PSYCHECEUTICAL BIOSCIENCE, INC. - Annual Report: 2008 (Form 10-K)
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, 2008
OR
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)
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Nevada
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20 - 1204606
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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5th Floor,
Chigo Sales Center,
Fenggang
Road, Lishui Town, Nanhai
Guangdong Province, The
People’s Republic of China
(Address
of principal executive offices)
011-852-6873-0043
(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
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 $592,809
The
aggregate market value of the issuer's common stock held by non-affiliates was
approximately $73,537 based on the average closing bid and ask price for the
common stock on April 7, 2009.
As of
April 14, 2009, there were outstanding 1,292,166 shares of the
issuer's common stock, par value $.001.
- 2
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TABLE
OF CONTENTS
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Page
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Part
I
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Item
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1.
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Business
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4
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2.
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Properties
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11
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3.
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Legal
Proceedings
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11
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4.
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Submission
of Matters to a Vote of Security Holders
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11
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Part
II
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5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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11
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6.
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Selected
Financial Data
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13
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7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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17
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8.
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Financial
Statements and Supplementary Data
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18
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9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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37
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9A.
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Controls
and Procedures
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37
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9A(T).
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Controls
and Procedures – Internal Control Over Financial Reporting
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38
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9B.
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Other
Information
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38
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Part
III
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10.
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Directors,
Executive Officers and Corporate Governance
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38
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11.
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Executive
Compensation
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41
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12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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41
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
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42
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14.
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Principal
Accountant Fees and Services
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42
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Part
IV
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15.
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Exhibits,
Financial Statement Schedules and Reports on Form 8-K
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43
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Signature
Page
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44
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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:
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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.
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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.
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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 (?癑inCheng”), 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.
Subsequent
to December 31, 2008, Foshan Company entered into an agreement to dispose of its
entire 51% equity interest in JinCheng at a consideration of
US$365,217.
The
following organizational chart shows the relationship of these entities and
their owners as of December 31, 2008:
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 20
card equipment and software development staff members, five industrial service
integration and management personnel, 20 business and customer service
personnel, and 40 technical representatives.
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:
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Government
services: offer payment services of social security; medical; government
reimbursement and transfer for applicable government
services;
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Municipal
utilities services: offer payment services of public transportation;
library and cultural facilities; and other public
services;
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E-money
services: offer petty Electron S&T payment services for
expenditures in merchant stores; fast food stores; and other available
member merchants;
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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.
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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, 2008 to December
31, 2008 were approximately $483,165. 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:
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Acquire
operating licenses for other AIOMS card from the government in other major
cities with no current operators, including targeted city of
Dongguan;
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Merge
and acquire existing AIOMS card businesses from current operators,
including the Guangzhou operator; and
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Acquire
related value-added services businesses so as to provide turnkey services
for card users.
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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:
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Commissions
from petty payment and settlement for the citizen
cards;
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Monthly
maintenance fees from the student cards;
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Commissions
from shopping and transfer services from the employee
cards;
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Commissions
from petty payment and settlement for the municipal travel
cards;
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Commissions
from consumption activities of the VIP merchant cards;
and
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Income
from providing database of consumption patterns to businesses and
institutions.
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Factors
that affect sales volumes for AIOMS cards include:
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World
gross domestic product growth
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Number
of AIOMS card operators acquired and
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Development
of additional value-added services
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Factors
that affect the prices for AIOMS cards include:
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World
economic environment
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Relative
strength of the Chinese RMB
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Quality
of services provided
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Abundance
of services provided
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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.
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.
- 8
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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:
|
1)
|
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;
|
|
·
|
Watsons:
the popular chain store of Hutchison Whampoa, a listed company on the Hong
Kong Stock Exchange, and a data service client of Foshan; has shared
Foshan with a database of 2.8 million VIP customers;
|
|
·
|
China
Unicom Foshan City Branch: our quality service
provider;
|
|
·
|
China
Mobile Foshan City Branch: our quality service provider;
and
|
|
·
|
China
Telecom Foshan City Branch: 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.
Sales
and Marketing
Foshan
has a current sales and marketing force of 20 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:
|
1)
|
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;
|
|
2)
|
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;
|
|
3)
|
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, 2008 to December 31, 2008, the Company achieved revenues of
$592,809. During the same time period, the Company’s top five customers – ranked
by the sales amount sold to each customer – contributed $572,489 in
revenues. The following table depicts the top five customers for
the period from January 1, 2008 through December 31, 2008.
|
Name
of Customer
|
Sales
|
%
of Total Sales
|
||||
|
Guangdong
Chigo Air Conditioning Co., Ltd
|
$
|
109,644
|
18.5
|
%
|
||
|
Guangzhou
Watson's
|
$
|
52,125
|
8.8
|
%
|
||
|
Aviva-cofco
LifeInsurance Co., Ltd
|
$
|
87,008
|
14.7
|
%
|
||
|
TOTALS
|
$
|
248,777
|
42.0
|
%
|
||
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 85 full time employees.
- 10
-
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.
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.
On or
about October 16, 2008, the stockholders of the Company approved a 1-for-50
reverse stock split of the outstanding common stock of the Company by a written
consent, and an Information Statement was sent to the stockholders of the
Company. The reverse stock split became effective on November 21,
2008.
As a
result of the reverse stock split, the Company was assigned a new trading symbol
of SPYE for its common stock on the NASD Electronic Bulletin Board
over-the-counter market (OTC-BB). Prior to the reverse stock split, the
Company’s trading symbol was SPYX.
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
|
|||||
|
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
|
||||
|
2007
|
First
Quarter
|
N/A
|
N/A
|
|||
|
Second
Quarter
|
0.35
|
0.25
|
||||
| Third Quarter |
0.22
|
0.05
|
||||
|
Fourth
Quarter
|
0.75
|
0.15
|
(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, 2008, there were 152 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, 2008, we did not have any equity compensation plans.
Recent
Sales of Unregistered Securities
As a
result of a share exchange transaction consummated on November 9, 2007, the
Company issued 35,351,667 shares of its common stock to the Eastern Concept
Shareholder in exchange for 100% of the issued and outstanding share capital of
Eastern Concept. This share issuance represented 70.7% of the total
50,000,000 common shares issued and outstanding after giving effect to the share
exchange, and, as a result, Eastern Concept became a wholly owned subsidiary of
SPYE. This share issuance was exempt from registration under Section
4(2) and Regulation S of the Securities Act, based on the facts that this was an
isolated transaction to one individual, who was sophisticated in securities
transactions, and who was also not a U.S. person as described in Regulation
S.
In
February 2008, SPYE issued 1,000,000 shares of its common stock to third
parties for consulting and professional services provided to the Company in
reliance on an exemption from registration provided by Regulation S under the
Securities Act of 1933, as amended.
On
September 9, 2008, SPYE issued 13,607,460 shares of common stock at US$0.10 per
share to settle a debt due to a related party, Benny Lee, of US$1,360,746, in
reliance on an exemption from registration pursuant to Regulation S under the
Securities Act of 1933, as amended.
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, 2008.
Item
6. Selected Financial Data
Not
applicable.
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 20 card equipment and software development staff members, 5 industrial
service integration and management
personnel, 20 business and customer service personnel, and 40 technical
representatives.
