U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
x |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the
quarter ended March 31, 2007
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the
transition period from _____ to _____
Commission
File Number: 000-51793
PAY88,
INC.
(Exact
name of small business issuer as specified in its charter)
Nevada
(State
of incorporation)
|
20-3136572
(IRS
Employer ID Number)
|
1053
North Barnstead Road, Barnstead, NH 03225
(Address
of principal executive offices)
(603)
776-6044
(Issuer's
telephone number)
________________________________________
(Former
name, former address and former fiscal year,
if
changed since last report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES x NO o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
o
NO x
Number
of
shares of common stock outstanding as of May 14, 2007: 10,100,000 shares of
common stock, $0.001 par value; and 5,000,000 shares of Series A Convertible
Preferred Stock, $0.001 par value, such shares being convertible, on a per
share
basis, into 2.8 shares of common stock, and in the aggregate, to 14,000,000
shares of common stock.
Transitional
Small Business Format Yes
o
No x
TABLE
OF CONTENTS
|
Page
|
PART
I
|
|
Item
1. Financial Statements
|
3
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
12
|
Item
3 Controls and Procedures
|
15
|
PART
II
|
16
|
Item
1. Legal Proceedings
|
16
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
16
|
Item
3. Defaults Upon Senior Securities
|
16
|
Item
4. Submission of Matters to a Vote of Security Holders
|
16
|
Item
5. Other Information
|
16
|
Item
6. Exhibits
|
17
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements.
PAY88,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEET
MARCH
31, 2007
(Unaudited)
ASSETS
Current
Assets:
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
27,920
|
|
Accounts
Receivable, Net of Allowances of $1,972
|
|
|
69,300
|
|
Inventories
|
|
|
108,940
|
|
Prepaid
Expenses
|
|
|
63,829
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
269,989
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
|
493,370
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
763,359
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
Payable
|
|
$
|
125,310
|
|
Deferred
Income
|
|
|
2,150
|
|
Loans
Payable - Related Party
|
|
|
419,196
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
546,656
|
|
|
|
|
|
|
Long-Term
Debt:
|
|
|
|
|
Note
Payable - Related Party
|
|
|
80,385
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
627,041
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
Preferred
Stock, $.001 par value; 5,000,000 shares authorized,
|
|
|
|
|
5,000,000
shares issued and outstanding
|
|
|
5,000
|
|
Common
Stock, $.001 par value; 100,000,000 shares authorized,
|
|
|
|
|
10,100,000
shares issued and outstanding
|
|
|
10,100
|
|
Additional
Paid-In Capital
|
|
|
535,596
|
|
Accumulated
Deficit
|
|
|
(432,593
|
)
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
18,215
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
136,318
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
763,359
|
|
The
accompanying notes are an integral part of these financial
statements.
PAY88,
INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007
(Unaudited)
Sales-Net
|
|
$
|
1,102,781
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
1,087,374
|
|
|
|
|
|
|
Gross
Profit
|
|
|
15,407
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
Selling
Expenses
|
|
|
3,812
|
|
Salaries
and Related Costs
|
|
|
59,525
|
|
Website
Development Costs
|
|
|
13,598
|
|
Professional
Fees
|
|
|
28,358
|
|
Other
General and Administrative Expense
|
|
|
40,527
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
145,820
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
|
)
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
Interest
Expense - Related Party
|
|
|
|
)
|
Interest
Income
|
|
|
78
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(3,516
|
)
|
|
|
|
|
|
Loss
before Provision for Income Tax
|
|
|
(133,929
|
)
|
|
|
|
|
|
Provision
for Income Tax
|
|
|
900
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(134,829
|
)
|
|
|
|
|
|
Basic
Loss Per Common Share
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
Weighted
Average Basic Common Shares Outstanding
|
|
|
10,100,000
|
|
|
|
|
|
|
Fully
Diluted Loss Per Share
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
Weighted
Average Fully Diluted Shares Outstanding
|
|
|
24,100,000
|
|
The
accompanying notes are an integral part of these financial
statements.
