000 150,000
Changes in operating assets and liabilities
Increase (decrease) in accounts payable 0 (11,250) 0
Increase (decrease) in accrued expense payable (3,158) 3,158 0
Increase (decrease) in accrued interest payable (67,989) 47,737 0
------------ ------------ ------------
Net cash used by operating activities (223,119) (203,360) (526,751)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of license 0 0 (150,000)
Purchase of computer 0 (2,250) (4,074)
------------ ------------ ------------
Net cash used investing activities 0 (2,250) (154,074)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 0 338,048
Repurchase of common stock 0 (3,325) (3,625)
Proceeds from convertible debenture 0 0 600,000
------------ ------------ ------------
Net cash provided by financing activities 0 (3,325) 934,423
------------ ------------ ------------
Net increase (decrease) in cash (223,119) (208,935) 253,598
------------ ------------ ------------
CASH, beginning of period 476,717 685,652 0
------------ ------------ ------------
CASH, end of period $ 253,598 $ 476,717 $ 253,598
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NON-CASH FINANCING ACTIVITIES:
None
The accompanying notes are an integral part of the financial statements.
F-6
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY Purezza Group, Inc. (the Company) is a Florida chartered
development stage corporation which conducts business from its
headquarters in Fairfield, New Jersey. 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 waste water streams.
Phoslock was developed in 1996 by CSIRO, an Australian Government Agency,
a research tank of 6,500 scientists. The product is currently being used
successfully in Australia by IMT, a private Australian company selected by
CSIRO to promote the commercial applications of the product.
The applications of Phoslock include removal of phosphorus in natural
waterways, sewage treatment plants, farm dams, constructed wetlands,
piggeries, feedlots, golf courses, dairy farms, aquaculture farms,
aquariums, mining, industrial effluent, power plants, commercial
development, and recreational and domestic consumer use.
Phoslock is a modified clay product of slurry powder granules. It works by
being spread onto water surface. It absorbs nutrients from the water
column as it settles to the bottom. Once it has passed through the water
column, Phoslock forms a stable sediment on the bed of the water body,
which effectively traps not only the nutrients that it has absorbed on the
way down but those nutrients already contained in bottom sediments.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) 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.
b) START-UP COSTS Costs of start-up activities, including organization
costs, are expensed as incurred, in accordance with Statement of
Position (SOP) 98-5.
c) 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.
d) 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.
e) REVENUE RECOGNITION Revenue from product sales will be recognized at
the time the sale is made.
f) PROPERTY AND EQUIPMENT All property and equipment are recorded at
cost and depreciated over their estimated useful lives, generally
three, five or seven years, using the straight-line method. Upon
sale or retirement, the costs and related accumulated depreciation
are eliminated from their respective accounts, and the resulting
gain or loss is included in the results of operations. Repairs and
maintenance charges which do not increase the useful lives of the
assets are charged to operations as incurred. Depreciation expense
was $1,522 and $755 for the years ended December 31, 2003 and 2002,
respectively.
The accompanying notes are an integral part of the financial statements.
F-7
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(2) STOCKHOLDERS' EQUITY The Company has authorized 100,000,000 shares of
$0.001 par value common stock and had 11,440,000 shares of common stock
issued and outstanding at December 31, 2002. The Company issued 10,271,000
shares of common stock to its founders in exchange for $10,271 in cash. It
issued 850,000 shares of common stock to the Debenture Holder in exchange
for $14,387 in cash. The Company issued 5,000 shares of common stock in
exchange for services valued at $100. Through a Regulation D Rule 506
Private Placement, the Company issued 314,000 shares of common stock in
exchange for $314,000 in cash.
The Company has issued 7,000,000 options to purchase shares of its common
stock to its President. (See Note 8a.)
In August 2002, the Company repurchased 3,625,000 shares of the Company's
common stock from 9 shareholders for the original amount paid, or $3,625
in cash. Such shares were immediately canceled by the Company.
(3) CONVERTIBLE DEBENTURE On September 30, 2001, the Company entered into a
Convertible Debenture and Common Stock Agreement whereby the company
received $600,000 in proceeds and issued a Debenture Note Payable in the
amount of $600,000 convertible to 60,000 shares of the common stock of the
Company, at $10 per share, at any time up to May 24, 2004, otherwise
payable @ 8% interest annually, plus principal payable on May 24, 2004.
Accrued interest payable at December 31, 2002 was $67,989, which was
waived by the debenture holder, therefore the accrued interest payable at
December 31, 2003 is $0.
(4) INCOME TAXES The Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes", since
inception. SFAS No. 109 requires the liability method of accounting for
income taxes. Deferred income taxes result in temporary differences in the
recognition of revenue and expenses for income tax and financial reporting
purposes. These differences are primarily due to the differences in
accrual basis reporting for statement purposes and cash basis reporting
for tax purposes.
