Edgar Filing: SMARTPAY EXPRESS, INC.

smartpay10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2009

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- 52579

SMARTPAY EXPRESS, INC.

(Exact name of small business issuer as specified in its charter)

Nevada		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)

011-86-757-88781771

(Issuer's telephone number)

(Former name, address and fiscal year, if changed since last report)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $.001 per share

(Title of Class)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No x

Check whether the issuer: (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act of 1934 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

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|

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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer |_| Accelerated filer |_|

Non-accelerated filer |_| Smaller reporting company |X|

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

Issuer's revenues for its most recent fiscal year were $1,996,943

As of June 30, 2009, which was the last business day of the registrant most recent second fiscal quarter, the aggregate market value of the registrant Common Stock held by non-affiliates of the registrant was $73,537.35 based on the closing sale price of $0.15 per share on that date.

As of April 15, 2010, there were outstanding 1,292,166 shares of the issuer's common stock, par value $.001.

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TABLE OF CONTENTS

		Page Number
	Part I

Item

1.	Business	4

2.	Properties	11

3.	Legal Proceedings	11

4.	Submission of Matters to a Vote of Security Holders	11

	Part II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11

6.	Selected Financial Data	13

7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

7A.	Quantitative and Qualitative Disclosures About Market Risk	17

8.	Financial Statements and Supplementary Data	18

9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36

9A.	Controls and Procedures	36

9A(T).	Controls and Procedures – Internal Control Over Financial Reporting	37

9B.	Other Information	37

	Part III

10.	Directors, Executive Officers and Corporate Governance	37

11.	Executive Compensation	39

12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40

13.	Certain Relationships and Related Transactions, and Director Independence	41

14.	Principal Accountant Fees and Services	41

	Part IV

15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	42

	Signature Page	43

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PART I

Item 1 . Business

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-K under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussion under "Description of Business," including the "Risk Factors" described in that section, and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them.

History of Our Company

Description of SmartPay Express’s Business

SmartPay Express, Inc., a Nevada corporation (“SPYE”) was originally incorporated in June 2004 under the name of Axiom III, Inc. (“AXIO”). AXIO was originally incorporated in Massachusetts as Axiom First Corporation on May 22, 2003. Northeast Nominee Trust owned 100% of Axiom First Corporation. AXIO also created a second corporation, Axiom Second Corporation, which was also incorporated in Massachusetts on May 22, 2003. Axiom First Corporation owned, and continues to own, 100% of its subsidiary, Axiom Second Corporation. The next month, on June 12, 2003 Duane Bennett, the Chief Executive Officer and sole Director of AXIO (“Bennett”) deeded to Axiom Second Corporation an apartment building located in Chicopee, Massachusetts. In June 2004, AXIO redomiciled from Massachusetts to Nevada by incorporating Axiom III, Inc. in Nevada, and then by agreement dated June 30, 2004 the Northeast Nominee Trust entered into a share exchange with Axiom III, Inc., in which the Trust exchanged its 100% ownership in Axiom First Corporation for 2,500,000 shares of Axiom III, Inc. Thus, Axiom III, Inc. assumed 100% ownership of Axiom First Corporation and its subsidiary, completing the redomicile to Nevada. On October 18, 2007, AXIO entered into a stock purchase agreement with Northeast Nominee Trust to dispose of a 100% equity interest in Axiom First Corporation, the only asset of AXIO just before the share exchange on October 10, 2007 (See "Description of Eastern Concept Business" below). Since then, AXIO entirely ceased its prior business operations.

AXIO was a development stage company and owned one apartment building in Chicopee, Massachusetts. It had planned to continue in this line of business for the foreseeable future. However, the opportunity arose to consummate a reverse merger with Eastern Concept Development Ltd., a corporation organized and existing under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (“Eastern Concept”), and the sole Director of AXIO deemed this to be in the best interests of shareholders. Eastern Concept’s business will be described in greater detail in the next section below.

In connection with this reverse merger, on or about November 30, 2007, AXIO’s shareholders voted to change its name to SmartPay Express, Inc. and increase its authorized common stock to 300,000,000 shares of $.001 par value. The name change and increase in authorized capital were effective on January 8, 2008 upon filing with the State of Nevada.

SPYE is currently authorized to issue 300,000,000 shares of common stock and 5,000,000 shares of preferred stock. It currently has 1,292,166 shares of common stock, and no shares of preferred stock issued and outstanding.

Description of Eastern Concept’s Business

Pursuant to a Share Exchange Agreement, dated October 10, 2007 (the “Agreement”), between and among AXIO, Bennett, Eastern Concept, Mr. Benny Lee, the sole shareholder of Eastern Concept (“Eastern Concept Shareholder”), Foshan Wanzhi Electron S&T Co., Ltd., a corporation organized under the laws of the People’s Republic of China (“Foshan”),and Jun Chen, the representative of the shareholders of Foshan (“Foshan Shareholders”), the Eastern Concept Shareholder exchanged all of the share capital of Eastern Concept 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. As additional consideration, the Eastern Concept Shareholder agreed to pay $262,500 to the North East Nominee Trust, which is the majority shareholder of AXIO. Bennett is the trustee of the North East Nominee Trust, whose corpus is held for the benefit of his children. The Agreement was attached as exhibit 2.1 to a Form 8-K filed with the Commission on October 24, 2007, and is incorporated by reference herein.

Subsequently, Eastern Concept Corporate Consulting (Shenzhen) Limited, a company organized and existing under the laws of the People’s Republic of China (the "PRC") and a wholly owned subsidiary of Eastern Concept (“Eastern Concept Consulting”), entered into a Share Exchange Agreement, dated November 6, 2007, with the shareholders of Foshan pursuant to which the shareholders of Foshan agreed to exchange 100% of the share capital of Foshan for a purchase price of approximately $1.3 million. The share exchange transaction was consummated on November 9, 2007, and, as a result, Foshan became a wholly owned subsidiary of Eastern Concept Consulting. The Share Exchange Agreement was attached as exhibit 2.2 to a Form 8-K filed with the Commission on November 9, 2007, and is incorporated by reference hereby.

Pursuant to the Agreement, the Eastern Concept Shareholder exchanged 100% of the share capital of Eastern Concept for 35,351,667 shares of common stock of AXIO, thus causing Eastern Concept to become a wholly owned subsidiary of AXIO. Its sole asset was approximately $1.3 million in cash which was to be used to acquire Foshan. A so-called Super 8-K was filed with the Commission within four business days of the closing of this first step share exchange. In the second step, pursuant to a Share Exchange Agreement, a subsidiary of Eastern Concept acquired all of the outstanding share capital of Foshan for a purchase price of $1.3 million. Again, a so-called Super 8-K was filed with the Commission within four days of the closing of the second step acquisition of Foshan.

In addition, pursuant to the terms and conditions of the Agreement:

·	The parties to the Agreement agreed that AXIO shall not consummate a reverse stock split or any similar reclassification or combination of its common stock for a period of one year from October 1, 2007.
·	Bennett and the Northeast Nominee Trust agreed to execute and deliver to Eastern Concept a Leak-Out Agreement which limits the ability of Bennett and the Northeast Nominee Trust to sell any portion of the 1,000,000 share block of AXIO common stock retained by Bennett as part of the transaction for a period of one year from the date thereof in excess of 10,000 shares per day.
·	On the Closing Date, the Registrant paid and satisfied all of its “liabilities” as such term is defined by U.S. GAAP as of the closing.

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As a result of the exchange of a majority of AXIO’s common stock for all of the share capital of Eastern Concept, the Eastern Concept Shareholder and his designee acquired majority control of the outstanding common stock of AXIO and appointed their candidate to the Board of Directors at closing. Bennett continued to serve until the ten day period required by Rule 14f-1 expired, and then he resigned. As a result, Benny Lee was appointed as a Director, Chief Executive Officer, Chief Financial Officer and Secretary of AXIO.

On or about November 30, 2007, AXIO’s shareholders voted to change the Company’s name to SmartPay Express, Inc. (“SPYE”), and this name change became effective on or about January 8, 2008, when the name change documents were filed with the Nevada Secretary of State. SPYE now owns and operates the business of Eastern Concept and its wholly-owned subsidiary, Foshan.

Eastern Concept is a holding company, with audited and pro forma financials presented in the Form 8-K that was filed on October 24, 2007, whose sole purpose was to effect the reverse merger with AXIO and later consummate an acquisition of the share capital of Foshan from its shareholders for approximately $1.3 million. Foshan is principally engaged in providing AIOMS smart card payment systems and related value-added services mainly in the Guangdong Province of the People’s Republic of China. Foshan is a “non-bank” card issuer/operator with support from the municipal government and approval from the People’s Bank of China to collect deposits as prepayment stored in the chip embedded in the cards that it issues.

In October 2007, Foshan Information Technology Company Limited ("Foshan Company") and third parties established two subsidiaries, Foshan JiaXun Information Technology Company Limited (“JiaXun”) and Foshan JinCheng Information Technology Company Limited ("JinCheng"), in the PRC with registered capital of RMB3,000,000 (US$410,959) and RMB4,000,000 (US$547,945), respectively. Foshan Company owns 51% of the registered capital of each of JiaXun and JinCheng. The principal activity of JiaXun is the provision of information system and network services while JinCheng owns an operating right in respect of certain equipment for a smartcard system to be installed in schools located in the ShanCheng District, Foshan, the PRC.

In February 2008, Foshan disposed of a 45% equity interest in Foshan Company at a consideration of US$410,961 (the “Disposal”), which resulted in a gain of US$259,837 which was recorded in the consolidated statements of operations of SPYE. As a result of the Disposal, SPYE holds a 55% equity interest in Foshan Company through Foshan.

In April 2008, JinCheng acquired a 30% equity interest in Foshan KaiEr Information Technology Company Limited (“KaiEr”), a company incorporated in the People’s Republic of China and engaged in the development of technology for networks and computers and business advisory service, at a consideration of US$18,362.

In September 2008, Foshan Company disposed of its entire 51% equity interest in JiaXun at a consideration of US$221,739, which resulted in a gain of US$658 which was recorded in the condensed consolidated statements of operations of SPYE.

