GENERAL
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. Customers include Huizhou Rui Xing Electronics Co., Ltd. (“Rui Xing Electronics”), Huizhou Qiao Xing Famous Technology Co., Ltd. (“Qiao Xing Famous Technology”), CEC Telecom Co., Ltd. (“CECT”), Shenzhen LaiDi Electronics Co., Ltd. (“Shenzhen LaiDi”) and Huizhou Liyin Electronics Co., Ltd. (“Huizhou Liyin”).
We focus on the vast and booming mobile telecommunication market in China. By working closely with chipset providers, we provide tailored mobile handset design solution services according to our customers’ demand. We believe we have strong design 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.
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.
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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.
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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.
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Software design. We design the software system for mobile handsets 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.
*Other Design Service Our design is also capable of designing other electronic devices.
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.
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Components: These mainly include printed circuit boards (PCB) and printed circuit board assembly (PCBA). They are the backbones of mobile handsets.
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Whole mobile handsets: Based on special requests of the customers which may not have the resources or facilities to manufacture the whole mobile handsets.
After-sale Services
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For the mobile handsets we manufacture for our customers, we will also provide maintenance services during the product warranty period.
Business Model
We generate our revenue mainly from design services and sales of products. In general, revenue from design services is the fee we charge for the design work or technical support services provided to our customers; revenue from the sales of products is the revenue we receive from selling whole handsets or components to our customers.
We charge design fees directly or indirectly for design solutions or services provided by us. The design fees consist of NRE ( non-recurring engineering) fees and royalty fees. NRE fees are one-off fees for a certain design project, while royalty fees are charged monthly or quarterly on every handset manufactured by our customers using our designs. Our royalty fees are charged at a certain rate ranging from RMB50-120 (US$6-14) per handset, according to the different PCBs and PCBAs which are unique to each phone model.
Subject to the requests from our customers, we also manufacture and sell to them whole mobile handsets which are designed by us.
The cost of design, including R&D cost and development cost of a new model, only accounts for a small percentage of the design fee we charge our customers. As for manufacturing and selling whole mobile handsets, the costs of sales, including materials and various components, takes up a much higher proportion of the selling price of the handset. In other words, the gross profit margin on design fees is higher than that of manufacturing and selling whole mobile handsets.
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 believe we are one of the first independent mobile handset design houses in China to work with 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.
Dual Processor Structure Design Platform
Since 2005, we have been developing our own dual-processor structure design platform for mobile phones, i.e., using the Pegasus platform of Skyworks + SPR platform, together with the multi-media protocol processor from our know-how. Pegasus and SPR use the ARM7 core processor for digital base-band voice communication whereas our multi-media processor is mainly for multi-media data processing, such as encoding/decoding of voice signals and processing of video images. With the application of these dual-processor design platforms, we are able to develop a series of mobile phones with advanced multi-media functions, such as MP3 playing, 3GPP/MPEG-4 video transmission, external memory cards, and PC connection and PDA functions. Management believes its technology is among the top in China and is comparable to some foreign brand names.
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 using the Skyworks platform in only 2 to 3 months.
Strong R&D capability
We have a professional and competent team of 100 engineers to handle the wide spectrum of mobile phone design jobs, including appearance design, structural design, electronics design, software design and machine-man interface design. Our Model SP8 was awarded the the iF Design Award China Winner 05 by iF International Forum Design.
We are able to develop new mobile phones based on chip-level modules, which we believe can enhance the flexibility of the product design in terms of phone size and functionalities. We believe there are only a few mobile phone design houses in China that are able to design mobile phones on chip-level modules.
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. We believe this helps us to predict future trends and to assist our customers’ in the development of new products and functions and the setting of price range.
Our Customers
For the fiscal year ended March 31, 2006, our five largest customers in terms of revenue were:
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Revenue
(US$)
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%
of total revenue
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||||||
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1.
Rui Xing Electronics
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3,100
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12
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%
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||||
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2.
Qiao Xing Famous Technology
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2,400
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9
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%
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||||
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3.
CECT
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2,200
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9
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%
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||||
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4.
Shenzhen LaiDi
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2,100
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8
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%
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||||
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5.
Huizhou Liyin
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2,000
|
8
|
%
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Company History of Sunplus
October 2002, Shanghai Sunplus Communication Technology Co., Ltd. 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 used by major customer, CECT.