- 13
-
The
following table shows selected financial data of the consolidated statements of
operations of the Company and its subsidiaries for the year ended December
31, 2008 and the period from June 29, 2007 (date of inception) to December
31, 2007. 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
|
Period
from
|
%
of
|
||||||||||||
|
Dec
31, 2008
|
Revenue
|
Jun
29, 2007 to Dec 31, 2007
|
Revenue
|
|||||||||||||
|
Operating
revenues
|
||||||||||||||||
|
Service Income
|
593
|
100.0
|
214
|
100.0
|
||||||||||||
|
Operating
expenses
|
||||||||||||||||
|
Subcontracting and other charges
|
(342
|
)
|
(57.7
|
)
|
(105
|
)
|
(49.1
|
)
|
||||||||
|
Staff costs
|
(336
|
)
|
(56.7
|
)
|
(42
|
)
|
(19.6
|
)
|
||||||||
|
Depreciation expenses
|
(15
|
)
|
(2.5
|
)
|
(2
|
)
|
(.9
|
)
|
||||||||
|
Amortization of intangible assets
|
(221
|
)
|
(37.3
|
)
|
(64
|
)
|
(29.9
|
)
|
||||||||
|
Other general and administrative expenses
|
(836
|
)
|
(141.0
|
)
|
(40
|
)
|
(18.7
|
)
|
||||||||
|
Total
Operating expenses
|
(1,750
|
)
|
(295.1
|
)
|
(253
|
)
|
(118.2
|
)
|
||||||||
|
Loss
from operations
|
(1,157
|
)
|
(195.1
|
)
|
(38
|
)
|
(17.8
|
)
|
||||||||
|
Non-operating
income
|
||||||||||||||||
|
Interest income
|
3
|
0.5
|
2
|
0.9
|
||||||||||||
| Sundry income | 4 | 0.7 | 20 | 9.4 | ||||||||||||
|
Others
|
173
|
29.8
|
2
|
0.9
|
||||||||||||
|
Loss
before income tax and minority interests
|
(973
|
)
|
(164.1
|
)
|
(16
|
)
|
(7.5
|
)
|
||||||||
|
Income tax expense
|
0
|
0.0
|
(7
|
)
|
(3.3
|
)
|
||||||||||
|
Loss
before minority interests
|
(973
|
)
|
(164.1
|
)
|
(23
|
)
|
(10.8
|
)
|
||||||||
|
Minority interests
|
150
|
25.3
|
|
(2
|
)
|
(0.9
|
)
|
|||||||||
|
Net
loss
|
(823
|
)
|
(138.8
|
)
|
(25
|
)
|
(11.7
|
)
|
||||||||
|
Loss
per share
|
||||||||||||||||
|
Basic
|
$
|
(0.75
|
)
|
$
|
(0.02
|
)
|
||||||||||
FISCAL
YEAR ENDED DECEMBER 31, 2008 COMPARED TO PERIOD ENDED DECEMBER 31,
2007.
The
acquisition of Eastern Concept by the Company has been treated as a reverse
acquisition whereby Eastern Concept is considered as the
acquirer. Eastern Concept was incorporated in Hong Kong on June 29,
2007 (date of inception) and there was no annual comparative financial figure
prior to its incorporation. As a result, the Company captures all
activities for the year ended December 31, 2008 and compares them to the period
from June 29, 2007 (date of inception) to December 31, 2007 in this
report.
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 $592,809 service
income as operating revenue for the year ended December 31, 2008, as compared to
approximately $214,069 for the period ended December 31, 2007, an increase of
177%. Approximately 53% was generated from the Nanhai project for the year end
December 31, 2008, as compared to 37% for the period ended December 31, 2007.
The increase in revenue during the year ended December 31, 2008 was mainly
attributable to the Nanhai project that had started to generate income from
September 2007 while full year income was recognized in 2008. In
addition, Foshan Wanzhi, a major operating subsidiary, was acquired by SPYE on
November 6, 2007 and therefore only 2 months’ results had been included in the
2007 financials. These gave rise to the significant changes in the level of
revenue and expenses during the year. At present, there are approximately 30,000
students in Nanhai city who are using our services. We anticipate that more
operating revenues would be generated as we expand our services to students in
other cities including Shenzhen, Chaozhou, Maoming and Qingyuan within Guangdong
province.
SUBCONTRACTING
AND OTHER CHARGES
Subcontracting
and other charges increased 227% to approximately $341,778 for the year ended
December 31, 2008, as compared to approximately $104,583 for the period ended
December 31, 2007.
The
significant portion of these charges, approximately 66% and 38% for the period
ended December 31, 2008 and 2007, respectively, was related to the Nanhai
project, for which the Company engaged the Foshan City branch of China
Telecom to provide telecommunication services.
STAFF
COSTS
The total
staff costs for the year ended December 31, 2008 approximated $335,947 as
compared to $42,124 for the year end December 31, 2007, an increase of
698%. The significant increase in staff costs was due to the addition of
more personnel for couple educational projects that we are working on in some
other cities including Shenzhen, Chaozhou, Maoming and Qingyuan within Guangdong
province. Currently, the Company employs
20 card
equipment and software development staff members, 5 industrial service
integration and management personnel, 20 business and customer service
personnel, and 40 technical representatives.
DEPRECIATION
EXPENSES
Depreciation
expenses for the year ended December 31, 2008 amounted to $14,527, as compared
to $1,758 for the period ended December 31, 2007, an increase of
726%. These expenses were related to the depreciation charged on
office equipment and computers.
AMORTIZATION
OF INTANGIBLE ASSETS
Amortization
charges of intangible assets for year ended December 31, 2008 approximated
$221,000, as compared to $64,000 for the period ended December 31, 2007, an
increase of 245%. 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,
2008, the carrying value of the operating rights of the Nanhai project and
ShanCheng project was approximately $1.2 million and $252,000, respectively; and
the carrying value of the intangible asset of the computer software was
approximately $300,000.
OTHER
GENERAL AND ADMINISTRATIVE EXPENSES
Other
general and administrative expenses for the year end December 31, 2008 were
$836,371, as compared to $39,903 for the period ended December 31, 2007, an
increase of 1,996%. The significant increase in other general and administrative
expenses was mainly due to additional consulting
and professional fees that we paid for in connection with our filing
obligations as a reporting company. For the year end December 31, 2008, we have
incurred costs for consultancy, legal and professional fees
as shown below.
Consultancy
fees – $383,333. In February 2008, we issued 700,000 and 300,000 shares at
US$0.60 per share to third parties for consulting and professional services
provided or 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;
$383,333 of which are recognized as expenses during the year while the balance
was included in prepayments for services for the remaining period.
Legal and
professional fees - $165,802 which includes (i) expenses for finding new
directors of $43,836 written off; (ii) audit and review fees of $64,544; (iii)
legal and professional fees for issuance of new shares for consulting services,
settlement of debt, reverse stock split costs, and SEC compliance of
$57,422, of which $37,120 were for legal fees and $20,302 were for professional
fees.
These
compliance costs have negatively impact our ability to attain profitable
operations.
INTEREST INCOME
Interest
income for the year end December 31, 2008 was $3,154, as compared to $2,496 for
the period ended December 31, 2007, an increase of 26%. This income was the
interest earned on cash in bank deposit.
SUNDRY INCOME
The sundry income for
the year ended December 31, 2008 was $3,595, as compared to $20,266 for the
period ended December 31, 2007, a decrease of 82%. This decrease
in sundry income was due the termination of other non-core services
provided to Foshan Shancheng JiaXun Technology Services Centre after the sale of
our ownership in it.
OTHERS
Others
are mainly comprised of subsidy income of $27,671 and a gain on disposal of
partial interest in a subsidiary of $259,837, offset by amortization of loans
from a related party of $70,188 and loss on partial settlement of loans from a
related party of $34,112.
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 2008 as compared to 33% in year 2007.
Since the
Company’s PRC established subsidiaries incurred a loss for the year ended
December 31, 2008, no provision for EIT has been made.
NET LOSS
Net loss
increased 3,225% to $822,628 for the year ended December 31, 2008, as compared
to $24,737 for the period ended December 31, 2007. The increase in net loss
was primarily due to additional consulting and professional fees that were
incurred in connection with our filing obligations as a reporting company, which
have negatively impact our ability to attain profitable
operations.
