SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-17601
BONSO ELECTRONICS INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
Unit 1106 - 1110
Star House
3 Salisbury Road
Tsimshatsui
Kowloon, Hong Kong
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $.003; WARRANTS TO PURCHASE COMMON STOCK
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: NONE
Indicate the number of outstanding shares of each of the Issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 5,712,610 shares of common stock, $0.003 par value, at March 31, 2000.
Indicate by check mark whether the registrant: (i) has 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 (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark which financial statement item the Registrant has
elected to follow: Item 17 [ ] Item 18 [X]
<PAGE>
TABLE OF CONTENTS
Page
PART I.......................................................................1
Item 1. Description of Business...........................................1
Item 2. Description of Property...........................................20
Item 3. Legal Proceedings.................................................22
Item 4. Control of Registrant.............................................22
Item 5. Nature of Trading Market..........................................22
Item 6. Exchange Controls and Other Limitations Affecting
Security Holders..................................................24
Item 7. Taxation..........................................................24
Item 8. Selected Financial Data...........................................25
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................27
Item 10. Directors and Officers of Registrant.............................34
Item 11. Compensation of Directors and Officers ..........................37
Item 12. Options to Purchase Securities from Registrant
or Subsidiaries..................................................40
Item 13. Interest of Management in Certain Transactions...................40
PART II......................................................................41
Item 14. Description of Securities to be Registered.......................41
PART III.....................................................................41
Item 15. Defaults Upon Senior Securities..................................41
Item 16. Changes in Securities and Changes in Security
for Registered Securities........................................41
PART IV......................................................................41
Item 17. Financial Statements.............................................41
Item 18. Financial Statements.............................................42
Item 19. Financial Statements and Exhibits................................42
SIGNATURES...................................................................43
<PAGE>
PART I
------
As used in this Annual Report, "China" refers to all parts of the People's
Republic of China other than the Special Administrative Region of Hong Kong. The
term "Company" refers to Bonso Electronics International Inc. and, where the
context so requires or suggests, its direct and indirect subsidiaries.
Item 1. Description of Business.
Overview
Bonso Electronics International Inc. was incorporated on August 8, 1988 as
a limited liability International Business Company under the laws of the British
Virgin Islands to serve as a holding company for the Company's operating
subsidiary, which was formed in 1980. As an International Business Company, the
Company is prohibited from doing business with persons resident in the British
Virgin Islands, owning real estate in the British Virgin Islands or acting as a
bank or insurance company. The Company was incorporated in the British Virgin
Islands principally to facilitate trading in its securities. The government of
Hong Kong imposes a stamp duty on the transfer of securities of Hong Kong
corporations. No such duty is imposed by the British Virgin Islands, and the
Company is also exempt from income tax in the British Virgin Islands. The
Company's corporate administrative matters are conducted through its registered
agent, HWR Services Limited, P.O. Box 71, Road Town, Tortola, British Virgin
Islands. The Company's principal executive offices are located at Unit 1106 -
1110, Star House, 3 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong. Its
telephone number is 852-2605-5822, its facsimile number is 852-2691-1724, its
e-mail address is [email protected] and its website is www.bonso.com.
The Company designs, develops, manufactures, assembles and markets a
comprehensive line of electronic scales and weighing instruments and electronic
consumer and health care products, as well as a new line of telecommunications
products. The Company's electronic scales include bathroom, kitchen, office,
jewelry, laboratory, pocket, hanging, postal, industrial and parcel scales that
are used in consumer, commercial and industrial applications. The Company's
electronic consumer and health care products include pedometers, chronographs,
electronic thermometers and blood pressure meters. The Company's
telecommunications products include two-way radios and cordless telephones.
The Company's wholly-owned Hong Kong subsidiary - Bonso Electronics Limited
("Bonso Electronics") - is responsible for the design, development, manufacture
and sale of the Company's products. Bonso Electronics has one active Hong Kong
subsidiary - Bonso Investment Limited ("BIL"), which has been used to acquire
and hold the Company's real estate investments in Hong Kong and China.
The Company has manufactured all of its products in China since 1989 in
order to take advantage of lower overhead costs and competitive labor rates
available there. In April 2000, the Company leased an additional 50,000 square
foot factory building adjacent to its existing production plant and a 40,000
square foot dormitory building for staff housing. The location of the Company's
factory in Shenzhen, only about 50 miles from Hong Kong, permits the Company to
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easily manage manufacturing operations from Hong Kong, and facilitates
transportation of the Company's products out of China through the port of Hong
Kong.
Business Strategy
Management believes that the Company's continued growth depends on its
ability to strengthen its customer base by enhancing and diversifying its
products, increasing the number of customers and expanding into additional
markets, while maintaining or increasing sales of its products to existing
customers. The Company's continued growth and profitability is also dependent
upon its ability to control production costs and increase production capacity.
The Company's strategy to achieve these goals is as follows:
Product Enhancement and Diversification. The Company continually seeks to
improve and enhance its existing products in order to provide a longer product
life-cycle and to meet increasing customer demands for additional features. The
Company's research and development staff are currently working on such projects
as redesigning the existing pedometer, bicycle computer and blood pressure
monitor, expanding the health care line and attempting to make the Company's
products more competitive in price and features. During the last fiscal year,
the Company has completed development of a waterproof digital thermometer, a
chronograph, an ear protector and two newly designed body scales. In addition,
the Company has, in varying stages of development, postal, kitchen and Gem
scales, which are being developed to the specifications of OEM customers. The
Company has also expanded its product lines to include cordless telephones and
two-way radios. See "Products," below.
Maintaining and Expanding Business Relations with Existing Customers. The
Company promotes its relationships with its significant customers through
regular communication with them, visiting its customers in their home countries
and providing direct access to the Company's manufacturing and quality control
personnel. This access, together with the Company's concern for quality, has
resulted in a relatively low level of defective products. Moreover, management
believes that the Company's emphasis on timely delivery, good service and low
cost has contributed and will continue to contribute to good relations with its
customers and increased orders. Further, management of the Company solicits
suggestions from its customers for product enhancement and will develop and
incorporate the enhancements suggested by its customers into its products when
feasible.
Market Expansion. In 1998, the Company expanded its marketing efforts in
the United States and Europe. Management intends to continue increasing its
marketing efforts with the use of its Web page and mailing product brochures. In
addition, the Company intends to increase the frequency of its direct and
telemarketing contacts with both existing and potential customers.
Controlling Production Costs. In 1989, recognizing that labor cost is a
major factor permitting effective competition in the consumer electronic
products industry, the Company relocated all of its manufacturing operations to
China to take advantage of the large available pool of relatively inexpensive
manufacturing labor. The Company has made an effort to locate and operate its
manufacturing facilities consistent with the exigencies of manufacturing in
China. For example, the location of the Company's plant in China is in close
proximity, approximately 50 miles, to Hong Kong, thereby facilitating
transportation of the Company's products to markets outside of China.
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The Company is currently attempting to control production costs by such
means as redesigning its existing scales in order to decrease material and labor
costs, controlling the number of employees, increasing the efficiency of workers
by providing regular training and tools and redesigning the flow of the
production line.
Increasing Production Capacity. In January 1997, the Company tripled its
manufacturing capacity by moving to a new manufacturing facility in the DaYang
Synthetical Development District in Shenzhen, China. The floor area of this
facility is now fully utilized and the Company has leased an additional facility
with approximately 90,000 square feet.
Products
The following table sets forth the percentage of net sales of each of the
Company's product lines for the fiscal years ended March 31, 1999 and 2000.
Year ended March 31,
--------------------
Product Line 1999 2000
------------ ---- ----
Scales 79% 82%
Health care products 15 8
Electronic consumer products 2 2
Telecommunications products -- 5
Other products and services 4 3
---- ----
Total 100% 100%
Scales
The Company's weighing equipment ranges from the simplest spring scales to
high precision electronic scales that translate weight readings into
corresponding price and postage calculations.
All of the Company's electronic scales use strain gauge sensors, which
management believes are one of the most reliable and accurate weight sensing
systems currently available. A strain gauge sensor is a thin metal foil
resistor, which is bonded to a metal block, and which undergoes a change in
electrical resistance as weight is loaded onto the metal block. The measurement
of change in electrical resistance yields a measure of the applied weight.
The Company offers a variety of scales for diverse consumer, commercial and
industrial applications. Scales currently offered by the Company include
bathroom, kitchen, office, jewelry, laboratory, pocket, hanging, postal,
industrial and parcel scales. The following table sets forth the net sales of
each type of scale as a percentage of total scale sales for the fiscal years
ended March 31, 1999 and 2000:
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Year ended March 31,
--------------------
Type of Scale 1999 2000
------------- ---- ----
Postal and office 29% 24%
Kitchen 8 8
Jewelry and laboratory 20 18
Bathroom 15 16
Pocket and hanging 19 26
Industrial and parcel 9 8
---- ----
Total scale sales 100% 100%
The Company's electronic scales offer many advanced features such as a
talking feature, automatic power off, automatic range, audio signal, digital
auto-calibration, automatic zero tracking and multiple measuring units. The
scales are built with either metal or plastic housings and come in various
models and case designs. The Company's scales are described in more detail
below.
Postal Scales. The Company's postal scales are used primarily by businesses
for weighing letters and parcels of up to 2,000 grams (4.4 lbs.) and are
accurate to 1 gram. Postal scales are calibrated to give postal or franking cost
for the various classes of delivery service available to various destinations.
The scales are marketed primarily in Europe and the United States and are
customized for the postal system of the country of destination.
Office Scales. The Company sells several models of office scales with
capacities ranging from 2,000 grams (4.4 lbs.) to 5,000 grams (11 lbs.), and the
scales are accurate to 1 gram. The scales are used in offices to weigh small
packages and letters. The Company's office scales are sold principally in the
United States, Europe, Australia, Hong Kong and China.
Kitchen Scales. The Company's kitchen scales are used in households and
restaurants to weigh ingredients for cooking and portions for dieting, with
capacities ranging from 1,000 grams (2.2 lbs.) to 5,000 grams (11 lbs.), and the
scales are accurate to 1 gram. The Company's kitchen scales are marketed
principally in the United States and Europe.
Jewelry and Laboratory Scales. Jewelry and laboratory scales are used to
weigh precious metals and stones. In the laboratory, the scales are used to
weigh various chemicals and chemical compounds. The Company's jewelry and
laboratory scales are principally sold in the United States and Europe. The
capacities of these scales range from 120 grams (0.25 lb.) to 1,200 grams (2.6
lbs.), and these scales are accurate to 0.01 gram or 0.1 gram, respectively.
Bathroom Scales. The Company's bathroom scales are used by consumers to
monitor weight, with capacities up to 150 kilograms (330 lbs.). The Company's
bathroom scales are marketed primarily in the United States, Europe and Japan.
Pocket and Hanging Scales. Pocket and hanging scales are small electronic
scales that can be carried by a business person in his or her attache or brief
case. The capacities of the Company's pocket scales range from 80 grams (2.8
oz.) to 320 grams (11.2 oz.), and the scales are accurate to 0.1 gram. The
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hanging scales range from 15 kilograms (33 lbs.) to 25 kilograms (55 lbs.), and
the scales are accurate to 10 grams. The pocket scales are principally used in
the jewelry business for weighing low value metals and stones and the hanging
scales are primarily used in fishing. The Company's pocket and hanging scales
are marketed primarily in the United States and Europe.
Industrial/Parcel Scales. The Company manufactures different models of
industrial/parcel scales, which are used in business or industry to weigh
heavier parcels or objects (i.e., objects whose weight exceeds the capacity of
the Company's office scales). Industrial/parcel scales have a capacity ranging
from 25 kilograms (55 lbs.) to 150 kilograms (330 lbs.). The Company's
industrial/parcel scales are marketed primarily in Europe.
Health Care Products
Electronic Thermometers. The Company's electronic thermometers, which
include both Fahrenheit and centigrade versions, measure body temperature. The
Company's electronic thermometer is classified as a medical device under United
States law. Medical devices are required to be approved by the United States
Food and Drug Administration (the FDA) prior to being marketed, unless the law
provides a legal exemption from such approval. The Company's electronic
thermometer has received pre-market approval from the FDA. Sales of electronic
thermometers were approximately 12% of the Company's net sales in the fiscal
year ended March 31, 1999, and approximately 7% of net sales in the fiscal year
ended March 31, 2000.
Blood Pressure Meters. The Company introduced electronic blood pressure
meters to its line of products in November 1994. The Company's electronic blood
pressure meters have digital displays for highest blood pressure (systolic),
lowest blood pressure (diastolic) and pulse rate (number of pulses per minute),
as well as mean blood pressure. The meters have automatic power off, automatic
pressure release, manual rubber bulb pump and many other standard features. The
Company has obtained FDA approval for marketing blood pressure meters in the
United States. Sales of blood pressure meters were approximately 3% of the
Company's net sales in the fiscal year ended March 31, 1999 and 1% of net sales
in the fiscal year ended March 31, 2000.
Electronic Consumer Products
Chronographs. The Company began shipping chronographs in 1998. A
chronograph is a device for measuring the speed of a projectile by measuring the
time it takes for it to go between two infra-red sensors. Sales of chronographs
were approximately 0.9% of the Company's net sales in the fiscal year ended
March 31, 1999 and 0.7% of the Company's net sales in the fiscal year ended
March 31, 2000.
Pedometers. The Company began shipping electronic pedometers in 1993. A
pedometer is worn by a walker or jogger to measure the distance traveled, by
recording the steps taken. The Company's pedometer can be adjusted for varying
stride lengths, and will keep track of distance traveled, elapsed time and
average speed. Sales of pedometers were approximately 0.9% of the Company's net
sales in the fiscal year ended March 31, 1999, and 1.3% of net sales in the
fiscal year ended March 31, 2000.
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Telecommunications Products
Family Radio Service. The Family Radio Service ("FRS") is the newest
generation in personal two-way communications devices. The Company began to ship
the FRS in the fiscal year ended March 31, 2000. FRS radios operate in a license
free radio band (no FCC license required) on any of the 14 license free
channels. The products manufactured by the Company are lightweight, palm sized
two-way radios that can be used up to about two miles with family or friends at
sporting events, camping, hunting, shopping malls or any other indoor or outdoor
activity. Sales of the FRS were approximately 2% of the Company's net sales in
the fiscal year ended March 31, 2000.
Cordless Telephones. The Company began to produce cordless telephones in
the fiscal year ended March 31, 2000. Cordless telephones manufactured by the
Company come in a very attractive and compact lightweight housing, and operate
in the 900 MHz frequency. They come with useful features such as a memory
function for storing commonly dialed numbers, intercom function, automatic
redial function and an LCD that shows dialed numbers and talk time. A special
feature also allows the use of multiple handsets from a common base unit. Sales
of cordless telephones were approximately 3% of the Company's net sales in the
fiscal year ended March 31, 2000.
Other Products and Services
The Company also receives revenue from customer funded research and
development for products subsequently produced and sold to them, the sale of
semi completed units and the sale of spare parts for repair work by its
customers and from repair work performed by the Company for its customers. These
revenues constituted approximately 4% of net sales for the fiscal year ended
March 31, 1999 and 3% of net sales for the fiscal year ended March 31, 2000.
Product Development, Design and Research
The major responsibility of the product design and research and development
personnel is to develop and produce designs to the satisfaction of and in
accordance with the specifications provided by the OEMs. Management believes its
engineering and product development capabilities are important to the future
success of the Company's business. Some of the Company's product design,
research and development activities are customer funded and are initiated under
verbal agreements with specific customers for specific products. The Company has
successfully lowered its costs for its research and development team by moving
most research and development activities to its facility in China and
principally employing Chinese engineers and technicians at costs that are
substantially lower than that would be required in Hong Kong.
At June 30, 2000, the Company employed two individuals in Hong Kong and 40
individuals in China as its engineering staff, who are at various times engaged
in research and development.
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The Company has, in various stages of development, body, postal, kitchen
and jewelry scales, which are being developed to the specifications of OEM
customers, and has recently commenced production of an ear protector and newly
designed body scales.
Manufacturing
The Company currently manufactures and assembles all of its products in
China. Generally, raw materials, electronic components and other parts are
transported to the Company's manufacturing plant in China where the finished
products are assembled. The finished goods are then transported back to Hong
Kong for sale by the Company.
The Company manufactures some of its own components, metal parts and
casings and plastic parts at its facility in China. In 1997, the Company
commenced manufacturing its own strain gauges, and it currently produces over
95% of the strain gauges utilized in its scales. Management believes that the
Company realizes a substantial cost saving from producing its own strain gauges.
To take advantage of lower overhead costs and competitive labor rates
available in China, the Company constructed a manufacturing facility in
Shenzhen, China in 1989. In April 2000, the Company leased additional factory
space adjacent to the existing facility. The location of that factory in
Shenzhen, about 50 miles from Hong Kong, permits the Company to easily manage
manufacturing operations from Hong Kong, and facilitates transportation of the
Company's products out of China through the port of Hong Kong, the busiest
seaport for containerized shipping in the world. The manufacturing complex is
located in the DaYang Synthetical Development District in Shenzhen, China. See
Item 2 - "Description of Property--China," below.
Because the Company primarily sells and ships its products "F.O.B. Hong
Kong," most of its customers are responsible for the transportation of finished
products from Hong Kong to their final destination and bear the risk of loss
from such transportation. Components and finished products are transported to
and from China primarily with the Company's own truck. The majority of the
Company's component parts purchased from Japan, Taiwan and Korea are transported
by ship or by air to Hong Kong. In recent years, the Company has not been
materially affected by any transportation problems.
Management believes that it has sufficient water and power supplies for
daily usage at its new manufacturing complex.
The availability of adequate power to run the Company's factory is one of
the difficulties of having a factory located in China. In order to minimize
potential power problems that could develop in the Shenzhen factory, the
factory, like most Chinese factories, is equipped with power generators capable
of providing adequate electric power to operate the assembly line.
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Component Parts and Suppliers
The Company purchases over 1,000 different component parts from more than
100 major suppliers and is not dependent upon any single supplier for any key
component. The Company purchases components for its products from suppliers in
Japan, Taiwan, South Korea, Hong Kong and elsewhere. The Company has not
experienced, and management does not expect to experience, any difficulty in
obtaining needed component parts for its products.
The major component parts purchased by the Company are integrated circuits
(chips), LEDs, LCDs, strain gauges, force sensors, resistors, capacitors,
transistors, diodes, printed circuit boards and batteries. The Company purchases
both stock or off the shelf chips and custom chips. There are many suppliers of
both stock and custom chips in Japan and Taiwan. At the present time, Micro
Chips in Taiwan, Samsung in South Korea and Hitachi, Toshiba and NEC in Japan
provide most of the Company's chips. Chips are one of the most expensive
component parts purchased by the Company.
