Attached files
file | filename |
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EX-32 - EXHIBIT 32 - T BAY HOLDINGS INC | c92700exv32.htm |
EX-31.1 - EXHIBIT 31.1 - T BAY HOLDINGS INC | c92700exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - T BAY HOLDINGS INC | c92700exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2009
-OR- |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 033-377099-S
T-BAY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA | 91-1465664 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
Room 917, YongSheng Building | ||
ZhongShan Xi Road | ||
Xuhui District, Shanghai, China | ||
(Address of principal executive offices) | (Zip code) |
Issuers telephone number, including area code: 86-021 51539900
(Former name, former address or former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ o No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o |
Smaller reporting company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rue 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of each of the Registrants classes of common stock, as of
November 6, 2009 was 30,088,174 shares, all of one class of $0.001 par value Common Stock.
T-BAY HOLDINGS, INC.
FORM 10-Q
Quarter Ended September 30, 2009
TABLE OF CONTENTS
TABLE OF CONTENTS
Page | ||||||||
PART I FINANCIAL INFORMATION |
||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
9 | ||||||||
10 | ||||||||
21 | ||||||||
36 | ||||||||
37 | ||||||||
PART II OTHER INFORMATION |
||||||||
39 | ||||||||
40 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
Table of Contents
This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 2 of Part I of this report includes
forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any future results, levels
of activity, performance, or achievements expressed or implied by forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as may,
should, expects, plans, anticipates, believes, estimates, predicts, potential,
proposed, intended, or continue or the negative of these terms or other comparable
terminology. You should read statements that contain these words carefully, because they discuss
our expectations about our future operating results or our future financial condition or state
other forward-looking information. There may be events in the future that we are not able to
accurately predict or control. Before you invest in our securities, you should be aware that the
occurrence of any of the events described in our Annual Report on Form 10-K could substantially
harm our business, results of operations and financial condition, and that upon the occurrence of
any of these events, the trading price of our securities could decline and you could lose all or
part of your investment. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, growth rates, levels of activity,
performance or achievements. We are under no duty to update any of the forward-looking statements
after the date of this Quarterly Report to conform these statements to actual results.
3
Table of Contents
PART 1. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
T-BAY HOLDINGS, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 2009
SIX MONTHS ENDED SEPTEMBER 30, 2009
4
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6 | ||||
7 | ||||
8 | ||||
9 | ||||
10 |
5
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2009
(In thousands of United States dollars)
SEPTEMBER 30, | MARCH 31, | |||||||||
Note(s) | 2009 | 2009 | ||||||||
(Unaudited) | ||||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 7,234 | $ | 20,493 | ||||||
Notes receivables |
10,457 | 37 | ||||||||
Accounts receivable, net |
19,545 | 14,361 | ||||||||
Prepayments, deposits and other receivables, net |
1,568 | 13,694 | ||||||||
Total current assets |
38,804 | 48,585 | ||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
3 | 2,031 | 2,493 | |||||||
INTANGIBLE ASSETS, NET |
4 | 53 | 65 | |||||||
ASSETS OF DISCONTINUED OPERATIONS |
10 | | 724 | |||||||
TOTAL ASSETS |
$ | 40,888 | $ | 51,867 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||
CURRENT LIABILITIES |
||||||||||
Accounts payable |
$ | 225 | $ | 466 | ||||||
Accruals and other payables |
||||||||||
Related parties |
8 | 325 | 285 | |||||||
Third parties |
1,380 | 1,412 | ||||||||
Receipts in advance |
152 | 990 | ||||||||
Income tax payable |
| 262 | ||||||||
Total current liabilities |
2,082 | 3,415 | ||||||||
LONG-TERM LIABILITIES |
||||||||||
Due to shareholders |
8 | 4,255 | 4,255 | |||||||
Total liabilities |
6,337 | 7,670 | ||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||
STOCKHOLDERS EQUITY |
||||||||||
Preferred stock, authorized 10,000,000 shares, par value
$0.001, issued and outstanding Nil |
| | ||||||||
Common stock, authorized 100,000,000 shares, par value
$0.001, issued and outstanding 30,088,174 |
30 | 30 | ||||||||
Additional paid-in capital |
1,462 | 1,462 | ||||||||
Public welfare fund |
2,109 | 2,109 | ||||||||
Statutory surplus fund |
4,219 | 4,219 | ||||||||
Retained earnings |
18,896 | 28,303 | ||||||||
Accumulated other comprehensive income |
5,791 | 5,806 | ||||||||
Total stockholders equity |
32,507 | 41,929 | ||||||||
NON-CONTROLLING INTEREST |
2,044 | 2,268 | ||||||||
TOTAL EQUITY |
34,551 | 44,197 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 40,888 | $ | 51,867 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 2009 and 2008
(In thousands of United States dollars, except per share data)
THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||||
Note(s) | 2009 | 2008 | 2009 | 2008 | ||||||||||||||
NET REVENUE |
$ | 11,357 | $ | 11,314 | $ | 20,783 | $ | 22,447 | ||||||||||
COST OF REVENUE |
10,615 | 6,409 | 19,430 | 12,575 | ||||||||||||||
GROSS PROFIT |
742 | 4,905 | 1,353 | 9,872 | ||||||||||||||
OPERATING EXPENSES |
||||||||||||||||||
Selling expenses |
31 | 73 | 64 | 138 | ||||||||||||||
General and
administrative expenses |
5,357 | 596 | 10,944 | 1,325 | ||||||||||||||
TOTAL OPERATING EXPENSES |
5,388 | 669 | 11,008 | 1,463 | ||||||||||||||
(LOSS) / INCOME FROM
OPERATIONS |
(4,646 | ) | 4,236 | (9,655 | ) | 8,409 | ||||||||||||
OTHER INCOME |
18 | 87 | 39 | 361 | ||||||||||||||
GAIN ON DISPOSAL OF A
SUBSIDIARY |
10 | | | 7 | | |||||||||||||
(LOSS) / INCOME BEFORE
INCOME TAX |
(4,628 | ) | 4,323 | (9,609 | ) | 8,770 | ||||||||||||
INCOME TAX: CURRENT |
5 | | (779 | ) | (7 | ) | (1,635 | ) | ||||||||||
NET (LOSS) / INCOME |
(4,628 | ) | 3,544 | (9,616 | ) | 7,135 | ||||||||||||
Less: Net loss /
(income) attributable
to non-controlling interest |
94 | (117 | ) | 209 | (255 | ) | ||||||||||||
NET (LOSS) / INCOME
ATTRIBUTABLE TO COMMON
STOCKHOLDERS |
(4,534 | ) | 3,427 | (9,407 | ) | 6,880 | ||||||||||||
OTHER COMPREHENSIVE
INCOME |
||||||||||||||||||
Foreign currency
translation adjustment |
