T-bay Holdings, Inc - Indicate by check mark whether the...

T-bay Holdings, Inc - Recent Material Event

Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will no be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No ü

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer	Smaller reporting company ü

Indicate by check mark whether the registrant is a shell company (as defined in Rue 12b-2of the Exchange Act). Yes o Noü

As of March 31, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $28,037,763 based on the closing sale price as reported on the Over-the-Counter Bulletin Board. As of June 30, 2008, there were 30,088,174 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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T-Bay Holdings, Inc.

FORM 10-K

For the Year Ended March 31, 2008

TABLE OF CONTENTS

PART I
ITEM 1.	Business
ITEM 1A.	Risk Factors
ITEM 1B.	Unresolved Staff Comments
ITEM 2.	Properties
ITEM 3.	Legal Proceedings
ITEM 4.	Submission of Matters to a Vote of Security Holders

PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6.	Selected Financial Data
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.	Financial Statements and Supplementary Data	F-1
ITEM 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A.	Controls and Procedures
ITEM 9B.	Other Information

PART III
ITEM 10.	Directors and Executive Officers of the Registrant	34
ITEM 11.	Executive Compensation	36
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
ITEM 13.	Certain Relationships and Related Transactions	40
ITEM 14.	Principal Accountant Fees and Services	40

PART IV
ITEM 15	Exhibits, Financial Statement Schedules	40

SIGNATURES		41

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. These statements relate to future events or our future financial performance. 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," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.

Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in PART I. ITEM 1A: Risk Factors and PART II. ITEM 6 "Management's Discussion and Analysis or Plan of Operation" included herein.

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PART I.

Item 1. Business.

Overview

The Company was incorporated under the laws of the State of Utah on August 8, 1984 with the name of "Sharus Corporation" with authorized common stock of 50,000,000 shares with par value of $0.001 per share. 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. On January 17, 2005 the Company carried out a reverse stock split of 20 shares of outstanding stock for one share. After the reverse split, the Company has authorized common stock of 100,000,000 shares common stock and 10,000,000 shares of preferred stock both with par value of $0.001.

On August 1, 2005, the Company entered into an Agreement and Plan of Reorganization (the “Agreement”) between Wise Target International Limited, (“Wise Target”), Amber Link International Limited (“Amber Link”), Ms. Meilian Li and Mr. Xiaofeng Li. Pursuant to the terms of the Agreement, following due diligence, the Company acquired all of the outstanding stock of Wise Target and Amber Link, making them wholly owned subsidiaries of the Company. Wise Target and Amber Link together own and control 95% of Shanghai Sunplus Communication Technology Co., Ltd., (“Sunplus”), a Sino-foreign joint venture. The Agreement required the Company to issue 18,550,000 shares of restricted common stock in exchange for all of the issued and outstanding shares of Wise Target and Amber Link. This transaction was subsequently completed on August 16, 2005.

We conduct our business through our 95% owned subsidiary, Shanghai Sunplus Communication Technology Co., Ltd., a Sino-foreign joint venture established in China in 2002, which provides a wide span of mobile handset design and other services to leading mobile handset brand owners in China. Sunplus also provides total solution services to its customers, starting from new product concept identification, handset exterior design, hardware and software design, material procurement, production, and after-sale maintenance services. Historically, our customers included multinational brand names such as Motorola, NEC, Siemens, China Telecom, Panasonic and Alcatel. Starting from the last fiscal year, we also conduct our business through Amber Link. Our major customers in China in fiscal year ended March 31, 2008 were Shenzhen Naide Technology Co., Ltd., Shenzhen Henkai Co. Ltd., Shenzhen Xuanhua Electronic Technology Co. Ltd., Beijing Hocom Co., Ltd. and Shenzhen Noato Technology Co., Ltd.

We focus on the vast and booming wireless telecommunication market in China. By working closely with top technology partners, we provide tailored mobile handset design solution services according to our customers’ specifications. We believe we have strong capabilities to design mobile handsets to support a broad range of wireless communications standards, baseband platforms and components. We also provide production support to facilitate our customers’ manufacturing and supply chain management processes. In addition, our special project teams work closely with our customers to monitor and coordinate the progress of each new design project. To further strengthen our presence in the market, we have also begun to work with our customers in providing customized handset solutions to mobile service operators. We believe the design solutions and services provided by us can help our customers in enhancing competitive strength and gaining market share.

