UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 5, 2006
PAY88, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
000-51793 20-3136572
(Commission File Number) (IRS Employer Identification No.)
1053 North Barnstead Road
Barnstead, NH 03225
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(Address of Principal Executive Offices, Zip Code)
(603) 776-6044
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
On September 5, 2006, Pay88, Inc. ("Pay88") entered into a Share Purchase
Agreement (the "Share Purchase Agreement") with Chongqing Qianbao Technology
Ltd., a limited liability company organized under the laws of the People's
Republic of China ("Qianbao"), Ying Bao ("Bao"), and Chongqing Yahu Information
Development Co., Ltd., a limited liability company organized under the laws of
the People's Republic of China ("Yahu"; and together with Bao, the "Qianbao
Shareholders"). Pursuant to the Share Purchase Agreement, Pay88 agreed to
acquire Qianbao at a closing held simultaneously therewith by purchasing from
the Qianbao Shareholders all of their respective shares of Qianbao's registered
capital stock, which represent 100% of the issued and outstanding registered
capital stock of Qianbao. In consideration therefor, Pay88 agreed to issue to
the Qianbao Shareholders an aggregate of 5,000,000 shares of the Company's
Series A Convertible Preferred Stock, to be allocated between the Qianbao
Shareholders as follows: 4,950,000 shares to Yahu and 50,000 shares to Bao. Mr.
Tao Fan, a brother of Mr. Guo Fan, a director and officer of Pay88, is the Chief
Executive Officer of Yahu and owns 5% of its issued shares of capital stock.
For all the terms of the Share Purchase Agreement, reference is hereby made to
such agreement annexed hereto as Exhibit 10.2. All statements made herein
concerning such agreement are qualified by references to said exhibit.
Section 2. Financial Information
Item 2.01 Completion of Acquisition or Disposition of Assets
The disclosure set forth above under Item 1.01 (Entry into a Material Definitive
Agreement) is hereby incorporated by reference into this Item 2.01.
The transactions contemplated under the Share Purchase Agreement were
consummated at a closing held on September 5, 2006. Pursuant to the Share
Purchase Agreement, at the closing Pay88 purchased from the Qianbao Shareholders
all of the issued and outstanding shares of registered capital of Qianbao. In
exchange therefor, Pay88 issued to the Qianbao Shareholders an aggregate of
5,000,000 shares of the Company's Series A Convertible Preferred Stock, which
were allocated between the Qianbao Shareholders as follows: 4,950,000 shares to
Yahu and 50,000 shares to Bao. Mr. Tao Fan, a brother of Mr. Guo Fan, a director
and officer of Pay88, is the Chief Executive Officer of Yahu and owns 5% of its
issued shares of capital stock.
Each share of Series A Convertible Preferred Stock is convertible, at the option
of the holder thereof, into 2.8 shares of Pay88's common stock. Accordingly, the
Series A Convertible Preferred shares owned by Yahu are convertible into
13,860,000 shares (representing 57.7%) of the issued and outstanding common
stock, and the Series A Convertible Preferred Shares owned by Bao are
convertible into 140,000 shares (representing 0.6%) of the issued and
outstanding common stock. The holders of shares of Series A Convertible
Preferred Stock are entitled to vote together with the holders of the common
stock, as a single class, upon all matters submitted to holders of common stock
for a vote. Each share of Series A Convertible Preferred Stock will carry a
number of votes equal to the number of shares of common stock issuable as if
converted at the record date. As such, Yahu and Bao hold approximately 57.7% and
0.6%, respectively, of the total combined voting power of all classes of Pay88
stock entitled to vote.
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DESCRIPTION OF BUSINESS
As used in this Form 8-K, references to the "Company," "we," "our" or "us" refer
to Pay88, Inc. and our subsidiary, Chongqing Qianbao Technology Ltd., unless the
context otherwise indicates. "Pay88" refers to Pay88, Inc. "Qianbao" refers to
our subsidiary, Chongqing Qianbao Technology Ltd.
Forward Looking Statements
This Current Report on Form 8-K contains forward-looking information.
Forward-looking information includes statements relating to future actions,
future performance, costs and expenses, interest rates, outcome of
contingencies, financial condition, results of operations, liquidity, business
strategies, cost savings, objectives of management, and other such matters of
the Company. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking information to encourage companies to provide
prospective information about themselves without fear of litigation so long as
that information is identified as forward-looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the information.
Forward-looking information may be included in this Current Report on Form 8-K
or may be incorporated by reference from other documents filed with the
Securities and Exchange Commission (the "SEC") by us. You can find many of these
statements by looking for words including, for example, "believes," "expects,"
"anticipates," "estimates" or similar expressions in this Current Report on Form
8-K or in documents incorporated by reference in this Current Report on Form
8-K. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information or future events.
We have based the forward-looking statements relating to our operations on
management's current expectations, estimates, and projections about us and the
industry in which we operate. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that we cannot
predict. In particular, we have based many of these forward-looking statements
on assumptions about future events that may prove to be inaccurate. Accordingly,
our actual results may differ materially from those contemplated by these
forward-looking statements. Any differences could result from a variety of
factors, including, but not limited to general economic and business conditions,
competition, and other factors.
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A. Our History
1. History of Pay88
Pay88 was 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.
Pay88 is a development stage company. Prior to our acquisition of Qianbao, we
were focused on becoming involved in the business of facilitating money
transfers from the United States to China. Pay88 has not commenced operations
other than in connection with the execution of the license agreement with Yahu
described below and the acquisition of Qianbao described herein.
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 visit 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: experience in the China marketplace; real
time transactions; ease of use; reliable and detailed account information;
system expandability; internet based; 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) ;
transactions and transaction data be encrypted with the state-of-the-art network
security technology; free registration; low cost of transaction; and on-going
technical assistance and support.
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On August 3, 2005, we entered into a five year agreement with Yahu which
satisfies all the above parameters. Pursuant to such agreement, 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.
Mr. Tao Fan, a brother of Mr. Guo Fan, a director and officer of Pay88, is the
Chief Executive Officer of Yahu and owns 5% of its issued shares of capital
stock. Yahu is a member of CECA (China Electronic Commerce Association) a
nationwide organization in the electronic commerce field in China. Yahu has over
650 commercial users and over 250,000 individual users. The agreement provides
for two services to be provided to us by 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 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 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 have
purchased 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 agreed
to issue to QianBao shares of our preferred stock, whose preferences and
conversion rights were to have been negotiated between us and QianBao.
During the course of our negotiations with Qianbao, it was determined that we
would acquire Qianbao by purchasing all of the issued and outstanding shares of
registered capital from its stockholders instead of purchasing its assets. As
discussed above, on September 5, 2006, we entered into a Share Purchase
Agreement, pursuant to which we acquired Qianbao at a closing held on the same
date by purchasing from the stockholders of Qianbao all of the issued and
outstanding shares of Qianbao's registered capital. In consideration for the
sale of their shares of Qianbao, the stockholders of Qianbao received in the
aggregate 5 million newly issued shares of the Company's Series A Convertible
Preferred Stock.
