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, 2001
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
11/F, 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:
5,496,133 shares of common stock, $0.003 par value, at March 31, 2001.
Indicate by check mark whether the Registrant: (1) 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 (2) 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]
TABLE OF CONTENTS
-----------------
Page
----
PART I
Item 1. Identity of Directors, Senior Management and Advisers.............3
Item 2. Offer Statistics and Expected Timetable...........................3
Item 3. Key Information...................................................4
Item 4. Information on the Company.......................................11
Item 5. Operating and Financial Review and Prospects.....................19
Item 6. Directors, Senior Management and Employees.......................28
Item 7. Major Shareholders and Related Party Transactions................35
Item 8. Financial Information............................................36
Item 9. The Offer and Listing............................................36
Item 10. Additional Information............................................37
Item 11. Quantitative and Qualitative Disclosures about Market Risk .......39
Item 12. Description of Securities Other Than Equity Securities............41
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies...................41
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds...........................................41
Item 15. Reserved..........................................................41
Item 16. Reserved..........................................................41
PART III
Item 17. Financial Statements..............................................41
Item 18. Financial Statements..............................................42
Item 19. Exhibits..........................................................42
SIGNATURES
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking statements. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled Risk Factors
under Item 3. - Key Information.
Readers should not place undue reliance on forward-looking statements, which
reflect management's view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers should also carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission (the "SEC").
FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America and
publishes its financial statements in United States dollars.
2
REFERENCES
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.
References to "dollars" or "$" are to Unites States dollars. "HK$ are to Hong
Kong dollars, and references to "RMB" are to Chinese Renminbi
PART I
------
Item 1. Identity of Directors, Senior Management and Advisors
Not Applicable
Item 2. Offer Statistics and Expected Timetable
Not Applicable
3
Item 3. Key Information
A. Selected financial data.
The selected consolidated financial data set forth below as of March 31,
1997, 1998, 1999, 2000 and 2001 and for each of the three fiscal years in the
period ended March 31, 2001 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, 1997, 1998 and 1999,
and for each of the two fiscal years in the period ended March 31, 1998 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 5 - "Operating and Financial Review and Prospects" included elsewhere in
this Annual Report.
SELECTED CONSOLIDATED FINANCIAL DATA
Year ended March 31,
-----------------------------------------------------------------------
Income Statement Data 1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
(In thousands of United States dollars, except per share data)
Net sales $ 16,989 $ 23,716 $ 13,046 $ 15,380 $ 29,567
Cost of sales (12,096) (17,071) (8,812) (11,118) (22,400)
----------- ----------- ----------- ----------- -----------
Gross margin 4,893 6,645 4,234 4,262 7,167
Selling expenses (433) (420) (197) (261) (382)
Salaries and related costs (1,973) (1,897) (1,626) (1,899) (2,334)
Research and development expenses (122) (159) (566) (186) (298)
Administration and general expenses (1,609) (1,815) (1,601) (1,646) (2,411)
Net gain on liquidation of a joint venture
company 160 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income from operations 916 2,354 244 270 1,742
Interest income 64 73 63 130 458
Interest expenses (532) (503) (445) (261) (338)
Less: Interest capitalized 61 46 25 -- --
----------- ----------- ----------- ----------- -----------
(471) (457) (420) (261) (338)
Foreign exchange (losses)/gains (136) 35 38 14 43
Other income 102 243 53 192 205
Consultancy fee -- -- -- -- (381)
----------- ----------- ----------- ----------- -----------
Income/(loss) before income taxes 475 2,248 (22) 345 1,729
Income tax benefit/(expense) 72 27 36 3 (125)
----------- ----------- ----------- ----------- -----------
Net income $ 547 $ 2,275 $ 14 $ 348 1,604
----------- ----------- ----------- ----------- -----------
Earnings per share - Basic $ 0.19 $ 0.80 $ 0.0045 $ 0.0989 $ 0.2882
- Diluted $ 0.19 $ 0.73 $ 0.0037 $ 0.0874 $ 0.2824
Weighted average shares 2,825,949 2,829,448 3,079,219 3,515,690 5,564,536
Diluted weighted average
Shares 2,846,044 3,134,372 3,674,303 3,978,079 5,679,911
As of March 31,
---------------------------------------------
Balance Sheet Data 1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Working capital $ 1,663 $ 3,184 $ 3,316 $12,765 $ 9,323
Total assets 20,516 20,647 18,660 33,793 37,497
Long-term debt and capital lease
obligations, net of current maturities 787 243 42 865 404
Deferred income taxes assets 16 74 112 126 97
Shareholders' equity 12,142 14,479 14,626 27,022 27,673
Exchange Rate Information
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 of Hong Kong (the "Basic Law")
was transferred to China.
The noon buying rates in New York City for cable transfers as certified for
customs purposes by the Federal Reserve Bank of New York were US$1.00 = RMB
8.2770 and US$1.00 = HK$7.7998, respectively, on July 23, 2001. The following
table sets forth the high and low noon buying rates between Chinese Renminbi and
U.S. dollars and between Hong Kong dollars and U.S. dollars for each month
during the six month period ended May 31, 2001:
4
NOON BUYING RATE
----------------
RMB PER US$1 HK$ PER US$1
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
December 2000 8.2781 8.2768 December 2000 7.8003 7.7963
January 2001 8.2786 8.2764 January 2001 7.8001 7.7993
February 2001 8.2783 8.2763 February 2001 7.8000 7.7990
March 2001 8.2784 8.2768 March 2001 7.8003 7.7994
April 2001 8.2776 8.2767 April 2001 7.8000 7.7983
May 2001 8.2785 8.2709 May 2001 7.8003 7.7991
The following table sets forth the average noon buying rates between
Chinese Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars
for each of 1996, 1997, 1998, 1999 and 2000, calculated by averaging the noon
buying rates on the last day of each month during the relevant year.
AVERAGE NOON BUYING RATE
------------------------
RMB PER US$1 HK$ PER US$1
------------ ------------
1996 8.3395 7.7341
1997 8.3193 7.7440
1998 8.2991 7.7465
1999 8.2785 7.7599
2000 8.2784 7.7936
B. Capitalization and indebtedness.
Not Applicable
C. Reasons for the offer and use of proceeds.
Not Applicable
D. Risk factors.
Forward-Looking Statements
Important Factors Related to Forward-Looking Statements and Associated
Risks. Any statements in this report, which discuss the Company's expectations,
intentions, and strategies for the future, are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements may be identified by
such words or phrase as "anticipate," "believe," "estimate," "expect," "intend,"
"project," "will likely result," "are expected to," "will continue," "is
anticipated," "estimated," "projected" or similar expressions. These statements
are based on information available to the Company on the date of this report and
the Company assumes no obligation to update them. These forward-looking
statements reflect our current views with respect to future events and are not a
guarantee of future performance. Several factors could cause future results to
differ materially from those expressed in any forward-looking statements in this
report including, but not limited to:
5
o Timely development, market acceptance and warranty performance of new
products
o Impact of competitive products and pricing
o Continuity of trends
o Customers' financial condition
o Continuity of sales to major customers
o Interruptions of suppliers' operations affecting availability of component
materials at reasonable prices
o Potential emergence of rival technologies
o Success in identifying, financing and integrating acquisition candidates
o Fluctuations in foreign currency exchange rates
o Uncertainties of doing business in China and Hong Kong
o Such additional risks and uncertainties as are detailed from time to time
in the Company's reports and filings with the SEC.
Political, Legal, Economic and Other Uncertainties of Operations in China and
Hong Kong
Stability of the Hong Kong Dollar. 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. Following the Chinese government's policy of privatizing many
state-owned enterprises, the Chinese government has attempted to augment its
revenues through increased tax collection. Continued efforts to increase tax
revenues could result in increased taxation expenses being incurred by the
Company. 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.
6
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. The Chinese legal system is a civil law
system based on written statutes. Unlike common law systems, it is a system in
which decided legal cases have little precedential value. In 1979, the Chinese
government began to promulgate a comprehensive system of laws and regulations
governing economic matters in general. Legislation over the past 20 years has
significantly enhanced the protections afforded to various forms of foreign
investment in Mainland China. 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 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.
MFN Status. China currently enjoys most favored nation ("MFN") trade
status, which provides China with the trading privileges generally available to
trading partners of the United States. In 2000, China concluded bilateral
negotiations of the major terms for its entry into the World Trade Organization
("WTO") with a number of countries, including the United States, and the
European Union, and congress voted to make China's trade status permanent when
it formally entered the WTO. However, Congress may again consider China's trade
status in 2001 and thereafter as a result of the delay in China's entry into
WTO. In the past, various interest groups have urged that the United States not
renew MFN for China and may do so again before China's entry in the WTO. Even
after China joins the WTO, controversies between the United States and China may
arise in the future that threaten the status quo involving trade between the
United States and China. These controversies could adversely affect our
business, by among other things, causing our products in the United States to
become more expensive, which could result in a reduction in the demand for our
products by customers in the United States. Trade friction between the United
States and China, whether or not actually affecting our business, could also
adversely affect the prevailing market price of our common shares and warrants.
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.
7
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 $23,000,000 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.
Risk Factors Relating to the Business of the Company
Dependence on Major Customers. Three major customers accounted for
approximately 34% of the Company's sales in the fiscal year ended March 31, 2000
and four major customers accounted for approximately 44% of its sales during the
fiscal year ended March 31, 2001. The loss of any of these major customers could
have a material negative impact on the Company's business. See Item 4 -
"Information on the Company--Customers and Marketing--Major Customers" and Item
5 - "Operating and Financial Review and Prospects--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 6 - "Directors, Senior Management and Employees."
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 4 - "Information on the Company--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 May 31, 2001, Mr. Anthony So, the founder and
President of the Company, beneficially owned approximately 32.47% of the
Company's common stock or 29.02% based upon the shares outstanding and the
shares that he owns or controls without taking into account any shares that may
be acquired upon exercise of his options. 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 7 - "Major Shareholders and
Related Party Transactions."
8
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.
