U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 333-125581
PAY88, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 20-3136572
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(State of incorporation) (IRS Employer ID Number)
1053 North Barnstead Road, Barnstead, NH 03225
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(Address of principal executive offices)
(603) 776-6044
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(Issuer's telephone number)
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(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 [ ]
Number of shares of common stock outstanding as of August 10, 2006: 10,000,000
shares of common stock.
Transitional Small Business Format Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [X] NO [ ]
TABLE OF CONTENTS
Page
----
PART I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Item 3 Controls and Procedures 12
PART II
Item 1. Legal Proceedings 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PAY88, INC.
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED BALANCE SHEET
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JUNE 30, 2006
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(Unaudited)
ASSETS
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Current Assets:
Cash $ 4,709
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Total Current Assets 4,709
---------
Total Assets $ 4,709
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Accrued Liabilities $ 23,791
Loans Payable - Related Party 66,522
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Total Current Liabilities 90,313
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Long-Term Debt:
Note Payable - Related Party 80,385
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Total Liabilities 170,698
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Commitments and Contingencies
Stockholders' Deficiency:
Preferred Stock, $.001 par value; 5,000,000 shares authorized,
none issued and outstanding --
Common Stock, $.001 par value; 100,000,000 shares authorized,
10,000,000 shares issued and outstanding 10,000
Additional Paid-In Capital 38,001
Deficit Accumulated During the Development Stage (213,990)
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Total Stockholders' Deficiency (165,989)
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Total Liabilities and Stockholders' Deficiency $ 4,709
=========
The accompanying notes are an integral part of these financial statements.
3
PAY88, INC.
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED STATEMENT OF OPERATIONS
---------------------------------
(Unaudited)
For the Period For the Period
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For the Three For the Six March 23, 2005 March 23, 2005
-------------------------------- ------------- ------------- -------------
Months Ended Months Ended (Inception) To (Inception) To
-------------------------------- ------------- ------------- -------------
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 June 30, 2006
------------- ------------- ------------- ------------- -------------
Net Revenues $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Consulting Fees -- 121,000 -- 121,000 121,000
Professional Fees 22,872 45 34,658 45 71,207
Other General and
Administrative Expenses 1,708 154 5,975 174 16,547
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 24,580 121,199 40,633 121,219 208,754
------------ ------------ ------------ ------------ ------------
Loss from Operations before Other
Income (Expense) (24,580) (121,199) (40,633) (121,219) (208,754)
------------ ------------ ------------ ------------ ------------
Other Income (Expense)
Interest Expense - Related Party (1,788) -- (3,296) -- (5,236)
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (1,788) -- (3,296) -- (5,236)
------------ ------------ ------------ ------------ ------------
Net Loss $ (26,368) $ (121,199) $ (43,929) $ (121,219) $ (213,990)
============ ============ ============ ============ ============
Basic and Diluted Loss Per Share $ 0.00 $ (0.02) $ 0.00 $ (0.02)
============ ============ ============ ============
Weighted Average Basic and Diluted
Shares Outstanding 10,000,000 8,000,000 10,000,000 8,000,000
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
PAY88, INC.
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(A DEVELOPMENT STAGE COMPANY)
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CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
(Unaudited)
For the Period For the Period
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For the Six March 23, 2005 March 23, 2005
----------- -------------- --------------
Months Ended (Inception) To (Inception) To
------------ -------------- --------------
June 30, 2006 June 30, 2005 June 30, 2006
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Cash Flows from Operating Activities:
Net Loss $ (43,929) $(121,219) $(213,990)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Changes in Assets and Liabilities:
Increase in Accrued Liabilities 11,068 61,000 23,791
--------- --------- ---------
Net Cash (Used) by Operating Activities (32,861) (60,219) (190,199)
--------- --------- ---------
Cash Flows from Investing Activities: -- -- --
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Shareholder Advances 30,522 59,830 66,522
Proceeds from Loans - Related Party -- -- 80,385
Proceeds from Sale of Common Stock -- 8,001 48,001
--------- --------- ---------
Net Cash Provided by
Financing Activities 30,522 67,831 194,908
--------- --------- ---------
Increase (Decrease) in Cash (2,339) 7,612 4,709
Cash - Beginning of Period 7,048 -- --
--------- --------- ---------
Cash - End of Period $ 4,709 $ 7,612 $ 4,709
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ -- $ -- $ --
========= ========= =========
Income Taxes Paid $ -- $ -- $ --
========= ========= =========
Supplemental Disclosure of Non-Cash Financing Activities:
Reclassification of Shareholder Advances to
Note Payable - Related Party $ -- $ -- $ 80,385
========= ========= =========
The accompanying notes are an integral par of these financial statements.