At December 31, 2003, the Company had Federal and State net operating loss
carry-forwards of $679,400, which expire $153,500, $393,800 and $132,100
at December 31, 2023, 2022 and 2021, respectively. Significant components
of deferred income taxes are as follows:
Net Operating Loss $ 679,400
------------
Total Deferred Tax Asset 139,000
Less: Valuation Allowance (139,000)
------------
Net Deferred Tax Asset $ 0
============
The amount recorded as deferred tax assets as of December 31, 2003 is
$139,000, which represents the amount of tax benefit of the loss
carryforward. The Company has established a valuation allowance against
this deferred tax asset, as the company has no history of profitable
operations.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments
consist entirely of cash in bank and a license and a convertible debenture
note. The carrying amounts of such financial instruments, as reflected in
the balance sheet, approximate the estimated fair value of the accounts as
of December 31, 2003. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a current market
exchange or of future earnings or cash flows. PUREZZA GROUP, INC. (A
Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS
The accompanying notes are an integral part of the financial statements.
F-8
(6) LICENSE AGREEMENT On August 15, 2001, the company entered into a License
Agreement with Integrated Mineral Technology Limited (IMT) whereby the
company received the exclusive use of the product "Phoslock" for all
applicable purposes in the USA, Canada, Mexico, Central American and South
America. The Agreement was effective August 15, 2001 and is for a term of
nineteen years and two and one-half months, ending October 31, 2020. The
initial license fee paid by the Company was $150,000. In conjunction with
the License Agreement, the Company sold 530,000 shares of the Company's
common stock to IMT in exchange for $530 in cash, and the Agreement is
subject to certain other conditions.
When the Company begins commercialization of this license, it will
amortize the initial license fee over the then remaining life of the
license. The Company will pay IMT certain royalties pursuant to the
Agreement. The Company has an exclusive license to sell and or manufacture
the product, Phoslock, in the license territories. The Agreement provides
for minimum royalty amounts, contracted product pricing and specific use
requirements of the product, as well as mutual benefits and obligations
for sub licensing and referrals and various other considerations. The
minimum royalty payments under the agreement are $843,750 in 2004, and
$1,260,000 per year thereafter. In the second quarter of 2002, the Company
wrote off the license fee, since the Company had not yet been able to
commercialize the license.
(8) RELATED PARTIES
(a) EXECUTIVE EMPLOYMENT AGREEMENT On October 1, 2001, the Company
entered into an Employment Agreement with employee Leonard M. Perle,
as President and a member of the Board of Directors, for five years.
Pursuant to the Agreement, the base compensation to be paid to
Leonard M. Perle for months one through twelve of the employment
term is at $60,000 annually; for months thirteen through nineteen,
at $100,000 annually; for months twenty through twenty-six, at
$150,000 annually; for months twenty-seven through thirty-two, at
$200,000 annually; for months thirty-three through sixty, at
$250,000 annually.
The number of options which Mr. Perle has received and may exercise
at certain levels of Company revenue are as follows:
NUMBER OF
OPTIONS PRICE COMPANY REVENUE
---------- --------- ---------------
500,000 $ .50 $ 1,000,000
500,000 2.00 2,000,000
500,000 2.50 4,000,000
----------
Subtotal 1,500,000
The accompanying notes are an integral part of the financial statements.
F-9
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
The number of options which Mr. Perle has received and may exercise
at certain levels of Company earnings is as follows:
NUMBER OF
OPTIONS PRICE COMPANY EARNINGS
---------- --------- ----------------
500,000 1.00 250,000
500,000 2.50 500,000
500,000 3.00 750,000
1,000,000 5.00 1,000,000
1,000,000 5.00 2,000,000
1,000,000 7.00 5,000,000
1,000,000 7.00 7,500,000
----------
Subtotal 5,500,000
----------
Total 7,000,000
==========
(8) RELATED PARTIES
(a) EXECUTIVE AND RELATED PARTY OPTION ISSUANCES During the fourth
quarter ended December 31, 2003, the Company issued common stock
options to one officer and three related parties. These issuances
were:
(1) OFFICER To Larry Legel, President, Chief Executive Officer,
Chief Administrative Officer, Director, Secretary, Treasurer
and Chief Financial Officer, the amount of 150,000 options
with a strike price of $0.10 per share, with an exercise term
of five years ending October 20, 2008. The options were issued
in consideration for past services rendered and in
anticipation of future services.
(2) RELATED PARTIES To Sanzari Family Trust, the amount of 250,000
options with a strike price of $1.00 per share, with an
exercise term of three years ending October 27, 2006. The
options were issued in consideration for the provision of
working capital to the Company in the past.
To TJP Management, Inc., the amount of 250,000 options with a
strike price of $1.00 per share, with an exercise term of
three years ending October 27, 2006. The options were issued
in consideration for the provision of working capital to the
Company in the past.
To Gregory A. Nagel., the amount of 1,000,000 options with a
strike price of $1.00 per share, with an exercise term of five
years ending November 5, 2008. The options were issued in
consideration for the provision of working capital to the
Company in the past.
(9) SUBSEQUENT EVENTS
(a) EXECUTIVE EMPLOYMENT AGREEMENT AND STOCKHOLDER'S EQUITY In early
January, Mr. Perle resigned as an officer and director of the
Company due to health reasons. At that time Mr. Perle agreed to
cancel his employment agreement, stock options and agreed to return
his 900,000 shares of previously issued common stock to the
Company's treasury for cancellation.
The accompanying notes are an integral part of the financial statements.
F-10
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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.