Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b - 2 of the Exchange Act) Yes oNo þ
Commission File Number: 0-26573
SMARTPAY EXPRESS, INC .
(Exact name of Registrant as specified in its charter)
Nevada |
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20-1204606 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
5th Floor, Chigo Sales Center
Fenggang Road, Lishui Town, Nanhai
Guangdong Province, The People's Republic of China
(Address of principal executive offices)
(011) (852) 6873-0043
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. (1) Yes þNo o(2)
Yes þNo o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer o
Smaller Reporting Company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 1,292,166 shares outstanding as of September 30, 2009.
SMARTPAY EXPRESS, INC.
Form 10-Q for the period ended September 30, 2009
TABLE OF CONENTS
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ITEM 1 - FINANCIAL STATEMENTS |
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Unaudited Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2009 and 2008 |
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3 |
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Unaudited Condensed Consolidated Balance Sheet as of September 30, 2009 and Audited Condensed Consolidated Balance Sheet as of December 31, 2008 |
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4 |
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Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2009 and 2008 |
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5 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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6 - 13 |
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |
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14 -19 |
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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20 |
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ITEM 4 (A) - CONTROLS AND PROCEDURES |
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20 |
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ITEM 4 (A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING |
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20 |
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ITEM 1 - LEGAL PROCEEDINGS |
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21 |
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ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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21 |
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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES |
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21 |
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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21 |
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ITEM 5 - OTHER INFORMATION |
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21 |
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ITEM 6 - EXHIBITS |
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21 |
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SIGNATURES |
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22 |
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended
September 30, |
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Nine months ended
September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Note |
US$ |
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US$ |
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US$ |
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US$ |
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Continuing operations |
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Operating revenues |
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Service income |
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441,907 |
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77,157 |
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668,691 |
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425,877 |
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Sale of mobile phones |
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- |
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- |
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929,785 |
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- |
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Operating expenses |
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Subcontracting and other charges |
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(92,310 |
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(20,932 |
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(176,093 |
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(173,168 |
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Purchase of mobile phones |
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- |
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- |
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(891,180 |
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- |
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Staff costs |
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(19,554 |
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(69,170 |
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(171,932 |
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(192,749 |
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Depreciation of property, plant and equipment |
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(3,530 |
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(2,954 |
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(10,550 |
) |
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(8,665 |
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Amortization of intangible assets |
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(51,359 |
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(47,841 |
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(154,076 |
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(143,523 |
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Other general and administrative expenses |
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(89,831 |
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(175,885 |
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(531,124 |
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(474,233 |
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Profit (Loss) from operations |
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185,323 |
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(239,625 |
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(336,479 |
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(566,461 |
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Non-operating income (expenses) |
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Interest income |
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- |
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1,314 |
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1,876 |
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2,080 |
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Subsidy income |
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- |
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- |
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- |
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27,671 |
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Other income |
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- |
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533 |
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- |
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918 |
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Gain on disposal of partial interest in a subsidiary |
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- |
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- |
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- |
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259,837 |
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Gain on disposal of interest in a subsidiary |
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- |
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658 |
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- |
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658 |
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Amortization of loans from a related party |
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- |
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(13,282 |
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(16,469 |
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(58,614 |
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Loss on partial settlement of loans from a related party |
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- |
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(5,854 |
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- |
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(30,571 |
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Interest expenses |
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5(b)(iv) |
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(23,065 |
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- |
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(39,805 |
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- |
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Compensation payment |
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5(b)(iv) |
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- |
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- |
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(18,118 |
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- |
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Loss on early termination of loans from a related party |
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5(b)(iv) |
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- |
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- |
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(25,974 |
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- |
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Income (Loss) before income tax |
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162,258 |
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(256,256 |
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(434,969 |
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(364,482 |
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Income tax |
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3 |
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- |
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- |
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- |
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- |
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Income (Loss) from continuing operations |
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162,258 |
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(256,256 |
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(434,969 |
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(364,482 |
) |
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Discontinued operations |
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Loss from discontinued operations |
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4(a) |
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(7,485 |
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(12,801 |
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(53,571 |
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(73,685 |
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Net income (loss) including noncontrolling interests |
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154,773 |
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(269,057 |
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(488,540 |
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(438,167 |
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Less: net loss from continuing operations attributable to noncontrolling interests |
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5,522 |
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17,187 |
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35,424 |
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45,721 |
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Less: net loss from discontinued operations attributable to noncontrolling interests |
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3,668 |
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6,273 |
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26,250 |
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36,106 |
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Net income (loss) attributable to SPYE common stockholders |
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163,963 |
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(245,597 |
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(426,866 |
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(356,340 |
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Other comprehensive income |
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- Foreign currency translation |
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- |
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(19,562 |
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15,669 |
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95,331 |
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Total comprehensive income (loss) |
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163,963 |
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(265,159 |
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(411,197 |
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(261,009 |
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SMARTPAY EXPRESS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended
September 30, |
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Nine months ended
September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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US$ |
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US$ |
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US$ |
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US$ |
Basic earnings (loss) per share |
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Earnings (Loss) per share from continuing operations |
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12.98 cents |
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(22.03) cents |
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(30.92) cents |
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(30.69) cents |
Loss per share from discontinued operations |
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(0.30) cents |
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(0.60) cents |
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(2.11) cents |
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(3.62) cents |
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12.68 cents |
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(22.63) cents |
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(33.03) cents |
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(34.31) cents |
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Weighted average number of shares of common stock outstanding (Note) |
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1,292,166 |
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1,085,079 |
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1,292,166 |
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1,038,713 |
Note : |
On October 16, 2008, the sole director and the holders of a majority of the common shares of SmartPay approved a one-for-fifty reverse stock split of common stock of SmartPay. The weighted average number of shares of common stock outstanding for the three-month and nine-month periods ended September 30, 2008 have been adjusted retrospectively for the effect of the reverse stock split for the purpose of calculation
of earnings (loss) per share. |
The financial statements should be read in conjunction with the accompanying notes.