29 | 717 | (15 | ) | 1,737 | |||||||||||||
COMPREHENSIVE (LOSS) /
INCOME |
$ | (4,505 | ) | $ | 4,144 | $ | (9,422 | ) | $ | 8,617 | ||||||||
WEIGHTED AVERAGE NUMBER
OF SHARES (in thousands) |
30,088 | 30,088 | 30,088 | 30,088 | ||||||||||||||
(LOSS) / EARNINGS PER
SHARE ATTRIBUTABLE TO
COMMON STOCKHOLDERS (in
dollars) |
$ | (0.15 | ) | $ | 0.11 | $ | (0.31 | ) | $ | 0.23 | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the six months ended September 30, 2009
(In thousands of United States dollars)
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Common stock | Additional | Public | Statutory | other | Total | Non- | ||||||||||||||||||||||||||||||||||
No. of | paid-in | welfare | surplus | Retained | comprehensive | stockholders | controlling | |||||||||||||||||||||||||||||||||
shares | capital | fund | fund | earnings | income | equity | interest | Total | ||||||||||||||||||||||||||||||||
Balance, March 31,
2009 |
30,088,174 | $ | 30 | $ | 1,462 | $ | 2,109 | $ | 4,219 | $ | 28,303 | $ | 5,806 | $ | 41,929 | $ | 2,268 | $ | 44,197 | |||||||||||||||||||||
Net loss |
| | | | | (9,407 | ) | | (9,407 | ) | (209 | ) | (9,616 | ) | ||||||||||||||||||||||||||
Foreign currency
translation adjustment |
| | | | | | (15 | ) | (15 | ) | (15 | ) | (30 | ) | ||||||||||||||||||||||||||
Balance, September 30,
2009 (Unaudited) |
30,088,174 | $ | 30 | $ | 1,462 | $ | 2,109 | $ | 4,219 | $ | 18,896 | $ | 5,791 | $ | 32,507 | $ | 2,044 | $ | 34,551 | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 2009 and 2008
(In thousands of United States dollars)
FOR THE SIX MONTHS ENDED | ||||||||||
SEPTEMBER 30, | ||||||||||
Note(s) | 2009 | 2008 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||
Net (loss) / income attributable to common
stockholders |
$ | (9,407 | ) | $ | 6,880 | |||||
Adjustments to reconcile net income to net cash
generated from operating activities: |
||||||||||
Depreciation |
444 | 497 | ||||||||
Amortization |
12 | 19 | ||||||||
Non-controlling interest |
(209 | ) | 255 | |||||||
Gain on disposal of subsidiary |
(7 | ) | | |||||||
Loss on disposal of property, plant and equipment |
3 | | ||||||||
Allowance for doubtful receivables |
11,248 | 138 | ||||||||
Changes in operating assets and liabilities: |
||||||||||
(Increase) in notes receivable |
11 | (10,420 | ) | | ||||||
(Increase) in accounts receivables |
(15,267 | ) | (536 | ) | ||||||
Decrease in prepayments, deposits and other
receivables |
11 | 11,669 | 703 | |||||||
Decrease in inventories |
| 42 | ||||||||
(Decrease)/increase in accounts payable |
(241 | ) | 355 | |||||||
(Decrease)/increase in accruals and other payables |
(42 | ) | 253 | |||||||
Decrease in receipts in advance |
(838 | ) | (1,337 | ) | ||||||
Decrease in income tax payable |
(262 | ) | (766 | ) | ||||||
Net cash (used in) / provided by operating activities |
(13,317 | ) | 6,503 | |||||||
CASH FLOWS FROM INVESTING ACTIVITES |
||||||||||
Proceeds from disposal of property, plant and
equipment |
12 | | ||||||||
Increase in construction in progress |
| (7 | ) | |||||||
Net cash provided by / (used in) investing activities |
12 | (7 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||
Cash advance from shareholders |
40 | 78 | ||||||||
Net cash provided by financing activities |
40 | 78 | ||||||||
Effect of exchange rate changes on cash |
6 | 529 | ||||||||
Net (decrease) / increase in cash and cash
equivalents |
(13,259 | ) | 7,103 | |||||||
Cash and cash equivalents at beginning of period |
20,493 | 23,355 | ||||||||
Cash and cash equivalents at end of period |
$ | 7,234 | $ | 30,458 | ||||||
SUPPLEMENTAL INFORMATION |
||||||||||
Income taxes paid |
$ | 269 | $ | 2,396 | ||||||
Interest paid |
| | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
1. The Company and Subsidiaries
T-Bay Holdings, Inc. (the Company or T-Bay) was incorporated under the laws of the State of Utah
on August 8, 1984 as Sharus Corporation with authorized common stock of 50,000,000 shares with a
par value of US$0.001. On June 13, 1989, the domicile of the Company was changed to the state of
Nevada in connection with a name change to Golden Quest, Inc.. On January 7, 2002, the name was
changed to T-Bay Holdings, Inc. as part of a reverse stock split of 400 shares of outstanding
stock for one share and on November 23, 2004, the Company increased the authorized common stock to
100,000,000 shares with a par value of US$0.001 as part of a reverse stock split of 20 outstanding
shares for one share.
On August 16, 2005, pursuant to an Agreement and Plan of Reorganization, T-Bay issued
18,550,000 shares of its common stock for all of Amber Link International Limiteds (Amber
Link) and Wise Target International Limiteds (Wise Target) outstanding shares of common
stock (the Merger). Amber Link and Wise Target were two of the owners of Shanghai Sunplus
Communication Co., Ltd. (Sunplus). Wise Target owned a 75% interest and Amber Link owned a 20%
interest in Sunplus. After the Merger, T-Bay indirectly owned a 95% interest in Sunplus. In March
2009, Wise Target transferred all its holdings (75%) in Sunplus to Amber Link for US$2,885,000
(HK$22,500,000). As a result of this transaction, Amber Link directly owned 95% of Sunplus and this
transaction had no impact on the Companys effective holdings of Sunplus. Shanghai Fanna
Industrial Design Co., Ltd. owned the remaining 5% interest in Sunplus.
Wise Target was incorporated on April 24, 2002 under the International Business Companies Act
in the British Virgin Islands.
Amber Link was incorporated on May 10, 2002 under the International Business Companies Act in the
British Virgin Islands. During the year ended March 31, 2007, Amber Link commenced the sales of
mobile phones and components.
Sunplus was established on October 17, 2002 under the laws of the Peoples Republic of China
(PRC) as a Sino-foreign joint venture specialized in the development, production and sales of
electronic telecommunication devices. Sunplus commenced operations on May 1, 2003. At September
30, 2009, Sunplus has approximately 80 staff, mostly engineers and software programmers.
On February 12, 2007, Sunplus established a wholly-owned subsidiary, Zhangzhou JiaXun Communication
Facility Co., Ltd. (Zhangzhou JiaXun) under the laws of the PRC. Zhangzhou JiaXun is an
investment holding company. On April 9, 2009, Sunplus disposed of Zhangzhou JiaXun to Qiaoxing
Telecommunication Industry Company Limited (QiaoXing Telecom), a third party, at a consideration
of US$731,000 (RMB5,000,000).
On March 19, 2007, Sunplus and Zhangzhou JiaXun acquired 80% and 20%, respectively, of Fujian
Qiaoxing Industry Co., Ltd. (Fujian Qiaoxing).
On March 20, 2009, Sunplus disposed of its 80% interest in Fujian Qiaoxing to Qiaoxing Telecom at a
consideration of US$12,230,000 (RMB84,000,000).