In March 2009, Foshan Company entered into an agreement to dispose of its entire 51% equity interest in JinCheng at a consideration of US$365,217. In December 2009, Foshan Company has agreed with the Purchaser to terminate the disposal as the Purchaser was unable to settle consideration as scheduled.

Subsequent to December 31, 2009, Foshan entered into an agreement to acquire an additional 35% equity interest in Foshan Company at a consideration of US$294,118 (the “Acquisition”). As a result of the Acquisition, SPYE holds a 90% equity interest in Foshan Company through Foshan.

The following organizational chart shows the relationship of these entities and their owners as of December 31, 2009:

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Introduction to the Business of Eastern Concept

Eastern Concept was incorporated in Hong Kong with limited liability on June 29, 2007 with 10,000 authorized shares with a par value of HK$1. On incorporation, one share of HK$1 each was issued at par for cash to provide initial working capital for the Company. The Company was capitalized at $1.36 million in cash and cash equivalents for the purpose of making the acquisition of Foshan.

Eastern Concept, through its wholly owned subsidiary, Eastern Concept Consulting, has consummated an agreement to acquire 100% of the share capital of Foshan from the Foshan Shareholders. Eastern Concept is a holding company, with audited and pro forma financials presented in the Form 8-K that was filed on October 24, 2007, whose sole purpose was to effect the reverse merger with AXIO and later acquire the share capital of Foshan from its shareholders for approximately $1.3 million.

Introduction to the Business of Foshan and its Subsidiaries (hereafter "Foshan" refers to Foshan Wanzhi Electron S&T Company Limited and its subsidiaries)

Foshan 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. Foshan is a “non-bank” card issuer/operator with support from the municipal government and approval from the People’s Bank of China to collect deposits as prepayments stored in the chip embedded in the smart card.

Foshan was founded in 2005 by Mr. Li Xinghao, an entrepreneur from Foshan, Guangdong Province in the People’s Republic of China. He is committed to integrated smart card business operations with the AIOMS Card. Foshan’s mission is to provide people with a lifestyle of convenience, applicability and point accumulation loyalty programs. The management team at Foshan is determined to build its operations into one of the leaders in the AIOMS Card market.

Foshan is a successful operator of All-in-One Municipal Service Cards (the 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 AIOMS Card uses include, but are not limited to, the following: VIP shopping cards, prepaid phone cards, municipal travel cards, student security cards, corporate employee cards and lottery sales cards.

Foshan has opened branches in the city of Foshan in Guangdong Province, and has signed a contract to open branches in other major cities in China. It currently has 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.

Since its establishment, Foshan has experienced significant growth in the market. With rising demand for its products and services, Foshan intends to expand its business scope further throughout China.

Detail of Foshan’s Operations

Foshan is principally engaged in providing smart card payment systems and related value-added services through the operation of the AIOMS Card. Each AIOMS card has a built-in microchip containing an Electron S&T purse and other applications which can accurately record the holder’s transactions details. The government issues unique operating licenses of the all-in-one municipal cards for the operator of each major city. Based on the current operating license of the AIOMS card in the city of Foshan, Foshan aims to build a clearance payment and management system for the AIOMS cards as well as to offer value added services including the fixed and mobile information channels.

Foshan generates revenue from merchant discounts offering; prepaid card fees; and interest on stored value of the AIOMS cards. The AIOMS cards consist of 5 major operating areas of products and services, they include:

·	Government services: offer payment services of social security; medical; government reimbursement and transfer for applicable government services;
·	Municipal utilities services: offer payment services of public transportation; library and cultural facilities; and other public services;
·	E-money services: offer petty Electron S&T payment services for expenditures in merchant stores; fast food stores; and other available member merchants;
·	Data providing services: offer database of services and consumption patterns of users for analyzing effective consumer behaviors; offer information distribution services such as SMS; email; website information to targeted users according to businesses and institutions’ preferences.
·	Value-added services: offer specific services such as employee cards which allow internal wage settlement, shopping payment and remote remittance; student cards which stores student academic results as well as government subsidized assistances; and sales agent which includes prepaid phone cards, game cards, and lottery tickets.

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How Much Foshan Sells

Our net sales to unaffiliated customers for the period from January 1, 2009 to December 31, 2009 were approximately $1,686,962. All operating revenues were generated from providing our smart card system and other services to various third parties.

Where Foshan Does Business

Currently, Foshan operates its AIOMS card payment system and related value-added services from its headquarters in Nanhai District, Foshan City, Guangdong Province, the PRC, with population of over 7 million. There are several smart card operators in China and the government intends to designate one operator in each of the major cities. Existing operators include the ones in the cities of Guangzhou; Zhuhai; Shanghai and Beijing.

Where Foshan is Headed

Our strategies for achieving continued success include:

·	Acquire operating licenses for other AIOMS card from the government in other major cities with no current operators, including targeted city of Dongguan;
·	Merge and acquire existing AIOMS card businesses from current operators, including the Guangzhou operator; and
·	Acquire related value-added services businesses so as to provide turnkey services for card users.

Foshan’s sources of revenues

The revenues of our AIOMS Cards operations will come from increased card usage and the development of new types of cards for sale. Additional sources including the following:

·	Commissions from petty payment and settlement for the citizen cards;
·	Monthly maintenance fees from the student cards;
·	Commissions from shopping and transfer services from the employee cards;
·	Commissions from petty payment and settlement for the municipal travel cards;
·	Commissions from consumption activities of the VIP merchant cards; and
·	Income from providing database of consumption patterns to businesses and institutions.

Factors that affect sales volumes for AIOMS cards include:

·	World gross domestic product growth
·	Number of AIOMS card operators acquired and
·	Development of additional value-added services

Factors that affect the prices for AIOMS cards include:

·	World economic environment
·	Relative strength of the Chinese RMB
·	Quality of services provided
·	Abundance of services provided

Analysis of the Markets for Smart Cards and AIOMS Cards

Smart cards, which are intended primarily for electronic payment and identification purposes, are being used in a wide range of fields, particularly the public transportation sector, and have become an important hi-tech means to facilitate the development of urban transportation fee collections and management of municipal infrastructure service sectors. Thanks to superb capabilities in moving object identification and processing of non-contact integrated circuit cards (“IC card”), the all-in-one public transportation card system has become the largest application of non-contact cards. With the continued development of technologies, standards and applications/products, the all-in-one public transportation card system, primarily through the means of non-contact cards, has been thriving in China.

In early 1998, the non-contact IC card based (including magnetic cards) automatic ticket checking system was employed in the number 1 and 2 subway line in Shanghai. This proved to be a successful application of non-contact IC cards in the urban rail transportation sector. In the same year, the LEGIC non-contact IC traffic system was deployed in Shenzhen and resulted in similar successes.

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In view of the characteristics of the municipal traffic management systems in China and the applications of non-contact IC cards, the Chinese government has made great efforts to integrate resources for public transportation infrastructure development, construction, operation and management sectors. As a matter of fact, the real purpose of municipal all-in-one cards is to allow reasonable allocation and integration of the valuable resources in the public transportation management and operation sectors, and to keep the public transportation IC card payment system under the macro-control of the government. While trying to do more with less, it is seeking to allow citizens (i.e., the end users) to share the benefits of the all-in-one card system with the lowest possible cost. The deployment of all-in-one card systems can also comprehensively improve the management and service standards of the public transportation sector.

So far, all-in-one municipal transportation card systems, also known as AIOMS cards, have been deployed or are being deployed in a number of major cities, including Shanghai, Beijing, Guangzhou, Shenzhen, Dalian, Wuhan, Nanjing, Tianjin, Shenyang and Foshan. There are also many smaller cities that are planning to deploy or have deployed the AIOMS Card. Notably, with approximately 6 million cards issued and with coverage across all public transportation, subway, taxi and ferry sectors, the AIOMS Card in Shanghai represents the most significant application of this technology in China’s cities.

One well regarded system is the Octopus system operating in Hong Kong, which has proven to be a very successful case for the application, operation and management of AIOMS card systems. In Hong Kong, 13 million cards have been issued, totaling an annual transaction volume of HKD 25 billion. The system is extensively used for payment of fares and petty expenses in the urban railway and public transportation sectors. The Octopus system is today the primary payment means of Hong Kong citizens for public transportation services. At the same time, the extensive use of pre-paid cards (over 70% in the urban rail traffic sector) has greatly reduced the use of one-way tickets, substantially saving operation and management costs for the system.

Worldwide, all-in-one municipal transportation card systems have been deployed in Singapore, London, Rome, Seoul/Pusan, Tokyo and a number of other cities. Particularly in Singapore and Seoul/Pusan, the all-in-one municipal transportation card system is being used on extremely large scales. The Octopus system and other successful AIOMS Card systems around the world all share many similarities, including: 1) they all started in the urban rail transportation sector and later expanded into the public transportation system; 2) they all attached significant importance to the settlement system, card issuance, pre-payment deposit system and, particularly, the service functions of the all-in-one card systems; and 3) they have been able to achieve an overall balance of economic and social benefits for owners and operators of the systems through market-oriented measures.

Competition

The competition of the all-in-one municipal card industry in China is mainly derived from the ability of acquiring operation licenses and attracting of clients of value-added services. Currently in the Chinese market, the management believes that there is no other company implementing a similar AIOMS Card operation model as that of Foshan. However, a number of larger players are beginning to experiment in the sector, and competitors are thus emerging, including:

1) AIOMS Card operator -- Yangchengtong

Yangchengtong in Guangzhou is engaged in the all-in-one public transportation card business and its most distinct advantage is its large user base. However, it has notable vulnerabilities due to limitation of historical corporate infrastructure, which results in an inability to transform its citizen cards into inscribed cards for intra-industry operation. The company has experienced weak performance in the past and is unable to make a desirable profit.

