UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 15, 2005
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(Date of earliest event reported)
Puda Coal, Inc.
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(Exact name of registrant as specified in its charter)
Florida
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(State or other Jurisdiction of Incorporation or Organization)
333-85306 65-1129912
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(Commission File Number) (IRS Employer Identification No.)
426 Xuefu Street, Taiyuan, Shanxi Province, China
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(Address of Principal Executive Offices and zip code)
011.86.351.2281300
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(Registrant's telephone number, including area code)
Purezza Group, Inc.
936A Beachland Boulevard, Suite 13
Vero Beach, FL 32963
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12(b))
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01 Other Events
Shanxi Puda Resources Co, Ltd. ("Puda") Results of Operations
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
(unaudited)
Net Revenue. Puda's net revenue for the three months ended March 31, 2005
decreased $668,000, or 14%, from $4,940,000 in the three months ended March 31,
2004 to $4,272,000 in the three months ended March 31, 2005. The tonnage sales
of cleaned coal decreased 28,000 tons from 87,000 tons in the three months ended
March 31, 2004 to 59,000 tons in the three months ended March 31, 2005, a 32%
decrease. The decrease in tonnage sales was primarily due to tightened raw coal
supply in the PRC in the three months ended March 31, 2005, during which period
most of the raw coal suppliers in the PRC were required by the PRC government to
temporarily cease their operation for about one month for safety checks and
improvements. The decrease in tonnage sales was offset by an increase in the per
ton sales price of cleaned coal in all regions.
Cost of Revenues. Puda's cost of revenue for the three months ended March
31, 2005 increased $530,000, or 18%, from $2,880,000 in the three months ended
March 31, 2004 to $3,410,000 in the three months ended March 31, 2004. This was
primarily due to the significant increase in the price per ton of raw coal.
Selling Expenses. Puda's selling expenses were $49,000 for the three
months ended March 31, 2005, compared to $66,000 for the three months ended
March 31, 2004. This represents a decrease of $17,000 or 26%, primarily due to
decrease in sales volume.
General and Administrative Expenses. Puda's general and administrative
expenses were $64,000 for the three months ended March 31, 2005, compared to
$69,000 for the three months ended March 31, 2004. This represents a decrease of
$5,000 or 7%, primarily due to decrease in employee travel and training.
Income from Operations. Puda's operating profit decreased $1,176,000, or
61%, from $1,925,000 in the three months ended March 31, 2004 to $749,000 in the
three months ended March 31, 2005. The decrease was primarily the result of
decreased gross profit margin in the three months ended March 31, 2005 (42% in
the three months ended March 31, 2004 versus 20% in the three months ended March
31, 2005).
Income Taxes. Income taxes decreased $382,000, or 59%, from $643,000 in
the three months ended March 31, 2004 to $261,000 in the three months ended
March 31, 2005 due to decrease in operating profit.
Net Income. Puda's net income was $494,000 for the three months ended
March 31, 2005, compared to $1,278,000 in the three months ended March 31, 2004,
a decrease of $784,000, or 61% due to decrease in operating profit.
Liquidity and Capital Resources
Net cash provided by operating activities was $498,000 for the three
months ended March 31, 2005, compared to $536,000 in the three months ended
March 31, 2004, a decrease of $38,000 or 7% primarily due to decrease in net
income.
Net cash provided by investing activities was $123,000 for the three
months ended March 31, 2005, compared to $Nil in the three months ended March
31, 2004. This was related to sale of short term investment in the three months
ended March 31, 2005.
Net cash used by financing activities was $240,000 for the three months
ended March 31, 2005, compared with net cash provided by financing activities of
$412,000 in the three months ended March 31, 2004. This was related to a cash
distribution paid to owners of $240,000 in the three months ended March 31, 2005
and the increase in short-term borrowing of $412,000 in the three month ended
March 31, 2004.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The Audited Financial Statements of Shanxi Puda Resources Co, Ltd.
("Puda") as of December 31, 2004 and 2003, and for the years ended December 31,
2004 and 2003 are included in Item 9.01(a) of the Form 8-K dated July 15, 2005
and filed on July 18, 2005.
Puda Coal, Inc. ("Puda Coal") formerly called Purezza Group, Inc., files
this amendment to its Form 8-K current report dated July 15, 2005, to provide
the following financial statements:
1. Puda Investment Holding Limited
Balance Sheets as of December 31, 2004 (audited) and March 31, 2005
(unaudited)
Statements of Changes in Stockholders' Equity for the three months
ended March 31, 2005 and for the period from August 19,
2
2004 (inception) to March 31, 2005
Notes to Financial Statements
2. Taiyuan Putai Business Consulting Co., Ltd.
Balance Sheets as of December 31, 2004 (audited) and March 31, 2005
(unaudited)
Statements of Changes in Stockholders' Equity for the three months
ended March 31, 2005 and for the period from November 5, 2004
(inception) to March 31, 2005
Notes to Financial Statements
3. Shanxi Puda Resources Co., Ltd.
Unaudited Balance Sheet as of March 31, 2005
Unaudited Statements of Operations for the three months ended March
31, 2005 and March 31, 2004
Unaudited Statements of Cash Flows for the three months ended March
31, 2005 and March 31, 2004
Notes to Financial Statements
(d) Pro forma financial information.
