BLUE WATER VENTURES INTERNATIONAL INC - FORM 10-Q

Attached files

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EX-32.1 - BLUE WATER VENTURES INTERNATIONAL INC	ex32-1.htm
EX-31.2 - BLUE WATER VENTURES INTERNATIONAL INC	ex31-2.htm
EX-32.2 - BLUE WATER VENTURES INTERNATIONAL INC	ex32-2.htm
EX-31.1 - BLUE WATER VENTURES INTERNATIONAL INC	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b - 2 of the Exchange Act) Yes o No x

Commission File Number: 0-26573

SMARTPAY EXPRESS, INC.

(Exact name of Registrant as specified in its charter)

Nevada		20-1204606
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5th Floor, Chigo Sales Center

Fenggang Road, Lishui Town, Nanhai

Guangdong Province, The People's Republic of China

(Address of principal executive offices)

011-86-757-88781771
(Registrant's telephone number)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer o Smaller Reporting Company 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

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 1,292,166 shares outstanding as of March 31, 2010.

SMARTPAY EXPRESS, INC.

Form 10-Q for the period ended March 31, 2010

TABLE OF CONENTS

PART I - FINANCIAL INFORMATION

	ITEM 1 - FINANCIAL STATEMENTS

		Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three-month periods ended March 31, 2010 and 2009	3

		Unaudited Condensed Consolidated Balance Sheet as of March 31, 2010 and Audited Condensed Consolidated Balance Sheet as of December 31, 2009	4

		Unaudited Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2010 and 2009	5

		Notes to the Unaudited Condensed Consolidated Financial Statements	6 - 8

	ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		9-12

	ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		13

	ITEM 4 (A) - CONTROLS AND PROCEDURES		13

	ITEM 4 (A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING		13

PART II - OTHER INFORMATION

	ITEM 1 - LEGAL PROCEEDINGS		14

	ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		14

	ITEM 3 - DEFAULTS UPON SENIOR SECURITIES		14

	ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		14

	ITEM 5 - OTHER INFORMATION		14

	ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K		14

		SIGNATURES	15

SMARTPAY EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME

		Three months ended March 31,
		2010			2009
	Note	US$			US$
					(Restated)
Operating revenues
Service income			544,307			100,287

Operating expenses
Subcontracting and other service costs			(315,299	)		(50,001	)
Staff costs			(26,865	)		(86,109	)
Depreciation of property, plant and equipment			(4,019	)		(3,766	)
Amortization of intangible assets			(51,413	)		(59,365	)
Other general and administrative expenses			(65,189	)		(236,196	)

Income (Loss) from operations			81,522			(335,150	)

Interest income			3,237			1,094
Amortization of loans from a related party			-			(12,314	)
Interest expenses			(21,829	)		-
Share of result of an associate			-			(10,803	)

Income (Loss) before income tax and noncontrolling interests			62,930			(357,173	)

Income tax	4		-			-

Net income (loss) including noncontrolling interests			62,930			(357,173	)

Less: net loss attributable to noncontrolling interests			965			36,277

Net income (loss) attributable to SPYE common stockholders			63,895			(320,896	)

Other comprehensive income
- Foreign currency translation adjustment			-			15,669

Total comprehensive income (loss)			63,895			(305,227	)


Basic and diluted earnings (loss) per share		4.94 cents			(24.83) centss


Weighted average number of shares of common stock outstanding			1,292,166			1,292,166

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

SMARTPAY EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

			As of
			March 31, 2010			December 31, 2009
	Note		US$			US$
ASSETS						(Audited)

Current assets
Trade receivables from third parties				375,159			194,865
Trade receivable from a related party		5(b)(i)		5,821			5,821
Prepayments and deposits				125,913			125,913
Other debtors				75,388			52,771
Amounts due from related parties	5(b)(ii)			-			-
Income tax recoverable				28,882			3,829
Inventories				40,642			40,385
Cash and cash equivalents				307,389			378,671
Bank deposits, collateralized		6		-			132,353