2) Jiaxiaotong operators

While electronic payment is stymied by a number of challenges in the municipal service sector that is dominated by “all-in-one public transportation cards,” the “all-in-one education card”-dominated education payment sector is on the fast track, due mainly to the support of government policies and market demands. There are a large number of such operators nationwide. Most of these operators are derived from companies formerly engaged in developing the IT structure of the education sector, and they maintain their advantages in terms of experience in the education industry. However, with a vision limited to their existing industry, they have not been able to obtain AIOMS Card operation licenses, not to mention crossing over the threshold of the overall capability needed for the operation of the AIOMS Card. Currently, most of these operators are still making losses or are barely profitable. In view of their scales and resources, no integrated operator with a similar communication, financial and payment operation to that of Foshan is in the market or is expected to emerge in the near future. This situation provides Foshan with abundant user resources and valuable market opportunities.

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3) Industry leaders

With the expansion of the “all-in-one education card” in the municipal service card sector, many industry leaders are incorporating the service into their core business through cooperation programs. The service development experienced by Foshan shows that China Mobile, China Telecom and China Unicom have approved “all-in-one education card" operators as the key content providers for their SMS services. In the meantime, mainstream operators in both the telecom and the cable broadband industries have accepted the “all-in-one education card” as their key content provider partners. Industrial and Commercial Bank of China and Bank of China view the smart student card operators in the “all-in-one education card” sector as their core industrial partners. After the implementation of pilot projects in initial stages, these industrial leaders have found their own vulnerabilities in terms of industrial experience and resource restrictions, and are turning towards cooperation with industrial chains. They therefore pose little competitive threat.

Competitive Advantages and Strategy

The Company believes that its product formulations, price points, relationships, infrastructure, proven quality control standards, and reputation represent substantial competitive advantages. In particular, as compared with existing rival products and services in the market, Foshan’s products have a number of advantages:

Industrial advantages: in addition to using the same municipal card license that many companies in the industries hold, Foshan also has card application development and services experience, which have differentiated Foshan from its rivals. In addition to the petty payment settlement platform, Foshan also offers a portfolio of educational, medical, business, and merchant service products, which most of its rivals do not. In general, Foshan holds distinct advantages in terms of card management and operation, value-added services, and comprehensive product series.

2)	Service advantages: By leveraging the global service structure of Chigo Group which has established an extensive service network that guarantees long-term stable operations.

3)	Current partners advantages:

·	Chigo Group (based in Guangdong Province): a well-known brand in the home electrical appliance industry, with a well-established after-sales service network across China and other countries; the core partner of Foshan; and
·	China Mobile: our quality service provider

In comparison to Chinese competitors, the Company believes it possesses superior technological expertise, products, marketing knowledge, and global relationships.

Growth Strategy

The Company’s vision is to become one of the market leaders in the AIOMS Card Industry which offers superior value-added services for card users. Management intends to grow the Company’s business by pursuing the following strategies:

·	Grow capacity and capabilities in line with market demand increases.
·	Enhance leading-edge technology through continuous innovation, research and study.
·	Continue to improve operational efficiencies and use of nearly all technical advantages.
·	Further expand into higher value-added segments of the smart card industry.
·	Build a strong market reputation to foster and capture future growth in China.

Existing Facilities

Foshan is located at Feng Gang Road, Lishui, Nanhai District, Foshan City, Guangdong Province, the People’s Republic of China, with a total office space of approximately 9,000 square feet.

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Sales and Marketing

Foshan has a current sales and marketing force of 13 personnel, who report to Foshan’s headquarters in Nanhai District, Foshan City and are assigned to our consumers’ offices from time to time for after-sales support. Foshan’s marketing strategy is to explore applications for specific regions and industries as follows:

In the education industry, Foshan is going to leverage the government policy in favor of all-in-one education cards and adopt a low-profit-margin business model to supply and provide free equipment as well as equity investment to expand our customer base in the all-in-one education card sector. Correlating with the new curriculum reform and the college enrollment examination system reform, we are going to cooperate with industrial leaders to a) expand our portfolios with applications for student performance assessment and general performance assessment, b) increase the scope of education services and improve the loyalty program of all-in-one education card users; and c) solidify our leadership in the all-in-one education card sector;

Foshan will then build on its base of existing operations in the education industry to expand its business into a number of other sectors, including transportation, retail, cultural and medical, and to promote the development and operation of AIOMS Cards through building up of industrial applications;

We will develop and expand the customer base for electronic payment and issue a “Minhang Card”, a high-end electronic payment card for municipal services through collaboration with communication operators including China Mobile, China Telecom and China Unicom, and financial companies including MasterCard, Bank of China and Industrial and Commercial Bank of China, as well as commercial players including Watsons and Chigo. Eventually, we will be able to deliver high-margin electronic payment products to enable interaction of high-quality resources and integration of services;

4)	We will leverage the business opportunities of the 2010 Guangzhou Asian Games to expand the scope of AIOMS Card and penetrate additional regions in the near future.

Intellectual Property

Foshan owns the operating right from the Chinese government for the all-in-one municipal smart card system in Foshan City, Guangdong Province, the People’s Republic of China.

Customers

From January 1, 2009 to December 31, 2009, the Company achieved revenues of $1,996,943. During the same time period, the Company’s top five customers - ranked by the sales amount sold to each customer - contributed $1,599,095 in revenues. The following table depicts the top five customers for the period from January 1, 2009 through December 31, 2009.

Name of Customer	Sales		% of Total Sales
Shenzhen Tesitai Import/Export Co. Ltd.	$	794,688	39.8%
China Mobile Maoming City Branch	$	335,197	16.8%
Huizhou Tintong Smart Device Co. Ltd.	$	251,072	12.6%
China Mobile Qingyuan City Branch	$	164,376	8.2%
Guangzhou Chigo Air Conditioning Co. Ltd.	$	53,762	2.7%
TOTALS	$	1,599,095	80.1%

Regulation

The Company is subject to regulation by both the PRC central government and by local government agencies. Since its inception, the Company has been in compliance with applicable regulations.

All all-in-one municipal smart card operators are required to have operating licenses for the right to operate in designated cities in the People’s Republic of China.

Employees

Foshan currently has 22 full time employees.

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Forward-Looking Statements

This Report on Form 10-K contains forward-looking statements. To the extent that any statements made in this Report contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” believes,” “should,” “intends,” “estimates,” and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties are outlined in “Risk Factors” and include, without limitation, SPYE’s ability to raise additional capital to finance its activities; the effectiveness, profitability, and the marketability of its products; legal and regulatory risks associated with the Agreement; the future trading of the common stock of SPYE; the ability of SPYE to operate as a public company; its ability to protect its proprietary information; general economic and business conditions; the volatility its operating results and financial condition; its ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed from time to time in its filings with the SEC, or otherwise.

Information regarding market and industry statistics contained in this Report is included based on information available to SPYE that it believes is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. SPYE has not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. SPYE does not undertake any obligation to publicly update any forward-looking statements. As a result, investors should not place undue reliance on these forward-looking statements.

Item 2 . Properties

The Company does not own any real property. Foshan leases approximately 9,000 square feet of office space in Foshan City.

Item 3. Legal Proceedings

We are not aware of any pending or threatened legal proceedings in which the Company or its subsidiaries are involved. In addition, we are not aware of any pending or threatened legal proceedings in which entities affiliated with our officers, directors or beneficial owners are involved.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is currently quoted on a limited basis on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “SPYE”. The quotation of our common stock on the OTCBB does not assure that a meaningful, consistent and liquid trading market currently exists. We cannot predict whether a more active market for our common stock will develop in the future. In the absence of an active trading market:

(1) Investors may have difficulty buying and selling or obtaining market quotations;

(2) Market visibility for our common stock may be limited; and

(3) A lack of visibility of our common stock may have a depressive effect on the market price for our common stock.

The following table sets forth the range of high and low prices of our common stock as quoted on the OTCBB during the periods indicated. The prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions.

		High	Low

2009	First Quarter	1.00	0.15
	Second Quarter	0.15	0.15
	Third Quarter	0.15	0.15
	Fourth Quarter	0.15	0.15

2008	First Quarter	0.75	0.17
	Second Quarter	0.17	0.10
	Third Quarter	0.15	0.04
	Fourth Quarter(1)	5.50	1.00

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(1) The high and low prices for this quarter reflect the Company’s 1-for-50 reverse stock split that became effective on November 21, 2008.

The transfer agent for our common stock is Guardian Registrar & Transfer, Inc., 7951 Southwest 6 th Street, Suite 216, Plantation, FL 33324, Attn: Elson Soto, Jr. Tel: (954) 915-0105.

As of December 31, 2009, there were 146 holders of record of 1,292,166 outstanding shares of common stock of the Company.

Dividends

We have not previously paid any cash dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. It is the present intention of management to retain any earnings to provide funds for the operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operation, financial condition, contractual and legal restrictions and other factors the board of directors deem relevant.

Equity Compensation Plans

As of December 31, 2009, we did not have any equity compensation plans.

Recent Sales of Unregistered Securities

During the year ended December 31, 2009, we did not sell any unregistered securities.

Purchases of Equity Securities by Issuer and Affiliated Purchasers

We have not repurchased any of our common stock and have no publicly announced repurchase plans or programs as of December 31, 2009.

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Item 6. Selected Financial Data

Not applicable.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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. 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 17, 2007, we filed a 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, authorized capital shares of preferred stock remains the same as 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, Foshan 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.

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RESULTS OF OPERATIONS

The following table shows selected financial data of the consolidated statements of operations of the Company and its subsidiaries for the years ended December 31, 2009 and 2008. The data should be read in conjunction with the audited consolidated financial statements of the Company and related notes thereto.