5
PAY88, INC.
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(A DEVELOPMENT STAGE COMPANY)
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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NOTE 1 - Basis of Presentation
In the opinion of the Company's management, the accompanying unaudited
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the information set
forth therein. These financial statements are condensed and therefore do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements.
Results of operations for interim periods are not necessarily indicative
of the results of operations for a full year.
The Company incurred a net loss of $43,929 for the six months ended June
30, 2006. In addition, the Company had a working capital deficiency of $85,604
and a stockholders' deficit of $165,989 at June 30, 2006. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that sufficient funds will be generated during
the next year or thereafter from operations or that funds will be available from
external sources such as debt or equity financings or other potential sources.
The lack of additional capital could force the Company to curtail or cease
operations and would, therefore, have a material adverse effect on its business.
Furthermore, there can be no assurance that any such required funds, if
available, will be available on attractive terms or that they will not have a
significant dilutive effect on the Company's existing stockholders.
The Company is attempting to address its lack of liquidity by raising
additional funds, either in the form of debt or equity or some combination
thereof. The Company currently plans to raise approximately $250,000 through a
private placement of its securities. There can be no assurances that the Company
will be able to raise the additional funds it requires.
In addition, the Company has signed a letter of intent to acquire certain
assets of a Chinese Company (see Note 3).
The accompanying condensed financial statements do not include any
adjustments related to the recoverability or classification of asset-carrying
amounts or the amounts and classifications of liabilities that may result should
the Company be unable to continue as a going concern.
NOTE 2 - Note and Loans Payable - Related Party
Loans payable to the Company's CEO represents advances bearing interest at
5% per annum that are payable on demand. Interest expense for the six months
ended June 30, 2006 was $1,286.
Note payable to the Company's CEO bears interest at 5% per annum and is
payable on August 31, 2008. Interest expense for the six months ended June 30,
2006 was $2,010.
6
PAY88, INC.
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(A DEVELOPMENT STAGE COMPANY)
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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NOTE 3 - Commitments and Contingencies
On August 3, 2005, the Company entered into a five year agreement with
Chongqing Yahu Information Limited ("Yahu"). Yahu is a Chinese corporation
formed by Mr. Tao Fan, a brother of Mr. Guo Fan, a significant stockholder,
director and officer of the Company. The Agreement provides for two services to
be provided to the Company by Yahu. The first service is the provision of all
proprietary software needed to effectuate fund transfers between the U.S. and
China. The second service to be provided is technical assistance in the areas of
installation and future product support. This support includes assistance with
all technical aspects of the software as well as problem resolution and general
inquiries. Both of these services are to be provided to the Company by Yahu for
a licensing fee that is based upon 20% of the gross fund transfer revenues. The
fee is payable on a quarterly basis. The use of the software will enable the
Company to provide wire transfers from the U.S. to China.
On June 8, 2006, the Company and Chong Qing QianBao Technology Limited
Liability Co. ("QianBao") entered into a binding Letter of Intent. Pursuant to
the Letter of Intent, the Company and QianBao agreed to use their best efforts
to negotiate and agree to a mutually acceptable definitive agreement on or
before October 31, 2006, pursuant to which the Company will purchase from
QianBao certain assets, including its intellectual property, cash, certain real
estate holding, online payment system, software domain name, and customer base.