2. History of Qianbao
Qianbao was incorporated on April 24, 2006, under the name "Chongqing Qianbao
Technology Ltd." under the laws of the People's Republic of China. Qianbao is a
development stage company and has not had any business operations or revenues
since its inception. Qianbao intends to build one or more internet websites on
which it will operate a distribution platform through which various suppliers of
consumer products will be able to offer their products for sale to consumers or
retailers visiting such websites. Qianbao currently has one internet website:
http://www.iamseller.com. At present, the main products intended to be offered
for sale on such website include the following: prepaid game cards, which allow
the holder thereof to play online games for the designated allotted time;
prepaid calling cards; and prepaid study cards, which allow the holder thereof
to use online software that assists in the learning of various subjects
including Chinese, English and cooking. Qianbao expects to generate revenue by
earning commissions on the sales of such products and other products made from
its website. The commission will be a percentage of the revenues generated from
such sales; the specific amount of such percentage will be negotiated between
Qianbao and each supplier of products sold on Qianbao's website.
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On July 3, 2006, Qianbao purchased an office located at No. 78 1st Yanghe
Village, Jiangbei District, Chongqing, China for a purchase price of $358,389.
Such office serves as Qianbao's executive offices.
B. Our Business
Following our acquisition of Qianbao, we intend to focus on both of lines of our
business. We will continue our efforts to develop our money transfer business.
In addition, through our subsidiary, Qianbao, we will focus on our efforts to
engage in the sale of consumer products through Qianbao's website.
1. Our Money Transfer Business
We hope to be able to facilitate secure online money transfer services from the
United States to China. 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.
As discussed above, on August 3, 2005, we entered into a five (5) year agreement
with Yahu, pursuant to which Yahu will provide to us the software we need to
process money transfers. We hope that this agreement will assist us towards
establishing us as a quality internet money transfer service provider. We
believe that such software is easy to use for the consumer, has the ability to
interact with relative ease with other businesses and financial institutions,
and is secure enough to accommodate the strict internet security regulations of
both the United States and China. We also believe that the software addresses
the following requirements: experience in the China marketplace; real time
transactions; ease of use; reliable and detailed account information; system
expandability; internet based; 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) ; transactions and
transaction data be encrypted with the state-of-the-art network security
technology; free registration; low cost of transaction; and on-going technical
assistance and support.
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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.
The electronic money transfer industry is highly competitive. The payment
network we plan to introduce will encounter strong competition from many other
banks and money wire transfer companies, including many with greater financial
resources than ours.
As the global money transfer market continues to expand, we expect there to be
significant competition from companies similar to ours, as well as from larger
and more established companies. Our competitors include the following:
Capital Electronic-Store (Capital Electronic-Store Online Payment Platform) was
founded in March 1999. It is the earliest online payment service platform that
implemented online transactions among multiple banks and multiple regions. Now
it supports China's 19 banks and 60 plus cards and 4 international credit cards
for online payment. It owns huge customers groups comprised of individual
consumers as well asnearly 600 business enterprises and institutions, government
agencies and social organizations.
The IPS of Universal e-Commerce China Ltd (IPS) is an internet payment system
(IPS) developed by Universal Technologies Holdings Ltd. Its fast and secure
trade mode has been widely accepted. The system has been widely used in many
well-known e-commerce web sites. While they are not presently our direct
competitors, they possess all the necessary software and regulation requirements
as well as a solid customer base to swiftly become active in our environment.
SmartPay Jieyin Limited was funded in 2001. It is a company devoted to mobile
payments that can be made from a clients' cell phone. A cell phone user can use
his handset as a payment terminal to pay service or products via Jieyin's mobile
payment system. While we do not offer "mobile payments", the ability to
effectuate a wire transfer is similar in function.
Financial transaction reporting and state banking department regulations affect
our business. As a money transmitter, we must comply with a number of domestic
and international regulatory requirements, including the following:
o state licensing laws;
o federal and state anti-money laundering and the federal government's Office
of Foreign Assets Control ("OFAC") regulations;
o laws of various foreign countries regulating the ability to conduct a
money transfer business and requiring compliance with anti-money laundering
regulations;
o state unclaimed property reporting; and
o state, federal and international privacy laws.
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In the United States, 45 states require us to be licensed in order to conduct
business within their jurisdiction. Requirements to be so licensed generally
include minimum net worth, surety bonds, operational procedures and reserves or
"permissible investments" that must be maintained in an amount equivalent to all
outstanding payment obligations issued by us. The state minimum net worth
requirements range from $5,000 to $100,000, depending on the number of offices
or agents within the particular state. The types of securities that are
considered "permissible investments" vary from state to state, but generally
include United States government securities and other highly rated debt
instruments. Most states require us to file reports on a quarterly or more
frequent basis, verifying our compliance with their requirements. To assist in
obtaining all required licenses the company anticipates allocating $50,000
towards the procurement of the required regulatory licenses. Such funds may come
from the sale of equity and/or debt securities and/or loans.
The state of New Hampshire, which is the only state in which we currently
conduct business, does not require us to be so licensed in order to conduct our
business within its jurisdiction. However, the legislature of the state of New
Hampshire is currently considering proposed legislation that would require us to
be so licensed. If such legislation is passed, we will have to ensure that we
are in compliance.
The state of China, which is the only foreign state in which we currently
anticipate doing business, may impose new or additional rules on money
transfers, including regulations which (i) prohibit transactions in, to or from
certain countries, governments, nationals and individuals and entities; (ii)
impose additional identification, reporting or recordkeeping requirements; (iii)
limit the entities capable of providing money transfer services and sales of
payment instruments; (iv) limit or restrict the revenue which may be generated
from money transfers, including revenue derived from foreign exchange; (v)
require additional consumer disclosures; or (vi) limit the number or principal
amount of money transfers which may be sent to or from the jurisdiction.
Under the USA Patriot Act, money service businesses, including our agents, are
required to establish anti-money laundering compliance programs that include:
internal policies and controls; the designation of a compliance officer; ongoing
employee training; and an independent review function.
Unclaimed property laws of every state require that we track the relevant
information on each money order or money transfer and, if unclaimed at the end
of the statutory abandonment period, that we remit the proceeds of the unclaimed
property to the appropriate jurisdiction. State abandonment periods for money
orders and money transfers range from three to seven years, while those for
official checks are generally three to five years. Certain foreign jurisdictions
also may have unclaimed property laws.
In the ordinary course of our business, we collect certain types of consumer
data and thus are subject to privacy laws. We are subject to the
Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), which requires that financial
institutions have in place policies regarding the collection and disclosure of
information considered nonpublic personal information. We intend to comply with
the GLB Act by posting a privacy notice on our website, as well as posting a
privacy notice on the forms completed by individuals in order to use services
(for example, on our money transfer "send" form). We also intend to have
confidentiality/information security agreements in place with our third-party
vendors and service providers to the extent required by the GLB Act.
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If we fail to comply with any applicable laws and regulations, this failure
could result in restrictions on our ability to provide our products and
services, as well as the imposition of civil fines and criminal penalties. We
need to develop a compliance program to monitor and address legal and regulatory
requirements and developments.
Pay88 does not employ any persons with respect to its money transfer business.
