U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2005
Commission File Number: 333-85306
PUREZZA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-1129912
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
936A Beachland Boulevard Suite 13, Vero Beach, FL 32963
(Address of principal executive offices)
(772) 231-7544
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|.
As of May 5, 2005, there were 59,000,000 shares of common stock, par value
$0.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
March 31, 2005 (unaudited) 1
Consolidated Condensed Statements of Operations
for the three month periods ended March 31, 2005
and 2004, and for the period from August 9, 2001
(inception) through March 31, 2005 (unaudited) 2
Consolidated Condensed Statements of Cash Flows
for the three month periods ended March 31, 2005
and 2004, and for the period from August 9, 2001
(inception) through March 31, 2005 (unaudited) 3
Notes to Condensed Financial Statements (unaudited) 4-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-22
Item 3. Controls and Procedures 23
PART II.OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Certifications
Part I - Financial Information
Item 1. Financial Statements
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEET
March 31, 2005
(Unaudited)
ASSETS
Current Assets:
Cash $ 12,436
-----------
Total Current Assets 12,436
-----------
Total Assets $ 12,436
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 2,686
Accrued expenses 16,000
-----------
Total Current Liabilities 18,686
Stockholders' Deficit
Preferred stock (5,000,000 shares authorized,
None issued or outstanding) --
Common stock (100,000,000 shares authorized,
58,000,000 issued and outstanding) 58,000
Additional paid in capital 1,023,522
Deficit accumulated during the development stage (1,087,772)
-----------
Total Stockholders' Deficit (6,250)
-----------
Total Liabilities and Stockholders' Deficit $ 12,436
===========
The accompanying notes are an integral part of the financial statements.
1
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
August 9, 2001
Three Months (Inception)
Ending March 31, Through
2005 2004 March 31, 2005
-------------- -------------- --------------
Revenue $ -- $ -- $ --
General and administrative
expenses 28,344 -- 136,250
-------------- -------------- --------------
Loss from continuing
operations (28,344) -- (136,250)
Disposed operations:
Loss from disposal of
product line and related
assets -- -- (227,556)
Income (loss) from operations of
disposed product line -- (27,537) (723,966)
Income tax benefit (expense) -- -- --
-------------- -------------- --------------
Income (loss) from disposed
operations -- (27,537) (951,522)
-------------- -------------- --------------
Net loss $ (28,344) $ (27,537) $ (1,087,772)
============== ============== ==============
Net loss per share:
Continuing operations $ (0.00) $ 0.00
Loss from disposal of
product line and related
assets (0.00) (0.00)
Income (loss) from operations
of disposed product line (0.00) (0.00)
-------------- --------------
$ (0.00) $ (0.00)
============== ==============
Weighted average number of
shares outstanding,
basic and diluted 58,000,000 7,815,000
============== ==============
The accompanying notes are an integral part of the financial statements.
2
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ending August 9, 2001
March 31, (Inception)
Through
2005 2004 March 31, 2005
----------- ----------- --------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss $ (28,344) $ (27,537) $(1,087,772)
Adjustments to reconcile net loss to net
cash flows from operations:
Stock issued for services -- -- 47,100
Depreciation expense -- 214 3,220
Impairment of license -- -- 150,000
Non-cash portion of loss on
disposal of product line -- -- 854
Increase (decrease) in:
Accounts payable 2,686 427 2,686
Accrued expenses 14,611 -- 16,000
Accrued interest -- -- --
----------- ----------- -----------
Net cash flows from operating
activities (11,047) (26,896) (867,912)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of license -- -- (150,000)
Purchase of computer -- -- (4,074)
----------- ----------- -----------
Net cash flows from investing activities -- -- (154,074)
CASH FLOWS FROM FINANCING
ACTIVITIES
Sale of common stock -- -- 438,047
Repurchase of common stock -- -- (3,625)
Proceeds from convertible debenture -- -- 600,000
----------- ----------- -----------
Net cash flows from financing activities -- -- 1,034,422
----------- ----------- -----------
Net increase (decrease) in cash (11,047) (26,896) 12,436
Cash, beginning of period 23,483 253,598 --
----------- ----------- -----------
Cash, end of period $ 12,436 $ 226,702 $ 12,436
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
3
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Purezza Group,
Inc. (the "Company") are presented in accordance with the requirements for
Form 10-Q and Article 10 of Regulation S-X and Regulation S-B. Accordingly,
they do not include all of the disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments (all of
which were of a normal recurring nature) considered necessary to fairly
present the financial position, results of operations, and cash flows of the
Company on a consistent basis, have been made.
These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in
the preparation of the Company's Annual Financial Statements for the years
ending December 31, 2004 and 2003. Operating results for the three months
ending March 31, 2005 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2005.
The Company recommends that the accompanying financial statements for the
interim period be read in conjunction with the financial statements and notes
for the years ending December 31, 2004, and 2003, previously filed.
Use of estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the statements
of financial condition and revenues and expenses for the year then ended.
Actual results may differ significantly from those estimates.
Disposed Operations
The Company has adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No.
144 modifies previous disclosures and requires additional disclosures for
discontinued operations and the assets associated with discontinued
operations.