Total current assets				959,194			934,608

Property, plant and equipment, net				82,792			69,759
Intangible assets, net				1,271,238			1,322,651
Interest in an associate				-			-

Total assets				2,313,224			2,327,018

LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities
Trade payables				360,059			311,058
Accrued charges and other payables				572,776			531,981
Amounts due to related parties	5(b)(iii)			260,484			19,458
Temporary receipts				51,821			61,470
Short-term bank loan		6		-			125,000
Interest payable to a related party		5(b)(v)		77,809			56,588

Total current liabilities				1,322,949			1,105,555

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

Commitments and contingencies

Stockholders' equity
Preferred stock, par value US$0.001 per share; authorized 5,000,000 shares; none issued and outstanding as of March 31, 2010 and December 31, 2009
Common stock, par value US$0.001 per share; authorized 300,000,000 shares; issued and outstanding 1,292,166 shares as of March 31, 2010 and December 31, 2009				1,292			1,292
Additional paid in capital		7		1,666,661			2,009,454
Dedicated reserve				319			319
Accumulated losses				(1,444,890	)		(1,508,785	)
Accumulated other comprehensive income				74,055			74,055

Total SPYE stockholders’ equity				297,437			576,335
Noncontrolling interests				(14,515	)		(62,225	)

Total stockholders’ equity				282,922			514,110

Total liabilities and stockholders' equity				2,313,224			2,327,018

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

SMARTPAY EXPRESS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31,
	2010			2009
	US$			US$

Cash flows from operating activities:
Net income (loss) including noncontrolling interests		62,930			(357,173	)

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of property, plant and equipment		4,019			3,766
Amortization of intangible assets		51,413			59,365
Interest income		(3,237	)		(1,094	)
Amortization of loans from a related party		-			12,314
Share of result of an associate		-			10,803
Changes in working capital:
Trade receivables		(180,294	)		27,515
Prepayments and deposits		-			6,408
Other debtors		(22,617	)		195,617
Inventories		(257	)		(14,161	)
Trade payables		49,001			(23,966	)
Accrued charges and other payables		40,795			(5,764	)
Temporary receipts		(9,649	)		(17,564	)
Interest payable to a related party		21,221			-
Income tax recoverable		(25,053	)		3,386

Net cash used in operating activities		(11,728	)		(100,548	)

Cash flows from investing activities:
Interest income		3,237			1,094
Payments for purchase of property, plant and equipment		(17,052	)		(5,538	)
Payments for purchase of intangible assets		-			(29,412	)
Decrease in bank deposits, collateralized		132,353			-

Net cash provided by (used in) investing activities		118,538			(33,856	)

Cash flows from financing activities:
Repayments to related parties		(53,092	)		(64,501	)
Repayment of short-term bank loan		(125,000	)		(125,000	)
New short-term bank loan raised		-			125,000

Net cash used in financing activities		(178,092	)		(64,501	)

Net decrease in cash and cash equivalents		(71,282	)		(198,905	)

Cash and cash equivalents at beginning of period		378,671			245,685

Effect on exchange rate changes		-			3,576

Cash and cash equivalents at end of period, represented by cash and bank balances		307,389			50,356

Supplemental cash flow information:
Interest paid		608			-
Non-cash transaction – consideration for acquisition of additional interest in a subsidiary paid by a related party (see note 7)		294,118			-

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

SMARTPAY EXPRESS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Period from January 1, 2010 to March 31, 2010

The accompanying financial statements present the financial position of the Company as of March 31, 2010 and December 31, 2009, and its results of operations and cash flows for the three-month periods ended March 31, 2010 and 2009. All inter-company accounts and transactions have been eliminated on consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

1.	ORGANIZATION

The unaudited condensed consolidated financial statements include the accounts of SmartPay Express, Inc. (“SPYE”) (formerly known as Axiom III, Inc. (“AXIO”)) and its subsidiaries (collectively referred to as the “Company”).