(In US$ thousands except per share data)	Year Ended			% of			Year Ended			% of
	Dec 31, 2009			Revenue			Dec 31, 2008			Revenue
Operating revenues
Service Income		1,202			60.2			593			100.0
Sale of mobile phones		795			39.8			-			-

Operating expenses
Subcontracting and other service costs		(546	)		(27.3	)		(342	)		(57.7	)
Purchase of mobile phones		(756	)		(37.9	)		-			-
Staff costs		(206	)		(10.3	)		(336	)		(56.7	)
Depreciation expenses		(24	)		(1.2	)		(15	)		(2.5	)
Amortization of intangible assets		(237	)		(11.9	)		(221	)		(37.3	)
Other general and administrative expenses		(1,053	)		(52.7	)		(836	)		(141.0	)
Total Operating expenses		(2,822	)		(141.3	)		(1,750	)		(295.1	)

Loss from operations		(825	)		(41.3	)		(1,157	)		(195.1	)

Non-operating income (expenses)
Interest income		3			0.2			3			0.5
Sundry income		-			-			4			0.7
Others		(143	)		(7.2	)		177			29.8

Loss before income tax and noncontrolling interests		(965	)		(48.3	)		(973	)		(164.1	)
Income tax expense		-			-			-			-

Loss before noncontrolling interests		(965	)		(48.3	)		(973	)		(164.1	)
Noncontrolling interests		354			17.7			150			25.3
Net loss		(611	)		(30.6	)		(823	)		(138.8	)

Loss per share
Basic and diluted	$	(0.47	)				$	(0.75	)

FISCAL YEAR ENDED DECEMBER 31, 2009 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2008.

OPERATING REVENUE

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 $1,202,255 service income as operating revenue for the year ended December 31, 2009, as compared to $592,809 for the year ended December 31, 2008, an increase of 103%. Approximately 68% was generated from the Nanhai project and schools smartcard system for the year end December 31, 2009, as compared to 53% for the year ended December 31, 2008. The increase was due to the Company has expanded its services to schools in other cities in the Guangdong province in 2009 and we anticipate that more operating revenues would be generated if we successfully expand our services to students in other cities within Guangdong province. In the past, the Company collected proceeds from students directly and paid subcontracting and other charges to service providers. Commencing from September 2009, the telecom service provider collects service fees from the students and pays the Company for its entitlement.

The Company is principally engaged in the provision of smartcard system and other value-added services in Guangdong province, the PRC. During the year ended December 31, 2009, the Company carried out a transaction for sale and purchase of mobile phones with costs and revenue of US$755,548 and US$794,688 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 SERVICE COSTS

Subcontracting and other service costs increased 60% to $546,123 for the year ended December 31, 2009, as compared to $341,778 for the year ended December 31, 2008.

The significant portion of these charges, approximately 86% and 66% for the year ended December 31, 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 year ended December 31, 2009 amounted to $206,156 as compared to $335,947 for the year end December 31, 2008, a decrease of 39%. The significant decrease in staff costs was due to the reduction of personnel during the year ended December 31, 2009. Currently, the Company has 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.

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DEPRECIATION EXPENSES

Depreciation expenses for the year ended December 31, 2009 amounted to $23,824, as compared to $14,527 for the year ended December 31, 2008, an increase of 64%. These expenses were related to the depreciation charged on office equipment and computers. Resulting from the acquisition of computers costing $18,915 in late 2008, the depreciation for current year increased accordingly.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization charges of intangible assets for year ended December 31, 2009 amounted to $237,461, as compared to $221,196 for the year ended December 31, 2008, an increase of 7%. These amortization charges were resulted from the operating rights of the Nanhai project and ShanCheng project, in addition to computer software relating to the Nanhai project. As of December 31, 2009, the carrying value of the operating rights of the Nanhai project and ShanCheng project was $1,026,534 and $Nil, respectively; and the carrying value of the intangible asset of the computer software was $266,705.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES

Other general and administrative expenses for the year end December 31, 2009 were $1,053,284, as compared to $836,371 for the year ended December 31, 2008, an increase of 26%. The increase in other general and administrative expenses was mainly due to the impairment loss of intangible assets of $224,182 and allowance for doubtful accounts on trade receivables, prepayments, other receivables and amounts due from related parties of $258,179, netting off with the decrease in consultancy fees of $166,666, decrease in rental charges of $19,623 and the decrease in write off of prepayment of $82,192 in 2009.

INTEREST INCOME

Interest income for the year end December 31, 2009 was $2,759, as compared to $3,154 for the year ended December 31, 2008, a decrease of 13%. This income was the interest earned on cash in bank deposit.

OTHERS

Others are mainly comprised of interest expenses of $63,631, amortization of loans from a related party of $16,469, share of result of an associate of $19,028, compensation payment of $18,118 and loss on early termination of loans from a related party of $25,974. The change from income of $176,146 for the year ended December 31, 2008 to expense of $143,220 for the year ended December 31, 2009 was mainly due to gain on disposal of partial interest in a subsidiary of $259,837 and subsidy income of $27,671 recognised for the year ended December 31, 2008 but no such income for the year ended December 31, 2009.

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 year ended December 31, 2009, no provision for EIT has been made.

NET LOSS

Net loss decreased 26% to $611,101 for the year ended December 31, 2009, as compared to $822,628 for the year ended December 31, 2008. The decrease in net loss was primarily due to increase in service income and decrease in staff costs, offset by impairment loss of intangible assets and allowance for doubtful accounts.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2009, cash and cash equivalents totaled $378,671. This cash position was the result of a combination of net cash provided by financing activities in the amount of $95,503, net cash provided by operating activities in the amount of $84,534 and net cash used in investing activities of $50,627. The cash provided by financing activities was primarily due to advances from related parties. The net cash provided by operating activities was mainly due to cash generated from operations. The net cash used in investing activities was the cash used in the purchase of property, plant and equipment and intangible assets. We believe that the level of financial resources is a significant factor for our future development, and accordingly we may choose at any time to raise capital through private debt or equity financing to strengthen our financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. However, we do not have any immediate plans for a private offering of our common stock.

SUBSEQUENT EVENT

Subsequent to the balance sheet date, Foshan has entered into an agreement to acquire an additional 35% equity interest in Foshan Company at a consideration of $294,118 so that the Company’s effective interest in Foshan Company will be increased to 90% upon completion of the transaction.

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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 principles 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 finite 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. 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.

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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.

Recently Issued Accounting Pronouncements

Effective 1 July 2009, the Company adopted ASC Topic 105, “the FASB Accounting Standards Codification” (“Codification”) (formerly 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.

(i)	New and amended standards adopted by the Company

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).

ASC Topic 320 amends the other-than-temporary impairment guidance in the US 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. Effective February 24, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09 which amend guidance on subsequent events to remove the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date through which an entity has evaluated subsequent events. This change alleviates potential conflicts with current SEC guidance. An SEC filer is still required to evaluate subsequent events through the date financial statements are issued, but disclosure of that date is no longer required. The amendments in ASU 2010-09 became effective upon issuance of the guidance. The adoption of this Statement does not have a material effect on the Company's financial statements.

(ii)	Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company

In June 2009, the FASB issued the following new accounting standards:

ASC Topic 860, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140” (formerly SFAS No. 166). ASC Topic 860 amends the de-recognition accounting and disclosure guidance relating to SFAS 140. ASC Topic 860 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 ASC Topic 810.

ASC Topic 810, “Amendments to FASB Interpretation No. 46(R)” (formerly SFAS No. 167), which amends FASB Interpretation No. 46 (revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. ASC Topic 810 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, ASC Topic 810 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.

ASC Topic 860 and ASC Topic 810 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The major concentrations of credit risk arise from the Company’s trade receivable.

Country Risks

The Company may also be exposed to the risks as a result of its principal operation being primarily in the PRC. These include risks associated with, among others, the political, economic and legal environmental and foreign currency exchange. The Company’s results may be adversely affected by change in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The Company’s management does not believe these risks to be significant. There can be no assurance, however, those changes in political and other conditions will not result in any adverse impact.

Cash and Time Deposits

The Company mainly maintains its cash balances with various banks located in the PRC. In common with local practice, such amounts are not insured or otherwise protected should the financial institutions be unable to meet their liabilities. There has been no history of credit losses. There are neither material commitment fees nor compensating balance requirements for any outstanding loans of the Company.

Exchange Rate Risk

The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of Renminbi converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

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Item 8. Financial Statements

The information required by this Item follows below.

SMARTPAY EXPRESS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page Number

Report of Independent Registered Public Accounting Firm	19

Consolidated Statement of Operations and Other Comprehensive Income	20

Consolidated Balance Sheets	21

Consolidated Statements of Stockholders' Equity	22

Consolidated Statements of Cash Flows	23

Notes to Financial Statements	24 - 35

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Sole Director and Stockholders of

SmartPay Express, Inc.

We have audited the accompanying consolidated balance sheets of SmartPay Express, Inc. and its subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations and other comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2009 and 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and cash flows for the years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company had negative working capital as of December 31, 2009 of US$170,947 and incurred a loss of US$965,561 for the year then ended, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Mazars CPA Limited

Certified Public Accountants

Hong Kong

Date: April 15, 2010

- 19 -

SmartPay Express, Inc.

Consolidated Statements of Operations and Other Comprehensive Income

		Year ended December 31, 2009			Year ended December 31, 2008
	Note	US$			US$
Operating revenues
Service income			1,202,255			592,809
Sale of mobile phones			794,688			-

			1,996,943			592,809
Operating expenses
Subcontracting and other service costs			(546,123	)		(341,778	)
Purchase of mobile phones			(755,548	)		-
Staff costs			(206,156	)		(335,947	)
Depreciation of property, plant and equipment			(23,824	)		(14,527	)
Amortization of intangible assets			(237,461	)		(221,196	)
Impairment loss of intangible assets	7(a)(ii)		(224,182	)		-
Allowance for doubtful accounts on trade receivables, prepayments, other receivables and amounts due from related parties			(258,179	)		-
Other general and administrative expenses			(570,923	)		(836,371	)

			(2,822,396	)		(1,749,819	)

Loss from operations			(825,453	)		(1,157,010	)

Interest income			2,759			3,154
Interest expense			(63,631	)		(3,580	)
Subsidy income			-			27,671
Other income			353			3,595
Gain on disposal of partial interest in a subsidiary			-			259,837
Gain on disposal of interest in a subsidiary	14		-			658
Amortization of loans from a related party	5(b)(iv)		(16,469	)		(70,188	)
Loss on partial settlement of loans from a related party	5(b)(iv)		-			(34,112	)
Share of result of an associate	8		(19,028	)		(2,824	)
Compensation payment	5(b)(iv)		(18,118	)		-
Loss on early termination of loans from a related party	5(b)(iv)		(25,974	)		-

Loss before income tax and noncontrolling interests			(965,561	)		(972,799	)

Income tax	4		-			-

Net loss including noncontrolling interests			(965,561	)		(972,799	)

Less: net loss attributable to noncontrolling interests			354,460			150,171

Net loss attributable to SPYE common stockholders			(611,101	)		(822,628	)

Other comprehensive income
- Foreign currency translation adjustment			15,671			58,384

Total comprehensive loss			(595,430	)		(764,244	)

Basic and diluted loss per share		(47.29) cents			(74.66) cents

Weighted average number of shares of common stock outstanding (note)			1,292,166			1,101,898

Note:

On October 16, 2008, the sole director and the holders of a majority of the common shares of SmartPay Express, Inc. ("SPYE") approved a one-for-fifty reverse stock split of common stock of SPYE. The weighted average number of shares of common stock outstanding for the year ended December 31, 2008 has been adjusted retrospectively for the effect of the reverse stock split for the purpose of calculation of loss per share.