PAY88,
INC.AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007
(Unaudited)
|
|
|
|
Net
Loss
|
|
$
|
(134,829
|
)
|
Adjustments
to Reconcile Net Loss to
|
|
|
|
|
Net
Cash (Used) by Operating Activities
|
|
|
|
|
Allowance
for Bad Debts
|
|
|
758
|
|
Depreciation
and Amortization:
|
|
|
10,815
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
(Increase)
in Accounts Receivable
|
|
|
(17,584
|
)
|
Decrease
in Inventories
|
|
|
16,865
|
|
(Increase)
in Prepaid Expense
|
|
|
(18,073
|
)
|
Increase
in Accounts Payable
|
|
|
31,994
|
|
Increase
in Deferred Income
|
|
|
2,150
|
|
|
|
|
|
|
Net
Cash (Used) by Operating Activities
|
|
|
(107,904
|
)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
Capital
Expenditures
|
|
|
(11,684
|
)
|
|
|
|
|
|
Net
Cash (Used) by Investing Activities
|
|
|
(11,684
|
)
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
Net
Proceeds from Loans Payable - Related Party
|
|
|
131,375
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
131,375
|
|
|
|
|
|
|
Effect
of Exchange Rate Changes on Cash
|
|
|
|
)
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents
|
|
|
10,836
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
|
17,084
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
|
27,920
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
$
|
|
|
Income
Taxes Paid
|
|
$
|
414
|
|
The
accompanying notes are an integral part of these financial
statements.
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
Description
of Business and Basis of Presentation
Organization
The
Company was originally incorporated on March 22, 2005 under the laws of the
State of New Hampshire as Pay88, Ltd. On July 7, 2005, Pay88, Inc., a Nevada
corporation, was formed. Subsequently, the New Hampshire corporation was
merged
with and into the Nevada corporation. 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 therefore, Pay88 agreed to issue to the Qianbao Shareholders
an
aggregate of 5,000,000 shares of Pay88 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.
The
5,000,000 shares of Pay88 Series A Preferred Stock is 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 combination of the two companies is recorded as a
recapitalization of Qianbao pursuant to which Qianbao is treated as the
continuing entity although Pay88 is the legal acquirer.
Qianbao
was incorporated on April 24, 2006 in Chongqing, China. Qianbao is currently
primarily engaged in the sale of prepaid online video game cards and prepaid
telephone cards that allow the user to play online video games for designated
allotted times. Qianbao also
intends to build a
web
distribution platform to provide effective services for connecting diversified
service providers and consumer product suppliers to retailers and consumers
in
the Chinese market.
Pay88,
Inc. and Chongqing Qianbao Technology Ltd. are hereafter collectively referred
to as “the Company”.
Condensed
Financial Statements
In
the
opinion of the Company’s management, the accompanying unaudited condensed
consolidated 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.
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1
- Basis
of Presentation (Continued)
Consolidation
The
accompanying unaudited condensed consolidated financial statements included
the
accounts of Pay88 (Parent) and its wholly owned subsidiary (“Qianbao”). All
significant intercompany transactions have been eliminated in
consolidation.
Going
Concern
The
Company incurred a net loss of $134,829 for the quarter ended March 31, 2007.
In
addition, the Company had a working capital deficiency of $276,667 at March
31,
2007. 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.
During
the quarter ended March 31, 2007, the Company received net loans totaling
$131,375 from its officers.
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 is attempting to expand its game card and phone card sales and provide
additional internet services. There can be no assurances that the Company
will
be able to raise the additional funds it requires and/or achieve its business
goals.
The
accompanying condensed consolidated 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 -
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs amounted to $2,576 for
the
period ended March 31, 2007.
NOTE
3
- Net
Loss Per Common Share
Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding during the period. The common stock issued and
outstanding with respect to the pre-merger Pay88 stockholders has been included
since April 24, 2006.