10
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
1. The Company and Subsidiaries (continued)
As of September 30, 2009, the Group structure is as follows:-
2. Summary of Significant Accounting Policies
(a) Basis of Preparation
The accompanying unaudited consolidated financial statements of T-Bay and its subsidiaries
(collectively referred to as the Group) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the instructions to Form
10-Q and of Regulation S-X. Certain information and footnote disclosures normally included in
financial statements prepared with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to the Securities and Exchange Commissions rules and
regulations. In the opinion of management, these unaudited consolidated interim financial
statements include all adjustments and disclosures (consisting only of normal recurring items)
considered necessary to make the financial statements not misleading. These unaudited consolidated
interim financial statements should be read in conjunction with the audited consolidated financial
statements of T-Bay for the year ended March 31, 2009 and notes thereto contained in the Form 10-K
as filed with the Securities and Exchange Commission. The results of operations for the six months
ended September 30, 2009 are not necessarily indicative of the results for the full fiscal year
ending March 31, 2010.
11
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
2. Summary of Significant Accounting Policies (continued)
(b) Basis of Consolidation
The unaudited consolidated balance sheet as of September 30, 2009 includes T-Bay, Wise Target,
Amber Link and Sunplus. The audited consolidated balance sheet as of March 31, 2009 also included
Zhangzhou JiaXun. As mentioned in Note 1, Zhangzhou JiaXun was disposed of on April 9, 2009,
therefore, the financial position of Zhangzhou JiaXun has been presented as assets of discontinued
operations as of March 31, 2009.
The unaudited consolidated statement of operations for the three months ended September 30, 2009
include T-Bay, Wise Target, Amber Link and Sunplus. The unaudited consolidated statement of
operations for the six months ended September 30, 2009 also includes Zhangzhou JiaXun. The
unaudited consolidated statement of operations for the three and six months ended September 30,
2008 included T-Bay, Wise Target, Amber Link, Sunplus, Zhangzhou JiaXun and Fujian Qiaoxing.
(c) (Loss)/ Earnings Per Share
Basic (loss)/earnings per share is computed by dividing the (loss)/earnings for the period
by the weighted average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of securities by including other potential common stock,
including stock options and warrants, in the weighted average number of common shares outstanding
for the period, if dilutive. There are no common stock equivalents outstanding for any period
presented.
3. Property, Plant and Equipment, Net
SEPTEMBER 30, | March 31, | |||||||
2009 | 2009 | |||||||
US$000 | US$000 | |||||||
(Unaudited) | ||||||||
Cost |
||||||||
Machinery |
$ | 4,771 | $ | 4,859 | ||||
Office equipment |
138 | 138 | ||||||
Motor vehicles |
56 | 56 | ||||||
4,965 | 5,053 | |||||||
Accumulated depreciation |
||||||||
Machinery |
2,786 | 2,426 | ||||||
Office equipment |
104 | 95 | ||||||
Motor vehicles |
44 | 39 | ||||||
2,934 | 2,560 | |||||||
Carrying value |
||||||||
Machinery |
1,985 | 2,433 | ||||||
Office equipment |
34 | 43 | ||||||
Motor vehicles |
12 | 17 | ||||||
$ | 2,031 | $ | 2,493 | |||||
Depreciation expense for the six months ended September 30, 2009 and 2008 were US $444,000 and US$
497,000, respectively.
12
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
4. Intangible Assets, Net
Changes in the carrying amount of intangible assets for the six months ended September 30, 2009
were as follows:
Software | Patent | Total | ||||||||||
US$000 | US$000 | US$000 | ||||||||||
Cost: |
||||||||||||
Balance, March 31, 2009 and
September 30, 2009 |
$ | 183 | $ | 4 | $ | 187 | ||||||
Less: Accumulated amortisation |
||||||||||||
Balance, March 31, 2009 |
(119 | ) | (3 | ) | (122 | ) | ||||||
Amortization expenses |
(11 | ) | (1 | ) | (12 | ) | ||||||
Balance, September 30, 2009 |
(130 | ) | (4 | ) | (134 | ) | ||||||
Net balance, September 30, 2009 |
$ | 53 | $ | | $ | 53 | ||||||
Amortization expense for each of the three months periods ended September 30, 2009 and 2008 was
approximately US$6,000 and US$10,000, and for the six months ended September 2009 and 2008 was
approximately US$12,000 and US$19,000, respectively. The estimated amortization expense for the six
months ending March 31, 2010 and the four years ending March 31, 2011, 2012, 2013 and 2014 amounts
to approximately US$11,000, US$22,000, US$18,000, US$2,000 and US$ nil, respectively.
5. Income Taxes
Amber Link and Wise Target are not subject to income taxes in any tax jurisdiction.
No provision for current income tax for T-Bay has been made as it incurred a loss for each of the
six months ended September 30, 2009 and 2008, respectively.
Sunplus is subject to PRC Income Tax. Pursuant to the PRC Income Tax Laws, the prevailing statutory
rate of enterprise income tax is 25%.
Zhangzhou JiaXun and Fujian Qiaoxing were inactive during each of the periods ended September 30,
2009 and 2008, respectively.
13
Table of Contents
T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
5. Income Taxes (continued)
A reconciliation between taxes computed at the United States statutory rate of 34% and the Groups
effective tax rate is as follows:-
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
US$000 | US$000 | US$000 | US$000 | |||||||||||||
(Loss) / income before income tax |
$ | (4,628 | ) | $ | 4,323 | $ | (9,609 | ) | $ | 8,770 | ||||||
Income tax on pretax income at
statutory rate |
(1,573 | ) | 1,470 | (3,267 | ) | 2,982 | ||||||||||
Effect of different tax rates of
subsidiary operating in other
jurisdictions |
1,100 | (698 | ) | 2,211 | (1,323 | ) | ||||||||||
Tax effect of non-taxable income |
| (12 | ) | | (68 | ) | ||||||||||
Valuation allowance |
473 | 19 | 1,056 | 44 | ||||||||||||
Under-provision in prior year |
| | 7 | | ||||||||||||
Income tax expense |
$ | | $ | 779 | $ | 7 | $ | 1,635 | ||||||||
As of September 30, 2009, T-Bay had accumulated net operating loss carryforwards for United
States federal tax purposes of approximately US$5,664,000, that are available to offset future
taxable income. Realization of the net operating loss carryforwards is dependent upon future
profitable operations. In addition, the carryforwards may be limited upon a change of control in
accordance with Internal Revenue Code Section 382, as amended. Accordingly, management has
recorded a valuation allowance to reduce deferred tax assets associated with the net operating loss
carryforwards to zero at September 30, 2009. The net operating loss carryforwards expire in years
2012 through 2029.
As of September 30, 2009, deferred tax assets consist of:-
SEPTEMBER 30, | ||||
2009 | ||||
US$000 | ||||
Net operating loss carryforwards |
$ | 5,483 | ||
Less: valuation allowance |
(5,483 | ) | ||
$ | | |||
14
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
6. Concentrations and Credit Risk
The Group operates principally in the PRC (including Hong Kong) and grants credit to its customers
in this geographic region. Although the PRC is economically stable, it is always possible that
unanticipated events in foreign countries could disrupt the Groups operations.
Financial instruments that potentially subject the Group to a concentration of credit risk consist
of cash, accounts and notes receivable.
As of September 30, 2009 and March 31, 2009, the Group had credit risk exposure of uninsured cash
in banks of approximately US$7,234,000 and US$20,493,000, respectively.
A substantial portion of revenue was generated from one group of customers for the three and six
months ended September 30, 2009 and 2008.
