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T BAY HOLDINGS INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation.(Edgar Glimpses Via Acquire Media NewsEdge) The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following review concerns the year ended March 31, 2011. As a result of the change in consumer preference away from the types of mobile phone handsets to which our design service and our mobile phone components were suited, our business has been in decline for some time. Management finally concluded that this trend will not reverse, and therefore in September 2010 we began winding down our phone design services, as well as the sales of mobile phone components, while continuing to operate the administrative side of the business which is customer service, warranty claims, and the collection of receivables. We also continue to assess the mobile phone market for possibilities of transitioning our operations to a different segment(s) of the mobile phone industry, as well as exploring various acquisition opportunities. These activities occupied and continue to occupy three full-time employees. The Company hopes to complete the transition to a different segment or the mobile phone industry, or make an acquisition not later than December 31, 2011. In the interim, it will continue its present reduced scope of operations. Loss from Discontinued Operations The Company reported losses of US$43,400,000 and US$6,766,000 from discontinued operations for the years ended March 31, 2011 and 2010, respectively. Loss from discontinued operations for the years ended March 31, 2011 and 2010 consisted of revenue of US$9,643,000 and US$35,867,000, cost of revenue of US$9,385,000 and US$34,930,000, other income of US$238,000 and US$180,000, operating expenses of US$43,896,000 and US$7,919,000, gain on disposal of a subsidiary of US$NIL and US$43,000, respectively. We recorded losses on discontinued operations as the Company suspended operations in September 2010 and we increased our allowance for doubtful receivables. Net loss attributable to common stockholders As a result of the above item, net loss attributable to common stockholders was US$42,949,000 for the year ended March 31, 2011, as compared to US$6,508,000 for the year ended March 31, 2010. The increase of loss was mainly the result of the increase in allowance for doubtful receivables. Loss per share attributable to common stockholders We reported loss per share attributable to common stockholders of US$1.43, based on a weighted average number of shares outstanding of 30,088,174 for the year ended March 31, 2011, compared with a loss per share of US$0.22, based on the same weighted average number of shares for the year ended March 31, 2010. Our outstanding common stock was 30,088,174 shares as of March 31, 2011 and March 31, 2010. We do not have any preferred stock issued or outstanding warrants or options as of March 31, 2011 and March 31, 2010. 10-------------------------------------------------------------------------------- Table of Contents Assets Cash and cash equivalents As of March 31, (in thousands of US dollars) 2010 2011 US$ US$ Cash and cash equivalents - 1 Cash and cash equivalents of continuing operations were US$1,000 as of March 31, 2011. Assets of discontinued operations As of March 31, (in thousands of US dollars) 2010 2011 US$ US$ Assets of discontinued operations 43,356 25 Assets of discontinued operations were US$25,000 as of March 31, 2011. The decrease in assets of discontinued operations was mainly the result of the increase in allowance for doubtful receivables. Liabilities As of March 31, (in thousands of US dollars) 2010 2011 US$ US$ Continuing operations Liabilities 4,037 4,960 Current liabilities 554 705 Long term liabilities 3,483 4,255 Discontinued operations Liabilities 2,212 1,309 Total Liabilities 6,249 6,269 Our total liabilities of continuing operations as of March 31, 2011 were US$4,960,000, which consisted of US$705,000 in current liabilities and US$4,255,000 in long-term liabilities. Long-term liabilities of continuing operations amounted to US$4,255,000 as of March 31, 2011, all of which were liabilities due to shareholders. Liabilities of discontinued operations amounted to US$1,309,000 as of March 31, 2011, most of which were other payables and accrued expenses. 11-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources For the fiscal year ended March 31, 2011, we were winding down our provision of design solutions of wireless communication devices and sales of mobile phone components. We did not declare or pay dividends in the fiscal year ended March 31, 2011. Cash and cash equivalents of continuing operations increased from US$Nil as of March 31, 2010 to US$1,000 as of March 31, 2011 and cash and cash equivalents of discontinued operations decreased from US$703,000 as of March 31, 2010 to US$25,000 as of March 31, 2011. The decrease was mainly attributed to the negative operating cash flows arising from the reduction in revenue and lack of receivables collected as our Company began to wind down the trading and production activities in September 2010. As of March 31, 2011, we had capital commitments of US$40,000 in relation to acquisition of intangible assets. We believe that cash advances from shareholders are necessary to support our limited operations for the next twelve months. Going concern We began to wind down our business in September 2010 and have accumulated losses from operations. The continuation of our Company as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities as and when they fall due. These financial statements do not include any adjustments relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might result from this uncertainty. Critical Accounting Policies The financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Revenue Recognition Our revenues are mainly derived from design fees of mobile handset design services and sales of mobile phone components. We earn our revenue mainly through NRE fees, royalties, and sales of products. NRE fee. NRE fees stands for Non Refundable Engineering fees, a fixed one-off fee after an agreement has been signed by both the customer and the Company. The NRE fees are no less than the total expenses of project design which normally includes the cost of market study, product concept identification, hardware designs, software designs, engineer expenses, mechanical engineering designs, testing and quality assurance, pilot production and production support. The NRE fees are recognized when payments are received. Royalty. In addition to NRE fees, we also charge royalties to our customers. Royalty is calculated at an agreed rate for each unit manufactured or sold by our customers. The rate is variable based on volume of mobile handsets manufactured or sold. Royalty income is recognized when confirmation of manufacturing or selling volume is obtained from customers. Component sales. Revenue from sales of components including but not limited to PCBAs, PCBs and wireless modules is recognized when title passes to the customers, which is generally when products are delivered to them. 12-------------------------------------------------------------------------------- Table of Contents Allowance for doubtful receivables The Group recognizes an allowance for doubtful receivables to ensure accounts and other receivable are not overstated due to uncollectibility. Allowance for doubtful receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when the Group becomes aware of a customer's or other debtor's inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customer's or other debtor's operating results or financial position. If circumstances related to customers or debtors change, estimates of the recoverability of receivables would be further adjusted. The provision was made as follows: 5% of amounts due from 1 to 180 days; 50% of amounts due from 180 to 365 days and 100% of amounts due over 365 days. Since the Group suspended its mobile phone business in September 2010, without the business relationship, the collection of accounts receivable became increasingly difficult. The Group determined that the accounts receivable were unlikely to be recovered, therefore, the accounts receivable were provided for in full for the year. 13-------------------------------------------------------------------------------- Table of Contents |