LIQUIDITY
AND CAPITAL RESOURCES
As of
December 31, 2008, cash and cash equivalents totaled $245,685. This
cash position was the result of a combination of net cash used in financing
activities in the amount of $305,408, net cash used in operating activities in
the amount of $796,285 and net cash used in investing activities of
$104,427. The cash used in financing activities was primarily due to the
settlement of loans from a related party. The net cash used in
operating activities was mainly due to the loss incurred during the year
. The net cash used in investing activities was the cash used in the
purchase of property, plant and equipment, loans to related parties and increase
in bank deposit, collateralized offset by cash received from proceeds on
disposal of a subsidiary.
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
EVENTS
Subsequent
to the balance sheet date, Foshan Company has entered into an agreement to
dispose of its entire 51% equity interest in JinCheng at a consideration of
US$365,217.
Effective
March 31, 2009, the Board of Directors of the Company accepted the resignation
of Mr. Benny Lee as an officer and director of the Company. Mr. Benny
Lee resigned as an officer and director of the Company for personal reasons, and
not because of any disagreement with the Company concerning its operations,
policies or procedures. Mr. Benny Lee will continue to assist the Company in a
consulting capacity.
Because
Mr. Benny Lee resigned as an officer and director of the Company, Ms. Ping Tang
was appointed as President, Chief Executive Officer and secretary of the
Company; and Mr. Zhen Wang was appointed as interim Chief Financial Officer of
the Company.
CRITICAL
ACCOUNTING POLICIES
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” the Company identified the most
critical accounting principals upon which its financial status depends. The
Company determined that those critical accounting principles are related to the
use of estimates, revenue recognition, income tax and impairment of intangibles
and other long-lived assets. The Company presents these accounting policies in
the relevant sections in this management’s discussion and analysis, including
the Recently Issued Accounting Pronouncements discussed below.
In
presenting our financial statements in conformity with generally accepted
accounting principles, we are required to make estimates and assumptions that
affect the amounts reported therein. Several of the estimates and assumptions we
are required to make relate to matters that are inherently uncertain as they
pertain to future events. However, events that are outside of our control cannot
be predicted and, as such, they cannot be contemplated in evaluating such
estimates and assumptions. If there is a significant unfavourable change to
current conditions, it could result in a material adverse impact to our
consolidated results of operations, financial position and liquidity. We believe
that the estimates and assumptions we used when preparing our financial
statements were the most appropriate at that time. Presented below are those
accounting policies that we believe require subjective and complex judgments
that could potentially affect reported results. However, the majority of our
businesses operate in environments where we pay a fee for a service
performed, and therefore the results of the majority of our recurring operations
are recorded in our financial statements using accounting policies that are not
particularly subjective, nor complex.
Valuation
of Long-Lived Assets
We review
our long-lived assets for impairment, including property, plant and equipment,
and identifiable intangibles with definite lives, whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of our long-lived assets, we evaluate
the probability that future undiscounted net cash flows will be greater than the
carrying amount of our assets. Impairment is measured based on the difference
between the carrying amount of our assets and their estimated fair
value.
Allowance
for Doubtful Accounts
We
perform ongoing credit evaluations of our customers and adjust credit limits
based upon customer payment history and current creditworthiness. We
continuously monitor collections and payments from our customers and maintain a
provision for estimated credit losses based upon our historical experience and
any specific customer collection issues that have been identified. While such
credit losses have historically been within our expectations and the
provisions established, we cannot guarantee that we will continue to experience
credit loss rates similar to those we have experienced in the past. Measurement
of such losses requires consideration of historical loss experience, including
the need to adjust for current conditions, and judgments about the probable
effects of relevant observable data, including present economic conditions such
as delinquency rates and financial health of specific customers.
Off-Balance
Sheet Arrangements
The
Company has not entered into any financial guarantees or other commitments to
guarantee the payment obligations of any third parties. The Company has not
entered into any derivative contracts that are indexed to the Company's shares
and classified as shareholder’s equity or that are not reflected in the
Company's financial statements. Furthermore, the Company does not have any
retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity.
The Company does not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to the Company
or engages in leasing, hedging or research and development services with the
Company.
Inflation
The
Company believes that inflation has not had a material effect on its operations
to date.
Income
Taxes
Provision
for income and other taxes has been made in accordance with the tax rates and
laws in effect in the PRC.
Income
tax is computed on the basis of pre-tax income. Deferred taxes are provided
using the liability method for all significant temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and net operating loss carry forwards. The tax
consequences of those differences are classified as current or non-current based
on the classification of the related assets or liabilities in the financial
statements.
Revenue
Recognition
The
Company generally recognizes service revenues when persuasive evidence of an
arrangement exists, services are rendered, the fee is fixed or determinable, and
collectibility is probable. Service revenues are recognized net of
discounts.
Recently
Issued Accounting Pronouncements
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities - An Amendment of No. 133 ("SFAS 161"). SFAS 161 expands the
disclosure requirements in 133, regarding an entity's derivative instruments and
hedging activities. SFAS 161 is effective on January 1, 2009. The
adoption of this Statement is not expected to have a material effect on the
Company's financial statements.
In May
2008, the FASB issued The Hierarchy of Generally Accepted Accounting Principles
("SFAS 162"). The new standard is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
non-governmental entities. SFAS 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of the
adoption of SFAS 162 on the Company's financial statements.
In May
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts, an interpretation of FASB Statement No. 60 ("SFAS 163") to require
that an insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration has
occurred in an insured financial obligation and clarifies how Statement 60
applies to financial guarantee insurance contracts. SFAS 163 is effective for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The adoption of this Statement is not expected to have a material
impact on the Company's financial statements.
On
September 12, 2008, the FASB issued FASB staff position No. 133-1 (FSP 133-1)
and FIN 45-4, Disclosures about credit derivatives and Certain Guarantees - An
amendment of SFAS 133 and FIN 45; and Clarification of the Effective Date of
SFAS 161. FSP 13-1 and FIN 45-4 expand the disclosure requirement of credit
derivatives and guarantees and are effective for reporting periods (annual or
interim) ending after November 15, 2008. The adoption of these
statements does not have any effect on the Company's financial
statements.
On
October 10, 2008, the FASB issued a FASB Staff Position No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the Market For That Asset
Is Not Active (FSP 157-3), clarifies the application of SFAS 157 in a market
that is not active. The FASB also issued a FASB Staff Position No. FAS 157-2,
Effective Date of FAS 13 Statement No. 157, amending SFAS 157 for non financial
assets and non financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis at
least annually, effective for fiscal years beginning after November 15, 2008,
and interim periods within these fiscal years. The adoption of these statements
is not expected to have a material effect on the Company's 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. The
Company is continuously developing a more diversified customer base following
the growing level of operations of Foshan Company and the Nanhai
project.
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, that changes in political and other conditions
will not result in any adverse impact.
Cash and Time
Deposits
The
Company principally 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.
The
information required by this Item follows below.
SMARTPAY
EXPRESS, INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
19
|
|
Consolidated
Statement of Operations
|
20
|
|
Consolidated
Balance Sheets
|
21
|
|
Consolidated
Statements of Stockholders' Equity
|
22
|
|
Consolidated
Statements of Cash Flows
|
23
|
|
Notes
to Financial Statements
|
24
- 36
|
- 18
-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
SmartPay
Express, Inc.
(formerly
known as Axiom III, Inc.)
We have
audited the accompanying consolidated balance sheets of SmartPay Express, Inc.
and its subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 2008 and for the period from June 29, 2007
(date of inception) to December 31, 2007. 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, 2008 and 2007, and the results of its operations and cash flows for the year
ended December 31, 2008 and for the period from June 29, 2007 (date of
inception) to December 31, 2007 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, 2008 of
US$376,168, which raises substantial doubt about its ability to continue as a
going concern. Management’s plans in regard to these matters are described in
note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/
Mazars CPA Limited
Certified
Public Accountants
Hong
Kong
Date:
April 14, 2009
- 19
-
SmartPay Express, Inc.