The net sales to customers representing at least 10% of net total sales are as follows:-
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||||||||||||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
US$000 | % | US$000 | % | US$000 | % | US$000 | % | |||||||||||||||||||||||||
Customer A |
$ | 2,357 | 21 | $ | 949 | 8 | $ | 3,918 | 19 | $ | 1,785 | 8 | ||||||||||||||||||||
Customer B |
1,761 | 16 | 487 | 4 | 2,681 | 13 | 1,058 | 5 | ||||||||||||||||||||||||
Customer C |
1,319 | 12 | 2,091 | 18 | 2,175 | 10 | 4,087 | 18 | ||||||||||||||||||||||||
Customer D* |
1,617 | 14 | 743 | 7 | 3,423 | 16 | 1,558 | 7 | ||||||||||||||||||||||||
Customer E* |
1,692 | 15 | | | 3,599 | 17 | | | ||||||||||||||||||||||||
Customer F |
1,540 | 14 | 83 | 1 | 2,788 | 13 | 83 | | ||||||||||||||||||||||||
Customer G |
| | 2,610 | 23 | | | 4,792 | 21 | ||||||||||||||||||||||||
Customer H |
| | 2,395 | 21 | | | 4,416 | 20 | ||||||||||||||||||||||||
Customer Group A* |
3,309 | 29 | 743 | 7 | 7,022 | 34 | 1,558 | 7 |
* | At September 30, 2009 and March 31, 2009, this group of customers accounted for 24% and 15%, respectively, of accounts receivable. The accounts receivable have repayment terms of not more than twelve months. The Group does not require collateral to support financial instruments that are subject to credit risk. |
The following customers had balances greater than 10% of the total accounts receivable as of
September 30, 2009 and March 31, 2009:
SEPTEMBER 30, | MARCH 31, | |||||||||||||||
2009 | 2009 | |||||||||||||||
US$000 | % | US$000 | % | |||||||||||||
Customer A |
$ | 6,655 | 18 | $ | 3,505 | 16 | ||||||||||
Customer B |
5,284 | 14 | 3,219 | 14 | ||||||||||||
Customer C |
3,911 | 10 | 2,241 | 10 | ||||||||||||
Customer D* |
5,242 | 14 | 2,551 | 11 | ||||||||||||
Customer E* |
3,913 | 10 | 710 | 3 | ||||||||||||
Customer G |
2,530 | 7 | 2,808 | 13 | ||||||||||||
Customer I |
2,818 | 8 | 2,762 | 12 | ||||||||||||
Customer group A* |
9,155 | 24 | 3,261 | 15 |
* | Customer Group A includes customers D and E. |
15
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
7. Retirement and Welfare Benefits
The full-time employees of the PRC subsidiaries are entitled to staff welfare benefits including
medical care, casualty, housing benefits, education benefits, unemployment insurance and pension
benefits through a PRC government-mandated multi-employer defined contribution plan. The PRC
subsidiaries are required to accrue the employer-portion for these benefits based on certain
percentages of the employees salaries. The total provision for such employee benefits was US$
41,000 and US $83,000 for the three and six months ended September 30, 2009 and US $47,000 and US$
130,000 for the three and six months ended September 30, 2008, respectively. The PRC subsidiaries
are required to make contributions to the plans out of the amounts accrued for all staff welfare
benefits except for education benefits. The PRC government is responsible for the staff welfare
benefits including medical care, casualty, housing benefits, unemployment insurance and pension
benefits to be paid to these employees.
8. Related Party Transactions
The Group engages in business transactions with the following related parties:
a. | Li Xiaofeng, a director and stockholder of T-Bay. | |
b. | Li Meilian, a stockholder of T-Bay. |
The Group has the following transactions and balances with related parties:-
SEPTEMBER 30, | MARCH 31, | |||||||
2009 | 2009 | |||||||
US$000 | US$000 | |||||||
(Unaudited) | ||||||||
Other
payable Li Meilian |
$ | 325 | $ | 285 | ||||
Long-term liabilities |
||||||||
Other
payable Li Meilian |
$ | 3,482 | $ | 3,482 | ||||
Other
payable Li Xiaofeng |
773 | 773 | ||||||
$ | 4,255 | $ | 4,255 | |||||
The balances have no stated terms for repayment and are not interest bearing. The payables to Li
Meilian and Li Xiaofeng are not repayable within the next twelve months.
16
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
9. Commitments and Contingencies
a. | As of September 30, 2009, Sunplus leased office premises and staff quarters under several agreements expiring from 2010 to 2012. |
Rental expenses for the three months and six months ended September 30, 2009 amounted to US$ 24,000 and US$46,000 respectively. Rental expenses for the three and six months ended September 30, 2008 amounted to US$74,000 and US$169,000, respectively, and are included in general and administrative expenses in the consolidated statements of operations and comprehensive income. |
The future minimum lease payments under the above-mentioned leases as of September 30, 2009 are as follows:- |
Year Ending March 31, | US$000 | |||
2010 |
$ | 25 | ||
2011 |
38 | |||
2012 |
35 | |||
Total |
$ | 98 | ||
b. | As of September 30, 2009, the Group had capital commitments in relation to acquisition of intangible assets of US $38,000. |
10. Disposal of a subsidiary
On April 9, 2009, Sunplus disposed of its 100% interest in Zhangzhou JiaXun to Qiaoxing Telecom at
a consideration of US$731,000 (RMB5,000,000).
April 9, | ||||
Disposal of subsidiary | 2009 | |||
US$000 | ||||
Net assets disposed:- |
||||
Investment at cost |
$ | 585 | ||
Other receivables |
83 | |||
Due from minority shareholder |
59 | |||
Cash and bank balances |
1 | |||
Net assets disposed |
728 | |||
Impairment |
(4 | ) | ||
Assets of discontinued operations |
724 | |||
Consideration to be satisfied by cash |
731 | |||
Gain on disposal of a subsidiary |
$ | 7 | ||
An analysis of the net inflow of cash and cash equivalents in respect of the disposal of Zhangzhou
Jiaxun is as follows:-
US$000 | ||||
Cash and bank balances disposed |
$ | (1 | ) | |
Cash consideration received |
731 | |||
Net cash inflow |
$ | 730 | ||
17
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
10. Disposal of a subsidiary (continued)
The carrying values of the assets of the disposal group classified as held for sale as at March 31,
2009 were as follows:
MARCH 31, | ||||
2009 | ||||
US$000 | ||||
(Audited) | ||||
Investment at cost |
$ | 585 | ||
Deposits and other receivables |
83 | |||
Due from minority shareholder |
59 | |||
Cash and bank balances |
1 | |||
728 | ||||
Impairment |
(4 | ) | ||
Assets of discontinued operations |
$ | 724 | ||
11. Supplemental schedule of non-cash transaction
During the six months ended September 2009, notes receivables of RMB71,500,000 (equivalents to
US$10,457,000) were issued by Qiaoxing Telecom for settlement of other receivables in respect of
sales proceeds for disposal of Fujian Qiaoxing.
12. New Accounting Pronouncements
In May 2009, the FASB issued FASB Accounting Standard Codification (ASC) No. 855-10 (Prior
authoritative guidance: SFAS No. 165, Subsequent Events), or ASC No. 855-10, which sets forth
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. ASC No.855-10 is
effective after June 15, 2009. The adoption of ASC No. 855-10 had no material effect on the
Companys financial statements. We have evaluated subsequent events through November 16, 2009, the
date the consolidated financial statements were issued. We have not identified any items requiring
disclosure.
