Edgar Filing: Puda Coal, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM l0-QSB/A

Amendment 1

(Mark One)

[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________to _________

Commission file number 333-85306

PUDA COAL, INC.
(Exact name of small business issuer as specified in its charter)


Florida		65-1129912
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


426 Xuefu Street, Taiyuan, Shanxi Province, The People's Republic of China
(Address of principal executive offices)

011 86 351 228 1300
(Issuer's telephone number)


(Former name, former address and former fiscal year, if changed since last report)

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 [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date, July 28, 2006: 79,902,667 shares.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]

EXPLANATORY NOTE

RESTATEMENT OF FINANCIAL STATEMENTS

This Amendment No. 1 on Form 10-QSB/A for the quarter ended June 30, 2006 amends and restates items identified below with respect to the report on Form 10-QSB/A filed by Puda Coal, Inc. (“we” or “the Company”) with the Securities and Exchange Commission (the “SEC”) on August 7, 2006 (the “Original Fling”).

As previously announced in the Form 8-K we filed on August 14, 2006, we filed the Original Filing without the completion of its review of the report pursuant to SAS 100 by our independent public accountants as required by Item 310 of Regulation S-B. Our independent public accountants have now completed their review of the report. This 10-QSB/A is being filed to restate our financial statements for our second fiscal quarter, ended June 30, 2006 based on this review by our independent public accountants to reflect certain responses by the Company to comments from the SEC’s staff to the Company’s registration statement on Form SB-2.

On August 10, 2006, we discovered that our Original Filing did not include a complete review to reflect our responses to such comments, and were advised as such in a letter dated August 14, 2006 from our independent public accountants. After discussions between management and our independent public accountants, management determined that it misapplied accounting principles generally accepted in the United States of America in relation to convertible notes and warrants issued by the Company pursuant to a private placement on November 18, 2005. During this process, management and the Board of Directors of the Company were alerted to the facts and circumstances regarding the errors in accounting. The Company determined to file the Form 8-K of August 14, 2006 to announce that the Original Filing did not comply with the review required by Item 310 of Regulation 5-B and filed on the same day a Form 12b-25 Notification of Late Filing with respect to the report for the second quarter.

This Form 10-QSB/A only amends and restates certain information in Item 1 (Financial Statements), Item 2 (Management’s Discussion and Analysis or Plan of Operations) and Item 6 (Exhibits), and such amendment and restatement with respect to Items 1 and 2 reflect the restatement of the financial statements described below. Primarily these amendments are to (i) change the expected term of the conversion feature and warrants to 3 years, and 5 years respectively in application of the Black-Scholes Model for calculating the fair value of the conversion feature and warrants, and (ii) amortize the debt issue costs and discount on convertible notes and warrants using the effective interest method.

The application of the foregoing has resulted in certain significant amendments to this 10-QSB/A with respect to the Original Filing. Net revenues were not restated from the Original Filing and remain at $30,943,000 in the three months ended June 30, 2006 and $51,714,000 in the six months ended June 30, 2006. The impact of the amendments resulted however, in a net loss of $363,000 in the three months ended June 30, 2006, as opposed to net income of $391,000, as reported in the Original Filing for the three months ended June 30, 2006, and net loss of $6,808,000 as opposed to net loss of $2,268,000, as reported in the Original Filing, for the six months ended June 30, 2006. These restatements are primarily due to an increase in debt financing costs of $2,888,000, as opposed to $1,539,000, as reported in the Original Filing, for the three months ended June 30, 2006 and $7,841,000, as opposed to $2,772,000, as reported in the Original Filing, for the six months ended June 30, 2006. These restatements reflect increases in debt financing costs resulting from the changes to the expected terms of the conversion feature and warrants and application of the effective interest method with respect to the amortization of the debt issuance costs and amortization of the discount on convertible notes and warrants discussed above. Based on the Black-Sholes Method, the warrants have a value of $2.25 per share, or $56,250,000, as opposed to $1.93 per share, or $48,250,000, as reported in the Original Filing. The conversion feature has a value of $2.17 per share, or $54,250,000, as opposed to $2.01 per share, or $50,250,000, as reported in the Original Filing. Warrants are being amortized over the term of five years using the effective interest method, up to October 3, 2010, with the amount amortized being $1,061,000, as opposed to $306,000, as reported in the Original Filing, for the three months ended June 30, 2006 and $3,182,000, as opposed to $612,000, as reported in the Original Filing, for the six months ended June 30, 2006.

Except for the foregoing amended and restated information, this Form 10-QSB/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing (other than and restatement), and such forward-looking statements should be read in their historical context. This Form 10-QSB/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the Original Filing, including any amendments to those filings.

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item1. Financial Statements	Page

Unaudited Consolidated Balance Sheet as of June 30, 2006	1

Unaudited Consolidated Statements of Operations for the three	4
and six months ended June 30, 2006 and 2005

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005	6

Notes to Unaudited Consolidated Financial Statements	8


Item 2. Management's Discussion and Analysis or Plan of Operation	27

Item 3. Controls and Procedures	31

PART II. OTHER INFORMATION	31

Item 1. Legal Proceedings	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3. Defaults upon Senior Securities	34

Item 4. Submission of Matters to a Vote of Security Holders	34

Item 5. Other Information	34

Item 6. Exhibits	36

Signatures

Certifications

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PART I - Financial Information

ITEM 1. Financial Statements

PUDA COAL, INC.

UNAUDITED CONSOLIDATED BALANCE SHEET

June 30, 2006

(In thousand of United States dollars)

	Note(s)		June 30, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents			$	22,920
Restricted cash		3		233
Accounts receivable, net				4,635
Other receivables
- Related parties		4		15
- Third parties				39
Advances to suppliers				784
Deferred charges		9		888
Inventories		5		6,618

Total current assets				36,132

PROPERTY, PLANT AND EQUIPMENT, NET		6		10,350

INTANGIBLE ASSETS, NET		7		3,768

TOTAL ASSETS			$	50,250

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt
- Related party		4, 8	$	1,300
Accounts payable
- Related party		4		192
- Third parties				2,107
Other payables
- Related party		4		879
- Third parties				1,088
Accrued expenses				500
Income taxes payable				1,454
VAT payable				1,029
Distribution payable				1,002
Penalty payable		9		437

Total current liabilities				9,988

LONG-TERM LIABILITIES
Long-term debt
- Related party		4, 8		11,050
Convertible notes		9		4,787
Derivative conversion feature		9		4,848
Derivative warrants		9		13,312
Total long-term liabilities				33,997

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PUDA COAL, INC.

UNAUDITED CONSOLIDATED BALANCE SHEET (Continued)

June 30, 2006

(In thousand of United States dollars)


STOCKHOLDERS’ EQUITY
Preferred stock, authorized 5,000,000 shares, par value $0.01, issued and outstanding Nil		-
Common stock, authorized 150,000,000 shares, par value $0.001, issued and outstanding 79,888,274		80
Paid-in capital		8,667
Statutory surplus reserve fund		1,366
Retained earnings		(4,229	)
Accumulated other comprehensive income		381

Total stockholders’ equity		6,265

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	50,250

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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PUDA COAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2006 and 2005

(In thousand of United States dollars, except per share data)

	Note(s)		Three months ended June 30, 2006			Three months ended June 30, 2005			Six months ended June 30, 2006			Six months ended June 30, 2005

NET REVENUE			$	30,943		$	8,747		$	51,714		$	13,019

COST OF REVENUE				(24,916	)		(6,878	)		(41,174	)		(10,288	)

GROSS PROFIT				6,027			1,869			10,540			2,731

OPERATING EXPENSES
Selling expenses				771			152			1,047			201
General and administrative expenses				557			71			991			135
Other operating expenses				-			1						1

TOTAL OPERATING EXPENSES				1,328			224			2,038			337

INCOME FROM OPERATIONS				4,699			1,645			8,502			2,394

GAIN ON SHORT-TERM INVESTMENTS				-			-			-			6

INTEREST INCOME				3			1			12			1

INTEREST EXPENSE				(1,213	)		-			(1,779	)		-

DEBT FINANCING COSTS		10		(2,888	)		-			(7,841	)		-

DERIVATIVE UNREALIZED FAIR VALUE GAIN/(LOSS)		11		487			-			(3,013	)		-

INCOME/(LOSS) BEFORE INCOME TAXES				1,088			1,646			(4,119	)		2,401

INCOME TAXES		12		(1,451	)		(550	)		(2,689	)		(811	)