Strain gauges are the second most expensive components purchased by the
Company. The Company currently produces over 95% of the strain gauges utilized
in its scales, and obtains the remainder principally from a Japanese
manufacturer. However, the Company could also purchase strain gauges from
suppliers located in the United States and China. LEDs and LCDs are generally
custom made to match the chip design and are principally supplied by companies
in Taiwan, Korea and Japan. The circuit boards can be purchased from circuit
board manufacturers in Hong Kong. Resistors, capacitors, transistors, diodes and
batteries are standard stock items and are generally purchased in Hong Kong and
Taiwan. Its original equipment manufacturers ("OEM") customers consign the
majority of the Company's telecommunication product components to the Company.
The Company produces metal and plastic casings and parts for use in its
products. Plastic resin and metal sheet can be purchased from suppliers in Hong
Kong and Japan.
Quality Control
Management maintains strict quality control procedures for every product
manufactured by the Company throughout the manufacturing process. Incoming raw
materials and components are checked by the Company's quality control personnel.
Moreover, during the production stage, the Company's quality control personnel
monitor each operation in the manufacturing process, including the bonding of
the chips, component insertion and assembly of the printed circuit boards and
casings. All work in process is also checked during the manufacturing and
assembly processes. After the assembly stage, every product is checked for
proper functioning and cosmetic appearance. After packing and before shipment,
the quality control personnel randomly check goods according to product
specifications. Historically, the Company's level of defective products has been
low, and not material to its financial statements. The Company's products are
generally covered by a one-year limited warranty, which provides for repair or
replacement of defective products. In certain circumstances, an extended
warranty may be offered. To date, claims against the Company under its warranty
program have been negligible.
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In April 1995, the Company received an ISO 9001 certificate from Det Norske
Veritas Industry B.V., The Netherlands. The Company passed a review audit by Det
Norske Veritas, processed in March 1999, and is qualified to maintain the ISO
9001 certificate.
The ISO 9000 is a program developed initially by the International
Organization for Standardization in Geneva, Switzerland, to provide quality
control registration standards that could be relied upon to provide assurances
with regard to a registrant's quality control and manufacturing operations.
Management believes that ISO 9000 registration provides its customers with
quality control assurances that are recognized internationally, and that such
registration also provides the Company with a competitive advantage over many
other manufacturers in the Far East who have not registered for ISO 9000
certification. Further, the Company uses the CE mark on all products shipped to
Europe. A CE mark serves as confirmation to the European authorities that the
marked product complies with all European Union directives relevant to the
product and that the product may be traded freely in the European market.
Customers and Marketing
The Company sells its products in the United States, Europe, Asia,
Australia and Africa. Customers for the Company's scales are primarily OEMs,
which market the products under their own brand names.
Net export sales to customers by geographic area consisted of the following
for each of the three years ended March 31, 1998, 1999 and 2000.
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------
1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
North America $12,598,672 53% $5,597,402 43% $7,339,473 48%
Europe 8,129,063 34 6,248,263 48 $6,330,064 41
Asia 2,117,914 9 1,041,377 8 $1,568,635 10
Australia 756,354 3 130,173 1 $109,354 1
Africa 113,573 1 29,050 -- $32,760 --
----------- ---- ----------- ---- ----------- ----
Total Net Sales $23,715,576 100% $13,046,265 100% $15,380,286 100%
</TABLE>
The Company maintains a marketing team of four people in Hong Kong. The
Company markets its products primarily through the use of its Web page,
advertising in trade publications such as Hong Kong Enterprise and the use of
direct mail catalogues and product literature. In addition, the Company's
marketing team contacts existing and potential customers by telephone, mail, fax
and in person.
Major Customers. Sales of the Company's products to OEMs accounted for
approximately 87% of the Company's total net sales during each of the years
ended March 31, 1998 and 1999 and 95% in the year ended March 31, 2000. The
Company's principal OEM customers include the following entities which market
the Company's products under the brand name indicated opposite their respective
names:
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<TABLE>
<CAPTION>
Percent of Company's
Sales
---------------------
Year Ended March 31,
---------------------
Customer Brand Name Products 1998 1999 2000
------------------------------------------------------------------------------------------------------------
----------------------------------
<S> <C> <C> <C> <C> <C>
Werner Dorsch Gmbh & Co. (Germany) WEDO Postal, office and
---------------------------------- parcel scales 9% 15% 12%
Gottl Kern & Sohn Gmbh (Germany) KERN Laboratory, hanging
---------------------------------- scales 4% 7% 11%
Ohaus Corporation OHAUS Pocket and laboratory
(USA) scales -- 2% 11%
----------------------------------
Pitney Bowes, Inc. (USA) Pitney Bowes Postal scales 30% 15% 7%
----------------------------------
Gram Precision (Canada) GRAM Pocket and laboratory
PRECISION scales -- 1% 7%
----------------------------------
Omron Heath Care OMRON Digital thermometers 8% 10% 6%
----------------------------------
EKS (France) EKS Bathroom scales 1% 2% 6%
----------------------------------
Globaltec Corporation ACCULAB Jewelry, educational 15% 11% 2%
(USA) and high precision
---------------------------------- scales
</TABLE>
If the Company were to lose any customers who account for a material
portion of total sales, or if any of these customers were to substantially
decrease their purchases from the Company, the Company's revenues, earnings and
financial position would be materially and adversely affected. With the
exception of Globaltec Corporation, the Company's dependence on the above-listed
customers is expected to continue in the foreseeable future. The Company follows
normal and customary business practices in the acceptance of orders from its
customers. Orders from the above-listed customers are generally supported by
bank guarantees, letters of credit or insurance from the Hong Kong Export Credit
Insurance Corporation.
Sales of the Company's products directly by the Company under its own brand
name accounted for approximately 13% of the Company's total net sales during the
years ended March 31, 1998 and 1999 and 5% during the year ended March 31, 2000.
Backlog. The Company's backlog consists of orders from major customers and
purchase orders from other customers of products scheduled for shipment within
three to twelve months. It is the Company's practice to charge customers 50% of
the total order price when orders are cancelled and, as a result, the Company
has experienced nominal cancellations. This practice is not represented by a
written agreement, and the Company may not be able to enforce this arrangement
in every case in the future. The Company generally has not experienced any
difficulty in shipping orders by the dates requested by its customers or in
material returns of its products. The amount of backlog that is manufactured and
shipped during any period is dependent on various factors, including the timing
and scheduling of orders from material customers and accordingly, the amount of
backlog at any date is not necessarily indicative of actual shipments and sales.
The Company's backlog was $7,717,166 at March 31, 2000, compared to a backlog of
$3,040,771 at March 31, 1999. The increase in backlog was caused by the increase
in orders for shipment in April and May, 2000.
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Competition
The electronic products business is highly competitive. The Company's major
competitors in the scale market include Management Investment & Technology Co.,
Ltd. in Hong Kong and Charder Electronic Company, Ltd. in Taiwan. In the blood
pressure meter market, the Company's major competitor is AnD Co. Ltd of Japan.
In the electronic thermometer market, its major competitors are Citizen Company
and Terumo, both of Japan. Competition is primarily based upon unit price,
product quality, reliability, product features and management's reputation for
integrity. Management believes that the Company competes favorably with respect
to each of these factors.
Employees
At March 31, 2000, the Company employed 2,163 persons on a full-time basis.
All of the Company's 33 employees located in Hong Kong held administrative,
clerical, sales and marketing positions. Of the 2,130 employees located in
China, 2,000 were engaged in manufacturing and 130 were engaged in
administrative and clerical positions. The Company is not a party to any labor
contract or collective bargaining agreement. The Company has experienced no
significant labor stoppages in recent years, and management believes that
relations with its employees are satisfactory.
The Company houses all employees located in the PRC at the Shenzhen
facility, including administrative staff. In April 2000, the Company leased a
new 40,000 square foot dormitory building located adjacent to the Shenzhen
facility. The Company believes that, with the addition of the new dormitory, it
can house approximately 2,300 employees and has sufficient dormitory facilities
for the foreseeable future.
Patents, Licenses, Trademarks, Franchises, Concessions and Royalty Agreements
The Company has no patents, licenses, franchises, concessions or royalty
agreements that are material to its business as a whole. The Company has
obtained a trademark registration in Hong Kong and China for the marks BONSO and
MODUS in connection with certain electronic apparatus.
Government Regulation
In the United States, the Medical Device Amendments of 1976 to the federal
Food, Drug and Cosmetic Act (Amendments) and the regulations issued or proposed
thereunder provide for regulation by the Food and Drug Administration (the FDA)
of the marketing, manufacturing, labeling, packaging and distribution of medical
devices. These regulations include requirements that manufacturers of medical
devices register with the FDA and furnish lists of devices manufactured by them.
Certain pre-market requirements must be met prior to the marketing of medical
devices introduced after May 28, 1976. These range from a minimum requirement to
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wait 90 days after notification to the FDA before introduction of medical
devices substantially similar to devices already on the market to a maximum
requirement to comply with the potentially expensive and time consuming process
of pre-market analysis and testing necessary to obtain FDA approval prior to the
commercial marketing of new medical devices. In addition, the FDA also has the
authority to prescribe performance standards for the types of health care
products manufactured by the Company. Should such standards be prescribed, the
Company's products would be required to conform to them. To date, no such
standards have been adopted and the Company cannot predict what changes, if any,
may be necessitated in its products should such performance standards be issued
in the future. In addition to the Amendments, there are also certain
requirements of other federal laws and of state, local and foreign governments
that may apply to the manufacture and marketing of the Company's health care
products.
The only products of the Company that are subject to material government
regulation are its electronic thermometers and electronic blood pressure meters,
which are subject to qualifying procedures with the FDA. The qualifying
procedures set forth by the FDA for pre-market approval with respect to the
electronic thermometers and blood pressure meters have been satisfied.
In the European Union, Medical Devices Approval is required for the sale of
the Company's electronic thermometers and blood pressure meters. The Company has
obtained Medical Devices Approval for its electronic thermometers. A customer is
currently seeking Medical Devices Approval, on behalf of the Company, for the
Company's blood pressure meters. Management can not make any assurances when, or
if, such approval will be granted.
Certain Foreign Issuer Considerations
Transfer of Sovereignty over Hong Kong to China. The principal executive
offices of the Company and all manufacturing operations and assets of the
Company are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was
a British Crown Colony with responsibility for administering its own internal
affairs. After several years of negotiations concerning Hong Kong's future,
Great Britain and China signed (December 1984) and ratified (May 1985) the
Sino-British Joint Declaration on the Future of Hong Kong (the Sino-British
Agreement). Pursuant to the Sino-British Agreement, Hong Kong was restored to
China on July 1, 1997.
Ownership of Real Property. All land in Hong Kong is owned by the
Government of the Hong Kong Special Administrative Region (the Government).
Prior to July 1, 1997, the Government granted Crown Leases to persons, firms and
corporations on the basis of an annual crown rental payment and other terms and
conditions therein contained. Crown Leases were freely assignable during their
term. In implementation of the Sino-British Agreement, the New Territories
Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988.
Pursuant to that Ordinance, all leases in the New Territories of Hong Kong were
extended up to June 30, 2047. Such extension was at no premium but was subject
to an annual fee equivalent to 3% of the ratable value of the property to be
charged with effect from the date on which the original lease would have
expired.
The land ownership system in China is similar to Hong Kong, in which all
land is owned by the government. The Chinese government and its various
government instrumentalities grant leases to persons, firms and corporations on
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the basis of an annual rental payment and other terms and conditions. Such
leases are generally freely transferable during their term.
Enforceability of Certain Civil Liabilities. The Company is a British
Virgin Islands holding corporation. The Company has appointed Henry F.
Schlueter, 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80265 as its
agent upon whom process may be served in any action brought against it under the
securities laws of the United States. However, outside the United States, it may
be difficult for investors to enforce judgments against the Company obtained in
the United States in any such actions, including actions predicated upon civil
liability provisions of the United States securities laws. In addition, most of
the Company's officers and directors reside outside the United States and the
assets of these persons and of the Company are located outside of the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons, or to enforce against the
Company or such persons judgments obtained in United States courts predicated
upon the liability provisions of the United States securities laws. The Company
has been advised by Harney, Westwood and Riegels ("HW&R"), its British Virgin
Islands counsel, and by Wong & Fok, its Hong Kong counsel, that there is
substantial doubt as to the enforceability against the Company or any of its
directors and officers located outside the United States in original actions or
in actions for enforcement of judgments of United States courts of liabilities
predicated solely on the civil liability provisions of the United States
securities laws.
The Company has been advised by Wong & Fok and HW&R that no treaty exists
between Hong Kong or the British Virgin Islands and the United States providing
for the reciprocal enforcement of foreign judgments. However, the courts of Hong
Kong and the British Virgin Islands are generally prepared to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Hong Kong
or the British Virgin Islands for recovery of this debt. A Hong Kong or British
Virgin Islands court will only accept a foreign judgment as evidence of a debt
due if: (i) the judgment is for a liquidated amount in a civil matter; (ii) the
judgment is final and conclusive and has not been stayed or satisfied in full;
(iii) the judgment is not directly or indirectly for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong
or British Virgin Islands court is unlikely to accept a judgment for an amount
obtained by doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damage sustained by the person in whose favor the
judgment was given); (iv) the judgment was not obtained by actual or
constructive fraud or duress; (v) the foreign court has taken jurisdiction on
grounds that are recognized by the common law rules as to conflict of laws in
Hong Kong or the British Virgin Islands; (vi) the proceedings in which the
judgment was obtained were not contrary to natural justice; (vii) the
proceedings in which the judgment was obtained, the judgment itself and the
enforcement of the judgment are not contrary to the public policy of Hong Kong
or the British Virgin Islands; (viii) the person against whom the judgment is
given is subject to the jurisdiction of the Hong Kong or the British Virgin
Islands court; and (ix) the judgment is not on a claim for contribution in
respect of damages awarded by a judgment that does not satisfy the foregoing.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may
also be limited or affected by applicable bankruptcy, insolvency, liquidation,
arrangement, moratorium or similar laws relating to or affecting creditors'
rights generally and will be subject to a statutory limitation of time within
which proceedings may be brought.
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Under United States law, majority and controlling shareholders generally
have certain "fiduciary" responsibilities to the minority shareholders.
Shareholder action must be taken in good faith and actions by controlling
shareholders that are obviously unreasonable may be declared null and void. The
British Virgin Islands law protecting the interests of the minority shareholders
may not be as protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. While British Virgin Islands law
does permit a shareholder of a British Virgin Islands company to sue its
directors derivatively, i.e. in the name of and for the benefit of the company
and to sue the company and its directors for his benefit and the benefit of
others similarly situated, the circumstances in which any such action may be
brought and the procedures and defenses that may be available in respect of any
such action may result in the rights of shareholders of a British Virgin Islands
company being more limited than those rights of shareholders in a United States
company.
Special Risk Factors
Forward-Looking Statements
Important Factors Related to Forward-Looking Statements and Associated
Risks. This Annual Report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, the Company may from time to time make
written or oral forward-looking statements. Written forward-looking statements
may appear in documents filed with the Securities and Exchange Commission (the
"Commission"), in press releases and in reports to shareholders. The
forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that political, economic and commercial
conditions in Hong Kong and China will not change materially or adversely, that
competitive conditions affecting the Company will not change materially or
adversely, that demand for the Company's products will be strong, that the
Company will retain existing key management personnel, that the Company's
forecasts will accurately anticipate market demand and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in forward-looking information
will be realized.
In addition, as disclosed elsewhere under other risk factors, the business
and operations of the Company are subject to substantial risks, which increase
the uncertainty inherent in such forward-looking statements. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Private Securities Reform Act of 1995
contains a safe harbor for forward-looking statements on which the Company
relies in making such disclosures. In connection with this safe harbor the
Company is hereby identifying important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
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by or on behalf of the Company. Any such statement is qualified by reference to
the cautionary statements included in this Annual Report.
Political, Legal, Economic and Other Uncertainties of Operations in China and
Hong Kong
Transfer of Sovereignty over Hong Kong to China. The principal executive
and corporate offices of the Company are located in Hong Kong, formerly a
British Crown Colony. Sovereignty over Hong Kong was transferred effective July
1, 1997 to China, and Hong Kong became a Special Administrative Region of China.
The National People's Congress of China enacted the Basic Law in 1990 as the
constitution of Hong Kong under China's sovereignty (Basic Law). While
management does not believe that the transfer of sovereignty over Hong Kong to
China will have a material adverse effect on the Company's business, there can
be no assurance as to the continued stability of political, economic or
commercial conditions in Hong Kong, and any instability could have an adverse
impact on the Company's business.
The Hong Kong dollar and the United States dollar have been fixed at
approximately 7.80 Hong Kong dollars to $1.00 since 1983. The Chinese government
expressed its intention in the Basic Law to maintain the stability of the Hong
Kong currency after the sovereignty of Hong Kong was transferred to China. There
can be no assurance that this will continue and the Company could face increased
currency risks if the current exchange rate mechanism is changed.
Internal Political and Other Risks of Manufacturing in China. The Company's
manufacturing facility is located in China. As a result, the Company's
operations and assets are subject to significant political, economic, legal and
other uncertainties. Changes in policies by the Chinese government resulting in
changes in laws, regulations or the interpretation thereof, confiscatory
taxation, restrictions on imports and sources of supply, import duties,
corruption, currency revaluations or the expropriation of private enterprise
could materially and adversely affect the Company. Over the past several years,
the Chinese government has pursued economic reform policies including the
encouragement of private economic activity and greater economic
decentralization. There can be no assurance that the Chinese government will
continue to pursue such policies, that such policies will be successful if
pursued, that such policies will not be significantly altered from time to time
or that business operations in China would not become subject to the risk of
nationalization, which could result in the total loss of investment in that
country. Economic development may be limited as well by the imposition of
austerity measures intended to reduce inflation, the inadequate development of
infrastructure and the potential unavailability of adequate power and water
supplies, transportation and communications. If for any reason the Company were
required to move its manufacturing operations outside of China, the Company's
profitability would be substantially impaired, its competitiveness and market
position would be materially jeopardized and there can be no assurance that the
Company could continue its operations.
Uncertain Chinese Legal System and Application of Laws. The legal system of
China relating to foreign investments is both new and continually evolving, and
currently there can be no certainty as to the application of its laws and
regulations in particular instances. China does not have a comprehensive system
of laws. Enforcement of existing laws or agreements may be sporadic and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
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than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may not be possible to obtain swift and
equitable enforcement of that law.