May, 2003, Sunplus launched its first phone model design.
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 (US$2,480,000), then 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 had been sold in the China market. Major models included A606 Yinghu for Huaguan, Q747 Zhizhun for Philips, T520 Beetles for Hong Kong Zhongjian Telecom. Later on, 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. on multimedia chips platform to combine Ankai’s applications of multimedia chips with Skyworks’s radio frequency functions on basis of chips.
Our product of T520 Beetles was awarded by Sina.com as the Most Popular Mobile Phone for Female.
May 2005, our design SP-8 for 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 subsequently we own a total of 95% shareholding in Sunplus.
May 2006, Sunplus received the ISO9001:2000 certification of quality management system.
Current Business Development
During the fiscal year ended March 31, 2006, we have released 25 product solutions based on 5 mainboards. In October 2005, we released our new design solution 9103. We believe it is among the first multi-media and handwriting solutions in the Chinese market. We combine multimedia functions with handwriting recognition feature. A 2-inch touch screen with functions of email, mp3, mp4, e-book, USB access make it one of the most popular phones in the market. The retail price for 9103 is RMB 1,400-2,500 (US$175-313) targeting young executives.
In April 2005, we released the 9107 series. With the functions of handwriting and FM radio, it is targeted at mature customers, with retail price of RMB 1,000-2,200 (US$125-275). 9107 series was one of our best sellers for the past fiscal year.
Series 9701 and 9109, which were released January 2006, were our first design solutions with newly developed function of TV-output, which enables customers to connect phones and TV sets, watching movies and playing games on the phone. This model was well received by the market and became one of the best sellers in this product category.
In general, our designs are basically targeting the middle-end market and we compete with our competitors mainly in the aspects of phone appearance, practical applications, product reliability and price.
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 multimedia, handwriting, TV-output solutions to our customers. We hope this will enable our customers to launch the products with these functionalities earlier than other brands.
For the fiscal year ended March. 31, 2006, there were approximately 1,200,000 units of Sunplus-designed mobile handsets sold in the market, compared to about 900,000 units in fiscal year ended March 31, 2005, representing a 33% growth.
Our customer base nearly tripled during this fiscal year. We have a total of 34 customers as of March 31, 2006, compared with 12 in fiscal year 2005, representing a 183 % growth. We added new customers including: Cosun Telecommunication Industry Co., Ltd., Huizhou Liyin , Universal Electronics Inc.and DiWangDa Inc. New customers were identified by our marketing team, introduced by our partners, suppliers and existing customers. National and international exhibitions provided us with new contract and customers, including some overseas customers. Expansion of our customer base was one of the factors for our growth in net profit.
Products Geographic Coverage
Through the sales network of our customers, products designed or manufactured by us are sold in major cities throughout China.
Starting from this fiscal year, we began to sell some of our whole mobile handsets directly or through our sales agent in Southeast Asia.
Seasonal Factor
We usually have higher revenue in the third or fourth fiscal quarter (period starting October 1 to March 31) and lower revenue in the first or second quarter (period starting April 1 to September 30). The seasonal factors affecting our revenue were mainly because our royalty fees are charged monthly or quarterly based on the amount of products sold during the period. Mobile handsets sell the most during long holidays including National Day, Christmas, New Year and Chinese New Year. The seasonal factor does not obviously affect our NRE fees revenue.
Our Strategies
Continue to increase our product offering
In order to maintain and increase our competitiveness, we intend to continue to expand our product offering by introducing about 30-35 new phone models per year. This could consist of the following categories:
a)
High-end GSM/GPRS telecommunication terminals (mobile phones) with embedded functions including MMS, Java, camera, FM radio, Color LCD, email, MP3, finger-print identification, voice identification, as well as USB, SD, MMC, and blue tooth interfaces.
b)
Business-use multifunction mobile phones - focused on email, web browsing and wireless e-commerce functions.
c)
Third Generation Mobile Technology (3G) mobile phones to cater for the various value-added services such as electronic wallet, stock trade, video conferencing, real-time news broadcasting, etc,
Expansion into Overseas Markets
We anticipate a trend that international mobile handset vendors will start to outsource products and services in China. We plan to increase our marketing efforts to target at potential foreign handset vendors and foreign trading companies. We also expect most demand for our products and services will come from Taiwan and other places in Southeast Asia, Eastern Europe and Latin America.
Continue to strengthen our R&D capabilities