Future Sales of Restricted Shares Into the Public Market Could Depress the
Market Price of the Common Stock. Approximately 3,123,577 outstanding shares of
the Company's common stock are restricted securities as that term is defined in
Rule 144 under the Securities Act. 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 1,771,201 shares of
common stock and have reserved an additional 760,300 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.
Warrantholders May Not be Able to Sell Their Shares of Common Stock for
What They Paid for Them. The exercise price of the Company's outstanding
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 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.
9
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
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.
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.
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.
10
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
Exchange Act requiring the filing with the SEC 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 4. Information on the Company
A. History and Development of the Company.
Bonso Electronics International, Inc. designs, develops, produces and sells
electronic sensor-based and wireless products for private label Original
Equipment Manufacturers (individually "OEM" or collectively "OEMS"). The Company
was formed on August 8, 1988 as a limited liability International Business
Company under the laws of the British Virgin Islands under the name "Golden
Virtue Ltd." On September 14, 1988, the Company changed its name to Bonso
Electronics International, Inc. The Company operates under International
Business Companies Ordinance, 1984, of the British Virgin Islands.
As part of its ongoing expansion of the sensor-based product business,
effective as of May 1, 2001 the Company acquired Korona Haushaltswaren GmbH &
Co. KG , ("Korona"), a wholly-owned subsidiary of Augusta Technologie AG
("Augusta"), Frankfurt am Main, Germany, for approximately $3,634,000 subject to
closing adjustments.. The Company paid approximately $2,730,000 in cash and
180,726 shares of the Company's common stock valued at approximately $904,000 on
the date of the sale. Korona had year 2000 sales of approximately $16 million.
Korona markets consumer scale products throughout Europe to retail merchandisers
and distributors. These products feature contemporary designs using the latest
materials and attractive packaging. The Company has manufactured a portion of
Korona's product line under an OEM agreement since 2000 and is very familiar
with Korona's stature in Europe and its potential for wider global distribution.
The purchase price was determined through arms-length negotiations between
the Company and Augusta, which negotiations took into consideration Korona's
business, financial position, operating history, products, intellectual property
and other factors relating to Korona's business.
There are no material relationships between the Company and Augusta.
11
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 info@bonso.com and its website is www.bonso.com. The Company's
registered agent in the United States is Henry F. Schlueter, Esq., 1050
Seventeenth Street, Suite 1700, Denver, Colorado 80265.
B. Business overview.
Bonso Electronics International, Inc. designs, develops, produces and sells
electronic sensor-based and wireless products. The Company has manufactured all
of its products in China since 1989 in order to take advantage of the lower
overhead costs and competitive labor rates available there. The location of the
Company's factory in Shenzhen, China, only 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.
Products
The Company's sensor-based scale products are comprised of bathroom,
kitchen, office, jewelry, laboratory, postal and industrial scales that are used
in consumer, commercial and industrial applications. These products accounted
for 79% of revenue for the fiscal year ended March 31, 1999, 82% for 2000 and
65% for 2001.
The Company's sensor-based health care products are comprised primarily of
thermometers and blood pressure meters used by consumers. These products
accounted for 15% of revenue for the fiscal year ended March 31, 1999, 8% for
2000 and 2% for 2001.
The Company's wireless telecommunications products are primarily comprised
of two-way radios, global positioning systems ("GPS"), and cordless telephones
that are used in consumer and commercial applications. These products accounted
for 5% of revenue for the fiscal year ended March 31, 2000 and 29% for 2001.
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, other electronic consumer products, such as pedometers and
chronographs, 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
accounted for approximately 6% of net sales for the fiscal year ended March 31,
1999, 5% for 2000 and 4% for 2001.
The following table sets forth the percentage of net sales of each of the
product lines mentioned above, for the fiscal years ended March 31, 1999, 2000,
and 2001.
Year ended March 31,
---------------------------------------
Product Line 1999 2000 2001
- ------------ ---- ---- ----
Scales 79% 82% 65%
Healthcare products 15 8 2
Telecommunications products 0 5 29
Other products and services 6 5 4
---------------------------------------
Total 100% 100% 100%
=======================================
12
Customers and Marketing
The Company sells its products primarily in the United States and Europe.
Customers for the Company's products 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, 1999, 2000 and 2001.
Year ended March 31,
-----------------------------------------------------------------
1999 2000 2001
- -------------- ---------------------- -------------------- ---------------------
North America $ 5,597,402 43% $ 7,339,473 48% $13,531,782 46%
- -------------- ---------------------- -------------------- ---------------------
Europe $ 6,248,263 48% $ 6,330,064 41% $14,160,371 48%
- -------------- ---------------------- -------------------- ---------------------
Asia $ 1,041,377 8% $ 1,568,635 10% $ 1,538,650 5%
- -------------- ---------------------- -------------------- ---------------------
Others $ 159,223 1% $ 142,114 1% $ 335,877 1%
- -------------- ---------------------- -------------------- ---------------------
Total $ 13,046,265 100% $ 15,830,286 100% $29,566,680 100%
- -------------- ---------------------- -------------------- ---------------------
The Company maintains a marketing team of five 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,
facsimile and in person.
A list of customers representing over 10% of the Company's sales for any of
the prior three fiscal years follows:
Percent of Company's Sales - Year ended March 31,
- ------------------------------------- ---------- --------- ---------
Electronics Sensor Customer 1999 2000 2001
- ------------------------------------- ---------- --------- ---------
Ohaus Corporation (USA) 2% 11% 10%
- ------------------------------------- ---------- --------- ---------
Gram Precision (Canada) 1% 7% 10%
- ------------------------------------- ---------- --------- ---------
Gottl Kern & Sohn Gmbh (Germany) 7% 11% 8%
- ------------------------------------- ---------- --------- ---------
Werner Dorsch Gmbh & Co. (Germany) 15% 12% 6%
- ------------------------------------- ---------- --------- ---------
Pitney Bowes, Inc. (USA) 15% 7% 1%
- ------------------------------------- ---------- --------- ---------
Globaltec Corporation (USA) 11% 2% 1%
- ------------------------------------- ---------- --------- ---------
Omron Health Care 10% 6% 1%
(USA)
- ------------------------------------- ---------- --------- ---------
13
Percent of Company's Sales - Year ended March 31,
- -------------------------------------- ------------ ------------ ------------
Telecommunications Customers 1999 2000 2001
- -------------------------------------- ------------ ------------ ------------
Telson Information & Communications 0% 3% 12%
Co., Ltd. (Korea)
- -------------------------------------- ------------ ------------ ------------
Telson Telecommunication Technology 0% 2.0% 12%
Co., Ltd. (Korea)
- -------------------------------------- ------------ ------------ ------------
Sales of the Company's products to OEM's accounted for approximately 87% of
the Company's total net sales in the year ended March 31, 1999, 95% in the year
ended March 31, 2000 and 97% in the year ended March 31, 2001.
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 key
components. The Company purchases components for its products primarily from
suppliers in Japan, Taiwan, South Korea, Hong Kong and the PRC. The Company has
not experienced and management does not expect to experience any difficulty in
obtaining needed component parts for its products.
Quality Control
On March 14, 2001 the Company received its ISO 9001: 2000 certification
from Det Norske Veritas Certification B.V., the Netherlands. The ISO 9001: 2000
certification was awarded to the Company's subsidiary, Bonso Electronics Ltd.
("BEL") and to BEL's subsidiary Bonso Electronics (Shenzhen) Company Limited,
the manufacturing plant.
These two subsidiaries first received the ISO 9001: 1994 certification on
March 29, 1995 and have maintained this certification since that time. The new
ISO 9001: 2000 version was first launched on December 15, 2000. The two
subsidiaries are among the earliest recipients of this certification in Hong
Kong and the Peoples Republic of China.
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. The Company has obtained a
trademark registration in Hong Kong and China for the marks BONSO and MODUS in
connection with certain electronic apparatus. Also, the Company has acquired the
trademark registration rights to the KORONA mark for 16 European countries and
has applied for a registration in the U. S.
14
Product Research and Development/Competition
The major responsibility of the product design, 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 under
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.
Both the electronic sensor-based and wireless products are highly
competitive. Competition is primarily based upon unit price, product quality,
reliability, product features and management's reputation for integrity.
Accordingly, reliance is placed on research and development of new products,
line extensions and technological, quality and other continuous product
improvement. There can be no assurance that the Company will enjoy the same
degree of success in these efforts in the future. Research and development
expenses, net of customer funding, aggregated $566,000 for 1999, $186,000 for
2000 and $298,000 for 2001.
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.
Government Regulation
In the United States, the Medical Device Amendments of 1976 to the federal
Food, Drug and Cosmetic Act 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.
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. 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.
15
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. An OEM 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 of the Company's manufacturing processes require the use of
quantities of chemicals identified by the Environmental Protection Agency as
hazardous. The Company uses its best efforts to handle, store, and dispose of
these materials in a safe and environmentally sound manner, in accordance with
federal, state and local regulations.
Foreign Operations
The Chinese government has continued to pursue economic reforms hospitable
to foreign investment and free enterprise, although the continuation and success
of these efforts is not assured. The Company's operations could be adversely
affected by changes in Chinese laws and regulation, including those relating to
taxation and currency exchange controls, by the imposition of economic austerity
measures intended to reduce inflation, and by social and political unrest. The
United States has considered revoking China's MFN tariff status in connection
with controversies over the protection of human rights and intellectual property
rights, among other things. The loss of MFN tariff status could adversely affect
the cost of goods imported into the United States. Additionally, if China does
not join the WTO, the Company may not benefit from the lower tariffs and other
privileges enjoyed by competitors located in countries that are members of the
WTO.