In April 2008, the FASB issued ASC No. 350-30-35-1 (Prior authoritative guidance: FSP FAS No.
142-3, Determination of the Useful Life of Intangible Assets). ASC No. 350-30-35-1 amends the
factors that should be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under ASC No. 350-30-35-1, Goodwill and Other
Intangible Assets. ASC No. 350-30-35-1 is intended to improve the consistency between the useful
life of an intangible asset and the period of expected cash flows used to measure the fair value of
the asset under other applicable accounting literature. ASC No. 350-30-35-1 is effective for fiscal
years beginning after December 15, 2008. Early adoption is prohibited. The adoption of ASC No.
350-30-35-1 had no material effect on the Companys consolidated financial statements.
In May 2008, the FASB issued ASC No. 105 (Prior authoritative guidance: SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles). The statement identifies the sources of
accounting principles and the framework to be used in preparation of financial
statements of nongovernmental entities. The Codification is effective for interim and annual
periods ending after September 15, 2009, and as of the effective date, all existing accounting
standard documents will be superseded. The Codification is effective for us in the second quarter
of 2010. The adoption of this guidance had no effect on our consolidated financial position or
results of operations.
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
12. New Accounting Pronouncements (continued)
In April 2009, the FASB issued three related staff positions to clarify the application of ASC No.
820 (Prior authoritative guidance: FSP FAS No.115-2 and FAS No. 124-2, Recognition of
Other-Than-Temporary Impairments) to fair value measurements in the current economic environment,
modify the recognition of other-than-temporary impairments of debt securities, and require
companies to disclose the fair value of financial instruments in interim periods. The final staff
positions are effective for interim and annual periods ending after March 15, 2009. The adoption
had no material effect on the Companys consolidated financial statements.
In April 2009, the FASB issued ASC No.820 (Prior authoritative guidance: FSP No. 157-4 Determining
Whether a Market is Not Active and a Transaction Is Not Distressed, or FSP No. 157-4). ASC No.
820 clarifies when markets are illiquid or that market pricing may not actually reflect the real
value of an asset. If a market is determined to be inactive and market price is reflective of a
distressed price then an alternative method of pricing can be used, such as a present value
technique to estimate fair value. ASC No. 820 identifies factors to be considered when determining
whether or not a market is inactive. ASC No. 820 is effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted for periods ending after June 15, 2009
and shall be applied prospectively. The adoption of ASC No. No. 820 had no material effect on the
consolidated financial statements.
In December 2007, the ASC No.815 (Prior authoritative guidance: FASB issued SFAS 141 (revised
2007), Business Combinations (ASC 815). ASC No.815 amends and clarifies the accounting guidance for
the acquirers recognition and measurement of assets acquired, liabilities assumed and
noncontrolling interests of an acquiree in a business combination. The adoption of ASC No.815 had
no material effect on the Companys consolidated financial statements.
In June 2009, the FASB issued ASC No.860 (Prior authoritative guidance: SFAS No. 166 Accounting
for Transfers of Financial Assets an amendment of FASB Statement No. 140), which eliminates the
concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a
transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and
changes the initial measurement of a transferors interest in transferred financial assets. ASC No.
860 will be effective for transfers of financial assets in fiscal years beginning after
November 15, 2009, and in interim periods within those fiscal years with earlier adoption
prohibited. The Company is currently evaluating the impact of the adoption of ASC No. 860 on its
consolidated financial statements.
In June 2009, the FASB issued ASC No. 810 (Prior authoritative guidance: SFAS No. 167 Amendments
to FASB Interpretation No. 46(R)), which address the elimination of the concept of a qualifying
special purpose entity. ASC No. 810 also replaces the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling financial interest in a variable
interest entity with an approach focused on identifying which enterprise has the power to direct
the activities of a variable interest entity and the obligation to absorb losses of the entity or
the right to receive benefits from the entity. Additionally, ASC No. 810 provides more timely and
useful information about an enterprises involvement with a variable interest entity. ASC No. 810
shall be effective as of the beginning of each reporting entitys first annual reporting period
that begins after November 15, 2009, for interim periods within that first annual reporting period,
and for interim and annual reporting periods thereafter. Earlier application is prohibited. The
Company is currently evaluating the impact of the adoption of ASC No. 810 on its consolidated
financial statements.
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T-BAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2009
12. New Accounting Pronouncements (continued)
In June 2009, the FASB issued ASC No. 105 (Prior authoritative guidance: SFAS No. 168 The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles,
a replacement of FASB Statement No. 162), which establishes the FASB Accounting Standards
Codification as the source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with generally accepted accounting
principles. ASC No. 105 explicitly recognizes rules and interpretive releases of the Securities and
Exchange Commission (SEC) under federal securities laws as authoritative GAAP for SEC
registrants. ASC No. 105 will become effective for financial statements issued for interim and
annual periods ending after September 15, 2009. Adoption of ASC No. 105 did not have a material
impact on the Companys consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-02 (ASU 2009-03), SEC update
Amendments to various topics containing SEC Staff Accounting Bulletins to update cross-references
to Codification test. ASU 2009-03 did not have a material effect on the Companys consolidated
financial condition or results of operations.
In August 2009, the FASB issued Accounting Standard Update No.2009-05 (ASU 2009-05), ACS No. 820
Measuring Liabilities at Fair Value. ASU 2009-5 applies to all entities that measure liabilities
at fair value within scope of ASC No, 820. ASU 2009-05 provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more valuation techniques.
The amendments in ASU 2009-05 also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to other inputs relating
to the existence of a restriction that prevents the transfer of the liability. It also clarifies
that both a quoted price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an active market when
no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.
The guidance provided in ASU 2009-05 is effective for the first reporting period beginning after
issuance. The adoption of ASU 2009-5 is not expected to have a material effect on the Companys
consolidated financial condition or results of operations.
In September 2009, the FASB issued Accounting Standards Update No. 2009-07 (ASU 2009-07),
Accounting for Various Topics. ASU 2009-07 represents technical corrections to various topics
containing SEC guidance based on external comments received. The adoption of this guidance did not
have a material effect on the Companys consolidated financial condition or results of operations.
In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair
Value Measurements and Disclosures (Topic 820), Investments in Certain Entities that Calculate Net
Asset Value per Share (or Its Equivalent). ASU 2009-12 provides amendments to Subtopic 820-10, Fair
Value Measurements and Disclosures Overall, for the fair value measurement of investments in
certain entities that calculate net asset value per share. This ASU also requires disclosures by
major category of investment about the attributes of investments within the scope of the amendments
in this Update. The amendments in this Update are effective for interim and annual periods after
December 15, 2009. The adoption of this guidance is not expected to have a material effect on the
Companys consolidated financial condition or results of operations.
20
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
The following review concerns the six months ended September 30, 2009, which should be read in
conjunction with the financial statements and notes thereto presented in the Form 10-K for the year
ended March 31, 2009.
In the wake of the global financial crisis, our customers have become slow in their payments.