Net Loss Per Share
Basic loss per weighted average common share is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period.
Stock Compensation For Services Rendered
The Company may issue shares of common stock in exchange for services
rendered. The costs of the services are valued according to generally
accepted accounting principles and will be charged to operations.
Fair Value of Financial Instruments
The Company has no financial instruments, other than cash.
4
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 2 - NATURE OF BUSINESS
Purezza Group, Inc. ("the Company") is a Florida chartered development stage
corporation headquartered in Vero Beach, Florida. The Company was
incorporated on August 9, 2001 to market a product called Phoslock. Phoslock
is a patented product that efficiently removes phosphorus and other oxyanions
in natural and industrial waters and wastewater streams. Prior to April 22,
2004, the Company's activities consisted of capital transactions,
organization, and development of the Company's Phoslock product line.
On April 23, 2004 the Company transferred all of its assets including, cash
on hand, the Phoslock product line, and all of the Company's rights under a
license agreement for the use of the Phoslock product line, to Purezza
Marketing, Inc. ("PMI"), a wholly owned subsidiary of the Company. The
Company's license agreement was with Integrated Mineral Technology Limited
("Integrated"), an Australian entity, and provided for certain fixed royalty
payments by the Company. As part of the Company's asset transfer to PMI, PMI
assumed all liabilities under the license agreement, which assumption was
consented to by Integrated. Since the original cost of the license had
already been expensed in a prior year and the previously required royalty
payments had been waived through 2003, there is no effect on the balance
sheet as of March 31, 2005 due to the license transfer and assumption.
Concurrently with the asset transfer to PMI, the Company distributed on a pro
rata basis all of its stock ownership in PMI to the holders of its common
stock (the "Distribution"). As a result of this transfer and the
Distribution, PMI will operate independently from the Company and as a
successor to the Company's business and operations. The Distribution was
accounted for as a disposed operation pursuant to Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".
As a result of the asset transfer and the Distribution, the Company no longer
has any meaningful business assets, operations or sources of revenue. The
Company plans to pursue and negotiate a business combination or other
strategic transaction. Ultimately, the continuation of the Company as a going
concern is dependent upon the establishment of profitable operations. Because
the achievement of these plans in dependent on future events, there can be no
assurance that future profitable operations will occur as planned.
5
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY
On April 2, 2004, the Company cancelled 900,000 shares of common stock issued
to its former President, Leonard M. Perle, who resigned for health reasons.
On April 2, 2004, the Company issued 900,000 shares of common stock to Larry
Legal as executive compensation for services rendered having a fair value of
$9,000.
During April 2004, the Company cancelled 800,000 shares of common stock
previously issued to Pro Finishes, Inc. for marketing services. The Company
issued 800,000 shares of common stock to International Equities Group, Inc.
("IEG") during April 2004 as compensation for marketing services rendered
having a fair value of $8,000.
In an equity for debt transaction dated April 23, 2004, International
Equities Group, Inc. ("IEG") converted a $600,000 Debenture Note Payable into
37,185,000 shares of the Company's common stock.
On April 23, 2004, Keating Reverse Merger Fund, LLC ("KRM Fund"), pursuant to
a Stock Purchase Agreement, acquired from IEG 37,185,000 shares of the
Company's common stock. Effective as of the closing of the Stock Purchase
Agreement, Larry Legel resigned as the Chairman of the Company's Board of
Directors and as its President, and Kevin R. Keating was appointed as the
sole Director, President, Treasurer and Secretary of the Company.
Concurrently, the principal executive office of the Company was moved to 936A
Beachland Boulevard, Suite 13, Vero Beach, FL 32963.
In order to fund the Company's working capital needs, on April 26, 2004, the
Company sold to KRM Fund 5,000,000 shares of common stock at a purchase price
of $0.01 per share, for an aggregate consideration of $50,000.
On April 26, 2004, 2,000,000 shares of the Company's common stock were issued
to Kevin R. Keating, the Company's sole officer and director, as compensation
for services valued by the Company at $20,000. On April 26, 2004, 500,000
shares of the Company's common stock were issued to Bertrand T. Ungar for
consulting services valued by the Company at $5,000.
In order to fund the Company's working capital needs, on September 15, 2004,
the Company sold to KRM Fund 5,000,000 shares of common stock at a purchase
price of $0.01 per share, for an aggregate consideration of $50,000.
On September 15, 2004, 500,000 shares of the Company's common stock were
issued to a financial consulting firm, as compensation for services valued by
the Company at $5,000.
6
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY (continued)
During December 2004, the Company amended its Articles of Incorporation to
authorize 5,000,000 shares of preferred stock, $0.01 par value, with such
rights, preferences and designations as determined by the Board of Directors.
There were no shares of preferred stock issued or outstanding as of March 31,
2005.