NET (LOSS)/INCOME				(363	)		1,096			(6,808	)		1,590

OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment				79			-			227			-

COMPREHENSIVE (LOSS)/INCOME			$	(284	)	$	1,096		$	(6,581	)	$	1,590

(LOSS)/EARNINGS PER SHARE-BASIC			$	(0.00	)	$	0.01		$	(0.09	)	$	0.02
-DILUTED			$	(0.00	)	$	0.01		$	(0.09	)	$	0.02

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING-BASIC		13		76,733,239			73,750,000			76,531,046			73,750,000
-DILUTED		13		76,733,239			73,792,671			76,531,046			73,792,671

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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PUDA COAL, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2006 and 2005

(In thousand of United States dollars)

	Notes		Six months ended June 30, 2006			Six months ended June 30, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income			$	(6,808	)	$	1,590
Adjustments to reconcile net (loss)/income to net cash provided by operating activities
Amortization of land-use rights				39			3
Depreciation				473			53
Provision for doubtful debts				2			-
Amortization of debt issue costs				768			-
Amortization of discount on convertible notes and warrants				6,636			-
Derivative unrealized fair value loss				3,013
Discount on converted shares and exercised warrants				947			-
Issue of common shares for services				21			-
Changes in operating assets and liabilities:
Decrease in short-term investments				-			117
Increase in accounts receivable				(413	)		(525	)
Decrease in notes receivable				-			638
(Increase)/decrease in other receivables				(1	)		17
Decrease/(increase) in advances to suppliers				2,175			(324	)
Decrease/(increase) in inventories				941			(711	)
Increase in accounts payable				973			354
Increase in accrued expenses				137			47
Increase in other payables				385			68
Increase in income tax payable				57			815
Increase in VAT payable				712			9
Increase in penalty payable				437			-
Decrease in restricted cash				382			-

Net cash provided by operating activities				10,876			2,151

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants				390			-
Repayment of long-term debt				(650	)		-
Shareholder contribution				-			50
Distribution paid to owners				-			(967	)

Net cash used in financing activities				(260	)		(917	)

Effect of exchange rate changes on cash				237			-

Net increase in cash and cash equivalents				10,853			1,234
Cash and cash equivalents at beginning of period				12,067			313

Cash and cash equivalents at end of period			$	22,920		$	1,547

Supplementary cash flow information		14

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

Puda Coal, Inc. (formerly Purezza Group, Inc.)("the Company" or “Puda”) is a Florida chartered 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 for the removal of phosphorus and other oxyanions in natural and industrial waters and wastewater streams. Prior to April 22, 2004, the Company's activities consisted of capital transactions, organization, and development of the Company's Phoslock product line.

On April 23, 2004, the Company transferred all of its assets including, cash on hand, the Phoslock product line, and all of the Company's rights under a license agreement for the use of the Phoslock product line, to Purezza Marketing, Inc. ("PMI"), a wholly owned subsidiary of the Company. The Company's license agreement was with Integrated Mineral Technology Limited ("Integrated"), an Australian entity, and provided for certain fixed royalty payments by the Company. As part of the Company's asset transfer to PMI, PMI assumed all liabilities under the license agreement, which assumption was consented to by Integrated.

Concurrently with the asset transfer to PMI, the Company distributed on a pro rata basis all of its stock ownership in PMI to the holders of its common stock (the "Distribution"). As a result of this transfer and the Distribution, PMI operates independently from the Company and as a successor to the Company's business and operations and the Company no longer had any meaningful business assets, operations or sources of revenue.

On July 15, 2005, the Company acquired all the outstanding capital stock and ownership interests of Puda Investment Holding Limited (“BVI”) and BVI became a wholly-owned subsidiary of the Company. In exchange, Puda issued to the BVI members 1,000,000 shares of its Series A convertible preferred stock, par value $0.01 per share, of the Company, which are convertible into 678,500,000 shares of Puda’s common stock. The purchase agreement provided that the preferred shares would immediately and automatically be converted into shares of Puda’s common stock (the “Mandatory Conversion”), following an increase in the number of authorized shares of Puda’s common stock from 100,000,000 to 150,000,000, and a 1 for 10 reverse stock split of Puda’s outstanding common stock (the “Reverse Split”). The share data has been retroactively adjusted for the Reverse Split.

On August 2, 2005, the authorized number of shares of common stock of the Company was increased from 100,000,000 shares to 150,000,000 shares. On September 8, 2005, Puda completed the Reverse Split. Following the Mandatory Conversion of preferred shares and the Reverse Split, the BVI members received, in the aggregate, approximately 67,850,000 shares of total of 73,750,000 of Puda’s common stock, representing 92% of the outstanding shares of Puda’s common stock.

BVI is an International Business Company incorporated in the British Virgin Islands on August 19, 2004 and it has a registered capital of $50,000. BVI did not have any operating activities from August 19, 2004 (inception) to June 30, 2006.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. The Company (continued)

BVI, in turn, owns all of the registered capital of Taiyuan Putai Business Consulting Co., Ltd. (“Putai”), a wholly foreign owned enterprise (“WFOE”) registered under the wholly foreign-owned enterprises laws of the People’s Republic of China (“PRC”). Putai was incorporated on November 5, 2004 and has a registered capital of $20,000. Putai did not have any operating activities from November 5, 2004 (inception) until June 24, 2005 when it entered into certain restructuring agreements with Shanxi Puda Coal Group Co., Ltd. (formerly, Shanxi Puda Resources Co. Ltd.)(“Shanxi Coal”), a company with limited liability established under the laws of the PRC.

Shanxi Coal was established on June 7, 1995. Shanxi Coal 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. Shanxi Coal has a registered capital of RMB22,500,000 ($2,717,000) which is fully paid-up. The owners of Shanxi Coal are Mr. Zhao Ming (80%) and Mr. Zhao Yao (20%). Zhao Ming and Zhao Yao are executive officers of Puda and are brothers.

On June 24, 2005, Putai and Shanxi Coal entered into an Exclusive Consulting Agreement, an Operating Agreement, and a Technology License Agreement (collectively, these agreements are referred to herein as the “Restructuring Agreements”). Under the Restructuring Agreements, Putai has agreed to advise, consult, manage and operate Shanxi Coal’s business, to provide certain financial accommodations to Shanxi Coal, and to license certain technology to Shanxi Coal for use in its business, in exchange for Shanxi Coal’s payment of all of its operating cash flow to Putai. Each of the holders of the registered capital of Shanxi Coal also granted Putai the exclusive right and option to acquire all of their registered capital of Shanxi Coal and further authorized Putai to exercise the voting rights of the owners of the registered capital of Shanxi Coal and to act as the representative for such holders in all matters respecting Shanxi Coal’s registered capital. Although Puda owns none of the outstanding equity interests in Shanxi Coal, the Restructuring Agreements provide Puda control over Shanxi Coal, and the risks and rewards associated with equity ownership.

Immediately after the Mandatory Conversion and Reverse Split, the percentages owned by Mr. Zhao Ming and Mr. Zhao Yao in the Group companies are as follows:

Puda Coal, Inc.: Mr. Zhao Ming (approximately 74%); Mr. Zhao Yao (approximately 18%) held directly.

Puda Investment Holding Limited: Mr. Zhao Ming (approximately 74%); Mr. Zhao Yao (approximately 18%) held indirectly through Puda.

Taiyuan Putai Business Consulting Co., Ltd: Mr. Zhao Ming (approximately 74%); Mr. Zhao Yao (approximately 18%) held indirectly through Puda and BVI.