Sovereignty over Hong Kong reverted to China on July 1, 1997. The 1984
Sino-British Joint Declaration, the 1990 Basic Law of Hong Kong, the 1992 United
States-Hong Kong Policy Act and other agreements provide some indication of the
business climate the Company believes will continue to exist in Hong Kong after
this change in sovereignty. Hong Kong remains a Special Administrative Region
("SAR") of China, with certain autonomies from the Chinese government. Hong Kong
is a full member of the WTO. It has separate customs territory from China, with
separate tariff rates and export control procedures. It has a separate
intellectual property registration system. The Hong Kong dollar is legal tender
in the SAR, freely convertible and not subject to foreign currency exchange
controls by China. The SAR government has sole responsibility for tax policies,
though the Chinese government must approve the SAR's budgets. Notwithstanding
the provisions of these international agreements, the continued stability of
political, legal, economic or other conditions in Hong Kong cannot be assured.
No treaty exists between Hong Kong and the United States providing for the
reciprocal enforcement of foreign judgements. Accordingly, Hong Kong courts
might not enforce judgements predicated on the federal securities laws of the
United States, whether arising from actions brought in the United States or, if
permitted, in Hong Kong.
Generally, the Company's revenues are all priced in United States dollars
and its costs and expenses are priced in United States dollars, Hong Kong
dollars and Chinese renminbi. Accordingly, the competitiveness of the Company's
products relative to locally produced products may be affected by the
performance of the United States dollar compared with that of its foreign
customers' currencies. Fluctuations in the value of the Hong Kong dollar have
not been significant since October 17, 1983, when the Hong Kong government
pegged the value of the Hong Kong dollar to that of the United States dollar.
16
However, there can be no assurance that the value of the Hong Kong dollar will
continue to be tied to that of the United States dollar. The value of the
Chinese renminbi has been fairly stable for the last few years and it is
unlikely that there will be material fluctuation in the coming years. However,
there can be no assurance that these currencies will remain stable or will
fluctuate to the Company's benefit. To manage its exposure to these risks, the
Company may, though to date it has not, purchase currency exchange forward
contracts, currency options or other derivative instruments, provided such
instruments can be obtained at suitable prices.
o Organizational structure.
The Company has one wholly-owned subsidiary - Bonso Electronics Limited
("Bonso Electronics"). Bonso Electronics, which was organized under the laws of
Hong Kong, 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"). BIL, which was organized under the laws of Hong Kong, has been
used to acquire and hold the Company's real estate investments in Hong Kong and
China.
Bonso Electronics also has one active PRC subsidiary - Bonso Electronics
(Shenzhen) Company Limited, which is organized under the laws of the PRC, and is
used to manufacture all of the Company's products.
D. Property, plants and equipment.
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 8th floor of 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 7 - "Major Shareholders and
Related Party Transactions -- Related party transactions."
17
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. This factory 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, wholly-owned by the Company. These wholly-owned facilities were
initially used by the Company 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 four residential properties described as follows:
o Lijingge Court, Unit F, 15th Floor, Hai Li Building, Shenzhen, China,
consisting of approximately 1,000 square feet.
o The 12th floor, Yuk Yui Court, Gui Hua Garden, Shenzhen Bay, China,
consisting of approximately 1,125 square feet.
o Lakeview Mansion, B-20C, Hujinju Building No. 63, Xinan Road, Boacheng
Baoan Shenzhen, China, consisting of approximately1,591 square feet.
o Lakeview Mansion, B-11B, Hujinju Building No. 63, Xinan Road, Boacheng
Baoan Shenzhen, China, consisting of approximately 1,335 square feet.
The property in the Hai Li Building is rented to an unaffiliated third
party for RMB 4,000 per month (approximately $483) and the property at Yuk Yui
Court is rented to an unaffiliated third party for RMB 2,900 per month
(approximately $350). The Lakeview Mansion properties are utilized by directors
when they require accommodations in China.
The Company also owns two office units in Beijing, namely, Units 12 and 13
on the 3rd floor, Block A of Sunshine Plaza in Beijing, China. Unit 12 consists
of 1,102 square feet and Unit 13 consists of 1,860 square feet. Both Units are
rented to unaffiliated third parties for an aggregate monthly rental of RMB
21,000, or approximately $2,537.
18
Adequacy of Facilities
Management believes that the Company's manufacturing complex, including its
newly leased space, will be adequate for its reasonably foreseeable needs.
Item 5. Operating and Financial Review and Prospects
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 3 - "Key Information -- Risk factors." The
following discussion and analysis should be read in conjunction with Item 3 -
"Key Information -- 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 sensor-based
and wireless 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. In the fiscal year ended March 31, 2001, net sales
increased to approximately $29,567,000 and net income increased to approximately
$1,604,000.
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 on land
adjacent to 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.
19
A. Operating results
The following table sets forth selected income data as a percentage of net
sales for the periods indicated.
Year ended March 31,
---------------------------
Income Statement Data 1999 2000 2001
------- ------- -------
Net sales 100.0% 100.0% 100.0%
Cost of sales (67.5) (72.3) (75.8)
------- ------- -------
Gross margin 32.5 27.7 24.2
Selling expenses (1.5) (1.7) (1.3)
Salaries and related costs (12.5) (12.3) (7.9)
Research and development expenses (4.3) (1.2) (1.0)
Administration and general expenses (12.3) (10.7) (8.1)
------- ------- -------
Income from operations 1.9 1.8 5.9
Interest income 0.4 0.8 1.5
Interest expense (3.4) (1.7) (1.1)
Less: Interest capitalized 0.2 -- --
------- ------- -------
(3.2) (1.7) (1.1)
Foreign exchange gains 0.3 0.1 0.1
Other income 0.4 1.2 0.7
Consultancy fee -- -- (1.3)
------- ------- -------
Income/(loss) before income taxes (0.2) 2.2 5.8
Income tax benefit/(expense) 0.3 -- (0.4)
------- ------- -------
Net income 0.1% 2.2% 5.4%
======= ======= =======
Fiscal year ended March 31, 2001 compared to fiscal year ended March 31, 2000
Net Sales. The Company's sales increased 92% from approximately $15,380,000
for the fiscal year ended March 31, 2000, to approximately $29,567,000 for the
fiscal year ended March 31, 2001, primarily as a result of entering into the new
wireless telecommunications business during fiscal year ended March 31, 2000.
The full year's effect of the sales has contributed an increase in sales of
approximately $7,978,000. In addition, various new and existing customers for
electronic sensor-based products have increased their orders resulting in an
increase of net sales by 52% in this product segment.
Gross Margin. Gross margin decreased from 27.7% to 24.2% primarily due to
the write-off of approximately $570,000 in inventory and the increased
depreciation charges of approximately $721,000 for newly acquired machinery
during the year.
Selling Expenses. Selling expenses increased by 46% from approximately
$261,000 for the fiscal year ended March 31, 2000 to approximately $382,000 for
the fiscal year ended March 31, 2001. This increase was attributable primarily
to increases in freight charges.
Salaries and Related Costs. Salaries and related costs increased by 23%
from approximately $1,899,000 for the fiscal year ended March 31, 2000 to
approximately $2,334,000 for the fiscal year ended March 31, 2001. This increase
was primarily due to increases in administrative staff to support the
diversification in business segments and increased sales.
Research and Development. Research and development expenses increased 60%
from approximately $186,000 during the fiscal year ended March 31, 2000 to
approximately $298,000 for the fiscal year ended March 31, 2001. Research and
development costs increased due to development work on the Company's
telecommunications products.
20
Administration and General Expenses. Administration and general expenses
increased by 46% from approximately $1,646,000 for the fiscal year ended March
31, 2000 to approximately $2,411,000 for the fiscal year ended March 31, 2001.
This increase was primarily due to increased in trading activities and the
related increase in administrative overhead to support the higher sales.
Income from Operations. As a net result of the above changes, income from
operations increased by 545% from approximately $270,000 for the fiscal year
ended March 31, 2000 to approximately $1,742,000 for the fiscal year ended March
31, 2001.
Other Income. Other income increased 7% from approximately $192,000 for the
fiscal year ended March 31, 2000 to approximately $205,000 for the fiscal year
ended March 31, 2001. This small increase was primarily a result of increased
scrap sales.
Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of
approximately $14,000 for the fiscal year ended March 31, 2000 and a gain of
approximately $43,000 for the fiscal year ended March 31, 2001. This difference
was primarily attributable to the pegged exchange rate and the actual
transaction rate.
Interest Income. Interest income increased by 252% from approximately
$130,000 in the fiscal year ended March 31, 2000 to approximately $458,000 in
the fiscal year ended March 31, 2001, because of an increase in funds available
to earn interest resulting from the exercise of warrants in early 2000.
Interest Expenses. Interest expenses increased 30% from approximately
$261,000 in the fiscal year ended March 31, 2000 to approximately $338,000 for
the fiscal year ended March 31, 2001. The increase resulted from the Company's
increased use of its banking facilities to support the growth in sales.
Consultancy Fee. The Company has entered into an agreement with a third
party to provide consulting/advisory services relating to the Company's capital
structure and fund-raising activities. The period of services is from July 2000
to January 2003 and a consultancy fee of approximately $381,000 was incurred for
the fiscal year ended March 31, 2001, relating to warrants that were issued to
the consultant.
Net Income. As a net result of the above changes, Net income increased from
the fiscal year ended March 31, 2000 compared to the fiscal year ended March 31,
2001 by approximately $1,256,000.
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.
21
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 support 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 costs 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.
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 approximately
$23,716,000 for the fiscal year ended March 31, 1998, to approximately
$13,046,000 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.
22
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 approximately
$420,000 for the fiscal year ended March 31, 1998 to approximately $197,000 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 approximately $1,897,000 for the fiscal year ended March 31, 1998 to
approximately $1,626,000 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 approximately $159,000 during the fiscal year ended March 31, 1998
to approximately $566,000 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 approximately
$392,000 on development of the Company's proposed cordless telephone.
Administration and General Expenses. Administration and general expenses
decreased by 11.8% from approximately $1,815,000 for the fiscal year ended March
31, 1998, to approximately $1,601,000 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
approximately $2,354,000 for the fiscal year ended March 31, 1998 to
approximately $244,000 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 approximately $243,000
for the fiscal year ended March 31, 1998 to approximately $53,000 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
approximately $35,000 for the fiscal year ended March 31, 1998 and a gain of
approximately $38,000 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 approximately
$458,000 in the fiscal year ended March 31, 1998 to approximately $421,000 in
the fiscal year ended March 31, 1999, as a result of reduced bank borrowings.