1. Combined pro forma balance sheet as of March 31, 2005 (unaudited),
and combined pro forma income statements for the three months ended
March 31, 2005 (unaudited) and for the year ended December 31, 2005
(unaudited)
3
PUDA INVESTMENT HOLDING LIMITED
(A Development Stage Enterprise)
UNAUDITED FINANCIAL STATEMENTS
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Unaudited Balance Sheets as of March 31, 2005 and December 31, 2004 5
Unaudited Statements of Changes in Stockholders' Equity for the
three months ended March 31, 2005 and for the period from
August 19, 2004 (inception) to March 31, 2005 6
Notes to Unaudited Financial Statements 7-8
4
PUDA INVESTMENT HOLDING LIMITED
(A Development Stage Enterprise)
UNAUDITED BALANCE SHEETS
As of March 31, 2005 and December 31, 2004
(In thousands of United States dollars)
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS $ -- $ --
Total current assets -- --
------------ ------------
TOTAL ASSETS -- --
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -- --
------------ ------------
Total current liabilities -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 50 50
Unpaid common stock (50) (50)
Additional paid-in capital -- --
Retained earnings -- --
Total stockholders' equity -- --
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ --
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
5
PUDA INVESTMENT HOLDING LIMITED
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(A Development Stage Enterprise)
For the three months ended March 31, 2005 and for the period from
August 19, 2004(inception) to March 31, 2005
(In thousands of United States dollars)
UNPAID ADDITIONAL TOTAL
COMMON STOCK COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
---------------------------------------------------------------------------------
No. of
shares $'000 $'000 $'000 $'000 $'000
Balance, August 19, 2004 (inception) 50,000 $ 50 $ (50) $ -- $ -- $ --
Net income for the period ended
December 31, 2004 -- -- -- -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 2004-Audited 50,000 50 (50) -- -- --
=================================================================================
Balance, January 1, 2005 50,000 50 (50) -- -- --
Net income for three months ended
March 31, 2005 -- -- -- -- -- --
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Balance, March 31, 2005 -Unaudited 50,000 $ 50 $ (50) $ -- $ -- $ --
=================================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
6
PUDA INVESTMENT HOLDING LIMITED
(A Development Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The Company
Puda Investment Holding Limited ("the Company" or "Puda BVI") was an
International Business Company incorporated in the British Virgin Islands on
August 19, 2004. The Company has a registered capital of $50,000. The Company
did not have any activities from August 19, 2004 (inception) to March 31, 2005.
The Company has been presented as a "development stage enterprise" in accordance
with Statement of Financial Accounting Standards ("SFAS") No.7, "Accounting and
Reporting by Development Stage Enterprises". Since inception, the Company's
activities have been limited to organizational efforts, obtaining initial
financing, and making filings with the Securities and Exchange Commission
("SEC").
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
Statements of Operations and Cash Flows for the three months ended March 31,
2005 and for the period from August 19, 2004 (inception) to March 31, 2005 have
been omitted because of lack of activity.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, the financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments have been
included and all adjustments considered necessary to make the interim financial
statements not misleading have been included and such adjustments are of a
normal recurring nature. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results for the full fiscal
year ending December 31, 2005.
(b) Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reported
periods. Actual results could differ from those estimates.
7
PUDA INVESTMENT HOLDING LIMITED
(A Development Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
3. Subsequent Events
On April 27, 2005, the owners of the Company contributed $50,000 as capital. The
owners are Mr. Zhao Ming (80%) and Mr. Zhao Yao (20%).
Effective June 20, 2005, Puda Coal, Inc. (formerly, Purezza Group, Inc.) ("Puda
Coal"), a Florida corporation, entered into an Exchange Agreement ("Exchange
Agreement") with Taiyuan Putai Business Consulting Co., Ltd. ("Putai"), a
limited liability company under the Company Law of The People's Republic of
China (the "PRC"), Shanxi Puda Resources Co., Ltd. ("Puda"), a limited liability
company formed by natural persons under the laws of the PRC, Puda BVI and each
of the members of Puda BVI (the "Puda BVI Members"). The closing of the
transactions contemplated by the Exchange Agreement occurred on July 15, 2005.