Also, they changed their orders from design services to mobile phone components, to provide some
relief to the financial strain that they have. This behavior has the effect of transferring part
of the financing of the production of mobile phone handsets from our customers to us. This,
together with the reduction in aggregate mobile phone demand in the Mainland China market as well
as the overseas market, resulted in a drastic reduction of customer orders for design services, for
which the gross margin is relatively high. The global financial crisis has also caused an increase
in credit risk on our receivables. We believe that we have made adequate provision for doubtful
accounts in our financial statements. However, if the provision turned out to be inadequate, then
our financial performance and our financial position would be adversely affected. The decline in
purchases of design services and the slowness in collecting our accounts receivable pose potential
risks to our financial performance. While there are limited steps that Management can take to
mitigate these potential risks, we cannot assure that our customers financial position will
improve. We anticipate, however, that the adverse business conditions described in this report
will begin to improve around the middle of next year.
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THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008
Overview
Our results for the fiscal quarter ended September 30, 2009 reflect an elimination of raw material
sales and a transition from design services, accompanied by a substantial increase in our sales of
mobile phone components. While our net revenue increased slightly from the three months ended
September 30, 2008, our net results for the second fiscal quarter changed from a profit of
$3,427,000 to a loss of $4,534,000. This is due primarily to increased cost of sales, driven by
both weaker margins on mobile phone components and an increased allowances for doubtful receivables,
included in G&A expenses, as discussed further below. We recorded a loss per share of $ 0.15
for the three months ended September 30, 2009, compared to earnings per share of $ 0.11 for the
three months ended September 30, 2008.
Net Revenue
Three months ended September 30, | ||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||
(in thousand US dollars) | Growth% | Amount | % | Amount | % | |||||||||||||||
Sales of raw materials |
-100 | N/A | N/A | 573 | 5.0 | |||||||||||||||
Sales of
mobile phone components |
66.4 | 11,175 | 98.4 | 6,717 | 59.4 | |||||||||||||||
Revenue from design services |
-95.5 | 182 | 1.6 | 4,024 | 35.6 | |||||||||||||||
NET REVENUE |
11,357 | 100 | 11,314 | 100 | ||||||||||||||||
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Our net revenue was $11,357,000 for the three months ended September 30, 2009, a slight increase of
$43,000, or 0.4%, from $11,314,000 for the same period in the previous year. Revenue from sales of
mobile phone components was $11,175,000 compared to $6,717,000 in the same period of the previous
fiscal year, representing a 66.4% increase. Revenue from design services decreased to $182,000 from
$4,024,000 in the same period of the previous fiscal year, representing a 95.5% decrease.
For the three months ended September 30, 2009, revenue from design services represented 1.6% of
total revenue, while revenue from sales of mobile phone components was 98.4%, compared to 35.6%
from design services and 59.4% from sales of mobile phone components for the three months ended
September 30, 2008.
Detailed information on sale of mobile phone components
Sales of mobile phone components (PCB and PCBA, the key components in the manufacture of mobile
handsets) increased from $6,717,000 to $11,175,000, representing a 66.4% increase. The increase was
largely the result of the transfer of orders from design services to mobile phone components. This
reflects a change in customer preferences, as our customers conserved cash by purchasing mobile
phone components rather than design services.
We design and manufacture PCB and provide PCBA according to our customers specifications. We
manufactured more PCB and PCBA for our customers in the three months ended September 30, 2009 when
compared with the three months ended September 30, 2008.
23
Table of Contents
Detailed information on revenue from design services
Revenue from design services decreased from $4,024,000 for the three months ended September 30,
2009 to $182,000, representing a 95.5% decrease. In the three months ended September 30, 2009,
there was a drastic reduction of customer orders for design services compared with the same period
a year earlier. We believe that as a result of the global financial crisis, aggregate mobile phone
demand in the Mainland China market, as well as the overseas market, has shrunk since the second
half of the fiscal year ended March 31, 2009. By purchasing components rather than design
services, customers have been able to conserve cash. We expect sales of design services will start
to pick up gradually around the middle of next year.
Cost of Revenue
For the three months ended September 30, 2009, cost of revenue increased to $10,615,000 from
$6,409,000 for the three months ended September 30, 2008, representing a 65.6% increase. Cost of
revenue primarily consisted of purchase cost of raw and processed materials and salaries
of engineers and designers. The increase was largely the result of transfer of orders from
design services, for which cost of revenue is relatively low, compared with mobile phone components, for which
cost of revenue is relatively high. We expect this trend of order transfer will start to reverse
gradually around the middle of next year.
Gross Profit
Our gross profit was $742,000 for the three months ended September 30, 2009 compared to $4,905,000
for the three months ended September 30, 2008, representing an 84.9% decrease. The decrease in
gross profit was mainly attributable to the significant decrease in revenue from design services
with high profit margin.
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Table of Contents
Operating Expenses
Operating expenses consisted of selling expenses and general and administrative (G&A) expenses.
For the three months ended September 30, 2009, operating expenses were $5,388,000, as compared to
$669,000 for the three months ended September 30, 2008, representing a 705.4% increase.
Detailed information of operating expenses for the three months ended September 30, 2009 is as
follows:
Three months ended September 30, | ||||||||||||||||||||
2009 | % of | 2008 | % of | |||||||||||||||||
(in thousand US dollars) | Growth% | Amount | net revenue | Amount | net revenue | |||||||||||||||
G&A expenses |
798.8 | 5,357 | 47.2 | 596 | 5.3 | |||||||||||||||
Selling expenses |
-57.5 | 31 | 0.3 | 73 | 0.6 | |||||||||||||||
Operating expenses |
705.4 | 5,388 | 47.5 | 669 | 5.9 | |||||||||||||||
Operating expenses during the three months ended September 30, 2009 were $5,388,000, or 47.5% of
revenue, compared to $669,000, or 5.9% of revenue for the three months ended September 30, 2008.
The significant increase was mainly attributed to the increase in G&A expenses.
G&A expenses were $5,357,000, or 47.2% of revenue, compared to $596,000, or 5.3% revenue for the
three months ended September 30, 2008. The significant increase in G&A expenses was mainly due to
the increase in allowance for doubtful receivables. Going forward, in its decision to grant
credit to its customers, the Company plans to use more stringent criteria in the evaluation of
their creditworthiness.
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Table of Contents
We increased the allowance for doubtful receivables by $7,245,000 for the three months ended
September 30, 2009 as compared to $nil, for the three months ended September 30, 2008. An
allowance for doubtful receivables is maintained for all customers based on a variety of factors,
including the overall economy and industrial condition, length of time the receivables are past
due, significant one-time events and historical experience. For the three months ended September
30, 2009, particular consideration was given to the increased credit risk due to the current
economic downturn, which was evident from the increase in the length of time the receivables were
past due.
Selling expenses decreased from $73,000 to $31,000. The decrease was mainly attributable to less
marketing-related expenses in keeping with the decline in demand for design services.
(Loss) / Income from Operations
Loss from operation was $4,646,000 for the three months ended September 30, 2009, compared to
income from operations of $4,236,000 for the same period in the previous year. The change from a
profit situation to a loss situation was mainly attributable to the decrease of revenue in design
service and the increase of allowance for doubtful receivables.
Non-controlling Interests
Non-controlling interests represented the portion of (loss) / income of Sunplus that we do not own.
For the three months ended September 30, 2009, non-controlling interests were attributable to the
5% of the equity interest of Sunplus owned by Shanghai Fanna.
26
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Income Tax
Sunplus is subject to PRC Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, the
prevailing statutory rate of enterprise income tax in Shanghai was 25% as of January 1, 2008. It
was 27% prior to January 1, 2008.
For the three months ended September 30, 2009, Sunplus recorded an income tax expense of $nil
compared to $779,000 for the three months ended September 30, 2008. Sunplus was in a loss situation
in the three months ended September 30, 2009.