NOTE 4 - OPTIONS
During the quarter ending December 31, 2003, the Company issued options to
purchase common stock as follows:
to Larry Legel, former President, Chief Executive Officer, Chief
Administrative Officer, Director, Secretary, Treasurer and Chief Financial
Officer, in the amount of 150,000 options at a strike price of $0.10 per
share. The options may be exercised at any time for five years. The option
date is October 20, 2003. The expiration date is October 20, 2008. The
options were issued to Director/Officer in consideration for services
rendered, and in anticipation of future services to be rendered.
to Sanzari Family Trust, in the amount of 250,000 options at a strike
price of $1.00 per share. The options may be exercised at any time for three
years. The option date is October 27, 2003. The expiration date is October
27, 2006. The options were issued in consideration of the option holder
providing working capital to the Company.
to TJP Management, Inc., in the amount of 250,000 options at a strike
price of $1.00 per share. The options may be exercised at any time for three
years. The option date is October 27, 2003. The expiration date is October
27, 2006. The options were issued in consideration of the option holder
providing working capital to the Company.
to Gregory A. Nagel, in the amount of 1,000,000 options at a strike
price of $1.00 per share. The options may be exercised at any time for five
years. The option date is November 5, 2003. The expiration date is November
5, 2006. The options were issued in consideration of the option holder
providing working capital to the Company.
The compensation costs for the above transactions were immaterial.
7
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 5 - INCOME TAXES
At March 31, 2005, the Company had accumulated net operating loss
carryforwards for federal tax purposes of approximately $1,088,000 that are
available to offset future taxable income, if any, through 2024. Realization
of the net operating loss carryforwards is dependent upon future profitable
operations. In addition, the carryforwards may be limited upon a change of
control as described in Internal Revenue Code Section 382. Accordingly,
management has recorded a valuation allowance to reduce deferred tax assets
associated with net operating loss carryforwards to zero at March 31, 2005.
NOTE 6 - RELATED PARTY TRANSACTIONS
The sole officer and director of the Company, Kevin R. Keating, is the father
of the managing member of Keating Investments, LLC. Keating Investments, LLC
is the managing member of KRM Fund, which is the majority shareholder of the
Company. KRM Fund owns approximately 81.4% of the outstanding shares of the
Company's common stock as of March 31, 2005. Kevin R. Keating is not
affiliated with and has no equity interest in Keating Investments, LLC or KRM
Fund and disclaims any beneficial interest in the shares of the Company's
stock owned by KRM Fund. Similarly, Keating Investments, LLC and KRM Fund
disclaim any beneficial interest in the shares of the Company's common stock
currently owned by Kevin R. Keating.
On June 10, 2004, the Company entered into a contract with Vero Management,
L.L.C. ("Vero") for managerial and administrative services. Vero has not been
engaged to provide, and Vero does not render, legal, accounting, auditing,
investment banking or capital formation services. Kevin R. Keating, the sole
director of the Company, is the manager of Vero. The term of the contract is
for one year. In consideration of the services provided, Vero will be paid
$1,000 for each month in which services are rendered. For the current
quarter, $3,000 is included in general and administrative expense pursuant to
this agreement, $3,000 has been paid, and $1,000 remains in accounts payable
at March 31, 2005.
NOTE 7 - LETTER OF INTENT
On September 24, 2004, Purezza Group, Inc. ("Company") entered into a Letter
of Intent to acquire Puda Investment Holding Limited, a company incorporated
under the laws of the British Virgin Islands ("Puda"). Puda is the holding
company of Shanxi Puda Resources ("Shanxi"), a company formed in June 1995
and currently headquartered in Taiyuan City, Shanxi province, China.
8
PUREZZA GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)
NOTE 7 - LETTER OF INTENT (continued)
Under the transactions contemplated under the Letter of Intent, the Company
will acquire all of the issued and outstanding shares of Puda's capital stock
from Puda's existing stockholders ("Puda Stockholders"). In the exchange, the
Company will issue shares of its common stock to the Puda Stockholders in
such amount so that, immediately after giving effect to the acquisition, the
Puda Stockholders will own in the aggregate 90% of the Company's issued and
outstanding shares of common stock. At the close of the transaction, it is
contemplated that a new board of directors will be designated by the Puda
Stockholders and that such Board will include one member to be designated by
Keating Reverse Merger Fund, LLC, the current principal shareholder of the
Company. After the payment of certain transaction related fees (including the
issuance of the Company's common stock to certain finders and advisors), the
current stockholders of the Company are expected to own approximately 5% of
the issued and outstanding common stock after completion of the transaction
with Puda.
The Company's completion of the acquisition is subject to the negotiation and
execution of a definitive acquisition agreement and the delivery of financial
statements of Puda and its subsidiaries prepared in accordance with generally
accepted accounting principles in the United States of America. Subject to
the satisfaction of the above conditions and other customary conditions, the
acquisition is presently expected to close in the near future. However, there
can be no assurances that the acquisition will be completed.
NOTE 8 - SUBSEQUENT EVENTS
On April 4, 2005, 1,000,000 shares of the Company's common stock were issued
to a financial consulting firm, as compensation for services valued by the
Company at $10,000.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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-QSB 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.
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) limited
amount of resources devoted to achieving our business plan; (b) our failure to
implement our business plan within the time period we originally planned to
accomplish; (c) because we are seeking to merge with an operating business which
has not yet been identified, you will be unable to determine whether we will
ever become profitable; and (d) other risks that are discussed in this Form
10-QSB or included in our previous filings with the Securities and Exchange
Commission.