At the closing, pursuant to the terms of the Exchange Agreement, Puda Coal
acquired all of the outstanding capital stock and ownership interests of Puda
BVI from the Puda BVI Members, and the Puda BVI Members contributed all of their
interests in Puda BVI to Puda Coal. In exchange, Puda Coal issued to the Puda
BVI Members 1,000,000 shares of Series A Convertible Preferred Stock, par value
$0.01 per share, of Puda Coal, which are convertible into 678,500,000 shares of
Puda Coal's common stock. At the closing, Puda BVI became a wholly-owned
subsidiary of Puda Coal. Puda BVI, in turn, owns all of the registered capital
of Putai, a wholly foreign owned enterprise ("WFOE") registered under the wholly
foreign-owned enterprises laws of the PRC.
On June 24, 2005, Puda and Putai entered into an Exclusive Consulting Agreement,
an Operating Agreement and a Technology License Agreement. Under these
agreements, Putai has agreed to advise, consult, manage and operate Puda's
business, to provide certain financial accommodations to Puda, and to license
certain technology to Puda for use in its business, in exchange for Puda's
payment of all of its operating cash flow to Putai.
Each of the holders of the registered capital of Puda also granted Putai the
exclusive right and option to acquire all of their registered capital of Puda
and further authorized Putai to exercise the voting rights of the owners of the
registered capital of Puda and to act as the representative for such holders in
all matters respecting Puda's registered capital.
8
TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
(A Development Stage Enterprise)
UNAUDITED FINANCIAL STATEMENTS
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Unaudited Balance Sheets as of March 31, 2005 and December 31, 2004 10
Unaudited Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2005 and for the period
from November 5, 2004 (inception) to March 31, 2005 11
Notes to Unaudited Financial Statements 12-13
9
TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
(A Development Stage Enterprise)
UNAUDITED BALANCE SHEETS
As of March 31, 2005 and December 31, 2004
(In thousands of United States dollars)
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS $ -- $ --
Total current assets -- --
------------ ------------
TOTAL ASSETS -- --
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -- --
------------ ------------
Total current liabilities -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock -- --
Additional paid-in capital -- --
Retained earnings -- --
Total stockholders' equity -- --
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ --
============ ============
The accompanying notes are an integral part of these unaudited financial
statements.
10
TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 2005 and for the period from
November 5, 2005 (inception) to March 31, 2005
(In thousands of United States dollars)
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
CAPITAL EARNINGS EQUITY
------------------------------------------------------------------
No. of shares $'000 $'000 $'000 $'000
Balance, November 5, 2004 (inception) -- -- -- -- --
Net income for the period ended
December 31, 2004 -- -- -- -- --
------------------------------------------------------------------
Balance, December 31, 2004-Audited -- -- -- -- --
==================================================================
Balance, January 1, 2005 -- -- -- -- --
Net income for three months ended
March 31, 2005 -- -- -- -- --
------------------------------------------------------------------
Balance, March 31, 2005-Unaudited -- $ -- $ -- $ -- $ --
==================================================================
The accompanying notes are an integral part of these unaudited financial
statements.
11
TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
(A Development Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The Company
Taiyuan Putai Business Consulting Co. Ltd. ("the Company" or "Putai"), a limited
liability company under the Company Law of The People's Republic of China
("PRC"), was established on November 5, 2004. The Company has a registered
capital of $20,000. The Company did not have any activities from November 5,
2004 (inception) to March 31, 2005.
The Company has been presented as a "development stage enterprise" in accordance
with Statement of Financial Accounting Standards ("SFAS") No.7, "Accounting and
Reporting by Development Stage Enterprises". Since inception, the Company's
activities have been limited to organizational efforts, obtaining initial
financing, and making filings with the Securities and Exchange Commission
("SEC").
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
Statements of Operations and Cash Flows for the three months ended March 31,
2005 and for the period from November 5, 2004 (inception) to March 31, 2005 have
been omitted because of lack of activity.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, the financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments have been
included and all adjustments considered necessary to make the interim financial
statements not misleading have been included and such adjustments are of a
normal recurring nature. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results for the full fiscal
year ending December 31, 2005.
(b) Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reported
periods. Actual results could differ from those estimates.
12
TAIYUAN PUTAI BUSINESS CONSULTING CO., LTD.
(A Development Stage Enterprise)
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
3. Subsequent Events
On May 8, 2005, $20,000 was received as capital from Puda Investment Holding
Limited ("Puda BVI"), an International Business Company incorporated in the
British Virgin Islands.
Effective June 20, 2005, Puda Coal, Inc. (formerly, Purezza Group, Inc.) ("Puda
Coal"), a Florida corporation, entered into an Exchange Agreement ("Exchange
Agreement") with Putai, Shanxi Puda Resources Co. Ltd. ("Puda"), a limited
liability company formed by natural persons under the laws of the PRC, Puda
Investment Holding Limited ("Puda BVI"), an International Business Company
incorporated in the British Virgin Islands, and each of the members of Puda BVI
(the "Puda BVI Members"). The closing of the transactions contemplated by the
Exchange Agreement occurred on July 15, 2005. At the closing, pursuant to the
terms of the Exchange Agreement, Puda Coal acquired all of the outstanding
capital stock and ownership interests of Puda BVI from the Puda BVI Members, and
the Puda BVI Members contributed all of their interests in Puda BVI to Puda
Coal. In exchange, Puda Coal issued to the Puda BVI Members 1,000,000 shares of
Series A Convertible Preferred Stock, par value $0.01 per share, of Puda Coal,
which are convertible into 678,500,000 shares of Puda Coal's common stock. At
the closing, Puda BVI became a wholly-owned subsidiary of Puda Coal. Puda BVI,
in turn, owns all of the registered capital of Putai, a wholly foreign owned
enterprise ("WFOE") registered under the wholly foreign-owned enterprises laws
of the PRC.