Net( loss) /Income attributable to common stockholders
As a result of the above items, net loss attributable to common stockholders was $4,534,000 for the
three months ended September 30, 2009, as compared to net income attributable to common
stockholders of $3,427,000 for the three months ended September 30, 2008. This adverse change was
mainly the result of the significant decrease of income from design services and the increase in
operating expenses.
(Loss)/earnings per share attributable to common stockholders
We reported loss per share attributable to common stockholders of $0.15, based on a weighted
average number of shares outstanding of 30,088,174 for the three months ended September 30, 2009.
Our outstanding common stock was 30,088,174 shares as of September 30, 2009. We do not have any
preferred stock issued or outstanding warrants or options.
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SIX MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2008
Overview
Our results for the six months ended September 30, 2009 reflect an elimination of raw material
sales and a transition from design services, accompanied by a substantial increase in our sales of
mobile phone components. While our net revenue decreased 7.4% from $22,447,000 for the six months
ended September 30, 2008 to $20,783,000 for the same period in the current fiscal year, our net
results for the second fiscal quarter changed from a profit of $6,880,000 to a loss of $9,407,000.
This is due primarily to increased cost of sales, driven by both weaker margins on mobile phone
components and an increased provision for doubtful receivables, included in G&A expenses, as discussed
further below. We recorded a loss per share of $ 0.31 for the six months ended September 30,
2009, and earnings per share of $ 0.23 for the six months ended September 30, 2008.
Net Revenue
Six months ended September 30, | ||||||||||||||||||||
2009 | 2008 | |||||||||||||||||||
(in thousand US dollars) | Growth% | Amount | % | Amount | % | |||||||||||||||
Sales of raw materials |
-100 | N/A | N/A | 573 | 2.6 | |||||||||||||||
Sales of
mobile phone components |
51.7 | 20,396 | 98.1 | 13,448 | 59.9 | |||||||||||||||
Revenue from design services |
-95.4 | 387 | 1.9 | 8,426 | 37.5 | |||||||||||||||
NET REVENUE |
-7.4 | 20,783 | 100 | 22,447 | 100 | |||||||||||||||
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Our net revenue was $20,783,000
for the six months ended September 30, 2009, which represented decrease of
$1,664,000, or 7.4%, from $22,447,000 for the same period in the previous year. Revenue from sales
of mobile phone components was $20,396,000 compared to $13,448,000 in the same period of the
previous fiscal year, representing a 51.7% increase. Revenue from design services decreased to
$387,000 from $8,426,000 in the same period of the previous fiscal year, representing a 95.4%
decrease.
For the six months ended September 30, 2009, revenue from design services represented 1.9% of total
revenue, while revenue from sales of mobile phone components was 98.1%, compared to 37.5% from
design services and 59.9% from sales of mobile phone components for the six months ended September
30, 2008.
Detailed information on sale of mobile phone components
Sales of mobile phone components (PCB and PCBA, the key components in the manufacture of mobile
handsets) increased from $13,448,000 to $20,396,000, representing a 51.7% increase. The increase
was largely the result of the transfer of orders from design services to mobile phone components.
This reflects a change in customer preferences, as our customers conserved cash by purchasing
mobile phone components rather than design services.
We design and manufacture PCB and provide PCBA according to our customers specifications. We
manufactured more PCB and PCBA for our customers in the six months ended September 30, 2009 when
compared with the six months ended September 30, 2008.
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Detailed information on revenue from design services
Revenue from design services decreased from $8,426,000 for the six months ended September 30, 2009
to $387,000, representing a 95.4% decrease. In the six months ended September 30, 2009, there was a
drastic reduction of customer orders for design services compared with the same period a year
earlier. We believe that as a result of the global financial crisis, aggregate mobile phone demand
in the Mainland China market, as well as the overseas market, has shrunk since the second half of
the fiscal year ended March 31, 2009. By purchasing components rather than design services,
customers have been able to conserve cash. We expect sales of design services will start to pick
up gradually around the middle of next year.
Cost of Revenue
For the six months ended September 30, 2009, cost of revenue increased to $19,430,000 from
$12,575,000 for the six months ended September 30, 2008, representing a 54.5% increase. Cost of
revenue primarily consisted of purchase cost of raw and processed materials and salaries
of engineers and designers. The increase was largely the result of the transfer of orders from
design services, for which cost of revenue is relatively low, to mobile phone components, for which
cost of revenue is relatively high. We expect this trend of order transfer will start to reverse
gradually around the middle of next year.
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Gross Profit
Our gross profit was $1,353,000 for the six months ended September 30, 2009 compared to $9,872,000
for the six months ended September 30, 2008, representing an 86.3% decrease. The decrease in gross
profit was mainly attributable to the significant decrease in revenue from high profit margin design services.
Operating Expenses
Operating expenses consisted of selling expenses and general and administrative (G&A) expenses.
For the six months ended September 30, 2009, operating expenses were $11,008,000, as compared to
$1,463,000 for the six months ended September 30, 2008, representing a 652.4% increase.
Detailed information of operating expenses for the three months ended September 30, 2009 is as
follows:
Six months ended September 30, | ||||||||||||||||||||
2009 | % of | 2008 | % of | |||||||||||||||||
(in thousand US dollars) | Growth% | Amount | net revenue | Amount | net revenue | |||||||||||||||
G&A expenses |
726.0 | 10,944 | 52.6 | 1,325 | 5.9 | |||||||||||||||
Selling expenses |
-53.6 | 64 | 0.3 | 138 | 0.6 | |||||||||||||||
Operating expenses |
652.4 | 11,008 | 52.9 | 1,463 | 6.5 | |||||||||||||||
Operating expenses during the
six months ended September 30, 2009 was $11,008,000, or 52.9% of
revenue, compared to $1,463,000, or 6.5% of revenue for the six months ended September 30, 2008.
The significant increase was mainly attributed to the increase in G&A expenses.
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G&A expenses were $10,944,000, or 52.6% of revenue, compared to $1,325,000, or 5.9% revenue for the
six months ended September 30, 2008. The significant increase in G&A expenses was mainly due to
increase in allowance for doubtful receivables. Going forward, in its decision to grant
credit to its customers, the Company plans to use more stringent criteria in the evaluation of
their creditworthiness.
We increased the allowance for doubtful receivables by $11,248,000 for the six months ended
September 30, 2009 as compared to $138,000, for the six months ended September 30, 2008. An
allowance for doubtful receivables is maintained for all customers based on a variety of factors,
including the overall economy and industrial condition, length of time the receivables are past
due, significant one-time events and historical experience. For the six months ended September 30,
2009, particular consideration was given to the increased credit risk due to the current economic
downturn, which was evident from the increase in the length of time the receivables were past due.
Selling expenses decreased from $138,000 to $64,000. The decrease was mainly attributable to less
marketing-related expenses in keeping with the decline in demand for design services.
(Loss) / Income from Operations
Loss from operation was $9,655,000 for the six months ended September 30, 2009, compared to income
from operations of $8,409,000 for the same period in the previous year. The change from a profit
situation to a loss situation was mainly attributable to the decrease of revenue in design service
and the increase of allowance for doubtful receivables.
Non-controlling Interests
Non-controlling interests represented the portion of (loss) / income of Sunplus that we do not own.