CONDENSED CONSOLIDATED BALANCE SHEETS
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As of |
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September 30, 2009 |
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December 31, 2008 |
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ASSETS |
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Note |
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US$ |
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US$ |
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(Unaudited) |
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Current assets |
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Trade receivables from third parties |
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146,351 |
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27,261 |
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Trade receivable from a related party |
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5(b)(i) |
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5,821 |
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24,148 |
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Prepayments and deposits |
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157,477 |
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230,106 |
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Other debtors |
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107,821 |
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293,216 |
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Amounts due from related parties |
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5(b)(ii) |
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29,412 |
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94,204 |
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Income tax recoverable |
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- |
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3,774 |
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Inventories |
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54,596 |
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33,207 |
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Cash and cash equivalents |
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53,876 |
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245,685 |
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Bank deposits, collateralized |
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6 |
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120,939 |
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130,435 |
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Assets held for sale |
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4(b) |
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369,306 |
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- |
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Total current assets |
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1,045,599 |
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1,082,036 |
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Property, plant and equipment, net |
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55,656 |
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87,732 |
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Intangible assets, net |
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1,374,009 |
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1,729,450 |
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Interest in an associate |
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- |
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18,751 |
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Total assets |
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2,475,264 |
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|
2,917,969 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Trade payables |
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|
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|
117,974 |
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|
40,718 |
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Accrued charges and other payables |
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|
|
|
463,180 |
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|
525,502 |
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Amounts due to related parties |
|
5(b)(iii) |
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|
19,458 |
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|
19,177 |
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Temporary receipts |
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|
15,146 |
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|
94,345 |
|
Loans from a related party |
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5(b)(iv) |
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|
- |
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|
655,274 |
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Short-term bank loan |
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6 |
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125,000 |
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|
123,188 |
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Interest payable to a related party |
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5(b)(v) |
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|
35,368 |
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|
|
- |
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Current liabilities held for sale |
|
4(b) |
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|
656 |
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|
|
- |
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|
|
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|
|
|
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|
Total current liabilities |
|
|
|
|
776,782 |
|
|
|
1,458,204 |
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|
|
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|
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|
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|
Long-term loans from a related party |
|
5(b)(iv) |
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|
707,353 |
|
|
|
- |
|
|
|
|
|
|
|
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|
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Commitments and contingencies |
|
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Stockholders' equity |
|
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|
|
|
|
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|
Preferred stock, par value US$0.001 per share; authorized 5,000,000 shares; none issued and outstanding as of September 30, 2009 and December 31, 2008 |
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|
Common stock, par value US$0.001 per share; authorized 300,000,000 shares; issued and outstanding 1,292,166 shares as of September 30, 2009 and December 31, 2008 |
|
|
|
|
1,292 |
|
|
|
1,292 |
|
Additional paid in capital |
|
|
|
|
2,009,454 |
|
|
|
2,009,454 |
|
Dedicated reserve |
|
|
|
|
319 |
|
|
|
319 |
|
Accumulated losses |
|
|
|
|
(1,324,550 |
) |
|
|
(897,684 |
) |
Accumulated other comprehensive income |
|
|
|
|
74,053 |
|
|
|
58,384 |
|
|
|
|
|
|
|
|
|
|
|
|
Total SPYE stockholders’ equity |
|
|
|
|
760,568 |
|
|
|
1,171,765 |
|
Noncontrolling interests |
|
|
|
|
230,561 |
|
|
|
288,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
|
|
991,129 |
|
|
|
1,459,765 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
|
|
|
2,475,264 |
|
|
|
2,917,969 |
|
The financial statements should be read in conjunction with the accompanying notes.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Nine months ended
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
US$ |
|
|
US$ |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss including noncontrolling interests |
|
|
(488,540 |
) |
|
|
(438,167 |
) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
|
|
11,353 |
|
|
|
9,397 |
|
Amortization of intangible assets |
|
|
162,082 |
|
|
|
165,897 |
|
Interest income |
|
|
(1,901 |
) |
|
|
(2,080 |
) |
Interest expense |
|
|
39,805 |
|
|
|
- |
|
Compensation payment |
|
|
18,118 |
|
|
|
- |
|
Gain on disposal of partial interest in a subsidiary |
|
|
- |
|
|
|
(259,837 |
) |
Gain on disposal of interest in a subsidiary |
|
|
- |
|
|
|
(658 |
) |
Amortization of loans from a related party |
|
|
16,469 |
|
|
|
58,614 |
|
Loss on partial settlement of loans from a related party |
|
|
- |
|
|
|
30,571 |
|
Loss on early termination of loans from a related party |
|
|
25,974 |
|
|
|
- |
|
Share of result of an associate |
|
|
18,767 |
|
|
|
8,511 |
|
Exchange difference |
|
|
1,761 |
|
|
|
10,479 |
|
Changes in working capital: |
|
|
|
|
|
|
|
|
Trade receivables |
|
|
(100,008 |
) |
|
|
(106,266 |
) |
Prepayments and deposits |
|
|
65,229 |
|
|
|
240,776 |
|
Other debtors |
|
|
186,050 |
|
|
|
(229,196 |
) |
Inventories |
|
|
(21,620 |
) |
|
|
(45,764 |
) |
Trade payables |
|
|
76,657 |
|
|
|
7,308 |
|
Accrued charges and other payables |
|
|
(70,611 |
) |
|
|
(163,619 |
) |
Temporary receipts |
|
|
(79,371 |
) |
|
|
(36,333 |
) |
Income tax recoverable/payable |
|
|
3,829 |
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(135,957 |
) |
|
|
(749,943 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Interest income |
|
|
1,901 |
|
|
|
2,080 |
|
Payments for purchase of property, plant and equipment |
|
|
(5,830 |
) |
|
|
(9,268 |
) |
Payments for purchase of intangible assets |
|
|
(29,411 |
) |
|
|
- |
|
Net advances to related parties |
|
|
- |
|
|
|
(32,316 |
) |
Prepayment for a long-term investment |
|
|
- |
|
|
|
(50,725 |
) |
Proceeds on disposal of a subsidiary |
|
|
- |
|
|
|
157,479 |
|
Decrease (Increase) in bank deposits, collateralized |
|
|
11,414 |
|
|
|
(130,435 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(21,926 |
) |
|
|
(63,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments to related parties |
|
|
(14,791 |
) |
|
|
(44,787 |
) |
Interest paid |
|
|
(4,437 |
) |
|
|
- |
|
Compensation payment |
|
|
(18,118 |
) |
|
|
- |
|
Settlement of loans from a related party |
|
|
- |
|
|
|
(326,714 |
) |
Repayment of short-term bank loan |
|
|
(125,000 |
) |
|
|
- |
|
New short-term bank loan raised |
|
|
125,000 |
|
|
|
123,188 |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(37,346 |
) |
|
|
(248,313 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(195,229 |
) |
|
|
(1,061,441 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
245,685 |
|
|
|
1,373,085 |
|
|
|
|
|
|
|
|
|
|
Effect on exchange rate changes |
|
|
3,576 |
|
|
|
78,720 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period,
represented by cash and bank balances |
|
|
54,032 |
|
|
|
390,364 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Held for continuing operations |
|
|
53,876 |
|
|
|
390,364 |
|
Held for sale |
|
|
156 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
54,032 |
|
|
|
390,364 |
|
The financial statements should be read in conjunction with the accompanying notes.