(formerly
known as Axiom III, Inc.)
Consolidated
Statements of Operations
|
Year
ended
December
31, 2008
|
From
June
29,2007
(date
of incorporation)
to
December 31, 2007
|
|||||||||||
|
Note
|
US$
|
US$
|
||||||||||
|
Operating
revenue
|
||||||||||||
|
Service
income
|
592,809 | 214,069 | ||||||||||
|
Operating
expenses
|
||||||||||||
|
Subcontracting
and other charges
|
(341,778 | ) | (104,583 | ) | ||||||||
|
Staff
costs
|
(335,947 | ) | (42,124 | ) | ||||||||
|
Depreciation
of property, plant and equipment
|
(14,527 | ) | (1,758 | ) | ||||||||
|
Amortization
of intangible assets
|
(221,196 | ) | (63,788 | ) | ||||||||
|
Other
general and administrative expenses
|
(836,371 | ) | (39,903 | ) | ||||||||
|
Loss
from operations
|
(1,157,010 | ) | (38,087 | ) | ||||||||
|
Interest
income
|
3,154 | 2,496 | ||||||||||
|
Interest
expense
|
(3,580 | ) | - | |||||||||
|
Subsidy
income
|
27,671 | - | ||||||||||
|
Other
income
|
3,595 | 20,266 | ||||||||||
|
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
|
5(b)(iv)
|
(70,188 | ) | - | ||||||||
|
Loss
on partial settlement of loans from a related party
|
5(b)(iv)
|
(34,112 | ) | - | ||||||||
|
Share
of result of an associate
|
(2,824 | ) | - | |||||||||
|
Loss
before income tax and minority interests
|
(972,799 | ) | (15,325 | ) | ||||||||
|
Income
tax
|
4 | - | (7,270 | ) | ||||||||
|
Loss
before minority interests
|
(972,799 | ) | (22,595 | ) | ||||||||
|
Minority
interests
|
150,171 | (2,142 | ) | |||||||||
|
Net
loss
|
(822,628 | ) | (24,737 | ) | ||||||||
|
Other
comprehensive income
|
||||||||||||
|
-
Foreign currency translation
|
58,384 | - | ||||||||||
|
Total
comprehensive loss
|
(764,244 | ) | (24,737 | ) | ||||||||
|
Basic
net loss per share of common stock
|
(0.75 | ) | (0.02 | ) | ||||||||
|
Weighted
average number of shares of
common stock
outstanding
(Note)
|
1,101,898 | 1,000,000 | ||||||||||
Note: The weighted
average number of shares of common stock outstanding for the period from June
29, 2007 to December 31, 2007 has been adjusted retrospectively for the effect
of the reverse stock split as detailed in note (iv) to the consolidated
statements of stockholders’ equity for the purpose
of calculation of loss per share
The
financial statements should be read in conjunction with the accompanying
notes.
- 20 -
(formerly
known as Axiom III, Inc.)
Consolidated
Balance Sheets
|
As
of December 31,
|
||||||||||||
|
2008
|
2007
|
|||||||||||
|
ASSETS
|
Note
|
US$
|
US$
|
|||||||||
|
Current
assets
|
||||||||||||
|
Trade
receivables from third parties
|
27,261 | 28,266 | ||||||||||
|
Trade
receivables from related parties
|
5 | (b)(i) | 24,148 | 36,239 | ||||||||
|
Prepayments
and deposits
|
230,106 | 170,093 | ||||||||||
|
Other
debtors
|
293,216 | 16,960 | ||||||||||
|
Amounts
due from related parties
|
5(b)(ii)
|
94,204 | 10,084 | |||||||||
|
Loan
receivable from a minority shareholder
|
- | 274,110 | ||||||||||
|
Income
tax recoverable
|
3,774 | 3,567 | ||||||||||
|
Inventories
|
33,207 | 12,604 | ||||||||||
|
Cash
and cash equivalents
|
245,685 | 1,373,085 | ||||||||||
|
Bank
deposits, collateralized
|
11 | 130,435 | - | |||||||||
|
Total
current assets
|
1,082,036 | 1,925,008 | ||||||||||
|
Property,
plant and equipment, net
|
6 | 87,732 | 52,143 | |||||||||
|
Intangible
assets, net
|
7 | 1,729,450 | 1,855,881 | |||||||||
|
Interest
in an associate
|
8 | 18,751 | - | |||||||||
|
Prepayments
for a long-term investment
|
- | 20,548 | ||||||||||
|
Total
assets
|
2,917,969 | 3,853,580 | ||||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Trade
payables
|
40,718 | 11,135 | ||||||||||
|
Accrued
charges and other payables
|
9 | 525,502 | 575,125 | |||||||||
|
Amounts
due to related parties
|
5(b)(iii)
|
19,177 | 1,423,636 | |||||||||
|
Temporary
receipts
|
10 | 94,345 | 508,318 | |||||||||
|
Loans
from a related party
|
5(b)(iv)
|
655,274 | - | |||||||||
|
Short-term
bank loan
|
11 | 123,188 | - | |||||||||
|
Income
tax payable
|
- | 4,536 | ||||||||||
|
Total
current liabilities
|
1,458,204 | 2,522,750 | ||||||||||
|
Loans
from a related party
|
5(b)(iv)
|
- | 883,562 | |||||||||
|
Commitments
and contingencies
|
12 | |||||||||||
|
Minority
interests
|
288,000 | 472,005 | ||||||||||
|
Stockholders' equity
|
||||||||||||
|
Preferred
stock, par value US$0.001 per share; authorized 5,000,000 shares; none
issued and outstanding as of December 31, 2008 and 2007
Common
stock, par value US$0.001 per share; authorized 300,000,000 shares; issued
and outstanding 1,292,166 shares as of December 31, 2008 and 50,000,000
shares as of December 31, 2007
|
1,292 | 50,000 | ||||||||||
|
Additional
paid in capital
|
2,009,454 | - | ||||||||||
|
Dedicated
reserve
|
13 | 319 | 319 | |||||||||
|
Accumulated
losses
|
(897,684 | ) | (75,056 | ) | ||||||||
|
Accumulated
other comprehensive income
|
58,384 | - | ||||||||||
|
Total
stockholders’ equity
|
1,171,765 | (24,737 | ) | |||||||||
|
Total
liabilities and stockholders' equity
|
2,917,969 | 3,853,580 | ||||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
- 21
-
(formerly
known as Axiom III, Inc.)
Consolidated
Statements of Stockholders' Equity
|
Common
stock
|
Additional paid
in capital
|
Dedicated
reserve
|
Accumulated
losses
|
Accumulated other
comprehensive income
|
Total
|
|||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||
|
At
June 29, 2007
(date
of inception) (Note
(i))
|
50,000 | - | - | (50,000 | ) | - | - | |||||||||||||||||
|
Net
loss
|
- | - | - | (24,737 | ) | - | (24,737 | ) | ||||||||||||||||
|
Transfer
to dedicated reserve
|
- | - | 319 | (319 | ) | - | - | |||||||||||||||||
|
As
of December 31, 2007
|
50,000 | - | 319 | (75,056 | ) | - | (24,737 | ) | ||||||||||||||||
|
Issue
of shares for consultancy services (Note
(ii))
|
1,000 | 599,000 | - | - | - | 600,000 | ||||||||||||||||||
|
Issue
of shares for settlement of debt (Note
(iii))
|
13,607 | 1,347,139 | - | - | - | 1,360,746 | ||||||||||||||||||
| 64,607 | 1,946,139 | 319 | (75,056 | ) | - | 1,936,009 | ||||||||||||||||||
|
Reverse
stock split (Note
(iv))
|
(63,315 | ) | 63,315 | - | - | - | - | |||||||||||||||||
| 1,292 | 2,009,454 | 319 | (75,056 | ) | - | 1,936,009 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (822,628 | ) | - | (822,628 | ) | ||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | 58,384 | 58,384 | ||||||||||||||||||
|
As
of December 31, 2008
|
1,292 | 2,009,454 | 319 | (897,684 | ) | 58,384 | 1,171,765 | |||||||||||||||||
Note:
|
(i)
|
The
common stock issued at inception represents shares in issue immediately
after the reverse acquisition of Eastern Concept Development Limited
(“Eastern Concept”), a corporation organized and existing under the laws
of Hong Kong, on October 10, 2007, assuming that the capital structure had
already been in existence since June 29, 2007. Details of the reverse
acquisition are set out in note 1 to the financial
statements.
|
|
(ii)
|
In
February 2008, SmartPay Express, Inc. (“SPYE”) issued 700,000 and 300,000
shares at US$0.60 per share 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.
|
|
(iii)
|
In
September 2008, SPYE issued 13,607,460 shares at US$0.10 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.
|
|
(iv)
|
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$63,315 has been credited to
additional paid in capital.
|
The
financial statements should be read in conjunction with the accompanying
notes.