The financial statements should be read in conjunction with the accompanying notes.

- 20 -

SmartPay Express, Inc.

Consolidated Balance Sheets

			As of December 31,			As of December 31,
			2009			2008
	Note		US$			US$
ASSETS

Current assets
Trade receivables from third parties				194,865			27,261
Trade receivable from a related party	5(b)(i)			5,821			24,148
Prepayments and deposits				125,913			230,106
Other debtors				52,771			293,216
Amounts due from related parties	5(b)(ii)			-			94,204
Income tax recoverable				3,829			3,774
Inventories				40,385			33,207
Cash and cash equivalents				378,671			245,685
Bank deposits, collateralized		11		132,353			130,435

Total current assets				934,608			1,082,036

Property, plant and equipment, net		6		69,759			87,732
Intangible assets, net		7		1,322,651			1,729,450
Interest in an associate		8		-			18,751

Total assets				2,327,018			2,917,969

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Trade payables				311,058			40,718
Accrued charges and other payables		9		531,981			525,502
Amounts due to related parties	5(b)(iii)			19,458			19,177
Temporary receipts	10			61,470			94,345
Loans from a related party	5(b)(iv)			-			655,274
Short-term bank loan	11			125,000			123,188
Interest payable to a related party	5(b)(v)			56,588			-

Total current liabilities				1,105,555			1,458,204

Long-term loans from a related party	5(b)(iv)			707,353			-

Commitments and contingencies		12

Stockholders' equity
Preferred stock, par value US$0.001 per share; authorized 5,000,000 shares; none issued and outstanding as of December 31, 2009 and 2008 Common stock, par value US$0.001 per share; authorized 300,000,000 shares; issued and outstanding 1,292,166 shares as of December 31, 2009 and 2008				1,292			1,292
Additional paid in capital				2,009,454			2,009,454
Dedicated reserve		13		319			319
Accumulated losses				(1,508,785	)		(897,684	)
Accumulated other comprehensive income				74,055			58,384

Total SPYE stockholders’ equity				576,335			1,171,765
Noncontrolling interests				(62,225	)		288,000

Total stockholders’ equity				514,110			1,459,765

Total liabilities and stockholders' equity				2,327,018			2,917,969

The financial statements should be read in conjunction with the accompanying notes.

- 21 -

SmartPay Express, Inc.

Consolidated Statements of Stockholders' Equity

	Common stock			Additional paid in capital		Dedicated reserve		Accumulated losses			Accumulated other comprehensive income		Total SPYE stockholders’ equity			Noncontrolling interests			Total stockholders’ equity
	US$			US$		US$		US$			US$		US$			US$			US$

As of December 31, 2007		50,000			-		319		(75,056	)		-		(24,737	)		472,005			447,268
Issue of shares for consultancy services (Note (i))		1,000			599,000		-		-			-		600,000			-			600,000
Issue of shares for settlement of debt (Note (ii))		13,607			1,347,139		-		-			-		1,360,746			-			1,360,746

		64,607			1,946,139		319		(75,056	)		-		1,936,009			472,005			2,408,014
Reverse stock split (Note (iii))		(63,315	)		63,315		-		-			-		-			-			-

		1,292			2,009,454		319		(75,056	)		-		1,936,009			472,005			2,408,014
Net loss		-			-		-		(822,628	)		-		(822,628	)		(150,171	)		(972,799	)
Disposal / Partial disposal of interests in subsidiaries		-			-		-		-			-		-			(61,217	)		(61,217	)
Foreign currency translation adjustment		-			-		-		-			58,384		58,384			27,383			85,767

As of December 31, 2008		1,292			2,009,454		319		(897,684	)		58,384		1,171,765			288,000			1,459,765
Net loss		-			-		-		(611,101	)		-		(611,101	)		(354,460	)		(965,561	)
Foreign currency translation adjustment		-			-		-		-			15,671		15,671			4,235			19,906

As of December 31, 2009		1,292			2,009,454		319		(1,508,785	)		74,055		576,335			(62,225	)		514,110

Note:

(i)

In February 2008, SPYE issued 700,000 and 300,000 shares at US$0.6 per share, being the fair value of the shares at the issue date, to third parties for consulting and professional services provided / to be provided to the Company for the periods from March 1, 2008 to August 31, 2009 and from March 1, 2008 to February 28, 2009 respectively. The excess of the issue price over the par value of the shares issued of US$599,000 has been recorded in additional paid in capital.

(ii)	In September 2008, SPYE issued 13,607,460 shares at US$0.1 per share to settle the amount due to a related party, Benny Lee, of US$1,360,746. The excess of the issue price over the par value of the shares issued of US$1,347,139 has been recorded in additional paid in capital.

(iii)

On October 16, 2008, the sole director and the holders of a majority of the common shares of SPYE approved a one-for-fifty reverse stock split of the common stock of SPYE, which has become effective during the year ended December 31, 2008. The difference in par value of shares as a result of the reverse stock split of US$63,315 has been credited to additional paid in capital.

The financial statements should be read in conjunction with the accompanying notes.

- 22-

SmartPay Express, Inc.

Consolidated Statements of Cash Flows

	Year ended December 31, 2009			Year ended December 31, 2008
	US$			US$
Cash flows from operating activities:
Net loss including noncontrolling interests		(965,561	)		(972,799	)

Adjustments to reconcile net loss including noncontrolling interests to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment		23,824			14,527
Amortization of intangible assets		237,461			221,196
Loss on disposal of property, plant and equipment		16,655			-
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			70,188
Loss on partial settlement of loans from a related party		-			34,112
Loss on early termination of loans from a related party		25,974			-
Share of result of an associate		19,028			2,824
Impairment of intangible assets		224,182			-
Exchange difference		1,764			(7,018	)
Changes in working capital:
Trade receivables		(148,522	)		(64,657	)
Inventories		(6,689	)		(19,873	)
Prepayments and deposits		104,376			549,787
Other debtors		244,757			(275,272	)
Trade payables		269,741			28,937
Accrued charges and other payables		(1,250	)		(80,464	)
Temporary receipts		(34,263	)		(32,479	)
Income tax recoverable/payable		-			(4,799	)
Interest payable to a related party		56,588			-

Net cash provided by (used in) operating activities		84,534			(796,285	)

Cash flows from investing activities:
Payments for purchase of property, plant and equipment		(21,216	)	(47,936	)
Payments for purchase of intangible assets		(29,411	)	-
Net (advances to) repayment from related parties		-		(83,535	)
Proceeds on disposal of a subsidiary	14	-		157,479
Increase in bank deposits, collateralized		-		(130,435	)

Net cash used in investing activities		(50,627	)	(104,427	)

Cash flows from financing activities:
New short-term bank loan raised		125,000		123,188
Settlement of loans from a related party		-		(383,809	)
Advances from (Repayment to) related parties		95,503		(44,787	)
Repayment of short-term bank loan		(125,000	)	-

Net cash provided by (used in) financing activities		95,503		(305,408	)

Net increase (decrease) in cash and cash equivalents		129,410		(1,206,120	)

Cash and cash equivalents at beginning of year		245,685		1,373,085

Effect on exchange rate changes		3,576		78,720

Cash and cash equivalents at end of year, represented by cash and bank balances		378,671		245,685

Supplemental disclosure of cash flow information
Interest received	2,759		3,154
Interest paid	(7,043	)	(3,580	)

Non-cash financing activities
Shares issued for consulting and professional services	-		600,000
Shares issued for settlement of debt	-		1,360,746

The financial statements should be read in conjunction with the accompanying notes.

- 23 -

SMARTPAY EXPRESS, INC.

Notes to Financial Statements

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

SPYE, formerly known as Axiom III, Inc. (“AXIO”), was organized under the laws of the State of Nevada in June 2004. On October 10, 2007, AXIO entered into a share exchange agreement with, among others, the stockholders of 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 stockholder 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. The historical stockholders’ equity accounts of AXIO have been retroactively restated to reflect the issuance of 35,351,667 shares of common stock since inception of Eastern Concept plus the original 14,648,333 shares of common stock of AXIO immediately prior to the reverse acquisition, with corresponding adjustments to accumulated losses.

Eastern Concept was incorporated in Hong Kong with limited liability on June 29, 2007 with 10,000 authorized shares with a par value of HK$1 each. On incorporation, one share of HK$1 each was issued at par for cash. Eastern Concept is a holding company.

On August 13, 2007, Eastern Concept established a wholly-owned subsidiary, Eastern Concept Corporate Consulting (Shenzhen) Limited* (“Eastern Concept Consulting”) in the People’s Republic of China (the “PRC”). The registered capital of Eastern Concept Consulting is Rmb10,000,000 (US$1,369,863). The principal activity of Eastern Concept Consulting is provision of consultancy services on information technology and acts as a holding company.