All functions with respect to our money transfer business, including
development, strategy, negotiations and clerical, are currently being provided
by our officers on a voluntary basis.
2. The Business of our Subsidiary, Qianbao.
Through Qianbao, we intend to build one or more internet websites on which we
will operate a distribution platform through which various suppliers of consumer
products will be able to offer their products for sale to consumers or retailers
visiting such websites. Qianbao currently has one internet website:
http://www.iamseller.com. At present, the main products intended to be offered
for sale on such website include the following: prepaid game cards, which allow
the holder thereof to play online internet games for the designated allotted
time; prepaid calling cards; and study cards, which allow the holder thereof to
use online software that assists in the learning of various subjects including
Chinese, English and cooking.
We are in the process of arranging for the following companies to supply
products to be sold on Qianbao's website: Shandong Tianfu Online Platform
(supplier of game cards); Sifang Online Distribution Platform (supplier of game
cards); Chongqing Digital World (supplier of phone cards); Chongqing E Net
Chongqing Sifang (supplier of phone cards); Chongqing Taoxing (supplier of study
cards); and Chongqing Dezheng Technology Development. We have not entered into
any agreements with any of such suppliers.
Qianbao has many companies which have financial, technical and marketing
resources significantly greater than those of Qianbao. Qianbao's major
competitors include Yun Web, Cobuy, Star software, Jun Web, 17173, China card
Net and gotogame.All of these competitors have been in operation for over two
years, while we began our business this year.
Qianbao currently has forty-eight employees, all of whom are employed on a full
time basis. Twenty employees are involved in technical operations of the
company, twenty are involved in sales and marketing, and the remainder is
involved in human resources and finances.
All employees are employed pursuant to our standard employment contract, which
sets forth the term of the employment, duties, compensation, and other such
matters. In addition, all of our employees are required to sign our standard
confidentiality agreement, pursuant to which they agree to maintain the
confidentiality of all proprietary information of our company.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Plan of Operation
We do not expect to generate any revenues over the next twelve months. Through
our subsidiary, Qianbao, we will focus on developing our internet distribution
platform on Qianbao's website and to begin selling products on such website. We
will also continue our efforts to become involved in the business of
facilitating money transfers between the United States and China.
As of September 5, 2006, Pay88 has $128,750 in cash. We do not believe that such
funds will be sufficient to effectuate our plans with respect to both our money
transfer business and Qianbao's business. However, such funds will be sufficient
to effectuate our plans with respect to the business of our subsidiary, Qianbao,
over the next twelve months.
Over the next twelve months, Qianbao will continue to focus on developing its
website, www.iamseller.com, and to build other internet websites on which it
will operate a distribution platform through which various suppliers of consumer
products will be able to offer their products for sale to consumers or retailers
visiting such websites. Qianbao will continue to its efforts to arrange for
suppliers to offer for sale on such website the following products: prepaid game
cards, which allow the holder thereof to play online internet games for the
designated allotted time; prepaid calling cards; and study cards, which allow
the holder thereof to use online software that assists in the learning of
various subjects including Chinese, English and cooking. Qianbao is in the
process of arranging for the following companies to supply products to be sold
on Qianbao's website: Shandong Tianfu Online Platform (supplier of game cards);
Sifang Online Distribution Platform (supplier of game cards); Chongqing Digital
World (supplier of phone cards); Chongqing E Net Chongqing Sifang (supplier of
phone cards); Chongqing Taoxing (supplier of study cards); and Chongqing Dezheng
Technology Development. We have not entered into any agreements with any of such
suppliers.
After Qianbao's internet distribution platform has been developed and we are
ready to begin selling products on Qianbao's website, we may seek additional
capital for the purpose of financing our marketing efforts. We may also seek
additional capital for the purpose of financing our plans with respect to our
money transfer business. We continue to expect to incur a minimum of $250,000 in
expenses in order to effectuate our plans regarding our money transfer business.
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.
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There can be no assurance that additional capital will be available to us.
Although we generally intend 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.
Off Balance Sheet Arrangements
None
DESCRIPTION OF PROPERTY
Pay88 currently maintains its executive offices at 1053 North Barnstead Road,
Center Barnstead, NH 03225 in space provided to us by an officer. We currently
are recognizing a lease expense of $200 per month for this space.
Qianbao maintains its executive offices at No. 78 1st Yanghe Village, Jiangbei
District, Chongqing, China. Such office was purchased by Qianbao on July 3,
2006, for a purchase price of $358,389.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of September 5, 2006, the number of shares of
common stock beneficially owned by (i) each person or entity known to our
Company to be the beneficial owner of more than 5% of the outstanding common
stock; (ii) each officer and director of our Company; and (iii) all officers and
directors as a group. Information relating to beneficial ownership of common
stock by our principal shareholders and management is based upon information
furnished by each person using "beneficial ownership" concepts under the rules
of the Securities and Exchange Commission. Under these rules, a person is deemed
to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may not have
any pecuniary beneficial interest. Except as noted below, each person has sole
voting and investment power.
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The percentages below are calculated based on 10,000,000 shares of our common
stock and 5,000,000 shares of our Series A Convertible Preferred Stock issued
and outstanding as of September 5, 2006. We do not have any other outstanding
options, warrants or other securities exercisable for or convertible into shares
of our common stock.
Number of
Shares Percent of
Beneficially Class
Name of Beneficial Owner Class of Stock Owned Beneficially Owned
------------------------ -------------- ------------ ------------------
Guo Fan Common 7,600,000 76%
c/o Pay88, Inc.
1053 North Barnstead Road,
Center Barnstead, NH 03225
Gordon Preston Common 400,000 4%
c/o Pay88, Inc.
1053 North Barnstead Road,
Center Barnstead, NH 03225
Chongqing Yahu Information
Development Co., Ltd. (1) (2) Series A 4,950,000 99%
c/o Chongqing Qinbao Convertible
Technology Ltd. Preferred
No. 78 1st Yanghe Village
Jiangbei District, Chongqing
China
Lin Xu NA 0 0
c/o Chongqing Qinbao
Technology Ltd.
No. 78 1st Yanghe Village
Jiangbei District, Chongqing
China
Shiqing Fu NA 0 0
c/o Chongqing Qinbao
Technology Ltd.
No. 78 1st Yanghe Village
Jiangbei District, Chongqing
China
All directors and executive officers Common: 8,000,000 80%
as a group (four persons)
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(1) Each share of Series A Convertible Preferred Stock is convertible, at the
option of the holder thereof, into 2.8 shares of Pay88's common stock.
Accordingly, the Series A Convertible Preferred shares owned by Yahu are
convertible into 13,860,000 shares (representing 57.7%) of the issued and
outstanding common stock, and the Series A Convertible Preferred Shares owned by
Bao are convertible into 140,000 shares (representing 0.6%) of the issued and
outstanding common stock. The holders of shares of Series A Convertible
Preferred Stock are entitled to vote together with the holders of the common
stock, as a single class, upon all matters submitted to holders of common stock
for a vote. Each share of Series A Convertible Preferred Stock will carry a
number of votes equal to the number of shares of common stock issuable as if
converted at the record date. As such, Yahu and Bao hold approximately 57.7% and
0.6%, respectively, of the total combined voting power of all classes of Pay88
stock entitled to vote.