On October 10, 2007, AXIO entered into a share exchange agreement with, among others, the shareholders of Eastern Concept Development Limited (“Eastern Concept”) pursuant to which AXIO acquired 100% of the issued and outstanding share capital of Eastern Concept in exchange for 35,351,667 shares of common stock of AXIO, or 70.7% of the total 50,000,000 issued and outstanding shares of common stock of AXIO after giving effect to the share exchange. On October 18, 2007, AXIO entered into a stock purchase agreement with Northeast Nominee Trust, the then major shareholder of AXIO, to dispose of its 100% interest in Axiom First Corporation, the only asset of AXIO just before the share exchange on October 10, 2007, at a consideration of US$1. Since then, AXIO entirely ceased its prior business operations.

For financial reporting purposes, the acquisition of Eastern Concept by AXIO has been treated as a reverse acquisition whereby Eastern Concept is considered as the acquirer, i.e. the surviving entity. On this basis, the historical financial information prior to October 10, 2007 represents that of Eastern Concept.

SPYE has five subsidiaries: Eastern Concept, Eastern Concept Corporate Consulting (Shenzhen) Limited, Guangdong Wanzhi Electron S&T Company Limited (formerly Foshan Wanzhi Electron S&T Company Limited) (“Wanzhi”), Foshan Information Technology Company Limited (“Foshan Company”) and Foshan JinCheng Information Technology Company Limited (“JinCheng”). Except for Eastern Concept which is incorporated in Hong Kong, all subsidiaries are established in the People’s Republic of China (the “PRC”).

The Company is principally engaged in the provision of smartcard system and other value-added services in Guangdong province, the PRC.

2.	GOING CONCERN CONSIDERATION

The Company had negative working capital as of March 31, 2010 of US$363,755, which raise substantial doubt about its ability to continue as a going concern.

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

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

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

SMARTPAY EXPRESS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Period from January 1, 2010 to March 31, 2010

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND STANDARDS

Adoption of Recently Issued Accounting Pronouncements

Effective January 1, 2010, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures” (the “Update”), which provides amendments to Accounting Standards Codification (“ASC”) Topic 820-10, “Fair Value Measurements and Disclosures - Overall Subtopic” of the Codification. The Update requires improved disclosures about fair value measurements. Separate disclosures need to be made of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with a description of the reasons for the transfers. Also, disclosure of activity in Level 3 fair value measurements needs to be made on a gross basis rather than as one net number. The Update also requires: (1) fair value measurement disclosures for each class of assets and liabilities, and (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this Update does not have a material effect on the Company’s financial statements.

TAXATION

Entities that carry on business and derive income in Hong Kong are subject to Hong Kong profits tax at the rate of 16.5%. Entities that carry on business and derive income in the PRC are subject to PRC enterprise income tax at the rate of 25%.

No provision for Hong Kong profits tax and PRC enterprise income tax has been made as the subsidiaries in Hong Kong and the PRC either incurred losses for taxation purpose during the three-month periods ended March 31, 2010 and 2009 or their estimated assessable profits were wholly absorbed by unrelieved tax losses brought forward from previous periods.

5.	RELATED PARTY TRANSACTIONS

In addition to the transactions / information disclosed elsewhere in these financial statements, the Company had the following transactions with related parties.

(a) Name and relationship of related parties

Name	Existing relationships with the Company

Li Xing Hao	A director of Wanzhi and a major stockholder of SPYE
Guangdong Chigo Air Conditioning Company Limited* (“Chigo”)	A company in which Li Xing Hao has control and beneficial interest
Tang Jin Cheng	A director of JinCheng
Foshan KaiEr Information Technology Company Limited* (“KaiEr”)	An associate

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

(b) Balances with related parties

(i) Trade receivable from a related party

	As of
	March 31, 2010		December 31, 2009
	US$		US$
			(Audited)

Chigo		5,821		5,821

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

(ii) Amounts due from related parties

	As of
	March 31, 2010			December 31, 2009
	US$			US$
				(Audited)



Tang Jin Cheng		14,706			14,706
KaiEr		108,931			108,931

		123,637			123,637
Allowance for doubtful accounts		(123,637	)		(123,637	)

		-			-

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

As of March 31, 2010 and December 31, 2009, the amounts due are unsecured, interest-free and have no fixed repayment term.