On November 6, 2007, Eastern Concept Consulting entered into a share exchange agreement with, among others, the then stockholders of Guangdong Wanzhi Electron S&T Company Limited* (“Wanzhi”) pursuant to which Eastern Concept Consulting acquired 100% of the registered capital of Wanzhi, a company established in the PRC, at a cash consideration of Rmb10,000,000 (US$1,369,863). Details of Wanzhi are set out below:

The principal activities of Wanzhi are the provision of smartcard system and other value-added services mainly in Guangdong province, the PRC. In June 2007, Wanzhi acquired the entire equity interest in Foshan Information Technology Company Limited* (“Foshan Company”), a company established in the PRC, at a total consideration of Rmb750,000 (US$102,740). Foshan Company is principally engaged in the operation of a smartcard payment system in Foshan, Guangdong province, the PRC.

In October 2007, Foshan Company and third parties established two subsidiaries, Foshan JiaXun Information Technology Company Limited* (“JiaXun”) and Foshan JinCheng Information Technology Company Limited* (“JinCheng”), in the PRC with registered capital of Rmb3,000,000 (US$410,959) and Rmb4,000,000 (US$547,945) respectively. Foshan Company owns 51% of the registered capital of each of JiaXun and JinCheng. The principal activity of JiaXun is provision of information system and network services while JinCheng owns an operating right in respect of certain equipment for a smartcard system to be installed in schools located in the ShanCheng District, Foshan, the PRC.

In February 2008, Wanzhi disposed of its 45% equity interest in Foshan Company at a consideration of US$410,959, resulted in a gain of US$259,837 as recorded in the consolidated statement of operations for the year ended December 31, 2008.

In April 2008, JinCheng acquired a 30% equity interest in Foshan KaiEr Information Technology Company Limited (“KaiEr”), a company incorporated in the PRC and engaged in developing of technology for network and computer and business advisory service, at a consideration of US$18,362.

In September 2008, Foshan Company disposed of its entire 51% equity interest in JiaXun at a consideration of US$221,739, resulted in a gain of US$658 as recorded in the consolidated statements of operations for the year ended December 31, 2008.

SPYE and its subsidiaries are collectively referred to as the “Company”.

* The official names are in Chinese and the English names are translation for reference only.

During the year ended December 31, 2009, the Company carried out a transaction for sale and purchase of mobile phones with costs and revenue of US$755,548 and US$794,688 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.

- 24 -

2. BASIS OF PRESENTATION

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

The Company had negative working capital as of December 31, 2009 of US$170,947 and incurred a loss of US$965,561 for the year then ended, which raise substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon attaining profitable operations in the future or obtaining adequate finance as and when required. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

A major stockholder has undertaken to make available adequate funds to the Company as and when required to maintain the Company as a going concern.

As a result, management is confident that the Company will be able to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the financial information of SPYE and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. The Company includes the results of operations of subsidiaries from the date of acquisition and up to the effective date of disposal.

Associates

An associate is an entity in which the Company has significant influence, but not control or joint control and thereby has the ability to participate in the investees’ financial and operating policy decisions. Investments in associates are accounted for using the equity method (“equity method investments”). Goodwill arising on the acquisition of interests in associates (“equity method goodwill”) is included in the carrying amount of the investment. The Company considers whether the fair values of any of its equity method investments have declined below their carrying value whenever adverse events or changes in circumstances indicate the recorded values may not be recoverable. In assessing the recoverability of equity method investments (including equity method goodwill), the Company uses discounted cash flows models. If the fair value of the equity investee is determined to be lower than carrying value, impairment is recognized.

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 collectability is probable. Service revenues are recognized net of discounts.

Income and other 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 expense 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.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals payable under operating leases are recognized as expenses on a straight-line basis over the lease term.

Fair value of financial instruments

The estimated fair values for financial instruments under FASB Accounting Standards Codification (“ASC”) Topic 825, “Disclosures about Fair Value of Financial Instruments” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 107), are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of the Company’s financial instruments, which include cash, trade receivables and trade payables, approximate their carrying values in the financial statements due to short-term maturities of these assets and liabilities.

Earnings (loss) per share

Basic earnings (loss) per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings (loss) per share assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. The Company had no potential dilutive securities outstanding during the years ended December 31, 2009 and 2008 and therefore, diluted earnings (loss) per share is the same as basic earnings (loss) per share.

Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

- 25 -

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

Inventories, mainly smartcards, are stated at the lower of cost and net realizable value. Cost, which comprises all costs of purchase and, where applicable, other costs incurred in bringing the inventories to their present location and condition, is calculated using the first-in, first-out method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

Cash equivalents

Cash equivalents include all highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and are so near maturity that they represent insignificant risk of changes in value because of changes in interest rates.

Foreign currency translation

All major subsidiaries of SPYE consider Renminbi as their functional currency as a substantial portion of their business activities is based in Renminbi. However, the Company has chosen the United States dollar as its reporting currency.

Transactions in currencies other than the functional currency during the period are translated into the functional currency at the applicable rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the applicable rates of exchange in effect at the balance sheet date. Exchange gains and losses are recorded in the consolidated statement of operations.

For translation of financial statements into the reporting currency, assets and liabilities are translated at the exchange rate at the balance sheet date, equity accounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated at the weighted average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded in accumulated other comprehensive income within stockholders’ equity.

Comprehensive income

ASC Topic 220, "Reporting Comprehensive Income" (formerly SFAS No. 130), requires the presentation of comprehensive income, in addition to the existing statements of operations. Comprehensive income is defined as the change in equity during the year from transactions and other events, excluding the changes resulting from investments by owners and distributions to owners.

Trade receivables

Trade receivables are recorded at original invoice amount, less an estimated allowance for uncollectible accounts. Trade credit is generally granted on a short-term basis, thus trade receivables do not bear interest. Trade receivables are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. Allowance is recorded primarily on a specific identification basis. Allowance for doubtful accounts amounted to US$8K as at December 31, 2009, while there was no allowance for doubtful accounts as of December 31, 2008. The Company generally does not require collateral for trade receivables.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance, is normally recognized as an expense in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets, the expenditure is capitalized.

When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is recognized in the statement of operations.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives from the date on which they become fully operational and after taking into account their estimated residual values, using the straight-line method at the annual rate of 20%.

Intangible assets

Purchased intangible assets with finite useful lives represent operating rights and related computer software, which are amortized using the straight-line method over their respective estimated economic lives. Intangible assets with indefinite useful lives are measured at cost and tested at least annually for impairment in accordance with ASC Topic 350, Intangible – Goodwill and other.

Impairment of long-lived assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. During the year ended December 31, 2009, there was $357,789 loss on disposal of a plant building.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to depreciation, amortization, taxes and contingencies. Actual results could differ from those estimates.

- 26 -

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements

(i)	New and amended standards adopted by the Company

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).

(ii)	Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company

In June 2009, the FASB issued the following new accounting standards:

- 27 -

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements (Continued)

4. TAXATION

The Company is subject to PRC enterprise income tax at the rate of 25% for the years ended December 31, 2009 and 2008.

A reconciliation of the PRC enterprise income tax rate to the effective income tax rate is as follows:

	Year ended December 31, 2009			Year ended December 31, 2008
	%			%

Statutory rate		(25.0	)		(25.0	)
Difference in tax rates in the countries that the Company operates		-			1.1
Tax exempted revenue		-			(0.7	)
Non-deductible expenses		6.8			11.9
Valuation allowance for deferred tax assets		18.2			12.7

Effective tax rate		-			-

As of December 31, 2009, the Company’s PRC established subsidiaries had operating losses carry forward of approximately US$0.5 million (2008: US$0.3 million). The operating losses will expire five years after the loss is incurred. Management has provided a full valuation allowance for the deferred tax asset as it is more likely than not that the asset will not be realized.

Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.

By adoption of ASC 740, the Company has analyzed its filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns. As of December 31, 2009 and 2008, the Company has identified the jurisdictions in the PRC as “major” tax jurisdictions, as defined, in which it is required to file income tax returns. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements.

Based on a review of tax positions for all open years and contingencies, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740 during the years ended December 31, 2009 and 2008, and the Company does not anticipate that it is reasonably possible that any material increase or decrease in its unrecognized tax benefits will occur within twelve months.

As of December 31, 2009 and 2008, the Company had no unrecognized tax benefits or accruals for the potential payment or interest and penalties.

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 shareholder 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
	Huizhou Tintong Smart Device Company Limited* ("Tintong")	A company in which Li Xing Hao has control and beneficial interest

The official names are in Chinese and the English names are translation for reference only.

- 28 -

5. RELATED PARTY TRANSACTIONS

(b) Balances with related parties

(i) Trade receivables from a related party

	As of December 31,
	2009		2008
	US$		US$

Chigo		5,821		24,148

The amounts due is unsecured, interest-free and has no fixed repayment term.

(ii) Amounts due from related parties

	As of December 31,
	2009			2008
	US$			US$

Tang Jin Cheng		14,706			14,493
KaiEr		108,931			79,711

		123,637			94,204
Allowance for doubtful accounts		(123,637	)		-

		-			94,204

As of 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. An allowance for doubtful accounts was made during the year ended December 31, 2009 because the management is of the opinion that the recovery of the amounts due would be remote.

(iii) Amounts due to related parties

	As of December 31,
	2009		2008
	US$		US$

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.

- 29 -

5. RELATED PARTY TRANSACTIONS (CONTINUED)

(iv) Loans from a related party

	As of December 31,
	2009		2008
	US$		US$

At beginning of year		655,274		883,562
Exchange realignment		9,636		51,221
Amortization		16,469		70,188
Repayments		-		(349,697	)
Loss on early termination		25,974		-


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.

During the year ended December 31, 2008, the Company paid a total amount of US$383,809 for partial settlement of the loans with carrying amount of US$349,697, resulted in a loss of US$34,112 as recorded in the consolidated statement of operations for the year ended December 31, 2008.