23
Income Taxes. The Company received an income tax credit of approximately
$27,000 for the fiscal year ended March 31, 1998 and approximately $36,000 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 approximately $2,275,000 for
the fiscal year ended March 31, 1998 to approximately $14,000 for the fiscal
year ended March 31, 1999, primarily as a result of decreased turnover and the
other factors described above.
Impact of Inflation
Management believes that inflation has not had a material effect on its
business between 2000 and 2001. 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.
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. Management also believes that any increases in labor costs
will not materially impact its operations because of the lower labor costs,
which the Company enjoys in China.
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.
Pursuant to the relevant income tax laws in the PRC, Bonso Electronics
(Shenzhen) Co., Ltd, a wholly owned subsidiary of Bonso Electronics, was 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. The
first profit-making year of Bonso Electronics (Shenzhen) Co., Ltd. was deemed to
be the financial year ended December 31, 1998. Accordingly, the Company is
subject to income tax rate of 7.5% in the PRC effective January 1, 2000 to
December 31, 2002.
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
24
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. The Company's newly acquired subsidiary
Korona primarily pays for its products in United States Dollars and sells its
products in German Marks or Euros. As a result, the Company may experience
greater foreign exchange risk than it has in the past.
B. 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, 2001, the
Company had in place general banking facilities with four financial institutions
aggregating $14,555,862. Such facilities include the ability to obtain
overdrafts, letters of credit, notes payable, short-term loans and long-term
loans. As of March 31, 2001, the Company had utilized $5,905,330 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,
the Company's real property located at Savanna Garden in Tai Po, the Company's
warehouse space in Fo Tan, the Company's office space in Tsimshatsui, and 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, 2001 and 2000 were
$4,321,846 and $1,441,328, respectively. During the fiscal year ended March 31,
2001, the Company paid a total of $337,526 in interest on indebtedness.
Operating activities provided $3,126,892 of net cash for the fiscal year
ended March 31, 2001 compared to $1,601,248 of net cash for the fiscal year
ended March 31, 2000. The increase from the fiscal year ended March 31, 2000 to
the fiscal year ended March 31, 2001 was primarily due to the increase in net
income before depreciation charges and the decrease in inventories. Investing
activities used $6,718,312 of net cash for the fiscal year ended March 31, 2001
and used $4,908,580 of net cash for the fiscal year ended March 31, 2000. The
increase in net cash used in investing activities from the fiscal year ended
March 31, 2000 to the fiscal year ended March 31, 2001 was primarily due to an
increase in acquisition of property, plant and equipment. Financing activities
provided $954,413 of net cash for the fiscal year ended March 31, 2001 and
provided $10,996,598 for the fiscal year ended March 31, 2000. This net decrease
in cash provided was primarily due to a substantial decline in the amount of
equity funding raised during the year and the use of cash to repurchase shares
of the Company's common stock.
As of March 31, 2001, the Company had $5,322,397 in cash and cash
equivalents as opposed to $7,959,404 as of March 31, 2000. Working capital at
March 31, 2001, was $9,263,000 , compared to $12,765,000 at March 31, 2000.
There are no other material unused sources of liquid assets. The Company
believes that there are no 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. Management does not anticipate incurring any significant capital
expenditures during this fiscal year. In the opinion of management, the
Company's working capital is sufficient for its present requirements.
25
The Company's current ratio (current assets divided by current liabilities)
decreased from 3.16 as of March 31, 2000 to 1.99 as of March 31, 2001. Its quick
ratio (cash and cash equivalents, restricted cash deposits and receivables
divided by current liabilities) decreased from 2.11 as of March 31, 2000 to 1.43
as of March 31, 2001.
As of March 31, 2001, the Company had contingent liabilities to banks for
outstanding letters of credit of $1,514,801 as opposed to $766,417 as of March
31, 2000 and shipping guarantees of $555,075 as opposed to $19,340 as of March
31, 2000.
C. Research and development, patents and licenses, etc.
Management believes that the Company's engineering and product development
capabilities are important to the future success of the its 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 March 31, 2001, the Company employed three individuals in Hong Kong and
32 individuals in China as its engineering staff, who are at various times
engaged in research and development. 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 anticipates hiring additional research and development
personnel.
During the fiscal year ended March 31, 2001, the Company spent
approximately $298,000 on research and development as opposed to $186,000 during
the fiscal year ended March 31, 2000 and approximately $566,000 during the
fiscal year ended March 31, 1999.
D. Trend information
The Company has expanded into the telecommunications sector within the last
year and is manufacturing cordless telephones and family radios
(walkie-talkies). Significant expenditures were made to acquire additional
production facilities and equipment to support the Company's expansion into the
telecommunications market. Although management is optimistic about the Company's
future in the manufacture and sale of telecommunications products, the Company
is dependent upon a limited number of customers, and the loss of any of these
customers could have a material and adverse affect upon the Company. At June 30,
2001, the Company's backlog of manufacturing orders was $9,009,059 compared to
$4,999,670 at June 30, 2000. Management believes that revenues from
telecommunications products as a percentage of sales will be even more
significant in fiscal 2002.
As part of its ongoing expansion of the sensor-based product business,
effective as of May 1, 2001 the Company acquired Korona, which had calendar year
2000 sales of approximately $16 million. Korona markets consumer scale products
throughout Europe to retail merchandisers and distributors. These products
26
feature contemporary designs using the latest materials and attractive
packaging. The Company has manufactured a portion of Korona's product line under
an OEM agreement since 2000 and is very familiar with Korona's stature in Europe
and its potential for wider global distribution. Further, the acquisition of
Korona is the Company's first step in vertically integrating its manufacturing
business with the marketing and distribution of the products it manufactures
under the Company's own brand name. The Company intends as part of its expansion
strategy to evaluate other acquisition opportunities.
Both the scale business and the telecommunication business are subject to
some seasonal variation. Typically the Company's fourth quarter (i.e., January
1-March 31) is the Company's slowest quarter. This is due in part to the
occurrence of the Chinese New Year's holiday and the fact that the Company's
factory workers take leave for the holiday. In addition, sales during the first
calendar quarter of both scales and telecommunications products usually dip
following the upswing in sales during the Christmas season.
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.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities - Replacement of FASB Statement No. 125", is
effective for fiscal years ending after March 31, 2001. Restatement of
disclosures for earlier periods provided for comparative purposes is required.
This Statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration.
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.
27
SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" was issued on December 3, 1999. This staff accounting bulletin
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has fulfilled the criteria as set out by the bulletin.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management.
The directors and executive officers of the Company are as follows:
Name Age Position with the Company
- ---- --- -------------------------
Anthony So 57 President, Chief Executive Officer, Secretary,
Treasurer, Chief Financial Officer, Chairman of
the Board and Director
Kim Wah Chung 43 Director of Engineering and Research and
Development and Director
Cathy, Kit Teng Pang 39 Director of Finance and Director
Henry F. Schlueter 50 Assistant Secretary
Woo-Ping Fok 52 Director
George O'Leary 63 Director
J. Stewart Jackson, IV 65 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.
28
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
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.
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 Wong & Fok. 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.
29
There are no family relationships between any of the Company's directors
and executive officers.
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
until their death, resignation or removal. The executive officers serve at the
pleasure of the Board of Directors of the Company.
B. Compensation.
The aggregate amount of compensation paid by Bonso and its subsidiaries
during the year ended March 31, 2001 to all directors and officers as a group
for services in all capacities was approximately $973,450 including compensation
in the form of housing in Hong Kong for its Chairman and Chief Executive Officer
and Director of Engineering and Research and Development consistent with the
practice of other companies in Hong Kong. Total compensation for the benefit of
Anthony So was $559,672, for the benefit of Cathy Kit Teng Pang was $106,359,
for the benefit of K.W. Chung was $137,285, and for the benefit of Mr. George
O'Leary was $170,134.
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, 2001, other than contributions to the Company's Provident Fund
Plan which aggregated $30,769 for officers and directors during the fiscal year
ended March 31, 2001.
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.) All directors are reimbursed for all
reasonable expenses incurred in connection with services as a director.
Provident Fund Plan
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 who joined BEL before December 2000, excluding factory workers, are
eligible to join the provident fund plan.
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%
30
The Mandatory Provident Fund (the "MPF") was introduced by the Hong Kong
Government commencing in December 2000. BEL joined the MPF with a major
international assurance company. All permanent full time employees who joined
BEL in or after December 2000, excluding factory workers, are eligible to join
the MPF. Members' and employers' contributions to the MPF are both at 5% of the
members' monthly salaries and are subject to a maximum contribution of HK$1,000
monthly.
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.
On resignation or at normal retirement age, death or ill health, the member
of the MPF shall be entitled to a lump sum equal to the total of the member's
and BEL's contributions plus a return on their investment.
BEL's total contributions to the Plan and the MPF for the years ended March
31, 1999, 2000 and 2001 amounted to $54,046, $64,921 and $53,704 respectively.
C. Board practices.
Messrs. Woo Ping Fok, George O'Leary and Henry F. Schlueter are members of
the Company's Audit Committee. Mr. O'Leary acts as chairman of the Audit
Committee. The Audit Committee's responsibilities include recommending to the
board the selection of our independent auditors, reviewing the arrangements and
the scope of the independent audit and reviewing all financial statements. The
Company does not have a compensation committee.
D. Employees.
At March 31, 2001 the Company employed 2,314 persons, compared with 2,163
persons at March 31, 2000: 40 employees in Hong Kong (33 for 2000), and 2,274
employees in China (2,130 for 2000). Employees are not covered by collective
bargaining agreements. The Company considers its global labor practices and
employee relations to be good.