SMARTPAY EXPRESS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
The accompanying financial statements present the financial position of the Company as of September 30, 2009 and December 31, 2008, and its results of operations for the three-month and nine-month periods ended September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008. All inter-company
accounts and transactions have been eliminated on consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the
consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
1. ORGANIZATION
The unaudited condensed consolidated financial statements include the accounts of SmartPay Express, Inc. ("SPYE") (formerly known as Axiom III, Inc. (“AXIO”)) and its subsidiaries (collectively referred to as the “Company”).
On October 10, 2007, AXIO entered into a share exchange agreement with, among others, the shareholders of Eastern Concept Development Limited (“Eastern Concept”) pursuant to which AXIO acquired 100% of the issued and outstanding share capital of Eastern Concept in exchange for 35,351,667 shares of common
stock of AXIO, or 70.7% of the total 50,000,000 issued and outstanding shares of common stock of AXIO after giving effect to the share exchange. On October 18, 2007, AXIO entered into a stock purchase agreement with Northeast Nominee Trust, the then major shareholder of AXIO, to dispose of its 100% interest in Axiom First Corporation, the only asset of AXIO just before the share exchange on October 10, 2007, at a consideration of US$1. Since then, AXIO entirely ceased its prior business operations.
For financial reporting purposes, the acquisition of Eastern Concept by AXIO has been treated as a reverse acquisition whereby Eastern Concept is considered as the acquirer, i.e. the surviving entity. On this basis, the historical financial information prior to October 10, 2007 represents that of Eastern Concept.
SPYE has five subsidiaries: Eastern Concept, Eastern Concept Corporate Consulting (Shenzhen) Limited, Guangdong Wanzhi Electron S&T Company Limited (formerly Foshan Wanzhi Electron S&T Company Limited) (“Wanzhi”), Foshan Information Technology Company Limited (“Foshan Company”) and Foshan
JinCheng Information Technology Company Limited (“JinCheng”). Except for Eastern Concept which is incorporated in Hong Kong, all subsidiaries are established in the People’s Republic of China (the “PRC”).
The Company entered into an agreement with a third party individual on March 28, 2009 to dispose of its entire 51% equity interests in JinCheng (the “Disposal”) at a consideration of approximately US$370,000 (see note 4). Up to the date of this report, the Disposal has not been completed.
The Company is principally engaged in the provision of smartcard system and other value-added services in Guangdong province, the PRC. During the nine-month period ended September 30, 2009, the Company carried out a transaction for sale and purchase of mobile phones with costs and revenue of US$891,180 and US$929,785
respectively. This transaction was introduced by a business partner for provision of smart card services to schools, which is a telecom service provider in the PRC. Although such kind of transactions may continue to occur in the future as a result of the business relationship with the business partner, the Company considers that those transactions are auxiliary to its core business and they would not become the Company’s principal activities.
SMARTPAY EXPRESS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND STANDARDS
Adoption of Recently Issued Accounting Pronouncements
Effective 1 July 2009, the Company adopted FASB Accounting Standards Codification (“ASC”) Topic 105, “the FASB Accounting Standards Codification” (“Codification”) (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168). Codification will become the source
of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority. The adoption of this Statement does not have a material effect on the Company's financial statements. However, because the Codification completely replaces existing standards, it will affect the way US GAAP is referenced within the unaudited condensed consolidated financial statements and accounting policies.
Effective January 1, 2009, the Company adopted ASC Topic 805, “Business Combinations” (formerly SFAS No. 141) which requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling
interests in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. The adoption of this Statement does not have a material effect on the Company's financial statements.
Effective January 1, 2009, the Company adopted ASC Topic 260, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (formerly SFAS No. 141). ASC
Topic 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share. The adoption of this Statement does not have a material effect on the Company's financial statements.
Effective January 1, 2009, the Company adopted ASC Topic 810, “Noncontrolling Interests in Consolidated Financial Statements” (formerly SFAS No. 160). ASC
Topic 810 establishes new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability; that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions,
rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. Consolidated net income should include the net income for both the parent and the noncontrolling interests with disclosure of both amounts on the consolidated statement of operations. ASC Topic 810 also requires that a retained noncontrolling interest upon the deconsolidation of a subsidiary be initially
measured at its fair value. ASC Topic 810 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted, except for the presentation and disclosure requirements which are to be applied retrospectively for all periods presented. As a result, the condensed consolidated balance sheets have been adjusted to reflect the reclassification of noncontrolling interests to equity, the condensed consolidated statements of operations have been adjusted to include the net income attributable
to the noncontrolling interests. Other than the change in presentation of noncontrolling interests, the adoption of this Statement does not have a material effect on the Company's financial statements.
Effective January 1, 2009, the Company adopted ASC Topic 815, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (formerly SFAS No. 161). ASC Topic 815 seeks qualitative
disclosures about the objectives and strategies for using derivatives; quantitative data about the fair value of, and gains and losses on, derivative contracts; and details of credit-risk-related contingent features in hedged positions. ASC Topic 815 also seeks enhanced disclosure around derivative instruments in financial statements, accounted for under ASC Topic 815, “Accounting for Derivative Instruments and Hedging Activities” (formerly
SFAS No. 133), and how hedges affect an entity’s financial position, financial performance and cash flows. The adoption of this Statement does not have a material effect on the Company's financial statements.