Company Background
The Company was formed to market a product called Phoslock, a patented product
to remove phosphorus and other oxyanions in natural and industrial waters and
wastewater streams. Prior to April 22, 2004, the Company's activities consisted
of capital transactions, organization, and development of the Company's Phoslock
product line.
10
On April 23, 2004 the Company transferred all of its assets including, cash on
hand, the Phoslock product line, and all of the Company's rights under a license
agreement for the use of the Phoslock product line, to Purezza Marketing, Inc.
("PMI"), a wholly owned subsidiary of the Company. The Company's license
agreement was with Integrated Mineral Technology Limited ("Integrated"), an
Australian entity, and provided for certain fixed royalty payments by the
Company. As part of the Company's asset transfer to PMI, PMI assumed all
liabilities under the license agreement, which assumption was consented to by
Integrated.
Concurrently with the asset transfer to PMI, the Company distributed on a pro
rata basis all of its stock ownership in PMI to the holders of its common stock
(the "Distribution"). As a result of this transfer and the Distribution, PMI
will operate independently from the Company and as a successor to the Company's
business and operations.
As a result of the asset transfer and the Distribution, the Company no longer
has any meaningful business assets, operations or sources of revenue. The
Company plans to pursue and negotiate a business combination with an operating
company. Ultimately, the continuation of the Company as a going concern is
dependent upon the establishment of profitable operations. Because the
achievement of these plans in dependent on future events, namely, a business
combination with an operating company, there can be no assurance that future
profitable operations will occur as planned.
Letter of Intent
On September 24, 2004, we entered into a Letter of Intent to acquire Puda
Investment Holding Limited, a company incorporated under the laws of the British
Virgin Islands ("Puda"). Puda is the holding company of Shanxi Puda Resources
("Shanxi"), a company formed in June 1995 and currently headquartered in Taiyuan
City, Shanxi province, China.
Under the transactions contemplated under the Letter of Intent, we will acquire
all of the issued and outstanding shares of Puda's capital stock from Puda's
existing stockholders ("Puda Stockholders"). In the exchange, we will issue
shares of our common stock to the Puda Stockholders in such amount so that,
immediately after giving effect to the acquisition, the Puda Stockholders will
own in the aggregate 90% of the Company's issued and outstanding shares of
common stock. At the close of the transaction, it is contemplated that a new
board of directors will be designated by the Puda Stockholders and that the
board will include one member to be designated by KRM Fund, our current
principal shareholder. After the payment of certain transaction related fees
(including the issuance of the Company's common stock to certain finders and
advisors), the current stockholders of the Company are expected to own
approximately 5% of the issued and outstanding common stock after completion of
the transaction with Puda.
Our completion of the acquisition is subject to the negotiation and execution of
a definitive acquisition agreement, the completion of certain corporate
restructurings to comply with applicable foreign laws and regulations, and the
delivery of financial statements of Puda and its subsidiaries prepared in
accordance with generally accepted accounting principles in the United States of
America. There can be no assurances that these conditions will be satisfied or
that the acquisition will be completed.
11
Shanxi was formed in June, 1995 in Taiyuan City, Shanxi province, China by Ming
Zhao. Shanxi focuses on high value added coal washing processes. In the coal
washing process raw coal is cleaned by using Puda's water-supported technology.
The cleaned coal produced by Shanxi is well suitable for processing into coking
coal, which is an essential raw material for steel production. Currently, Shanxi
is one of the top washed coal suppliers in Shanxi province. Shanxi province has
the biggest coal reserves in China, and commands more than 50% of coal
production in China.
Shanxi's sells washed coal primarily to coal coking and coal processing plants
which require high quality coal. Coal washed by Shanxi is used by some of the
top steel businesses in China including Taiyuan Iron & Steel (Group) Co., Ltd.,
which is an iron and steel complex producing steel plate and stainless steel;
Baotou Iron and Steel (Group) Company, Limited, which is a production base of
iron and steel; and Beijing Coal Coke Chemical Corporation, which is a coal gas
supplier in Beijing.
Results of Operations
For the three months ended March 31, 2005 the Company had no activities that
produced revenues from operations.
For the three months ending March 31, 2005 and 2004, the Company had net losses
of $(28,344) and $(27,537) respectively. In 2004, the Company decided to dispose
of its existing business through a stock distribution of all of its assets to
its shareholders. These assets consisted of cash of $226,702 and other assets
with a net book value of $854, which were recorded as a loss on disposed
operations.
Liquidity and Capital Resources
The Company's total assets as of March 31, 2005 are $12,436, which is comprised
of cash. The Company's current liabilities are $18,686. The Company has no
long-term debt. Total stockholders' deficit as of March 31, 2005 is $ (6,250).
In order to fund the Company's working capital needs, on April 26, 2004, the
Company sold to KRM Fund 5,000,000 shares of common stock at a purchase price of
$0.01 per share, for an aggregate consideration of $50,000.