In consideration for the purchase of such assets, the Company will issue to
QianBao shares of the Company's preferred stock, whose preferences and
conversion rights will be negotiated between the parties. The assets will be
delivered free and clear of any liens and encumbrances. The closing of the sale
and purchase of the assets will be subject to the satisfaction of certain
conditions, including the mutual agreement of a definitive agreement, the
completion of the due diligence investigation of both parties, the filing of the
certificate of designation creating the preferred stock to be issued to QianBao,
the delivery of any required consents from third parties, and the delivery of
audited financial statements of QianBao.
QianBao further agreed that it will not directly or indirectly solicit,
negotiate, or accept any offer from a third party to acquire any of QianBao's
assets or securities until the execution and delivery of the definitive
agreement described above. QianBao also agreed to permit the Company and its
representatives to begin its due diligence investigation and to have access to
and inspect QianBao's records, properties, personnel, and other such matters.
NOTE 4 - Related Party Transactions
Rent
The Company rents office space owned by an officer of the Company for $200
per month on a month to month basis. Rent expense amounted to $1,200 for the six
months ended June 30, 2006 and $600 for the period April 1, 2005 to June 30,
2005.
Accrued Liabilities
Included in accrued liabilities at June 30, 2006 is accrued interest to
the Company's CEO in the amount of $5,236 and accrued rent to the Company's
Secretary in the amount of $3,000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
As used in this Form 10-QSB, references to the "Company," the "Registrant,"
"we," "our" or "us" refer to Pay88, Inc. unless the context otherwise indicates.
Forward-Looking Statements
The following discussion should be read in conjunction with our financial
statements, which are included elsewhere in this Form 10-QSB. We and our
representatives may, from time to time, make written or verbal forward-looking
statements, including statements contained in our filings with the United States
Securities and Exchange Commission and in our reports to shareholders.
Generally, the inclusion of the words "believe", "expect", "intend", "estimate",
"anticipate", "will", and similar expressions or the converse thereof, identify
statements that constitute "forward-looking statements".
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements as a
result of a number of risks and uncertainties including: (a) those risks and
uncertainties related to general economic conditions, (b) whether we are able to
manage our planned growth efficiently and operate profitable operations, (c)
whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations, (d) whether we are able to successfully fulfill
our primary requirements for cash.
Overview
We were incorporated on March 22, 2005 under the name "Pay88, Ltd." in the State
of New Hampshire. We subsequently decided to reincorporate in the State of
Nevada by merging with and into Pay88, Inc., a Nevada corporation formed for
such purpose on July 7, 2005. Such merger was effectuated on August 9, 2005.
We are a development stage company focused on becoming involved in the business
of facilitating money transfers from the United States to China. We have not
commenced operations other than in connection with the execution of the license
agreement with Chongqing Yahu described below.
8
Money transfers are transfers of funds between consumers from one location to
another. Our goal is to offer persons in the United States near instantaneous,
efficient and secure online money transfer services to China. In a typical money
transfer, we anticipate that a customer located in the United States will
conduct money transfer transactions on the internet via our website, which we
intend to develop. Utilizing our website, which has yet to be developed, a
customer will transfer money using a credit card or a debit from a bank account.
The customer will be able to go to our web site and use his or her credit card
to credit his or her account for the amount of money that the customer desires
to transfer to a designated recipient in China. Immediately after such
transaction over the internet, the recipient's account in China will be credited
with the funds. Then the recipient can go to its bank in China and withdraw the
money. When the customer initiates the transfer, the software will inform him as
to the amount of fees we are to be paid as a result of the transaction. The fee
paid to us from the sending customer will be based on the amount to be
transferred and the location at which the funds are to be received. We expect
our money transfer revenues to be derived primarily from consumer transaction
fees and revenues from currency exchange on international money transfers.