Remainder of this page left blank intentionally
31
E. Share ownership.
The following table shows the number of shares of common stock beneficially
owned by the Company's directors and executive officers as of May 31, 2001:
Total Number
Shares of Options and of Shares of Percent of
Common Stock Warrants Common Stock Beneficial
Name Owned of Record Held Beneficially Owned Ownership
---- --------------- ---- ------------------ ---------
Anthony So 1,626,195(1) 286,000(2), (3) 1,912,195 32.47%
Kim Wah Chung 93,700 40,000(4), (5) 133,700 2.37%
Cathy Kit Teng Pang 35,438 40,000(4), (5) 75,438 1.34%
Henry F. Schlueter 34,403 10,000(6) 44,403 0.79%
Woo Ping Fok 61,907 20,000(7), (8) 81,907 1.46%
George O'Leary 17,775 20,000(7), (8) 37,775 0.67%
J. Stewart Jackson IV 461,975 110,000(8) 571,975 10.01%
All Directors and Officers
as a group (7 persons) 2,331,393 526,000 2,857,393 46.63%
- ----------
(1) Includes 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.
(2) Includes options to purchase 158,000 shares of common stock at an exercise
price of $8.00 per share expiring January 6, 2010.
(3) Includes options to purchase 128,000 shares of common stock at an exercise
price of $3.65 per share expiring on April 9, 2011.
(4) Includes options to purchase 20,000 shares of common stock at an exercise
price of $8.00 per share expiring January 6, 2010.
(5) Includes options to purchase 20,000 shares of common stock at an exercise
price of $3.65 per share expiring on April 9, 2011.
(6) Includes options to purchase 10,000 shares of common stock at an exercise
price of $8.00 per share expiring January 6, 2010.
(7) Includes options to purchase 10,000 shares of common stock at an exercise
price of $8.125 per share expiring January 12, 2010.
(8) Includes options to purchase 10,000 shares of common stock at an exercise
price of $7.875 per share expiring on January 9, 2011.
32
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 is 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 are 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, at the discretion of the Company.
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 is 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 of the Company is
automatically 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
is equal to the fair market value of the underlying shares on the date of grant,
based on 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
33
other property, including the optionee's promissory note, or by a combination of
the above, at the discretion of the Company. The term of each option granted
pursuant to the Non-Employee Directors' Plan is 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 is
transferable otherwise than by will or the laws of descent and distribution.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
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 May 31, 2001, the beneficial ownership of the Company's common stock by each
person known by the Company to own beneficially 5% or more of the common stock
of the Company outstanding as of such date. Except as otherwise indicated, all
shares are owned directly and hold equal voting rights.
Name Amount Owned
---- ------------------------------------
Percent of
Shares of Options/Warrants to Class (1)
Common Stock Purchase Common Stock Beneficially Owned
------------ --------------------- ------------------
Anthony So 1,626,195(2) 286,000(3) 32.47%
John Stewart Jackson IV 461,975 110,000(3) 10.01%
W. Douglas Moreland 475,000 0 8.48%
- --------------------
(1) Based on beneficial ownership of both shares of common stock and of options
to purchase common stock that are immediately exercisable.
(2) Includes 1,068,421 shares of common stock owned of record by a corporation
that is wholly owned by a trust of which Mr. So is the sole beneficiary.
(3) See "Share Ownership" for additional information.
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.
Of the 5,601,859 shares of common stock outstanding as of May 31, 2001,
4,312,638 were held in the United States by 235 holders of record. The Company
has 246 shareholders of record and estimates that it has in excess of 824
shareholders holding their stock in street name (who have not objected to their
names being disclosed to the Company).
34
B. Related party transactions.
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 year ended March 31, 2001, Mr. O'Leary was paid an aggregate
of $170,134 in commissions.
C. Interests of experts and counsel.
Not Applicable.
Item 8. Financial Information
Financial Statements
Our Consolidated Financial Statements are set forth under Item 18.
Financial Statements.
Legal Proceedings
The Company is not party to any legal proceedings other than routine
litigation incidental to its business and there are no material legal
proceedings pending with respect to the property of the Company.
A. Consolidated statements and other financial information.
Please refer to Item 18.
B. Significant changes.
None
35
Item 9. The Offer and Listing
A. Offer and listing details.
The Company's common stock is traded only in the United States
over-the-counter market. It is quoted on the Nasdaq National Market System
("NASDAQ") under the trading symbol "BNSO." The following table sets forth, for
the periods indicated, the range of high and low closing sales prices per share
reported by Nasdaq. The quotations represent prices between dealers and do not
include retail markup markdown or commissions and may not necessarily represent
actual transactions.
Period High Low
------ ---- ---
Last Five Fiscal Years
April 1, 1996 to March 31, 1997 $ 3.125 $ 1.8125
April 1, 1997 to March 31, 1998 $10.125 $ 1.6875
April 1, 1998 to March 31, 1999 $11.375 $ 3.5625
April 1, 1999 to March 31, 2000 $19.875 $ 5.75
April 1, 2000 to March 31, 2001 $17.5625 $ 6.00
Last Two Fiscal Years
April 1, 1999 to June 30, 1999 $ 7.625 $ 5.75
July 1, 1999 to September 30, 1999 $ 7.625 $ 6.28125
October 1, 1999 to December 31, 1999 $ 8.9375 $ 6.875
January 1, 2000 to March 31, 2000 $19.875 $ 7.50
April 1, 2000 to June 30, 2000 $17.5625 $12.125
July 1, 2000 to September 30, 2000 $12.50 $ 7.9375
October 1, 2000 to December 31, 2000 $11.5625 $ 6.375
January 1, 2001 to March 31, 2001 $12.875 $ 6.00
Most Recent Six Months
December 2000 $11.56 $ 7.88
January 2001 $ 9.1875 $ 6.00
February 2001 $12.875 $ 9.625
March 2001 $12.7656 $ 6.625
April 2001 $ 7.625 $ 3.64
May 2001 $ 6.10 $ 4.34
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.
36
Item 10. Additional Information.
A. Share capital.
Not Applicable.
B. Memorandum and articles of association.
A copy of the Company's Memorandum and Articles of Association, as amended,
has been filed as an exhibit to the Company's registration statement on Form F-2
filed with the SEC on October 7, 1994 (SEC File No. 33-84872) and is
incorporated herein by this reference.
C. Material contracts.
The Company has not entered into any material contracts outside of the
ordinary course of business during the last two years except for its Agreement
to acquire Korona. For additional information about the acquisition of Korona,
please see Item 4. History and Information on the Company.
D. Exchange controls.
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.
37
E. 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.
In addition to United States federal income taxation, shareholders may be
subject to state and local taxes upon their receipt of dividends.
F. Dividends and paying agents.
Not Applicable
G. Statement by experts.
Not Applicable.
H. Documents on display.
You may read and copy documents referred to in this annual report on Form
20-F that have been filed with the SEC at the SEC's public reference room
located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges.
The SEC allows us to "incorporate by reference" the information we file
with the SEC. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this annual report on Form
20-F.
I. Subsidiary information.
Not Applicable.
38
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a certain level of foreign currency exchange risk and
interest rate risk.
Foreign Currency Risk
The majority of our net sales are priced in United States dollars. Our
costs and expenses are priced in United States dollars, Hong Kong dollars,
Chinese renminbi, and Japanese Yen. Accordingly, the competitiveness of our
products relative to products produced domestically (in foreign markets) may be
affected by the performance of the United States dollar compared with that of
its foreign customers' currencies. Additionally, we are exposed to the risk of
foreign currency transaction and translation losses which might result from
adverse fluctuations in the values of the Hong Kong dollar, the Chinese
renminbi, and the Japanese Yen. These factors are also applicable as a result of
our acquisition of Korona, subsequent to year end. Korona derives a significant
portion of its net sales in German Marks or Euros.
Fluctuations in the value of the Hong Kong dollar have not been significant
since October 17, 1983, when the Hong Kong government tied the value of the Hong
Kong dollar to that of the United States dollar. However, there can be no
assurance that the value of the Hong Kong dollar will continue to be tied to
that of the United States dollar. China adopted a floating currency system on
January 1, 1994, unifying the market and official rates of foreign exchange.
China approved current account convertibility of the Chinese renminbi on July 1,
1996, followed by formal acceptance of the International Monetary Fund's
Articles of Agreement on December 1, 1996. These regulations eliminated the
requirement for prior government approval to buy foreign exchange for ordinary
trade transactions, though approval is still required to repatriate equity or
debt, including interest thereon. There can be no assurance that these
currencies will remain stable or will fluctuate to our benefit.
To manage our exposure to foreign currency and translation risks, we may
purchase currency exchange forward contracts, currency options, or other
derivative instruments, provided such instruments may be obtained at suitable
prices. However, to date we have not done so.
39
Interest Rate Risk
Our interest rate risk primarily arises from our long-term debt and our
general banking facilities. At March 31, 2001, our total long-term debt
aggregated $40,919, and we had utilized approximately $5.9 million of our total
banking facilities of $14.56 million. Based on the maturity profile and
composition of our long-term debt and general banking facilities, we estimate
that changes in interest rates will not have a material impact on our operating
results or cash flows. We intend to manage our interest rate risk through
appropriate borrowing strategies. We have not entered into interest rate swap or
risk management agreements; however, it is possible that we may do so in the
future.
For further information concerning our banking facilities the interest
rates payable, and repayment terms please see Note 7 to our financial
statements.
40
Item 12. Description of Securities Other Than Equity Securities
Not Applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None
Item 15. Reserved
Item 16. Reserved
PART III
Item 17. Financial Statements
Not Applicable.
41
Item 18. Financial Statements
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, 2000 and 2001 F-3
Consolidated Statements of Comprehensive Income for the years F-4
ended March 31, 1999, 2000 and 2001
Consolidated Statements of Changes in Shareholders' Equity F-5
for the years ended March 31, 1999, 2000 and 2001
Consolidated Statements of Cash Flows for the years ended F-6
March 31, 1999, 2000 and 2001
Notes to Consolidated Financial Statements F-7 through F-27
Item 19. Exhibits
Number Description
------ -----------
10.22 Stock Purchase Agreement between Bonso Electronics
International Inc. and Augusta Technologie AG relating
to the acquisition of Korona Haushaltsaren GmbH and Co
Kg dated April 25, 2001.
42
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf by.
BONSO ELECTRONICS INTERNATIONAL INC.