(2) The following persons have voting, investment, and dispositive control over
the shares of Series A Convertible Preferred Stock owned by Yahu: Mr. Tao Fan,
who is the Chief Executive Officer of Yahu and owns 5% of its issued shares of
capital stock; Mr. Ying Bao, who is a Director of Yahu; Ming Song, who is the
owner of 7.14% of the issued shares of capital stock of Yahu; Deqiong Qing, who
is the owner of 5.86% of the issued shares of capital stock of Yahu; and Maozhuo
Jiang, who is the owner of 5% of the issued shares of capital stock of Yahu.
DIRECTORS AND EXECUTIVE OFFICERS,
PROMOTES AND CONTROL PERSONS
Directors and Executive Officers
The following table sets forth certain information regarding the members of our
board of directors and our executive officers as of September 5, 2006:
Name Age Positions and Offices Held
--------------------------- -------- --------------------------------------------
Guo Fan 27 Chairman, President and CEO
Gordon Preston 62 Director, Secretary
Lin Xu 49 Director
Shiqing Fu 41 Director
The business address of our officers and directors is c/o Pay88, Inc., 1053
North Barnstead Road, Center Barnstead, NH 03225.
Our directors hold office until the next annual meeting of our shareholders or
until their successors are duly elected and qualified. Set forth below is a
summary description of the principal occupation and business experience of each
of our directors and executive officers for at least the last five years.
Mr. Guo Fan has been our Chairman, President and CEO since we were established.
Since January 2004, Mr. Fan has been the Internet Operations Senior Consultant
for ChongQing Junfang Science Technology, a private computer software company
located in Chongqing China. In this role, Mr. Fan had developed operating and
financial policies and procedures for the company. From 2000 through 2003 Mr.
Fan was an officer of Hampstead Players Inc., a company involved in traveling
theater productions. From 2003 through March 2005, he was the manager of New
Hampshire Fireworks Inc., a major distributor of Chinese fireworks. Guo has
received his Associate in Science Degree from the New Hampshire Technical
Institute (NHTI) in Aug of 1998.
- 13 -
Mr. Gordon Preston has been a Director and our secretary since we were
established. Mr. Preston is a mechanical engineer with a broad international
work experience. Since 2003, Mr. Preston was Elected Selectman Barnstead, New
Hampshire for a three year term. Mr. Preston is focusing his efforts in this
capacity on helping the community develop and implement an economic recovery
plan. From May 1992 through 2000 he served as Marketing Director of Precious
Metal Industries Ltd. In this position, Mr. Preston was responsible for dealing
with refinery contracts throughout the Soviet Union and Eastern Europe. In 2000
he established Hampstead Stage Co. in New Hampshire, a non-profit company
engaged in traveling theater production. Gordon initially obtained Degree in
Mechanical Engineering (HND) in the United Kingdom at Derby University in 1961.
Ms. Lin Xu has been serving since 1990 as Vice General Manager of Chongqing
Electric Wire & Cable Co. In this role, Ms. Xu has been responsible for sales
and human resources. Ms. Xu does not serve in any directorship roles of any
other public company. Ms. Xu graduated from Central Communist Party College in
2000, with a bachelor's degrees in politics.
Ms. Shiqing Fu is a licensed accountant practicing in Chongqing, China. From
2001until February 2004, Ms. Fu served as Vice General Manager of Chongqing
Deheng Securities Ltd.. In this role she was responsible for the day to day
operations of the company. In February 2004 Ms. Fu assumed her current position
of General Manager of Chongqing Jiarun Accounting Office Ltd., where her role
has been to manage operations of the company. Ms. Fu does not serve in any
directorship roles of any other public company.
None of the above persons has been affiliated with any company that has filed
for bankruptcy within the last five years. None of the directors of Pay88 have
any family relationships with any of the other directors or executive officers
of Pay88.
The Board of Directors has not established an audit committee and does not have
an audit committee financial expert. The Board is of the opinion that an audit
committee is not necessary since the Company has only one two directors, and to
date such directors have been performing the functions of an audit committee.
Section 16(a) beneficial reporting compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules
issued thereunder, our directors and executive officers and any persons holding
more than 10% of our common stock are required to file with the SEC reports of
their initial ownership of our common stock and any changes in ownership of such
common stock. Copies of such reports are required to be furnished to us. We are
not aware of any instances in fiscal year ended December 31, 2005 when an
executive officer, director or any owner of more than 10% of the outstanding
shares of our common stock failed to comply with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934.
- 14 -
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive,
financial or accounting officer.
EXECUTIVE COMPENSATION
Executive Compensation.
Since inception on March 22, 2005, none of our officers or directors have
received or earned any compensation or bonus for services rendered. We do not
maintain key-man life insurance for any of our executive officers or directors.
We do not have any long-term compensation plans or stock option plans.
Compensation of Directors
During the period from March 22, 2005 to December 31, 2005, no officer or
director received any type of compensation from our Company for serving as such.
No arrangements are presently in place regarding compensation to directors for
their services as directors or for committee participation or special
assignments.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Currently, we utilize space that is provided to us by Mr. Gordon Preston, a
director and our Secretary, for a rental fee of $200 per month.
Through December 31, 2005, Guo Fan lent us an aggregate of $80,385, and in
consideration therefore, we issued to Guo Fan a promissory note, in the
principal amount of $80,385. Said amount bears interest at the rate of 5% per
annum. Principal and interest are due and payable on August 31, 2008. In
addition, Mr. Fan has advanced us an additional loan in the amount of $36,000.
Such loan bears interest at the rate of 5% per annum and is payable on demand.
As discussed above, on August 3, 2005, Pay88 entered into a five year agreement
with Yahu. Mr. Tao Fan, a brother of Mr. Guo Fan, a director and officer of
Pay88, is the Chief Executive Officer of Yahu and owns 5% of its issued shares
of capital stock. The agreement provides for two services to be provided to us
by 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 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.
- 15 -
As discussed above, on September 5, 2006, Pay88 entered into a Share Purchase
Agreement with Qianbao, Yahu, and Bao. Pursuant to the Share Purchase Agreement,
Pay88 agreed to acquire Qianbao at a closing held simultaneously therewith by
purchasing from the Yahu and Bao all of their respective shares of Qianbao's
registered capital, which represent 100% of the issued and outstanding share
capital of Qianbao. In consideration therefor, Pay88 agreed to issue to shares
of Pay88's Series A Convertible Preferred Stock as follows: 4,950,000 shares to
Yahu and 50,000 shares to Bao. Mr. Tao Fan, a brother of Mr. Guo Fan, a director
and officer of Pay88, is the Chief Executive Officer of Yahu and owns 5% of its
issued shares of capital stock.
Other than as set forth above, there are no transactions during the last two
years, or proposed transactions, to which we were or are to be a party, in which
any of the following persons had or is to have a direct or indirect material
interest: (a) any director or executive officer of the small business issuer;
(b) any majority security holder; or (c) any member of the immediate family
(including spouse, parents, children, siblings, and in-laws) of any of the
persons in the above.
