-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NWveIs4oYs0kog1AuFIVECmjNOVQlDifTzsHoWU3fDmMnK83QYddMyMNYxwm+V6T g6m+Z0cVYzUHkoyakaIc8Q== 0001050502-99-000799.txt : 19991029 0001050502-99-000799.hdr.sgml : 19991029 ACCESSION NUMBER: 0001050502-99-000799 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19991028 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BONSO ELECTRONICS INTERNATIONAL INC CENTRAL INDEX KEY: 0000846546 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-09002 FILM NUMBER: 99736350 BUSINESS ADDRESS: STREET 1: FLAT AD 8TH FLR 23-25 SHAN MEI ST STREET 2: UNIVERSAL INDUSTL. CENTRE FO TAN SHA TIN CITY: NEW TERRITORIES HONG STATE: K3 BUSINESS PHONE: 011852260558224 MAIL ADDRESS: STREET 1: FLAT AD 8TH FLR 23-25 SHAN MEI ST STREET 2: UNIVERSAL INDUSTL CENTRE FO TAN SHA TIN CITY: NT HONG KONG STATE: K3 POS AM 1 POST-EFFECTIVE AMENDMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 28, 1999 F-3 REGISTRATION NO. 333-9002 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C POST-EFFECTIVE AMENDMENT NO. 1 TO FORM F-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT ON FORM F-2 ON FORM F-3 BONSO ELECTRONICS INTERNATIONAL INC. ------------------------------------ (Exact name of Registrant as specified in its charter) British Virgin Islands None ---------------------- ---- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Flat A-D, 8th Floor Universal Industrial Centre 23-25 Shan Mei Street Fo Tan, Shatin New Territories, Hong Kong (852) 2605-5822 --------------- (Address and telephone number of Registrant's principal executive offices) Henry F. Schlueter, Esq. Schlueter & Associates, P.C. 1050 Seventeenth Street, Suite 1700 Denver, Colorado 80265 (303) 292-3883 -------------- (Name, address and telephone number of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] Pursuant to Rule 429 adopted under the Securities Act of 1933, as amended, this registration statement also relates to an earlier registration statement filed with the Commission (SEC File No. 33-84872).
Calculation of Registration Fee(1) - ---------------------------------------------------------------------------------------------------------- Proposed maximum Proposed maximum Amount of Title of each class of Amount to be offering price aggregate offering registration securities to be registered registered per unit(2) price(2) fee - ---------------------------------------------------------------------------------------------------------- Common stock issuable upon exercise of outstanding registered common stock purchase warrants 2,200,000(3) $7.35 $16,170,000 $ 0(4) Restricted common stock 200,000(5) $10.50 $ 2,100,000 $ 0(4) Representatives' warrants issued to the representatives of the underwriters of a secondary public offering conducted in 1994 110,000 $0.00 $ 0 $ 0 Units issuable upon exercise of the representatives' warrants; includes 110,000 shares of common stock and 220,000 warrants 110,000(3) $9.1875 $ 1,010,625 $ 0(4) Common stock issuable upon exercise of the warrants included in the units underlying the representatives' warrants 220,000(3) $7.35 $ 1,617,000 $ 0(4) Total registration fee $ 0(4) ==========================================================================================================
(1) In United States dollars. (2) Estimated solely for the purpose of calculating the registration fee. (3) An indeterminate number of additional shares of common stock are registered hereunder which may be issued, as provided in the public warrants and the representatives' warrants, in the event provisions against dilution become operative. No additional consideration will be received by Bonso upon issuance of additional shares issued as a result of the exercise of these warrants. (4) Previously paid upon initial registration of these securities on Form F-2 (registration no. 33-84872) or on Form F-3 (registration no. 333-9002), which are being updated by this post-effective amendment on Form F-3. (5) Owned of record by a selling shareholder. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which the offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that state. -ii- BONSO ELECTRONICS INTERNATIONAL INC. 2,504,403 Shares of Common Stock Issuable on Exercise of Common Stock Purchase Warrants and 200,000 Outstanding Shares of Common Stock Offered by a Selling Shareholder Bonso Electronics International Inc. ("Bonso") is offering the following shares of common stock: o 2,174,403 shares issuable on exercise of certain publicly-held warrants; o 110,000 shares issuable on exercise of certain warrants issued to the representatives of the underwriters of a public securities offering conducted by Bonso in 1994; and o 220,000 shares issuable on exercise of warrants which underlie the warrants issued to the representatives of the underwriters. In addition, Bonso has outstanding 200,000 shares of common stock which are restricted securities under Rule 144 under the Securities Act of 1933 and which are being registered for the account of the holder of those shares. Prior to this offering, the common stock has traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol "BNSO." As of ______, 1999 (one day prior to the date of this prospectus), the reported closing sales price of the common stock on NASDAQ-National Market System was $______. An investment in these securities involves a high degree of risk. See "Risk Factors" beginning at page 9 of this prospectus for a discussion of certain factors that you should consider before investing in these securities. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ================================================================================ Underwriting Price to Discounts and Proceeds to Public(1)(2) Commissions Company(2)(3) ================================================================================ Per Share(4) $ 7.35 $ 0.147(5) $ 7.203 Per Share(6) $ 9.1875 $ 0.00 $ 9.1875 Per Share(7) $ 0.00(8) $ 0.00 $ 0.00 -------------- ----------- -------------- Total Offering $18,609,487.05 $319,637.24 $18,289,849.81 ================================================================================ (footnotes on following page) The date of this prospectus is _________, 1999 (1) The 2,504,403 shares of common stock underlying the warrants are being offered by Bonso to the holders of the warrants. There is no minimum purchase amount. The shares of common stock are offered for cash only. The exercise prices of the warrants were arbitrarily determined and bear no relationship to the value of Bonso or its assets, nor do the exercise prices represent that the common stock has a value or could be resold at those prices. The shares of common stock are being sold on a "best efforts" basis by Bonso; consequently, no minimum number of shares is required to be sold. (2) The 530,000 shares offered by the selling shareholders, 330,000 of which constitute the shares underlying the representatives' warrants and the warrants issuable upon exercise of the representatives' warrants, are being registered for the benefit of, and may be sold from time to time by, the selling shareholders. Bonso will receive no proceeds from the sale of these shares by the selling shareholders; however, a selling shareholder has pledged 200,000 of these shares to Bonso as collateral to secure payment of the promissory note issued to purchase the shares, and those shares will be released from the pledge agreement to the holder only upon the payment of $7.35 per share to Bonso (i.e., the amount owed per share under the promissory note). (3) Before deducting other expenses of the offering payable by Bonso estimated at $125,000, including, among others, registration and filing fees, professional fees and printing expenses. All proceeds received upon exercise of the warrants will be applied directly to Bonso's benefit. There is no escrow of funds and no assurance that all or any portion of the warrants will be exercised. (4) Shares underlying the publicly-held warrants and the warrants contained in units underlying the representatives' warrants. (5) Applies only to exercises of publicly-held warrants which are solicited by a member of the National Association of Securities Dealers, Inc. (6) Shares contained in units underlying representatives' warrants. (7) Selling shareholders' shares. (8) The selling shareholders are not restricted as to the price or prices at which they may sell their securities. See "Plan of Distribution--Sales by Selling Shareholders." You may exercise your warrants only if you live in a state where the common stock has been qualified for issuance under applicable state laws, including registration if required under your state's law. As a result, you may not be permitted to exercise your warrants but may have to sell your warrants or let them expire unexercised. -2- TABLE OF CONTENTS Page Questions and Answers About Exercising Your Warrants ........... 4 Prospectus Summary ............................................. 5 Risk Factors ................................................... 9 Forward-Looking Statements ..................................... 14 Enforceability of Certain Civil Liabilities and Certain Foreign Issuer Considerations .............................. 14 Financial Statements and Currency Presentation ................. 16 The Company .................................................... 16 Use of Proceeds ................................................ 17 Taxation and Dividend Policy ................................... 17 Price Range of Common Shares ................................... 18 Capitalization ................................................. 19 Selected Consolidated Financial Data ........................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................ 21 Business ....................................................... 28 Management ..................................................... 39 Principal Shareholders ......................................... 44 Selling Shareholders ........................................... 44 Description of Securities ...................................... 47 Shares Eligible for Future Sale ................................ 50 Plan of Distribution ........................................... 