Date July 26, 2001 /s/ Anthony So
--------------------------------------
Anthony So, President
43
Consolidated Financial Statements
Bonso Electronics International Inc.
(Incorporated in the British Virgin Islands)
and Subsidiaries
March 31, 2001
PricewaterhouseCoopers
Independent Accountants
Index to Consolidated Financial Statements
Contents Pages
- -------- -----
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of March 31, 2000 and 2001................ F-3
Consolidated Statements of Comprehensive Income for the years ended
March 31, 1999, 2000 and 2001............................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1999, 2000 and 2001................................ F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 2000 and 2001............................................ F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
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,
2000 and 2001 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, 2001. 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, 2000 and 2001 and the
results of their operations and cash flows for each of the three years in the
period ended March 31, 2001, in conformity with generally accepted accounting
principles in the United States of America.
/s/ PricewaterhouseCoopers
- --------------------------
PricewaterhouseCoopers
Hong Kong,
June 1, 2001
F-2
Bonso Electronics International Inc. and Subsidiaries
Consolidated Balance Sheets
(Expressed in United States Dollars)
March 31
------------------------
2000 2001
$ $
Assets
Current assets
Cash and cash equivalents 7,959,404 5,322,397
Restricted cash deposits (Note 7) 2,071,952 2,873,898
Trade receivables, net (Note 2) 1,661,050 3,518,943
Inventories, net (Note 3) 6,192,611 5,310,889
Notes receivable 525,175 1,086,949
Income taxes recoverable 112 --
Deferred income tax assets - current (Note 5(d)) 24,802 10,190
Other receivables, deposits and prepayments 235,851 619,858
----------- -----------
Total current assets 18,670,957 18,743,124
----------- -----------
Deposits (Note 10(b)) 398,147 70,511
Deferred income tax assets - non current (Note 5(d)) 101,570 87,245
Property, plant and equipment
Leasehold land and buildings 9,922,677 12,248,784
Plant and machinery 7,176,310 10,766,115
Molds 2,113,066 2,113,066
Furniture, fixtures and equipment 2,938,724 3,291,043
Motor vehicles 304,869 304,869
----------- -----------
22,455,646 28,723,877
Less: accumulated depreciation and amortization (7,833,604) (10,128,087)
----------- -----------
Net property, plant and equipment 14,622,042 18,595,790
----------- -----------
Total assets 33,792,716 37,496,670
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Notes payable (Note 7) 819,099 3,234,897
Accounts payable 3,028,023 3,435,626
Accrued charges and deposits 882,839 1,029,967
Income taxes payable -- 95,694
Short-term loans (Note 7) 622,229 1,086,949
Current portion of long-term debt and capital lease obligations
(Notes 4 and 6(a)) 553,467 537,029
----------- -----------
Total current liabilities 5,905,657 9,420,162
----------- -----------
Long-term debt and capital lease obligations, net of current
maturities (Notes 4 and 6(a)) 864,798 403,890
Commitments and contingencies (Note 6(b) and 10)
Shareholders' equity (Notes 8(b), 13, 14 and 15)
Common stock par value $0.003 per share
- authorized shares - 23,333,334
- issued and outstanding shares : 2000-5,712,610; 2001-5,496,133 17,133 16,484
Additional paid-in capital 22,325,500 21,854,160
Deferred consultancy fee -- (762,840)
Promissory note receivable from shareholder (Note 8(b)) (1,430,000) --
Retained earnings 5,873,656 6,927,842
Accumulated other comprehensive income 235,972 235,972
Common stock held in treasury, at cost (Note 13) -- (599,000)
----------- -----------
27,022,261 27,672,618
----------- -----------
Total liabilities and shareholders' equity 33,792,716 37,496,670
=========== ===========
See notes to these consolidated financial statements
F-3
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Expressed in United States Dollars)
1999 2000 2001
$ $ $
Net sales (Note 16) 13,046,265 15,380,286 29,566,680
Cost of sales 8,812,173 11,117,922 22,400,017
----------- ----------- -----------
Gross margin 4,234,092 4,262,364 7,166,663
Selling expenses 196,974 261,297 382,422
Salaries and related costs 1,625,731 1,898,944 2,333,776
Research and development expenses 566,030 186,251 297,740
Administration and general expenses 1,601,186 1,646,320 2,410,872
----------- ----------- -----------
Income from operations 244,171 269,552 1,741,853
Interest income 63,488 129,794 458,328
----------- ----------- -----------
Interest expenses (445,644) (261,288) (337,526)
Less: Interest capitalized 25,108 -- --
----------- ----------- -----------
(420,536) (261,288) (337,526)
Foreign exchange gains 37,882 14,449 42,722
Other income 52,662 191,790 204,585
Consultancy fee (Note 15(d)) -- -- (381,420)
----------- ----------- -----------
Income before income taxes (22,333) 344,297 1,728,542
Income tax benefit/(expense) (Note 5(c)) 36,087 3,401 (124,743)
----------- ----------- -----------
Net income 13,754 347,698 1,603,799
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,743 701 --
----------- ----------- -----------
Comprehensive income 15,497 348,399 1,603,799
=========== =========== ===========
Earnings per share (Note 12)
Basic 0.45 cents 9.89 cents 28.82 cents
=========== =========== ===========
Diluted 0.37 cents 8.74 cents 28.24 cents
=========== =========== ===========
See notes to these consolidated financial statements
F-4
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in United States Dollars)
Common stock
-------------------------
Promissory
note
Additional receivable Common
Shares Amount paid-in from tock
outstanding outstanding capital shareholder subscribed
----------- ----------- ----------- ----------- -----------
$ $ $ $
Balance, March 31, 1998 2,828,562 8,485 8,724,503 (1,350,000) 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 -- (1,350,000)
Common stock issued upon exercise
of share options (note 14) 65,000 193 131,202 -- --
Common stock issued upon exercise
of warrants, net of expenses
(note 15(a)) 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 options (note 14) 919,675 2,759 52,089 -- --
Common stock issued upon
exercise of warrants, net of
expenses (note 15(a)) 1,673,776 5,021 11,988,306 -- --
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 5,712,610 17,133 22,325,500 (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 options (note 14) 7,023 21 (21) -- --
Deferred consultancy fee (note 15(d)) -- -- 1,144,260 -- --
Amortization of deferred
consultancy fee (note 15(d)) -- -- -- -- --
Common stock issued upon exercise
of warrants (note 15(d)) 50,000 150 399,850 -- --
Cash dividends declared on
common stock ($0.1 per share) -- -- -- -- --
Purchase of common stock (note 13) -- -- -- -- --
Retirement of common stock
(note 13) (73,500) (220) (586,029) -- --
Cancellation of common stock
subscribed (note 8(b)) (200,000) (600) (1,429,400) 1,430,000 --
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 5,496,133 16,484 21,854,160 -- --
=========== =========== =========== =========== ===========
See notes to these consolidated financial statements
F-5
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Expressed in United States Dollars)
(Con't)
Accumulated
other
comprehensive
Common Deferred income-foreign Total
stock held consultancy Retained currency shareholders'
at treasury fee earnings adjustments equity
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
Balance, March 31, 1998 -- -- 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)) -- -- -- -- --
Common stock issued upon exercise
of share options (note 14) -- -- -- -- 131,395
Common stock issued upon exercise
of warrants, net of expenses
(note 15(a)) -- -- -- -- 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 options (note 14) -- -- -- -- 54,848
Common stock issued upon
exercise of warrants, net of
expenses (note 15(a)) -- -- -- -- 11,993,327
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 -- -- 5,873,656 235,972 27,022,261
----------- ----------- ----------- ----------- -----------
Net income -- -- 1,603,799 -- 1,603,799
Other comprehensive income,
net of tax
Foreign currency adjustments:
Cumulative translation adjustments -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Comprehensive income -- -- 1,603,799 -- 1,603,799
Common stock issued upon exercise
of share options (note 14) -- -- -- -- --
Deferred consultancy fee (note 15(d)) -- (1,144,260) -- -- --
Amortization of deferred
consultancy fee (note 15(d)) -- 381,420 -- -- 381,420
Common stock issued upon exercise
of warrants (note 15(d)) -- -- -- -- 400,000
Cash dividends declared on
common stock ($0.1 per share) -- -- (549,613) -- (549,613)
Purchase of common stock (note 13) (1,185,249) -- -- -- (1,185,249)
Retirement of common stock
(note 13) 586,249 -- -- -- --
Cancellation of common stock
subscribed (note 8(b)) -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 (599,000) (762,840) 6,927,842 235,972 27,672,618
=========== =========== =========== =========== ===========
See notes to these consolidated financial statements
F-5 (Con't)
Bonso Electronics International Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
1999 2000 2001
$ $ $
Cash flows from operating activities
Net income 13,754 347,698 1,603,799
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,109,286 1,316,994 2,019,621
Amortization 275,323 302,179 329,564
Consultancy fee -- -- 381,420
Other (51,187) (25,677) 124,743
Changes in assets and liabilities:
Trade receivables 596,696 (1,259,455) (1,857,893)
Other receivables, deposits and prepayments 157,693 7,380 (384,007)
Notes receivable (349,931) 165,274 (561,774)
Inventories 1,341,075 (1,622,488) 865,373
Accounts payable, accrued charges and deposits (390,808) 2,258,494 554,731
Other (57,289) 110,849 51,315
----------- ----------- -----------
Net cash provided by operating activities 2,644,612 1,601,248 3,126,892
----------- ----------- -----------
Cash flows from investing activities
Restricted cash deposits (59,421) (1,060,264) (801,946)
Deposit for property, plant and equipment -- (398,147) (70,511)
Proceeds from disposal of property, plant and
equipment -- 8,149 441
Acquisition of property, plant and equipment (866,891) (3,458,318) (5,846,296)
----------- ----------- -----------
Net cash used in investing activities (926,312) (4,908,580) (6,718,312)
----------- ----------- -----------
Cash flows from financing activities
Issue of shares on exercise of warrants and options 317,966 12,272,436 400,000
Repurchase of common stock -- -- (1,185,249)
Expenses paid for warrant redemption (201,586) (224,261) --
Principal payments under long-term debt (381,826) (111,984) (65,016)
Capital lease payments (372,192) (436,165) (526,227)
Net (repayment)/advance under banking facilities (1,254,981) (503,428) 2,880,518
Payment of dividends to stockholders -- -- (549,613)
----------- ----------- -----------
Net cash (used in)/provided by financing activities (1,892,619) 10,996,598 954,413
----------- ----------- -----------
Effect of foreign exchange rate changes on cash (2,688) (1,309) --
----------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (177,007) 7,687,957 (2,637,007)
Cash and cash equivalents, beginning of year 448,454 271,447 7,959,404
----------- ----------- -----------
Cash and cash equivalents, end of year 271,447 7,959,404 5,322,397
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest paid, net of amounts capitalized 420,536 261,288 337,526
Income tax paid, net of refund (21,202) (22,276) --
See notes to these consolidated financial statements
F-6
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 care 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 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 on the transfer of title of ownership, which
generally coincides with the time 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
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, 1999,
2000 and 2001 amounted to $43,424, $12,633 and $9,942 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
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.