Corporate Structure

Sunplus is jointly owned by Wise Target, Amber Link and Shanghai Fanna Industrial Product Design Co., Ltd. (“Shanghai Fanna”). Wise Target and Amber link are investment holding companies incorporated in the British Virgin Islands whereas Shanghai Fanna is a privately-owned company established in China in 2001. On August 16, 2005, T-Bay Holdings completed a reverse merger with Wise Target and Amber Link, which jointly hold 95% interests of Sunplus.

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In January 2007, Sunplus established Zhangzhou JiaXun Communication Facility Co.,Ltd. (“JiaXun”), a 100% owned subsidiary in Zhangzhou in Fujian province. In March 2007, JiaXun and Sunplus respectively acquired 20% and 80% interest in Fujian QiaoXing Industry Co.,Ltd.(“Fujian QiaoXing”) for the construction of a technology park for long term development in the mobile telecommunication industry. Fujian QiaoXing was established on February 13, 2004, with a registered capital of RMB20,000,000 ($2,590,000).

The current corporate structure of T-Bay Holdings is as follows:

Company History of Sunplus

October 2002 - Sunplus was established in Shanghai, with only 40 employees.

December 2002 - Sunplus established its strategic cooperation with Skyworks, followed by the first mobile phone modules based on Skyworks’ chips platform. The first module developed by Sunplus was used by Panda Electronics Inc. (“Panda”) for making 150,000 mobile handsets and also was used by one of our major customers, CECT.

May 2003 - Sunplus launched its first phone model design.

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April 2003 - Sunplus started collaboration with French Wavecom in module R&D. The module was completed six months later, which was ordered by Huizhou Jialili Telecommunication Co., Ltd. (“Huizhou Jialili”), in its phone model T2, which became one of its most popular products.

December 2003 - Sunplus completed the development of an electronics platform, which was sold to Huaguan Electronics Inc. (“Huaguan”) for RMB 20 million ($2,480,000), which was followed by a 150,000 sets order from Panda and 200,000 units order from CECT.

As of January 2004 - more than 500,000 mobile phone handsets designed by Sunplus were sold in the China market. Major models included A606 Yinghu for Huaguan, Q747 Zhizhun for Philips, T520 Beetles for Hong Kong Zhongjian Telecom. Subsequently, Sunplus continuously received large orders from Panda, CECT, Huizhou Jialili, most of which exceed 200,000 units.

January 2004 - Sunplus established a partnership with Shenzhen Ankai Microelectronics Technology Co., Ltd. in order to establish a multimedia chips platform, which combines Ankai’s applications of multimedia chips and Skyworks’s radio functions.

Our product, T520 Beetles, was awarded by Sina.com as the Most Popular Mobile Phone for Female.

May 2005 - our design SP-8 for the product CECT S569 was awarded top 100 iF Asia design. SP-8 was also awarded the Fashion Color Nominate Prize.

On August 16, 2005 - we completed a reverse merger with Amber Link and Wise Target and currently we own 95% of Sunplus.

May 2006 - Sunplus received the ISO9001:2000 certification of quality management system.

August 2006 - Sunplus and VIA Technologies Inc., Ltd. (TSEC: 2388), a leading chipset solution provider, established a partnership for Global Systems for Mobile Communications (GSM) handsets development.

December 2006 - Sunplus and MediaTek Inc., Ltd. (“MTK”) (TSEC: 2454), a leading chipset solution provider based in Taiwan, entered into a partnership agreement to jointly develop multi-media Global Systems for Mobile Communications (GSM) handsets for the mobile telecommunications market in China.

January 2007 - Sunplus re-launched a partnership with Anyka Inc., a Silicon Valley based company, which enabled us to access the new technology of Infineon, a leading chipset solutions provider headquartered in Germany.

January 2007 - Sunplus established JiaXun

February 2007 - Sunplus acquired RF design team from Simiens&BenQ, and extended our design service in RF design industry.

March 2007 - JiaXun, a 100% subsidiary of Sunplus, and Sunplus respectively acquired 20% and 80% interests in Fujian QiaoXing, which will focus on the manufacture of telephone and mobile components.