Possible Changes and Uncertainties in Economic Policies. As part of its
economic reform, China has designated certain areas, including Shenzhen where
the Company's manufacturing complex is located, as Special Economic Zones.
Foreign enterprises in these areas benefit from greater economic autonomy and
more favorable tax treatment than enterprises in other parts of China. Changes
in the policies or laws governing Special Economic Zones could have a material
adverse effect on the Company. Moreover, economic reforms and growth in China
have been more successful in certain provinces than others, and the continuation
or increase of such disparities could affect the political or social stability
of China.
Dependence on Single Factory. All of the Company's products are currently
manufactured at its manufacturing facility located in Shenzhen, China. The
Company does not own the land underlying its factory complex. It occupies the
site under an agreement with the local Chinese government pursuant to which the
Company is entitled to use the land upon which its factory complex is situated
until May 2044. This agreement and the operations of the Company's Shenzhen
factory are dependent on the Company's relationship with the local government.
The Company's operations and prospects would be materially and adversely
affected by the failure of the local government to honor the agreement. In the
event of a dispute, enforcement of the agreement could be difficult in China.
Moreover, fire fighting and disaster relief or assistance in China may not
be as developed as in Western countries. The Company currently maintains
property damage insurance aggregating approximately $16,000,000 covering its
stock in trade, goods and merchandise, furniture and equipment and the
buildings. The Company does not maintain business interruption insurance.
Investors are cautioned that material damage to, or the loss of, the Company's
factory due to fire, severe weather, flood or other act of God or cause, even if
insured against, could have a material adverse effect on the Company's financial
condition, results of operations, business and prospects.
Asian Economic Problems. In recent years, several countries in Southeast
Asia have experienced a significant devaluation of their currencies and decline
in the value of their capital markets. In addition, several Asian countries have
experienced a number of bank failures and consolidations. Management believes
that most Asian countries have recovered from these declines and does not
believe that the declines in Southeast Asia will affect the demand for the
Company's products, because virtually all of the Company's products are sold
into developed countries not experiencing these declines. Moreover, because most
of the Company's products are paid for in U.S. dollars, the Company believes
that it is less susceptible to the effects of a devaluation in the Hong Kong
dollar or Chinese renminbi if either or both were to occur despite assurances to
the contrary by the Chinese government. However, the decline in the currencies
of other Southeast Asian countries could render the Company's products less
competitive if competitors located in these countries are able to manufacture
competitive products at a lower effective cost. Investors are cautioned that
there can be no assurance that the decline in Southeast Asia will not have a
material adverse effect on the Company's business, financial condition, results
of operations or market price of its securities.
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Risk Factors Relating to the Business of the Company
Dependence on Major Customers. Four major customers accounted for
approximately 51% of the Company's sales in the fiscal year ended March 31, 1999
and three major customers accounted for approximately 34% of its sales during
the fiscal year ended March 31, 2000. The loss of any of these major customers
could have a material negative impact on the Company's business. See Item 1 -
"Description of Business--Customers and Marketing--Major Customers" and Item 9 -
"Management's Discussion and Analysis of Financial Condition--Overview."
Dependence on Key Personnel. The Company's future performance will depend
to a significant extent upon the efforts and abilities of certain members of
senior management as well as upon the Company's ability to attract and retain
other qualified personnel. In particular, the Company is largely dependent upon
the continued efforts of Mr. Anthony So, the Company's President, Secretary,
Treasurer and Chairman of its board of directors, and Mr. Kim Wah Chung,
Director of Engineering and Research and Development. To the extent that the
services of Mr. So or Mr. Chung would be unavailable to the Company, the Company
would be required to obtain other personnel to perform the duties that they
otherwise would perform. There can be no assurance that the Company would be
able to employ another qualified person or persons, with the appropriate
background and expertise, to replace Mr. So or Mr. Chung on terms suitable to
the Company. See Item 10 - "Directors and Officers of Registrant."
Competition. The Company's business is in an industry that is highly
competitive, and many of its competitors, both local and international, have
substantially greater technical, financial and marketing resources than the
Company. See Item 1 - "Description of Business--Competition."
Need for Qualified Employees. The success of the Company is dependent on
its ability to attract and retain qualified technical, marketing and production
personnel. The Company will have to compete with other larger companies for such
personnel, and there can be no assurance that the Company will be able to
attract or retain such qualified personnel.
Control by Founder. At the present time, Mr. Anthony So, the founder and
President of the Company, beneficially owns approximately 29.8% of the
outstanding shares of common stock. Due to his stock ownership, Mr. So may be in
a position to elect the board of directors and, therefore, to control the
business and affairs of the Company including certain significant corporate
actions such as acquisitions, the sale or purchase of assets and the issuance
and sale of the Company's securities. See Item 4 - "Control of Registrant."
Potential Fluctuations in Operating Results. The Company's quarterly and
annual operating results are affected by a wide variety of factors that could
materially and adversely affect net sales, gross profit and profitability. This
could result from any one or a combination of factors, many of which are beyond
the control of the Company. Results of operations in any period should not be
considered indicative of results to be expected in any future period, and
fluctuations in operating results may also result in fluctuations in the market
price of the Company's common stock.
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Warrantholders May Not be Able to Sell Their Shares of Common Stock for
What They Paid for Them. The exercise price of the warrants has been arbitrarily
determined by the Company and does not necessarily bear any relationship to the
Company's assets, operating results, book value or shareholders' equity or any
other statistical criterion of value. The exercise price of the warrants should
not under any circumstances be regarded as an indication of any future market
price of the Company's common stock.
Warrantholders May Not Be Able to Exercise Their Warrants. Exercise of the
Company's outstanding warrants is subject to the Company either maintaining the
effectiveness of its registration statement, or filing an effective registration
statement with the Securities and Exchange Commission and complying with the
appropriate state securities laws. No assurance can be given that at the time a
warrant holder seeks to exercise the right to purchase the Company's common
stock an effective registration statement will in fact be in effect or that the
Company will have complied with all appropriate state securities laws.
Future Sales of Restricted Shares Into the Public Market Could Depress the
Market Price of the Common Stock. Approximately 1,870,298 outstanding shares of
the Company's common stock are restricted securities as that term is defined in
Rule 144 under the Securities Act of 1933. Although the Securities Act and Rule
144 place certain prohibitions on the sale of restricted securities, they may be
sold into the public market under certain conditions. Further, the Company has
outstanding options and restricted warrants to purchase 2,696,103 shares of
common stock and have reserved an additional 986,300 shares for issuance upon
exercise of stock options which may be granted in the future under the Company's
existing stock option plans. It is possible that, when permitted, the sale to
the public of these shares, or shares acquired upon exercise of the options,
could have a depressing effect on the price of the common stock. Further, future
sales of these shares and the exercise of these options could adversely affect
the Company's ability to raise capital in the future.
The Market Price of the Company's Common Stock Fluctuates . The markets for
equity securities have been volatile and the price of the Company's common stock
has been and could continue to be subject to wide fluctuations in response to
quarter to quarter variations in operating results, news announcements, trading
volume, sales of common stock by officers, directors and principal shareholders,
general market trends and other factors.
Shareholders Who Do Not Exercise Their Warrants Would Be Diluted By the
Exercise of Other Warrants. The Company's current shareholders who hold warrants
will have their percentage of ownership in the company diluted if they choose to
let their warrants expire and other warrant holders choose to exercise their
warrants.
Redemption of the Warrants. The warrants are redeemable by the Company at
any time at $0.01 per warrant upon 30 days notice if the public trading price of
the common stock equals or exceeds 110% of the then-current exercise price of
the warrants for 20 trading days within the preceding 30 trading days. If the
Company calls the warrants for redemption, the holders of the warrants must
either (i) exercise the warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so; (ii) sell the warrants at the then
current market price when they might otherwise wish to hold the warrants; or
(iii) accept the nominal redemption price, which is likely to be substantially
less than the market value of the warrants. No assurance can be given that at
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the time of redemption an effective registration statement will be in effect or
that the Company will have complied with all appropriate state securities laws
so that a warrant holder will be able to exercise his warrants rather than
accepting the $0.01 per warrant redemption price.
Volatility of Stock Price. The markets for equity securities have been
volatile and the price of the Company's common stock has been and could continue
to be subject to wide fluctuations in response to quarter to quarter variations
in operating results, news announcements, trading volume, sales of common stock
by officers, directors and principal shareholders of the Company, general market
trends and other factors.
Certain Legal Consequences of Foreign Incorporation and Operations
Enforceability of Civil Liabilities. The Company is a holding corporation
organized as an International Business Company under the laws of the British
Virgin Islands and its principal operating subsidiary is organized under the
laws of Hong Kong, where the Company's principal executive offices are also
located. Outside the United States, it may be difficult for investors to enforce
judgments against the Company obtained in the United States in actions brought
against the Company, including actions predicated upon civil liability
provisions of federal securities laws. In addition, most of the Company's
officers and directors reside outside the United States and the assets of these
persons and of the Company are located outside of the United States. As a
result, it may not be possible for investors to effect service of process within
the United States upon such persons, or to enforce against the Company or such
persons judgments predicated upon the liability provisions of U.S. securities
laws. The Company has been advised by its Hong Kong counsel and its British
Virgin Islands counsel that there is substantial doubt as to the enforceability
against the Company or any of its directors or officers located outside the
United States in original actions or in actions for enforcement of judgments of
U.S. courts of liabilities predicated solely on the civil liability provisions
of federal securities laws. See Item 1 - "Description of Business--Certain
Foreign Issuer Considerations--Enforceability of Certain Civil Liabilities."
Certain Legal Consequences of Incorporation in the British Virgin Islands.
The Company is organized under the laws of the British Virgin Islands.
Principles of law relating to matters affecting the validity of corporate
procedures, the fiduciary duties of the Company's management, directors and
controlling shareholders and the rights of the Company's shareholders differ
from, and may not be as protective of shareholders as, those that would apply if
the Company were incorporated in a jurisdiction within the United States.
Directors of the Company have the power to take certain actions without
shareholder approval, including an amendment of the Company's Memorandum or
Articles of Association and certain fundamental corporate transactions,
including reorganizations, certain mergers or consolidations and the sale or
transfer of assets. In addition, there is doubt that the courts of the British
Virgin Islands would enforce liabilities predicated upon U.S. securities laws.
Exemptions under the Exchange Act as a Foreign Private Issuer. The Company
is a foreign private issuer within the meaning of rules promulgated under the
Exchange Act. As such, and though its common stock is registered under Section
12(g) of the Exchange Act, it is exempt from certain provisions of the Exchange
Act applicable to United States public companies including: the rules under the
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Exchange Act requiring the filing with the Commission of quarterly reports on
Form 10-Q or current reports on Form 8-K, the sections of the Exchange Act
regulating the solicitation of proxies, consents or authorizations in respect to
a security registered under the Exchange Act and the sections of the Exchange
Act requiring insiders to file public reports of their stock ownership and
trading activities and establishing insider liability for profits realized from
any short-swing trading transaction (i.e., a purchase and sale, or sale and
purchase, of the issuer's equity securities within six months or less). Because
of the exemptions under the Exchange Act applicable to foreign private issuers,
shareholders of the Company are not afforded the same protections or information
generally available to investors in public companies organized in the United
States.
Item 2. Description of Property
British Virgin Islands
The offices of the Company are located at Cragmuir Chambers, Road Town,
Tortola, British Virgin Islands. Only corporate administrative matters are
conducted at such offices, through the Company's registered agent, HWR Services
Limited.
Hong Kong
In July 2000, the Company purchased approximately 5,000 square feet of
office space located at Unit 1106 - 1110, Star House, 3 Salisbury Road,
Tsimshatsui, Kowloon, Hong Kong, from an unaffiliated third party. This facility
is used as the Company's principal executive office. The total purchase price
for the property was approximately $1,813,000.
The Company owns approximately 9,185 square feet in the Universal
Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong
Kong. This facility, which previously housed the Company's principal office, now
is used exclusively as warehouse space. The Company purchased the property from
an unaffiliated third party in May 1999 for approximately $743,590.
The Company owns a residential property in Hong Kong, which is located at
Savanna Garden, House No. 27, Tai Po, New Territories, Hong Kong. House No. 27
consists of approximately 2,475 square feet plus a 177 square foot terrace and a
2,308 square foot garden area. The use of House No. 27 is provided to Mr.
Anthony So as part of his compensation. See Item 13 - "Interest of Management in
Certain Transactions."
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China
The Company's existing factory in China is located at Shenzhen in the
DaYang Synthetical Development District, close to the border between Hong Kong
and China. As a result of recent expansion, this factory now consists of three
factory buildings, which contain approximately 245,000 square feet, three
workers' quarters, containing approximately 155,000 square feet, a canteen and
recreation center of approximately 25,500 square feet, an office building,
consisting of approximately 25,500 square feet, and staff quarters for the
Company's supervisory employees, consisting of approximately 35,000 square feet,
for a total of approximately 486,000 square feet.
All of the facilities noted above, except one factory building and one
dormitory, are wholly-owned by the Company. These wholly-owned facilities were
initially by the Company utilized pursuant to a Contract on the Use of Land and
Supply of Workers with Shenzhen Baoan Fuan Industrial Company; however, in May
2000 the PRC granted title to the land on which these buildings are situated to
the Company. Prior to being granted title, the Contract on the Use of Land and
Supply of Workers provided that the Company could use approximately 269,000
square feet of land for a period of 50 years, commencing May 10, 1994. To obtain
the land lease, the Company paid $1,810,344 plus a monthly management fee in the
amount of $2,750. The Company used part of the proceeds of a $1,500,000 loan it
received in July 1994 to pay a portion of the initial acquisition cost; the
balance of the initial acquisition cost was paid out of the net proceeds of a
public offering of the Company's securities conducted in December 1994. In April
2000, the Company increased its production capacity by leasing a third factory
building and a third workers' dormitory.
The Company also owns two residential properties, one consisting of
approximately 1,000 square feet, located at Lijingge Court, Unit F, 15th Floor,
Hai Li Building, Shenzhen, China, and one consisting of approximately 1,125
square feet located at the 12th floor, Yuk Yui Court, Gui Hua Garden, Shenzhen
Bay, China. Both properties are utilized by management staff and directors when
they require accommodations in China.
On June 18, 1998, the Company purchased Units 12 and 13 on the 3rd floor,
Block A of Sunshine Plaza in Beijing, China for an aggregate purchase price of
$600,999, payable as follows: $383,468 was paid before June 18, 1998; and the
balance of $217,531, plus interest in the amount of $30,241 was paid in monthly
installments and completed in May, 2000. Unit 12 consists of 102.38 square
meters and Unit 13 consists of 172.77 square meters. Both Units are rented to
unaffiliated third parties for an aggregate monthly rental of RMB 21,000, or
approximately US $2,530.
Adequacy of Facilities
Management believes that the Company's manufacturing complex, including its
newly leased space, will be adequate for its reasonably foreseeable needs.
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Item 3. Legal Proceedings
Management is not aware of any legal proceedings contemplated by any
governmental authority involving the Company, its subsidiaries or their
property. No director, officer or affiliate of the Company, or any associate of
a director, officer or affiliate of the Company: (i) is a party adverse to the
Company or its subsidiaries in any legal proceedings; or (ii) has an adverse
interest to the Company or its subsidiaries in any legal proceedings. Except as
described herein, the Company and its subsidiaries are not parties to any legal
proceedings and there are no other material legal proceedings pending with
respect to the property of the Company and its subsidiaries.
Item 4. Control of Registrant.
The Company is not directly or indirectly owned or controlled by any
foreign government or by another corporation. The following table sets forth, as
of July 27, 2000, the beneficial ownership of the Company's common stock by each
person known by the Company to own beneficially more than 10% of the common
stock of the Company outstanding as of such date and by the officers and
directors of the Company as a group. Except as otherwise indicated, all shares
are owned directly.
Person or Group Amount Owned
--------------- ------------
Shares of Options to Purchase Percent of
Common Stock Common Stock Class(1)
------------ ---------------- -------
Anthony So 1,551,195(2) 158,000 29.8%
Officers and directors 1,794,418 228,000 34.9%
as a group (7 persons)
----------------------
(1) Based on beneficial ownership of both shares of common stock and of options
to purchase common stock that are immediately exercisable.
(2) 1,068,421 shares of common stock are owned of record by a corporation that
is wholly owned by a trust of which Mr. So is the sole beneficiary.
There are no arrangements known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.
Item 5. Nature of Trading Market
The Company's common stock and warrants are traded only in the United
States over-the-counter market. The common stock is quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq")
National Market under the trading symbol BNSO; the warrants are quoted under the
trading symbol BNSOZ on the Nasdaq Small Cap Market.
The table set forth below presents the range, on a quarterly basis, of high
and low closing sales prices per share of common stock and per warrant as
reported by Nasdaq for the last two fiscal years and for the first quarter of
the fiscal year ending March 31, 2001. The quotations represent prices between
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<PAGE>
dealers and do not include retail markup, markdown or commissions and may not
necessarily represent actual transactions.
Common Stock
Quarter Ended High Low
------------- ---- ---
Fiscal 1999
-----------
June 30, 1998............................. $11.38 $9.06
September 30, 1998........................ $11.13 $5.13
December 31, 1998......................... $ 6.13 $3.13
March 31, 1999............................ $ 7.50 $5.38
Fiscal 2000
-----------
June 30, 1999............................. $7.94 $5.75
September 30, 1999........................ $7.63 $6.16
December 31, 1999......................... $9.13 $6.88
March 31, 2000............................ $21.38 $7.38
Fiscal 2001
-----------
June 30, 2000............................. $17.75 $10.00
Public Warrants(1)
Fiscal 2000
July 6, 2000 - September 11, 2000(2)...... $0.50 $0.28
----------------------
(1) The Public Warrants were issued in June 2000 pursuant to a warrant dividend
to all record holders at the close of trading on January 19, 2000 of
certain prior warrants, which expired on January 31, 2000, and to all
persons who exercised the prior warrants during the period commencing on
November 22, 1999 and ending at the close of trading on January 19, 2000.
(2) The warrants commenced trading on July 6, 2000.
The 5,712,610 shares of common stock outstanding as of March 31, 2000 were
held by approximately 307 holders of record worldwide, including 302 holders of
record in the United States. Management believes that holders of record hold for
approximately 1,053 beneficial holders.
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<PAGE>
Transfer and Warrant Agent
The transfer agent and registrar for the common stock and the Warrant Agent
for the warrants is U.S. Stock Transfer Corporation, 1745 Gardena Avenue #200,
Glendale, California 91204.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders
There are no exchange control restrictions on payments of dividends on the
Company's common stock or on the conduct of the Company's operations either in
Hong Kong, where the Company's principal executive offices are located, or the
British Virgin Islands, where the Company is incorporated. Other jurisdictions
in which the Company conducts operations may have various exchange controls.
