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. 15 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. 16 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. 17 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. 18 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. 19 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. 22 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. 23 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 24 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 25