May 2007 - Sunplus received six copyrights for its designed software. All of them are games and applications for mobile phone.

May 2007 - Sunplus established its Tech-Support Center in Shenzhen.

May 2007 - Sunplus was awarded “Software Company” by Ministry of Information Industry of China.

October 2007 - Sunplus kicked off the world’s first phone solution which combined with ECG (Electrocardiogram) monitor function.

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February 2008 - Sunplus reached agreement with Infineon Technologies Asia Pacific Pte Ltd. to develop Tire Pressure Monitor System (TPMS) sensors. It’s the first step by Sunplus to enter the Auto-Mobile Electronic Design market.

In 2008 - Sunplus has developed GSM-R device and system for railway network in China.

Services and Products

We seek to maintain and strengthen our position as a provider of high quality mobile handset design services. We tailor-make our services and products based on the requirements of our customers. Our services mainly include:

Design Service

Mobile handset design: We have special project teams to work closely with our customers to monitor and coordinate the progress of each new design project.

Industrial and mechanical design: We design the exterior outlook and mechanical structure of a mobile handset. We adopt the user-orientation design concept and focus our product design on the personality of target end-users.

Hardware design: In addition to the design of the core printed circuit board layout, we have also set up special engineering teams on the design of baseband and radio frequency parts of mobile handsets based on chip platforms.

Software design: We design the software system for the mobile handset and its functional modules. We are capable of developing our own software in man-machine-interface and the driver software for LCD display, camera, harmonic ring tones and MP3 functions.

Auto Mobile wireless device design: As of June 2008, we developed a GPS device and Tire Pressure Monitor System (TPMS) sensors. We are capable of designing other devices and systems related to the automobile wireless technology.

Railway wireless system design: We developed GSM-R device and system for railway network. We are capable of developing devices and systems related to railway wireless technology.

Other Design Services: We can also design other electronic devices based on wireless technology. Currently, we are considering extending our design in GPS device, Radio Frequency design.

Production Services

Based on the request of our customers, we also manufacture the components and/or the entire mobile handsets. We subcontract the production work to third party manufacturers mostly in the Shanghai area. We have a quality assurance team to monitor the production process to ensure the products can meet our quality requirements.

Components: These mainly include printed circuit boards (PCB) and printed circuit board assembly (PCBA). They are the backbones of mobile handsets.

Whole mobile handsets: Based on special requests of the customers which may not have the resources or facilities to manufacture the whole mobile handsets, we periodically assemble and deliver complete handsets.

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After-sale Services

For the mobile handsets we manufacture for our customers, we will also provide maintenance services during the product warranty period.

Business Model

We are one of the largest wireless telecommunication design houses in China. We generate our revenue mainly by charging design services fees and royalty fees and by selling mobile phone components and whole handsets.

Revenue from Design Services

We charge design fees directly or indirectly for design solutions or services provided by us. The design fee consists of NRE (non-recurring engineering) fees and royalty fees.

NRE fees are one-off fees for a certain design project. Typically, NRE fee is required before we formally launch the project. We will start the development of a certain solution only if we have received the pre-paid NRE fee. To minimize the operation risk, the NRE fee should be no less than the projected R&D fee for a certain design solution.

We also charge royalty fees based upon the product sales volume of our customers. When the whole handset is sold in the market, we charge royalty fees monthly on every handset manufactured by our customers using our designs. We usually ask for a minimum volume term in our contracts to encourage larger volume order in a certain period of time.

Revenue from Sales of Handsets and Components

We also provide production support to facilitate our customers’ manufacture of mobile handsets and components. By closely working with our OEMs, we manufacture and sell PCBs, PCBAs and handsets to our customers. We are fully responsible for material purchases, cost control and quality control.

Competitive Strengths

Strategic Relationships with Business Partners

As the mobile handset industry is characterized by rapid technological changes, it is essential for us to keep abreast of and have access to the latest technologies by working closely with the world’s leading technology and platform providers. We continue to work closely with VIA Technologies Inc. (VIA), MediaTek Inc., Ltd.(MTK), Anyka Inc.(Anyka), Infineon Inc.(Infineon) as our strategic partners which enables us to expand our product coverage. We believe we are one of the first independent mobile handset design houses in China to work with Skyworks, Inc (Skyworks), which has established a dedicated support team in Shanghai to support us in our design process.