Effective April 1, 2009, the Company adopted (i) ASC Topic 320, “Recognition of Presentation of Other-Than-Temporary Impairments” (formerly FASB Staff Positions (“FSP”) FAS No. 115-2 and FAS No. 124-2), (ii) ASC
Topic 825, “Interim Disclosures about Fair Value of Financial Instruments” (formerly FSP FAS No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1), and (iii) ASC Topic 820, “Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (formerly FSP FAS No. 157-4).
SMARTPAY EXPRESS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND STANDARDS
Adoption of Recently Issued Accounting Standards (Continued)
ASC Topic 320 amends the other-than-temporary impairment guidance in the GAAP for debt securities to modify the requirement for recognizing other-than-temporary impairments, change the existing impairment model, and modify the presentation and frequency of related disclosures. ASC Topic 825 requires disclosures about
fair value of financial instruments for interim reporting periods as well as in annual financial statements. ASC Topic 820 provides additional guidance for estimating fair value in accordance with ASC Topic 820, “Fair Value Measurements” (formerly SFAS No. 157). The adoption of these Statements does not have a material effect on the Company's financial statements.
Effective April 1, 2009, the Company adopted ASC Topic 855, “Subsequent Events” (formerly SFAS No. 165), which establishes standards of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, i.e., whether that date represents the date the financial statements were issued or were available to be issued. The adoption of this Statement does not have a material effect on the Company's financial statements.
In June 2009, the FASB issued the following new accounting standards:
- |
SFAS No. 166, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends the de-recognition accounting and disclosure guidance relating to SFAS 140. SFAS 166 eliminates the
exemption from consolidation for qualifying special-purpose entity “(QSPE”), it also requires a transferor to evaluate all existing QSPE to determine whether it must be consolidated in accordance with SFAS 167. |
- |
SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which amends FASB Interpretation No. 46 (revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also
replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 provides more timely and useful information about an enterprise’s involvement with a variable interest
entity. |
In August 2009, the FASB issued ASC Topic 820, “Measuring Liabilities at Fair Value”, with respect to the fair value measurement of liabilities. ASC Topic 820 provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: (1) the quoted price of the identical liability when traded as an asset, (2) the quoted prices for similar liabilities or similar liabilities when traded as assets, and (3) another valuation technique (e.g., a market approach or income approach) including a technique based on the amount an entity would pay to transfer the identical
liability, or a technique based on the amount an entity would receive to enter into an identical liability.
SFAS 166 and SFAS 167 will be effective for periods beginning after November 15, 2009 and ASC Topic 820 will be effective for periods beginning after October 1, 2009 with early adoption permitted. The Company has not elected to early adopt these standards and is evaluating the impact that these standards will have
on the consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
3. TAXATION
Entities that carry on business and derive income in Hong Kong are subject to Hong Kong profits tax at the rate of 16.5%. Entities that carry on business and derive income in the PRC are subject to PRC enterprise income tax at the rate of 25%.
No provision for Hong Kong profits tax and PRC enterprise income tax has been made as the subsidiaries in Hong Kong and the PRC either incurred losses for taxation purpose during the three-month and nine-month periods ended September 30, 2009 and 2008 or their estimated assessable profits were wholly absorbed by unrelieved
tax losses brought forward from previous periods.
4. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
As mentioned in note 1 to the financial statements, the Company entered into an agreement with a third party individual on March 28, 2009 to dispose of its entire 51% equity interests in JinCheng at a consideration of approximately US$370,000. The Disposal is expected to be completed within one year. The Company concluded
that the Disposal met the definition of a discontinued operation as defined in ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets (formerly SFAS No. 144). Accordingly, the results of operations of these businesses have been reclassified for all periods presented.
(a) Discontinued operations
The results of the discontinued operations for the three-month and nine-month periods ended September 30, 2009 and 2008 are summarized as follows:
|
|
Three months ended
September 30, |
|
|
Nine months ended
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
US$ |
|
|
US$ |
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income |
|
|
- |
|
|
|
30,395 |
|
|
|
29 |
|
|
|
39,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff costs |
|
|
- |
|
|
|
(22,774 |
) |
|
|
(21,254 |
) |
|
|
(54,808 |
) |
Depreciation of property, plant and equipment |
|
|
(268 |
) |
|
|
(169 |
) |
|
|
(803 |
) |
|
|
(732 |
) |
Amortisation of intangible assets |
|
|
- |
|
|
|
(7,458 |
) |
|
|
(8,006 |
) |
|
|
(22,374 |
) |
Other general and administrative expenses |
|
|
(1,915 |
) |
|
|
(7,476 |
) |
|
|
(4,795 |
) |
|
|
(26,302 |
) |
Interest income and other income |
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
- |
|
Share of results of an associate |
|
|
(5,302 |
) |
|
|
(5,319 |
) |
|
|
(18,767 |
) |
|
|
(8,511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxation |
|
|
(7,485 |
) |
|
|
(12,801 |
) |
|
|
(53,571 |
) |
|
|
(73,685 |
) |
Taxation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
|
(7,485 |
) |
|
|
(12,801 |
) |
|
|
(53,571 |
) |
|
|
(73,685 |
) |
(b) Assets and liabilities held for sale
The Company has also reclassified the major classes of assets and liabilities of JinCheng as held for sale in the Condensed Consolidated Balance Sheet in accordance with ASC Topic 360 as follows:
|
|
As of September 30, 2009 |
|
|
|
US$ |
|
|
|
(Unaudited) |
|
|
|
|
|
Current assets |
|
|
|
Prepayments and deposits |
|
7,585 |
|
Other debtors |
|
|
3,657 |
|
Amount due from an associate |
|
|
80,882 |
|
Inventories |
|
|
720 |
|
Cash and cash equivalents |
|
|
156 |
|
|
|
|
|
|
Total current assets held for sale |
|
|
93,000 |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment, net |
|
|
27,843 |
|
Intangible assets, net |
|
|
248,203 |
|
Interest in an associate |
|
|
260 |
|
|
|
|
|
|
Total non-current assets held for sale |
|
|
276,306 |
|
|
|
|
|
|
Total assets held for sale |
|
|
369,306 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Accrued charges and other payables |
|
|
656 |
|
|
|
|
|
|
Total current liabilities held for sale |
|
|
656 |
|
|
|
|
|
|
Total liabilities held for sale |
|
|
656 |
|
|
|
|
|
|
Net assets held for sale |
|
|
368,650 |
|
Less: Noncontrolling interests |
|
|
(180,639 |
) |
|
|
|
|
|
|
|
|
188,011 |
|
SMARTPAY EXPRESS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
5. RELATED PARTY TRANSACTIONS
In addition to the transactions / information disclosed elsewhere in these financial statements, the Company had the following transactions with related parties.