Shanxi Puda Coal Group Co., Ltd.: Mr. Zhao Ming (80%); Mr. Zhao Yao (20%) held directly.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. The Company (continued)

After the above reorganization and as of June 30, 2006, the organizational structure of the Group is as follows:

2. Summary of Significant Accounting Policies

(a) Basis of Presentation and Consolidation

These unaudited consolidated financial statements include Puda (Registrant and Legal Parent), BVI, Putai and Shanxi Coal (Operating Company). Puda controls BVI and Putai through stock ownership. Puda controls Shanxi Coal by means other than record ownership of voting stock (Note 1). Intercompany items have been eliminated. The unaudited consolidated financial statements give effect to the Mandatory Conversion and Reverse Split. For accounting purpose, the transactions are effective on January 1, 2004.

The merger of a private operating company into a non-operating public shell corporation with nominal net assets typically results in the owners and management of the private company having actual or effective operating control of the combined company after the transaction, with shareholders of the former public shell continuing only as passive investors. These transactions are considered to be capital transactions in substance, rather than business combinations. That is, the transaction is equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation, accompanied by a recapitalization. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible should be recorded. For accounting purposes, Shanxi Coal is deemed to be the acquirer.

The unaudited consolidated balance sheet as of June 30, 2006 includes Puda, BVI, Putai and Shanxi Coal (‘the Group”). The unaudited consolidated statements of operations for the three and six months ended June 30, 2006 include Puda, BVI, Putai and Shanxi Coal. The unaudited consolidated statement of operations for the three and six months ended June 30, 2005 include Shanxi Coal for the full period, and BVI and Putai from June 24, 2005.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (continued)

(a) Basis of Presentation and Consolidation (continued)

The accompanying unaudited consolidated financial statements as of June 30, 2006 and for the three and six month periods ended June 30, 2006 and 2005 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. In the opinion of management, these unaudited consolidated interim financial statements include all adjustments considered necessary to make the financial statements not misleading. The results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results for the full fiscal year ending December 31, 2006. The unaudited consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2005 as reported in Form 10-KSB.

(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) 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.

(d) 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 lives of the assets, are expensed to operations while major repairs are capitalized.

Management considers that they have a 10% residual value for buildings, and a 5% residual value for other property, plant and equipment. The estimated useful lives are as follows:

Buildings 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 unaudited consolidated statement of operations.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (continued)

(e) Derivative Financial Instruments

Derivative financial instruments are accounted for under Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended (SFAS No. 133). Under SFAS No. 133, all derivative instruments are recorded on the balance sheet as assets or liabilities and measured at fair value. Changes in the fair value of derivative instruments are recorded in current earnings.

(f) Income Taxes

The Group 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 Group reviewed the differences between the tax bases 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 June 30, 2006.

Under current PRC tax laws, no tax is imposed in respect to distributions paid to owners except individual income tax.

(g) Revenue Recognition

Revenue from goods sold is recognized when (i) persuasive evidence of an arrangement exists, which is generally represented by a contract between the Company and the buyer; (ii) title has passed to the buyer, which generally is at the time of delivery; (iii) the seller’s price to the buyer is agreed between the Company and the buyer; and (iv) collectibility is reasonably assured.

(h) Foreign Currency Transactions

The reporting currency of the Group is the U.S. dollar. Shanxi Coal uses its local currency, Renminbi, as its functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the end of period exchange rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. These amounts are not material to the unaudited consolidated financial statements for the three and six months ended June 30, 2006 and 2005.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Group because it has not engaged in any significant transactions that are subject to the restrictions.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (continued)

(i) Earnings Per Share

Basic earnings per share is computed by dividing the earnings for the period by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including stock options and warrants, in the weighted average number of common shares outstanding for the period, if dilutive. Shares issued in the exchange (see Note 1) are presented as outstanding for all periods.

3. Restricted Cash

Restricted cash is reserved for interest payment on convertible notes.

4. Related Party Transactions

As of June 30, 2006, the Group had the following amounts due from/to related parties:-

	June 30, 2006
	$’000

Other receivable from an owner, Zhao Ming	$	15

Accounts payable to Shanxi Liulin Jucai Coal Industry

Co., Limited. (“Jucai Coal”), a related company with a

common owner

192

Other payable to Shanxi Puda Resources Group Limited (“Resources Group”), a related company with common owners	$	679

Other payable to an owner, Zhao Yao		200

	$	879

Loan payable to Resources Group:
-current portion	$	1,300
-non-current portion		11,050

	$	12,350

The balances, except for the loan payable to Resources Group, are unsecured, interest-free and there are no fixed terms for repayment.

The balance payable to Resources Group of $679,000 includes professional and regulatory charges related to the public listing paid by Resources Group on behalf of the Company of $901,000, netted against other receivables of $222,000 due from Resources Group.

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PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Related Party Transactions (continued)

The amount payable to Zhao Yao represents land-use rights paid by him on behalf of Shanxi Coal (see Note 7).

The loan payable to Resources Group of $12,350,000 was incurred in relation to the purchase of the Liulin and Zhong Yang coal washing plants. It bears interest at a rate of 6% per annum payable quarterly. In the three months ended June 30, 2006, Shanxi Coal paid principal of $325,000 and interest of $190,000 to Resources Group. In the six months ended June 30, 2006, Shanxi Coal paid principal of $650,000 and interest $385,000 to Resources Group. This loan is subordinated to the convertible notes (see Note 8).

In the three months ended June 30, 2006 and 2005, Shanxi Coal purchased raw coal from Jucai Coal in the amounts of $4,409,000 and $612,000, respectively. In the six months ended June 30, 2006 and 2005, Shanxi Coal purchased raw coal from Jucai Coal in the amounts of $7,211,000 and $1,289,000, respectively.

On November 17, 2005, Shanxi Coal entered into a coal supply agreement with Jucai Coal, pursuant to which Shanxi Coal has priority to Jucai Coal’s high grade metallurgical coking coal supply over Jucai Coal’s other customers. Under the terms of the agreement, Shanxi Coal receives a discount of approximately $4 to $6 per metric ton of coal from the price Jucai Coal charges to its other customers.

5. Inventories

As of June 30, 2006, inventories consist of the following:

	June 30, 2006
	$’000

Raw materials	$	4,664
Finished goods		1,954

Total	$	6,618

There was no allowance for losses on inventories as of June 30, 2006.

-11-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Property, Plant and Equipment, Net

As of June 30, 2006, property, plant and equipment consist of following:

	June 30, 2006
	$’000
Cost:
Buildings and facilities	$	2,961
Machinery equipment		8,131
Motor vehicles		254
Office equipment and others		76

		11,422

Accumulated depreciation:
Buildings and facility		174
Machinery equipment		734
Motor vehicles		131
Office equipment and others		33

		1,072
Carrying value:
Buildings and facility		2,787
Machinery equipment		7,397
Motor vehicles		123
Office equipment and others		43

	$	10,350

Depreciation expense for the three months ended June 30, 2006 and 2005 was approximately $237,000 and $26,000, respectively. Depreciation expenses for the six months ended June 30, 2006 and 2005 was approximately $473,000 and $53,000, respectively. In the six months ended June 30, 2006, the amounts included in cost of sales and general and administrative expenses were approximately $460,000 (2005: $42,000) and $13,000 (2005: $11,000), respectively.

7. Intangible Assets

	Land-use rights
	June 30, 2006
	$’000

Cost	$	3,831

Accumulated amortization		63

Carrying value	$	3,768

Land-use rights of $197,000 paid by Zhao Yao on behalf of Shanxi Coal is located in Liulin County, Shanxi Province and are amortized over fifty years up to March 2051 (see Note 4).

-12-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Intangible Assets (continued)

Land-use rights in Liulin County purchased from Resources Group are located in Shanxi Province and are amortized over 50 years up to August 4, 2055. Land-use rights of Zhong Yang County purchased from Resource Group are located in Shanxi Province and are amortized over fifty years up to May 20, 2055. Shanxi Coal pledged the land-use rights and plant and equipment until such time when the purchase price and interest thereon is fully paid by Shanxi Coal to Resources Group.