Diluted
loss per share is computed similarly to basic loss per share except that
it
includes the potential dilution that could occur if dilutive securities were
converted. Accordingly, dilutive loss per share includes the conversion of
5,000,000 shares of Pay88 Series A Convertible Preferred Stock into 14,000,000
shares of Pay88 common stock.
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 -
Property
and Equipment
Property
and equipment is summarized as follows:
|
|
|
|
Estimated
Useful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Units and Improvements
|
|
$
|
397,530
|
|
|
31
Years
|
|
Furniture
and Fixtures
|
|
|
7,829
|
|
|
5
Years
|
|
Office
Equipment
|
|
|
85,707
|
|
|
3
Years
|
|
Software
|
|
|
22,876
|
|
|
3
Years
|
|
Automobile
|
|
|
6,408
|
|
|
5
Years
|
|
520,350
|
|
|
|
|
|
|
|
Less:
Accumulated Depreciation
|
|
|
26,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $10,815 for the period ended March 31, 2007.
The
Company purchased three units of office space in July 2006 in Chongqing China.
In the People’s Republic of China, land is owned by the State. The right for the
Company to use the land expires in 2037 and may be extended at that
time.
NOTE
5
- Loans
Payable - Related Parties
Loans
payable to Company’s Chief Executive Officer,
|
|
|
|
|
bearing
interest at 5% per annum and payable on demand
|
|
$
|
125,626
|
|
|
|
|
|
|
Loans
payable to the Company’s Chief Operating Officer,
|
|
|
|
|
bearing
interest at 2% per annum and payable on demand
|
|
|
293,570
|
|
|
|
|
|
|
|
|
$
|
419,196
|
|
NOTE
6
- Note
Payable - Related Party
Note
payable to the Company’s Chief Executive Officer in the amount of $80,385 bears
interest at 5% per annum and is payable on August 31, 2008.
Maturities
of this long-term debt are as follows:
During
the Year Ending
|
|
|
|
December
31,
|
|
|
|
2007
|
|
$
|
-
|
|
2008
|
|
|
80,385
|
|
|
|
|
|
|
|
|
$
|
80,385
|
|
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7
- Commitments
and Contingencies
Yahu
Agreement
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. As a result of the Share Purchase Agreement (see Note 1)
Yahu
owns 4,950,000 shares of Pay88 Series A Preferred Stock, representing
approximately 53% voting control. 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. Although this
agreement is in force, it has been dormant and we presently have no intention
to
engage in the money transfer business.
Lack
of Insurance
The
Company currently has no insurance in force for its office facilities and
operations and it cannot be certain that it can cover the risks associated
with
such lack of insurance or that it will be able to obtain and/or maintain
insurance to cover these risks at economically feasible premiums.
Employment
Agreements
Effective
February 1, 2007, the Company entered into an Employment Agreement with Mr.
Guo
Fan (“Guo’s Agreement”), which memorialized the employment of Mr. Guo Fan on a
full time basis as its Chairman, President and Chief Executive Officer. Pursuant
to Guo’s Agreement, Mr. Guo Fan will receive an annual salary of $100,000 during
the five-year term commencing on February 1, 2007. Guo’s Agreement also provides
that if Mr. Guo Fan’s employment is terminated without cause at any time within
the five year term, the Company shall pay Mr. Guo Fan his salary through
January
31, 2012.
Effective
February 1, 2007, the Company entered into an Employment Agreement with Mr.
Tao
Fan (“Tao’s Agreement”), pursuant to which Mr. Tao Fan was employed as the Chief
Operating Officer of the Company. Pursuant to Tao’s Agreement, Mr. Tao Fan will
receive an annual salary of $50,000 during the five-year term commencing
on
February 1, 2007. Tao’s Agreement also provides that if Mr. Tao Fan’s employment
is terminated without cause at any time within the five year term, the Company
shall pay Mr. Tao Fan his salary through January 31, 2012.