Taxation and repatriation of profits regarding the Company's China operations
are regulated by Chinese laws and regulations. To date, these controls have not
had and are not expected to have a material impact on the Company's financial
results. There are no material British Virgin Islands laws that impose foreign
exchange controls on the Company or that affect the payment of dividends,
interest or other payments to holders of the Company's securities who are not
residents of the British Virgin Islands. British Virgin Islands law and the
Company's Memorandum and Articles of Association impose no limitations on the
right of nonresident or foreign owners to hold or vote the Company's securities.
Item 7. Taxation
Under current British Virgin Islands law, the Company is not subject to tax
on its income. Most of the Company's subsidiaries' profits accrue in Hong Kong,
where the corporate tax rate is currently 16%. There is no tax payable in Hong
Kong on offshore profit or on dividends paid to Bonso Electronics Limited by its
subsidiaries or by Bonso Electronics Limited to the Company. Therefore, the
overall effective tax rate of the Company may be lower than that of most United
States corporations; however, such could be materially and adversely affected by
changes in the tax laws of the British Virgin Islands, Hong Kong or China.
No reciprocal tax treaty regarding withholding exists between the United
States and the British Virgin Islands. Under current British Virgin Islands law,
dividends, interest or royalties paid by the Company to individuals are not
subject to tax as long as the recipient is not a resident of the British Virgin
Islands. If the Company were to pay a dividend, the Company would not be liable
to withhold any tax, but shareholders would receive gross dividends, if any,
irrespective of their residential or national status.
Dividends, if any, paid to any United States resident or citizen
shareholder would be treated as dividend income for United States federal income
tax purposes. Such dividends would not be eligible for the 70%
dividends-received deduction allowed to United States corporations on dividends
from a domestic corporation under Section 243 of the United States Internal
Revenue Code of 1986 (the "Internal Revenue Code"). Various Internal Revenue
Code provisions impose special taxes in certain circumstances on non-United
States corporations and their shareholders. Shareholders of the Company are
urged to consult their tax advisors with regard to such possibilities and their
own tax situation.
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<PAGE>
In addition to United States federal income taxation, shareholders may be
subject to state and local taxes upon their receipt of dividends.
Dividend Policy
The Company has never paid any dividends on its common stock and does not
anticipate paying any dividends in the future. The board of directors has not
adopted a policy with respect to the payment of dividends. The declaration of
cash dividends may be considered by the board of directors from time to time
based on the Company's results of operations. The Company's dividend policy will
be dependent on its net income, financial position and capital requirements
along with economic and market conditions, industry standards and other factors.
In addition, dividend distribution and repatriation of profits or funds from the
Company's operations in China are regulated by Chinese laws and regulations. No
profits are generated from China because the Company's Chinese operations
involve only the manufacture and assembly of its products which are then shipped
to Hong Kong for sale and distribution. No assurance can be given, however, that
such laws will not be interpreted differently in the future, in which case the
Company's ability to pay dividends could be adversely affected. In light of the
above, no assurance can be given as to the amount or timing of future dividend
payments, if any. See Item 6 - "Exchange Controls and Other Limitations
Affecting Security Holders."
Item 8. Selected Financial Data
The selected consolidated financial data set forth below as of March 31,
1999 and 2000 and for each of the three fiscal years in the period ended March
31, 2000 are derived from the audited Consolidated Financial Statements and
notes thereto, which are prepared in accordance with generally accepted
accounting principles in the United States of America in United States dollars,
and which appear elsewhere in this Annual Report. The selected consolidated
financial data set forth below as of March 31, 1996, 1997 and 1998 and for each
of the two fiscal years in the period ended March 31, 1997 have been derived
from the Company's audited consolidated financial statements which do not appear
in this Annual Report. The selected consolidated financial data are qualified in
their entirety by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and related notes and Item 9 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Annual Report.
-25-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
Year ended March 31,
----------------------------------------------------------
Income Statement Data 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands of United States dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $14,248 $16,989 $23,716 $13,046 $15,380
Cost of sales (9,412) (12,096) (17,071) (8,812) (11,118)
------- ------- ------- ------- -------
Gross margin 4,836 4,893 6,645 4,234 4,262
Selling expenses (325) (433) (420) (197) (261)
Salaries and related costs (1,960) (1,973) (1,897) (1,626) (1,899)
Research and development expenses (173) (122) (159) (566) (186)
Administration and general expenses (1,234) (1,609) (1,815) (1,601) (1,646)
Provision for permanent diminution
in value of investment in a joint
venture company (153) -- -- -- --
Net gain on liquidation of a joint venture
company -- 160 -- -- --
------- ------- ------- ------- -------
Income from operations 991 916 2,354 244 270
Interest income 127 64 73 63 130
Interest expenses (607) (532) (503) (445) (261)
Less: Interest capitalized 58 61 46 25 --
------- ------- ------- ------- -------
(549) (471) (457) (420) 139
Foreign exchange (losses)/gains (124) (136) 35 38 14
Other income 76 102 243 53 192
------- ------- ------- ------- -------
Income/(loss) before income taxes 521 475 2,248 (22) 345
Income tax benefit 96 72 27 36 3
------- ------- ------- ------- -------
Income before minority interests 617 547 2,275 14 348
Minority interests (10) -- -- -- --
------- ------- ------- ------- -------
Net income $ 607 $ 547 $ 2,275 $ 14 $ 348
------- ------- ------- ------- -------
Earnings per share - Basic $ 0.21 $ 0.19 $ 0.80 $ 0.0045 $ 0.0989
- Diluted $ 0.21 $ 0.19 $ 0.73 $ 0.0037 $ 0.0874
As of March 31,
---------------------------------------------------------------
Balance Sheet Data 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Working capital $ 3,801 $ 1,663 $ 3,184 $ 3,316 $12,765
Total assets 20,700 20,516 20,647 18,660 33,793
Long-term debt and capital lease
obligations, net of current maturities 744 787 243 42 865
Deferred income taxes(liabilities)/assets (49) 16 74 112 126
Shareholders' equity 11,433 12,142 14,479 14,626 27,022
</TABLE>
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<PAGE>
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under Item 1 - "Description of Business--Special Risk
Factors." The following discussion and analysis should be read in conjunction
with Item 8 - "Selected Financial Data" and the Consolidated Financial
Statements and notes thereto appearing elsewhere in this Annual Report.
Overview
The Company derives its revenues principally from the sale of electronic
scales and electronic consumer and health care products manufactured by it in
China. For the fiscal year ended March 31, 1999, the Company had net sales of
approximately $13,046,000 and net income of approximately $14,000. In the fiscal
year ended March 31, 2000, net sales increased to approximately $15,380,000 and
net income also increased to approximately $348,000.
The Company was operating at full capacity in its prior manufacturing
facility and, in January 1997, it moved its manufacturing operations to a new
facility, which approximately tripled the Company's manufacturing capacity. In
April 2000, the Company leased an additional 90,000 square feet of space at that
facility. Management believes that the Company will be able to increase sales to
take advantage of its increased manufacturing capacity and improve margins and
financial performance. Increased revenue and net income in future periods will
depend on the Company's ability to (i) strengthen its customer base by enhancing
and diversifying its products; (ii) increase the number of its customers; (iii)
expand into additional markets; (iv) maintain or increase sales of its products
to existing customers; (v) increase production; and (vi) control all of its
costs. Although labor costs are increasing in China, the Company's labor costs
continue to represent a relatively small percentage of its total production
costs. Management believes that increased labor costs in China will not have a
significant effect on its total production costs or results of operations, and
that the Company will be able to continue to increase its production at its
manufacturing facility without substantially increasing its non-production
salaries and related costs. In addition, the Company has not experienced
significant difficulties in obtaining raw materials for its products, and
management does not anticipate any such difficulties in the foreseeable future.
Results of Operations
The following table sets forth selected income data as a percentage of net
sales for the periods indicated.
-27-
<PAGE>
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
Income Statement Data 1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales (72.0) (67.5) (72.3)
------ ------ ------
Gross margin 28.0 32.5 27.7
Selling expenses (1.8) (1.5) (1.7)
Salaries and related costs (8.0) (12.5) (12.3)
Research and development expenses (0.7) (4.3) (1.2)
Administration and general expenses (7.6) (12.3) (10.7)
------ ------ ------
Income from operations 9.9 1.9 1.8
Interest income 0.3 0.4 0.8
Interest expense (2.1) (3.4) (1.7)
Less: Interest capitalized 0.2 0.2 --
------ ------ ------
(1.9) (3.2) (1.7)
Foreign exchange gains 0.2 0.3 0.1
Other income 1.0 0.4 1.2
------ ------ ------
Income before income taxes 9.5 (0.2) 2.2
Income tax benefit 0.1 0.3 --
Net income 9.6% 0.1% 2.2%
====== ====== ======
</TABLE>
Fiscal year ended March 31, 2000 compared to fiscal year ended March 31, 1999
Net Sales. The Company's sales increased 17.9% from approximately
$13,046,000 for the fiscal year ended March 31, 1999, to approximately
$15,380,000 for the fiscal year ended March 31, 2000, primarily as a result of
increased orders from various existing and new customers.
Gross Margin. Gross margin decreased from 32.5% to 27.7% primarily due to
the startup costs associated with telecommunications contracts that were
expensed.
Selling Expenses. Selling expenses increased by 32.5% from approximately
$197,000 for the fiscal year ended March 31, 1999 to approximately $261,000 for
the fiscal year ended March 31, 2000. This increase was attributable primarily
to the increase in sales.
Salaries and Related Costs. Salaries and related costs increased by 16.8%
from approximately $1,626,000 for the fiscal year ended March 31, 1999 to
approximately $1,899,000 for the fiscal year ended March 31, 2000. This increase
was primarily due to increases in administrative staff to catch up with the
diversification in business segments.
Research and Development. Research and development expenses decreased 67.1%
from approximately $566,000 during the fiscal year ended March 31, 1999 to
approximately $186,000 for the fiscal year ended March 31, 2000. Research and
development cost decreased due to the maturation of most development projects in
1998 and the write off of expenses for a telephone project during the year ended
March 31, 1999.
Administration and General Expenses. Administration and general expenses
remained relatively stable with an insignificant increase for the fiscal year
ended March 31, 2000 compared to the fiscal year ended March 31,1999.
Income from Operations. As a net result of the above changes, Income from
operations also remained relatively unchanged, increasing slightly from
approximately $244,000 for the fiscal year ended March 31, 1999 to approximately
$270,000 for the fiscal year ended March 31, 2000.
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<PAGE>
Other Income. Other income increased 262.3% from approximately $53,000 for
the fiscal year ended March 31, 1999 to approximately $192,000 for the fiscal
year ended March 31, 2000. This increase was primarily a result of sales of
scrap of $116,000.
Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of
approximately $38,000 for the fiscal year ended March 31, 1999 and a gain of
approximately $14,000 for the fiscal year ended March 31, 2000. This difference
was primarily attributable to the difference between the pegged exchange rate
and the actual transaction rate.
Interest Income and Interest Expenses. Interest expenses, net of interest
income decreased by 65.7% from approximately $382,000 in the fiscal year ended
March 31, 1999 to approximately $131,000 in the fiscal year ended March 31,
2000, as a result of reduced bank borrowings due to improvements in cash flow.
Net Income. As a net result of the above changes, net income increased from
the fiscal year ended March 31, 1999 compared to the fiscal year ended March 31,
2000 by approximately $334,000.
Fiscal year ended March 31, 1999 compared to fiscal year ended March 31, 1998
Net Sales. The Company's sales decreased 45.0% from $23,715,576 for the
fiscal year ended March 31, 1998, to $13,046,265 for the fiscal year ended March
31, 1999, primarily as a result of decreased orders from two major customers and
from various smaller customers of the Company.
Gross Margin. Gross margin increased from 28.0% to 32.5% primarily due to
the fact that the Company was able to utilize existing inventory by modifying it
to fill orders and the fact that the Company manufactured over 80% of the strain
gauges which it used in its products. Implementation of a "just-in-time"
inventory system, which resulted in a reduction in inventory, also contributed
to this increase.
Selling Expenses. Selling expenses decreased by 53.1% from $419,755 for the
fiscal year ended March 31, 1998 to $196,974 for the fiscal year ended March 31,
1999. This decrease was attributable primarily to the decrease in sales.
Salaries and Related Costs. Salaries and related costs decreased by 14.3%
from $1,897,412 for the fiscal year ended March 31, 1998 to $1,625,731 for the
fiscal year ended March 31, 1999. This decrease was primarily due to the
Company's efforts to control the number of employees in light of the reduction
in orders from two major customers as well as a temporary reduction in
management's salaries.
Research and Development. Research and development expenses increased
256.7% from $158,706 during the fiscal year ended March 31, 1998 to $566,030 for
the fiscal year ended March 31, 1999, primarily as a result of the Company's
increased emphasis on developing new products to diversify its customer base and
particularly the expenditure of $392,454 on development of the Company's
proposed cordless telephone.
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<PAGE>
Administration and General Expenses. Administration and general expenses
decreased by 11.8% from $1,814,535 for the fiscal year ended March 31, 1998, to
$1,601,186 for the fiscal year ended March 31, 1999. This decrease was
attributable primarily to various cost saving programs such as negotiating with
the owner of the Universal Industrial Centre property for a reduction of rental
expenses. The Company subsequently purchased its office space in an attempt to
control this expense in the long run.
Income from Operations. Income from operations decreased by 89.6% from
$2,354,079 for the fiscal year ended March 31, 1998 to $244,171 for the fiscal
year ended March 31, 1999, primarily as a result of reduced sales and a
resulting increase in research and development efforts.
Other Income. Other income decreased by 78.3% from $242,669 for the fiscal
year ended March 31, 1998 to $52,662 for the fiscal year ended March 31, 1999,
primarily as a result of reduced orders for scrap and increased efficiency which
resulted in a reduction of scrap for resale.
Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of
$35,187 for the fiscal year ended March 31, 1998 and a gain of $37,882 for the
fiscal year ended March 31, 1999. This difference was primarily attributable to
the difference between the pegged exchange rate and the actual transaction rate.
Interest Expenses. Interest expenses decreased by 8.1% from $457,838 in the
fiscal year ended March 31, 1998 to $420,536 in the fiscal year ended March 31,
1999, as a result of reduced bank borrowings.
Income Taxes. The Company received an income tax credit of $27,117 for the
fiscal year ended March 31, 1998 and $36,087 for the fiscal year ended March 31,
1999. The increase in tax credit is basically due to approved tax losses of
certain of the Company's subsidiaries during the year.
Net Income. Net income decreased by 99.4% from $2,274,645 for the fiscal
year ended March 31, 1998 to $13,754 for the fiscal year ended March 31, 1999,
primarily as a result of decreased turnover and the other factors described
above.
Fiscal year ended March 31, 1998 compared to fiscal year ended March 31, 1997
Net Sales. The Company's sales increased 39.6% from $16,989,019 for the
fiscal year ended March 31, 1997, to $23,715,576 for the fiscal year ended March
31, 1998, primarily as a result of increased orders received from two major
customers. Increased shipments to the Company's two largest customers accounted
for 32.6% of the net increase in sales. The addition of new products also
contributed to the increase in net sales. A new model built-in scale and glass
body scale accounted for approximately 2.4% of the net increase, and the balance
of 4.6% is the result of increased orders from various existing customers.
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<PAGE>
Gross Margin. Gross margin decreased from 28.8% to 28.0% primarily due to
increased production costs and decreased selling prices for certain products.
Selling Expenses. Selling expenses decreased by 3.0% from $432,518 for the
fiscal year ended March 31, 1997 to $419,755 for the fiscal year ended March 31,
1998. This decrease was attributable primarily to better control over freight
costs by shipping out larger lots of goods.
Salaries and Related Costs. Salaries and related costs decreased by 3.9%
from $1,973,021 for the fiscal year ended March 31, 1997 to $1,897,412 for the
fiscal year ended March 31, 1998. This decrease was primarily due to the
Company's efforts to control the number of employees.
Research and Development. Research and development expenses increased 29.8%
from $122,263 during the fiscal year ended March 31, 1997 to $158,706 for the
fiscal year ended March 31, 1998, primarily as a result of the increase in new
product development, such as a series of low profile body scales, a generic LCD
scale and a new pocket scale.
Administration and General Expenses. Administration and general expenses
increased by 12.8% from $1,609,217 for the fiscal year ended March 31, 1997, to
$1,814,535 for the fiscal year ended March 31, 1998. This increase was
attributable primarily to a write-off of deposits on property in the amount of
$78,436 and an increase in depreciation expense of $134,401 as a result of
placing additional depreciable assets into service.
Income from Operations. Income from operations increased by 157.1% from
$915,569 for the fiscal year ended March 31, 1997 to $2,354,079 for the fiscal
year ended March 31, 1998, primarily as a result of the factors described above.
Other Income. Other income increased by 138.3% from $101,843 for the fiscal
year ended March 31, 1997 to $242,669 for the fiscal year ended March 31, 1998,
primarily as a result of increased assembly subcontracting work for a third
party.
Foreign Exchange Losses/Gains. Foreign exchange rates produced a loss of
$135,780 for the fiscal year ended March 31, 1997 and a gain of $35,187 for the
fiscal year ended March 31, 1998. This difference was primarily attributable to
the difference between the pegged exchange rate and actual transaction rate.
Interest Expenses. Interest expenses decreased by 2.7% from $470,655 in the
fiscal year ended March 31, 1997 to $457,838 in the fiscal year ended March 31,
1998, as a result of reduced bank borrowings.
Income Taxes. The Company received an income tax credit of $71,368 for the
fiscal year ended March 31, 1997 and $27,117 for the fiscal year ended March 31,
1998. The decrease in tax credit is basically due to the increase in tax expense
of $35,926
Net Income. Net income increased by 316.2% from $546,589 for the fiscal
year ended March 31, 1997 to $2,274,645 for the fiscal year ended March 31, 1998
primarily as a result of increased turnover, better control of administrative
overhead and other factors described above.
-31-
<PAGE>
Seasonality
The first calendar quarter of each year is typically the slowest sales
period as the Company's manufacturing facilities in China are closed for two
weeks for Chinese New Year holidays to permit employees to travel to their homes
in China. Throughout the remainder of the year, the Company's products do not
appear to be subject to significant seasonal variation.
Employee incentive compensation is conditioned on the employee's return to
work following the Chinese New Year and is paid to employees following the
reopening of the factory after the holidays. Management believes that this
method has resulted in lower employee turnover than might otherwise have
occurred.