On April 26, 2004, 2,000,000 shares of the Company's common stock were issued to
Kevin R. Keating, the Company's sole officer and director, as compensation for
services valued by the Company at $20,000. On April 26, 2004, 500,000 shares of
the Company's common stock were issued to Bertrand T. Ungar for consulting
services valued by the Company at $5,000.
In order to fund the Company's working capital needs, on September 15, 2004, the
Company sold to KRM Fund 5,000,000 shares of common stock at a purchase price of
$0.01 per share, for an aggregate consideration of $50,000.
12
On September 15, 2004, 500,000 shares of the Company's common stock were issued
to an financial consulting firm, as compensation for services valued by the
Company at $5,000. On April 4, 2005, 1,000,000 shares of the Company's common
stock were issued to a financial consulting firm, as compensation for services
valued by the Company at $10,000.
The following is a summary of the Company's cash flows from operating,
investing, and financing activities:
Three months ended March 31,
2005 2004
-------- --------
Operating activities $(11,047) $(26,896)
Investing activities -- --
Financing activities -- --
-------- --------
Net effect on cash $(11,047) $(26,896)
======== ========
Risk Factors
An investment in our common stock involves investment risks and the possibility
of the loss of an investor's entire investment. A prospective investor should
evaluate all information about us and the risk factors discussed below in
relation to his financial circumstances before investing in us.
1. No Current Operating Business. We currently have no relevant
operating business, revenues from operations or assets. Our business plan is to
seek a merger or business combination with an operating business. We face all of
the risks inherent in the investigation, acquisition, or involvement in a new
business opportunity. An investor's purchase of any of our securities must be
regarded as placing funds at a high risk in a new or "start-up" venture with all
of the unforeseen costs, expenses, problems, and difficulties to which such
ventures are subject.
2. No Assurance of Success or Profitability. There is no assurance that
we will acquire a suitable and favorable business opportunity in a reverse
merger transaction. In addition, even if we become involved in a business
opportunity, there is no assurance that the business we acquire will generate
revenues or profits, or that the value of our common stock will increase as a
result of the acquired business opportunity.
13
3. Possible Business - Not Identified and Highly Risky. Except as
otherwise discussed with respect to the Letter of Intent, we have not identified
and have no commitments to enter into or acquire a specific business opportunity
and therefore we can disclose the risks and hazards of a business or opportunity
that we acquire only in a general manner, and cannot disclose the risks and
hazards of any specific business or other opportunity that we may enter into. An
investor can expect a potential business opportunity to be quite risky. Our
acquisition of or participation in a business opportunity could result in a
total loss to our investors and stockholders if the target business is
unsuccessful. Further, any investment in us may continue to be highly illiquid.
4. Type of Business Acquired. Except as otherwise discussed with
respect to the Letter of Intent, the type of business that may be acquired is
not identified. Therefore, our investors and stockholders have to rely on our
management to determine which target business to pursue. There are no
controlling parameters of the business to be acquired. Thus, ultimately an
investment will depend on the target business and therefore investors in us will
be subject to all the risks that would be associated with that selected
business. Our management may have the right to approve and authorize a reverse
merger transaction with a target company without obtaining the vote of the
majority of our stockholders.
5. Impracticability of Exhaustive Investigation. We have limited funds
and lack full-time management which will likely make it impracticable to conduct
a complete and exhaustive investigation and analysis of a business opportunity
before we commit our limited capital and other resources to acquire a target
business. Management decisions, therefore, likely will be made without detailed
feasibility studies, independent analysis, market surveys, and the like which,
if we had more funds available to us, would be desirable. We will be
particularly dependent in making decisions upon information provided by the
promoter, owner, sponsor, or others associated with the business opportunity
seeking to be acquired by us.
6. Lack of Diversification. Because of our limited financial resources,
it is unlikely that we will be able to diversify our acquisitions or operations.
The inability to diversify our activities into more than one area will subject
our investors and stockholders to economic fluctuations within a particular
business or industry and therefore increase the risks associated with the
investment. We only intend to acquire a single business opportunity and thus
your investment will lack diversification.
14
7. Possible Reliance upon Unaudited Financial Statements. We will
require audited financial statements from target companies that we propose to
acquire. No assurance can be given, however, that audited financials will be
available at the closing of the reverse merger transaction. In cases where
audited financials are unavailable, we will have to rely upon unaudited
information received from target companies' management that has not been
verified by outside auditors. We, at the time of acquisition, will be subject to
the reporting provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and thus will be required to furnish certain information about
significant acquisitions, including audited financial statements for any
business that the shell company acquires. Consequently, acquisition prospects
that do not have or are unable to obtain the required audited statements may not
be appropriate for acquisition so long as the reporting requirements of the
Exchange Act are applicable. But, in cases where we have completed a reverse
merger transaction in reliance on unaudited financial statements and audited
statements cannot subsequently be obtained, the continued ability of the
post-transaction company to remain a reporting company and publicly trading will
be in jeopardy and may significantly reduce the value of your investment.