Both
agreements provide for reimbursement of business expenses, directors’ and
officers’ insurance coverage and other additional benefits including but not
limited to pension or profit sharing plans and insurance. The Company also
agrees to defend the Executives from and against any and all lawsuits initiated
against the Company and/or the Executives.
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8
- Stockholders’
Equity
At
inception, Qianbao was formed with two stockholders, Yahu (99%) and an
individual (1%). The initial capitalization was $362,790 of which Yahu
contributed $350,280 and the individual contributed $12,510. Subsequently,
there
was an additional capital contribution of $358,705 of which Yahu contributed
$358,420 and the individual contributed $285.
Pursuant
to the Share Purchase Agreement (see Note 1), on September 5, 2006 5,000,000
shares of Pay88 Series A Convertible Preferred Stock was issued to the
stockholders of Qianbao in exchange for 100% of the registered capital shares
of
Qianbao. The 5,000,000 shares of Pay88 Series A Preferred Stock is 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.
The
Company’s Board of Directors may, without further action by the Company’s
stockholders, from time to time, direct the issuance of any authorized but
unissued or unreserved shares of preferred stock in series and at the time
of
issuance, determine the rights, preferences and limitations of each series.
The
holders of preferred stock may be entitled to receive a preference payment
in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of the common stock. Furthermore, the
board
of directors could issue preferred stock with voting and other rights that
could
adversely affect the voting power of the holders of the common
stock.
NOTE
9
- Related
Party Transactions
Rent
The
Company rents office space in New Hampshire owned by an officer of the Company
for $200 per month on a month to month basis. Rent expense amounted to $600
for
the quarter ended March 31, 2007.
Accounts
Payable
Included
in accounts payable at March 31, 2007 is accrued interest payable amounting
to
$13,898 on a note and loans payable (see Notes 4 and 5) to two officers and
significant stockholders and rent payable to an officer amounting to
$4,600.
Relationships
On
February 1, 2007, the board of directors of the Company appointed Mr. Tao
Fan as
the Chief Operating Officer of the Company. Mr. Tao Fan is the Chief Executive
Officer and Chairman of the Board of Directors of Qianbao, our wholly-owned
subsidiary. Mr. Tao Fan is also the Chief Executive Officer of Yahu, a principal
shareholder of the Company. Mr. Tao Fan is the brother of Mr. Guo Fan, the
Chief
Executive Officer of the Company.
PAY88,
INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 -
Concentration
of Credit Risk
The
Company maintains cash balances in various banks in China. Currently, no
deposit
insurance system has been set up in China. Therefore, the Company will bear
a
risk if any of these banks become insolvent. As of March 31, 2007, the Company’s
uninsured cash balance was $27,920.
Item
2. Management’s
Discussion and Analysis or Plan of Operations.
As
used
in this Form 10-QSB, references to “Pay88”, the "Company," "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
On
September 5, 2006, we acquired our wholly-owned subsidiary, Chongqing Qianbao
Technology Ltd. (“Qianbao”), a limited liability company organized on April 24,
2006 under the laws of the People's Republic of China. Such acquisition was
consummated pursuant to a Share Purchase Agreement, dated as September 5, 2006,
among Pay88, Qianbao, and Qianbao’s two shareholders, Ying Bao and Chongqing
Yahu Information Development Co., Ltd. Pursuant to such Share Purchase
Agreement, Pay88 acquired Qianbao by purchasing from Qianbao’s shareholders all
of their respective shares of Qianbao’s registered capital stock, which
represented 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 Chongqing Yahu Information Development Co., Ltd.
and 50,000 shares to Ying Bao. Mr. Tao Fan, a brother of Mr. Guo Fan, a director
and officer of Pay88, is the Chief Executive Officer of Chongqing Yahu
Information Development Co., Ltd. and owns 5% of its issued shares of capital
stock.