Liquidity and Capital Resources
The Company has traditionally relied on borrowings to meet its working
capital requirements. These borrowings have been supplemented by internally
generated funds and trade credits from suppliers. As of March 31, 2000, the
Company had in place general banking facilities with three financial
institutions aggregating $8,358,975. Such facilities include the ability to
obtain overdrafts, letters of credit, notes payable, short-term loans and
fixed-term loans. As of March 31, 2000, the Company had utilized $2,207,745
under its general banking facilities. Interest on this indebtedness fluctuates
with the prime rate and HIBOR as set by the Hong Kong Bankers Association. The
bank credit facilities are collateralized by certain bank deposits of the
Company, by the Company's real property located at Savanna Garden in Hong Kong,
by the Company's office space in Fo Tan and by a bank guarantee in the amount of
$150,000. The Company's bank credit facilities are due for renewal annually.
Management of the Company anticipates that the banking facilities will be
renewed on substantially the same terms. Excluding the current portion of long
term debt and capital lease obligations, the amounts of total short-term bank
borrowings outstanding as of March 31, 2000 and 1999 were 1,441,328 and
$1,944,756, respectively. During the fiscal year ended March 31, 2000, the
Company paid a total of $261,288 in interest on indebtedness.
Operating activities provided $1,601,248 of net cash for the fiscal year
ended March 31, 2000 compared to $2,644,612 of net cash for the fiscal year
ended March 31, 1999. The decrease from the fiscal year ended March 31, 1999 to
the fiscal year ended March 31, 2000 was primarily due to increases in
receivables and inventory offset by increases in accounts payable. Investing
activities used $ 4,908,580 of net cash for the fiscal year ended March 31, 2000
and used $926,312 of net cash for the fiscal year ended March 31, 1999. The
increase in net cash used in investing activities from the fiscal year ended
March 31, 1999 to the fiscal year ended March 31, 2000 was primarily due to an
increase in the acquisition of property, plant and equipment as well as an
increase in restricted cash deposits. Financing activities provided $10,996,598
of net cash for the fiscal year ended March 31, 2000 and used $1,892,619 for the
fiscal year ended March 31, 1999. This net increase in cash provided was
primarily due to the issuance of shares of common stock upon the exercise of
warrants and options.
As of March 31, 2000, the Company had $7,959,404 in cash and cash
equivalents as opposed to $271,447 as of March 31, 1999. There are no other
material unused sources of liquid assets. The Company believes that there are no
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<PAGE>
material restrictions (including foreign exchange controls) on the ability of
the Company's subsidiaries to transfer funds to the Company in the form of cash
dividends, loans, advances or product/material purchases.
The Company's current ratio (current assets divided by current liabilities)
increased from 1.83 as of March 31, 1999 to 3.16 as of March 31, 2000. Its quick
ratio (cash and cash equivalents, restricted cash deposits and receivables
divided by current liabilities) increased from 0.65 as of March 31, 1999 to 2.11
as of March 31, 2000.
As of March 31, 2000, the Company had contingent liabilities to banks for
outstanding letters of credit of $766,417 as opposed to $114,601 as of March 31,
1999, and a shipping guarantee of $19,340 (none as of March 31, 1999).
Impact of Inflation
Management believes that inflation has not had a material effect on its
business between 1999 and 2000. The Company has generally been able to modify
and improve its product designs so that it could either increase the prices of
its products or lower the production cost in order to keep pace with inflation.
All of the Company's manufacturing is being done in China, and China is
experiencing deflation. If such trend continues, the Company could incur
decreased labor costs with regard to its Chinese operations, resulting in lower
production costs. Although the costs to the Company of components used in the
manufacture of its products have been relatively stable, management believes
that any possible significant increase in material costs would affect the entire
electronics industry and thus would not have a negative material impact on the
Company's competitive position.
Taxation
Under current British Virgin Islands law, the Company is not subject to tax
on its income. Most of the Company's profits accrue in Hong Kong, where the
corporate tax rate is currently 16%. There is no tax payable in Hong Kong on
offshore profit or on dividends paid to Bonso Electronics Limited by its
subsidiaries or by Bonso Electronics Limited to the Company. Therefore, the
overall effective tax rate of the Company may be lower than that of most United
States corporations; however, such could be materially and adversely affected by
changes in the tax laws applicable to the Company.
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<PAGE>
Exchange Rates
The Company sells most of its products to international customers. The
Company's principal export markets are North America (mainly the United States),
Europe (mainly Germany) and Asia. Other markets are other European countries
(such as the United Kingdom), Australia and Africa. Sales to international
customers are made directly from the Company to its customers. The Company sells
all of its products in United States dollars and pays for its material
components principally in United States and Hong Kong dollars. A very small
portion of the components used by the Company are paid for in Japanese yen. Most
factory expenses incurred by the Company are paid in Chinese renminbi. Because
the Hong Kong dollar is pegged to the United States dollar, the only material
foreign exchange risk to the Company arises from potential fluctuations in the
Chinese renminbi; however, the Chinese renminbi was very stable in the past
fiscal year and it is unlikely that there will be material fluctuations in the
coming year. The Company does not currently engage in hedging transactions, and
does not intend to do so in the future.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued certain pronouncements
that are effective as indicated below with respect to the fiscal years presented
in the consolidated financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for fiscal years beginning after June 15, 1999.
Restatement of disclosures for earlier periods provided for comparative purposes
is required. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Subsequent to the issuance of SFAS No. 133, the Financial Accounting standards
Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" which
defers the effective date of SFAS No. 133 to periods beginning after June 15,
2000. Moreover, the Financial Accounting Standard Board also issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
activities - an Amendment of SFAS No. 133" which amends the accounting and
reporting standards of Statement 133 for certain derivative instruments and
certain hedging activities.
The Company has evaluated the disclosure requirements in respect of the new
SFAS statements issued recently and believes that implementation of the new
standards will have no impact on its results of operations and financial
position.
Item 10. Directors and Officers of Registrant
The directors and executive officers of the Company are as follows:
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<PAGE>
Name Age Position with the Company
---- --- -------------------------
Anthony So 56 President, Chief Executive Officer,
Secretary, Treasurer, Chief Financial
Officer, Chairman of the Board and
Director
Kim Wah Chung 42 Director of Engineering and Research
and Development and Director
Cathy, Kit Teng Pang 37 Director of Finance and Director
Henry F. Schlueter 49 Assistant Secretary
Woo-Ping Fok 51 Director
George O'Leary 62 Director
J. Stewart Jackson, IV 64 Director
ANTHONY SO is the founder of the Company. He has been President, Chairman
of the board of directors and Treasurer of the Company since its inception and
has been Secretary of the Company since July 1991. Mr. So received his BSE
degree in civil engineering from National Taiwan University in 1967 and a
masters degree in business administration ("MBA") from the Hong Kong campus of
the University of Hull, Hull, England in 1994. Mr. So has been Chairman of the
Hong Kong GO Association since 1986, and also served as Chairman of the Alumni
Association of National Taiwan University for the 1993-1994 academic year. Mr.
So has served as a trustee of the Chinese University of Hong Kong, New Asia
College since 1994.
KIM WAH CHUNG has been a director of the Company since September 21, 1994.
Mr. Chung has been employed by the Company since 1981 and currently holds the
position of Director of Engineering and Research and Development. Mr. Chung is
responsible for all research projects and product development of the Company.
Mr. Chung's entire engineering career has been spent with the Company, and he
has been involved with every major product development made by the Company. Mr.
Chung was graduated with honors in 1981 from the Chinese University of Hong Kong
with a Bachelor of Science degree in electronics.
CATHY, KIT TENG PANG has been a director of the Company since January 1,
1998. Ms. Pang was first employed by the Company as Financial Controller in
December 1996 and was promoted to Director of Finance on April 1, 1998. Ms. Pang
was employed as an auditor in an international audit firm from 1987 to 1991, at
which time she joined a Hong Kong Listed company in the field of magnetic
industry as Assistant Financial Controller. From 1994 until she joined the
Company in 1996, she was employed as Deputy Chief Accountant in a management and
property development company in Hong Kong and China. Ms. Pang has a Bachelor of
Business Administration degree from York University in Toronto, Canada. She is a
member of the American Institute of Certified Public Accountants and of the Hong
Kong Society of Accountants.
HENRY F. SCHLUETER has served as Assistant Secretary of the Company since
October 6, 1988. Since 1992, Mr. Schlueter has been the managing director of
Schlueter & Associates, P.C., a law firm, practicing in the areas of securities,
mergers and acquisitions, finance and corporate law. From 1989 to 1991, prior to
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<PAGE>
establishing Schlueter & Associates, P.C., Mr. Schlueter was a partner in the
Denver, Colorado office of Kutak Rock (formerly Kutak, Rock & Campbell), and
from 1984 to 1989, he was a partner in the Denver office of Nelson & Harding.
Mr. Schlueter is a member of the American Institute of Certified Public
Accountants, the Colorado Society of CPA's, the Colorado and Denver Bar
Associations and the Wyoming State Bar. Mr. Schlueter received his law degree
from the University of Wyoming College of Law in 1978.
WOO-PING FOK was elected to the board of directors of the Company on
September 21, 1994. Mr. Fok and his firm, Norman M.K. Yeung & Co., have served
as Hong Kong counsel to the Company since 1993. Mr. Fok was admitted to the
Canadian Bar as a Barrister & Solicitor in December 1987 and was a partner in
the law firm of Woo & Fok, a Canadian law firm with its head office in Edmonton,
Alberta, Canada. In 1991, Mr. Fok was qualified to practice as a Solicitor of
England & Wales, a Solicitor of Hong Kong and a Barrister & Solicitor of
Australian Capital Territory. Mr. Fok practices law in Hong Kong and is a
partner with Norman M.K. Yeung & Co. Mr. Fok's major areas of practice include
conveyancing or real property law, corporations and business law, commercial
transactions and international trade with a special emphasis in China trade
matters.
GEORGE O'LEARY has been a director of the Company since January 1997. From
November 1994 to the present time, Mr. O'Leary has been President of Pacific Rim
Products, Newport Beach, California, a trading company that provides offshore
sourcing alternatives to U.S. based electronics companies. For eight years prior
to 1994, Mr. O'Leary was President, CEO and a director of Micro General
Corporation, Santa Ana, California, a manufacturer and distributor of mechanical
and electronic scale products. For eight years prior to that, Mr. O'Leary was
Vice President and General Manager of Lanier Business Products, Atlanta,
Georgia, a manufacturer and distributor of office products. Mr. O'Leary has a
Bachelor of Science degree in Electrical Engineering from Northeastern
University, Boston, Massachusetts.
J. STEWART JACKSON IV has been a director of the Company since January 10,
2000. From 1962 until its merger with Republic Industries in 1996, Mr. Jackson
served in various management capacities, including president, of Denver Burglar
Alarm Co., Inc., a business founded by his family. In addition, in the
mid-1960's, Mr. Jackson founded Denver Burglar Alarm Products, a separate
company which invented, patented, manufactured, distributed and installed
contained ionization smoke detectors and which was later sold to a conglomerate
manufacturer. After the merger of Denver Burglar Alarm Co., Inc., Mr. Jackson
founded Jackson Burglar Alarm Co., Inc., of which he is currently president. Mr.
Jackson served on the advisory board of directors for Underwriter's Laboratories
for burglar and fire alarm systems for 25 years and has been an officer in the
Central Station Protection Association, which, along with the National Burglar
Alarm Association, was formed by his family in the late 1940's. Mr. Jackson was
graduated from the University of Colorado in 1962 with a degree in Business
Management and Engineering.
No arrangement or understanding exists between any such director or officer
and any other persons pursuant to which any director or executive officer was
elected as a director or executive officer of the Company. The directors of the
Company are elected annually and serve until their successors take office or
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<PAGE>
until their death, resignation or removal. The executive officers serve at the
pleasure of the board of directors of the Company.
Item 11. Compensation of Directors and Officers .
Executive Officers and Directors
The following table sets forth certain information as to the compensation
paid to certain of the Company's executive officers and directors and for all
directors and executive officers as a group for the year ended March 31, 2000:
<TABLE>
<CAPTION>
Cash Non-Cash
Name of Individual Capacities in Which Served Compensation Compensation
------------------ -------------------------- ------------ ------------
<S> <C> <C> <C>
Anthony So President, Chief Executive Officer,
Secretary, Treasurer, Chief Financial
Officer, Chairman of the Board and
Director $ 458,333(1) $ 95,385(1)
Kim Wah Chung Director of Engineering and Research
and Development and Director $ 74,872(2) $ 53,982(2)
Cathy Pang Director of Finance and Director $ 99,167(3) $ 4,577(3)
Kam Sun Luk Director of New Projects and
Quality Control and Director $ 100,000(4) $ 6,923(4)
Henry F. Schlueter Assistant Secretary $ 0 $ 0
Woo Ping Fok Director $ 0 $ 0
George O'Leary Director $ 136,286(5) $ 0
J. Stewart Jackson IV Director $ 0 $ 0
All directors and
officers as a group (8 persons) (6) $ 868,658 $ 160,867
----------------------
</TABLE>
(1) Cash compensation consists of emoluments of $458,333. Non-cash compensation
consists of a $15,385 contribution to the Company's Provident Fund Plan and
the value of housing provided to Mr. So valued at $80,000 during fiscal
2000. See "Provident Fund Plan," below, and Item 13 - "Interest of
Management in Certain Transactions."
(2) Cash compensation consists of emoluments of $74,872. Non-cash compensation
consists of a $10,462 contribution to the Company's Provident Fund Plan,
life insurance of $5,058 and a housing allowance of $38,462. See "Provident
Fund Plan," below, and Item 13 - "Interest of Management in Certain
Transactions."
(3) Cash compensation consists of emoluments of $99,167. Non-cash compensation
consists of a $4,577 contribution to the Company's Provident Fund Plan. See
"Provident Fund Plan," below.
(4) Cash compensation consists of emoluments of $100,000. Non-cash compensation
consists of a $6,923 contribution to the Company's Provident Fund Plan. Mr.
Luk resigned as an officer and director of the Company effective April 3,
2000. See "Provident Fund Plan," below.
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<PAGE>
(5) Consists of payments made pursuant to a sales commission arrangement with
the Company. See Item 13 - "Interest of Management in Certain
Transactions."
(6) Includes Mr. Kam Sun Luk who resigned as an officer and director of the
Company effective April 3, 2000.
The Company did not set aside or accrue any amounts to provide pension,
retirement or similar benefits for directors and officers for the fiscal year
ended March 31, 2000, other than contributions to the Company's Provident Fund
Plan which aggregated $37,347 for officers and directors during the fiscal year
ended March 31, 2000.
Directors
Directors do not receive any additional monetary compensation for serving
as directors of the Company. However, outside directors receive stock options
pursuant to the 1996 Non-Employee Directors' Stock Option Plan and have been
granted other options. (See "Stock Option Plans--The 1996 Non-Employee
Directors' Stock Option Plan," below, and Item 12 - "Options to Purchase
Securities from Registrant or Subsidiaries.") All directors are reimbursed for
all reasonable expenses incurred in connection with services as a director.
Provident Fund Plan
On January 1, 1988, the Company started a provident fund plan with a major
international assurance company to provide life insurance and retirement
benefits to its employees. All permanent full-time employees, excluding
employees of the China subsidiary, are eligible to join the plan.
Each participant is required to contribute 5% of his salary, which amount
is deducted monthly from the participant's salary. The contribution by the
Company is either 5%, 7.5% or 10% of the participant's salary, depending on
whether the length of the participant's service is less than five years, between
five and ten years or more than ten years, respectively.
At normal retirement age or "ill health" (defined essentially as
disability), the participant is entitled to receive from the plan a lump sum
equal to the total of the participant's and the Company's balances. On
resignation prior to normal retirement age, a participant is entitled to receive
from the plan a lump sum equal to his balance plus a percentage of the
employer's balance determined in accordance with a predetermined scale. Upon the
death of a participant, the benefit (calculated as at normal retirement age) is
paid to the employer to be held in trust for the participant's beneficiaries and
paid to them as the employer determines.
The Company's aggregate contributions to the Provident Fund Plan for the
years ended March 31, 1998, 1999 and 2000 amounted to $45,227, $54,046 and
$64,921, respectively.
-38-
<PAGE>
Stock Option Plans
The 1996 Stock Option Plan
In October 1996, the stockholders of the Company adopted the 1996 Stock
Option Plan (the "Employees' Plan") which provides for the grant of options to
purchase an aggregate of not more than 400,000 shares of the Company's common
stock. In January 2000, the shareholders of the Company approved the proposal of
the board of directors to increase from 400,000 to 900,000 in the aggregate the
number of options to purchase common stock of the Company under the Employees'
Plan. The purpose of the Employees' Plan is to make options available to
management and employees of the Company in order to encourage them to secure or
increase on reasonable terms their stock ownership in the Company and to
encourage them to remain in the employ of the Company.
The Employees' Plan will be administered by a committee appointed by the
board of directors which determines the persons to be granted options under the
Employees' Plan, the number of shares subject to each option, the exercise price
of each option and the option period, subject to the requirement that no option
may be exercisable more than 10 years after the date of grant. The exercise
price of an option may be less than fair market value of the underlying shares
of common stock. No options granted under the Employee Plan will be transferable
by the optionee other than by will or the laws of descent and distribution and
each option will be exercisable, during the lifetime of the optionee, only by
such optionee.
The exercise price of an option granted pursuant to the Employees' Plan may
be paid in cash, by the surrender of options, in common stock, in other
property, including the optionee's promissory note, or by a combination of the
above.
The 1996 Non-Employee Directors' Stock Option Plan
In October 1996, the stockholders of the Company adopted a 1996
Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors' Plan")
which provides for the grant of options to purchase an aggregate of not more
than 100,000 shares of the Company's common stock. In January 2000, the
shareholders of the Company approved the proposal of the board of directors to
increase from 100,000 to 600,000 in the aggregate the number of options to
purchase common stock of the Company under the Non-Employee Directors' Plan. The
purpose of the Non-Employee Directors' Plan is to promote the long-term success
of the Company by creating a long-term mutuality of interests between the
non-employee directors and the stockholders of the Company, to provide an
additional inducement for such directors to remain with the Company and to
provide a means through which the Company may attract able persons to serve as
directors of the Company. The Non-Employee Directors' Plan will be administered
by a committee (the "Committee") appointed by the board of directors.