51 Legal Matters .................................................. 52 Experts ........................................................ 52 Additional Information ......................................... 52 Incorporation of Certain Documents by Reference ................ 53 -3- QUESTIONS AND ANSWERS ABOUT EXERCISING YOUR WARRANTS Q: How do I exercise my warrants? A: For you to exercise warrants in this offering, you must send your warrant subscription form with the required payment of the per share price to Bonso or the participating NASD member broker/dealer firm and they must receive both your warrant subscription form and the required payment prior to the expiration of the warrants. Q: What will happen to my warrants if I don't exercise or don't exercise properly? A: If your warrant subscription form is not received by Bonso or a participating NASD member broker/dealer firm by the expiration date or if it is executed defectively or received without full payment, your warrants may expire unexercised. Q: Can I amend or rescind my warrant exercise once it is sent? A: Once Bonso has received your executed warrant subscription form, you may modify, amend or rescind it only with Bonso's consent and only prior to the end of the warrant exercise period. Q: What if I am entitled to a fraction of a share of stock? A: No fractional shares will be issued upon exercise of the warrants. Any fractional shares will be paid in cash at the current market price, as defined in the warrant agreement, of the common stock on the date of exercise. Q: Can Bonso change the exercise provisions of the warrants? A: Bonso reserves the right to extend the warrant exercise period, to reduce the exercise price or to waive or seek correction of defectively executed forms but does not represent that it will do so. Q: When and how will I get my stock certificates if I exercise my warrants? A: Bonso's transfer agent, U. S. Stock Transfer Corporation, will mail certificates representing the shares of common stock issued to the persons entitled to them at the address of those persons appearing on the warrant subscription form. The transfer agent will issue certificates as soon as possible, on a weekly basis, after it has received your properly executed warrant subscription form, together with surrender of your warrant certificate and payment for the shares of common stock purchased. Bonso will hold any certificates returned as undeliverable until the person legally entitled to the certificates claims them or until they are otherwise disposed of in accordance with applicable law. You may not be able to sell the shares which you have purchased until you have received certificates for the shares. Q: What will happen to the money I pay upon exercise of my warrants? A: Payments for shares of common stock will be deposited in an operating account of Bonso. No interest will be paid to warrant holders exercising their right to subscribe for shares of common stock. -4- Q: If my exercise is solicited by a broker, will he be paid a commission? A: Bonso has entered into an exclusive agency agreement with EBI Securities Corporation, which was formerly Cohig & Associates, Inc. EBI is referred to as the "selling agent." Under the agency agreement, the selling agent will advise, direct, solicit and coordinate the solicitation of the exercise of the publicly-held warrants. The agreement includes an agreement to pay a fee equal to 2% of the gross U. S. dollars paid for the exercise of the publicly-held warrants. The selling agent may enter into sub-agency agreements with other NASD member broker/dealer firms under which it may re-allow up to the full amount of its fee to those broker/dealer firms. Q: Who can help answer my questions about exercising my warrants? A: If you have any more questions about exercising your warrants, you should contact EBI Securities Corporation 6300 South Syracuse Way, Suite 645 Englewood, Colorado 80111 (303) 694-0295 PROSPECTUS SUMMARY This summary highlights important information about Bonso's business and about this offering. Because it's a summary, it doesn't contain all the information you should consider before exercising your warrants. Therefore, please read the entire prospectus. As used in this prospectus, "China" refers to all parts of the People's Republic of China other than the Special Administrative Region of Hong Kong. The term "Bonso" refers to Bonso Electronics International Inc. and, where the context requires or suggests, its direct and indirect subsidiaries. All outstanding share data excludes 1,130,000 shares of common stock reserved for issuance upon exercise of certain outstanding stock options and 30,000 shares reserved for issuance upon exercise of stock options which may be granted in the future under Bonso's 1996 Non-Employee Directors' Stock Option Plan. See "Management--Stock Option Plans" and "Principal Shareholders." Background Bonso presently has outstanding 2,174,403 publicly-held common stock purchase warrants which were issued in December 1994 in a public offering of units. Each warrant entitles the holder to purchase one share of Bonso's $0.003 par value common stock at $7.35 per