DESCRIPTION OF SECURITIES
We are authorized to issue 105,000,000 shares, consisting of 100,000,000 shares
of common stock and 5,000,000 shares of preferred stock. The following
statements relating to our capital stock are summaries and do not purport to be
complete. Reference is made to the more detailed provisions of, and such
statements are qualified in their entirety by reference to, our Articles of
Incorporation and By-laws.
Common Stock
Our Articles of Incorporation authorizes the issuance of 100,000,000 shares of
common stock, of which 10,000,000 shares are issued and outstanding. Holders of
shares of common stock are entitled to one vote for each share on all matters to
be voted on by the stockholders. Holders of common stock do not have cumulative
voting rights. Holders of common stock are entitled to share ratably in
dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. All of the outstanding shares of common stock are,
and the shares of common stock offered by the Company pursuant to this offering
will be, when issued and delivered, fully paid and non-assessable.
Holders of common stock have no preemptive rights to purchase our common stock.
There are no conversion or redemption rights or sinking fund provisions with
respect to our common stock.
- 16 -
Preferred Stock
Our Articles of Incorporation authorize the issuance of 5,000,000 shares of
preferred stock. The Board of Directors is authorized to provide for the
issuance of shares of preferred stock in series and, by filing a certificate
pursuant to the applicable law of Nevada, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof without any further vote or
action by the shareholder. Any shares of preferred stock so issued would have
priority over the common stock with respect to dividend or liquidation rights.
Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of us without further action by the
shareholder and may adversely affect the voting and other rights of the holders
of common stock.
We have designated one series of preferred stock: Series A Convertible Preferred
Stock, of which 5,000,000 shares are issued and outstanding. Each share of
Series A Convertible Preferred Stock is convertible, at the option of the holder
thereof, into 2.8 shares of Pay88's common stock. The holders of shares of
Series A Convertible Preferred Stock are entitled to vote together with the
holders of the common stock, as a single class, upon all matters submitted to
holders of common stock for a vote. Each share of Series A Convertible Preferred
Stock will carry a number of votes equal to the number of shares of common stock
issuable as if converted at the record date.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's Common Stock trades on the Over The
Counter Bulletin Board under the symbol PAYI.OB since March 8, 2006.
(b) Holders. On September 5, 2006, there were approximately 47 holders of
record of the Company's common stock.
(c) Dividends. We have not declared or paid any cash dividends on our common
stock nor do we anticipate paying any in the foreseeable future. Furthermore, we
expect to retain any future earnings to finance its operations and expansion.
The payment of cash dividends in the future will be at the discretion of our
Board of Directors and will depend upon our earnings levels, capital
requirements, any restrictive loan covenants and other factors the Board
considers relevant.
(d) Securities authorized for issuance under equity compensation plans. We do
not have any equity compensation plans.
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.
- 17 -
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Wolinetz, Lafazan & Company, P.C. is our auditor. There have not been any
changes in or disagreements with accountants on accounting and financial
disclosure or any other matter.
RECENT SALES OF UNREGISTERED SECURITIES
On September 5, 2006, Pay88 issued an aggregate of 5,000,000 shares of Pay88's
Series A Convertible Preferred Stock to the stockholders of Qianbao, allocated
as follows: 4,950,000 shares to Chongqing Yahu Information Development Co.,
Ltd.; and 50,000 shares to Ying Bao. The foregoing shares were issued pursuant
to the Share Purchase Agreement, dated September 5, 2006, among Pay88, Qianbao,
and the stockholders of Qianbao. In consideration for such securities, the
stockholders of Qianbao conveyed to Pay88 all of their shares of the registered
capital of Qianbao. Such securities were issued under Section 4(2) of the
Securities Act of 1933, as amended and Regulation D promulgated by the
Securities and Exchange Commission thereunder.
In August, 2005, Pay88 issued 2,000,000 shares of common stock to 42 investors
in a private placement. The aggregate consideration paid for such shares was
$40,000. In this private placement, we sold 200,000 shares of common stock to 39
investors who were non-US persons (as defined under SEC Regulations) pursuant to
the exemption from the registration requirements of the Securities Act provided
by Regulation S, and we sold 1,800,000 shares of common stock to 3 investors
pursuant to an exemption under Section 4(2) of the Securities Act. All 42
investors were accredited investors (as such term is defined under Rule 501 of
Regulation D). Further, the Company conducted the private placement without any
general solicitation or advertisement and a restriction on resale.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our bylaws provide that directors and officers (and any person who acted at our
request as an officer or director) shall be indemnified by us to the fullest
extent authorized by the general corporate laws of Nevada against all expenses
and liabilities reasonably incurred in connection with services for us or on our
behalf
Section 3 - Securities and Trading Markets
Item 3.02 Unregistered Sales of Equity Securities
The disclosures set forth above under Item 1.01 (Entry into a Material
Definitive Agreement) and Item 2.01 (Completion of Acquisition or Disposition of
Assets) are hereby incorporated by reference into this Item 3.02.
- 18 -
As discussed above in Items 1.01 and 2.01, on September 5, 2006, Pay88 issued an
aggregate of 5,000,000 shares of Pay88's Series A Convertible Preferred Stock to
the stockholders of Qianbao, allocated as follows: 4,950,000 shares to Chongqing
Yahu Information Development Co., Ltd.; and 50,000 shares to Ying Bao. The
foregoing shares were issued pursuant to the Share Purchase Agreement, dated
September 5, 2006, among Pay88, Qianbao, and the stockholders of Qianbao. In
consideration for such securities, the stockholders of Qianbao conveyed to Pay88
all of their shares of the registered capital of Qianbao. Such securities were
issued under Section 4(2) of the Securities Act of 1933, as amended and
Regulation D promulgated by the Securities and Exchange Commission thereunder.
Item 3.03 Material Modification to Rights of Security Holders.
The disclosures set forth above under Item 1.01 (Entry into a Material
Definitive Agreement), Item 2.01 (Completion of Acquisition or Disposition of
Assets), and Item 3.02 (Unregistered Sales of Equity Securities) are hereby
incorporated by reference into this Item 3.03.
Our Articles of Incorporation authorize the issuance of 5,000,000 shares of
preferred stock. The Board of Directors is authorized to provide for the
issuance of shares of preferred stock in series and, by filing a certificate
pursuant to the applicable law of Nevada, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof without any further vote or
action by the shareholder. Any shares of preferred stock so issued would have
priority over the common stock with respect to dividend or liquidation rights.
Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of us without further action by the
shareholder and may adversely affect the voting and other rights of the holders
of common stock.
On September 5, 2006, we designated one series of preferred stock: Series A
Convertible Preferred Stock, in the amount of 5,000,000 shares. Each share of
Series A Convertible Preferred Stock is convertible, at the option of the holder
thereof, into 2.8 shares of Pay88's common stock. The holders of shares of
Series A Convertible Preferred Stock are entitled to vote together with the
holders of the common stock, as a single class, upon all matters submitted to
holders of common stock for a vote. Each share of Series A Convertible Preferred
Stock will carry a number of votes equal to the number of shares of common stock
issuable as if converted at the record date.