Under the Non-Employee Directors' Plan, on the third business day following
each Annual Meeting of the stockholders, each director who is not then an
employee of the Company or any of its subsidiaries will automatically be granted
a stock option to purchase 10,000 shares of common stock. The exercise price of
all options granted under the Non-Employee Directors' Plan will be equal to the
fair market value of the underlying shares on the date of grant, based on
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<PAGE>
guidelines set forth in the Non-Employee Directors' Plan. The exercise price may
be paid in cash, by the surrender of options, in common stock, in other
property, including the optionee's promissory note, or by a combination of the
above. The term of each option granted pursuant to the Non-Employee Directors'
Plan will be ten years from the date of grant; however, no such option may be
exercised during the first six months of its term. The term of an option granted
pursuant to the Non-Employee Directors' Plan may be reduced in the event that
the optionee ceases to be a director of the Company. No option granted pursuant
to the Non-Employee Directors' Plan will be transferable otherwise than by will
or the laws of descent and distribution.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries.
On January 5, 2000, the Company declared a warrant dividend payable to all
record holders of the Company's warrants at the close of trading on January 19,
2000, and to all persons who exercised their warrants during the period
commencing on November 22, 1999 and ending at the close of trading on January
19, 2000. The warrant dividend and January 19, 2000 record date were publicly
announced in a press release. Each two warrants are exercisable to purchase one
share of the Company's common stock at an exercise price of $17.50 per share.
The warrants are exercisable any time prior to 2:00 p.m. (Pacific Time) on
December 31, 2001, unless extended by the board of directors. The warrants are
redeemable by the Company upon 30 days notice at a redemption price of $.01 per
warrant but only if the public trading price for the Company's common stock
equals or exceeds 110% of the then-current exercise price of the warrants for 20
trading days within the preceding 30 trading days. There are 2,174,403 warrants
issued and outstanding, which are exercisable to purchase an aggregate of
1,087,201 shares of the Company's common stock.
The exercise price of the warrants as described above is wholly arbitrary
and there is no assurance that the price of the common stock will, at any time,
equal or exceed the exercise price of the warrants. The warrants can be
exercised only if a current prospectus is in effect, and if the Company is in
compliance with applicable state securities laws.
Options
The following table sets forth all options to purchase common stock granted
by the Company which are outstanding as of the date of this Annual Report.
Number of Exercise Price Expiration
Options per Share Date
------- --------- ----
10,000 $5.06 September 8, 2007
241,700 $8.00 January 6, 2010
20,000 $8.125 January 12, 2010
Item 13. Interest of Management in Certain Transactions.
Over the years, the Company has provided to and received cash advances from
its officers and directors. In October 1994, the board of directors adopted a
policy resolution prohibiting the Company from making any loan or advance of
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<PAGE>
money or property, or guaranteeing the obligation of any directors of the
Company, and limiting the Company's ability to make such loans, advances or
guarantees to officers of the Company or its subsidiaries unless a majority of
independent, disinterested outside directors determine that such loan, advance
or guarantee may reasonably be expected to benefit the Company. Further, all
future material affiliated transactions, loans and loan guarantees, if any, will
be made on terms that are no less favorable to the Company than those that are
generally available from unaffiliated third parties. The Company has neither
provided nor received any cash advances to it officers or directors since this
policy resolution was adopted.
It is common practice in Hong Kong, the location of the Company's principal
executive offices, to provide a housing allowance or living accommodations for
senior executives as part of their compensation. The Company provides Mr.
Anthony So with living accommodations consisting of a Company-owned townhouse,
for which the Company paid a total purchase price of approximately $1,337,000.
The Company valued this benefit at $80,000 during the fiscal year ended March
31, 2000. The Company also provides Mr. Kim Wah Chung, its Director of
Engineering and Research and Development and a director of the Company, with a
housing allowance that amounted to $38,462 during the fiscal year ended March
31, 2000.
Mr. George O'Leary, a director of the Company, is paid a commission on
orders placed by customers which he obtains for the Company. The amount of the
commission is negotiated on a deal-by-deal basis, without a written agreement.
During the fiscal years ended March 31, 1999 and 2000, Mr. O'Leary was paid an
aggregate of $115,342 and $136,286, respectively, in commissions.
PART II
-------
Item 14. Description of Securities to be Registered.
Not applicable.
PART III
--------
Item 15. Defaults Upon Senior Securities.
Not applicable.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
The Company's warrants, which were issued in 1994, expired as of January
31, 2000.
PART IV
-------
Item 17. Financial Statements.
Not applicable.
-41-
<PAGE>
Item 18. Financial Statements.
Reference is made to Item 19(a) for a list of all financial statements
filed as part of this Annual Report on Form 20-F.
Item 19. Financial Statements and Exhibits.
(a) The following Financial Statements are filed as part of this
Annual Report:
Page
----
Index to Consolidated Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of March 31, 1999 and 2000 F-3
Consolidated Statements of Comprehensive Income for the years F-4
ended March 31, 1998, 1999 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the F-5
years ended March 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended F-6
March 31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements F-7 through 27
(b) The following Exhibits are filed as part of this Annual Report:
Exhibit No. Description
----------- -----------
10.3 Assignment from Pompon Limited to Bonso Investment Limited
dated July 14, 2000 of real property located at Units
1106-1110, Star House, 3 Salisbury Road, Tsimshatsui,
Kowloon, Hong Kong
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BONSO ELECTRONICS INTERNATIONAL INC.
Date __________________ By: /s/ Anthony So
---------------------------------
Anthony So, President
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<PAGE>
Consolidated Financial Statements
Bonso Electronics International Inc.
(Incorporated in the British Virgin Islands)
and Subsidiaries
March 31, 2000
PricewaterhouseCoopers
Independent Accountants
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Index to Consolidated Financial Statements
Contents Pages
Report of Independent Accountants...........................................F-2
Consolidated Balance Sheets as of March 31, 1999 and 2000...................F-3
Consolidated Statements of Comprehensive Income for the
years ended March 31, 1998, 1999 and 2000...................................F-4
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1998, 1999 and 2000...................................F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1999 and 2000...............................................F-6
Notes to Consolidated Financial Statements...........................F-7 to F-27
F-1
<PAGE>
Report of Independent Accountants
---------------------------------
Board of Directors and Shareholders
Bonso Electronics International Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bonso
Electronics International Inc. and Subsidiaries (the "Group") as of March 31,
1999 and 2000 and the related consolidated statements of comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended March 31, 2000. These consolidated financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly the financial position of the Group as of March 31, 1999 and 2000 and the
results of their operations and cash flows for each of the three years in the
period ended March 31, 2000, in conformity with generally accepted accounting
principles in the United States of America.
PricewaterhouseCoopers
Hong Kong
F-2
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Consolidated Balance Sheets
(Expressed in United States Dollars)
March 31
---------------------------
1999 2000
$ $
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents 271,447 7,959,404
Restricted cash deposits (Note 7) 1,011,688 2,071,952
Trade receivables, net (Note 2) 362,236 1,661,050
Inventories, net (Note 3) 4,697,928 6,192,611
Notes receivable 690,449 525,175
Income taxes recoverable -- 112
Deferred income tax assets - current (Note 5(d)) 31,251 24,802
Other receivables, deposits and prepayments 243,231 235,851
----------- -----------
Total current assets 7,308,230 18,670,957
----------- -----------
Deposits (Note 10(b)) -- 398,147
Deferred income tax assets - non current (Note 5(d)) 81,223 101,570
Property, plant and equipment
Leasehold land and buildings 8,997,073 9,922,677
Plant and machinery 3,495,632 7,176,310
Molds 2,112,608 2,113,066
Furniture, fixtures and equipment 2,661,718 2,938,724
Motor vehicles 306,979 304,869
----------- -----------
17,574,010 22,455,646
Less: accumulated depreciation and amortization (6,303,179) (7,833,604)
----------- -----------
Net property, plant and equipment 11,270,831 14,622,042
----------- -----------
Total assets 18,660,284 33,792,716
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts (Note 7) 643,278 --
Notes payable (Note 7) 581,349 819,099
Accounts payable 1,135,910 3,028,023
Accrued charges and deposits 516,458 882,839
Income taxes payable 11,667 --
Short-term loans (Note 7) 720,129 622,229
Current portion of long-term debt and capital lease obligations
(Notes 4 and 6(a)) 383,409 553,467
----------- -----------
Total current liabilities 3,992,200 5,905,657
----------- -----------
Long-term debt and capital lease obligations, net of current
maturities (Notes 4 and 6(a)) 42,397 864,798
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 8(b), 13 and 14)
Common stock par value $0.003 per share
- authorized shares - 23,333,334
- issued and outstanding shares - 5,712,610 9,353 17,133
Additional paid-in capital 10,285,105 22,325,500
Promissory note receivable from shareholder (Note 8(b)) (1,430,000) (1,430,000)
Retained earnings 5,525,958 5,873,656
Accumulatd other comprehensive income 235,271 235,972
----------- -----------
14,625,687 27,022,261
=========== ===========
Total liabilities and shareholders' equity 18,660,284 33,792,716
=========== ===========
See notes to these consolidated financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Expressed in United States Dollars)
1998 1999 2000
$ $ $
<S> <C> <C> <C>
Net sales (Note 15) 23,715,576 13,046,265 15,380,286
Cost of sales 17,071,089 8,812,173 11,117,922
----------- ----------- -----------
Gross margin 6,644,487 4,234,092 4,262,364
Selling expenses 419,755 196,974 261,297
Salaries and related costs 1,897,412 1,625,731 1,898,944
Research and development expenses 158,706 566,030 186,251
Administration and general expenses 1,814,535 1,601,186 1,646,320
----------- ----------- -----------
Income from operations 2,354,079 244,171 269,552
Interest income 73,431 63,488 129,794
Interest expenses (503,896) (445,644) (261,288)
Less: Interest capitalized 46,058 25,108 --
(457,838) (420,536) (261,288)
Foreign exchange gains 35,187 37,882 14,449
Other income 242,669 52,662 191,790
----------- ----------- -----------
Income before income taxes 2,247,528 (22,333) 344,297
Income tax benefit (Note 5(c)) 27,117 36,087 3,401
----------- ----------- -----------
Net income 2,274,645 13,754 347,698
Other comprehensive income, net of tax:
Foreign currency translation adjustments 43,129 1,743 701
----------- ----------- -----------
Comprehensive income 2,317,774 15,497 348,399
=========== =========== ===========
Earnings per share (Note 12)
Basic 80.39 cents 0.45 cents 9.89 cents
=========== =========== ===========
Diluted 72.57 cents 0.37 cents 8.74 cents
=========== =========== ===========
See notes to these consolidated financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in United States Dollars)
Common stock
-------------------------
Promissory
note
Additional receivable
Shares Amount paid-in from
outstanding outstanding capital shareholder
----------- ----------- ---------- -----------
$ $ $
<S> <C> <C> <C> <C>
Balance, March 31, 1997 2,825,949 8,477 8,705,917 --
Net income -- -- -- --
Other comprehensive income,
net of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- -- --
Reversal upon liquidation of a
subsidiary -- -- -- --
Comprehensive income -- -- -- --
Common stock issued upon exercise
of warrants (note 14) 2,613 8 18,586 --
Common stock subscribed
(note 8(b)) -- -- -- (1,350,000)
----------- ----------- ----------- -----------
Balance, March 31, 1998 2,828,562 8,485 8,724,503 (1,350,000)
Net income -- -- -- --
Other comprehensive income, net
of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- -- --
Comprehensive income -- -- -- --
Issued of common stock (note 8(b)) 200,000 600 1,349,400 --
Common stock issued upon exercise
of share option (note 13) 65,000 193 131,202 --
Common stock issued upon exercise
of warrants, net of expenses
(note 14) 25,597 75 -- --
Interest income from promissory
note receivable (note 8(b)) -- -- 80,000 (80,000)
----------- ----------- ----------- -----------
Balance, March 31, 1999 3,119,159 9,353 10,285,105 (1,430,000)
Net income -- -- -- --
Other comprehensive income, net
of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- -- --
Comprehensive income -- -- -- --
Common stock issued upon exercise
of share option (note 13) 919,675 2,759 52,089 --
Common stock issued upon
exercise of warrants, net of
expenses (note 14) 1,673,776 5,021 11,988,306 --
----------- ----------- ----------- -----------
Balance, March 31, 2000 5,712,610 17,133 22,325,500 (1,430,000)
=========== =========== =========== ===========
See notes to these consolidated financial statements
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in United States Dollars)
Accumulated
other
comprehensive
Common income-foreign Total
stock Retained currency shareholders'
subscribed earnings adjustments equity
---------- --------- -------------- -------------
$ $ $ $
<S> <C> <C> <C> <C>
Balance, March 31, 1997 -- 3,237,559 190,399 12,142,352
Net income -- 2,274,645 -- 2,274,645
Other comprehensive income,
net of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- 45,779 45,779
Reversal upon liquidation of a
subsidiary -- -- (2,650) (2,650)
Comprehensive income -- 2,274,645 43,129 2,317,774
Common stock issued upon exercise
of warrants (note 14) -- -- -- 18,594
Common stock subscribed
(note 8(b)) 1,350,000 -- -- --
----------- ----------- ----------- -----------
Balance, March 31, 1998 1,350,000 5,512,204 233,528 14,478,720
Net income -- 13,754 -- 13,754
Other comprehensive income, net
of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- 1,743 1,743
Comprehensive income -- 13,754 1,743 15,497
Issued of common stock (note 8(b)) (1,350,000) -- -- --
Common stock issued upon exercise
of share option (note 13) -- -- -- 131,395
Common stock issued upon exercise
of warrants, net of expenses
(note 14) -- -- -- 75
Interest income from promissory
note receivable (note 8(b)) -- -- -- --
----------- ----------- ----------- -----------
Balance, March 31, 1999 -- 5,525,958 235,271 14,625,687
Net income -- 347,698 -- 347,698
Other comprehensive income, net
of tax -- -- -- --
Foreign currency adjustments:
Cumulative translation adjustments -- -- 701 701
Comprehensive income -- 347,698 701 348,399
Common stock issued upon exercise
of share option (note 13) -- -- -- 54,848
Common stock issued upon
exercise of warrants, net of
expenses (note 14) -- -- -- 11,993,327
----------- ----------- ----------- -----------
Balance, March 31, 2000 -- 5,873,656 235,972 27,022,261
=========== =========== =========== ===========
See notes to these consolidated financial statements
F-5(Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
1998 1999 2000
$ $ $
Cash flows from operating activities
<S> <C> <C> <C>
Net income 2,274,645 13,754 347,698
Adjustments to reconcile net income to net cash
provided by operating activities -- -- --
Depreciation 942,894 1,109,286 1,316,994
Amortization 482,214 275,323 302,179
Other 113,794 (51,187) (25,677)
Changes in assets and liabilities, net of disposed
subsidiary:
Trade receivables 45,929 596,696 (1,259,455)
Other receivables, deposits and prepayments (57,577) 157,693 7,380
Notes receivable 427,015 (349,931) 165,274
Inventories 53,994 1,341,075 (1,622,488)
Accounts payable, accrued charges and deposits (1,084,467) (390,808) 2,258,494
Other 63,818 (57,289) 110,849
----------- ----------- -----------
Net cash provided by operating activities 3,262,259 2,644,612 1,601,248
----------- ----------- -----------
Cash flows from investing activities
Restricted cash deposits (65,947) (59,421) (1,060,264)
Deposit for property, plant and equipment (64,215) -- (398,147)
Proceeds from disposal of property, plant and
equipment 83,418 -- 8,149
Acquisition of property, plant and equipment (1,557,269) (866,891) (3,458,318)
----------- ----------- -----------
Net cash used in investing activities (1,604,013) (926,312) (4,908,580)
----------- ----------- -----------
Cash flows from financing activities
Issue of shares on exercise of warrants and
options -- 317,966 12,272,436
Expenses paid for warrant redemption -- (201,586) (224,261)
Principal payments under long-term debt (410,256) (381,826) (111,984)
Capital lease payments (355,750) (372,192) (436,165)
Net repayment under banking facilities (528,414) (1,254,981) (503,428)
----------- ----------- -----------
Net cash (used in)/provided by financing
activities (1,294,420) (1,892,619) 10,996,598
----------- ----------- -----------
Effect of foreign exchange rate changes on cash (4,519) (2,688) (1,309)
----------- ----------- -----------
Net increase/(decrease) in cash 359,307 (177,007) 7,687,957
Cash and cash equivalents, beginning of year 89,147 448,454 271,447
----------- ----------- -----------
448,454 271,447 7,959,404
=========== =========== ===========
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest paid, net of amounts capitalized 457,838 420,536 261,288
Income tax paid, net of refund (33,818) (21,202) (22,276)
See notes to these consolidated financial statements
F-6
</TABLE>
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
1 Description of business and significant accounting policies
Bonso Electronics International Inc. ("the Company") and its subsidiaries
are engaged in the designing, manufacturing and selling of a comprehensive
line of electronic scales and weighing instruments, electronic consumer,
health and telecommunication products.
The consolidated financial statements have been prepared in United States
dollars and in accordance with generally accepted accounting principles in
the United States of America. The preparation of consolidated financial
statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates made by management
include provisions made against inventories and trade receivables. Actual
results could differ from those estimates.
The significant accounting policies are as follows:
(a) Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its foreign subsidiaries (hereinafter collectively referred to as the
"Group"). All significant intercompany accounts and transactions are
eliminated.
(b) Cash and cash equivalents
Cash and cash equivalents are short-term, highly liquid investments with
original maturities of three months or less. Cash equivalents are stated at
cost, which approximates fair value because of the short term maturity of
these instruments.
(c) Inventories
Inventories are stated at the lower of cost or net realizable value with
cost determined on a first-in, first-out basis. Net realizable value is the
price at which inventories can be sold in the normal course of business
after allowing for the costs of completion and disposal.
(d) Revenue recognition
Revenue is recognized when the products are shipped to customers.
(e) Property, plant and equipment
(i) Property, plant and equipment are stated at cost. Leasehold land and
buildings are amortized on a straight-line basis over 15 to 50 years,
representing the shorter of the remaining term of the lease or the
expected useful life to the Group.
(ii) Construction-in-progress represents factories and office buildings
under construction and is stated at cost. Cost includes the costs of
construction and interest charges arising from borrowings used to
finance these assets during the period of construction.
Construction-in-progress is not depreciated during the period of
construction.
F-7
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
1 Description of business and significant accounting policies (Continued)
(e) Property, plant and equipment (Continued)
(iii) Other fixed assets are carried at cost and depreciated using the
straight-line method over their expected useful lives to the Group.
The principal annual rates used for this purpose are:
Plant and machinery - 14% to 33.3%
Molds - 20%
Furniture, fixtures and equipment - 20%
Motor vehicles - 20%
(iv) The cost of major improvements and betterments is capitalized, whereas
the cost of maintenance and repairs is expensed in the year incurred.
(v) Any gain or loss on disposal is included in the Consolidated
Statements of Comprehensive Income.
(f) Research and development costs
Research and development costs are charged to expense as incurred.