(formerly known as Axiom III,
Inc.)
Consolidated
Statements of Cash Flows
|
Note
|
Year
ended
December
31, 2008
|
From
June 29, 2007 (date
of incorporation)
to
December 12, 2007
|
|||||||
|
US$
|
US$
|
||||||||
|
Cash
flows from operating activities:
|
|||||||||
|
Net
loss
|
(822,628 | ) | (24,737 | ) | |||||
|
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
|||||||||
|
Depreciation of property, plant
and equipment
|
14,527 | 1,758 | |||||||
|
Amortisation of intangible
assets
|
221,196 | 63,788 | |||||||
|
Minority
interests
|
(150,171 | ) | 2,142 | ||||||
|
Gain on disposal of partial
interest in a subsidiary (foshan tong)
|
(259,837 | ) | - | ||||||
|
Gain on disposal of interest in
a subsidiary
|
(658 | ) | - | ||||||
|
Amortization of loans from a
related party
|
70,188 | - | |||||||
|
Loss on partial settlement of
loans from a related party
|
34,112 | - | |||||||
|
Share of result of an
associate
|
2,824 | - | |||||||
|
Exchange
difference
|
(7,018 | ) | - | ||||||
|
Changes in working
capital:
|
|||||||||
|
Trade
receivables
|
(64,657 | ) | (17,814 | ) | |||||
|
Inventories
|
(19,873 | ) | (5,489 | ) | |||||
|
Prepayments and
deposits
|
549,787 | (79,671 | ) | ||||||
|
Other debtors
|
(275,272 | ) | 730 | ||||||
|
Trade payables
|
28,937 | (13,138 | ) | ||||||
|
Accrued charges and other
payables
|
(80,464 | ) | 25,848 | ||||||
|
Temporary
receipts
|
(32,479 | ) | 90,582 | ||||||
|
Income tax (payable)
recoverable
|
(4,799 | ) | 7,270 | ||||||
|
Net
cash (used in) provided by operating activities
|
(796,285 | ) | 51,269 | ||||||
|
Cash
flows from investing activities:
|
|||||||||
|
Payments for purchase of
property, plant and equipment
|
(47,936 | ) | (3,076 | ) | |||||
|
Prepayment for a long-term
investment
|
- | (20,548 | ) | ||||||
|
Loan to a minority
shareholder
|
- | (274,110 | ) | ||||||
|
Net (advances to) repayment
from related parties
|
(83,535 | ) | 375,698 | ||||||
|
Proceeds on disposal of a
subsidiary
|
14
|
157,479 | - | ||||||
|
Temporary
receipts
|
- | 273,973 | |||||||
|
Acquisition of
subsidiaries
|
15
|
- | (435,401 | ) | |||||
|
Increase in bank deposit,
collateralized
|
(130,435 | ) | - | ||||||
|
Net
cash used in investing activities
|
(104,427 | ) | (83,464 | ) | |||||
|
Cash
flows from financing activities:
|
|||||||||
|
New short-term bank
loan
|
123,188 | - | |||||||
|
Settlement of loans from a
related party
|
(383,809 | ) | - | ||||||
|
(Repayment to) Advances from
related parties
|
(44,787 | ) | 1,405,280 | ||||||
|
Net
cash (used in) provided by financing activities
|
(305,408 | ) | 1,405,280 | ||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(1,206,120 | ) | 1,373,085 | ||||||
|
Cash
and cash equivalents at beginning of year / period
|
1,373,085 | - | |||||||
|
Effect
on exchange rate changes
|
78,720 | - | |||||||
|
Cash
and cash equivalents at end of year / period,
represented
by cash and bank balances
|
245,685 | 1,373,085 | |||||||
|
Supplemental
disclosure of cash flow information
|
|||||||||
|
Interest
received
|
3,154 | 2,496 | |||||||
|
Interest
paid
|
(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.
SMARTPAY
EXPRESS, INC.
(formerly
known as Axiom III, 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 shareholders 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 shareholder of AXIO, to dispose of its 100% interest in Axiom First
Corporation, the only asset of AXIO just before the share exchange on October
10, 2007, at a consideration of US$1. Since then, AXIO entirely ceased its prior
business operations.
For
financial reporting purposes, the acquisition of Eastern Concept by AXIO has
been treated as a reverse acquisition whereby Eastern Concept is considered as
the acquirer, i.e. the surviving entity. On this basis, the historical financial
information prior to October 10, 2007 represents that of Eastern Concept. 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 shareholders of Foshan 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.
- 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, 2008 of US$376,168,
which raises 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 and obtaining adequate finance as and when required.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
The
negative working capital position of the Company as of December 31, 2008 was
mainly because of the loans from a related party of US$655,274. That related
party and two major shareholders have 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 SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments”, 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.
- 25
-
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 year/period ended December 31, 2008 and 2007,
and therefore, no diluted earnings (loss) per share is presented.
|
|
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.
Inventories
Inventories,
mainly comprise 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
|
|
The
Company considers Renminbi as its functional currency as a substantial
portion of the Company’s business activities are 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
SFAS No.
130, "Reporting Comprehensive Income", 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. The Company generally does not require collateral for trade
receivables.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Impairment of long-lived
assets
The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes.
Determination of recoverability of asset to be held and used is by comparing the
carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost
to sell.
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.
Recent
accounting pronouncements
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities - An Amendment of No. 133 ("SFAS 161"). SFAS 161 expands the
disclosure requirements in 133, regarding an entity's derivative instruments and
hedging activities. SFAS 161 is effective on January 1, 2009. The
adoption of this Statement is not expected to have a material effect on the
Company's financial statements.
In May
2008, the FASB issued The Hierarchy of Generally Accepted Accounting Principles
("SFAS 162"). The new standard is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
non-governmental entities. SFAS 162 is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of the
adoption of SFAS 162 on the Company's financial statements.
In May
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts, an interpretation of FASB Statement No. 60 ("SFAS 163") to require
that an insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration has
occurred in an insured financial obligation and clarifies how Statement 60
applies to financial guarantee insurance contracts. SFAS 163 is effective for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The adoption of this Statement is not expected to have a material
impact on the Company's financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Recent
accounting pronouncements (Continued)
On
September 12, 2008, the FASB issued FASB staff position No. 133-1 (FSP 133-1)
and FIN 45-4, Disclosures about credit derivatives and Certain Guarantees - An
amendment of SFAS 133 and FIN 45; and Clarification of the Effective Date of
SFAS 161. FSP 13-1 and FIN 45-4 expand the disclosure requirement of credit
derivatives and guarantees and are effective for reporting periods (annual or
interim) ending after November 15, 2008. The adoption of these
statements does not have any effect on the Company's financial
statements.