share and is exercisable any time prior to 2:00 p.m. (Pacific Time) on December 14, 1999, unless extended by the board of directors. The publicly-held warrants are redeemable by Bonso at any time at $0.05 per warrant upon 30 to 45 days notice if the closing price of the common stock for 20 consecutive trading days within the 30-day period before the date the notice is given is at least $8.575 per share. In addition, Bonso has outstanding 110,000 warrants which were issued to the representatives of the underwriters of its 1994 public offering. Each representatives' warrant entitles the holder to purchase one unit, consisting of one share of common stock and two warrants, at $9.1875 per unit at any time prior to 5:00 p.m. (Pacific Time) on December 14, 1999. The representatives' warrants are not redeemable. The 220,000 warrants contained in the units are exercisable on the same terms and conditions as the publicly-held warrants described above. -5- Bonso also has outstanding 200,000 shares of common stock which are restricted securities under Rule 144 under the Securities Act of 1933 and which are being registered for the account of the holder. The registration statement of which this prospectus is a part registers the shares of common stock underlying the publicly-held warrants and the representatives' warrants, as well as the restricted shares. The warrants and the representatives' warrants are collectively referred to in this prospectus as the "warrants." The exercise prices of the warrants as described above are wholly arbitrary and there is no assurance that the price of the common stock will, at any time, equal or exceed the exercise prices of the warrants. The warrants can be exercised only if a current prospectus is in effect. See "Description of Securities--Warrants." The Company Bonso designs, develops, manufactures and sells a comprehensive line of electronic scales and weighing instruments and electronic consumer and health care products. Bonso's electronic scales include bathroom, kitchen, office, jewelry, laboratory, pocket, hanging, postal, industrial and parcel scales that are used in consumer, commercial and industrial applications. Bonso's electronic consumer and health care products include pedometers, chronographs, electronic thermometers and blood pressure meters. Bonso also plans to enter the digital telecommunications market, and anticipates that its first telecommunications product will be a two-way radio. Bonso has engaged a senior manager with experience in telecommunications manufacturing. There can be no assurance, however, that development of any telecommunications products will be successfully completed, that Bonso will obtain customers for any of these products or that sales of any of these products will be profitable. Bonso's wholly-owned Hong Kong subsidiary - Bonso Electronics Limited ("Bonso Electronics") - is responsible for the design, development, manufacture and sale of Bonso's products. Bonso Electronics has one active Hong Kong subsidiary - Bonso Investment Limited ("BIL") - which has been used to acquire and hold Bonso's real estate investments in Hong Kong and China, and one inactive subsidiary - Bonso Advance Technology Limited. Bonso has manufactured all of its products in China since 1989 in order to take advantage of lower overhead costs and competitive labor rates available there. In January 1997, Bonso completed a new manufacturing facility in the DaYang Synthetical Development District in Shenzhen, China, which approximately tripled Bonso's production capacity. The leasehold, facilities, machinery, furniture and equipment at that facility are owned and operated by Bonso Electronics (Shenzhen) Co. Ltd. ("Shenzhen Bonso"), a 100% Company-owned Chinese limited liability company which was formed in June 1994. The location of Bonso's factory in Shenzhen, only about 50 miles from Hong Kong, permits Bonso to manage easily manufacturing operations from Hong Kong, and facilitates transportation of Bonso's products out of China through the port of Hong Kong. For the fiscal year ended March 31, 1999, Bonso had sales of US$13,046,265 and net income of US$13,754. -6- The Offering Securities offered ....................... 2,504,403 shares of common stock, $0.003 par value, issuable upon exercise of warrants 200,000 shares of common stock, $.003 par value, to be offered from time to time by a selling shareholder Exercise price per share ................. $7.35 per share - warrants held by of common stock or unit public $9.1875 per unit - representatives' warrants Terms of the offering .................... This offering is being made by Bonso solely to the holders of Bonso's outstanding warrants. Shares not issued in this offering will not be offered or sold to the public. However, shares issued upon exercise of the warrants may be resold under this prospectus from time to time. Common stock outstanding ................. 3,119,159 shares prior to offering Common stock outstanding ................. 