(iii) Amounts due to related parties

	As of
	March 31, 2010		December 31, 2009
	US$		US$
			(Audited)



Chigo		3,706		3,706
Li Xing Hao (note 7)		256,778		15,752

		260,484		19,458

The amounts due are unsecured, interest-free and have no fixed repayment term.

SMARTPAY EXPRESS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Period from January 1, 2010 to March 31, 2010

5.	RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Balances with related parties (Continued)

(iv) Loans from a related party

The loans from Li Xing Hao as of March 31, 2010 and December 31, 2009 were unsecured, carry a monthly interest of 1% and repayable on April 30, 2011. Interest charged to the Company during the three-month period ended March 31, 2010 amounted to US$21,221.

(v) Interest payable to a related party

	As of
	March 31, 2010		December 31, 2009
	US$		US$
			(Audited)

Li Xing Hao (note 5(b)(iv))		77,809		56,588

	Three months ended March 31,
	2010		2009
	US$		US$

Service income from Chigo		-		26,059
Interest expenses to Li Xing Hao (note 5(b)(iv))		21,221		-

6.	SHORT-TERM BANK LOAN

The bank loan as of December 31, 2009 was collateralized by the Company’s bank deposit of US$132,353, interest-bearing at 5.84% per annum and fully repaid in January 2010.

7.	ACQUISITION OF ADDITIONAL INTEREST IN A SUBSIDIARY

On February 2, 2010, Wanzhi acquired an additional 35% equity interest in Foshan Company at a cash consideration of US$294,118, resulting in an increase of the Company’s shareholding in Foshan Company from 55% to 90%. The difference between the fair value of the consideration paid and the amount of noncontrolling interest acquired of US$342,793 has been recognised in additional paid in capital. The consideration of US$294,118 had been paid by Li Xing Hao on behalf of the Company and was recorded in amounts due to related parties as at the balance sheet date.

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

The Company entered into an agreement with a third party individual (the “Purchaser”) on March 28, 2009 to dispose of its entire 51% equity interests in JinCheng (the “Proposed Disposal”) at a consideration of approximately US$370,000. The Proposed Disposal was expected to be completed within one year at the time of signing the agreement and the Company concluded that the Proposed Disposal met the definition of a discontinued operation as defined in ASC Topic 360, “Accounting for the Impairment or Disposal of Long-Lived Assets” (formerly SFAS No. 144). Accordingly, the results of operations of the business attributable to JinCheng were classified as discontinued in the Company’s condensed consolidated statements of operations included in the Form 10-Q filings for the periods ended March 31, June 30 and September 30, 2009 and 2008. In addition, major classes of assets and liabilities of JinCheng were classified as held for sale in the Company’s condensed consolidated balance sheets as of March 31, June 30 and September 30, 2009.

On December 31, 2009, the Company agreed with the Purchaser to terminate the Proposed Disposal as the Purchaser was unable to settle the consideration as scheduled. The assets held for sale was then reclassified as held and used and measured at the lower of its carrying amount before the asset was classified as held for sale, adjusted for amortization expense that would have been recognized had the asset been continuously classified as held and used and its fair value as of December 31, 2009. Accordingly, the results of operations of the business attributable to JinCheng previously classified as discontinued are reclassified as continuing operations so that comparative information has been restated accordingly.

ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 18, 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, Guangdong Wanzhi Electron S&T Co., Ltd. (“Foshan”), SPYE is principally engaged in providing smart card payment systems and related value-added services mainly in the Guangdong Province of the People’s Republic of China. We are an operator of All-in-One Municipal Service Cards (“AIOMS Card”). The AIOMS Card has a built-in microchip containing an electronic purse and other applications which can accurately record the holder’s transaction details. Examples of the usages of AIOMS Cards include, but are not limited to, the following: VIP shopping cards, prepaid phone cards, municipal travel cards, student cards, corporate employee cards and lottery sales cards. We have opened a branch in the city of Foshan, in Guangdong Province, and have signed contracts to open additional branches in other major cities in China. The Company currently has 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.