On
October 10, 2008, the FASB issued a FASB Staff Position No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the Market For That Asset
Is Not Active (FSP 157-3), clarifies the application of SFAS 157 in a market
that is not active. The FASB also issued a FASB Staff Position No. FAS 157-2,
Effective Date of FAS 13 Statement No. 157, amending SFAS 157 for non financial
assets and non financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis at
least annually, effective for fiscal years beginning after November 15, 2008,
and interim periods within these fiscal years. The adoption of these statements
is not expected to have a material effect on the Company's financial
statements.
4.
TAXATION
|
|
The
Company is subject to PRC enterprise income tax at the rate of 25% (2007:
33%).
|
A
reconciliation of the PRC enterprise income tax rate to the effective income tax
rate is as follows:
|
Year
ended
December
31, 2008
|
From June
29, 2007(date of incorporation) to December 31, 2007
|
|||||||
|
%
|
%
|
|||||||
|
Statutory rate
|
(25.0 | ) | (33.0 | ) | ||||
|
Difference in tax rates in the countries that the Company
operates
|
1.1 | - | ||||||
|
Tax exempted revenue
|
(0.7 | ) | - | |||||
|
Non-deductible expenses
|
11.9 | 45.7 | ||||||
|
Valuation allowance for deferred tax assets
|
12.7 | 34.7 | ||||||
|
Effective tax rate
|
- | 47.4 | ||||||
As of
December 31, 2008, the Company’s PRC established subsidiaries had operating
losses carry forward of approximately US$324,164 (2007: US$65,579). The
operating losses will expire five years after the loss is incurred. Management
has provided a full valuation allowance for the deferred tax asset as it is more
likely than not that the asset will not be realized.
|
|
Pursuant
to FIN 48, the Company recognizes the benefit from a tax position only if
it is more likely than not that the position would be sustained upon audit
based solely on the technical merits of the tax
position
|
5.
RELATED PARTY TRANSACTIONS
|
|
In
addition to the transactions / information disclosed elsewhere
in these financial statements, the Company had the following transactions
with related parties.
|
|
(a)
|
Name
and relationship of related parties
|
|
|
Name
|
Existing relationships with the
Company
|
|
|
Benny
Lee
|
The
sole director during the year and a major shareholder of
SPYE
|
|
|
Li
Xing Hao
|
A
director of Wanzhi and a major shareholder of SPYE
|
|
|
Guangdong
Chigo Air Conditioning Company Limited* (“Chigo”)
|
A
company in which Li Xing Hao has control and beneficial
interest
|
|
|
Tang
Jin Cheng
|
A
director of JinCheng
|
|
|
Foshan
JinCheng Technology Company Limited*
|
Minority
shareholder of JinCheng
|
|
|
Foshan
Shancheng JiaXun Technology Services Centre*
|
Minority
shareholder of JiaXun
|
|
|
*
|
The
official names are in Chinese and the English names are translation for
reference only.
|
5.
RELATED PARTY TRANSACTIONS
(b) Balances
with related parties
(i) Trade
receivables from related parties
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Chigo
|
24,148 | 24,496 | ||||||
|
Foshan JinCheng Technology Company Limited
|
- | 11,743 | ||||||
| 24,148 | 36,239 | |||||||
|
|
The
amounts due are unsecured, interest-free and have no fixed repayment
term.
|
(ii) Amounts
due from related parties
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Foshan
Shancheng JiaXun Technology Services Centre
|
- | 5,975 | ||||||
|
Tang Jin Cheng
|
14,493 | 4,109 | ||||||
|
KaiEr
|
79,711 | - | ||||||
| 94,204 | 10,084 | |||||||
|
|
As
of December 31, 2008, the amounts due are unsecured, interest-free and
have no fixed repayment term except for an amount due from Tang Jin Cheng
which is interest-bearing at US$99 per month and repayable on October 31,
2009. As of December 31, 2007, the amounts due are unsecured,
interest-free and have no fixed repayment term.
|
(iii) Amounts
due to related parties
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Chigo
|
3,653 | 3,453 | ||||||
|
Benny Lee (Note)
|
- | 1,360,746 | ||||||
|
Li Xing Hao
|
15,524 | 59,437 | ||||||
| 19,177 | 1,423,636 | |||||||
|
|
Note:
|
|
|
In
September 2008, SPYE issued 13,607,460 shares at US$0.1 per share to
settle the amount due to Benny Lee of US$1,360,746. Please see
note (iii) to the consolidated statements of stockholders’ equity for more
details.
|
|
|
The
amounts due are unsecured, interest-free and have no fixed repayment
term.
|
- 29
-
5.
RELATED PARTY TRANSACTIONS (CONTINUED)
(iv) Loans
from a related party
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
At beginning of year/period
|
883,562 | - | ||||||
|
Exchange realignment
|
51,221 | - | ||||||
|
Additions through acquisition of subsidiaries
|
- | 883,562 | ||||||
|
Amortization
|
70,188 | - | ||||||
|
Repayments
|
(349,697 | ) | - | |||||
| 655,274 | 883,562 | |||||||
|
|
The
loans from Li Xing Hao are unsecured, interest-free and repayable within
twelve months from the date of advances, i.e. September
2009. The 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.
|
|
|
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$34,112 as recorded in the
consolidated statement of operations for the year ended December 31,
2008.
|
|
(c)
|
Summary
of related party transactions
|
|
Year
ended
31.12.2008
|
From June
29, 2007
(date
of incorporation)
to
December 31, 2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Service income from Chigo
|
109,644 | 13,347 | ||||||
|
Service income from Foshan JinCheng Technology Company
Limited
|
- | 11,744 | ||||||
|
Other income from Foshan Shancheng JiaXun Technology Services
Centre
|
- | 20,266 | ||||||
6.
PROPERTY, PLANT AND EQUIPMENT, NET
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Leasehold improvement
|
21,394 | - | ||||||
|
Office equipment
|
65,643 | 54,637 | ||||||
|
Computers
|
23,841 | 4,856 | ||||||
|
Cost
|
110,878 | 59,493 | ||||||
|
Less: Accumulated depreciation
|
(23,146 | ) | (7,350 | ) | ||||
| 87,732 | 52,143 | |||||||
- 30
-
|
7.
|
INTANGIBLE
ASSETS, NET
|
|
As
of December 31,
|
|||||||||
|
2008
|
2007
|
||||||||
|
Note
|
US$
|
US$
|
|||||||
|
Operating rights, net
|
(a)
|
1,428,945 | 1,536,241 | ||||||
|
Computer software, net
|
(b)
|
300,505 | 319,640 | ||||||
| 1,729,450 | 1,855,881 | ||||||||
|
(a)
|
Operating
rights
|
|
As
of December 31,
|
|||||||||
|
2008
|
2007
|
||||||||
|
Note
|
US$
|
US$
|
|||||||
|
Nanhai project
|
(i)
|
1,396,172 | 1,319,669 | ||||||
|
ShanCheng project
|
(ii)
|
284,058 | 268,493 | ||||||
|
Cost
|
1,680,230 | 1,588,162 | |||||||
|
Less:
Accumulated amortization
|
(251,285 | ) | (51,921 | ) | |||||
| 1,428,945 | 1,536,241 | ||||||||
|
(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 year ended December 31,
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 shareholder 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.