Amortization expense for the three months ended June 30, 2006 and 2005 was approximately $20,000 and $1,000, respectively. Amortization expense for the six months ended June 30, 2006 and 2005 was approximately $39,000 and $3,000, respectively. The estimated aggregate amortization expense for the five years ending December 31, 2006, 2007, 2008, 2009 and 2010 amounts to approximately $76,000, $76,000, $76,000, $76,000 and $76,000, respectively.

8. Long-term Debt

	June 30, 2006
	$’000

Conveyance loan	$	12,350
Less: current portion		(1,300	)
Long-term portion	$	11,050

The conveyance loan is seller-financed, payable over ten years from December 31, 2005 and bears interest at a rate of 6% per annum, payable quarterly. In the three months ended June 30, 2006, Shanxi Coal paid principal of $325,000 and interest of $190,000 to Resources Group. In the six months ended June 30, 2006, Shanxi Coal paid principal of $650,000 and interest $385,000 to Resources Group. The conveyance loan is subordinated to the convertible notes. Payments by Shanxi Coal to Resources Group under the conveyance loan may not be accelerated while Puda has obligations of principal or interest outstanding to investors under the notes, nor may Shanxi Coal make payments under the conveyance loan if Puda is in default to the investors under the notes (see Note 4).

The future principal payments under the conveyance loan as of June 30, 2006 are as follows:

	June 30, 2006
Year	$’000

2007	$	1,300
2008		1,300
2009		1,300
2010		1,300
2011		1,300
Thereafter		5,850
	$	12,350

-13-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Convertible Notes and Related Warrants

On November 18, 2005, the Company issued $12,500,000 8% unsecured convertible notes due October 31, 2008 and related warrants to purchase shares of common stock of the Company. The notes are convertible into common stock at $.50 per share over the term of the debt and $850,000 was converted into 1,700,000 shares of common stock immediately. In March, 2006, $200,000 was converted into 400,000 shares of common stock, and in June 2006, $1,575,000 was converted into 3,150,000 shares of common stock. The related warrants to purchase 25,000,000 shares of common stock, exercisable at $.60 per share, have a term of five years from the date of issuance. In June 2006, 650,000 warrants were exercised into 650,000 shares of common stock.

Investors were given "full ratchet" anti-dilution protection under the notes and the warrants, meaning that the conversion price under the notes and the exercise price under the warrants will be adjusted to the lowest per share price for future issuances of Puda's common stock should such per share price be lower than the conversion price of the notes or the exercise price of the warrants, with carve-outs for (i) issuance of shares of common stock in connection with the conversion of the notes or exercise of the warrants, (ii) the issuance of shares of common stock for the payment of the penalties under the notes, or (iii) the issuance of common stock to employees or directors pursuant to an equity incentive plan approved by Puda's stockholders. The conversion price of the notes and the exercise price of the warrants are also subject to proportional adjustments for issuance of shares as payment of dividends, stock splits, rights offerings to shareholders in conjunction with payment of cash dividends. Investors were also given registration rights in connection with the resale of (i) the common stock into which the notes may be converted, and (ii) the common stock underlying the warrants, on a registration statement to be filed with the Securities and Exchange Commission (“SEC”). Such registration statement is required to be filed within 30 days following the date of closing of the offer and sale of the units, which occurred on November 18, 2005, and declared effective within 120 days from that date, or Puda will be subject to pay a penalty to investors of an amount equal to 1% of the purchase price of each unit held by investors, payable in shares of common stock for every 30 day period, or part thereof, after the relevant date. Puda is required to pay the costs associated with the registration statement. Puda is also required to pay investors an amount equal to 1% of the purchase price of each unit held by investors for every 30 day period that Puda becomes deficient in its periodic reporting requirements with the SEC under the Securities Exchange Act of 1934, as amended, until all the securities have been sold by the investors. This late filing penalty will be in addition to any other penalties and is payable in shares of Puda’s common stock. Puda may redeem all, but not less than all, of the warrants at $0.001 per share subject to 30 business days’ prior notice to the holders of the warrants, and provided that (i) a registration statement is in effect covering the common stock underlying the warrants, (ii) the closing bid price of the common stock of Puda exceeds $2.50 per share on an adjusted basis for at least 20 consecutive trading days and (iii) the average daily trading volume of the common stock exceeds 50,000 shares per day during the same period. Puda will be subject to default on the notes should they fail to (i) make timely interest payment and such default continues for 15 days, (ii) make payment of the principal when due, (iii) comply with any other agreements under the Note, (iv) commences bankruptcy, provided that note holders representing at least 50% of the principal amount of the notes have notified Puda of the default and Puda has not cured the default within 45 days of such notice.

-14-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Convertible Notes and Related Warrants (continued)

The convertible notes and warrants require the Company to register the resale of the shares of common stock upon conversion or exercise of these securities. The warrants are freestanding derivative financial instruments. The Company accounts for the fair value of these outstanding warrants to purchase common stock and conversion feature of its convertible notes in accordance with SFAS No. 133 “Accounting For Derivative Instruments And Hedging Activities” and EITF Issue No. 00-19 “Accounting For Derivative Financial Instruments Indexed To And Potentially Settled In A Company’s Own Stock” which require the Company to account for the conversion feature and warrants as derivatives. Pursuant to SFAS No. 133, the Company bifurcated the fair value of the conversion feature from the convertible notes, since the conversion features were determined not to be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion feature and warrants is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion features and warrants as liabilities. The Company is required to carry these derivatives on its balance sheet at fair value and unrealized changes in the values of these derivatives are reflected in the unaudited consolidated statement of operations as “Derivative unrealized fair value gain / (loss)”.

Based on a Black-Scholes pricing model the warrants, which are exercisable at $.60 per share, have a value of $2.25 per share, or $56,250,000, and the conversion feature, has a value of $2.17 per share, or $54,250,000. As these values are greater than the debt of $12,500,000, the total issue was discounted. The discount was allocated between the warrants and conversion feature based on their relative fair values, resulting in the warrants being valued at $6,363,000 and the conversion feature at $6,137,000. The conversion feature was recorded as a derivative liability as the contract does not contain an explicit limit on the number of shares to be delivered in a share settlement, and is being amortized over the life of the debt of three years using the effective interest method, up to October 31, 2008. The portion of the discount of $794,000 related to the converted shares in the six months ended June 30, 2006 was recorded in interest expense. The amount amortized in the three and six months ended June 30, 2006 was $333,000 and $641,000, respectively. The unamortized amount of $4,055,000 was offset against convertible notes. The amount allocated to the warrants is classified as a derivative liability because they embody an obligation to issue a variable number of shares. This obligation is generated by the Registration Rights and Late Filing Penalties described above. Warrants are being amortized over the term of five years using the effective interest method, up to October 31, 2010 and the amount amortized was $1,061,000 in the three months ended June 30, 2006 and $3,182,000 in the six months ended June 30, 2006. The portion of the discount of $27,000 related to the exercised warrants in the six months ended June 30, 2006 was recorded in interest expense. The unamortized amount of $1,033,000 was offset against convertible notes.

-15-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Convertible Notes and Related Warrants (continued)

In conjunction with the issuance of the notes, the placement agent was issued five year warrants, exercisable from November 18, 2005, to purchase 2,500,000 shares of common stock of the Company at an exercise price of $.60 per share. The warrants issued to the placement agent have the same terms and conditions as the warrants issued to the investors, including "full ratchet" anti-dilution protection, proportional exercise price adjustments based on issuances of stock as dividends and share splits, and Puda’s right to redeem the warrants subject to an effective registration statement covering the underlying shares of the placement agent’s warrant, and certain share price and trading volume requirements. However, the warrants issued to the placement agent, unlike the warrants issued to the investors, have a cashless exercise feature. As with the warrants related to the notes, the placement agent warrants are classified as a derivative liability and are freestanding derivative financial instrument and contain Registration Rights and Late Filing Penalties identical to those held by the investors. These warrants are being amortized over the term of five years using the effective interest method, up to October 31, 2010. The amount amortized in the three and six months ended June 30, 2006 were $938,000 and $2,813,000, respectively. The unamortized amount of $812,000 was recorded in deferred charges. As of June 30, 2006, these warrants were valued at $3.17 per share according to a Black-Scholes pricing model and the unrealized loss on the change in fair value of these warrants of $3,013,000 was included in the unaudited consolidated statements of operations. In March 2006, 64,167 placement agent warrants were exercised in a cashless method and resulted in the issue of 55,687 common shares. In June 2006, 191,667 placement agent warrants were exercised in a cashless method and resulted in the issue of 172,100 common shares. The portion of the discount of $126,000 in the six months ended June 30, 2006 related to the exercised warrants was recorded in interest expense.