On June 24, 2005, Putai and Puda entered into an Exclusive Consulting Agreement,
an Operating Agreement and a Technology License Agreement. Under these
agreements, Putai has agreed to advise, consult, manage and operate Puda's
business, to provide certain financial accommodations to Puda, and to license
certain technology to Puda for use in its business, in exchange for Puda's
payment of all of its operating cash flow to Putai.
Each of the holders of the registered capital of Puda also granted Putai the
exclusive right and option to acquire all of their registered capital of Puda
and further authorized Putai to exercise the voting rights of the owners of the
registered capital of Puda and to act as the representative for such holders in
all matters respecting Puda's registered capital.
13
SHANXI PUDA RESOURCES CO., LTD.
UNAUDITED FINANCIAL STATEMENTS
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Unaudited Balance Sheet as of March 31, 2005 15
Unaudited Statements of Operations for the three months ended
March 31, 2005 and March 31, 2004 16
Unaudited Statements of Cash Flows for the three months ended
March 31, 2005 and March 31, 2004 17
Notes to Unaudited Financial Statements 18-22
14
SHANXI PUDA RESOURCES CO., LTD.
UNAUDITED BALANCE SHEET
As of March 31, 2005
(In thousands of United States dollars)
Note(s) March 31, 2005
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 694
Accounts receivable, net 3,115
Other receivables
- Related parties 3 2,486
- Third parties 49
Deposits and prepayments 957
Inventories 4 3,837
-----------
Total current assets 11,138
-----------
PROPERTY, PLANT AND EQUIPMENT, NET 948
INTANGIBLE ASSETS 181
TOTAL ASSETS 12,267
===========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Accounts payable
- Related party 3 379
- Third parties 585
Other payables
- Related party 3 194
- Third parties 298
Accrued expenses 268
Income taxes payable 2,273
VAT payable 383
Distribution payable 244
-----------
Total current liabilities 4,624
-----------
OWNERS' EQUITY
Paid-in capital 2,717
Statutory surplus reserve fund 1,322
Retained earnings 3,604
Total owners' equity 7,643
-----------
TOTAL LIABILITIES AND OWNERS' EQUITY $ 12,267
===========
The accompanying notes are an integral part of these unaudited financial
statements.
15
SHANXI PUDA RESOURCES CO., LTD.
UNAUDITED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2005 and March 31, 2004
(In thousands of United States dollars)
Note(s) Three months Three months
ended ended
March 31, 2005 March 31, 2004
--------------- --------------
NET REVENUE $4,27 $4,940
COST OF REVENUE (3,410) (2,880)
GROSS PROFIT 862 2,060
OPERATING EXPENSES
Selling expenses 49 66
General and administrative expenses 64 69
TOTAL OPERATING EXPENSES 113 135
--------------- --------------
INCOME FROM OPERATIONS 749 1,925
GAIN ON SHORT-TERM INVESTMENT 6 --
INTEREST EXPENSE -- (4)
--------------- --------------
INCOME BEFORE INCOME TAXES 755 1,921
INCOME TAXES 5 (261) (643)
--------------- --------------
NET INCOME $494 $1,278
=============== ==============
The accompanying notes are an integral part of these unaudited financial
statements.
16
SHANXI PUDA RESOURCES CO., LTD.
UNAUDITED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2005 and March 31, 2004
(In thousands of United States dollars)
Three months Three months
ended ended
March 31,2005 March 31, 2004
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 494 $ 1,278
Adjustments to reconcile net income to net cash used in
operating activities:
Gain on short-term investment (6) --
Amortization of land use right 1 2
Depreciation 26 26
Changes in operating assets and liabilities:
Increase in accounts receivable (393) (1,041)
Decrease/(increase) in notes receivable 638 (544)
Increase in other receivables, deposits and prepayments (659) (83)
(Increase)/decrease in inventories (272) 254
Increase/(decrease) in accounts payable 248 (174)
Increase in notes payable -- 2
Increase in accrued expenses 20 19
Decrease in advance to customers -- (265)
Increase in other payables 4 57
Increase in income tax payable 265 646
Increase in VAT payable 132 359
===============================
Net cash provided by operating activities 498 536
===============================
CASH FLOWS FROM INVESTING ACTIVITES
Sale proceeds from short-term investment 123 --
-------------------------------
Net cash provided by investing activities 123 --
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITES
Increase in short-term borrowing -- 412
Distribution paid to owners (240) --
-------------------------------
Net cash (used in)/provided by financing activities (240) 412
===============================
Net increase in cash and cash equivalents 381 948
Cash and cash equivalents at beginning of period 313 913
===============================
Cash and cash equivalents at end of period $ 694 $ 1,861
===============================
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest -- 4
Income taxes -- --
The accompanying notes are an integral part of these unaudited financial
statements.