RESULTS OF OPERATIONS

The following table shows the financial data of the unaudited condensed consolidated statements of operations and other comprehensive income of the Company and its subsidiaries for the three-month periods ended March 31, 2010 and 2009. The data should be read in conjunction with the consolidated financial statements of the Company and related notes thereto.

	Three months ended March 31,
	2010			2009
	US$			US$
				(Restated)
Operating revenues
Service income		544,307			100,287

Operating expenses
Subcontracting and other service costs		(315,299	)		(50,001	)
Staff costs		(26,865	)		(86,109	)
Depreciation of property, plant and equipment		(4,019	)		(3,766	)
Amortization of intangible assets		(51,413	)		(59,365	)
Other general and administrative expenses		(65,189	)		(236,196	)

Income (Loss) from operations		81,522			(335,150	)

Interest income		3,237			1,094
Amortization of loans from a related party		-			(12,314	)
Interest expenses		(21,829	)		-
Share of result of an associate		-			(10,803	)

Income (Loss) before income tax and noncontrolling interests		62,930			(357,173	)

Income tax		-			-

Net income (loss) including noncontrolling interests		62,930			(357,173	)

Less: net loss attributable to noncontrolling interests		965			36,277

Net income (loss) attributable to SPYE common stockholders		63,895			(320,896	)

Other comprehensive income
- Foreign currency translation adjustment		-			15,669

Total comprehensive income (loss)		63,895			(305,227	)

THREE-MONTH PERIOD ENDED MARCH 31, 2010 COMPARED TO THREE-MONTH PERIOD ENDED MARCH 31, 2009.

OPERATING REVENUES

Since inception in June 2007, the Company has been engaged in the provision of smartcard payment system and related value-added services primarily in Guangdong province, the PRC. The Company generated a total of $544,307 service income as operating revenue for the three-month period ended March 31, 2010, as compared to $100,287 for the three-month period ended March 31, 2009, an increase of 443%. Approximately 98% was generated from the Nanhai project and schools smartcard system for the three-month period ended March 31, 2010, as compared to 64% for the three-month period ended March 31, 2009. The increase was due to the Company has expanded its services to schools in other cities in the Guangdong Province and we anticipate that more operating revenues would be generated if we successfully expand our services to students in other cities within Guangdong Province. In the past, the Company collected proceeds from students directly and paid subcontracting and other charges to service providers. Commencing from September 2009, the telecom service provider collects service fees from the students and pays the Company for its entitlement for a majority of the cities.

SUBCONTRACTING AND OTHER SERVICE COSTS

Subcontracting and other service costs increased 531% to $315,299 for the three-month period ended March 31, 2010, as compared to $50,001 for the three-month period ended March 31, 2009.

A significant portion of these charges, approximately 99% and 95% for the three-month period ended March 31, 2010 and 2009, respectively, was related to the Nanhai project and schools smartcard system. The increase was a result of the increase in operating revenue from the Nanhai project and schools smartcard system.

STAFF COSTS

The total staff costs for the three-month period ended March 31, 2010 amounted to $26,865 as compared to $86,109 for the three-month period ended March 31, 2009, a decrease of 69% because of the reduction of our headcounts and the termination of customer hotline services that we used to provide for Guangdong Chigo Air Conditioning Company Limited. Currently, the Company employs 2 card equipment and software development staff members, 13 marketing personnel, 4 finance personnel, 3 business and customer service personnel.