Through
Qianbao, we are currently engaged in the sale of prepaid telephone and game
cards through its internet website, http://www.iamseller.com. Prepaid
game cards allow the holder thereof to play online video games for the
designated allotted time. Prepaid telephone cards allow the holder thereof
to
make telephone calls for the designated allotted time. Such products are sold
to
consumers or retailers visiting such website. We also hope to add for sale
on
such website 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
does not manufacture any of the products offered for sale on its website.
Qianbao purchases such products from third-party suppliers and thereafter
resells them on Qianbao’s website. A small portion of Qianbao's revenues is
derived from commissions earned by Qianbao in connection with the sales of
certain products of third-party suppliers sold on Qianbao's website. Such
commission is a percentage of the revenues generated from such sales. The
specific amount of such percentage is negotiated between Qianbao and each such
supplier, but generally ranges from 1% to5 %.
Although
Qianbao is a subsidiary of Pay88, the acquisition of Qianbao by Pay88 that
was
consummated on September 5, 2006 has been treated for financial reporting
purposes as a reverse merger. This means that Qianbao is the continuing entity
for financial reporting purposes.
Plan
of Operation
Through
our subsidiary, Qianbao, we will focus on developing its website,
www.iamseller.com, increase sales on such website, and build other internet
websites on which Qianbao will operate a distribution platform through which
we
will be able to offer products for sale to consumers or retailers visiting
such
websites. Qianbao will continue 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. However,
there is no assurance that we will be successful at marketing and selling these
products, developing the distribution platform and any other of our
objectives.
During
the quarter ended March 31, 2007 gross revenue was $1,102,781, the cost of
sales
was $1,087,374, and the gross profit was $15,407. If we continue to realize
gross margins similar to our historical amounts, we will continue to have cash
flow problems. The revenues were derived from online product sales of prepaid
game and telephone cards. We did not have any revenues during the quarter ended
March 31, 2006.
Total
operating expenses were $145,820. We had a loss from operations in the amount
of
$130,413. The net loss during such period was $134,829.
The
Company has funded its cash needs since inception with revenues generated from
operations, related-party loans, and funds available from the initial and
subsequent capitalizations of Qianbao. During the quarter ended March 31, 2007,
the Company borrowed approximately $131,000 from its officers. As of March
31,
2007, our Company had $27,920 in cash on a consolidated basis. We believe that
such funds will not be sufficient to effectuate our plans with respect to the
business of Qianbao over the next twelve months. There can be no assurance
that
we will generate sufficient cash flows to fund operations. We have no lines
of
credit or other financing arrangements as of March 31, 2007. Accordingly, we
may
have to continue to rely on borrowings from our officers as we have done
historically. Since any earnings, if realized, are anticipated to be reinvested
in operations, cash dividends are not expected to be paid in the foreseeable
future.
If
Qianbao's internet distribution platform is developed, we will need to 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 anticipated money transfer business. When and if we decide to resume
our
plans with respect to our money transfer business, we expect to incur a minimum
of $250,000 in expenses in order to effectuate such plans. 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.
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.
We
have
no current plans for the purchase or sale of any significant amounts of plant
or
equipment.
We
have
no current plans to make any significant changes in the number of employees.
Lack
of Insurance
The
Company currently has no insurance in force for its office facilities and
operations and it cannot be certain that it can cover the risks associated
with
such lack of insurance or that it will be able to obtain and/or maintain
insurance to cover these risks at economically feasible premiums.
Going
Concern
The
Company incurred a net loss of $134,829 for the quarter ended March 31, 2007.
In
addition, the Company had a working capital deficiency of $276,667 at March
31,
2007. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
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.
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.
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 March 31, 2007.
Item
5. Other
Information.
None.
Item
6. Exhibits
Exhibit
No.
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Description
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31.1
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Rule
13a-14(a)/15d14(a) Certifications Attached Hereto
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32.1
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Section
1350 Certifications Attached Hereto
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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:
May 14, 2007
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PAY88,
INC.
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By: |
/s/
Guo
Fan |
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Name:
Guo
Fan
Title:
President,
Chief Executive
Officer,
and Director (Principal
Executive,
Financial, and Accounting
Officer)
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