Debt issue costs of $1,583,000 are being amortized over the life of the debt of three years using the effective interest method, up to October 31, 2008 and the amount amortized in the three months ended June 30, 2006 and six months ended June 30, 2006 was $177,000 and $768,000 respectively. The unamortized amount of $76,000 as of June 30, 2006 was recorded in deferred charges.

As of June 30, 2006, long-term liabilities include the following:

	June 30, 2006
	$000
Convertible notes:
Gross amount issued	$	12,500
Less: amount converted		(2,625	)
Less: unamortized discount on conversion feature		(4,055	)
Less: unamortized discount on note warrants		(1,033	)
	$	4,787

Derivative conversion feature:
Amount allocated to conversion feature	$	6,137
Less: amount transferred to equity upon conversion		(1,289	)
	$	4,848

Derivative warrants:
Amount allocated to investor warrants	$	6,363
Placement agent warrants		5,625
Less: amount transferred to equity upon exercise		(989	)
Add: change in fair value		2,313
	$	13,312

-16-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Convertible Notes and Related Warrants (continued)

Interest expense on the convertible notes in the three and six months ended June 30, 2006 amounted to $218,000 and $447,000, respectively.

As at June 30, 2006, the registration statement regarding the convertible notes and related warrants has not been declared effective by the SEC. The relevant date of March 17, 2006 for having the SEC declared the registration date has passed. Therefore, Puda is required to pay the penalty to investors for the delay in getting them registration rights. According to the subscription agreement of the convertible notes and related warrants, the penalty is equal to 1% of the purchase price of each unit held by investors, payable in shares of common stock of the Company, for every 30 day period, or part thereof, after the relevant date. The penalty payable to the investors is $4,167 per day after the relevant date. In the three and six months ended June 30, 2006 , the penalty was $379,000 and $437,000, respectively, which was recorded as a current liability and will be transferred to equity when the common shares are issued.

10. Debt Financing Costs

Debt financing costs for the three months ended June 30, 2006 include amortization of debt issue costs of $177,000 (2005: $nil), amortization of discount on convertible notes and warrants of $2,332,000 (2005: $nil), and penalty for the delay in getting the registration statement effective by March 17, 2006 of $379,000 (2005:$nil) Debt financing costs for the six months ended June 30, 2006 include amortization of debt issue costs of $768,000 (2005: $nil), amortization of discount on convertible notes and warrants of $6,636,000 (2005: $nil), and penalty for the delay in getting the registration statement effective by March 17, 2006 of $437,000 (2005:$nil) (See Note 9).

11. Derivative Unrealized Fair Value Gain/(Loss)

Derivative unrealized fair value gain of $487,000 in the three months ended June 30, 2006 (2005: $nil) and derivative unrealized fair value loss of $3,013,000 in the six months ended June 30, 2006 (2005: $nil) represent the change in fair value of the warrants derivative (see Note 9).

12. Taxation

No provision for taxation has been made for Puda, BVI and Putai for the three months ended June 30, 2006 and for the six months ended June 30, 2006 , as they did not generate any taxable profits during the period.

Pursuant to the PRC Income Tax Laws, Shanxi Coal is subject to enterprise income tax at a statutory rate of 33% (30% national income tax plus 3% local income tax).

-17-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Taxation (continued)

Details of income taxes in the statements of operations are as follows:-

	Three months ended June 30, 2006		Three months ended June 30, 2005		Six months ended June 30, 2006		Six months ended June 30, 2005
	$’000		$’000		$’000		$’000

Current period provision	$	1,451	$	550	$	2,689	$	811

A reconciliation between taxes computed at the United States statutory rate of 34% and the Group’s effective tax rate is as follows:-

	Three months ended June 30, 2006			Three months ended June 30, 2005			Six months ended June 30, 2006			Six months ended June 30, 2005
	$’000			$’000			$’000			$’000

Income before income taxes	$	1,088		$	1,646		$	(4,119	)	$	2,401

Income tax on pretax income at statutory rate		370			560			(1,400	)		816
Tax effect of expenses that are not deductible in determining taxable profits		939			6			3,815			19
Effect of different tax rates of subsidiary operating in other jurisdictions		(49	)		(16	)		(87	)		(24	)
Valuation allowance		191			-			361			-

Income tax at effective rate	$	1,451		$	550		$	2,689		$	811

As at June 30, 2006, the Group had accumulated net operating loss carryforwards for United States federal tax purposes of approximately of $2,400,000, that are available to offset future taxable income. 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 in accordance with Internal Revenue Code Section 382, as amended. Accordingly, management has recorded a valuation allowance to reduce deferred tax assets associated with the net operating loss carryforwards to zero at June 30, 2006. The net operating loss carryforwards expires in years 2021, 2022, 2023, 2024 and 2025, 2026 in the amounts of $132,000, $394,000, $153,000, $371,000, $287,000 and $1,063,000, respectively.

At June 30, 2006, deferred tax assets consist of:

	June 30, 2006
	$’000

Net operating loss carryforwards	$ 816
Less: Valuation allowance		(816	)

Net	$	-

-18-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Basic and Diluted Weighted Average Number of Shares

	Three months ended June 30, 2006		Three months ended June 30, 2005		Six months ended June 30, 2006		Six months ended June 30, 2005
	$’000		$’000		$’000		$’000

Basic weighted average number of shares		76,733,239		73,750,000		76,531,046		73,750,000
Options outstanding, after adjusting for 10 to 1 reverse split		-		42,671		-		42,671

Diluted weighted average number of Shares		76,733,239		73,792,671		76,531,046		73,792,671

The options, convertible notes and warrants have no dilutive effect on the basic loss per share in the three and six months ended June 30, 2006 because of the loss, but these items could potentially dilute earnings per share in the future.

14. Supplementary cash flow information

	Six months ended June 30,
	2006		2005
	$’000		$’000

Cash paid during the period for:
Interest	$	832	$	4
Income taxes	$	2,644	$	-

Major non-cash transactions:
Notes converted into 3,550,000 common shares	$	1,775	$	-
Issue of 10,000 common shares for services	$	21	$	-
Cashless exercise of 255,834 placement agent warrants
into 227,787 common shares	$	-	$	-

-19-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Options

As at June 30, 2006, Puda has outstanding options as follows:

Number of options granted	After adjusting for the 10 to 1 reverse stock split	Exercise price	Expiry date	Estimated Fair value
				$’000
150,000	15,000 (i)	$ 0.10	October 20, 2008	51
500,000	50,000 (ii)	$ 1	October 27, 2006	125
1,000,000	100,000 (iii)	$ 1	November 5, 2006	250

(i)

were granted in 2003 to former directors/officers in consideration of services rendered.

(ii)

were granted in 2003 to Sanzari Family Trust and TJP Management, Inc. in consideration of providing working capital to the Company.

(iii)

were granted in 2003 to Gregory A. Nagel in consideration of providing working capital to the Company.