(v) Interest payable to a related party

	As of December 31,
	2009		2008
	US$		US$

Li Xing Hao (note 5(b)(iv))		56,588		-

(c)	Summary of related party transactions

	Year ended December 31, 2009		Year ended December 31, 2008
	US$		US$

Service income from Chigo		58,909		109,644
Interest expenses to Li Xing Hao (note 5(b)(iv))		56,588		-
Compensation payment to Li Xing Hao (note 5(b)(iv))		18,118		-
Service income from Tintong		251,072		-

6. PROPERTY, PLANT AND EQUIPMENT, NET

	As of December 31,
	2009			2008
	US$			US$

Leasehold improvement		-			21,394
Office equipments		66,609			65,643
Computers		45,408			23,841

Cost		112,017			110,878
Less: Accumulated depreciation		(42,258	)		(23,146	)

		69,759			87,732

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7.	INTANGIBLE ASSETS, NET

		As of December 31,
		2009		2008
	Note	US$		US$

Operating rights, net	(a)		1,026,534		1,428,945
Computer software, net	(b)		266,705		300,505
IC card logo	(c)		29,412		-

			1,322,651		1,729,450

(a)	Operating rights

		As of December 31,
		2009			2008
	Note	US$			US$

Nanhai project	(i)		1,416,704			1,396,172
ShanCheng project	(ii)		288,235			284,058

Cost			1,704,939			1,680,230
Less: Accumulated amortization			(454,223	)		(251,285	)
Less: Accumulated impairment loss			(224,182	)		-

			1,026,534			1,428,945

(i)	Nanhai project

On June 22, 2006, Wanzhi entered into a co-operative agreement (the “Co-operative Agreement”) with other parties which include, inter alia, the Education Authority in the Nanhai District, Foshan (the “Education Authority”). Pursuant to the Co-operative Agreement, Wanzhi needs to contribute certain computer equipment and software to the Education Authority and schools in the Nanhai District in exchange for an operating right for the provision of services in respect of a smartcard system to be installed in schools located in the Nanhai District. The smartcard system enables schools and parents to check progress and information of students, and being notified of their attendance record and examination results, etc. through short messages from mobile or fixed-line phones. The operating right is granted for a period of 10 years from June 30, 2006 to June 30, 2016. The smartcard system has commenced operations in the Nanhai District since September 2007.

As of December 31, 2007, Wanzhi had already made all the required contributions of computer equipment and software to the Education Authority in exchange for the operating right in accordance with the Co-operative Agreement. No further contributions were made to the Education Authority during the years ended December 31, 2009 and 2008.

(ii)	ShanCheng project

The amount represents fair value of an operating right in respect of certain equipment for a smartcard system to be installed in schools located in the ShanCheng District, Foshan. The operating right was transferred from the minority stockholder of JinCheng as a 49% capital contribution for the establishment of JinCheng (see note 1). The fair value of the operating right was determined by reference to a valuation report dated August 28, 2007 issued by Foshan Yongde Certified Public Accountants Co., Ltd. The operation period is 10 years from 2006 to 2016.

As of December 31, 2009, the Company assessed the recoverable amount of the operating right, and determined that it was fully impaired and an impairment loss of US$224,182 was recognized during the year ended December 31, 2009. The sole director considers the major factor leading to the impairment of the operating right was that the ShanCheng project has been suspended and will not be able to generate future economic benefits to the Company.

- 31 -

7.	INTANGIBLE ASSETS, NET (CONTINUED)

(b) Computer software

	As of December 31,
	2009			2008
	US$			US$

Computer software		355,882			350,725
Less: Accumulated amortization		(89,177	)		(50,220	)

		266,705			300,505

The computer software is used directly in the Nanhai project.

The amount represents the cost of the right to use the IC card logo for smartcards in the Foshan district, the PRC. The IC card logo is estimated as having infinite life and is measured at cost and tested at least annually for impairment in accordance with ASC Topic 350, Intangible – Goodwill and other.

8.	INTEREST IN AN ASSOCIATE

The carrying amount of the interest in an associate comprised:

	As of December 31,
	2009		2008
	US$		US$

Share of net assets		-		6,154
Goodwill		-		12,597

		-		18,751

The interest in an associate represents 30% interest in KaiEr, a company established in the PRC and engaged in developing of technology for network and computer and provision of business advisory service.

Summary of financial information of the associate is as follows:

	As of December 31,
	2009			2008
	US$			US$
Share of associate’ assets and liabilities:
Non-current assets		22,564			17,868
Current assets		11,982			11,996
Non-current liabilities		-			-
Current liabilities		51,474			23,710

Share of associate’s revenue and loss:
Revenue		80,193			22,508
Loss		(19,028	)		(2,824	)

The unrecognized share of loss of associate for the current year and cumulatively up to the end of the balance sheet date amounted to US$4,145 (2008: US$Nil) and US$4,145 (2008: US$Nil) respectively.

- 32 -

9.	ACCRUED CHARGES AND OTHER PAYABLES

	As of December 31,
	2009		2008
	US$		US$

Deposits for smartcards		117,080		132,593
Customers’ advances for smartcards		154,609		147,917
Subcontracting and other service costs payable		98,514		158,939
Accrued charges and other payables		73,354		55,935
Other tax payable		88,424		30,118

		531,981		525,502

10.	TEMPORARY RECEIPTS

	As of December 31,
	2009		2008
	US$		US$

Advance receipts for Nanhai project		45,768		81,074
Other advance receipts		15,702		13,271

		61,470		94,345

11. 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 year ended December 31, 2009, a new bank loan was drawn down, which is collateralized by the Company’s bank deposit of US$132,353, interest-bearing at 5.84% per annum and repayable in January 2010.

12. COMMITMENTS AND CONTINGENCIES

Commitments under operating leases

The Company leases its office premises under non-cancelable operating leases. The following table summarizes the approximate future minimum lease payments:


	As of December 31,
	2009		2008
	US$		US$
Payable during the following periods:
Within one year		5,824		24,487
Over one year but not exceeding two years		3,882		64,388

Total operating lease commitments		9,706		88,875

Operating lease charges for the years ended December 31, 2009 and 2008 amounted to US$4,368 and US$23,991 respectively.

- 33 -

13. DEDICATED RESERVE

As stipulated by the relevant laws and regulations in the PRC, the Company’s PRC established subsidiaries are required to maintain a discretionary dedicated reserve. These subsidiaries are required to transfer an amount equal to a minimum of 10% of its statutory net income to the dedicated reserve until the balance of the dedicated reserve reaches 50% of the subsidiaries’ registered capital. The dedicated reserve can only be utilized to offset prior years’ losses. No transfer to the dedicated reserve was made because the Company’s PRC established subsidiaries incurred a loss for the years ended December 31, 2009 and 2008.

14. DISPOSAL OF A SUBSIDIARY

In September 2008, Foshan Company disposed of its entire 51% equity interest in JiaXun, details of which are set out below.

	As of December 31,
	2009		2008
	US$		US$
Net assets disposed of:
Property, plant and equipment		-		167
Trade receivables		-		81,493
Loan receivable from a noncontrolling stockholder		-		290,000
Cash and cash equivalents		-		64,260
Accrued charges and other payables		-		(2,500	)
Noncontrolling interests		-		(212,339	)

		-		221,081
Gain on disposal of interest in a subsidiary		-		658

Total consideration, satisfied by cash		-		221,739

Analysis of net inflow of cash and cash equivalents in respect of disposal of a subsidiary:

Cash consideration		-		221,739
Cash and cash equivalents disposed of		-		(64,260	)

Net cash inflow		-		157,479

15.	RETIREMENT BENEFIT PLAN

As stipulated by the rules and regulations in the PRC, the Company’s PRC established subsidiaries are required to contribute to a state-sponsored social insurance plan for all of their employees at a certain percentage of the basic salary of their employees. The state-sponsored retirement plan is responsible for the actual pension payments or any post-retirement benefits beyond the annual contributions.

During the years ended December 31, 2009 and 2008, the Company’s contributions to the above retirement benefit plan amounted to US$16,599 and US$30,611 respectively.

- 34 -

16.	OPERATING RISKS

(a)	Concentration of major customers and subcontractors

	2009			2008
Major customers with revenues of more than 10% of the Company’s total operating revenue
Revenue from major customers	$	1,380,957		$	196,652
Percentage of sales		69	%		33	%
Number		3			2

(b)	Country risks

17.	SEGMENT INFORMATION

During the years ended December 31, 2009 and 2008, revenue of the Company represented service income from providing smart card systems and other value-added services for which the Company does not have discrete financial information. Therefore, no financial information by business segment is presented. Furthermore, as all service income is derived from the PRC, no information by geographical segment is presented.

All tangible and intangible assets are located in the PRC for the years ended December 31, 2009 and 2008.

18.	CHANGE TO A PLAN OF DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

The Company entered into an agreement with a third party individual (the “Purchaser”) on March 28, 2009 to dispose of its entire 51% equity interests in JinCheng (the “Proposed Disposal”) at a consideration of approximately US$370,000. The Proposed Disposal is expected to be completed within one year at the time of signing the agreement and the Company has concluded that the Proposed 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 the business attributable to JinCheng have been classified as discontinued in the Company’s condensed consolidated statements of operations included in the Form 10-Q filings for the periods ended March 31, June 30 and September 30, 2009 and 2008. In addition, major classes of assets and liabilities of JinCheng have been classified as held for sale in the Company’s condensed consolidated balance sheets as of March 31, June 30 and September 30, 2009.

On December 31, 2009, the Company has agreed with the Purchaser to terminate the Proposed Disposal as the Purchaser was unable to settle the consideration as scheduled. The assets held for sale was then reclassified as held and used and measured at the lower of its carrying amount before the asset was classified as held for sale, adjusted for amortization expense that would have been recognized had the asset been continuously classified as held and used and its fair value as of December 31, 2009.

19.	SUBSEQUENT EVENT

The Company has evaluated subsequent events up to April 15, 2010 which is the date that these consolidated financial statements were approved and authorized for issue by the sole director. Subsequent to the balance sheet date, Wanzhi has entered into an agreement to acquire an additional 35% equity interest in Foshan Company at a consideration of US$294,118 so that the Company’s effective interest in Foshan Company will be increased to 90% upon completion of the transaction.

- 35 -

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

The Financial Statements of the Company have been audited by Mazars CPA Limited for the fiscal year ended December 31, 2009 and 2008.