Section 5 - Corporate Governance and Management
Item 5.01 Changes in Control of Registrant
The disclosures set forth above under Item 1.01 (Entry into a Material
Definitive Agreement), Item 2.01 (Completion of Acquisition or Disposition of
Assets), Item 3.02 (Unregistered Sales of Equity Securities), and Item 3.03
(Material Modification to Rights of Security Holders) are hereby incorporated by
reference into this Item 5.01.
- 19 -
As discussed above in Items 1.01 and 2.01, and 3.02, on September 5, 2006, Pay88
issued an aggregate of 5,000,000 shares of Pay88's Series A Convertible
Preferred Stock to Chongqing Yahu Information Development Co., Ltd. and Ying
Bao, who were the stockholders of Qianbao. Such shares were allocated as
follows: 4,950,000 shares to Yahu; and 50,000 shares to Bao. The foregoing
shares were issued pursuant to the Share Purchase Agreement, dated September 5,
2006, among Pay88, Qianbao, and the stockholders of Qianbao. In consideration
for such securities, the stockholders of Qianbao conveyed to Pay88 all of their
shares of the registered capital of Qianbao. Such securities were issued under
Section 4(2) of the Securities Act of 1933, as amended and Regulation D
promulgated by the Securities and Exchange Commission thereunder.
Each share of Series A Convertible Preferred Stock is convertible, at the option
of the holder thereof, into 2.8 shares of Pay88's common stock. Accordingly, the
Series A Convertible Preferred shares owned by Yahu are convertible into
13,860,000 shares (representing 57.7%) of the issued and outstanding common
stock, and the Series A Convertible Preferred Shares owned by Bao are
convertible into 140,000 shares (representing 0.6%) of the issued and
outstanding common stock. The holders of shares of Series A Convertible
Preferred Stock are entitled to vote together with the holders of the common
stock, as a single class, upon all matters submitted to holders of common stock
for a vote. Each share of Series A Convertible Preferred Stock will carry a
number of votes equal to the number of shares of common stock issuable as if
converted at the record date. As such, Yahu and Bao hold approximately 57.7% and
0.6%, respectively, of the total combined voting power of all classes of Pay88
stock entitled to vote.
In connection with the Share Purchase Agreement, on September 5, 2006, the
following persons were appointed as directors of Pay88: Ying Bao and Shiqing Fu.
Section 5 - Corporate Governance and Management
Item 5.02 Departure of Directors or Principal Officers; Election of Directors,
Appointment of Principal Officers.
The disclosures set forth above under Item 1.01 (Entry into a Material
Definitive Agreement), Item 2.01 (Completion of Acquisition or Disposition of
Assets), and Item 5.01 (Changes in Control of Registrant) are hereby
incorporated by reference into this Item 5.02.
On September 5, 2006, the following persons were appointed as directors of
Pay88: Ms. Lin Xu and Shiqing Fu.
Ms. Lin Xu has been serving since 1990 as Vice General Manager of Chongqing
Electric Wire & Cable Co. In this role, Ms. Xu has been responsible for sales
and human resources. Ms. Xu does not serve in any directorship roles of any
other public company. Ms. Xu graduated from Central Communist Party College in
2000, with a bachelor's degrees in politics.
- 20 -
Ms. Shiqing Fu is a licensed accountant practicing in Chongqing, China. From
2001until February 2004, Ms. Fu served as Vice General Manager of Chongqing
Deheng Securities Ltd.. In this role she was responsible for the day to day
operations of the company. In February 2004 Ms. Fu assumed her current position
of General Manager of Chongqing Jiarun Accounting Office Ltd., where her role
has been to manage operations of the company. Ms. Fu does not serve in any
directorship roles of any other public company.
Each director of Pay88 serves for a term of one year or until the successor is
elected at Pay88's annual shareholders' meeting and is qualified, subject to
removal by Pay88's shareholders. None of the above persons has been affiliated
with any company that has filed for bankruptcy within the last five years. There
were no transactions during the last two years, or any proposed transactions, to
which Pay88 was or is to be a party, in which any of the above persons had or is
to have a direct or indirect material interest. None of the directors of Pay88
have any family relationships with any of the other directors or executive
officers of Pay88.
Section 9-Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of business acquired.
(1) Report of Independent Registered Accounting Firm
(2) Balance Sheets
(3) Statements of Operations
(4) Statements of Stockholders' Equity (Deficit)
(5) Statements of Cash Flows
(6) Notes to the Financial Statements
(b) Pro forma financial information.
(1) Pro Forma Balance Sheet
(2) Pro Form Statement of Operations
(c) Exhibits:
Exhibit 4.1 Certificate of Designation, filed with the Nevada
Secretary of State on September 5, 2006
Exhibit 10.1 Share Purchase Agreement, dated September 5, 2006,
Pay88, Inc., Chongqing Qianbao Technology Ltd., Ying Bao, and Chongqing
Yahu Information Development Co., Ltd.
Exhibit 10.2 Sales Contract 3-1, dated July 3, 2006, between Chongqing
Yinxin Realty Development Ltd. and_Chongqing Qianbao Technology Ltd.,
for the purchase of offices located at No. 78 1st Yanghe Village,
Jiangbei District, Chongqing, China.
- 21 -
Exhibit 10.3 Sales Contract 3-2, dated July 3, 2006, between Chongqing
Yinxin Realty Development Ltd. and_Chongqing Qianbao Technology Ltd.,
for the purchase of offices located at No. 78 1st Yanghe Village,
Jiangbei District, Chongqing, China.
Exhibit 10.4 Sales Contract 3-2, dated July 3, 2006, between Chongqing
Yinxin Realty Development Ltd. and_Chongqing Qianbao Technology Ltd.,
for the purchase of offices located at No. 78 1st Yanghe Village,
Jiangbei District, Chongqing, China.
- 22 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PAY88, INC.
By: /s/ Guo Fan
-----------
Name: Guo Fan
Title: President and Chief Executive Officer
Date: September 5, 2006
- 23 -
[SELIGSON & GIANNATTASIO, LLP LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Chongqing Qianbao Technology Ltd.
Chongqing, China
We have audited the accompanying balance sheet of Chongqing Qianbao Technology
Ltd. (a Chinese development stage company) as of June 30, 2006 and the related
statements of operations and comprehensive loss and changes in the
stockholders' equity and cash flows for the period April 24, 2006 (date of
inception) to June 30, 2006. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chongqing Qianbao Technology
Ltd. as of June 30, 2006 and the results of its operations and its cash flows
for the period April 24, 2006 (date of inception) to June 30, 2006 in conformity
with accounting principles generally accepted in the United States of America.
/s/ Seligson & Giannattasio, LLP
Seligson & Giannattasio, LLP
White Plains, New York
August 1, 2006
- 24 -
CHONGQING QIANBAO TECHNOLOGY LTD.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30,2006
June 30,
2006
---------
ASSETS
Current assets:
Cash and cash equivalents $ 353,777
---------
Total current assets 353,777
Office equipment - net of accumulated depreciation of $147 4,431
Other assets:
Deposit on office space in contract 358,389
---------
Total assets 716,597
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 46,254
---------
Total current liabilities 46,254
Other liabilities:
Employee bond payable 311
---------
Total liabilities 46,565
---------
Stockholders' equity:
Registered capita1 362,790
Additional paid-in capital 358,674
Deficit accumulated during the development stage (51,296)
Accumulated other comprehensive loss:
Foreign currency translation adjustments (136)
---------
Total stockholders' equity (670,032)
---------
Total liabilities and stockholders' equity $ 716,597
=========
See notes to financial statements.