(a) |
Name and relationship of related parties |
|
|
|
|
|
Name |
Existing relationships with the Company |
|
Li Xing Hao |
A director of Wanzhi and a major stockholder of SPYE |
|
Guangdong Chigo Air Conditioning Company Limited ("Chigo") * |
A company in which Li Xing Hao has control and beneficial interest |
|
Tang Jin Cheng |
A director of JinCheng |
|
Foshan JinCheng Technology Company Limited * |
Minority shareholder of JinCheng |
|
Foshan Shancheng JiaXun Technology Services Centre * |
Minority shareholder of JiaXun |
|
Foshan KaiEr Information Technology Company Limited ("KaiEr") * |
An associate of JinCheng |
* The official names are in Chinese and the English names are translation for reference only.
(b) |
Balances with related parties |
(i) Trade receivable from a related party
|
|
As of |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Chigo |
|
|
5,821 |
|
|
|
24,148 |
|
|
The amount due is unsecured, interest-free and has no fixed repayment term. |
(ii) Amounts due from related parties
|
|
As of |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Tang Jin Cheng |
|
|
14,706 |
|
|
|
14,493 |
|
KaiEr |
|
|
14,706 |
|
|
|
79,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
29,412 |
|
|
|
94,204 |
|
SMARTPAY EXPRESS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Period from January 1, 2009 to September 30, 2009
5. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) |
Balances with related parties (Continued) |
|
As of September 30, 2009 and December 31, 2008, the amounts due are unsecured, interest-free and have no fixed repayment term except for the amount due from Tang Jin Cheng which is interest-bearing at US$99 per month and repayable on October 31, 2009. |
(iii) Amounts due to related parties
|
|
As of |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Chigo |
|
|
3,706 |
|
|
|
3,653 |
|
Li Xing Hao |
|
|
15,752 |
|
|
|
15,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
19,458 |
|
|
|
19,177 |
|
|
The amounts due are unsecured, interest-free and have no fixed repayment term. |
|
|
As of |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
At beginning of period/year |
|
|
655,274 |
|
|
|
883,562 |
|
Exchange realignment |
|
|
9,636 |
|
|
|
51,221 |
|
Amortization |
|
|
16,469 |
|
|
|
70,188 |
|
Loss on early termination |
|
|
25,974 |
|
|
|
- |
|
Repayments |
|
|
- |
|
|
|
(349,697 |
) |
|
|
|
|
|
|
|
|
|
At balance sheet date |
|
|
707,353 |
|
|
|
655,274 |
|
|
The loans from Li Xing Hao as of December 31, 2008 were unsecured, interest-free and repayable in September 2009 (the “Old Loans”). The Old Loans were stated at fair value at inception, calculated using a discount rate of 7.56% per annum, and are subsequently stated at amortized cost. On April 30, 2009, the Old
Loans were early terminated and rearranged to carry a monthly interest of 1% and repayable on April 30, 2011, resulted in a loss of US$25,974. In addition, a compensation payment of US$18,118 was made to Li Xing Hao for interests during the period of the Old Loans. |
(v) Interest payable to a related party
|
|
As of |
|
|
September 30, 2009 |
|
December 31, 2008 |
|
|
US$ |
|
US$ |
|
|
(Unaudited) |
|
|
|
|
|
|
|
Li Xing Hao |
|
35,368 |
|
- |
(c) |
Summary of related party transactions |
|
|
Three months ended
September 30, |
|
|
Nine months ended
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
US$ |
|
|
US$ |
|
|
US$ |
|
|
US$ |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income from Chigo |
|
|
- |
|
|
|
35,003 |
|
|
|
53,762 |
|
|
|
81,502 |
|
Service income from Foshan JinCheng Technology Company Limited |
|
|
- |
|
|
|
31,718 |
|
|
|
- |
|
|
|
40,365 |
|
Interest expenses to Li Xing Hao (note 5 (b)(iv)) |
|
|
18,628 |
|
|
|
- |
|
|
|
35,368 |
|
|
|
- |
|
Compensation payment to Li Xing Hao (note 5 (b)(iv)) |
|
|
- |
|
|
|
- |
|
|
|
18,118 |
|
|
|
- |
|
6. SHORT-TERM BANK LOAN
The bank loan as of December 31, 2008 was collateralized by the Company’s bank deposit of US$130,435, interest-bearing at 6.3% per annum and fully repaid in January 2009. During the nine months ended September 30, 2009, a new bank loan was drawn down, which is collateralized by the Company’s bank deposit
of US$120,939, interest-bearing at 5.84% per annum and repayable in January 2010.
7. SUBSEQUENT EVENTS REVIEW
The Company has evaluated subsequent events up to November 20, 2009 which is the date that these unaudited condensed consolidated financial statements were approved and authorized for issue by the sole director.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements. The reader should understand that several factors govern whether any forward-looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward-looking
statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the company. Although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on actual experience and business development, the company may alter its marketing, capital expenditure plans or other budgets, which may in turn
affect the company's results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the company or any other person that the objectives or plans of the company will be achieved.
OVERVIEW
We were incorporated in the State of Nevada in June 2004 to engage in any lawful undertaking. We were a development stage company indirectly owning one apartment building in Chicopee, Massachusetts until we merged with Eastern Concept Development Limited. Pursuant to a share exchange agreement,
dated October 10, 2007, the shareholders of Eastern Concept Development Limited exchanged all of its share capital for 35,351,667 shares of Common Stock of SPYE, or 70.7% of the total then 50,000,000 issued and outstanding shares of common stock of SPYE after giving effect to the share exchange. Subsequently, on December 18, 2007, we filed and mailed a Definitive Information Statement on Schedule 14C for the adoption of the Company's name of SmartPay Express, Inc. and the increase of our authorized
capital to 300,000,000 shares of common stock, whereby the authorized capital shares of preferred stock remained the same at 5,000,000 shares. On November 21, 2008, we completed the one-for-fifty reverse stock split. As a result of the reverse stock split, the total number of our outstanding shares was reduced from 64,607,460 to 1,292,166.