- 31
-
|
7.
|
INTANGIBLE
ASSETS, NET (CONTINUED)
|
(b) Computer software
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Computer
software
|
350,725 | 331,507 | ||||||
|
Less:
Accumulated amortization
|
(50,220 | ) | (11,867 | ) | ||||
| 300,505 | 319,640 | |||||||
The computer software is used directly in the Nanhai
project.
|
8.
|
INTEREST
IN AN ASSOCIATE
|
|
|
The
carrying amount of the interest in an associate is comprised
of:
|
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Goodwill
|
12,597 | - | ||||||
|
Share
of net assets
|
6,154 | - | ||||||
| 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,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Share
of associate’ assets and liabilities:
|
||||||||
|
Non-current
assets
|
17,868 | - | ||||||
|
Current
assets
|
11,996 | - | ||||||
|
Non-current
liabilities
|
- | - | ||||||
|
Current
liabilities
|
23,710 | - | ||||||
|
Share
of associate’s revenue and loss:
|
||||||||
|
Revenue
|
22,508 | - | ||||||
|
Loss
|
(2,824 | ) | - | |||||
|
9.
|
ACCRUED
CHARGES AND OTHER PAYABLES
|
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Other
payables for purchase of computer equipment and software
|
- | 369,863 | ||||||
|
Deposits for
smartcards
|
132,593 | - | ||||||
|
Customers’
advances for smartcards
|
147,917 | 130,112 | ||||||
|
Subcontracting
and other charges payable
|
158,939 | 39,695 | ||||||
|
Accrued
charges and other payables
|
86,053 | 35,455 | ||||||
| 525,502 | 575,125 | |||||||
|
10.
|
TEMPORARY
RECEIPTS
|
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Advance
receipts for disposal of partial interest in
Foshan Company
(Note)
|
- | 410,959 | ||||||
|
Advance
receipts for Nanhai project
|
81,074 | 97,359 | ||||||
|
Other
advance receipts
|
13,271 | - | ||||||
| 94,345 | 508,318 | |||||||
|
|
Note:
|
Pursuant
to agreements entered into between Wanzhi and third party investors in the
year ended December 31, 2007, Wanzhi disposed of its 45% equity interest
in Foshan Company (the “Disposal”) at a total consideration of US$410,959.
The consideration for the Disposal was received by Foshan as of December
31, 2007. The Disposal was completed in February
2008.
|
11. SHORT-TERM
BANK LOAN
|
|
The
bank loan is secured by a bank deposit of US$130,435, interest-bearing at
6.3% per annum and repayable in January
2009.
|
12. COMMITMENTS
AND CONTINGENCIES
Commitments
under operating leases
The
Company leases its office premises under non-cancelable operating leases. The
following table summarizes the future minimum lease payments:
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Payable
during the following periods:
|
||||||||
|
Within one year
|
24,487 | 26,926 | ||||||
|
Over
one year but not exceeding two years
|
64,388 | 77,074 | ||||||
|
Total
operating lease commitments
|
88,875 | 104,000 | ||||||
Operating
lease charges for the year/period ended December 31, 2008 and 2007 amounted to
US$23,991 and US$3,534 respectively.
13.
DEDICATED
RESERVE
As
stipulated by the relevant laws and regulations in the PRC, the Company’s PRC
established subsidiaries are required to maintain a discretionary dedicated
reserve. These subsidiaries are required to transfer an amount equal to a
minimum of 10% of its statutory net income to the dedicated reserve until the
balance of the dedicated reserve reaches 50% of the subsidiaries’ registered
capital. The dedicated reserve can only be utilized to offset prior years’
losses.
14. DISPOSAL
OF A SUBSIDIARY
In
September 2008, Foshan Company disposed of its entire 51% equity interest in
JiaXun, details of which are set out below.
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Net assets disposed of:
|
||||||||
|
Property, plant and equipment
|
167 | - | ||||||
|
Trade receivables
|
81,493 | - | ||||||
|
Loan receivable from a minority shareholder
|
290,000 | - | ||||||
|
Cash and cash equivalents
|
64,260 | - | ||||||
|
Accrued charges and other payables
|
(2,500 | ) | - | |||||
|
Minority 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 | - | ||||||
- 34
-
|
15.
|
ACQUISITION
OF SUBSIDIARIES
|
As
detailed in note 1, on November 6, 2007, Eastern Concept Consulting acquired the
entire equity interest in Wanzhi at a cash consideration of Rmb10,000,000
(US$1,369,863).
The fair
value of the identifiable assets and liabilities of Wanzhi as at the date of
acquisition and their carrying value determined in accordance with USGAAP
immediately before the acquisition are as follows:
|
As
of December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
US$
|
US$
|
|||||||
|
Intangible
assets, net
|
- | 1,919,669 | ||||||
|
Property, plant
and equipment, net
|
- | 50,825 | ||||||
|
Bank
balances and cash
|
- | 934,462 | ||||||
|
Trade
and other receivables
|
- | 546,887 | ||||||
|
Inventories
|
- | 7,115 | ||||||
|
Trade
and other payables
|
- | (591,907 | ) | |||||
|
Temporary
receipts
|
- | (143,763 | ) | |||||
|
Long-term loans
from a related party
|
- | (883,562 | ) | |||||
| - | 1,839,726 | |||||||
|
Minority
interests
|
- | (469,863 | ) | |||||
|
Total
consideration and fair value of net assets acquired
|
- | 1,369,863 | ||||||
|
Consideration:
|
||||||||
|
Cash
paid
|
- | 1,369,863 | ||||||
|
Bank
balances and cash acquired
|
- | 934,462 | ||||||
|
Cash
consideration paid
|
- | (1,369,863 | ) | |||||
|
Net
cash outflow
|
- | (435,401 | ) | |||||
|
16.
|
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 year/period ended December 31, 2008 and 2007, the Company’s contributions to
the above retirement benefit plan amounted to US$30,611 and US$1,205
respectively.
|
17.
|
OPERATING
RISKS
|
|
(a)
|
Concentration
of major customers and
subcontractors
|
|
2008
|
2007
|
|
|
Major customers
with revenues of more than 10% of the Company’s total operating
revenue
|
||
|
Revenue from
major customers
|
US$196,652
|
US$64,110
|
|
Percentage of
sales
|
33%
|
30%
|
|
Number
|
2
|
1
|
|
Major
subcontractors with subcontracting and other charges of more than 10% of
the Company’s total subcontracting and other charges
|
||
|
Subcontracting
and other charges to major suppliers
|
-
|
US$58,392
|
|
Percentage of
purchases
|
-
|
56%
|
|
Number
|
-
|
2
|
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. The
Company is continuously developing a more diversified customer base following
the growing level of operations of Foshan Company and the Nanhai
project.
|
(b)
|
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.
(c) 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.
|
18.
|
SEGMENT
|
During
the year / period ended December 31, 2008 and 2007, 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
geographic information by geographical segment is presented.
All
tangible and intangible assets are located in the PRC for the year / period
ended December 31, 2008 and 2007.
|
19.
|
SUBSEQUENT
EVENT
|
Subsequent
to the balance sheet date, Foshan Company has entered into an agreement to
dispose of its entire 51% equity interest in JinCheng at a consideration of
US$365,217.
Effective
March 31, 2009, the Board of Directors of the Company accepted the resignation
of Mr. Benny Lee as an officer and director of the Company. Mr. Benny
Lee resigned as an officer and director of the Company for personal reasons, and
not because of any disagreement with the Company concerning its operations,
policies or procedures. Mr. Benny Lee will continue to assist the Company in a
consulting capacity.
Because
Mr. Benny Lee resigned as an officer and director of the Company, Ms. Ping Tang
was appointed as President, Chief Executive Officer and secretary of the
Company; and Mr. Zhen Wang was appointed as interim Chief Financial Officer of
the Company.
- 36
-
The
Financial Statements of the Company have been audited by Mazars CPA Limited for
the fiscal year/period ended December 31, 2008 and 2007.
There
have been no changes in or disagreements with Mazars CPA Limited, on accounting
and financial disclosure matters at any time.
(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 the end of the period covered by this report. 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.
(c)
Changes in internal controls.
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.
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, 2008.
(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 2008 that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM
9B. OTHER INFORMATION
Effective
March 30, 2009, Ms. Ping Tang was elected as a member of the Board of Directors
of the Company.
Effective
March 31, 2009, the Board of Directors of the Company accepted the resignation
of Mr. Benny Lee as an officer and director of the Company. Mr. Benny Lee
resigned as an officer and director of the Company for personal reasons, and not
because of any disagreement with the Company concerning its operations, policies
or procedures. Mr. Benny Lee will continue to assist the Company in a consulting
capacity.