DEPRECIATION EXPENSES

Depreciation expenses for the three-month period ended March 31, 2010 amounted to $4,019, as compared to $3,766 for the three-month period ended March 31, 2009, an increase of 7%. These expenses were related to the depreciation charged on office equipment and computers.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization charges of intangible assets for the three-month period ended March 31, 2010 amounted to $51,413, as compared to $59,365 for the three-month period ended March 31, 2009, a decrease of 13%. These amortization charges were resulted from the operating rights of the Nanhai project and the computer software relating to the Nanhai project. The decrease was attributable to the full impairment made for the operating right of the ShanCheng Project on December 2009 so that no amortisation charge was provided on that operating right during the three-month period ended March 31, 2010. As of March 31, 2010, the carrying value of the operating right of the Nanhai project was $984,676 and the carrying value of the intangible asset of the computer software was $257,150.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES

Other general and administrative expenses for the three-month period ended March 31, 2010 were $65,189, as compared to $236,196 for the three-month period ended March 31, 2009, a decrease of 72%. The decrease in other general and administrative expenses was mainly due to decrease in consultancy fees of $100,000 and audit / review fees of $87,119 which was mainly due to the audit fee incurred in connection with the proposed acquisition of an entity for the three-month period ended March 31, 2009.

INTEREST INCOME

The interest income for the three-month period ended March 31, 2010 was $3,237, as compared to $1,094 for the three-month period ended March 31, 2009, an increase of 196%. This income was the interest earned on cash in bank deposit.

AMORTIZATION OF LOANS FROM A RELATED PARTY

Amortization of loans from a related party for the three-month period ended March 31, 2010 was $Nil, as compared to $12,314 for the three-month period ended March 31, 2009. Resulting from the rearrangement of loans from a related party on April 30, 2009, there was no amortization of loans from a related party.

INTEREST EXPENSES

Following the rearrangement of loans from a related party on April 30, 2009, the loans are interest-bearing at 1% per month, resulted in interest expenses of $21,829 during the three-month period ended March 31, 2010 but no such interest was incurred in the corresponding period of last year.

INCOME TAXES

The Company is subject to PRC Enterprise Income Taxes ("EIT") on an entity basis on income arising in and derived from the PRC. The applicable EIT rate is 25% in year 2010 and 2009.

Since the Company’s PRC established subsidiaries either incurred losses for taxation purpose or their estimated assessable profits were wholly absorbed by unrelieved tax losses brought forward from previous periods for the three-month period ended March 31, 2010, no provision for EIT has been made.

NET INCOME

The Company incurred a net income of $63,895 for the three-month period ended March 31, 2010, as compared to a net loss of $320,896 for the three-month period in 2009, an increase of 120%. The increase in net income was primarily due to increase in service income and decrease in other general and administrative expenses and staff costs.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, cash and cash equivalents totaled $307,389, a decrease of $71,282 as compared with $378,671 as of December 31, 2009. The decrease was the result of a combination of net cash used in financing activities in the amount of $178,092, net cash used in operating activities in the amount of $11,728 and net cash provided by investing activities of $118,538. The cash used in financing activities was primarily due to repayments to related parties and short-term bank loan. The net cash used in operating activities was mainly due to cash used in operations. The net cash provided by investing activities was mainly due to decrease in collateralized bank deposits.

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.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the costs of financing and investing yields. In view of the financing arrangements during the first three months of 2010, the Company is not currently subject to significant market risk.

ITEM 4(A) - CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) of the Company have concluded, based on their evaluation as of March 31, 2010, that the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective to ensure that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

During the quarter ended March 31, 2010, there were no changes in the internal controls of the Company over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the internal controls of the Company over financial reporting.

ITEM 4(A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING

(a) The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Company's internal control over financial reporting was effective as of March 31, 2010.

(b) This quarterly report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

(c) There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

32.1	Certification of the Company's Chief Executive Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of the Company's Chief Financial Officer Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


May 17, 2010	Smartpay Express, Inc.
	By:	/s/ Ping Tang
		Ping Tang
		Chairman and Chief Executive Officer


May 17, 2010	Smartpay Express, Inc.
	By:	/s/ Chunlin Zhang
		Chunlin Zhang
		Vice President and Chief Financial Officer

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