17
SHANXI PUDA RESOURCES CO., LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The Company
Shanxi Puda Resources Co., Ltd. ("the Company" or "Puda") was established on
June 7, 1995 as a company with limited liability under the laws of The People's
Republic of China ("PRC"). The Company mainly processes and washes raw coal and
sells from its plants in Shanxi Province, high-quality, low sulfur refined coal
for industrial clients mainly in Central and Northern China.
The Company has a registered capital of RMB22,500,000 ($2,717,000) which is
fully paid-up. The owners of the Company are Mr. Zhao Ming (80%) and Mr. Zhao
Yao (20%).
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, the financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments have been
included and all adjustments considered necessary to make the interim financial
statements not misleading have been included and such adjustments are of a
normal recurring nature. These financial statements should be read in
conjunction with the financial statements for the year ended December 31, 2004
and notes thereto contained in the Report on Form 8-K of Puda Coal, Inc.
(formerly, Purezza Group, Inc.) ("Puda Coal") dated July 15, 2005 as filed with
the Securities and Exchange Commission (the "Commission"). The results of
operations for the three months ended March 31, 2005 are not necessarily
indicative of the results for the full fiscal year ending December 31, 2005.
(b) Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reported
periods. Significant estimates include depreciation and allowance for doubtful
accounts receivable. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents. As of March
31, 2005, the Company did not have any cash equivalents.
(d) Inventories
Inventories comprise raw materials and finished goods and are stated at the
lower of cost or market value. Substantially all inventory costs are determined
using the weighted average basis. Costs of finished goods include direct labor,
direct materials, and production overhead before the goods are ready for sale.
Inventory costs do not exceed net realizable value.
18
SHANXI PUDA RESOURCES CO., LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
(e) Property, Plant and Equipment, Net
Property, plant and equipment is stated at cost. Depreciation is provided
principally by use of the straight-line method over the useful lives of the
related assets. Expenditures for maintenance and repairs, which do not improve
or extend the expected useful life of the assets, are expensed to operations
while major repairs are capitalized.
Management estimates that it has a 10% residual value for buildings, and a 5%
residual value for other property, plant and equipment. The estimated useful
lives are as follows:
Building and facility 20 years
Machinery and equipment 10 years
Motor vehicles 10 years
Office equipment and others 10 years
The gain or loss on disposal of property, plant and equipment is the difference
between the net sales proceeds and the carrying amount of the relevant assets,
and, if any, is recognized in the statements of operations.
(f) Land Use Rights and Amortization
Land use right is stated at cost, less amortization. Amortization of land use
right is calculated on the straight-line method, based on the period over which
the right is granted by the relevant authorities in Shanxi, PRC.
(g) Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The Company reviewed the differences between tax basis under PRC tax laws and
financial reporting under US GAAP, and no material differences were found, thus,
there were no deferred tax assets or liabilities as of March 31, 2005 for the
Company.
(h) Revenue Recognition
Revenue from goods sold is recognized when title has passed to the purchaser,
which generally is at the time of delivery.
19
SHANXI PUDA RESOURCES CO., LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
3. Related Party Transactions
As of March 31, 2005, the Company had the following amounts due from/to related
parties:-
March 31, 2005
------------
$'000
Other receivable from Shanxi Puda Resources Group Limited
("Puda Group"), a related company with common owners $ 2,482
Other receivable from an owner, Zhao Ming 4
------------
$ 2,486
============
Accounts payable to Shanxi Liulin Jucai Coal Industry Co., Limited
("Jucai Coal"), a related company with a common owner $ 379
============
Other payable to an owner, Zhao Yao $ 194
============
The balances are unsecured, interest-free and there are no fixed terms for
repayment.
The amount payable to Zhao Yao represents land use right paid by him on behalf
of the Company.
In 2001, the Company entered into agreements with Puda Group to lease an office
and certain equipment. In the three months ended March 31, 2005 and March 31,
2004, rental expenses under these agreements were $11,000 and $11,000,
respectively.
