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Puda Coal, Inc. (OTC : PUDC)
F2Qo6 Earnings Call
August 30, 2006 4:30 p.m. EDT

Executives

Mr. Wenwei Tian - Vice-President of Investor Relations.
Zhao Ming - Chairman and Chief Executive Officer
Ms. Jin Zia - Chief Financial Officer
Mr. Zhao Yao -Vice-President of Operating Investments

Analysts

Stuart Flink - Crestview Capital
Greg Goldberg - Professional Traders Management


Wenwei Tian

Good afternoon and welcome to Puda Coal’s second quarter 2006 earnings conference call. My name is Wenwei Tian, and I am Vice-President of Investor Relations for Puda Coal Inc. The purpose of this conference call is to augment the information provided in the company’s Q2 2006 quarterly report issued on August 3, 2006. After completing the financial report, we will open the call to a few questions from the audience.

At this time, I would like to introduce the following individuals: Mr. Zhao, Chairman and Chief Executive Officer; Ms. Jin Zia, Chief Financial Officer; Mr. Zhao Yao, Vice-President of Operating Investments, and in this call he will also serve as interpreter of Mr. Zhao.

Revenue for the quarter ended June 30, 2006 was approximately $30.9 million, as compared to approximately $8.7 million for the quarter ended June 30, 2005, a 254% increase. Revenue for the six months ended June 30, 2006 was approximately $51.7 million, as compared to approximately $13 million for the six months ended June 30, 2005, a 297% increase.

Gross profit for the quarter ended June 30, 2006 was approximately $6 million, as compared to approximately $1.9 million for the quarter ended June 30, 2005, a 222% increase. Gross profit margins for the quarter ended June 30, 2006 were 19%, as compared to 21% for the quarter ended June 30, 2005, a decrease of 2% as a result of a slight increase in the purchase price of raw coal. Gross profit for the six months ended June 30, 2006 was approximately $10.5 million, as compared to approximately $2.7 million for the six months ended June 30, 2005, a 286% increase. Gross profit margins for the six months ended June 30, 2006 were 20%, as compared to 21% for the six months ended June 30, 2005, a one percent decrease as a result of a slight increase in the purchase price of raw coal.

The company reported a net loss for the three months ended June 30, 2006 of approximately $363,000, as compared to a net income of approximately $1.1 million for the three months ended June 30, 2005, a 133% decrease. Net income was reduced by non-cash charges totaling approximately $2.8 million incurred with debt financing in November 2005. These consisted of approximately $0.2 million in the amortization of debt issuance cost, approximately $0.8 million in the discount of converted notes and exercised warrants, approximately $2.3 million in the amortization of a discount on convertible notes and warrants, and approximately $0.5 million as a derivative on realized fair value gain. Excluding these non-cash charges incurred with the November 2005 debt financing, net income for the three months ended June 30, 2006 would have been approximately $2.5 million on an as adjusted basis.

Puda Coal reported a net loss for the six months ended June 30, 2006 of approximately $6.8 million, as compared to net income of approximately $1.6 million for the six months ended June 30, 2005, a 528% decrease. Included in the net loss were non-cash charges totaling approximately $11.4 million incurred with the November 2005 debt financing. These consisted of approximately $0.8 million in the amortization for debt issuance cost, approximately one million dollars in the discount of converted notes and exercised warrants, approximately $6.6 million in the amortization of discount on convertible notes and warrants, and approximately $3 million as a derivative on realized fair value loss. Excluding these non-cash charges incurred with the November 2005 debt financing, net income for the six months ended June 30, 2006 would have been approximately $4.6 million on an as adjusted basis.

Now we would like to move to the question and answer segment of the conference call. On behalf of the company, I thank you for your patience while certain questions are translated. Operator, please review the instructions for our audience.

Coordinator

Your first question comes from the line of Greg Goldberg with Professional Traders Management.

Greg Goldberg - Professional Traders Management

Can you give us a little update of what’s going on in the business right now? Are we seeing the same thing with coal prices going up and up, being able to pass it all on? Number two; can you give us a status of the registration statement for the investors in the convertible debenture back in November of 2005? Thank you.

Zhao Yao

This is Yao. I will translate your question. (Translating question.)
I guess this question can be answered by either Wenwei or Mr. Zhao.

Zhao Ming

Yes. The first thing I want to answer a question regarding the registration statement. Just this afternoon, we had another response letter to SEC regarding the consolidation issuance and the other small problems regarding the last three years’ financial statement. For the first question regarding the coal price, and it is dependent on the supplier and the demand of our domestic market. Currently, due to the supplier and the demand, it is difficult to transfer the price to our customers.

Zhao Yao

I just have a little bit, because we talked to the company and the company’s legal counsel today regarding the SB-2. We have a little bit clarification here. The company filed a response letter to SEC and they expect to receive some further comments on this response letter within two weeks and then the realistic time for the company to file an amended SB-2 is the end of September.

Coordinator

Your next question comes from the line of Stuart Flink with Crestview Capital.

Stuart Flink - Crestview Capital

I have two questions. One is about the met coal prices. How are they determined and where are they today? I saw that the average tonnage is about $78 – price per ton – but where are they today and how are they set? Is it a fixed price? Is it something that it’s just what the market will bear whenever you’re going to sell the coal? That’s my first set of questions.

The second set of questions is if people exercise their warrants, let’s say, and the company realizes an influx of cash, what would they do with it?

Zhao Yao

I’m going to translate the question to Mr. Zhao. (Translating question.)
Mr. Zhao believes that the price is going to be fairly stable for the second half of this year.

(Zhao Ming and Zhao Yao speaking in their native language.)

Mr. Zhao stated that the price was actually determined by the supply and demand relationship from the market, but the government will also give some guidance and to limit the fluctuation of the price.

That’s the first question. Let me translate the second one.

(Zhao Ming and Zhao Yao speaking in their native language.)

Regarding the second question, Mr. Zhao said that if investors exercise their warrants they put more cash into the company, the company has two dimensions to use the money. First is to increase the working capital. Second is to further expand their capacity.

Stuart Flink - Crestview Capital

Working capital will be used to fund … receivables?

Zhao Yao

Yes. There would be working capital … generally as to fund … our additional receivables, enabling the company to take on more clients.

That completes the answer for the second…. Let’s go on to the next.

Coordinator

At this time, there are no further questions. Mr. Tian, do you have any closing remarks?

Zhao Yao

Actually, if we didn’t fully answer all the questions that investors asked that we can come back to some of those questions. Are there any further follow-on questions?

Coordinator There are no questions at this time.

Wenwei Tan

I would like to thank everyone for participating in our conference call today. We welcome your questions and look forward to our next conference call in November. A replay of this call will be available … after the completion of this call through September 30, 2006. To access the replay, please dial U.S. and Canada 1-800-642-1687, international 1706-645-9291, conference ID 5033005. Thank you.

Coordinator

Thank you. This does conclude today’s conference. You may now disconnect.

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Source: Puda Coal Inc. F2Q06 (Qtr End 8/30/06) Earnings Call Transcript (Seeking Alpha)

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