The following summarizes the share option transactions during the periods:

	Number of		Weighted average
	options		exercise price
			$
Options outstanding at December 31, 2004
(after adjusting for the 10 to 1 reverse stock split)		165,000		0.92
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-

Options outstanding at December 31, 2005		165,000		0.92
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-

Options outstanding at June 30, 2006		165,000		0.92

-20-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Condensed Financial Information of Registrant

Balance Sheet-Parent Company Only

(In thousand of United States dollars)

	June 30, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	-
Restricted cash		233
Deferred charges		888

Total current assets		1,121

INVESTMENTS IN SUBSIDIARIES		18,748

TOTAL ASSETS	$	19,869

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Penalty payable		437

Total current liabilities		437

LONG-TERM LIABILITIES
Convertible notes		4,787
Derivative conversion feature		4,848
Derivative warrants		13,312
Total long-term liabilities		22,947

STOCKHOLDERS’ EQUITY
Preferred stock, authorized 5,000,000 shares, par value $0.01, issued and outstanding Nil		-
Common stock, authorized 150,000,000 shares, par value $0.001, issued and outstanding 79,888,274 shares		80
Paid-in capital		15,724
Accumulated deficit		(18,882	)

Total stockholders’ equity		(3,078	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,869

-21-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Condensed Financial Information of Registrant (continued)

Statement of Operations-Parent Company Only

(In thousand of United States dollars)

	For the three months ended June 30, 2006			For the six months ended June 30, 2006

Revenue	$	-		$	-

General and administrative expenses		(343	)		(616	)

Loss from operations		(343	)		(616	)

Interest expenses		(1,023	)		(1,394	)

Debt financing costs		(2,888	)		(7,841	)

Derivative unrealized fair value gain/(loss)		487			(3,013	)

Net loss	$	(3,767	)	$	(12,864	)

-22-

PUDA COAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Condensed Financial Information of Registrant (continued)

Statement of Cash Flows-Parent Company Only

(In thousand of United States dollars)

	For the six months ended June 30, 2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(12,864	)
Adjustments to reconcile net income to net cash used in operating activities
Amortization of debt issue costs		768
Amortization of discount on convertible notes and warrants		6,636
Derivative unrealized fair value loss		3,013
Discount on converted shares and exercised warrants		947
Issue of common stock for services		21
Changes in operating assets and liabilities:
Advance from subsidiaries		270
Increase in penalty payable		437
Decrease in restricted cash		382

Net cash used in operating activities		(390	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants		390

Net cash provided by financing activities		390

Net increase in cash and cash equivalents		-
Cash and cash equivalents at beginning of period		-

Cash and cash equivalents at end of period	$	-

-23-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005

Net Revenue. Net revenue increased $22,196,000, or 254%, to $30,943,000 in the three months ended June 30, 2006 from $8,747,000 in the three months ended June 30, 2005. The tonnage sales of cleaned coal increased approximately 277,000 tons to approximately 397,000 tons in the three months ended June 30, 2006 from approximately 120,000 tons in the three months ended June 30, 2005, a 231% increase. This was the primary reason for our increase in net revenue. The increase in tonnage sales was primarily due to increased orders of cleaned coal from existing and new customers in the three months ended June 30, 2006. The increase in orders was primarily because of the increase in the general demand for high-grade coking coal in China, which was largely driven by the substantial economic growth that China continued to experience in the three months ended June 30, 2006. Steel is a key component of the rail systems, bridges, ports, airports, construction projects and car production spearheading China's economic growth and the increased demand for steel directly affects the demand for the cleaned high-grade metallurgical coking coal, which we sell. The increase in net revenue was also contributed by the increase in average selling price to approximately $78 per ton in the three months ended June 30, 2006 from approximately $75 per ton in the three months ended June 30, 2005.

In response to this increase in general demand, we are in the process of significantly expanding our capacity to 2.7 million MT per year through the purchase of two new coal processing facilities in November 2005. One of our new facilities became operational in late 2005 and the other became operational by the end of March 2006. Management anticipates that China’s strong economic growth will continue in 2006 and we believe that this will drive strong demand for steel and high-grade metallurgical coking coal. However, in response to this strong demand in the market, it is expected that there will be more supply in the market from competitors and due to increased supply, and notwithstanding the expected strong demand, our average per ton sales price is not expected to increase.

Cost of Revenues. Puda’s cost of revenue increased $18,038,000, or 262%, to $24,916,000 in the three months ended June 30, 2006 from $6,878,000 in the three months ended June 30, 2005. This was primarily due to the increase in sales volume and the increase in average price of raw coal to approximately $46 per ton in the three months ended June 30, 2006 from approximately $41 per ton in the three months ended June 30, 2005.

Gross Profit. Gross profit increased $4,158,000 or 222%, to $6,027,000 in the three months ended June 30, 2006 from $1,869,000 in the three months ended June 30, 2005 due to the increase in sales volume. Gross profit margin in the three months ended June 30, 2006 was 19% versus 21% in the three months ended June 30, 2005 due to the increase in average price of raw coal in the three months ended June 30, 2006.

Selling Expenses. Selling expenses were $771,000 in the three months ended June 30, 2006 compared to $152,000 in the three months ended June 30, 2005. This represents an increase of $619,000, or 407%, primarily due to the increase in sales volume.

General and Administrative Expenses. General and administrative expenses $557,000 in the three months ended June 30, 2006 compared to $71,000 in the three months ended June 30, 2005. This represents an increase of $486,000, or 685%, primarily due to increases in salary and benefits, legal and professional fees and investor relation expenses.

Income from Operations. Operating profit was $4,699,000 in the three months ended June 30, 2006 compared to $1,645,000 in the three months ended June 30, 2005. The increase of $3,054,000, or 186%, was primarily the result of increased gross profit of $4,158,000, which was offset by the increased operating expenses of $1,104,000.

Interest Expense. Interest expense of $1,213,000 in the three months ended June 30, 2006 includes interest payments of $218,000 for the 8% convertible notes, $190,000 for the 6% loan from Resources Group for the purchase of the Liulin and Zhong Yang plants and $805,000 for the expended portion of the discount on the conversion feature and warrants related to converted shares and exercised warrants. No such expense was incurred in the three months ended June 30, 2005.

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Debt Financing Costs. Debt financing costs of $2,888,000 in the three months ended June 30, 2006 include amortization of debt issue costs of $177,000, amortization of discount on convertible notes and warrants of $2,332,000, and penalty of $379,000 for not getting the registration statement effective by March 17, 2006. No such expenses were incurred in the three months ended June 30, 2005.

Derivative Unrealized Fair Value Gain. Derivative unrealized fair value gain in the three months ended June 30, 2006 of $487,000 represented the change in fair value of the warrants issued to placement agent.

Income Before Income Taxes. Income before income taxes was $1,088,000 in the three months ended June 30, 2006 compared $1,646,000 in the three months ended June 30, 2005. The decrease of $558,000 or 34%, was primarily the result of increased operating profit of $3,054,000 and increased derivative unrealized fair value gain of $487,000, which was offset by the increased interest expense of $1,213,000 and increased debt financing costs of $2,888,000.

Income Taxes. Income taxes increased $901,000, or 164%, to $1,451,000 in the three months ended June 30, 2006 from $550,000 in the three months ended June 30, 2005, due to the increase in the operating profit of Shanxi Coal to $4,855,000 in the three months ended June 30, 2006 from $1,646,000 in the three months ended June 30, 2005. Income tax was imposed on Shanxi Coal by the China Tax Bureau.

Net Income. Net loss was $363,000 in the three months ended June 30, 2006, compared to net income of $1,096,000 in the three months ended June 30, 2005, a decrease of $1,459,000, or 133%, mainly due to increased operating expenses of $1,104,000, increased interest expense of $1,213,000, increased debt financing costs of $2,888,000 and increased income taxes of $901,000, which were offset by the increased gross profit of $4,158,000 and increased derivative unrealized fair value gain of $487,000 in the three months ended June 30, 2006.

Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005

Net Revenue. Net revenue increased $38,695,000, or 297%, to $51,714,000 in the six months ended June 30, 2006 from $13,019,000 in the six months ended June 30, 2005. The tonnage sales of cleaned coal increased approximately 485,000 tons to approximately 664,000 tons in the three months ended June 30, 2006 from approximately 179,000 tons in the six months ended June 30, 2005, a 271% increase. This was the primary reason for our increase in net revenue. The increase in tonnage sales was primarily due to increased orders of cleaned coal from existing and new customers in the six months ended June 30, 2006. The increase in orders was primarily because of the increase in the general demand for high-grade coking coal in China, which was largely driven by the substantial economic growth that China continued to experience in the six months ended June 30, 2006. Steel is a key component of the rail systems, bridges, ports, airports, construction projects and car production spearheading China's economic growth and the increased demand for steel directly affects the demand for the cleaned high-grade metallurgical coking coal, which we sell. The increase in net revenue was also contributed by the increase in average selling price to approximately $78 per ton in the six months ended June 30, 2006 from approximately $75 per ton in the six months ended June 30, 2005.