By an agreement entered into between the Company and Puda Group on April 25,
2005, Puda Group agreed to pay all the tax liabilities (including surcharges and
penalties) of the Company with retrospective effect from its establishment to
December 31, 2004. For the three months ended March 31, 2005 and March 31, 2004,
the Company has paid $251,000 and $187,000, respectively, to Puda Group for
payment of value-added tax ("VAT"). In December 2004, Puda Group paid the
Company's income taxes of $1,678,000 and VAT of $1,950,000 to the China Tax
Bureau. In April 2005, Puda Group paid the Company's VAT of $251,000 to the
China Tax Bureau. The directors expect that the Company's income tax for the
year 2004 will be paid to the China Tax Bureau by the end of August, 2005.
In 2001, the Company entered into an agreement with Jucai Coal to lease a coal
washing plant. In the three months ended March 31, 2005 and March 31, 2004,
rental expenses in the amounts of $151,000 and $151,000, respectively, were paid
to Jucai Coal and these rental expenses were charged to cost of revenue in the
statements of operations.
In the three months ended March 31, 2005 and 2004, the Company purchased raw
coal from Jucai Coal in the amounts of $677,000 and $404,000, respectively.
20
SHANXI PUDA RESOURCES CO., LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
4. Inventories
As of March 31, 2005, inventories consist of the following:
March 31, 2005
------------
$'000
Raw materials $ 2,677
Finished goods 1,160
------------
Total $ 3,837
============
There was no allowance for losses on inventories as of March 31, 2005.
5. Taxation
Pursuant to the PRC Income Tax Laws, the Company is subject to enterprise income
tax at a statutory rate of 33% (30% national income tax plus 3% local income
tax).
Details of income taxes in the statements of operations are as follows:-
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------ ------------
$'000 $'000
Current period provision $ 261 $ 643
============ ============
A reconciliation between taxes computed at the statutory rate of 33% and the
Company's effective tax rate is as follows:-
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------------ ------------------
$'000 $'000
Income before income taxes $ 755 $ 1,921
================== ==================
Income tax on pretax income at statutory rate of 33% 249 634
Effect of permanent differences 12 9
------------------ ------------------
Income tax at effective rate $ 261 $ 643
================== ==================
21
SHANXI PUDA RESOURCES CO., LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS-(Continued)
6. Subsequent Events
Effective June 20, 2005, Puda Coal , a Florida corporation, entered into an
Exchange Agreement ("Exchange Agreement") with Puda, Taiyuan Putai Business
Consulting Co., Ltd. ("Putai"), a limited liability company under the Company
Law of the PRC, Puda Investment Holding Limited ("Puda BVI"), an International
Business Company incorporated in the British Virgin Islands, and each of the
members of Puda BVI (the "Puda BVI Members"). The closing of the transactions
contemplated by the Exchange Agreement occurred on July 15, 2005. At the
closing, pursuant to the terms of the Exchange Agreement, Puda Coal acquired all
of the outstanding capital stock and ownership interests of Puda BVI from the
Puda BVI Members, and the Puda BVI Members contributed all of their interests in
Puda BVI to Puda Coal. In exchange, Puda Coal issued to the Puda BVI Members
1,000,000 shares of Series A Convertible Preferred Stock, par value $0.01 per
share, of Puda Coal, which are convertible into 678,500,000 shares of Puda
Coal's common stock. At the closing, Puda BVI became a wholly-owned subsidiary
of Puda Coal. Puda BVI, in turn, owns all the registered capital of Putai, a
wholly foreign owned enterprise ("WFOE") registered under the wholly foreign-
owned enterprises laws of the PRC.
On June 24, 2005, Puda and Putai entered into an Exclusive Consulting Agreement,
an Operating Agreement and a Technology License Agreement. Under these
agreements, Putai has agreed to advise, consult, manage and operate Puda's
business, to provide certain financial accommodations to Puda, and to license
certain technology to Puda for use in its business, in exchange for Puda's
payment of all of its operating cash flow to Putai.
Each of the holders of the registered capital of Puda also granted Putai the
exclusive right and option to acquire all of their registered capital of Puda
and further authorized Putai to exercise the voting rights of the owners of the
registered capital of Puda and to act as the representative for such holders in
all matters respecting Puda's registered capital.
22
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
INDEX TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
Unaudited Combined Pro forma Balance Sheet as of March 31, 2005 24
Unaudited Combined Pro forma Statements of Operations for the
three months ended March 31, 2005 and for the year ended
December 31, 2004 25-26
Notes to Unaudited Combined Pro forma financial statements 27-28
23
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
As of March 31, 2005
(In thousands of United States dollars)
Taiyuan
Shanxi Puda Putai Puda Coal,
Puda Investment Business Inc.