(g) Advertising
Advertising costs are expensed as incurred and are included within selling
expenses.
Total advertising costs incurred for the years ended March 31, 1998, 1999
and 2000 amounted to $9,078 and $43,424 and $12,633 respectively.
(h) Deferred income taxes
Amounts in the consolidated financial statements related to income taxes
are calculated using the principles of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the temporary differences between
the financial reporting basis and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. Future tax benefits, such as net operating loss carry
forwards, are recognized to the extent that realization of such benefits is
more likely than not to occur.
(i) Capitalization of interest costs
Interest attributable to borrowings used to finance the construction of
factories and office buildings is capitalized as an additional cost of the
related assets. Interest is capitalized by applying the weighted average
interest rate on borrowings outstanding during the year or, where
applicable, the interest rate related to specific borrowings, to the
average amount of the accumulated expenditures for the assets during the
period. Capitalization of interest ceases when the property is ready for
its intended use.
F-8
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
1 Description of business and significant accounting policies (Continued)
(j) Foreign currency translations
(i) The functional currency of the Company and one of its Hong Kong
subsidiaries is the United States dollar and the functional currency
of the other Hong Kong subsidiaries is the Hong Kong dollar. The
functional currency of the Company's subsidiary in the People's
Republic of China (the "PRC") is the Renminbi, the national currency
of the PRC. The functional currency of the Company's subsidiary in
Canada, which was liquidated in 1998, is the Canadian dollar.
(ii) The financial statements of foreign subsidiaries where the U.S. dollar
is the functional currency and which have certain transactions
denominated in non-U.S. dollar currencies are remeasured as if the
functional currency were the U.S. dollar. The remeasurement of local
currencies into U.S. dollars creates translation adjustments which are
included in net income.
(iii)The financial statements of foreign subsidiaries, where the local
currency is the functional currency, are translated into U.S. dollars
using exchange rates in effect at period end for assets and
liabilities and average exchange rates during each reporting period
for statement of income. Adjustments resulting from translation of
financial statements are reflected as a separate component of
shareholders' equity.
2 Allowance for doubtful accounts
Changes in the allowance for doubtful accounts consist of:
1998 1999 2000
$ $ $
Balance, April 1 99,856 33,333 39,359
Additions charged to expense -- 6,026 --
Write-off (26,126) -- (39,359)
Provision written back (40,397) -- --
------ ------ ------
Balance, March 31 33,333 39,359 --
====== ====== ======
3 Inventories
(a) The components of inventories are as follows:
1999 2000
$ $
Raw materials 3,601,695 4,752,422
Work in progress 841,008 921,679
Finished goods 450,546 841,636
--------- ---------
4,893,249 6,515,737
Inventories reserves (195,321) (323,126)
--------- ---------
4,697,928 6,192,611
========= =========
F-9
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
3 Inventories (Continued)
(b) Changes in the inventories reserves consist of the following:
1998 1999 2000
$ $ $
Balance, April 1 146,530 267,624 195,321
Additions charged to expense 121,094 -- 127,805
Write-off -- (72,303) --
------- ------- -------
Balance, March 31 267,624 195,321 323,126
======= ======= =======
4 Long-term debt
Long-term debt denominated in Hong Kong dollars consists of the following:
March 31
------------------
1999 2000
$ $
Loan payable to a property developer at 14% per annum 131,786 19,802
Less: current portion (111,494) (19,802)
------- ------
Long-term debt, less current maturities 20,292 --
======= ======
5 Taxation
(a) The companies comprising the Group are subject to tax on an entity basis on
income arising in or derived from Hong Kong and the PRC. The current rates
of taxation of the subsidiaries operating in Hong Kong and Shenzhen in the
PRC are 16% and 15%, respectively. The Group is not subject to income taxes
in the British Virgin Islands.
(b) Pursuant to the relevant income tax laws in the PRC, Bonso Electronics
(Shenzhen) Co., Ltd, a wholly owned subsidiary of the Company, is fully
exempt from PRC state income tax for two years starting from the first
profit-making year followed by a 50% reduction over the ensuing three
years. Bonso Electronics (Shenzhen) Co., Ltd. was loss-making for the years
ended March 31, 1998, 1999 and 2000.
(c) The components of the income tax benefit are as follows:
1998 1999 2000
$ $ $
Deferred income tax benefit 57,117 38,956 13,898
Current income tax expense (30,000) (2,869) (10,497)
------ ------ ------
Total income tax benefit 27,117 36,087 3,401
====== ====== ======
F-10
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
5 Taxation (Continued)
(d) Deferred tax assets are comprised of the following:
1999 2000
$ $
Deferred tax liabilities -- --
Accelerated depreciation (11,807) (10,395)
Deferred tax assets -- --
Tax loss carry forwards 127,723 127,385
Valuation allowance (34,693) (15,420)
93,030 111,965
Others 31,251 24,802
------- -------
124,281 136,767
------- -------
Net deferred tax assets 112,474 126,372
Less: current portion 31,251 24,802
------- -------
Non current portion 81,223 101,570
======= =======
As of March 31, 2000, the Group had accumulated tax losses amounting to
$796,160 (the tax effect thereon is $127,385) which may be carried forward
and applied to reduce future taxable income which is earned in or derived
from Hong Kong. Realization of deferred tax assets associated with tax loss
carry forwards is dependent upon generating sufficient taxable income prior
to their expiration. A valuation allowance is established against such tax
losses when management believes it is more likely than not that a portion
may be disputed by the tax authorities.
As of March 31, 2000, the Group's accumulated tax losses have no definite
period of expiration.
(e) Changes in the valuation allowance consist of:
1998 1999 2000
$ $ $
Balance, April 1 147,716 61,176 34,693
Additions/(reduction) charged/(credited)
to income tax expense 55,082 (4,630) (337)
Release of valuation allowance upon:
- liquidation of subsidiary (62,089) -- --
- approval of losses by tax authorities (77,621) (21,853) (18,936)
Effect of change in tax rate (1,912) -- --
------- ------- -------
Balance, March 31 61,176 34,693 15,420
======= ======= =======
F-11
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
5 Taxation (Continued)
(f) The actual income tax benefit attributable to earnings for the years ended
March 31, 1998, 1999 and 2000 differed from the amounts computed by
applying the Hong Kong statutory tax rate in accordance with the relevant
income tax law as a result of the following:
1998 1999 2000
$ $ $
Hong Kong statutory tax rate 16.5% 16.0% 16.0%
Income tax (expense)/credit at the Hong
Kong statutory tax rate (370,842) 3,573 (55,088)
Offshore profit not subject to income tax 381,167 40,477 77,672
Valuation allowance on tax loss 22,539 26,483 19,273
Over/(under) provision for Hong Kong
tax in prior years 10,246 (22,064) (5,200)
Other (15,993) (12,382) (33,256)
------- ------- -------
Total income tax benefit 27,117 36,087 3,401
======= ======= =======
6 Leases
(a) Capital leases
Motor vehicles and plant and machinery include the following amounts for
capitalized leases:
Motor vehicles Plant and machinery
----------------- ----------------------
March 31 March 31
----------------- ----------------------
1999 2000 1999 2000
$ $ $ $
Cost 45,835 59,513 1,495,847 2,238,400
Less: accumulated amortization 16,806 8,927 643,041 258,758
------ ------ --------- ---------
29,029 50,586 852,806 1,979,642
====== ====== ========= =========
During the years ended March 31, 1998, 1999 and 2000, the Group entered
into additional capital lease obligations amounting to $143,471, $78,974
and $1,540,608, respectively.
F-12
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
6 Leases (Continued)
(a) (Continued)
Future minimum payments for capital leases as of March 31, 2000 with an
initial term of more than one year are as follows:
$
2001 603,647
2002 564,073
2003 412,423
---------
Total minimum lease payments 1,580,143
Less: amount representing interest 181,680
---------
Present value of net minimum lease payments (including
current portion of $533,665, as of March 31, 2000) 1,398,463
=========
(b) Operating leases
As of March 31, 2000, future minimum lease commitments in respect of
noncancellable operating leases for office premises and staff quarters in
Hong Kong and the PRC are as follows:
$
2001 122,668
2002 127,331
2003 98,485
2004 3,672
-------
352,156
=======
Rent expense for all operating leases amounted to $196,622, $166,824 and
$84,749 for the years ended March 31, 1998, 1999 and 2000, respectively.
F-13
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
7 Banking facilities
As of March 31, 2000, the Group had general banking facilities for bank
overdrafts, letters of credit, notes payable, short-term loans and
fixed-term loans. The facilities are interchangeable with total amounts
available of $8,358,975 (1999: $6,217,949). All general banking facilities
granted to the Group are denominated in Hong Kong dollars.
The Group's general banking facilities, expressed in United States Dollars,
are further analyzed as follows:
Terms of banking facilities as of
Amount available Amount utilized March 31, 2000
--------------------- ------------------- -------------------------------
March 31 March 31
--------------------- -------------------
1999 2000 1999 2000 Interest Repayment
$ $ $ $ rate terms
Import and export
facilities
<S> <C> <C> <C> <C> <C> <C>
Letters of credit 4,181,346 3,192,774 695,950 1,585,516
Including sublimit
of:
Notes payable 2,771,089 2,679,953 581,349 819,099 Prime rate Repayable in
minus 0.5% full within
to Prime rate four months
plus 0.75% or
HIBOR + 2.5%
Short-term loans 1,075,064 3,371,329 720,129 622,229 Prime rate Repayable in
minus 0.5% full within
to Prime rate three months
plus 0.75% or
HIBOR + 2.5%
Other facilities
Bank overdrafts 961,539 1,153,846 643,278 -- Prime rate Repayable
plus 0.25% on demand
to Prime rate
plus 1.5%
Fixed-term loan -- 641,026 -- -- Prime rate Repayable by
plus 0.85% 36 monthly
installments
after the
month of
drawdown
--------- --------- --------- ---------
6,217,949 8,358,975 2,059,357 2,207,745
========= ========= ========= =========
F-14
</TABLE>
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
7 Banking facilities (Continued)
The Prime rate and HIBOR rate were 8.75% and 6.00%, respectively, as of
March 31, 2000. The Prime rate is determined by the Hong Kong Bankers
Association and is subject to revision from time to time.
The banking facilities are collateralized by the following:
(a) a legal charge over leasehold properties of the Group with net book value
of $1,967,120 (1999: $1,241,712); and
(b) a bank guarantee of $150,000 (1999: $150,000) and restricted cash deposits
of $2,071,952 (1999: $1,011,688). The restricted cash deposits have
original maturities of less than three months.
The weighted average interest rate of short-term borrowings of the Group is
as follows:
Year ended March 31
----------------------------
1999 2000
Bank overdrafts 10.2% 9.3%
Notes payable 9.5% 8.6%
Short-term loans 9.5% 8.6%
8 Related party transactions
(a) The Group paid emoluments, commissions and/or consultancy fees to its
directors as follows:
Year ended Mr. So Hung Gun, Mr. So Cham Mr. Chung Mr. Luk
March 31 Anthony Some Mr. Ray Mehra Kim Wah Kam Sun
-------- -------------- ---------- ------------ ----------- --------
1998 $500,560 $66,410 $11,000 $140,175(ii) $106,923
1999 $441,538 $13,000 -- $113,589(ii) $91,154
2000 $553,718 -- -- $128,854(ii) $106,923
Mr. George Ms. Pang Kit Mr. J Stewart Mr. Henry
Mr. Fok Woo Ping O'Leary Teng, Cathy Jackson Schlueter
---------------- ---------- ------------- ------------- --------
1998 Nil $354,835(i) $24,029 Nil Nil
1999 Nil $115,342(i) $90,394 Nil Nil
2000 Nil $136,286(i) $103,744 Nil Nil
(i) This represented commissions paid to Mr. George O'Leary.
(ii) Included in the emoluments is a housing allowance for $38,462 for each
of the three years in the period ended March 31, 2000 payable to a
company in which Mr. Chung Kim Wah has a beneficial interest.
F-15
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
8 Related party transactions (Continued)
(b) Promissory note receivable from shareholder
On March 27, 1998, Advantage List & Marketing Corporation ("ALMC")
subscribed for 200,000 shares of common stock of the Company at a price of
$6.75 per share which represented the fair market value at the date of
subscription, in exchange for ALMC's promissory note of $1,470,000. On the
same date, ALMC entered into a pledge agreement simultaneously under which
ALMC agreed to pledge the common stock to the Company as security for the
payment of the promissory note. The promissory note is with full recourse,
interest free and shall be fully repayable on or before September 27, 2000.
On September 17, 1998, a total of 200,000 shares of common stock were
issued and the shares were held by the Company as security for payment of
the promissory note. The promissory note was recorded at its discounted
value of $1,350,000. Interest of $80,000 accrued thereon in the year ended
March 31, 1999 has been included in additional paid in capital. On November
10, 1999, the Company has entered into an agreement with ALMC to recind the
previous share subscription such that in April 2000, the 200,000 shares of
common stock of the Company held by ALMC were returned to the Company in
exchange for cancellation of the promissory note of $1,470,000. The 200,000
shares of common stock were then cancelled and returned to the status of
authorized but unissued shares.
(c) On December 15 1999, Mr. So Hung Gun, Authony, has entered into sale and
purchase agreements on behalf of the Group for acquisition of two staff
quarters in a total consideration of $178,773.
9 Provident fund plan
(a) With effect from January 1, 1988, Bonso Electronics Limited ("BEL"), a
wholly-owned foreign subsidiary of the Company, started a provident fund
plan (the "Plan") with a major international assurance company to provide
life insurance and retirement benefits for its employees. All permanent
full time employees, excluding factory workers, are eligible to join the
provident fund plan.
(b) Members of the Plan are required to contribute 5% of their monthly salary.
The contribution by BEL is as follows:
Years of service % of salary as BEL's contribution
---------------- ---------------------------------
Less than 5 years 5.0%
5 to 10 years 7.5%
More than 10 years 10.0%
(c) At normal retirement age, death or ill health, the member shall be entitled
to receive from the Plan a lump sum equal to the total of the member's and
BEL's contributions plus a return on their investment. On resignation prior
to normal retirement age, a member shall be entitled to receive from the
Plan a lump sum equal to the member's contributions plus a percentage of
the employer's balance determined in accordance with a predetermined set
scale.
(d) BEL's contributions to the Plan for the years ended March 31, 1998, 1999
and 2000 amounted to $45,227, $54,046 and $64,921, respectively.
F-16
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
10 Commitments and contingencies
(a) As of March 31, 2000, the Group had contingent liabilities to banks for
outstanding letters of credit and shipping guarantee of $766,417 (1999:
$114,601) and $19,340 (1999: Nil), respectively.
(b) As of March 31, 2000, the Group had commitments to acquire plant and
machineries from third parties for an aggregate consideration of $2,164,078
of which $323,064 had been paid as deposits. Further, the Group had
commitments of $178,773 for the purchase of staff quarters of which $75,083
had been paid as progress payments. The sale and purchase agreements were
entered on behalf of the Group by Mr. Anthony So Hung Gun, one of the
directors of the Company.
11 Research and development expenses
Included in the research and development expenses for the year ended March
31, 1999 was $392,454 incurred in connection with a telephone project.
12 Earnings per share
Year ended March 31
-----------------------------------
1998 1999 2000
$ $ $
Income available to common
shareholders: 2,274,645 13,754 347,698
Weighted average shares outstanding 2,829,448 3,079,219 3,515,690
Incremental shares from assumed
exercise of:
Warrants 25,562 166,024 33,838
Stock options 279,362 429,060 428,551
Dilutive potential common shares 304,924 595,084 462,389
--------- --------- ---------
Diluted weighted average shares 3,134,372 3,674,303 3,978,079
========= ========= =========
Basic earnings per share 80.39 cents 0.45 cents 9.89 cents
Diluted earnings per share 72.57 cents 0.37 cents 8.74 cents
Earnings per share are computed based on the weighted average number of
common shares and, as appropriate, dilutive common stock equivalents
outstanding for the period and the related income amount.
Warrants to purchase 110,000 shares of common stock at $9.1875 per share
were outstanding during the fiscal year ended March 31, 1998 and 1999 but
were not included in the calculation of diluted earnings per share during
the year ended March 31, 1998 because the warrants' exercise price was
greater than the market price of the Company's common stock. The warrants
expired on January 31, 2000.
During the year ended March 31, 2000, 1,673,776 warrants were exercised by
the public shareholders to purchase 1,673,776 shares of common stock of the
Company and the remaining 500,627 warrants expired on January 31, 2000.
F-17
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan
(a) In October 1996, the Board of Directors approved the 1996 Stock Option Plan
and 1996 Non-Employee Directors' Stock Option Plan. Under the 1996 Stock
Option Plan, the Company may grant options of common stock to certain
employees and directors of the Company for a maximum of 400,000 shares. The
1996 Stock Option Plan is administered by a committee appointed by the
Board of Directors which determines the terms of options granted, including
the exercise price, the option periods and the number of shares to be
subject to each option. The exercise price of options granted under the
1996 Stock Option Plan may be less than the fair market value of the common
shares on the date of grant. The maximum term of options granted under the
1996 Stock Option Plan is 10 years. The right to acquire the common shares
is not assignable except for certain conditions stipulated in the 1996
Stock Option Plan.
In January 1997, the Company granted options to three directors to purchase
an aggregate of 375,000 shares of common stock of the Company at an
exercise price of $2.00 per share, which was equal to the market value on
the date of grant, in accordance with the 1996 Stock Option Plan. The
options shall expire on January 31, 2007 and can be exercised at any time
immediately after granting. All of the options were exercised during the
year ended March 31, 2000 to purchase 337,264 shares of common stock of the
Company.
In January 1998, the Company granted options to an employee to purchase an
aggregate of 25,000 shares of common stock of the Company at an exercise
price of $6.20 per share which was greater than the market value on the
date of grant, in accordance with the 1996 Stock Option Plan. The options
shall expire on January 1, 2008 and can be exercised at any time
immediately after granting. All of the options were exercised during the
year ended March 31, 2000 to purchase 17,201 shares of common stock of the
Company.
In January 2000, the maximum number of share options which can be granted
under the 1996 Stock Option Plan was increased from 400,000 units to
900,000 units.
In January 2000, the Company granted options to certain employees to
purchase an aggregate of 23,700 shares of common stock of the Company at an
exercise price of $8.00 per share, which was equal to the market value on
the date of grant, in accordance with the 1996 Stock Option Plan. The
options shall expire on January 6, 2010 and can be exercised at any time
immediately after granting. None of the options have been exercised up to
March 31, 2000.