Any on-line financial service provider requires quality software to be
financially and commercially successful. Optimally, the software should be easy
to use for the consumer, have the ability to interact with relative ease with
other businesses and financial institutions, and must be secure enough to
accommodate the strict internet security regulations of both the United States
and China. In our initial stages we had to make the decision to develop an
internal software system or attempt to partner with an entity that had already
developed the software technology. Due to the time frame that would be required
to develop the software and the corresponding costs that would be associated
with such an undertaking, we made the decision to seek out and utilize a third
party that would accommodate our needs. Specifically, we wanted the system to
address the following requirements:
o Experience in the China marketplace
o Real time transactions
o Ease of use
o Reliable and detailed account information
o System expandability
o Internet based
o Where no bank/credit card is available, payment can be made when client
deposits money with a financial institution which holds the money for the
client (knows as an electronic purse)
o Transactions and transaction data be encrypted with the state-of-the-art
network security technology
o Free registration
o Low cost of transaction
o On-going technical assistance and support
On August 3, 2005, we entered into a five year agreement with Chongqing Yahu
Information Limited, a Chinese corporation ("Chongqing Yahu") which satisfies
all the above parameters. Pursuant to such agreement, Chongqing Yahu will
provide the system software to us. We hope that this agreement will assist us
towards establishing us as a quality internet money transfer service provider.
9
Chongqing Yahu was formed in 1997 by Mr. Tao Fan. Mr. Fan is a brother of Mr.
Guo Fan, a director and officer of Pay88. Chongqing Yahu is a member of CECA
(China Electronic Commerce Association) a nationwide organization in the
electronic commerce field in China. Chongqing Yahu has over 650 commercial users
and over 250,000 individual users. The agreement provides for two services to be
provided to us by Chongqing Yahu. The first service is the provision of all
proprietary software needed to effectuate fund transfers between the United
States and China. The second service to be provided is technical assistance in
the areas of installation and future product support. This support includes
assistance with all technical aspects of the software as well as problem
resolution and general inquiries. Both of these services are to be provided to
us by Chongqing Yahu for a licensing fee that is based upon 20% of the gross
fund transfer revenues. The fee is payable on a quarterly basis. The use of the
software will enable us to provide wire transfers from the United States to
China.
On June 8, 2006, we entered into a binding Letter of Intent with Chong Qing
QianBao Technology Limited Liability Co. ("QianBao"). Pursuant to the Letter of
Intent, the Company and QianBao agreed to use their best efforts to negotiate
and agree to a mutually acceptable definitive agreement on or before October 31,
2006, pursuant to which we will purchase from QianBao certain assets, including
its intellectual property, cash, certain real estate holdings, online payment
system, software domain name, and customer base. In consideration for the
purchase of such assets, we will issue to QianBao shares of our preferred stock,
whose preferences and conversion rights will be negotiated between us and
QianBao. The assets will be delivered free and clear of any liens and
encumbrances. The closing of the sale and purchase of the assets will be subject
to the satisfaction of certain conditions, including the mutual agreement of a
definitive agreement, the completion of the due diligence investigation of both
parties, the filing of the certificate of designation creating the preferred
stock to be issued to QianBao, the delivery of any required consents from third
parties, and the delivery of audited financial statements of QianBao.
QianBao further agreed that it will not directly or indirectly solicit,
negotiate, or accept any offer from a third party to acquire any of QianBao's
assets or securities until the execution and delivery of the definitive
agreement described above. QianBao also agreed to permit us and our
representatives to begin its due diligence investigation and to have access to
and inspect QianBao's records, properties, personnel, and other such matters.
Plan of Operation
We do not expect to generate any revenues over the next twelve months. We are
focused on becoming involved in the business of facilitating money transfers
between the United States and China. Our goal is to offer persons in the United
States near instantaneous, efficient and secure online money transfer services
to China. As an internet money transfer company, our objective is to develop and
market a cost efficient and fast method for the transfer of funds from one
country to another. As discussed above, we have entered into a working agreement
with ChongQing Yahu Information, Limited and a Letter of Intent to acquire the
assets of Chong Qing QianBao Technology Limited Liability Co. These transactions
could give us a competitive edge in this developing sector.
10
We would like to initially focus our services to people within the United States
seeking to wire transfer money to China. Therefore, we hope to build and execute
a marketing campaign that targets areas within the United States that has a
large population of Chinese expatriates. Once we have sufficient funds, we
intend to employ various methods of marketing which may include internet
advertising, telemarketing and commercial advertisements.