5,623,562 shares after offering if all warrants exercised Estimated net proceeds to Bonso if ....... $18,164,850 all warrants exercised Use of proceeds .......................... Management intends to use the net proceeds from this offering for working capital. See "Use of Proceeds." Risk factors ............................. Acquisition of shares of common stock through the exercise of outstanding warrants entails a high degree of risk and immediate substantial dilution. See "Risk Factors." Nasdaq symbols ........................... Common Shares..... BNSO Warrants.......... BNSOW Summarized Consolidated Financial Data The following summary of financial information is derived from the audited consolidated financial statements of Bonso as of March 31, 1998 and 1999 and for each of the three fiscal years in the period ended March 31, 1999, together with the notes to those financial statements, included in other sections of this prospectus. This summary information is qualified in its entirety by reference to, and should be read in conjunction with, the consolidated financial statements, together with the notes to the consolidated financial statements, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in other sections of this prospectus. -7- The consolidated financial statements are prepared in accordance with generally accepted accounted principles in the United States of America and are stated in U.S. dollars. The "as adjusted" column, below, gives effect to the sale of 2,504,403 shares of common stock consisting of 2,394,403 shares of common stock to be issued upon exercise of all of the publicly-held warrants, including the warrants included in the units underlying the representatives' warrants, at $7.35 per share and 110,000 shares of common stock to be issued upon exercise of all of the representatives' warrants at $9.1875 per share, with estimated net proceeds to Bonso of $18,164,850.
SUMMARIZED CONSOLIDATED FINANCIAL DATA (In thousands of U.S. dollars, except per share data) Year Ended March 31, ------------------------------------ Income Statement Data 1997 1998 1999 - --------------------- ---- ---- ---- Sales $ 16,989 $ 23,716 $ 13,046 Gross margin $ 4,893 $ 6,645 $ 4,234 Income from operations $ 916 $ 2,354 $ 244 Net income $ 547 $ 2,275 $ 14 Earnings per share - Basic $ 0.19 $ 0.80 0.45 cents - Diluted $ 0.19 $ 0.73 0.37 cents Weighted average shares outstanding 2,825,949 2,829,448 3,079,219 Incremental shares from assumed exercise of: Warrants -- 25,562 166,024 Stock options 20,095 279,362 429,060 ---------- ---------- ---------- Dilutive potential common shares 20,095 304,924 595,084 Adjusted weighted average shares 2,846,044 3,134,372 3,674,303
As of March 31, --------------------------------------- Balance Sheet Data 1998 1999 As Adjusted - ------------------ ---- ---- ----------- Total Current Assets $ 9,109 $ 7,308 $25,473 Total Assets $20,647 $18,660 $36,825 Current Liabilities $ 5,925 $ 3,992 $ 3,992 Debt $ 3,507 $ 1,945 $ 1,945 Total Liabilities $ 6,168 $ 4,034 $ 4,034 Shareholders' Equity $14,479 $14,626 $32,791 Net Working Capital $ 3,184 $ 3,316 $21,481 -8- RISK FACTORS Investment in the securities offered through this prospectus involves a high degree of risk. Please carefully consider the following risk factors, along with the other information contained in this prospectus, before deciding whether to exercise your warrants. Political, Legal, Economic and Other Uncertainties of Operations in China and Hong Kong China's Sovereignty over Hong Kong Could Cause Instability. Bonso's principal executive and corporate offices are located in Hong Kong, formerly a British Crown Colony. Sovereignty over Hong Kong was transferred effective July 1, 1997 to China, and Hong Kong became a Special Administrative Region of China. The National People's Congress of China enacted the Basic Law in 1990 as the constitution of Hong Kong under China's sovereignty. While management does not believe that the transfer of sovereignty over Hong Kong to China has had or will have a material adverse effect on Bonso's business, there can be no assurance as to the continued stability of political, economic or commercial conditions in Hong Kong, and any instability could have an adverse impact on Bonso's business. The Hong Kong dollar and the United States dollar have been fixed at approximately 7.80 Hong Kong dollars to $1.00 since 1983. The Chinese government expressed its intention in the Basic Law to maintain the stability of the Hong Kong currency after the sovereignty of Hong Kong was transferred to China. There can be no assurance that this will continue and Bonso could face increased currency risks if the current exchange rate mechanism is changed. Manufacturing in China Involves Risks Caused by Internal Political Factors. Bonso's manufacturing facility is located in China. As a result, Bonso'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 of laws and regulations, confiscatory taxation, restrictions on imports and sources of supply, import duties, corruption, currency revaluation or the expropriation of private enterprise could materially and adversely affect Bonso. 