8. Investment Company Regulation. We do not intend to become classified
as an "investment company" under the Investment Company Act of 1940 (the
"Investment Act"). We believe that we will not become subject to regulation
under the Investment Act because (i) we will not be engaged in the business of
investing or trading in securities, and (ii) any acquisition undertaken will
result in the target company obtaining a majority interest in us. Should there
be a requirement to register as an investment company, it would cause
significant registration and compliance costs. Any violation of the Investment
Act will subject us to materially adverse consequences. Should the SEC find that
we are subject to the Investment Act, and order registration under the
Investment Act, we would resist such finding and take steps to avoid such
registration. Irrespective of whether the SEC or we were to prevail in such
dispute about whether or not we are an investment company, however, the damages
and delays would be costly.
9. Other Regulation. Any acquisition made by us may be of a business
that is subject to regulation or licensing by federal, state, or local
authorities. Foreign companies may also be considered, and be subject to similar
business regulations as are applicable in the United States and also may be
subject to limitations on ownership by foreign persons and entities. Compliance
with such regulations and licensing can be expected to be a time-consuming,
expensive process and may limit our other investment opportunities. We intend to
pursue potential business opportunities in foreign countries, including China,
and as such, such opportunities will be subject to foreign country laws and
regulations affecting foreign investment, business operations, currency
exchange, repatriation of profits, and taxation, which will increase the risk of
your investment.
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10. Dependence upon Management. We will be heavily dependent upon the
skills, talents, and abilities of our management to implement our business plan.
Our management may devote limited time to our affairs, which may be inadequate
for our business, and may delay the acquisition of any business opportunity
considered. Furthermore, management has little experience in seeking,
investigating, and acquiring businesses and will depend upon its limited
business knowledge in making decisions regarding our acquisition of a business
opportunity. Because investors will not be able to evaluate the merits of
possible business acquisitions by us, they should critically assess the
information concerning the management.
11. Dependence upon Outside Advisors. To supplement the business
experience of management, we may be required to employ accountants, technical
experts, appraisers, attorneys, or other consultants or advisors. Some of these
outside advisors may be our affiliates or their affiliated entities. The
selection of any such advisors will be made by our management without any input
from stockholders.
12. Conflicts of Interest. Our management has other business interests
to which they will devote primary attention. As a result, conflicts of interest
may arise that can be resolved only through the exercise by them of their
judgment as may be consistent with their fiduciary duties. Our management will
try to resolve conflicts to the best advantage of all concerned, but there may
be times when an acquisition opportunity is given to another entity to the
disadvantage of our stockholders and for which there will be no recourse. It is
also expected that we will engage Keating Securities, LLC, an affiliate of
Keating Investments, LLC, the managing member of our controlling stockholder, to
act as a financial advisor in connection with the reverse merger transaction for
which it may earn a cash and/or equity fee.
13. Need for Additional Financing. In all likelihood we will need
additional funds to take advantage of any available acquisition business
opportunity. Even if we were to obtain sufficient funds to acquire an interest
in a business opportunity, we may not have sufficient capital to fully exploit
the opportunity. Our ultimate success will depend upon our ability to raise
additional capital at the time of the acquisition and thereafter. When
additional capital may be needed, there can be no assurance that funds will be
available from any source or, if available, that they can be obtained on
acceptable terms.
14. Borrowing Transactions. There is a possibility that any acquisition
of a business opportunity by us will require borrowing against the assets of the
business opportunity to be acquired, or against the projected future revenues or
profits of the business opportunity. This leverage could increase our exposure
to larger losses. There is no assurance that any business opportunity acquired
through borrowing and leverage will generate sufficient revenues to cover the
related debt and expenses.
15. No Foreseeable Dividends. We do not intend to pay any dividends. We
do not foresee making any cash distributions in the manner of a dividend or
otherwise.
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16. Loss of Control by Present Management and Stockholders. It is
likely that any acquisition of an operating company will result in a change in
control of the then current directors, officers and the stockholders. Therefore,
our management prior to the acquisition will be changed to those of the target
company and its stockholders, who will then control the combined company. At
that time, our stockholders will be at investment risk for the decisions about
the business by persons that they may not know or have any ability to influence
through a board seat or by the voting mechanism of stockholders.
17. Dilutive Effects of Issuing Additional Common Stock. In any reverse
merger transaction, for tax reasons and management reasons, the owners of the
target company will be issued a large number of shares of common stock which
will dilute the ownership interest of our current stockholders. In addition, at
the time of the reverse merger, it will be likely that there will be additional
authorized but unissued shares that may be later issued by the then new
management for any purpose without the consent or vote of the stockholders. The
acquisition issuance and additional issuances that may occur will dilute the
interests of our stockholders after the reverse merger transaction.
18. Thinly-traded Public Market. Our securities will be very thinly
traded, and the price if traded may not reflect the value of the company.
Moreover, there may be a reverse split of the shares which may not reflect the
value of the company either. There can be no assurance that there will be an
active market for our shares either now or after we complete the reverse merger.