Cost of Revenues. Puda’s cost of revenue increased $30,886,000, or 300%, to $41,174,000 in the six months ended June 30, 2006 from $10,288,000 in the six months ended June 30, 2005. This was primarily due to the increase in sales volume and the increase in average price of raw coal to approximately $45 per ton in the six months ended June 30, 2006 from approximately $41 per ton in the six months ended June 30, 2005.

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Gross Profit. Gross profit increased $7,809,000 or 286%, to $10,540,000 in the six months ended June 30, 2006 from $2,731,000 in the six months ended June 30, 2005 due to the increase in sales volume. Gross profit margin in the six months ended June 30, 2006 was 20% versus 21% in the six months ended June 30, 2005 due to the increase in average price of raw coal in the six months ended June 30, 2006.

Selling Expenses. Selling expenses were $1,047,000 in the six months ended June 30, 2006, compared to $201,000 in the six months ended June 30, 2005. This represents an increase of $846,000, or 421%, primarily due to the increase in sales volume.

General and Administrative Expenses. General and administrative expenses were $991,000 for the six months ended June 30, 2006 compared to $135,000 for the six months ended June 30, 2005. This represents an increase of $856,000, or 634%, primarily due to increases in salary and benefits, legal and professional fees and investor relation expenses.

Income from Operations. Operating profit was $8,502,000 in the six months ended June 30, 2006 and $2,394,000 in the six months ended June 30, 2005. The increase of $6,108,000, or 255%, was primarily the result of increased gross profit of $7,809,000, which was offset by the increased operating expenses of $1,701,000.

Interest Expense. Interest expense of $1,779,000 in the six months ended June 30, 2006 includes interest payments of $447,000 for the 8% convertible notes, $385,000 for the 6% loan from Resources Group for the purchase of the Liulin and Zhong Yang plants and $947,000 for the expended portion of the discount on the conversion feature and warrants related to converted shares and exercised warrants. No such expense was incurred in the six months ended June 30, 2005.

Debt Financing Costs. Debt financing costs of $7,841,000 in the six months ended June 30, 2006 include amortization of debt issue costs of $768,000, amortization of discount on convertible notes and deferred financing costs of warrants of $6,636,000, and penalty of $437,000 for not getting the registration statement effective by March 17, 2006. No such expenses were incurred in the six months ended June 30, 2005.

Derivative Unrealized Fair Value Loss. Derivative unrealized fair value loss in the six months ended June 30, 2006 of $3,013,000 represented the change in fair value of the warrants issued to placement agent.

Income Before Income Taxes. Loss before income taxes was $4,119,000 in the six months ended June 30, 2006, compared to income before income taxes of $2,401,000 in the six months ended June 30, 2005. The decrease of $6,520,000 or 272%, was primarily the result of increased interest expense of $1,779,000, increased debt financing costs of $7,841,000 and increased derivative unrealized fair value loss of $3,013,000, which was offset by the increased operating profit of $6,108,000.

Income Taxes. Income taxes increased $1,878,000, or 232%, to $2,689,000 in the six months ended June 30, 2006 from $811,000 in the six months ended June 30, 2005 due to the increase in the operating profit of Shanxi Coal to $8,744,000 in the six months ended June 30, 2006 from $2,401,000 in the six months ended June 30, 2005. Income tax was imposed on Shanxi Coal by the China Tax Bureau.

Net Loss. Net loss was $6,808,000 in the six months ended June 30, 2006, compared to net income $1,590,000 in the six months ended June 30, 2005, a decrease of $8,398,000, or 528%, mainly due to increased operating expenses of $1,701,000, increased interest expenses of $1,779,000, increased debt financing costs of $7,841,000, increased derivative unrealized fair value loss of $3,013,000 and increased income taxes of $1,878,000, which were offset by the increased gross profit of $7,809,000 in the six months ended June 30, 2006.

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Liquidity and Capital Resources

Net cash provided by operating activities was $10,876,000 in the six months ended June 30, 2006, compared to $2,151,000 in the six months ended June 30, 2005, an increase of $8,725,000. This was primarily due to the increase in income from operations (after adjusting for non-cash items) of $3,445,000, improved cash flows for inventory of $1,652,000, improved cash flows for accounts payable of $619,000, improved cash flows for advance to suppliers of $2,499,000 and improved cash flows for VAT payable of $703,000 in the six months ended June 30, 2006 compared to the six months ended June 30, 2005.

Net cash used in financing activities of $260,000 in the six months ended June 30, 2006 was related to the repayment of long-term debt of $650,000 which was offset by the cash received from the exercise of warrants of $390,000. Net cash used in financing activities of $917,000 in the six months ended June 30, 2005 was related to the dividend distribution.

On November 17, 2005, Shanxi Coal entered into two conveyance agreements with Resources Group. The two agreements transfer two new coal washing plants, related land-use rights and coal washing equipment in Liulin County and Zhong Yang County, Shanxi Province. The Liulin County plant is expected to have an annual clean coal washing capacity of 1.1 million MT while the Zhong Yang County plant is expected to have an annual clean coal washing capacity of 1.2 million MT. After completing trial production, the Liulin County plant started formal production at the end of November 2005. The Liulin County plant, land-use rights and related equipment were purchased for a cost of $5,800,000. The Zhong Yang County plant started formal production at the end of March 2006. The Zhong Yang County plant, land-use rights and related equipment were purchased for a cost of $7,200,000. Each conveyance agreement provides that the purchase price paid by Shanxi Coal to Resources Group, which totals $13,000,000, be amortized over 10 years from December 31, 2005 and bear interest at a rate of 6% per annum payable quarterly.

Our principal on-going liquidity requirements are to finance our coal washing operations and to fund the payment of the loans totaling $13,000,000 for the acquisition of the New Shanxi Liulin Jucai Plant and the New Zhong Yang Plant. We must also pay interest on the notes issued in our November 18, 2005 private placement which have an aggregate principal amount of $12.5 million, an interest rate of 8% per annum and a maturity date of October 31, 2008. Interest is payable quarterly and the principal amount is payable at the maturity date. These notes may be converted into our common stock at the conversion price of $.50 per share. The price of our stock is likely to impact our liquidity needs for payment of these notes on both a long-term and short-term basis. We believe that as our stock becomes more valuable, the note holders will be more likely to convert their notes into common stock, and we would not be required to pay the interest any longer or the principal at all, decreasing our need for cash. Conversely, if our stock price decreases, note holders are less likely to convert and our need for cash to pay interest and principal on the notes will increase. Warrants were also issued in that private placement to acquire up to 25,000,000 shares of our common stock which are exercisable at price of $.60 per share, or an aggregate of $15,000,000. We believe that the likelihood that these warrants being exercised increases as our stock price increases and decreases as our stock price decreases, with a corresponding effect on the likelihood of our realizing proceeds from their exercise.

Our business is heavily dependent on our coal inventory. Because of recent coal mining accidents, the Chinese government has been closing mines throughout China. In addition, in Shanxi Province, the authorities are not approving new mines that produce less than 300,000 MT output per year, are closing mines that produce less than 90,000 MT per year and are consolidating existing mines into larger mines with outputs between 300,000 and 900,000 MT. These activities may lead to increased competition for coal and result in higher prices for the raw coal we purchase, increasing our need for liquidity.

In addition, while the Chinese steel industry has been expanding over-supply could have the effect of depressing steel prices, making the collection of our accounts receivable more difficult.

We are considering the construction of a power generating plant. We intend to use a portion of the proceeds from the exercise of the warrants issued in our November 2005 private placement, to the extent such warrants are exercised. However, these proceeds which would aggregate $15,000,000 to the extent they are all fully exercised, are not sufficient to pay the $18,100,000 the plant is projected to cost. The balance of the cost would be paid from our operations, or we would have to secure a loan.