- 25 -
CHONGQING QIANBAO TECHNOLOGY LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the Period
April 24,2006
(Date of Inception)
to June 30, 2006
-------------------
Operating expenses:
Depreciation $ 147
License and permit 206
Office expenses 85
Payroll and related overhead 10,397
Professional fees 40,101
Telephone 611
------------------
Total operating expenses 51,547
------------------
(Loss) from operations (51,547)
Other income:
Interest income 251
------------------
Net (loss) $ (51,296)
==================
Other comprehensive loss:
Net loss $ (51,296)
Foreign currency translation adjustments (136)
------------------
Total comprehensive loss $ (51,432)
==================
See notes to financial statements.
- 26 -
CHONGQING QIANBAO TECHNOLOGY LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 24, 2006 (DATE OF INCEPTION) TO JUNE 30, 2006
Deficit
Accumulated Foreign
Additional During the Currency
Registered Paid-in Development Translation
Capital Capital Stage Adjustments Total
--------------------------------------------------------------------
Balances April 24, 2006 $ -- $ -- $ -- $ -- $ --
Proceeds from initial investment 362,790 362,790
Proceeds from an additional
investment 358,674 358,674
Net loss (51,296) (51,296)
Foreign currency translation
adjustment (136) (136)
--------------------------------------------------------------------
Balances June 30, 2006 $ 362,790 $358,674 $ (51,296) $ (136) $670,032
====================================================================
See notes to financial statements
- 27 -
CHONGQING QIANBAO TECHNOLOGY LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Period
April 24, 2006
(Date of Inception)
to June 30, 2006
-------------------
OPERATING ACTIVITIES $ (51,296)
Net (loss)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation 147
Changes in operating assets and liabilities:
Accrued expenses 46,254
Employee bond payable 311
-------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (4,584)
-------------------
INVESTING ACTIVITIES
Purchase of office equipment (4,578)
Deposit on office space in contract (358,389)
-------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (362,967)
-------------------
FINANCING ACTIVITIES
Registered capital contribution 362,790
Additional paid-in capital contribution 358,674
-------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 721,464
-------------------
CASH EFFECT OF CURRENCY FLUCTUATIONS (136)
-------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 353,777
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0
-------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 353,777
===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ --
===================
Income taxes $ --
===================
See notes to financial statements.
- 28 -
CHONGQING QIANBAO TECHNOLOGY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Chongqing Qianbao Technology Ltd. (the "Company") was incorporated on
April 24, 2006 in Chongqing, China. The Company intends to build a web
distribution platform and to provide effective services for connecting
diversified service providers and consumer product suppliers to retailers
and consumers.
Development Stage Company
The Company is considered a development stage company and had no revenue
as of June 30, 2006. According to SFAS No. 7, the start-up costs and the
other costs incurred during the current period with no discernible future
benefits were charged to current expenses.
The company has prqjected that it will have its first revenue by the end
of third calendar quarter of 2006, or early part of the fourth calendar
quarter.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
All short-term investments purchased with a maturity of three months or
less are classified as cash equivalents.
Fixtures and Equipment
Fixtures and equipment are stated at cost. The costs of additions and
betterments are capitalized and expenditures for repairs and maintenance
are expensed in the period incurred. When items of property and equipment
are sold or retired, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
Depreciation of fixtures is calculated utilizing the straight-line method
over a seven-year period. Depreciation of computers and the server is
calculated utilizing the straight-line method over a five-year period.
- 29 -
CHONGQING QIANBAO TECHNOLOGY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES -(Continued)
Fair Value of Financial Instruments
The carrying value of cash in bank and on hand, and accrued expenses
approximates their fair values because of their short-term nature. The
carrying value of employee bond payable and deposit on office space in
contract are equal to the amount of cash collected and expended.
Income Taxes
No provision has been made for corporation income taxes due to the current
loss. In addition, no future tax benefit has been calculated. According to
the tax regulation of China, the amount of loss that will carry over to
the next tax period should be assessed and approved by the tax regulation
agency. The maximum carry over period is five years.
NOTE 2 - DEPOSIT ON OFFICE SPACE IN CONTRACT
Chongqing Yahu Information Development Co., Ltd., a 99% shareholder of the
Company, contracted with Chongqing Yin Xin Real Estate Development Co.
Ltd. to purchase the office space on behalf of the Company located at
No.78, 1(st) Yanghe Village, Jiangbei District, Chongqing, China. Total
prepayment amounted to $358,389 (2,865,066 Chinese Yuan), which included
initial build out expense of $10,007 (80,000 Chinese Yuan). The purchase
contract did not finalize until July 3, 2006 (the date of receipt of
official receipts under the name of Chongqing Qianbao Technology Ltd.). As
of June 30, 2006, the amount of $358,389 (2,865,066 Chinese Yuan) was
recorded as "Deposit on office space in contract". This amount will be
reclassified to Fixed Asset after the Company receives the legal document
of ownership.
NOTE 3 - EMPLOYEE BOND PAYABLE
The Company withholds 10% of the gross payroll from certain employees in
order to protect itself from malpractice charges arising from the
performance by the employees and resignation of these employees without
proper advance notification. The Company will return the withheld amount
plus interest to those employees who leave in good standing. As of June
30, 2006, the total withheld amount was $311 (2,490 Chinese Yuan).
- 30 -
CHONGQING QIANBAO TECHNOLOGY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - SHAREHOLDERS' EQUITY
The Company is owned by two shareholders: Chongqing Yahu Information
Development Co., Ltd, ("Yahu"), a 99% shareholder and Mr. Ying Bao,
("Bao"), a 1% shareholder. According to the "Investment Agreement of
Setting-up a Ltd. Company", Yahu contributed $349,541 (2,800,000 Chinese
Yuan) and Bao contributed $12,484 (100,000 Chinese Yuan) to Registered
capital. In addition, Yahu contributed $358,389 (2,865,066 Chinese Yuan)
and Bao contributed $285 (2,278 Chinese Yuan) to Additional paid-in
capital.
NOTE 5 - REGISTERED CAPITAL
According to Chinese Corporate Law, the shareholders have to contribute
stated registered capital into the company. If there is any change in the
registered capital. the company has to reregister its capital with a
government agency. Currently, there is no common stock issued for this
privately held company.
NOTE 6 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash balance in Minsheng Bank in China.
Currently, no deposit insurance system has been set up in China.
Therefore, the Company will bear a risk if Minsheng Bank goes to
bankruptcy. As of June 30, 2006, the Company's uninsured cash balance was
$352,480 (2,817,833 Chinese Yuan).
The financial position and operations of the Company are recorded in
Chinese Yuan (see NOTE 8). Therefore, exchange rate fluctuations could
affect the future business operations of the Company.