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 these policies, that these policies will be successful if pursued, that these policies will not be significantly altered from time to time or that business operations in China would not become subject to the risk of nationalization, which could result in the total loss of investment in that country. Economic development may be limited as well by the imposition of austerity measures intended to reduce inflation, the inadequate development of infrastructure and the potential unavailability of adequate power and water supplies, transportation and communications. If for any reason Bonso were required to move its manufacturing operations outside of China, its profitability would be substantially impaired, its competitiveness and market position would be materially jeopardized and there can be no assurance that it could continue its operations. If China Were to Lose Most Favored Nation Status, Bonso Could be Adversely Affected. 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. The United States annually reconsiders the renewal of China's MFN status. Various interest groups continue to urge that the United States not renew MFN for China and there can no assurance that controversies will not arise that threaten the status quo involving trade between the United States and China or that the United States will not revoke or refuse to renew China's MFN status. In any of these eventualities, Bonso's business could be adversely affected, by among other things, causing Bonso's products in the United States to become more expensive, which could result in a reduction in the demand for Bonso's products by customers in the United States. -9- Trade friction between the United States and China, whether or not actually affecting Bonso's business, could also adversely affect the prevailing market price of Bonso's common stock and warrants. The Chinese Legal System and Application of Chinese Laws Are Uncertain. The legal system of China relating to foreign investments is both new and continually evolving, and currently there can be no certainty as to the application of its laws and regulations in particular instances. China does not have a comprehensive system of laws. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. The Chinese judiciary is relatively inexperienced in enforcing the laws that exist, leading to a higher 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. China's Economic Policies Could Change. As part of its economic reform, China has designated certain areas, including Shenzhen where Bonso'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 Bonso. Moreover, economic reforms and growth in China have been more successful in certain provinces than others, and the continuation or increase of these disparities could affect the political or social stability of China. Bonso Is Dependent on a Single Factory. All of Bonso's products are currently manufactured at its manufacturing facility located in Shenzhen, China. Bonso does not own the land underlying its factory complex. It occupies the site under an agreement with the local Chinese government under which Bonso is entitled to use the land upon which its factory complex is situated until May 2044. This agreement and the operations of Bonso's Shenzhen factory are dependent on Bonso's relationship with the local government. Bonso's operations and prospects would be materially and adversely affected by the failure of the local government to honor the agreement. In the event of a dispute, enforcement of the agreement could be difficult in China. Moreover, fire fighting and disaster relief or assistance in China may not be as developed as in Western countries. Bonso currently maintains property damage insurance aggregating approximately $13,900,000 covering its stock in trade, goods and merchandise, furniture and equipment and buildings. Bonso does not maintain business interruption insurance. Investors are cautioned that material damage to, or the loss of, Bonso'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 Bonso's financial condition, results of operations, business and prospects. Asia Has Recently Experienced Significant Economic Problems. Recently, several countries in Southeast Asia have experienced a significant devaluation of their currencies and decline in the value of their capital markets. In addition, several Asian countries have experienced a number of bank failures and consolidations. Management believes that most Asian countries have recovered from these declines and it does not believe that the declines in Southeast Asia will affect the demand for Bonso's products, because virtually all of Bonso's products are sold into developed countries not experiencing these declines. Moreover, because most of Bonso's products are paid for in U.S. dollars, management believes that Bonso is less susceptible to the effects of a devaluation in the Hong Kong dollar or Chinese renminbi if either or both were to occur despite assurances to the contrary by the Chinese government. However, the decline in the currencies of other Southeast Asian countries could render Bonso's products less competitive if competitors located in these countries are able to manufacture competitive