We recognize that our current management and Board of Directors do not have
sufficient marketing experience to create and execute an effective marketing
plan. Accordingly, it is our intention to seek out a consulting firm(s) that
specializes in this arena. Currently, we are focusing our efforts on developing
a request for proposal for prospective marketing firms. Generally we are seeking
firms with experience in the Chinese American population.
We do not have sufficient resources to effectuate our business. We continue to
expect to incur a minimum of $250,000 in expenses during the next twelve months
of operations. We estimate that this will be comprised mostly of professional
fees including; $50,000 towards the procurement of the required regulatory
licenses, $75,000 towards the planning of a comprehensive marketing campaign and
$25,000 towards addressing technological infrastructure concerns. Additionally,
$100,000 will be needed for general overhead expenses such as for salaries,
corporate legal and accounting fees, office overhead and general working
capital. Accordingly, we will have to raise the funds to pay for these expenses.
We hope to do so through a private offering after our registration statement is
declared effective and our shares are quoted on the Over the Counter Bulletin
Board.
There can be no assurance that additional capital will be available to us.
Although the Company generally intends, once its shares are quoted on the Over
the Counter Bulletin Board, to raise additional funds, we have no specific
plans, understandings or agreements with respect to such an offering, and we
have given no contemplation with respect to the securities to be offered or any
other issue with respect to any offering. We may seek to raise the required
capital by other means. We will have to issue debt or equity or enter into a
strategic arrangement with a third party. We currently have no agreements,
arrangements or understandings with any person to obtain funds through bank
loans, lines of credit or any other sources. Since we have no such arrangements
or plans currently in effect, our inability to raise funds for a marketing
program will have a severe negative impact on our ability to remain a viable
company because even though we have the technical platform to provide wire
transfer services, no one will know we can provide these services.
Results of Operation
For the three and six months ended June 30, 2006, the Company had no revenues.
The Company's operating expenses for the three and six months ended June 30,
2006 were respectively, $24,580 and $40,633. Such operating expenses consisted
primarily of professional fees and general and administrative fees.
11
Liquidity and Capital
Our balance sheet as of June 30, 2006 reflects assets of $4,709 consisting
solely of cash.
Going Concern Consideration
The condensed financial statements contained in this Report have been prepared
on a `going concern' basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. For the reasons
discussed in this Report, there is a significant risk that we will be unable to
continue as a going concern, in which case, you would suffer a total loss on
your investment in our company.
Off-Balance Sheet Arrangements
None.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the United States Securities
and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer
have reviewed the effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))
within the end of the period covered by this Quarterly Report on Form 10-QSB and
have concluded that the disclosure controls and procedures are effective to
ensure that material information relating to the Company is recorded, processed,
summarized, and reported in a timely manner. There were no significant changes
in our internal controls or in other factors that could significantly affect
these controls subsequent to the last day they were evaluated by our Chief
Executive Officer and Chief Financial Officer.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company is a party or in
which any director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company. The Company's property is not the subject of any pending
legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
Purchases of equity securities by the issuer and affiliated purchasers.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no matter submitted to a vote of security holders during the fiscal
quarter ended June 30, 2006.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
Exhibit No. Description Where Found
--------------------------------------------------------------------------------
10.1 Letter of Intent, dated June 8, 2006, Filed as Exhibit 10.1
between Pay88, Inc. and Chong Qing to the Form 8-K dated
QianBao Technology Limited Liability Co. June 8, 2006 and
incorporated herein by
reference
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31.1 Rule 13a-14(a)/15d14(a) Certifications Attached Hereto
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32.1 Section 1350 Certifications Attached Hereto
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13
SIGNATURES
In accordance with to requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 10, 2006
PAY88, INC.
By: /s/ Guo Fan
--------------------------------
Name: Guo Fan
Title: President, Chief Executive
Officer, and Director (Principal
Executive, Financial, and
Accounting Officer)
14