We have also established good relationships with subcontractors which provide production services for mobile phone components and handsets.

Quick Market Response

We pursue a market-oriented product development strategy, grasping end-users’ preferences and tastes. Our experience and expertise enables us to complete a design solution in only two to three months, to ensure our designs are one step ahead of our competitors and leading market trends.

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Strong R&D capability

We have a professional and competent team to handle the wide spectrum of mobile phone design jobs, including industrial design, structural design, electronics design, software design and machine-man interface design. Some of our engineers used to be employed by mobile communication leaders such as Motorola, Siemens or BenQ. Our professional industrial design team was the IF Asia Design Award Winner in 2005.

We are one of few design houses in China that are able to develop new mobile phones based on chip-level modules, which can enhance the flexibility of the product design in terms of handset size and functionalities.

Customized Products and Market Knowledge

We design many of our products based on our customers’ specifications. We work closely with mobile device manufacturers and brand name owners to understand their needs and product roadmaps. We also interface with our customers regularly to understand the mobile handset market, consumer preferences and trends in the industry. This allows us to predict future trends and to assist our customers in the development of new products and functions and the setting of a price range.

Current Business Development

During the fiscal year ended March 31, 2008, we launched 31 mobile handset solutions based on 3 different chipset platforms covering the high-end, mid-end and low-end markets. We kept working closely with strategic partners VIA, MTK, Anyka, Infineon , Skyworks and other technology partners, which greatly expanded and diversified our product portfolio to cover more market segments. During the fiscal year ended March 31, 2008, we developed mobile phone solutions with new functions including but not limited to dual-SIM card, ECG monitor, push-to-talk, finger print recognition, gravity sensor, PHS (Personal Handy-phone System), Dual-T card and Digital TV tuning. We can tailor-make solutions featuring functions such as handwriting recognition, digital cameras, Dual speakers, GPRS, FM radio, dictionaries, webcams, blue tooth, E-mail, MP3, MPEG4 3GP, WAP, USB, T-Flash, MMS, CMOS, TV-out, fingerprint authentication, firewall and sound recorder.

In the fiscal year 2008, we also completed design of two 3G solutions, one of which was TDS-CDMA solution and another was WCDMA solution. The TDS-CDMA solution was designed specially for the China domestic market.

Our designs are targeted to specific market segments in China. We provide one solution with the function of an ECG monitor for medical institutions. It is the first mobile phone solution with health care function in China and in the world. Another design, with a push-to-talk function, was targeted to a market of employees in hotels and convention centers.

We aim to help our customers enhance their competitive capacity by accelerating the product-to-market process. We believe we were among the first design houses in China to provide phone solutions of multimedia, handwriting, TV-output, GSM+PHS, Dual Sim Card, finger print recognition, and ECG monitor to our customers. We hope this will enable our customers to launch products with these functionalities earlier than other brands.

The Company is dedicated to developing wireless technology applications for different industries. We reached an agreement with Infineon to co-develop Tire Pressure Monitor System (TPMS) as the first step into the automobile design business.

We have set up a tech-support center in Shenzhen as one step to support our increasing customers in Shenzhen. The office takes up approximately 93 square meters at NongYuan Street, FuTian District.

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Products Geographic Coverage

In terms of revenue, over 90% of our mobile handsets designed by us were within the China and Hong Kong markets. The company did not sell products to consumers directly, but sell through the networks of our customers. According to sales information provided by our customers, products designed or manufactured by us were sold in major cities, secondary cities and small towns throughout China, covering all provinces of China.

Starting from 2006, we began to sell whole mobile handsets products through our sales agents. Our products are sold to nine different countries mainly in Southeast Asia, Eastern Europe and Latin America.

Quality Assurance

We believe that a high standard quality management system is crucial for maintaining our reputation. Our quality assurance team monitors hardware, software and mechanical design teams’ performance to ensure strict adherence to the quality standards required by our customers. The team conducts product reliability tests, including accelerated life tests, climatic stress tests and mechanical endurance tests. The team is also responsible for components qualification, prototype quality assurance, and submission of prototypes for FTA (Full Type Approval) and CTA (China Testing Alliance) certifications. In addition, the team collects and organizes all relevant written documents produced and used throughout the design process.