Through its indirectly wholly-owned subsidiary, Guangdong Wanzhi Electron S&T Co., Ltd. ("Foshan"), SPYE is principally engaged in providing smart card payment systems and related value-added services mainly in the Guangdong Province of the People's Republic of China. We are an operator of All-in-One
Municipal Service Cards ("AIOMS Card"). The AIOMS Card has a built-in microchip containing an electronic purse and other applications which can accurately record the holder's transaction details. Examples of the usages of AIOMS Cards include, but are not limited to, the following: VIP shopping cards, prepaid phone cards, municipal travel cards, student cards, corporate employee cards and lottery sales cards. We have opened a branch in the city of Foshan, in Guangdong Province,
and have signed contracts to open additional branches in other major cities in China. The Company currently has 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.
The following table shows the financial data of the condensed consolidated statements of operations of the Company and its subsidiaries for the three-month and nine-month periods ended September 30, 2009 and 2008. The data should be read in conjunction with the consolidated financial statements of the
Company and related notes thereto.
|
|
|
Three months ended
September 30, |
|
|
Nine months ended
September 30, |
|
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
Note |
US$ |
|
|
US$ |
|
|
US$ |
|
|
US$ |
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service income |
|
|
|
441,907 |
|
|
|
77,157 |
|
|
|
668,691 |
|
|
|
425,877 |
|
Sale of mobile phones |
|
|
|
- |
|
|
|
- |
|
|
|
929,785 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subcontracting and other charges |
|
|
|
(92,310 |
) |
|
|
(20,932 |
) |
|
|
(176,093 |
) |
|
|
(173,168 |
) |
Purchase of mobile phones |
|
|
|
- |
|
|
|
- |
|
|
|
(891,180 |
) |
|
|
- |
|
Staff costs |
|
|
|
(19,554 |
) |
|
|
(69,170 |
) |
|
|
(171,932 |
) |
|
|
(192,749 |
) |
Depreciation of property, plant and equipment |
|
|
|
(3,530 |
) |
|
|
(2,954 |
) |
|
|
(10,550 |
) |
|
|
(8,665 |
) |
Amortization of intangible assets |
|
|
|
(51,359 |
) |
|
|
(47,841 |
) |
|
|
(154,076 |
) |
|
|
(143,523 |
) |
Other general and administrative expenses |
|
|
|
(89,831 |
) |
|
|
(175,885 |
) |
|
|
(531,124 |
) |
|
|
(474,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from operations |
|
|
|
185,323 |
|
|
|
(239,625 |
) |
|
|
(336,479 |
) |
|
|
(566,461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
- |
|
|
|
1,314 |
|
|
|
1,876 |
|
|
|
2,080 |
|
Subsidy income |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27,671 |
|
Other income |
|
|
|
- |
|
|
|
533 |
|
|
|
- |
|
|
|
918 |
|
Gain on disposal of partial interest in a subsidiary |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
259,837 |
|
Gain on disposal of interest in a subsidiary |
|
|
|
- |
|
|
|
658 |
|
|
|
- |
|
|
|
658 |
|
Amortization of loans from a related party |
|
|
|
- |
|
|
|
(13,282 |
) |
|
|
(16,469 |
) |
|
|
(58,614 |
) |
Loss on partial settlement of loans from a related party |
|
|
|
- |
|
|
|
(5,854 |
) |
|
|
- |
|
|
|
(30,571 |
) |
Interest expenses |
|
5(b)(iv) |
|
(23,065 |
) |
|
|
- |
|
|
|
(39,805 |
) |
|
|
- |
|
Compensation payment |
|
5(b)(iv) |
|
- |
|
|
|
- |
|
|
|
(18,118 |
) |
|
|
- |
|
Loss on early termination of loans from a related party |
|
5(b)(iv) |
|
- |
|
|
|
- |
|
|
|
(25,974 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax |
|
|
|
162,258 |
|
|
|
(256,256 |
) |
|
|
(434,969 |
) |
|
|
(364,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax |
|
3 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations |
|
|
|
162,258 |
|
|
|
(256,256 |
) |
|
|
(434,969 |
) |
|
|
(364,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
4(a) |
|
(7,485 |
) |
|
|
(12,801 |
) |
|
|
(53,571 |
) |
|
|
(73,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
|
154,773 |
|
|
|
(269,057 |
) |
|
|
(488,540 |
) |
|
|
(438,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net loss from continuing operations attributable to noncontrolling interests |
|
|
|
5,522 |
|
|
|
17,187 |
|
|
|
35,424 |
|
|
|
45,721 |
|
Less: net loss from discontinued operations attributable to noncontrolling interests |
|
|
|
3,668 |
|
|
|
6,273 |
|
|
|
26,250 |
|
|
|
36,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to SPYE common stockholders |
|
|
|
163,963 |
|
|
|
(245,597 |
) |
|
|
(426,866 |
) |
|
|
(356,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Foreign currency translation |
|
|
|
- |
|
|
|
(19,562 |
) |
|
|
15,669 |
|
|
|
95,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
163,963 |
|
|
|
(265,159 |
) |
|
|
(411,197 |
) |
|
|
(261,009 |
) |
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2008.
OPERATING REVENUES
Since inception in June 2007, the Company has been engaged in the provision of smartcard payment system and related value-added services primarily in Guangdong province, the PRC. The Company generated a total of approximately $441,907 service income as operating revenues for the three-month period ended September
30, 2009, as compared to approximately $77,157 for the three-month period ended September 30, 2008, an increase of 472.74%. Approximately 37% was generated from the Nanhai project and schools smartcard system for the period ended September 30, 2009, as compared to 21% for the period ended September 30, 2008. The increase was due to the change of business model. In the past, the Company collected proceeds from students directly and paid subcontracting and charges to other service providers. Commencing
from last quarter, the telecom service provider collects service fees from the students and pays the Company for its entitlement. At present, there are approximately 21,000 students in Nanhai city and approximately 14,500 students in other cities (5,000 in Maoming, 4,000 in Shangwei, 3,500 in Qingyuan and 2,000 in Shunde) who are using our services. We anticipate that more operating revenues would be generated as we expand our services to more students in these cities and other cities within Guangdong province.