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We believe that our liquidity will be adequate to satisfy our obligations for the foreseeable future. Future requirements for our business needs, including the funding of capital expenditures and debt service for outstanding financings are expected to be financed by a combination of internally generated funds, the proceeds from the sale of our securities, borrowings and other external financing sources. However, we may not be able to generate sufficient operating cash flow and external financing sources may not be available in amounts or on terms sufficient to meet our liquidity needs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs.

ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this Report, Puda Coal conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of Puda Coal's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "1934 Act")). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Puda Coal's disclosure controls and procedures are effective to ensure that information required to be disclosed by Puda Coal 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 Puda Coal's internal controls over financial reporting during Puda Coal's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, Puda Coal's internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

In April, 2006, we issued 50,000 shares of our common stock to Sage Capital Investments upon assignment and conversion of a portion of a convertible note held by Southridge Partners, L.P. Southridge acquired the convertible note in our private placement of notes and securities which closed in November, 2005. A replacement convertible note was issued to Southridge Partners, L.P. in the amount of $700,000 representing the outstanding principal balance of the note which was partially converted.

In May 2006, we issued 50,000 shares of our common stock to Gerdz Investments Limited Partnership RLLLP upon conversion of convertible note held by Gerdz Investments Limited Partnership RLLLP. Gerdz acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 50,000 shares of our common stock to Ossellos of Butte Profit Sharing Trust FBO Guy J. Ossello upon conversion of convertible note held by Ossellos. Ossellos acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 150,000 shares of our common stock to Jack Thompson upon conversion of convertible note held by Jack Thompson. Thompson acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $75,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 56,820 shares of our common stock to Reed Madison upon cashless exercising of warrants held by Reed Madison. Reed Madison acquired the agent warrants in our private placement of notes and securities which closed in November, 2005. 64,167 shares of the warrants was so exercised.

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In May 2006, we issued 200,000 shares of our common stock to John S. Lemak upon conversion of convertible note held by John S. Lemak. John S. Lemak acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $100,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 115,280 shares of our common stock to Randy Haag upon exercising of warrants held by Randy Haag. Randy Haag acquired the agent warrants in our private placement of notes and securities which closed in November, 2005. 127,500 shares of the outstanding warrants were so exercised.

In May 2006, we issued 50,000 shares of our common stock to Steve Zelinger and Lisa Gordon upon conversion of convertible note held by Steve Zelinger and Lisa Gordon. Steve Zelinger and Lisa Gordon acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 50,000 shares of our common stock to Robet Lapidus and Donna Lapidus JTWROS upon conversion of convertible note held by Robet Lapidus and Donna Lapidus JTWROS. Robet Lapidus and Donna Lapidus JTWROS acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 50,000 shares of our common stock to Jason Flynn upon conversion of convertible note held by Jason Flynn. Jason Flynn acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 150,000 shares of our common stock to Maurice Micek and Jennifer Micek upon conversion of convertible note held by Maurice Micek and Jennifer Micek. Maurice Micek and Jennifer Micek acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $75,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 50,000 shares of our common stock to Maurice Micek CFBO Benajmin Micek upon conversion of convertible note held by Maurice Micek CFBO Benajmin Micek. Maurice Micek CFBO Benajmin Micek acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 50,000 shares of our common stock to Maurice Micek CFBO Andrew Micek upon conversion of convertible note held by Maurice Micek CFBO Andrew Micek. Maurice Micek CFBO Andrew Micek acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 150,000 shares of our common stock to John Micek II Revocable Trust upon conversion of convertible note held by John Micek II Revocable Trust. John Micek II Revocable Trust acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $75,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 100,000 shares of our common stock to Austin D. Grose upon conversion of convertible note held by Austin D. Grose. Austin D. Grose acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $50,000 of the outstanding principal balance of the note was so converted.

In May 2006, we issued 1,000,000 shares of our common stock to Sandor Capital Master Fund L.P. upon conversion of convertible note held by Sandor Capital Master Fund L.P.. Sandor Capital Master Fund L.P. acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $500,000 of the outstanding principal balance of the note was so converted.

In June 2006, we issued 100,000 shares of our common stock to Jerry Peterson upon conversion of convertible note held by Jerry Peterson. Jerry Peterson acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $50,000 of the outstanding principal balance of the note was so converted.

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In June 2006, we issued 50,000 shares of our common stock to Brian Murphy upon conversion of convertible note held by Brian Murphy. Brian Murphy acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In June 2006, we issued 50,000 shares of our common stock to Beeman Insurance Agency upon conversion of convertible note held by Beeman Insurance Agency. Beeman Insurance Agency acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In June 2006, we issued 50,000 shares of our common stock to Robert DiPietro upon conversion of convertible note held by Robert DiPietro. Robert DiPietro acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In June 2006, we issued 100,000 shares of our common stock to Jerry Peterson upon exercising of warrants held by Jerry Peterson with a cash payment of $60,000 to Puda Coal. Jerry Peterson acquired the warrants in our private placement of notes and securities which closed in November, 2005. 100,000 of the outstanding principal balance of the warrants were so exercised.

In June 2006, we issued 300,000 shares of our common stock to Chelverton Dividend Income Fund Limited upon exercising of warrants held by Wachovia Securities LLC FBO Chelverton Dividend Income Fund Limited with a cash payment of $180,000 to Puda Coal. Jerry Peterson acquired the warrants in our private placement of notes and securities which closed in November, 2005. 300,000 of the outstanding principal balance of the warrants were so exercised and the balance of warrants for 800,000 were assigned to Wachovia Securities FBO Chelverton.

In June 2006, we issued 50,000 shares of our common stock to Brian Murphy upon exercising of warrants held by Brian Murphy with a cash payment of $60,000 to Puda Coal. Brian Murphy acquired the warrants in our private placement of notes and securities which closed in November, 2005. 50,000 of the outstanding principal balance of the warrants were so exercised.

In June 2006, we issued 100,000 shares of our common stock to Teawood Nominees Limited upon exercising of warrants held by Perinvest Dividend Equity Fund Limited - Teawood Nominees Limited with a cash payment of $60,000 to Puda Coal. Perinvest acquired the warrants in our private placement of notes and securities which closed in November, 2005. 100,000 of the outstanding principal balance of the warrants were so exercised and the balance of warrants for 200,000 were reissued to Teawood Nominees Limited.

In June 2006, we issued 100,000 shares of our common stock to Perinvest Special Situations Fund Limited upon exercising of warrants held by Wachovia FBO PerInvest Special Situations with a cash payment of $60,000 to Puda Coal. Wachovia FBO PerInvest Special Situations acquired the warrants in our private placement of notes and securities which closed in November, 2005. 100,000 of the outstanding principal balance of the warrants were so exercised and the balance of warrants for 100,000 were reissued to Wachovia FBO PerInvest Special Situations.

In June 2006, we issued 50,000 shares of our common stock to Ann Hodel upon conversion of convertible note held by Ann Hodel. Ann Hodel acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

In June 2006, we issued 650,000 shares of our common stock to Jayhawk China Fund upon conversion of convertible note held by Jayhawk China Fund. Jayhawk China Fund acquired the convertible note in our private placement of notes and securities which closed in November, 2005. $25,000 of the outstanding principal balance of the note was so converted.

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The convertible notes which were converted and the warrants which were exercised in connection with each of the above issuances were offered and sold in our November, 2005 private placement only to accredited investors in the United States and to persons who are not "U.S. persons" as defined in Regulation S under the Securities Act. The notes and related warrants, or Units, offered in such private placement and their respective conversions and exercises were offered and sold in reliance on the exemptions from registration afforded under Rule 506 of Regulation D and Regulation S under the Securities Act. We did not engage in any public advertising or general solicitation in connection with the issuance of the Units.

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

	(a)	Exhibits

	31.1	Certification of Mr. Zhao Ming pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

	31.2	Certification of Ms. Jin Xia pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

	32.1	Certification of Chief Executive Officer and Chief Financial Officer of Puda Coal, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report on 10-QSB/A to be signed on its behalf by the undersigned, thereunto duly authorized.

		PUDA COAL, INC.


		/s/ Zhao Ming
		Zhao Ming
		Chief Executive Officer and President

Date: August 21, 2006

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