(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:
1999 2000 2001
$ $ $
Balance, April 1 33,333 39,359 --
Additions charged to expense 6,026 -- --
Write-off -- (39,359) --
------- -------- -------
Balance, March 31 39,359 -- --
======= ======== =======
3 Inventories
(a) The components of inventories are as follows:
2000 2001
$ $
Raw materials 4,752,422 3,611,961
Work in progress 921,679 1,125,138
Finished goods 841,636 913,265
---------- ----------
6,515,737 5,650,364
Inventories reserves (323,126) (339,475)
---------- ----------
6,192,611 5,310,889
========== ==========
F-9
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:
1999 2000 2001
$ $ $
Balance, April 1 267,624 195,321 323,126
Additions charged to expense -- 127,805 210,362
Write-off (72,303) -- (194,013)
-------- -------- --------
Balance, March 31 195,321 323,126 339,475
======== ======== ========
4 Long-term debt
Long-term debt denominated in Renminbi consists of the following:
March 31
----------------------
2000 2001
$ $
Loan payable to a property developer at
14% per annum 19,802 --
Bank loans at 5.3% per annum -- 68,683
------- -------
19,802 68,683
Less: current portion (19,802) (38,452)
------- -------
Long-term debt, less current maturities -- 30,231
======= =======
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. The first profit-making year of Bonso Electronics (Shenzhen)
Co., Ltd. was deemed to be the financial year ended December 31, 1998.
(c) The components of the income tax benefit/(expense) are as follows:
1999 2000 2001
$ $ $
Deferred income tax benefit/(expense) 38,956 13,898 (28,937)
Current income tax expense (2,869) (10,497) (95,806)
-------- -------- --------
Total income tax benefit 36,087 3,401 (124,743)
======== ======== ========
F-10
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:
2000 2001
$ $
Deferred tax liabilities
Accelerated depreciation (10,395) (852)
Deferred tax assets
------- -------
Tax loss carry forwards 127,385 98,246
Valuation allowance (15,420) (10,149)
------- -------
111,965 88,097
Others 24,802 10,190
------- -------
136,767 98,287
------- -------
Net deferred tax assets 126,372 97,435
Less: current portion 24,802 10,190
------- -------
Non current portion 101,570 87,245
======= =======
As of March 31, 2001, the Group had accumulated tax losses amounting to
$614,038 (the tax effect thereon is $98,246) 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, 2001, the Group's accumulated tax losses have no
definite period of expiration.
(e) Changes in the valuation allowance consist of:
1999 2000 2001
$ $ $
Balance, April 1 61,176 34,693 15,420
Reduction credited to income tax expense (4,630) (337) (5,271)
Release of valuation allowance upon:
- approval of losses by tax authorities (21,853) (18,936) --
------- ------- -------
Balance, March 31 34,693 15,420 10,149
======= ======= =======
F-11
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/(expense) attributable to earnings for
the years ended March 31, 1999, 2000 and 2001 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:
1999 2000 2001
$ $ $
Hong Kong statutory tax rate 16.0% 16.0% 16.0%
Income tax (expense)/credit at the Hong
Kong statutory tax rate 3,573 (55,088) (276,567)
Offshore profit not subject to income tax 40,477 77,672 171,520
Valuation allowance on tax loss 26,483 19,273 5,271
Over/(under) provision for Hong Kong
tax in prior years (22,064) (5,200) 3,194
Expenses not deductible for income tax
purposes (5,756) (24,365) (13,480)
Other (6,626) (8,891) (14,681)
-------- -------- --------
Total income tax benefit 36,087 3,401 (124,743)
======== ======== ========
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
---------------------------- ---------------------------
2000 2001 2000 2001
$ $ $ $
Cost 59,513 59,513 2,238,400 1,975,887
Less: accumulated amortization 8,927 20,830 258,758 532,831
---------- ---------- ---------- ----------
50,586 38,683 1,979,642 1,443,056
========== ========== ========== ==========
During the years ended March 31, 1999, 2000 and 2001, the Group entered
into additional capital lease obligations amounting to $78,974,
$1,540,608 and $Nil respectively.
F-12
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, 2001 with an
initial term of more than one year are as follows:
$
2002 564,073
2003 418,134
---------
Total minimum lease payments 982,207
Less: amount representing interest (109,971)
---------
Present value of net minimum lease payments (including
current portion of $498,577, as of March 31, 2001) 872,236
=========
(b) Operating leases
As of March 31, 2001, 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:
$
2002 127,331
2003 98,485
2004 3,672
--------
229,488
========
Rent expense for all operating leases amounted to $166,824, $84,749 and
$123,124 for the years ended March 31, 1999, 2000 and 2001,
respectively.
F-13
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
7 Banking facilities
As of March 31, 2001, the Group had general banking facilities for bank
overdrafts, letters of credit, notes payable, short-term loans and
long-term loans. The facilities are interchangeable with total amounts
available of $14,555,862 (2000: $8,358,975). All general banking
facilities granted to the Group are denominated in Hong Kong dollars
and Renminbi.
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, 2001
------------------------ ----------------------- ------------------------------
March 31 March 31
------------------------ -----------------------
2000 2001 2000 2001 Interest Repayment
$ $ $ $ rate terms
Import and export
facilities
Letters of credit 3,192,774 7,179,487 1,585,516 4,749,698
Including sublimit
of:
Notes payable 2,679,953 7,179,487 819,099 3,234,897 Prime rate Repayable in
minus 0.5% full within
to Prime rate four months
plus 0.2% or
HIBOR + 2%
Short-term loans 3,371,329 5,384,615 622,229 1,086,949 Prime rate Repayable in
minus 0.5% full within
to Prime rate three months
plus 0.2% or
HIBOR + 2%
Other facilities
Bank overdrafts 1,153,846 1,923,077 -- -- Prime rate Repayable
to Prime rate on demand
plus 0.5% or
HIBOR
+ 0.05%
Fixed-term loan 641,026 -- -- -- -- --
Long-term loans -- 68,683 -- 68,683 Fixed rate Repayable by
(Note 4) of 5.3% 21 monthly
instalments
---------- ---------- ---------- ----------
8,358,975 14,555,862 2,207,745 5,905,330
========== ========== ========== ==========
F-14
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 8.00% and 4.9375% per annum,
respectively, as of March 31, 2001. 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 $3,967,190 (2000: $1,967,120); and
(b) a bank guarantee of $150,000 (2000: $150,000) and restricted
cash deposits of $2,873,898 (2000: $2,071,952). 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
-------------------------
2000 2001
Bank overdrafts 9.3% 9.5%
Notes payable 8.6% 9.4%
Short-term loans 8.6% 9.4%
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, Ms Pang Kit Mr Chung Kim Mr Luk Kam
March 31 Anthony Teng, Cathy Wah Sun
-------- ----------- ----------- ----------- -----------
1999 $441,538 (iii) $90,394 $113,589(ii) $91,154(iv)
2000 $553,718 (iii) $103,744 $128,854(ii) $106,923(iv)
2001 $559,672 (iii) $106,359 $137,285(ii) $20,816(iv)
Mr Fok Woo Mr George Mr. J Stewart Mr Henry
Ping O'Leary Jackson Schlueter
----------- ----------- ----------- -----------
1999 Nil $115,342(i) Nil Nil
2000 Nil $136,286(i) Nil Nil
2001 Nil $170,134(i) Nil Nil
(i) This represented commissions and consultancy fee 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, 2001
payable to a company in which Mr Chung Kim Wah has a
beneficial interest.
(iii) Apart from the emoluments paid by the Group as above, one of
the properties of the Group in Hong Kong is also provided to
Mr. So Hung Gun, Anthony as director's quarter as part of his
compensation.
(iv) Mr Luk Kam Sun resigned as a director of the Company on April
3, 2000.
F-15
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.
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 who joined BEL before December 2000,
excluding factory workers, are eligible to join the provident fund
plan.
The Mandatory Provident Fund (the "MPF") was introduced by the Hong
Kong Government commenced in December 2000. BEL joined the MPF with a
major international assurance company. All permanent full time
employees who joined BEL in or after December 2000, excluding factory
workers, are eligible to join the MPF.
(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%
Members' and employers' contributions to the MPF are both at 5% of the
members' monthly salaries and are subject to a maximum contribution of
HK$1,000 monthly.
(b) 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.
On resignation or at normal retirement age, death or ill health, the
member of the MPF shall be entitled to a lump sum equal to the total of
the member's and BEL's contributions plus a return on their investment.
(c) BEL's total contributions to the Plan and the MPF for the years ended
March 31, 1999, 2000 and 2001 amounted to $54,046, $64,921 and $53,704
respectively.
F-16
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, 2001, the Group had contingent liabilities to banks for
outstanding letters of credit and shipping guarantee of $1,514,801
(2000: $766,417) and $555,075 (2000: $19,340) respectively.
(b) As of March 31, 2001, the Group had commitments to acquire plant and
machineries from third parties for an aggregate consideration of
$2,958,785 of which $70,511 had been paid as deposits.