There have been no changes in or disagreements with Mazars CPA Limited, on accounting and financial disclosure matters at any time.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of December 31, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures (as defined under Rule 13a-15(e) or 15d-15(e) under the Exchange Act) are effective.

(b) Management's Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company in accordance with Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements, providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the evaluation date, nor were there any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken.

- 36 -

ITEM 9AT. CONTROLS AND PROCEDURES

(a) The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-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 December 31, 2009.

(b) This annual 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 fourth fiscal quarter of 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following table sets forth the names, ages, and positions with the Company for each of the directors and officers of the Company. All executive officers are elected by the Board of Directors and hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified.

Name	Age	Positions

Ping Tang	56	Chief Executive Officer, President and Director

Chunlin Zhang	39	Vice President and Chief Financial Officer

- 37 -

The following is information on the business experience of each director and officer.

Ms. Ping Tang, age 56, has been the general manager of Foshan Chigo Educational Technology Equipment Co., Ltd since June 2003. From July 1998 to May 2003, she was the manager of Guangzhou Huaqiao Sugar Factory. From May 1978 to June 1998, she was the director of Yian Sugar Factory in Yian, Heilongjiang province in China.

Mr. Chunlin Zhang, age 39, 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.

Family Relationships

There are no familial relationships between or among our officers and directors.

Meetings of Our Board of Directors

The Registrant’s Board of Directors took all actions by unanimous written consent without a meeting during the fiscal year ended December 31, 2009.

The Registrant’s Board of Directors took all actions by unanimous written consent without a meeting during the fiscal year ended December 31, 2008.

Board Committees

Audit Committee. The Company intends to establish an audit committee of the board of directors, which will consist of soon-to-be-nominated independent directors. The audit committee’s duties would be to recommend to the Company’s Board of Directors the engagement of independent auditors to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of the Company’s Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

Compensation Committee. The Company intends to establish a compensation committee of the Board of Directors. The compensation committee would review and approve the Company’s salary and benefits policies, including compensation of executive officers.

Compensation of Directors

We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director.

Significant Employees

Other than the directors and officer described above, we do not expect any other individuals to make a significant contribution to our business.

Involvement in Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

Ÿ	any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

Ÿ	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

Ÿ	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

Ÿ	being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Code of Ethics

The Company has adopted a Code of Ethics that applies to the Company’s principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as other employees (the "Code of Ethics"), a copy of which is attached as Exhibit 14.1 to our Form 10-KSB for the fiscal year ended December 31, 2006, and is incorporated herein by reference. The Code of Ethics is designed with the intent to deter wrongdoing, and to promote the following:

·	Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
·	Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer
·	Compliance with applicable governmental laws, rules and regulations
·	The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code
·	Accountability for adherence to the code

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and the Company is required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2009. The Company believes that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial owners of more than 10% of the Company’s common stock. In making this statement, the Company has relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.

- 38 -

Item 11. Executive Compensation

Compensation Discussion and Analysis

The Company maintains a peer-based executive compensation program comprised of fixed and performance variable elements. The design and operation of the program reflect the following objectives:

-	Recruiting and retaining talented leadership.
-	Implementing measurable performance targets.
-	Correlating compensation directly with shareowner value.
-	Emphasizing performance based compensation, progressively weighted with seniority level.
-	Adherence to high ethical, safety and leadership standards.

Designing a Competitive Compensation Package

Recruitment and retention of leadership to manage the Company requires a competitive compensation package. The Board of Directors emphasizes (i) fixed compensation elements of base salary that compare with its compensation peer group of companies, and (ii) variable compensation contingent on above-target performance. The compensation peer group consists of those companies in the Hong Kong S.A.R. which the Company deems to compete with it for executive talent. Individual compensation will vary depending on factors such as performance, job scope, abilities, tenure and retention risk.

Fixed Compensation

The principal element of fixed compensation not directly linked to performance targets is base salary. The Company targets the value of fixed compensation generally at the median of its compensation peer group to facilitate a competitive recruitment and retention strategy.

Incentive Compensation

The Company’s incentive compensation programs are linked directly to earnings growth, cash flow, and total shareowner return. Annual bonuses are tied to the current year’s performance of our company. Restrictive stock awards are tied to an individual’s success in exceeding targeted results set by management.

The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by the Company’s chief executive officer and all other executive officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods.

SUMMARY COMPENSATION TABLE

(all figures in US Dollars)

(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)		(I)		(j)
Name and Principal Position	Year		Salary		Bonus		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation		Change in Pension Value and Nonquali- fied Deferred Compensation Earnings		All Other Compensation		Total
Ping Tang President, Chief Executive Officer		2009 2008 2007	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0

Chunlin Zhang		2009	$	815	$	0	$	0	$	0	$	0	$	0	$	0	$	815
Vice President and		2008	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Chief Financial Officer		2007	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Zhen Wang Former Interim Chief Financial Officer		2009 2008 2007	$ $ $	4,803 9,055 6,791	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	4,803 9,055 6,791

Benny Lee Former Chief Executive Officer and Director		2009 2008 2007	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0	$ $ $	0 0 0

- 39 -

Option Grants in Last Fiscal Year

There were no options granted to any of the named executive officers during the years ended December 31, 2009 and 2008.

Employment Agreements

The Company has no employment agreements with any of its employees.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

Equity Compensation Plan Information

The Company currently does not have any equity compensation plans; however the Company is currently deliberating on implementing an equity compensation plan.

Directors’ and Officers’ Liability Insurance

The Company currently does not have insurance insuring directors and officers against liability; however, the Company is in the process of investigating the availability of such insurance.

Compensation Committee

We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.

Director Compensation

The Company paid nil to its directors for service as directors in 2009, and the Company has not paid its directors any separate compensation in respect of their services on the board. However, in the future, the Company intends to implement a market-based director compensation program.

Change of Control

As of December 31, 2009 we had no pension plans or compensatory plans or other arrangements which provide compensation on the event of termination of employment or change in control of us.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the number of shares of common stock beneficially owned as of April 14, 2010 by (i) those persons or groups known to us who will beneficially own more than 5% of our common stock; (ii) each Director and director nominee; (iii) each executive officer; and, (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the Securities and Exchange Commission and upon information provided by such persons directly to us. There was no other person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares.

Title of Class	Name	Number of Shares Owned (1)(2)	Percent of Voting Power (1)

Common	East Sincere Management Limited Benny Lee - CEO, CFO and Sole Owner Rm 1003, Singga Commercial Building 144 Connaught Road West, Hong Kong	354,969	27.47%

Common	Profit Gain Management Limited Ping Tang – CEO, CFO and Sole Owner Suite 1606-7, 16F, Great Eagle Centre 23 Harbour Road, Hong Kong	446,948	34.58%

Common	All Officers and Directors as a Group (1 person)	801,917	62.06%

(1) Calculation based on 1,292,166 shares outstanding as of April 14, 2010.

(2) Except as otherwise indicated, the shares are owned of record and beneficially by the persons named in the table.

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Item 13. Certain Relationships and Related Transactions

Not applicable.

Item 14. Principal Accountant Fees and Services

Fees Billed For Audit and Non-Audit Services

The aggregate fees billed by our principal accounting firm for the fiscal years ended December 31, 2009, and 2008 are as follows:

Name	Audit Fees(1)		Audit Related Fees (2)		Tax Fees (4)		All Other Fees (4)
Mazars CPA Limited
for fiscal year ended:
December 31, 2009	$	59,615	$	0	$	0	$	0
December 31, 2008	$	53,845	$	0	$	0	$	73,077

___________________________

(1)

Audit Fees. These are fees for professional services for the audit of the Company's annual financial statements, and for the review of the financial statements included in the Company's filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements. The fees shown above represent fees billed by Mazars CPA Limited for the audit and review of the Company's financial statements for the period from January 1, 2009 through December 31, 2009, and from January 1, 2008 through December 31, 2008.

(2)

Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of the Company's financial statements.

(3)

Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.

(4)

All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees. The fees stated above relate to the audit of financial statements of a company which the Company proposed to acquire. The acquisition has been suspended.

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Pre-Approval Policy For Audit and Non-Audit Services

The Company does not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before the Company engages an accountant. All of the services rendered to the Company by the accounting firm of Mazars CPA Limited, Certified Public Accountants after March 1, 2008 were pre-approved by the Board of Directors of the Company.

The Company is presently working with its legal counsel to establish formal pre-approval policies and procedures for future engagements of the Company's accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that the Company's new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

See "Index to Consolidated Financial Statements" set forth on page 18.

(a)(2) Financial Statement Schedules

None. The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.

(a)(3) Exhibits

2.1	Share Exchange Agreement between Axiom III, Inc., Duane Bennett, Eastern Concept Development Ltd., the shareholder of Eastern Concept, Foshan Wanzhi Electron S&T Co., Ltd., and the shareholders of Foshan (1)
2.2	Share Exchange Agreement between Eastern Concept Corporate Consulting (Shenzhen) Limited, Xinghao LI, and Jun CHEN (1)
3.1	Articles of Incorporation of Smartpay Express Inc., a Nevada Corporation (2)
3.2	Certificate of Amendment of Articles of Incorporation changing the authorized capital*
3.3	Certificate of Amendment of Articles of Incorporation effecting a one-for-50 reverse split (3)
3.4	By-Laws of Smartpay Express Inc. (2)
14.1	Code of Ethics (4)
16.1	Letter on changes in certifying accountant (5)
21.1	Subsidiaries of the Registrant*
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith
(1)	Filed with the Commission as exhibits to Form 8-K filed on November 9, 2007
(2)	Filed with the Commission as exhibits to Registration Statement on Form SB-2 filed on December 3, 2004
(3)	Filed with the Commission as Appendix A within our Definitive Information Statement on Schedule 14C filed October 29, 2008
(4)	Filed with the Commission as Exhibit 14.1 to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SMARYPAY EXPRESS, INC.



Dated: April 15, 2010	By:	/s/ Ping Tang
		Ping Tang, Chief Executive Officer and President

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Dated: April 15, 2010	By:	/s/ Ping Tang
		Ping Tang, Sole Director

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