Because
Mr. Benny Lee resigned as an officer and director of the Company, Ms. Ping Tang
was appointed as President, Chief Executive Officer and secretary of the
Company; and Mr. Zhen Wang was appointed as interim Chief Financial Officer of
the Company.
Ms. Ping
Tang, age 55, has been the general manager of Foshan Chigo
Educationl 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. Zhen
Wang, age 30, has been the financial controller of Foshan Wanzhi
Electronic Technology Co., Ltd. since April 2007. From October 2006 to
April 2007, he worked in the internal audit team at Guangdong Chigo
Air-conditioning Co. Ltd. From January 2004 to July 2006, he worked
in the internal audit team at Guangdong Apollo Group. From July 2002
to December 2003, he was an accountant at Ganshu Qisheng Public Accountants Co.,
Ltd, an auditing firm that provides auditing related services for mainland China
companies that go public in China. Mr. Wang is a certified public
accountant in China, he graduated from Lanzhou University with a B.S.
degree in accounting.
PART
III
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
|
55
|
Chief
Executive Officer, President and Director
|
||
|
Zhen
Wang
|
30
|
Chief
Financial Officer
|
||
The
following is information on the business experience of each director and
officer.
Ms. Ping
Tang, age 55, 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. Zhen
Wang, age 30, has been the financial controller of Foshan Wanzhi Electronic
Technology Co., Ltd. since April 2007. From October 2006 to April 2007, he
worked in the internal audit team at Guangdong Chigo Air-conditioning Co.
Ltd. From January 2004 to July 2006, he worked in the internal
audit team at Guangdong Apollo Group. From July 2002 to December 2003, he
was an accountant at Ganshu Qisheng Public Accountants Co., Ltd, an auditing
firm that provides auditing related services for mainland China companies
that go public in China. Mr. Wang is a certified public
accountant in China. He graduated from Lanzhou University with a B.S.
degree in 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, 2008.
The
Registrant’s Board of Directors took all actions by unanimous written consent
without a meeting during the fiscal year ended December 31, 2007.
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 2008. 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.
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:
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Recruiting
and retaining talented leadership.
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Implementing
measurable performance targets.
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Correlating
compensation directly with shareowner value.
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Emphasizing
performance based compensation, progressively weighted with seniority
level.
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Adherence
to high ethical, safety and leadership
standards.
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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 $100,000 during the stated periods.
SUMMARY
COMPENSATION TABLE
(all
figures in US Dollars)
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(I)
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(j)
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Name
and Principal Position
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Year
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Salary
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Bonus
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Stock
Awards
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Option
Awards
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Non-Equity
Incentive Plan Compensation
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Change
in Pension Value and Nonquali- fied Deferred Compensation
Earnings
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All
Other Compensation
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Total
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Ping
Tang
President,
Chief
Executive
Officer
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2008
2007
2006
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$
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0
0
0
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$
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0
0
0
|
$
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0
0
0
|
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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Zhen
Wang
Interim
Chief Financial Officer
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2008
2007
2006
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$
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9,055
6,791
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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9,055
6,791
0
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Benny
Lee
Former
Chief Executive Officer and Director
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2008
2007
2006
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
|
$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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$
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0
0
0
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Lawrence
Nault
Former
President
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2006
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$
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0
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$
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0
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$
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0
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$
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0
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$
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0
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$
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0
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$
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0
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$
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0
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Option
Grants in Last Fiscal Year
There
were no options granted to any of the named executive officers during the year
ended December 31, 2008 and 2007.
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 2008, 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, 2008 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, 2009 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.
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Title
of Class
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Name
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Number
of Shares
Owned (1)(2)
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Percent
of Voting
Power (1)
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Common
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East
Sincere Management Limited
Benny
Lee - CEO, CFO and Sole Owner
Rm
1003, Singga Commercial Building
144
Connaught Road West,
Hong Kong
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354,969
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27.47%
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Common
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Profit
Gain Management Limited
Ping
Tang – CEO, CFO and Sole Owner
Suite
1606-7, 16F, Great Eagle Centre
23
Harbour Road, Hong Kong
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446,948
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34.58%
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Common
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All
Officers and Directors as a Group (1 person)
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801,917
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62.06%
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(1)
Calculation based on 1,292,166 shares outstanding as of April 14,
2009.
(2)
Except as otherwise indicated, the shares are owned of record and beneficially
by the persons named in the table.
Item
13. Certain Relationships and Related
Transactions
Bennett
is the beneficial owner of 2,359,000 shares of common stock of AXIO held by the
Northeast Nominee Trust through his position as Trustee. Bennett will retain
ownership of said 2,359,000 shares of common stock, and agreed with the Company
not to sell in excess of 10,000 shares per day for a one year period of time
pursuant to a Leak-Out Agreement.
As part
of the consideration for the share exchange transaction, the Eastern Concept
Shareholder paid the sum of $262,500 to the Northeast Nominee Trust. As
previously mentioned, Bennett is Trustee and a beneficial owner of the Northeast
Nominee Trust.
Except
for the transactions described above, there are no proposed transactions and no
transactions during the past two years to which the Company was (or is) a party,
and in which any officer, director, or principal stockholder, or their
affiliates or associates, was also a party.
The
aggregate fees billed by our principal accounting firm for the fiscal years
ended December 31, 2008, and 2007 are as follows:
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Name
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Audit
Fees(1)
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Audit
Related Fees (2)
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Tax
Fees (4)
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All
Other Fees (4)
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Mazars
CPA Limited
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for
fiscal year ended:
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December
31, 2008
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$
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61,644
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$
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0
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$
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0
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$
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78,083
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December
31, 2007
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$
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32,877
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$
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0
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$
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0
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$
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0
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___________________________
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(1)
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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, 2008 through December 31, 2008, and from June
29, 2007 through December 31, 2007.
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(2)
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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.
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(3)
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Tax Fees. These are
fees for professional services with respect to tax compliance, tax advice,
and tax planning.
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(4)
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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
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2.1
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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)
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2.2
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Share
Exchange Agreement between Eastern Concept Corporate Consulting (Shenzhen)
Limited, Xinghao LI, and Jun CHEN (1)
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3.1
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Articles
of Incorporation of Physical Spa & Fitness Inc., a Delaware
Corporation (2)
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3.2
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Certificate
of Amendment of Articles of Incorporation changing the authorized
capital*
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3.3
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Certificate
of Amendment of Articles of Incorporation effecting a one-for-50 reverse
split (3)
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3.4
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By-Laws
of Physical Spa & Fitness Inc. (2)
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14.1
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Code
of Ethics (4)
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16.1
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Letter
on changes in certifying accountant (5)
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21.1
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Subsidiaries
of the Registrant*
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31.1
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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*
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31.2
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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*
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32.1
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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*
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32.2
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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*
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*
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Filed
herewith
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(1)
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Filed
with the Commission as exhibits to Form 8-K filed on November 9,
2007
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(2)
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Filed
with the Commission as exhibits to Registration Statement on Form SB-2
filed on December 3, 2004
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(3)
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Filed
with the Commission as Appendix A within our Definitive Information
Statement on Schedule 14C filed October 29, 2008
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(4)
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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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(5)
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Filed
with the Commission as Exhibit 16.1 to Form 8-K filed March 10,
2008
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Reports
on Form 8-K Filed in Fiscal Year 2008
On March 10, 2008, the Company
filed a Form 8-K in order to report the change in registrant’s certifying
accountant.
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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.
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Dated:
April 14, 2009
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By:
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/s/ Ping
Tang
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Ping
Tang, Chief Executive Officer and
President
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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.
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Dated:
April 14, 2009
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By:
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/s/ Ping
Tang
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Ping
Tang, Sole Director
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