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
-------------------------------------------------
1999 2000 2001
$ $ $
Income available to common
shareholders 13,754 347,698 1,603,799
Weighted average shares outstanding 3,079,219 3,515,690 5,564,536
Incremental shares from assumed
exercise of:
Warrants 166,024 33,838 48,547
Stock options 429,060 428,551 66,828
---------- ---------- ----------
Dilutive potential common shares 595,084 462,389 115,375
---------- ---------- ----------
Diluted weighted average shares 3,674,303 3,978,079 5,679,911
========== ========== ==========
Basic earnings per share 0.45 cents 9.89 cents 28.82 cents
Diluted earnings per share 0.37 cents 8.74 cents 28.24 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 1,087,201 shares of common stock at $17.35 per
share were outstanding during the fiscal year ended March 31, 2001 but
were not included in the calculation of diluted earnings per share
during the year ended March 31, 2001 because the warrants' exercise
price was greater than the market price of the Company's common stock.
13 Stockholders' equity
In June 2000, the Board of Directors authorized the repurchase of the
common stock of the Company up to a total consideration of $1,000,000.
At various times from July 2000 to November 2000, the Company
repurchased 123,500 shares of the Company's common stock, at an average
cost of $7.78, for a total cost of $960,249.
In December 2000, the Board of Directors further authorized the
repurchase of 25,000 shares of the common stock of the Company.
Subsequently in December 2000, the Company repurchased 25,000 shares of
the Company's common stock, at an average cost of $9.00, for a total
cost of $225,000.
In March 2001, 73,500 shares of the repurchased common stock have been
cancelled, and returned to the status of authorized but unissued
shares. The remaining 75,000 repurchased shares of the common stock are
held by the Company in treasury, which are recorded at cost in the
Consolidated Balance Sheets at March 31, 2001.
In April 2001, the 75,000 shares of common stock were cancelled and
returned to the status of authorized but unissued shares.
F-17
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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 during the year ended March 31, 2000, and 13,700 stock
options were exercised to purchase 7,023 shares of common stock of the
Company during the year ended March 31, 2001.
The stock options outstanding in respect of the 1996 Stock Option Plan
as of March 31, 2001 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
Exercised during the year (13,700) $8.00 $8.00
-------- -------- --------
Balance March 31, 2001 10,000 $8.00 $8.00
======== ======== ========
F-18
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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, which was equal
to the market value on the date of grant. 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, which was equal
to the market value on the date of grant. 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 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, which
was equal to the market value on the date of grant. 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 during the years
ended March 31, 2000 and March 31, 2001.
In January 2001, 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 the common
stock of the Company at an exercise price of $7.875 per share, which
was equal to the market value on the date of grant. The options shall
expire on January 9, 2011 and can be exercised at any time immediately
after granting. None of the options has been exercised up to March 31,
2001.
F-19
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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, 2001 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
Grant at exercise price equal to the
market value of the common shares
on the date of grant 30,000 $7.875 $7.875
-------- -------- --------
Balance, March 31, 2001 60,000 $7.489 $7.489
======== ======== ========
(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. During the years ended March 31, 1999
and March 31, 2000, 55,000 and 45,000 options were exercised to
purchase 55,000 and 41,981 shares of common stock of the Company
respectively.
The stock options summary as of March 31, 2001 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 and
March 31, 2001 -- -- --
======== ======== ========
F-20
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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, 2001 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 and
March 31, 2001 -- -- --
======== ======== ========
(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, 2001 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 and
March 31, 2001 -- -- --
======== ======== ========
F-21
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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 years ended March 31, 2000 and March 31, 2001.
The stock options summary as of March 31, 2001 is summarized as
follows:
Average per share
-------------------
Number Exercise Market
of shares price price
Balance, March 31, 1998 and 1999 -- -- --
Granted at exercise price equal to the
market value of the common shares
on the date of grant 218,000 $8.00 $8.00
------- ------- -------
Balance, March 31, 2000 and
March 31, 2001 218,000 $8.00 $8.00
======= ======= =======
(f) The following table summarizes the information about all stock options
of the Company outstanding at March 31, 2001:
Number Exercisable
outstanding at Average life shares at
Exercise price March 31, 2001 (years) March 31, 2001
-------------- -------------- ------- --------------
$5.06 10,000 6.4 10,000
$8.00 228,000 8.8 228,000
$8.125 20,000 8.8 20,000
$7.875 30,000 9.8 30,000
------- -------
$5.06 - $8.125 288,000 8.8 288,000
======= =======
(g) Included in the options outstanding as of March 31, 2001 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,
2000 and 2001 were $1,880,621 and $153,988, 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, 2001:
risk-free interest rate of 4.7%; no dividend yield; volatility factor
of the expected market price of the Company's common share of 76.3%;
and a weighted-average expected life of the option of five years.
F-22
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
14 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:
2000 2001
$ $
Net income
As reported 347,698 1,603,799
Pro forma (1,532,923) 1,449,811
Basis earnings/(losses) per share
As reported 9.89 cents 28.82 cents
Pro forma (43.60) cents 26.06 cents
Diluted earnings/(losses) per share
As reported 8.74 cents 28.24 cents
Pro forma (38.53) cents 25.53 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.
15 Warrants
(a) 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
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
15 Warrants (Continued)
(b) 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 expired on January 31,
2000.
(c) 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 1 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. No warrants have been exercised during the
year ended March 31, 2001. The warrants will expire on December 31,
2001.
(d) 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 and 50,000 warrants were exercised to purchase 50,000 shares of
common stock of the Company at $8.00 per share during the year ended
March 31, 2001.
The fair value of the warrants on the date of issue was US$1,144,260
and it was recognised as consultancy fee in the Consolidated Statements
of Comprehensive Income on a straight-line basis over the period of
services by Profit Concepts which commenced on July 1, 2000 and
concludes on January 13, 2003. The consultancy fee charged to the
Consolidated Statements of Comprehensive Income amounted to Nil, Nil
and $381,420 for the years ended March 31, 1999, 2000 and 2001
respectively.
F-24
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
16 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 1999,
2000 and 2001 is as follows:
Identifiable Depreciation
Net Operating assets as of and Capital
sales profit March 31 amortization expenditure
---------- ---------- ---------- ---------- ----------
$ $ $ $ $
2001
Scales 19,119,293 4,396,476 14,797,805 1,152,366 1,242,650
Health care products 460,817 11,123 37,439 2,916 3,144
Telecommunication products 8,679,253 760,968 5,728,041 784,610 2,639,195
Other 1,307,317 815,139 2,743,622 213,657 230,396
---------- ---------- ---------- ---------- ----------
Total operating segments 29,566,680 5,983,706 23,306,907 2,153,549 4,115,385
Corporate - (4,241,853) 14,189,763 195,636 2,242,955
---------- ---------- ---------- ---------- ----------
Group 29,566,680 1,741,853 37,496,670 2,349,185 6,358,340
========== ========== ========== ========== ==========
2000
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
========== ========== ========== ========== ==========
Operating profit by segment equals total operating revenues less
expenses which are related to the segment's operating revenues.
Operating profit of corporate segment consists principally of salaries
and related costs of administrative staff, and administration and
general expenses of the Group. 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
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
16 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:
2000 2001
$ $
Hong Kong 16,009,366 17,561,478
The PRC 17,783,350 19,935,192
---------- ----------
Total assets 33,792,716 37,496,670
========== ==========
(c) The following is a summary of net export sales by geographical areas
constituting 10% or more of total sales of the Group for the years
ended March 31, 1999, 2000 and 2001:
Year ended March 31
-----------------------------------------------------------------------------------
1999 % 2000 % 2001 %
$ $ $
United States of
America 5,609,457 43 6,274,612 41 10,945,310 37
Germany 4,212,958 32 3,904,921 25 6,192,512 21
Others 3,223,850 25 5,200,753 34 12,428,858 42
---------- --- ---------- --- ---------- ---
13,046,265 100 15,380,286 100 29,566,680 100
========== === ========== === ========== ===
(d) The details of sales made to customers constituting 10% or more of
total sales of the Group is as follows:
Year ended March 31
-----------------------------------------------------------------
Business 1999 % 2000 % 2001 %
segment $ $ $
Pitney Bowes, Inc. Scales 2,011,393 16 1,109,635 7 335,276 1
Globaltec Corporation Scales 1,454,550 11 346,600 2 333,550 1
Werner Dorsch Gmbh & Co. Scales 1,998,505 15 1,780,572 12 1,819,116 6
Omron Healthcare Group Health care
products 1,358,356 10 969,276 6 300,480 1
Gottl Kern & Sohn Gmbh Scales 923,985 7 1,735,355 11 2,337,665 8
Ohaus Corporation Scales 261,405 2 1,725,343 11 2,875,027 10
Telson Telecommunication Tele-
and Technology Company communication
Limited products -- - 375,252 2 3,505,516 12
Telson Information and Tele-
Communication Company communication
Limited products -- - 403,386 3 3,657,135 12
Gram Precision Scales, Scales 116,819 1 1,142,182 7 2,919,960 10
Inc.
--------- --- --------- -- ---------- --
8,125,013 62 9,587,601 61 18,083,725 61
========= === ========= == ========== ==
F-26
Bonso Electronics International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
17 Fair value of financial instruments
The carrying amounts of all financial instruments on the Consolidated
Balance Sheets as of March 31, 2000 and March 31, 2001 approximate
their fair values.
The carrying values of long-term debts approximate fair value because
interest rates reflect current market conditions or are based on
discounted cash flow analyses.
18 Post balance sheet date events
In April 2001, the Group has entered into a sale and purchase agreement
with a third party for the acquisition of 100% equity interest in
Korona Haushaltswaren GmbH & Co. KG, a company incorporated in Germany
engaged in the distribution of electronic scales in Europe, at a
consideration of approximately $3,634,000, $2,730,000 of which was
satisfied by way of cash consideration and the remaining consideration
was satisfied by allotment and issue of common stock of the Company.
The completion date of the acquisition was in May 2001.
F-27