Puda Resources Holding Consulting Combined
Coal, Inc. Co., Ltd. Limited Co., Ltd. Adjustments Pro forma
---------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2 $ 69 $ -- $ -- $ -- $ 706
Accounts receivable, net -- 3,115 -- -- -- 3,115
Other receivables
- Related parties -- 2,486 -- -- -- 2,486
- Third parties -- 49 -- -- -- 49
Deposits and prepayments -- 957 -- -- -- 957
Inventories -- 3,837 -- -- -- 3,837
==========================================================================================
Total current assets $ 2 $ 11,138 $ -- $ -- $ -- $ 11,150
==========================================================================================
PROPERTY, PLANT AND EQUIPMENT, NET -- 948 -- -- -- 948
INTANGIBLE ASSETS -- 181 -- -- -- 181
-------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2 $ 12,267 $ -- $ -- $ -- $ 12,279
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
- Related party $ -- $ 37 $ -- $ -- $ -- $ 379
- Third parties 2 585 -- -- -- 587
Other payables
- Related party -- 194 -- -- -- 194
- Third parties -- 298 -- -- -- 298
Accrued expenses 16 268 -- -- -- 284
Income taxes payable -- 2,273 -- -- -- 2,273
VAT payable -- 383 -- -- -- 383
Distribution payable -- 244 -- -- -- 244
==========================================================================================
Total current liabilities $ 8 $ 4,624 $ -- $ -- $ -- $ 4,642
==========================================================================================
STOCKHOLDERS' EQUITY
Convertible preferred stock $ -- $ -- $ -- $ -- $ 10 $ 2(c) $ 10
Common stock 58 -- 50 -- (50) 2(a) 58
Unpaid common stock -- -- (50) -- 50 2(a) --
Additional paid-in capital 1,024 2,717 -- -- (1,098) 2(a),(b),(c)$ 2,643
Statutory surplus reserve fund -- 1,322 -- -- -- 1,322
(Accumulated deficit)/retained earnings (1,088) 3,604 -- -- 1,088 2(b) 3,604
-------------------------------------------------------------------------------------------
Total stockholders' equity $ (6) $ 7,643 $ -- -- -- $ 7,637
==========================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2 $ 12,267 $ -- $ -- $ -- $ 12,279
==========================================================================================
See notes to unaudited combined pro forma financial information.
24
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
For the three months ended March 31, 2005
(In thousands of United States dollars, except per share data)
Taiyuan
Shanxi Puda Puda Putai Puda
Resources Investment Business Coal, Inc.
Puda Coal, Co., Ltd. Holding Consulting Combined Pro
Inc. Limited Co., Ltd. Adjustments forma
-------- -------- -------- -------- -------- --------
NET REVENUE $ -- $ 4,272 $ -- $ -- $ -- $ 4,272
COST OF REVENUE -- (3,410) -- -- -- (3,410)
-------- -------- -------- -------- -------- -----------
GROSS PROFIT -- 862 -- -- -- 862
OPERATING EXPENSES
Selling expenses -- 49 -- -- -- 49
General and administrative expenses 28 64 -- -- -- 92
TOTAL OPERATING EXPENSES 28 113 -- -- -- 141
-------- -------- -------- -------- -------- -----------
(LOSS)/INCOME FROM OPERATIONS (28) 749 -- -- -- 721
GAIN ON SHORT-TERM INVESTMENT -- 6 -- -- -- 6
-------- -------- -------- -------- -------- -----------
(LOSS)/INCOME BEFORE INCOME TAXES (28) 755 -- -- -- 727
INCOME TAXES -- (261) -- -- -- (261)
-------- -------- -------- -------- -------- -----------
NET (LOSS)/INCOME $ (28) $ 494 $ -- $ -- $ -- $ 466
======== ======== ======== ======== ======== ===========
EARNINGS PER SHARE (IN CENTS) $ 0.06
===========
NUMBER OF SHARES 736,500,000
===========
(Shares issued in the transaction are
treated as outstanding for all periods)
See notes to unaudited combined pro forma financial information.
25
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
For the year ended December 31, 2004
(In thousands of United States dollars, except per share data)
Taiyuan
Shanxi Puda Puda Putai Puda
Resources Investment Business Coal, Inc.
Puda Co., Ltd. Holding Consulting Combined
Coal, Inc. Limited Co., Ltd. Adjustments Pro forma
-------- -------- -------- -------- -------- ------------
NET REVENUE $ -- $ 19,735 $ -- $ -- $ -- $ 19,735
COST OF REVENUE -- (13,229) -- -- -- (13,229)
GROSS PROFIT -- 6,506 -- -- -- 6,506
OPERATING EXPENSES
Selling expenses -- 322 -- -- -- 322
General and administrative expenses 108 203 -- -- -- 311
Other operating expenses -- 414 -- -- -- 414
TOTAL OPERATING EXPENSES 108 939 -- -- -- 1,047
-------- -------- -------- -------- -------- ------------
(LOSS)/INCOME FROM OPERATIONS (108) 5,567 -- -- -- 5,459
LOSS FROM DISPOSED OPERATIONS (272) -- -- -- -- (272)
LOSS ON SHORT-TERM INVESTMENT -- (4) -- -- -- (4)
INTEREST EXPENSE -- (4) -- -- -- (4)
-------- -------- -------- -------- -------- ------------
(LOSS)/INCOME BEFORE INCOME TAXES (380) 5,559 -- -- -- 5,179
INCOME TAXES -- (1,866) -- -- -- (1,866)
-------- -------- -------- -------- -------- ------------
NET (LOSS)/INCOME $ (380) $3,69 $ -- $ -- $ -- $ 3,313
======== ======== ======== ======== ======== ============
EARNINGS PER SHARE (IN CENTS) $ 0.45
============
NUMBER OF SHARES 736,500,000
============
(Share issued in the transaction are
treated as outstanding for all periods)
See notes to unaudited combined pro forma financial information.