The stock options outstanding in respect of the 1996 Stock Option Plan as
of March 31, 2000 is summarized as follows:
Average per share
-------------------
Number Exercise Market
of shares price price
Balance, March 31, 1998 and 1999 400,000 $ 2.26 $ 2.26
Exercised during the year (400,000) $ 2.26 $ 2.26
Grant at exercise price equal to the
market value of the common shares
on the date of grant 23,700 $ 8.00 $ 8.00
-------- -------- --------
Balance, March 31, 2000 23,700 $ 8.00 $ 8.00
======== ======== ========
F-18
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan (Continued)
(a) (Continued)
Under the 1996 Non-Employee Directors' Stock Option Plan, the non-employee
directors are automatically granted stock options on the third business day
following the day of each annual general meeting of the Company to purchase
an aggregate of 100,000 shares of common stock. The exercise price of all
options granted under the 1996 Non-Employee Directors' Stock Option Plan
shall be one hundred percent of the fair market value per share of the
common shares on the date of grant. The maximum term of options granted
under the 1996 Non-Employee Directors' Stock Option Plan is 10 years. No
stock option may be exercised during the first six months of its term
except for certain conditions provided in the 1996 Non-Employee Directors'
Stock Option Plan. The right to acquire the common shares is not assignable
except for certain conditions stipulated in the 1996 Non-Employee
Directors' Stock Option Plan.
In October 1996, the Company issued options to three non-employee directors
in accordance with the 1996 Non-Employee Directors' Stock Option Plan to
purchase an aggregate of 30,000 shares of common stock of the Company at an
exercise price of $2.25 per share. The options shall expire October 16,
2006 and can be exercised at any time immediately after granting. During
the years ended on March 31, 1999 and 2000, 10,000 and 20,000 stock options
were exercised to purchase 10,000 and 18,868 shares of common stock of the
Company, respectively.
In September 1997, the Company issued options to four non-employee
directors in accordance with the 1996 Non-Employee Directors' Stock Option
Plan to purchase an aggregate of 40,000 shares of common stock of the
Company at an exercise price of $5.06 per share. The options shall expire
on September 8, 2007 and can be exercised at any time immediately after
granting. During the year ended March 31, 2000, 30,000 of stock options
were exercised to purchase 22,362 shares of common stock of the Company.
No annual general meeting was held by the Company for the year 1998 and
therefore no stock option was granted in accordance with the 1996
Non-Employee Directors' Stock Option Plan during the year ended March 31,
1999.
In January 2000, the maximum number of share options which can be granted
under the 1996 Non-Employee Directors' Stock Option Plan was increased from
100,000 units to 600,000 units.
In January 2000, the Company issued options to two non-employee directors
in accordance with the 1996 Non-Employee Directors' Stock Option Plan to
purchase an aggregate of 20,000 shares of the common stock of the Company
at an exercise price of $8.125 per share. The options shall expire on
January 12, 2010 and can be exercised at any time immediately after
granting. None of the options has been exercised up to March 31, 2000.
F-19
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan (Continued)
(a) (Continued)
The stock options activity in respect of the 1996 Non-Employee Directors'
Stock Option Plan as of March 31, 2000 is summarized as follows:
Average per share
--------------------
Number Exercise Market
of shares price price
Balance, March 31, 1998 70,000 $ 3.86 $ 3.86
Exercised during the year (10,000) $ 2.25 $ 2.25
------- --------- ---------
Balance, March 31, 1999 60,000 $ 4.12 $ 4.12
Exercised during the year (50,000) $ 3.936 $ 3.936
Grant at exercise price equal to the
market value of the common shares
on the date of grant 20,000 $ 8.125 $ 8.125
------- ---------- ---------
Balance, March 31, 2000 30,000 $ 7.103 $ 7.103
======= ========== =========
(b) In January 1997, the Company granted options to three non-employee
directors to purchase an aggregate of 100,000 shares of common stock of the
Company. The exercise price is $2.00 per share, which equaled the market
value of the Company's common stock on the date of grant. The options shall
expire on January 31, 2007 and can be exercised at any time immediately
after granting.
No options have been exercised up to year ended March 31, 1998, and 55,000
options were exercised to purchase 55,000 shares of common stock of the
Company during the year ended March 31, 1999. During the year ended March
31, 2000, 45,000 options were exercised to purchase 41,981 shares of common
stock of the Company.
The stock options summary as of March 31, 2000 is summarized as follows:
Average per share
-------------------
Number Exercise Market
of shares price price
Balance, March 31, 1998 100,000 $ 2.00 $ 2.00
Exercised during the year (55,000) $ 2.00 $ 2.00
------- -------- --------
Balance, March 31, 1999 45,000 $ 2.00 $ 2.00
Exercised during the year 45,000) $ 2.00 $ 2.00
------- -------- --------
Balance, March 31, 2000 -- -- --
======= ======== ========
F-20
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan (Continued)
(c) At various times in January 1998, the Company issued options to the
directors and an employee of the Company to purchase an aggregate of
195,000 shares of common stock of the Company at an exercise price of $6.20
per share. The options shall expire in January 2008 and can be exercised at
any time immediately after granting. The exercise prices of these options
were equal to or greater than the fair market value at the time of grant.
No options have been exercised during the year ended March 31, 1998 and
1999, and all of the 195,000 options were exercised to purchase 134,174
shares of common stock of the Company during the year ended March 31, 2000.
The stock options summary as of March 31, 2000 is summarized as follows:
Average per share
-------------------
Number Exercise Market
of shares price Price
Balance, March 31, 1998 and 1999 195,000 $ 6.20 $ 6.20
Exercised during the year (195,000) $ 6.20 $ 6.20
-------- -------- --------
Balance, March 31, 2000 -- -- --
======== ======== ========
(d) In October 1998, the Company issued options to the directors, non-employee
directors and certain employees of the Company to purchase an aggregate of
430,000 shares of common stock of the Company at an exercise price of $3.60
to $3.70. The options shall expire in October 2008 and can be exercised at
any time immediately after granting. The exercise prices of these options
were greater than the market value on the time of grant. No options have
been exercised during the year ended March 31, 1999, and all of the 430,000
stock options were exercised to purchase 347,825 shares of common stock of
the Company during the year ended March 31, 2000.
The stock options summary as of March 31, 2000 is summarized as follows:
Average per share
-------------------
Number Exercise Market
of shares price Price
Balance, March 31, 1998 -- -- --
Grant at exercise price equal to the
market value of the common shares on
the date of grant 430,000 3.60 3.60
------- ---- ----
Balance, March 31, 1999 430,000 3.60 3.60
Exercise during the year (430,000) 3.60 3.60
------- ---- ----
Balance, March 31, 2000 -- -- --
======= ======= =======
F-21
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan (Continued)
(e) In January 2000, the Company issued options to the directors and an
employee to purchase an aggregate of 218,000 shares of common stock of the
Company at an exercise price of US$8.00. The options shall expire on
January 6, 2010 and can be exercised at any time immediately after
granting. The exercise prices of these options were equal to the fair
market value at the time of grant. No options have been exercised during
the year ended March 31, 2000.
(f) The following table summarizes the information about stock options
outstanding at March 31, 2000:
Number Exercisable
outstanding at Average life shares at
Exercise price March 31, 2000 (years) March 31, 2000
-------------- ----------- --------------
$5.06 10,000 7.4 10,000
$8.00 241,700 9.8 241,700
$8.125 20,000 9.8 20,000
------- -------
$5.06 - $8.125 271,700 9.7 271,700
======= =======
(g) Included in the options outstanding as of March 31, 2000 were 10,000 units
held by Mr. Ray Mehra who resigned as a director of the Company on January
2, 1998.
(h) The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options. Under APB Opinion No. 25,
because the exercise price of all the options issued by the Company equals
or is higher than the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 "Accounting for Stock-Based Compensation", and has
been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123. The weighted average
fair value of options granted during the years ended March 31, 1999 and
2000 were $2,503,363 and $1,880,621, respectively. The fair value for these
options was estimated at the date of grant using a Black-Scholes Option
Valuation model with the following weighted-average assumptions for the
year ended March 31, 2000: risk-free interest rate of 6.3%; no dividend
yield; volatility factor of the expected market price of the Company's
common share of 93.0%; and a weighted-average expected life of the option
of ten years.
F-22
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
13 Stock option plan (Continued)
(h) (Continued)
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Group
pro forma information follows:
1999 2000
$ $
Net income
As reported 13,754 347,698
Pro forma (2,489,609) (1,532,923)
Basis earnings/(losses) per share
As reported 0.45 cents 9.89 cents
Pro forma (80.85) cents (43.60) cents
Diluted earnings/(losses) per share
As reported 0.37 cents 8.74 cents
Pro forma (67.76) cents (38.53) cents
Because compensation expense associated with an award is recognized over
the vesting period, the initial impact on pro forma net income may not be
representative of compensation expense in future years, when the effect of
the amortization of multiple awards would be reflected in the income
statement.
14 Warrants
In 1994, the Company issued 16,667 warrants under a loan agreement to the
lender to purchase common shares of the Company at $6.00 per share. No
warrants have been exercised during the year ended March 31, 1997. In
December 1997, 2,613 shares of common stock were issued at $7.11 per share,
which represented the fair market value at the date of issue, upon the
exercise of all the warrants on a cashless basis.
As a result of the Company's second public offering in December 1994, the
Company issued 2,200,000 five-year warrants to its public shareholders.
Each warrant entitles the holder thereof to purchase one share of common
stock of the Company at $7.35 per share. The warrants should expire on
December 14, 2000 but were extended to January 31, 2001 on November 11,
1999. The warrants are redeemable by the Company at $0.05 per warrant upon
30 to 45 days notice at any time after December 14, 1995, or such earlier
date as the representatives of the underwriters may determine, if the
closing price per share of common stock of the Company for 20 consecutive
trading days within the 30-day period prior to the date of notice of
redemption is given equals or exceeds $8.575 per share. No warrants have
been exercised or redeemed during the years ended March 31, 1997 and 1998.
A total of 25,597 warrants and 1,673,776 warrants were exercised to
purchase 25,597 shares and 1,673,776 shares of common stock of the Company
at $7.35 per share during the years ended March 31, 1999 and March 31,
2000, respectively. The remaining 500,627 warrants expired on January 31,
2000.
F-23
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 Warrants (Continued)
In conjunction with the second public offering, the Company issued warrants
to the representatives of the underwriters (the "Representatives'
Warrants") to purchase from the Company up to an aggregate of 110,000 units
at an exercise price of $9.1875 per unit; each unit consists of one share
of common stock and two five-year warrants of the Company. The
Representatives' Warrants are exercisable for a period of three years
commencing December 15, 1996 but were extended to January 31, 2000 on
November 11, 1999. Upon any transfer to a person other than an officer,
shareholder or director of the representatives of the underwriters, the
transferred or exercised five-year warrants must be exercised immediately
or they will lapse. No warrants have been transferred or exercised during
the years ended March 31, 1998, 1999 and 2000 and the warrants expire on
January 31, 2000.
On January 5, 2000, the Company has declared a one-for-one warrant dividend
on all warrants of the Company which either were outstanding as of the
close of trading on January 19, 2000 or which were exercised during the
period commencing on November 22, 1999 and ending at the close of trading
on January 19, 2000. Each two new warrants shall be exercisable to purchase
one share of common stock of the Company at an exercise price of $17.50. A
total of 2,174,403 new warrants were issued accordingly on June 1, 2000.
On January 14, 2000, the Company has entered into an agreement with Profit
Concepts Limited ("Profit Concepts"), which provides consulting services to
the Company. The agreement provides for the issuance by the Company to
Profit Concepts of non-callable warrants to purchase 250,000 shares of the
Company's common stock at $8.00 per share, which was equal to the market
price on that date. Profit Concepts is engaged in provision of advisory
services for equity fund raising exercise of the Company and the warrants
are exercisable for a period of three years from January 14, 2000. No
warrants have been exercised up to March 31, 2000. Profit Concepts had not
provided any services to the Company as at March 31, 2000. The fair value
of the warrants on the date of issue was US$1,144,260.
F-24
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
15 Business segment information
(a) The Group's operations have been classified into four business segments:
scales, health care products, telecommunication products and other.
Summarized financial information by business segment for 1998, 1999 and
2000 is as follows:
Identifiable Depreciation
Net Operating assets as of and Capital
sales profit March 31 amortization expenditure
---------- --------- ---------- ---------- ----------
$ $ $ $ $
2000
<S> <C> <C> <C> <C> <C>
Scales 12,608,415 2,889,663 12,552,235 980,122 1,228,865
Health care products 1,246,305 40,071 174,062 13,591 17,041
Telecommunication products 700,777 108,981 4,553,394 226,190 2,603,456
Other 824,789 589,994 2,562,840 200,116 250,903
---------- ---------- ---------- ---------- ----------
Total operating segments 15,380,286 3,628,709 19,842,531 1,420,019 4,100,265
Corporate -- (3,359,157) 13,950,185 199,154 898,661
---------- ---------- ---------- ---------- ----------
Group 15,380,286 269,552 33,792,716 1,619,173 4,998,926
---------- ---------- ---------- ---------- ----------
1999
Scales 10,306,549 3,042,936 12,098,180 1,015,272 132,395
Health care products 1,956,940 55,066 212,450 17,829 2,325
Telecommunication products -- -- -- -- --
Other 782,776 532,353 2,053,884 172,361 22,476
---------- ---------- ---------- ---------- ----------
Total operating segments 13,046,265 3,630,355 14,364,514 1,205,462 157,196
Corporate -- (3,386,184) 4,295,770 179,147 1,442,324
---------- ---------- ---------- ---------- ----------
Group 13,046,265 244,171 18,660,284 1,384,609 1,599,520
---------- ---------- ---------- ---------- ----------
1998
Scales 18,260,994 5,234,759 14,604,822 1,110,023 1,280,219
Health care products 3,083,025 73,197 204,218 15,521 17,901
Telecommunication products -- -- -- -- --
Other 2,371,557 534,778 1,492,015 113,399 130,786
---------- ---------- ---------- ---------- ----------
Total operating segments 23,715,576 5,842,734 16,301,055 1,238,943 1,428,906
Corporate -- (3,488,655) 4,345,508 186,165 271,834
---------- ---------- ---------- ---------- ----------
Group 23,715,576 2,354,079 20,646,563 1,425,108 1,700,740
---------- ---------- ---------- ---------- ----------
Operating profit by segment equals total operating revenues less expenses
which are deemed to be related to the segment's operating revenues.
Identifiable assets by segment are those assets that are used in the
operation of that segment. Corporate assets consist principally of cash and
cash equivalents, income tax recoverable, deferred income tax assets and
other identifiable assets not related specifically to individual segments.
F-25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
15 Business segment information (Continued)
(b) The Group primarily operates in Hong Kong and the PRC. The manufacture of
components and their assembly into finished products is carried out in the
PRC. The Hong Kong office is mainly responsible for the purchase of raw
materials, arrangement of shipments and research and development. As the
operations are integrated, it is not practicable to distinguish the sales
and net income derived from the activities in Hong Kong from those in the
PRC.
Identifiable assets by geographical areas are as follows:
1999 2000
$ $
Hong Kong 5,314,252 16,009,366
The PRC 13,346,032 17,783,350
---------- ----------
Total asets 18,660,284 33,792,716
========== ==========
(c) The following is a summary of net export sales to customers by geographical
area for the years ended March 31, 1998, 1999 and 2000:
Year ended March 31
---------------------------------------------------------------------------
1998 % 1999 % 2000 %
$ $ $
United States of
<S> <C> <C> <C> <C> <C> <C>
America 12,570,427 53 5,609,457 43 6,274,612 41
Germany 6,290,634 27 4,212,958 32 3,904,921 34
Others 4,854,515 20 3,223,850 25 5,200,753 25
---------- ---------- ---------- ---------- ---------- ----------
23,715,576 100 13,046,265 100 15,380,286 100
========== ========== ========== ========== ========== ==========
</TABLE>
(d) The details of sales made to customers constituting 10% or more of total
sales of the Group is as follows:
<TABLE>
<CAPTION>
Year ended March 31
---------------------------------------------------------------------------
Business 1998 % 1999 % 2000 %
segment $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Pitney Bowes, Inc. (USA) Scales 7,075,338 30 2,011,393 16 1,109,635 7
Globaltec Corporation (USA) Scales 3,721,060 15 1,454,550 11 346,600 2
Werner Dorsch Gmbh & Co.
(Germany) Scales 2,105,307 9 1,998,505 15 1,780,572 12
Omron Healthcare Group Health care
products 1,841,427 8 1,358,356 10 969,276 6
Gottl Kern & Sohn Gmbh
(Germany) Scales 919,605 4 923,985 7 1,735,355 11
Ohaus Corporation (USA) Scales -- -- 261,405 2 1,725,343 11
---------- ---------- ---------- ---------- ---------- ----------
15,662,737 66 8,008,194 61 7,666,781 49
========== ========== ========== ========== ========== ==========
F-26
</TABLE>
<PAGE>
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
16 Financial instruments
In accordance with SFAS No. 107 "Disclosures about Fair Value of Financial
Instruments", the carrying amounts and fair values of the Group's financial
instruments are as follows:
Carrying amount Fair value
--------------------- ---------------------
March 31 March 31
--------------------- ---------------------
1999 2000 1999 2000
$ $ $ $
Cash and cash equivalents 271,447 7,959,404 271,447 7,959,404
Restricted cash deposits 1,011,688 2,071,952 1,011,688 2,071,952
Deposits -- 75,083 -- 75,083
Bank overdrafts 643,278 -- 643,278 --
Notes payable 581,349 819,099 581,349 819,099
Short-term loans 720,129 622,229 720,129 622,229
Long-term debt 131,786 19,802 136,013 19,802
Promissory note receivable 1,430,000 1,430,000 note (d) note (d)
========= ========= ========= =========
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
(a) Cash and cash equivalents, restricted cash deposits, bank overdrafts,
notes payable and short-term loans - the carrying amount approximates
fair value because of the short maturity of these instruments.
(b) Long term debt - interest rates that are currently available to the
Group for issuance of debt with similar terms and remaining maturities
are used to estimate the fair value of debt issues that are not quoted
on an exchange. Fair value estimates are made at a specific point in
time and based on relevant market information. These estimates are
subjective in nature, involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
(c) Deposits - the carrying amount of refundable deposits approximates
fair value based on the terms of the related contracts.
(d) Promissory note receivable - the note was subsequently cancelled in
return for recinding 200,000 shares of common stock of the Company
previously issued to ALMC as mentioned in note 8(b).
All other financial instruments included among current assets and
liabilities are stated at cost which approximates their fair value.
17 Post balance sheet date events
In June 2000, the Group acquired an office premise in Hong Kong at a
consideration of $1,812,564.
F-27