SUBCONTRACTING AND OTHER CHARGES
Subcontracting and other charges increased 341.00% to approximately $92,310 for the period ended September 30, 2009, as compared to approximately $20,932 for the period ended September 30, 2008.
A significant portion of these charges, approximately 80.01% and 36.24% for the periods ended September 30, 2009 and 2008, respectively, was related to the Nanhai project and schools smartcard system. The increase was a result of the increase in operating revenue from the Nanhai project and schools
smartcard system.
STAFF COSTS
The total staff costs for the period ended September 30, 2009 approximated $19,554 as compared to $69,170 for the period ended September 30, 2008, a decrease of 71.73% because the reduction of our headcounts and the termination of customer hotline services that we used to provide for Guangdong Chigo Air Conditioning
Company Limited. Currently, the Company employs 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.
DEPRECIATION EXPENSES
Depreciation expenses for the period ended September 30, 2009 amounted to $3,530, as compared to $2,954 for the period ended September 30, 2008, an increase of 19.50%. These expenses were related to the depreciation charged on office equipment and computers.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization charges of intangible assets for the period ended September 30, 2009 approximated $51,359, as compared to $47,841 for the period ended September 30, 2008, an increase of 7.35%. These amortization charges were resulted from the operating rights of the Nanhai project and the computer software
relating to the Nanhai project. As of September 30, 2009, the carrying value of the operating right of the Nanhai project was approximately $1,068,338 and the carrying value of the intangible asset of the computer software was approximately $276,260.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES
Other general and administrative expenses for the period ended September 30, 2009 were $89,831, as compared to $175,885 for the period ended September 30, 2008, a decrease of 48.93%. The decrease in other general and administrative expenses was mainly due to less consulting and professional fees paid
for in connection with our filing obligations as a reporting company after their contracts expired.
INTEREST INCOME
There would be no interest income for the period ended September 30, 2009, but it had $1,314 for the period ended September 30, 2008. The decrease in interest income was due to less interests received from the bank for two deposits after their expiration dates.
AMORTIZATION OF LOANS FROM A RELATED PARTY
Amortization of loans from a related party for the period ended September 30, 2009 was $Nil, as compared to $13,282 for the period ended September 30, 2008. The decrease was mainly attributable to the decrease in the carrying amount of the loans as a result of partial settlements made during the year ended December
31, 2008 and the rearrangement of loans from a related party on April 30, 2009.
INTEREST EXPENSES
Following the rearrangement of loans from a related party on April 30, 2009, the loans are interest-bearing at 1% per month, resulted in interest expenses of $23,065 during the period ended September 30, 2009 but no such interest was incurred in the corresponding period of last year.
INCOME TAXES
The Company is subject to PRC Enterprise Income Taxes ("EIT") on an entity basis on income arising in and derived from the PRC. The applicable EIT rate is 25% in year 2009 and 2008.
Since the estimated assessable profits of the Company's PRC established subsidiaries were wholly absorbed by unrelieved tax losses brought forward from previous periods for the period ended September 30, 2009, no provision for EIT has been made.
NET INCOME
The Company incurred a net income of $163,963 for the period ended September 30, 2009, as compared to a net loss of $245,597 for the same period in 2008, an increase of 166.76%. The increase in net income was primarily due to increase in service income and decrease in other general and administrative expenses
and staff costs.
DISCONTINUED OPERATIONS OF THE JINCHENG PROJECT
The proposed disposal of JinCheng and the relevant discontinued operations and assets and liabilities held for sales which are separately disclosed in the notes to our financial statements.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2008.
OPERATING REVENUE
The Company generated a total of approximately $668,691 service income as operating revenue for the nine-month period ended September 30, 2009, as compared to approximately $425,877 for the nine-month period ended September 30, 2008, an increase of 57.02%. Approximately 49% was generated from the Nanhai project and
schools smartcard system for the nine-month period ended September 30, 2009, as compared to 64% for the same period ended September 30, 2008. The increase was due to the change of business model. In the past, the Company collected proceeds from students directly and paid subcontracting and other charges to service providers. Commencing from last quarter, the telecom service provider collects service fees from the students and pays the Company for its entitlement. At present,
there are approximately 21,000 students in Nanhai city and approximately 14,500 students in other cities (5,000 in Maoming, 4,000 in Shangwei, 3,500 in Qingyuan and 2,000 in Shunde) who are using our services. We anticipate that more operating revenues would be generated as we expand our services to students in these cities and other cities within Guangdong province.
The Company is principally engaged in the provision of smartcard system and other value-added services in Guangdong province, the PRC. During the nine-month period ended September 30, 2009, the Company carried out a transaction for sale and purchase of mobile phones with costs and revenue of US$891,180 and US$929,785
respectively. This transaction was introduced by a business partner for provision of smart card services to schools, which is a telecom service provider in the PRC. Although such kind of transactions may continue to occur in the future as a result of the business relationship with the business partner, the Company considers that those transactions are auxiliary to its core business and they would not become the Company’s principal activities.
SUBCONTRACTING AND OTHER CHARGES
Subcontracting and other charges increased 1.69% to approximately $176,093 for the nine-month period ended September 30, 2009, as compared to approximately $173,168 for the nine-month period ended September 30, 2008.
A significant portion of these charges, approximately 94.59% and 83.59% for the period ended September 30, 2009 and 2008, respectively, was related to the Nanhai project and schools smartcard system. The increase was a result of the increase in operating revenue from the Nanhai project and schools
smartcard system.
STAFF COSTS
The total staff costs for the nine-month period ended September 30, 2009 approximated $171,932 as compared to $192,749 for the nine-month period ended September 30, 2008, a decrease of 10.80%. Currently, the Company employs 2 card equipment and software development staff members, 13 marketing personnel, 4 finance
personnel, 3 business and customer service personnel.
DEPRECIATION EXPENSES
Depreciation expenses for the nine-month period ended September 30, 2009 amounted to $10,550, as compared to $8,665 for the nine-month period ended September 30, 2008, an increase of 21.75%. These expenses were related to the depreciation charged on office equipment and computers.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization charges of intangible assets for the nine-month period ended September 30, 2009 approximated $154,076, as compared to $143,523 for the nine-month period ended September 30, 2008, an increase of 7.35%. These amortization charges were resulted from the operating rights of the Nanhai project
and the software relating to the Nanhai project. As of September 30, 2009, the carrying value of the operating right of the Nanhai project was approximately $1,068,338 and the carrying value of the intangible asset of the computer software was approximately $276,260.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES
Other general and administrative expenses for the nine-month period ended September 30, 2009 were $531,124, as compared to $474,233 for the nine-month period ended September 30, 2008, an increase of 12.00%. The significant increase in other general and administrative expenses was mainly due to the platform
expansion fee incurred for services in other cities within Guangdong province for the new schools smartcard system.