26
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
1. Introduction
Puda Coal, Inc. (formerly, Purezza Group, Inc.) ("Puda Coal") was incorporated
in Florida. Effective June 20, 2005, Puda Coal entered into an Exchange
Agreement ("Exchange Agreement") with Taiyuan Putai Business Consulting Co.,
Ltd. ("Putai"), a limited liability company under the Company Law of The People
Republic of China (the RC , Shanxi Puda Resources Co., Ltd. ("Puda"), a limited
liability company formed by natural persons under the laws of the PRC, Puda
Investment Holding Limited ("Puda BVI"), an International Business Company
incorporated in the British Virgin Islands, and each of the members of Puda BVI
(the "Puda BVI Members"). The closing of the transactions contemplated by the
Exchange Agreement occurred on July 15, 2005. At the closing, pursuant to the
terms of the Exchange Agreement, Puda Coal acquired all of the outstanding
capital stock and ownership interests of Puda BVI from the Puda BVI Members, and
the Puda BVI Members contributed all of their interests in Puda BVI to Puda
Coal. In exchange, Puda Coal issued to the Puda BVI Members 1,000,000 shares of
Series A Convertible Preferred Stock, par value $0.01 per share, of Puda Coal,
which are convertible into 678,500,000 shares of Puda Coal's common stock. At
the closing, Puda BVI became a wholly-owned subsidiary of Puda Coal. Puda BVI,
in turn, owns all of the registered capital of Putai, a wholly foreign owned
enterprise ("WFOE") registered under the wholly foreign-owned enterprises laws
of the PRC.
On June 24, 2005, Putai and Puda entered into an Exclusive Consulting Agreement,
an Operating Agreement, and a Technology License Agreement, Under these
agreements, Putai has agreed to advise, consult, manage and operate Puda's
business, to provide certain financial accommodations to Puda, and to license
certain technology to Puda for use in its business, in exchange for Puda's
payment of all of its operating cash flow to Putai.
Under generally accepted accounting principles, both acquisitions described
above are considered to be a capital transactions in substance, rather than
business combinations. That is, the acquisitions are equivalent, in the merger
of Puda BVI, Putai and Puda, to the issuance of stock by Puda for the net
monetary assets of Puda BVI, and in the Puda Caol/Puda BVI merger, the issuance
of stock by Puda BVI for the net monetary assets of Puda Coal. Each transaction
is accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the acquisition is identical
to that resulting from a reverse acquisition, except that no goodwill is
recorded. Under reverse takeover accounting, the comparative historical
financial statements in the Puda Coal/Puda BVI merger of the "legal acquiror",
Puda Coal, are those of the "accounting acquiror", Puda BVI.
The unaudited pro forma financial information has been prepared giving pro forma
effects on the statements of operations for the year ended December 31, 2004 and
for the three months ended March 31, 2005 as if the transaction occurred on
January 1, 2004. The pro forma balance sheet assumes the transaction occurred on
the balance sheet date.
The unaudited pro forma financial information is based upon the historical
financial statements of Puda Coal, Puda BVI, Putai and Puda as of and for the
year ended December 31, 2004 and for the three months ended March 31, 2005 after
giving effect to pro forma adjustments described in Note 2.
The unaudited pro forma financial information does not purport to represent what
the results of operations of Puda Coal, Puda BVI, Putai and Puda would actually
have been if the events described above had in fact occurred at the beginning of
2004, or any other date, or to project the net profit of Puda Coal, Puda BVI,
Putai and Puda for any future period. The adjustments are based on currently
available information and certain estimates and assumptions. However, management
believes that the assumptions provide a reasonable basis for presenting the
unaudited pro forma financial information and that pro forma adjustments give
effect to those assumptions and are properly applied in the unaudited pro forma
financial information.
27
PUDA COAL, INC. (FORMERLY, PUREZZA GROUP, INC.)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS-(Continued)
2. Pro forma Adjustments
The adjustments in the combined pro forma balance sheet represent the following:
(a) elimination of common stock of Puda BVI;
(b) elimination of accumulated deficit of Puda Coal; and
(c) issuance of 1,000,000 convertible preferred shares by Puda Coal.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Puda Coal,
Inc. has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
PUDA COAL, INC.
Date: August 12, 2005 By: /s/ Zhao Ming
--------------------------------
Zhao Ming
Chief Executive Officer and
President