FTA certifies that a mobile handset submitted for testing has passed tests for its reliability and conformance with global standards.

CTA certifies that the use of telecommunication terminal equipment in the national telecommunications network has been approved and complies with the requirements for network access and the national standards established by the Ministry of Information Industry.

Through our quality assurance team, we adopt stringent quality procedures at the design stage, incoming quality assurance of components and parts, assembly testing and final quality testing. Our selection criteria for suppliers include reputation, time to supply, availability of components and parts, etc.

Sales and marketing

Our sales force consists of approximately 20 salespeople and support personnel. Most of them have many years of experience in the telecommunication industry. They are responsible for maintaining and establishing client relationships, trying to fulfill customers’ special needs, and introducing new technologies and applications in telecommunication field.

Intellectual Property

We believe protection of our intellectual property rights is extremely important for our continuous success. As of the March 31, 2008, we have registered 17 patents, of which 15 have been approved. All of them are patents for product appearance. Besides, we have registered six copyrights for software. All of them are games and applications for mobile phone.

Our Competitors

There are more than a hundred mobile phone design houses in China, including market leaders such as China TechFaith Wireless Communication Technology Limited, Shanghai Longcheer Telecommunication Co.,Ltd and SIMCom Information Technology Ltd. Other major design houses include Beijing Tianyu Communication Equipment Co.Ltd, Shanghai WenTai Communication Technology Co., Ltd., Shanghai Huaqi Telecom Technology Co., Ltd., Shenzhen Jinwave Technology Co., Ltd. and Shenzhen Yulong Communication Technology Co., Ltd. We believe Shanghai Longcheer and Shanghai Simcom are our most direct competitors.

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Certain of our competitors are substantially larger and have significantly greater financial, marketing, research and development, technological and operating resources and broader product lines than we do.

We think that competition in our markets is based primarily on technology innovation, product performance, reputation, delivery times, customer support and price. We believe we are among the few design houses which are capable of software design and hardware design as well as performing the whole spectrum of design activities and developing functions or applications at chipset-level modules.

Employees

As of March 31, 2008, we had approximately 130 full-time employees employed in Greater China. From time to time we employ independent contractors to support our production, engineering, marketing, and sales departments.

Web Site Access to Our Periodic SEC Reports

You may read and copy any public reports we filed with the SEC at the SEC’s 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 1A. Risk Factors.

Set forth below is a description of factors that may affect our business, results of operations and share price from time to time.

Our sales and profitability depend on the continued growth of the mobile communications industry as well as the growth of the new market segments within that industry in which we have recently invested. If the mobile communications industry does not grow as we expect, or if the new market segments on which we have chosen to focus and in which we have recently invested grow less than expected, or if new faster-growing market segments emerge in which we have not invested, our sales and profitability may be adversely affected.

Our business depends on continued growth in mobile communications in terms of the number of existing mobile subscribers who upgrade or simply replace their existing mobile devices, the number of new subscribers and increased usage. As well, our sales and profitability are affected by the extent to which there is increasing demand for, and development of, value-added services, leading to opportunities for us to successfully market mobile devices that feature these services. These developments in our industry are to a certain extent outside of our control. For example, we are dependent on operators in highly penetrated markets to successfully introduce services that cause a substantial increase in usage of voice and data. Further, in order to support a continued increase in mobile subscribers in certain low-penetration markets, we are dependent on operators to increase their sales volumes of lower-cost mobile devices and to offer affordable rate. If operators are not successful in their attempts to increase subscriber numbers, stimulate increased usage or drive replacement sales, our business and results of operations could be materially adversely affected.

Our industry continues to undergo significant changes. First, the mobile communications, information technology, media and consumer electronics industries are converging in some areas into one broader industry leading to the creation of new type of mobile devices, services and ways to use mobile devices. Second, while participants in the mobile communications industry once provided complete products and solutions, industry players are increasingly providing specific hardware and software layers for products and solutions. As a result of these changes, new market segments within our industry have begun to emerge and we have made significant investments in new business opportunities in certain of these market segments, such as smartphones, imaging, games, music and enterprise mobility infrastructure. However, a number of the new market segments in the mobile communications industry are still in the early states of their development, and it may be difficult for us to accurately predict which new market segments are the most advantageous for us to focus on. As a result, if the segments on which we have chosen to focus grow less than expected, we may not receive a return on our investment as soon as we expect, or at all. We may also forego growth opportunities in new market segments of the mobile communications industry on which we do not focus.