The market liquidity will be dependant on the perception of the operating
business and any steps that its management might take to bring the company to
the awareness of investors. There can be no assurance given that there will be
any awareness generated. Consequently investors may not be able to liquidate
their investment or liquidate it at a price that reflects the value of the
business. If a more active market should develop, the price may be highly
volatile. Because there may be a low price for our securities, many brokerage
firms may not be willing to effect transactions in the securities. Even if an
investor finds a broker willing to effect a transaction in the securities, the
combination of brokerage commissions, transfer fees, taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
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19. Possible Rule 144 Sales. The majority of our shares currently
outstanding are "restricted securities" within the meaning of Rule 144 under the
Securities Act of 1933, as amended (the "Act"). As restricted shares, these
shares may be resold only pursuant to an effective registration statement or
under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of one year may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
non-affiliate after the restricted securities have been held by the owner for a
period of two years. Current stockholders who own 10% or more of our shares will
likely be deemed an affiliate until 90 days after a reverse merger is completed
with a target company. After such 90-day period, and assuming said shares have
been held for more than two years, these stockholders may be able to sell their
shares without volume restrictions. A sale under Rule 144 or under any other
exemption from the Act, if available, or pursuant to subsequent registrations of
our shares, may have a depressive effect upon the price of our shares in any
market that may develop.
Plan of Operations
General Business Plan
Our plan of operation is to seek a target company with which to merge or to
complete a business combination. In any transaction, we will be the surviving
entity, and our stockholders will retain a percentage ownership interest in the
post-transaction company. The amount of the retained equity ownership by our
stockholders will be negotiated by our management and the target company. We may
also be required to pay cash and/or equity fees to third parties that advise us
in connection with the merger or business combination, commonly refereed to as a
reverse merger. These third party advisors may include certain affiliates of
ours and their affiliated entities.
Typically in connection with the reverse merger transaction involving us and the
target company, there will be a capital funding event for the target business on
a combined basis either at the time of the reverse merger or shortly thereafter.
This may be a private placement by either us or the target company, if the
funding event is contingent on the closing of the reverse merger. If the funding
event is after the reverse merger, it will likely be a public offering or
private placement of our securities. It will often be the case that the
liquidity opportunity for our existing stockholders will be tied to the ability
of the old and new investors of the target enterprise to have liquidity in the
market for their financial investment. Therefore, our stockholders may have to
continue to hold their investment or may face competition in being able to sell
their shares in the post-transaction business in the public market, which may
depress the price for such a volume of securities.
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We will not restrict our search to any specific business, industry or geographic
location, and we may participate in a business venture of virtually any kind or
nature. This discussion of our plan for acquiring an operating business is
purposefully general, and it is not meant to be restrictive of the virtually
unlimited discretion to search for and enter into potential business
opportunities. We anticipate that we will be able to participate in only one
potential business venture because of our nominal assets and limited financial
resources.
We may seek a business opportunity with entities which have recently commenced
operations, or that desire to utilize the public marketplace in order to raise
additional capital in order to expand into new products or markets, to develop a
new product or service, or for other corporate purposes. We may acquire assets
and establish wholly owned subsidiaries in various businesses or acquire
existing businesses as subsidiaries.
We expect that the selection of a business opportunity will be complex and
risky. Due to general economic conditions, rapid technological advances being
made in some industries and shortages of available capital, we believe that
there are numerous potential targets with either sound business ideas or
operations seeking the benefits of a shell company that has complied with the
federal reporting requirements for public companies and is publicly trading.
Such benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, providing liquidity (subject
to restrictions of applicable statutes) for all stockholders and other factors.
Potentially, available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex.
We have, and will continue to have, limited capital with which to provide the
owners of business opportunities with any significant cash or other assets. We
will, however, be able to offer owners of target candidates the opportunity to
acquire a controlling ownership interest in an issuer who has complied with the
reporting requirements under federal securities laws without incurring the cost
and time required to conduct an initial public offering.
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The analysis of new business opportunities will be undertaken by, or under the
supervision of, our management who will likely engage outside advisors to assist
us in this analysis. Some of these outside advisors may be affiliates of ours or
their affiliated entities. We intend to concentrate on identifying preliminary
prospective business opportunities which may be brought to our attention through
present associations of our officers and directors, or by our advisors. In
analyzing prospective business opportunities, we will consider such matters as
(i) available technical, financial and managerial resources; (ii) working
capital and other financial requirements; (iii) history of operations, if any
and prospects for the future; (iv) nature of present and expected competition;
(v) quality, experience and depth of management services; (vi) potential for
further research, development or exploration; (vii) specific risk factors not
now foreseeable but that may be anticipated to impact the proposed activities of
the company; (viii) potential for growth or expansion; (ix) potential for
profit; (x) public recognition and acceptance of products, services or trades;
(xi) name identification; and (xii) other factors that we consider relevant. As
part of our investigation of the business opportunity, we or our advisors expect
to meet personally with or interview management and key personnel.
We may also have to compensate certain advisors, finders and investment banking
firms for services rendered in connection with the identification of target
operating companies and the negotiation and completion of the transaction. Due
to our limited resources, it is expect that all or a portion of this
compensation will be in the form of our common stock or from cash provided by
the target company or the funding event. Additional issuance of our common stock
will have a further dilutive effect on the percentage of shares held our
stockholders. Keating Securities, LLC, an affiliate of Keating Investments, LLC,
the managing member of our controlling stockholder, will also act as a financial
advisor in connection with the reverse merger transaction and will be paid a
cash and/or equity fee upon the successful closing of the reverse merger.