For the six months ended September 30, 2009, non-controlling interests were attributable to the 5%
of the equity interest of Sunplus owned by Shanghai Fanna.
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Income Tax
Sunplus is subject to PRC Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, the
prevailing statutory rate of enterprise income tax in Shanghai was 25% as of January 1, 2008. It
was 27% prior to January 1, 2008.
For the six months ended September 30, 2009, Sunplus recorded an income tax expense $7,000,
compared to $1,635,000 for the six months ended September 30, 2008. The income tax expenses of
$7,000 related to an under-provision in the previous year. No income tax expense relating to the
current period of the six months ended September 30, 2009 was recorded for as Sunplus incurred loss
during the six months period ended September 30, 2009.
Fujian QiaoXing and JiaXun were inactive and not subject to any income tax for the six months ended
September 30, 2008.
Net( loss) /Income attributable to common stockholders
As a result of the above items, net loss attributable to common stockholders was $9,407,000 for the
six months ended September 30, 2009, as compared to net income attributable to common stockholders
of $6,880,000 for the six months ended September 30, 2008. This adverse change was mainly the
result of a significant decrease of income from design services and, on the other hand,
a significant increase in operating expenses.
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(Loss)/earnings per share attributable to common stockholders
We reported loss per share attributable to common stockholders of $0.31, based on a weighted
average number of shares outstanding of 30,088,174 for the six months ended September 30, 2009. Our
outstanding common stock was 30,088,174 shares as of September 30, 2009. We do not have any
preferred stock issued or outstanding warrants or options.
LIQUIDITY AND CAPITAL RESOURCES
Assets
As of September 30, 2009, the total assets of the Company were $40,888,000 which consisted of
$38,804,000 in current assets, $2,031,000 in property, plant and equipment (PPE) and $53,000 in
intangible assets.
Liabilities
Our total liabilities as of September 30, 2009 were $6,337,000, which consisted of $2,082,000 in
current liabilities and $4,255,000 in long-term liabilities. Long-term liabilities were all
liabilities due to shareholders.
Capital Resources
For the six months ended September 30, 2009, we were principally engaged in sales of mobile phone
components and provision of design solutions of wireless communication devices. We did not declare
or pay dividends for the six months ended September 30, 2009.
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For the six months ended September 30, 2009, $13,317,000 was used in operating activities and
$12,000 was provided by investing activities. Cash and cash equivalents decreased by $13,259,000
to $7,234,000 as of September 30, 2009 from $20,493,000 as of March 31, 2009.
We used $13,317,000 in operating activities for the six months ended September 30, 2009, as
compared to $6,503,000 generated from operating activities for the same period in 2008. Net cash
used in operating activities for the six months ended September 30, 2009 related to net loss
adjusted for items not involving movement of cash for the period and augmented mainly by an
increase in accounts receivable of $15,267,000.
In arriving at the net loss, we made an allowance of $11,248,000 for doubtful receivables for the six
months ended September 30, 2009, which did not involve any outflow of cash.
Net cash provided by investing activities amounted to $12,000 for the six months ended September
30, 2009. There was $7,000 movement of cash relating to investment activities for the six months
ended September 30, 2008. Cash provided by investing activities for the six months ended September
30, 2009 was mainly proceeds from the sale of property, plant and equipment.
For the six months ended September 30,2009, net cash flow generated from financing activities was
approximately $40,000. Net cash flow generated from financing activities related to the increase in
advances from shareholders.
As of September 30, 2009, we had capital commitments of $38,000 in relation to acquisition of
intangible assets.
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We believe that our cash holdings of $7,234,000 at September 30, 2009 together with the cash to be
received when the notes receivable of $10,457,000 matures in March 2010 are sufficient to support
our operations and capital commitments, as well as to meet our working capital needs for the next
twelve months.
Off-Balance Sheet arrangements
The Company has not engaged in any off-balance sheet transactions since its inception.
Web Site Access to Our Periodic SEC Reports
You may read and copy any public reports we filed with the SEC at the SECs Public Reference Room
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an Internet site http://www.sec.gov that contains reports and information statements, and
other information that we filed electronically.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The majority of our revenues derived and expenses and liabilities incurred are denominated in
Chinese Renminbi (RMB) with a relatively small amount in Hong Kong dollars (HK$) and United
States dollars (US$ or $). Thus, our revenues and operating results may be impacted by exchange
rate fluctuations in the currencies of China and Hong Kong. We have not tried to reduce our
exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do
so in the
future. The availability and effectiveness of any hedging transactions may be limited and we may
not be able to successfully hedge our exchange rate risks. Accordingly, we may experience economic
losses and negative impacts on earnings and equity as a result of foreign exchange rate
fluctuations.
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ITEM 4T. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures.
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) are controls and other procedures
that are designed to provide reasonable assurance that the information that we are required to
disclose in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO) as appropriate to allow timely decisions
regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q for the second quarter
ended September 30, 2009, an evaluation was performed by our management, with the participation of
the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report.
As previously disclosed under Item 9A (T) Controls and Procedures in our Annual Report on Form
10-K for fiscal year ended March 31, 2009, our management concluded that our disclosure controls
and procedures were not effective at a reasonable assurance level because of certain material
weaknesses in our internal control over financial reporting, including the lack of (i) effective
communication of the importance of internal controls over financial reporting throughout the
structure of the Company, (ii) an adequate tone set by management around control consciousness,
(iii) sufficient in-house capacity to review and supervise the accounting operations, (iv)
knowledge of U.S. GAAP and SEC reporting
requirements, (v) anti-fraud program designed to detect and prevent fraud (vi) effective risk
assessment and management mechanism, and (vii) personnel with an appropriate level of experience,
training in our internal audit department.
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As a result of the foregoing material weaknesses in our internal control over financial reporting,
our management has concluded that our disclosure controls and procedures were not effective as of
September 30, 2009.
Each of the control deficiencies described here could result in a misstatement of the
aforementioned accounts or disclosures that might result in a material misstatement to the annual
or interim consolidated financial statements that would not be prevented or detected. However,
giving full consideration to these material weaknesses, we performed adequate analyses and
procedures, including among other things, transaction reviews and account reconciliations in order
to provide assurance that our unaudited consolidated financial statements included in this
Quarterly Report were prepared in accordance with generally accepted accounting principles (GAAP)
and present fairly, in all material respects, our financial position, results of operations and
cash flows for the periods presented in conformity with GAAP. As a result of these procedures, we
concluded that the unaudited consolidated financial statements included in this Quarterly Report
present fairly, in all material respects, our financial position, results of operations and cash
flows for the periods presented in conformity with GAAP.
Change in Internal Controls.
There were no changes in the Companys internal controls over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 6. | EXHIBITS |
INDEX TO EXHIBITS
OF
T-BAY HOLDINGS, INC.
OF
T-BAY HOLDINGS, INC.
31.1 | Rule 13a-14 (a)/15d-14 (a) Certification of Chief Executive Officer |
|||
31.2 | Rule 13a-14 (a)/15d-14 (a) Certification of Chief Financial Officer |
|||
32 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
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SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
T-BAY HOLDINGS, INC. (Registrant) |
||||
Date: November 16, 2009 | By: | /s/ Xiaofeng Li | ||
Xiaofeng Li, Chief Executive Officer | ||||
Date: November 16, 2009 | By: | /s/ Xiangning Qin | ||
Xiangning Qin, Chief Financial Officer |
40