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Our results of operations, particularly our profitability, may be adversely affected if we do not successfully manage price erosion related to our products.

In the future, if, for competitive reasons, if we need to lower the selling prices of certain of our products and if we cannot lower our costs at the same rate or faster, this may have a material adverse effect on our business and results of operations, particularly our profitability. To mitigate the impact of product and service mix shifts on our profitability, we implement product segmentation with the aim of designing appropriate features with an appropriate cost basis for each customer segment. Likewise, we endeavor to mitigate the impact on our profitability of price erosion of certain features and functionalities by seeking to correctly time the introduction of new products, in order to align such introductions with declines in the prices of relevant components. We cannot predict with any certainty whether or to what extent we may need to lower prices for competitive reasons again and how successful we will be in aligning our cost basis to the pricing at any given point in time. Price erosion is a normal characteristic of the mobile devices industry, and the products and solutions offered by us are also subject to natural price erosion over time. If we cannot reduce our costs at the same rate, our business may be materially adversely affected.

We must develop or otherwise acquire complex, evolving technologies to use in our business. If we fail to develop these technologies or to successfully commercialize them as new advanced products and solutions that meet customer demand, or fail to do so on a timely basis, it may have a material adverse effect on our business, our ability to meet our targets and our results of operations.

In order to succeed in our markets, we believe that we must develop or otherwise acquire complex, evolving technologies to use in our business. However, the development and use of new technologies, applications and technology platforms for our mobile devices involves time, substantial costs and risks both within and outside of our control. This is true whether we develop these technologies internally, by acquiring or investing in other companies or through collaboration with third parties.

The technologies, functionalities and features on which we choose to focus may not achieve as broad or timely customer acceptance as we expect. This may result from numerous factors including the availability of more attractive alternatives or a lack of sufficient compatibility with other existing technologies, products and solutions. Additionally, even if we do select the technologies, functionalities and features that customers ultimately want, we or the companies that work with us may not be able to bring them to the market at the right time.

Furthermore, as a result of ongoing technological developments, our products and solutions are increasingly used together with components or layers that have been developed by third parties, whether or not we have authorized their use with our products and solutions. However, such components, such as batteries, or layers, such as software applications, may not be compatible with our products and solutions and may not meet our and our customers' quality, safety or other standards. As well, certain components or layers that may be used with our products may enable our products and solutions to be used for objectionable purposes, such as to transfer content that might be hateful or derogatory. The use of our products and solutions with incompatible or otherwise substandard components or layers, or for purposes that are inappropriate, is largely outside of our control and could harm our reputation in the industry.

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We need to understand the different markets in which we operate and meet the needs of our customers, which include mobile network operators, distributors, independent retailers and enterprise customers. We need to have a competitive product portfolio, and to work together with our operator customers to address their needs. Our failure to identify key market trends and to respond timely and successfully to the needs of our customers may have a material adverse impact on our market share, business and results of operations.

We serve a diverse range of customers, ranging from mobile network operators, distributors, independent retailers to enterprise customers, across a variety of markets. In many of these markets, the mobile communications industry is at different stages of development, and many of these markets have different characteristics and dynamics, for example, in terms of mobile penetration rates and technology, feature and pricing preferences. Establishing and maintaining good relationships with our customers and understanding trends and needs in their markets require us to constantly obtain and evaluate a complex array of feedback and other data. We must do this efficiently in order to be able to identify key market trends and address our customers' needs proactively and in a timely manner. If we fail to analyze correctly and respond timely and appropriately to customer feedback and other data, our business may be materially adversely affected.

Certain mobile network operators require mobile devices to be customized to their specifications, by requesting certain preferred features, functionalities or design, together with co-branding with the network operator's brand. We believe that customization is an important element in gaining increased operator customer satisfaction and we are working together with operators on product planning as well as accelerating product hardware and software customization programs. These developments may result in new challenges as we provide customized products, such as the need for us to produce mobile devices in smaller lot sizes, which can impede our economies of scale, or the potential for the erosion of the Sunplus brand, which we consider to be one of our key competitive advantages.