INTEREST INCOME
Interest income for the nine-month period ended September 30, 2009 was $1,876, as compared to $2,080 for the nine-month period ended September 30, 2008, a decrease of 9.81%. This income was the interest earned on cash in bank deposits. The decrease in interest income was because less interests received from
the bank as a result of decreased bank balances.
AMORTIZATION OF LOANS FROM A RELATED PARTY
Amortization of loans from a related party for the nine-month period ended September 30, 2009 was $16,469, as compared to $58,614 for the nine-month period ended September 30, 2008, a decrease of 71.90%. The decrease was mainly attributable to the decrease in the carrying amount of the loans as a result of partial
settlements made during the year ended December 31, 2008 and the rearrangement of loans from a related party on April 30, 2009.
INTEREST EXPENSES
Following the rearrange of loans from a related party on April 30, 2009, the loans are interest-bearing at 1% per month, resulted in interest expenses of $23,065 during the period ended September 30, 2009 but no such interest was incurred in the corresponding period of last year.
INCOME TAXES
The Company is subject to PRC Enterprise Income Taxes ("EIT") on an entity basis on income arising in and derived from the PRC. The applicable EIT rate is 25% in year 2009 and 2008.
Since the Company's PRC established subsidiaries incurred a loss for the period ended September 30, 2009, no provision for EIT has been made.
NET LOSS
The Company incurred a net loss of $426,866 for the nine-month period ended September 30, 2009, as compared to a net loss of $356,340 for the same nine-month period in 2008, an increase of 19.79%. The increase in net loss was primarily due to increase in consulting and professional fees that were incurred
in connection with our filing obligations as a reporting company, which have negatively impacted our ability to attain profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009, cash and cash equivalents totaled $54,032. This cash position was the result of a combination of net cash used in financing activities in the amount of $37,346, net cash used in operating activities in the amount of $135,957, and net cash used in investing activities of $21,926. The
cash used in financing activities was primarily due to the repayment to a related party and payment for compensation. The net cash used in operating activities was mainly due to the loss incurred during the period. The net cash used in investing activities was mainly represented by the cash used in the purchase of intangible assets.
DISCONTINUED OPERATIONS OF THE JINCHENG PROJECT
The proposed disposal of JinCheng and the relevant discontinued operations and assets and liabilities held for sales which are separately disclosed in the notes to our financial statements.
CRITICAL ACCOUNTING POLICIES
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting Policy," the Company identified the most critical accounting principals upon which its financial status depends. The Company determined that those critical accounting principles are related to the use of estimates,
revenue recognition, income tax and impairment of intangibles and other long-lived assets. The Company presents these accounting policies in the relevant sections in this management's discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain
to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavourable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below
are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we pay a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Valuation of Long-Lived Assets
We review our long-lived assets for impairment, including property, plant and equipment, and identifiable intangibles with definite lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets, we
evaluate the probability that future undiscounted net cash flows will be greater than the carrying amount of our assets. Impairment is measured based on the difference between the carrying amount of our assets and their estimated fair value.
Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific
customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience credit loss rates similar to those we have experienced in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic
conditions such as delinquency rates and financial health of specific customers.
Off-Balance Sheet Arrangements
The Company has not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. The Company has not entered into any derivative contracts that are indexed to the Company's shares and classified as shareholder's equity or that are not reflected in the Company's
financial statements. Furthermore, the Company does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Company does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to the Company or engages in leasing, hedging or research and development services with the Company.
Inflation
The Company believes that inflation has not had a material effect on its operations to date.
Income Taxes
Provision for income and other taxes has been made in accordance with the tax rates and laws in effect in the PRC.
Income tax is computed on the basis of pre-tax income. Deferred taxes are provided using the liability method for all significant temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards.
The tax consequences of those differences are classified as current or non-current based on the classification of the related assets or liabilities in the financial statements.
Revenue Recognition
The Company generally recognizes service revenues when persuasive evidence of an arrangement exists, services are rendered, the fee is fixed or determinable, and collectibility is probable. Service revenues are recognized net of discounts.
In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields. In view of the financing arrangements during the first nine months of 2009, the Company is not currently subject to significant
market risk.
ITEM 4(A) - CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) of the Company have concluded, based on their evaluation as of September 30, 2009, that the design and operation of the Company's "disclosure controls and procedures" (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective to ensure that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.
During the quarter ended September 30, 2009, there were no changes in the internal controls of the Company over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the internal controls of the Company over financial reporting.
ITEM 4(A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING
(a) The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of the
Company's internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Company's internal control over financial reporting was effective as of September 30, 2009.
(b) This quarterly report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
(c) There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
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
None.
ITEM 5 - OTHER INFORMATION
Effective September 1, 2009, Mr. Zheng Wang resigned as the interim Chief Financial Officer of the Company. Mr. Wang resigned as an officer of the Company for personal reasons, and not because of any disagreement with the Company concerning its operations, policies or procedures.
Effective September 4, 2009, Mr. Chunlin Zhang was appointed as Vice President and Chief Financial Officer of the Company.
Mr. Chunlin Zhang, age 38, had been the assistant to the general manager of Foshan Zhong Ge Wei Electrical Co. Ltd from May 2004 to August 2009. He was the officer manager in Nanhai Chigo Electrical Research Center from July 1998 to April 2003. Mr. Zhang graduated from Wuhan University with an associate degree in Financial
Accounting.
ITEM 6 - EXHIBITS
31.1 |
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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31.2 |
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
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32.1 |
Certification of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
Certification of the Company's Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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November 20, 2009 |
Smartpay Express, Inc. |
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By: |
/s/ Ping Tang |
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Ping Tang |
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Chairman and Chief Executive Officer |
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November 20, 2009 |
Smartpay Express, Inc. |
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By: |
/s/ Chunlin Zhang |
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Chunlin Zhang |
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Vice President and Chief Financial Officer |