We will not acquire or merge with any company for which audited financial
statements cannot be obtained within a reasonable period of time after closing
of the proposed transaction.
Acquisition Opportunities
In implementing a structure for a particular business acquisition, we may become
a party to a merger, consolidation, reorganization, joint venture, or licensing
agreement with another company or entity. We may also acquire stock or assets of
an existing business. Our management may have the right to approve and authorize
a reverse merger transaction with a target company without obtaining the vote of
the majority of our stockholders. Further, upon consummation of a reverse merger
transaction, it is probable that our present management and stockholders will no
longer be in control of us. In addition, our management, as part of the terms of
the reverse merger transaction, may resign and may be replaced by new directors
without a vote of our stockholders. Any and all sales of shares of our common
stock may only be made in compliance with the securities laws of the United
States and any applicable state.
20
It is anticipated that certain securities issued by us in connection with the
reverse merger would be issued in reliance upon exemptions from registration
under application federal and state securities laws. In some circumstances, as a
negotiated element of the reverse merger transaction, we will be asked to agree
to register all or a part of such securities immediately after the transaction
is consummated or at specified times thereafter. In such a case, we will attempt
to negotiate the registration of some or all of our current outstanding shares
which are restricted, but there is no guarantee that this will be accomplished
or, if accomplished, that the registration rights identical. If such
registration occurs, it will be undertaken by the surviving entity after it has
successfully consummated a reverse merger and is no longer considered an
inactive company. The issuance of substantial additional securities by us in
connection with the reverse merger and their potential sale into any trading
market which may develop in our securities may have a depressive effect on the
value of our securities in the future. There is no assurance that such a trading
market will develop.
While the actual terms of a reverse merger transaction cannot be predicted, it
is expected that the parties to any business transaction will find it desirable
to avoid the creation of a taxable event and thereby structure the business
transaction in a so-called "tax-free" reorganization under Sections 368(a)(1) or
351 of the Internal Revenue Code (the "Code"). In order to obtain tax-free
treatment under the Code, it may be necessary for the owners of the acquired
business to own 80 percent or more of the voting stock of the surviving entity.
In such event, the equity interest retained by our current stockholders would be
less than 20 percent of the issued and outstanding shares of the surviving
entity. This would result in significant dilution in the equity interests of our
stockholders.
In addition to the tax considerations discussed above, it is likely that in any
reverse merger, and depending upon, among other things, the target company's
assets and liabilities, the equity interests of our stockholders after the
transaction will be a small percentage of the post-transaction company. The
percentage ownership may be subject to significant reduction in the event we
acquire a target company with significant assets and expectations of growth.
We will participate in a business opportunity only after the negotiation and
execution of appropriate written agreements. Although the terms of the
acquisition agreements cannot be predicted, generally such agreements will (i)
require specific representations and warranties by all of the parties; (ii)
specify certain events of default and remedies therefor; (iii) detail the terms
of closing and the conditions which must be satisfied by each of the parties
prior to and after closing; (iv) outline the manner of bearing costs, including
costs associated with our attorneys and accountants; (v) set forth
indemnification provisions; and (vi) include miscellaneous other terms.
21
As stated above, we will not acquire or merge with any entity which cannot
provide independent audited financial statements within a reasonable period of
time after closing of the proposed transaction. Included in these requirements
is the affirmative duty to file independent audited financial statements as part
of a Current Report on Form 8-K, required to be filed with the SEC upon
consummation of a merger or acquisition, as well as audited financial statements
included in an Annual Report on Form 10-K (or Form 10-KSB, as applicable). If
such audited financial statements are not available at closing, or within time
parameters necessary to insure compliance with the reporting requirements under
federal securities laws, or if the audited financial statements provided do not
conform to the representations made by the business to be acquired, we will
attempt to negotiate a provision in the definitive closing documents to void the
transaction. However, there is no guarantee that we will be successful in
including such a provision and, in such case, the continued ability of the
post-transaction company to remain a reporting company and publicly trading may
be in jeopardy.
Competition
We are an insignificant participant among the firms which engage in the reverse
merger of shell companies into an operating business. There are many established
venture capital and financial concerns that have significantly greater financial
and personnel resources and technical expertise than we have. In view of our
limited financial resources and limited management availability, we will
continue to be at a significant competitive disadvantage compared to our
competitors. As a result, we may not be able to find suitable target companies
with which to complete a reverse merger transaction.
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ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
1934 Act. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There was no change in the
Company's internal control over financial reporting during the Company's most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On April 4, 2005, 1,000,000 shares of the Company's common stock
were issued to a financial consulting firm, as compensation for
services valued by the Company at $10,000.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
32 Exhibits
32 Certification pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
32 Certification of Chief Executive Officer and Chief Financial
Officer of the Company, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8K
None
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Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PUREZZA GROUP, INC.
By: /s/ Kevin R. Keating
---------------------------------
Principal Executive Officer
Principal Financial Officer
Date: May 13, 2005
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