NOTE 7 - COMMITMENTS
On June 8, 2006, the Company signed a Letter of Intent ("LOI") with Pay88,
Inc., a US publicly traded company listed in the Over-the-Counter Bulletin
Board. According to the LOI, Pay88, Inc. would purchase the certain assets
of the Company in exchange for an agreed-upon amount of preferred stock of
Pay88, Inc. The transaction is subject to the completion of the due
diligence examination and is expected to close on or before October 31,
2006. The Company's Chairman of the Board of Directors is the brother of
the Chief Executive Officer of Pay88, Inc.
- 31 -
CHONGQING QIANBAO TECHNOLOGY LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - FOREIGN CURRENCY TRANSLATION
The financial statements of the Company are translated pursuant to
Statement of Financial Accounting Standards (SFAS) No. 52 -" Foreign
Currency Translation." In accordance with the provisions of SFAS No. 52
the functional currency for the Company's foreign operations is the local
currency. The Company is located and operating in China. Chinese Yuan is
the functional currency. Assets and liabilities are translated at the
current rate of exchange and income and expenses are translated at the
average exchange rate for the period. Foreign exchange rates from Federal
Reserve Statistical Release were used. At June 30, 2006, the exchange rate
was 1CNY = 0.125 1 US$. During April, May and June, the quarterly average
exchange rate was ICNY = 0.1248US$. The resulting translation adjustments
are recorded as a separate component of stockholders' equity.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company purchased computer equipment, in the amount of $4,578 (36,598
Chinese Yuan) from ChongqingYahu Information Development Co. Ltd., a 99%
shareholder of the Company. The purchase price of the equipment was
assessed and decided by an independent third party.
- 32 -
PAY88, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
reflects Pay88, Inc.'s ("Pay88") acquisition of Chongqing Qianbao Technology
Ltd. ("Qianbao"). The Unaudited Pro Forma Condensed Consolidated Balance Sheet
gives effect to Pay88's purchase of 100% of the registered capital of Qianbao on
August 31, 2006 and certain adjustments pertaining to the treatment of the
purchase as a reverse acquisition and recapitalization of Qianbao as if the
acquisition had occurred on June 30, 2006. As consideration for the acquisition,
Pay88 issued to Qianbao's stockholders 5,000,000 shares of Pay88 Series A
Preferred Stock, convertible into 14,000,000 shares of Pay88 common stock. The
holders of shares of Series A Preferred Stock are entitled to the number of
votes equal to the number of shares of common stock into which such shares of
Series A Preferred Stock could be converted. With the issuance of the 5,000,000
shares of Pay88 Series A Preferred Stock, Qianbao's stockholders have voting
control of Pay88 (approximately 58%) and therefore the acquisition was accounted
for as a reverse acquisition.
The Unaudited Pro Forma Condensed Consolidated Financial Information is
presented for informational purposes only and does not purport to represent what
Pay88's financial position and results of operations would actually have been if
the aforementioned events had occurred on the date specified or to project
Pay88's financial position at any future date. Pay88's statement of operations
for the six months ended June 30, 2006 has not been included in the unaudited
pro forma condensed consolidated financial information. The Unaudited Pro Forma
Condensed Consolidated Financial Information should be read in conjunction with
the Qianbao historical financial statements, and the notes thereto, included
elsewhere herein.
- 33 -
PAY88, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
(Unaudited)
Chongqing
Qianbao Proforma Adjustments Proforma
Pay88, Inc Technology Ltd. Debit Credit Balances
----------------------------- --------------------- --------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,709 $ 353,777 $358,486
----------------------------- --------------------- --------
Total Current Assets 4,709 353,777 358,486
Property and Equipment - net -- 4,431 4,431
Deposit on Office Space in contract -- 358,389 358,389
----------------------------- --------------------- --------
TOTAL ASSETS $ 4,709 $ 716,597 $ -- $ -- $721,306
============================= ===================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued Expenses $ 23,791 $ 46,254 $ 70,045
Loans Payable - Related Party 66,522 -- 66,522
----------------------------- --------------------- --------
Total Current Liabilities 90,313 46,254 -- -- 136,567
Note Payable - Related Party 80,385 -- 80,385
Employee Bond Payable -- 311 311
----------------------------- --------------------- --------
Total Liabilities 170,698 46,565 -- -- 217,263
----------------------------- --------------------- --------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Preferred Stock, $.001 par value -- -- 5,000 1 5,000
Common Stock, $.001 par value 10,000 -- 10,000
Registered Capital 362,790 2 362,790 --
Additional Paid-in Capital 38,001 358,674 1 5,000 148,800 2 540,475
Deficit Accumulated During the Development Stage (213,990) (51,296) 213,990 2 (51,296)
Accumulated Other Comprehensive Loss: --
Foreign Currency Translation Adjustments -- (136) (136)
----------------------------- --------------------- --------
Total Stockholders' Equity (Deficit) (165,989) 670,032 367,790 367,790 504,043
----------------------------- --------------------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,709 $ 716,597 $367,790 $ 367,790 $721,306
============================= ====================== ========
- 34 -
PAY88, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(Unaudited)
**Chongqing
Qianbao Proforma Adjustments Proforma
Pay88, Inc Technology Ltd. Debit Credit Balances
---------------------------- ---------------------- --------
Net Revenues: $ -- $ -- $ -- $ -- $ --
---------------------------- ---------------------- --------
Costs and Expenses:
Professional Fees -- 40,101 40,101
Other General and Administrative Expenses -- 11,446 11,446
---------------------------- ---------------------- --------
Total Costs and Expenses -- 51,547 -- -- 51,547
---------------------------- ---------------------- --------
Loss from Operations before Other Income (Expenses) -- (51,547) -- -- (51,547)
---------------------------- ---------------------- --------
Other Income (Expense):
Interest Income -- 251 251
Interest Expense - Related Party -- -- --
---------------------------- ---------------------- --------
Total Other Income (Expense) -- 251 -- -- 251
---------------------------- ---------------------- --------
Net Loss $ -- $ (51,296) $ -- $ -- $(51,296)
============================ ====================== ========
** For the Period April 24, 2006 (Date of Inception) through June 30, 2006
- 35 -
PAY88, INC.
UNAUDITED PRO FORMA ADJUSTMENTS
Debit Credit
--------- ----------
1. Additional paid-in capital $ 5,000
Series A Preferred Stock $ 5,000
To record the issuance of 5,000,000 shares of Pay88, Inc. ("Pay88")
Series A Preferred Stock, which is convertible into 14,000,000 shares
of Pay88 common stock, in exchange for 100% of the outstanding capital
stock of Chongqing Qianbao Technology Ltd. ("Qianbao").
Since the stockholders of Qianbao have voting controls of Pay88
(approximately 58%), the acquisition has been accounted for as a
reverse acquisition under the purchase method of business combination.
The combination of the two companies is recorded as a re-capitalization
of Qianbao pursuant to which Qianbao is treated as the continuing
entity.
2. Registered Capital 362,790
Deficit Accumulated in the Development Stage 213,990
A dditional paid-in capital 148,800
To eliminate the registered capital of Qianbao and the accumulated
deficit of Pay88.
- 36 -