products at a lower effective cost. Investors are cautioned that the decline in Southeast Asia may have a material adverse effect on Bonso's business, financial condition, results of operations or market price of its securities. -10- Risk Factors Relating to the Business of Bonso The Loss of Any of Bonso's Major Customers Could Significantly Affect Profitability. Four major customers accounted for approximately 62% of Bonso's sales in the fiscal year ended March 31, 1998 and 51% of its sales during the fiscal year ended March 31, 1999. The loss of any of these major customers could have a material negative impact on Bonso's business. See "Business--Customers and Marketing--Major Customers" and "Management's Discussion and Analysis of Financial Condition--Overview." Bonso Is Dependent on Its Key Personnel. Bonso's future performance will depend to a significant extent upon the efforts and abilities of certain members of senior management as well as upon Bonso's ability to attract and retain other qualified personnel. In particular, Bonso is largely dependent upon the continued efforts of Mr. Anthony So, its president, secretary, treasurer and chairman of its board of directors, and Mr. Kim Wah Chung, its director of engineering and research and development. To the extent that the services of Mr. So or Mr. Chung would be unavailable to Bonso, Bonso would be required to obtain other personnel to perform the duties that they otherwise would perform. There can be no assurance that Bonso 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 it. See "Management." Bonso Faces Strong Competition. Bonso'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 Bonso. See "Business--Competition." Bonso Needs Qualified Employees. Bonso's success is dependent on its ability to attract and retain qualified technical, marketing and production personnel. Bonso will have to compete with other larger companies for this type of personnel, and there can be no assurance that Bonso will be able to attract or retain qualified personnel of this nature. Bonso's Founder Controls the Company. At the present time, Mr. Anthony So, Bonso's founder and president, beneficially owns approximately 37.5% of the outstanding shares of common stock. Due to his stock ownership, Mr. So may be in a position to elect the board of directors and, therefore, to control Bonso's business and affairs including certain significant corporate actions such as acquisitions, the sale or purchase of assets and the issuance and sale of Bonso's securities. See "Principal Shareholders." Bonso's Operating Results Are Subject to Wide Fluctuations. Bonso'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 Bonso's control. 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 Bonso's common stock. Certain Legal Consequences of Foreign Incorporation and Operations Judgments Against Bonso and Its Management May Be Difficult to Obtain or Enforce. Bonso is a holding corporation organized as an International Business Company under the laws of the British Virgin Islands. Bonso's principal operating subsidiary is organized under the laws of Hong Kong, where Bonso's principal executive offices are also located. Outside the United States, it may be difficult for investors to enforce judgments against Bonso obtained in the United States in actions brought against Bonso, including actions predicated upon civil liability provisions of federal securities laws. In addition, most of Bonso's officers and directors reside outside the United States and the assets of these persons and of Bonso are located outside of the United States. As a result, it may not be possible for investors to effect service of process within -11- the United States upon these persons, or to enforce against Bonso or these persons judgments predicated upon the liability provisions of U.S. securities laws. Bonso has been advised by its Hong Kong counsel and its British Virgin Islands counsel that there is substantial doubt as to the enforceability against Bonso or any of its directors or officers located outside the United States in original actions or in actions for enforcement of judgments of U.S. courts of liabilities predicated solely on the civil liability provisions of federal securities laws. See "Enforceability of Certain Civil Liabilities and Certain Foreign Issuer Considerations." Because Bonso Is Incorporated in the British Virgin Islands, Its Shareholders May Not Have the Same Protections as Shareholders of U.S. Corporations. Bonso 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 Bonso's management, directors and controlling shareholders and the rights of Bonso's shareholders differ from, and may not be as protective of shareholders as, those that would apply if Bonso were incorporated in a jurisdiction within the United States. Directors of Bonso have the power to take certain actions without shareholder approval, including an amendment of Bonso'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. Bonso's Shareholders Do Not Have the Same Protections or Information Generally Available to Shareholders of U.S. Corporations Because of Exemptions for Foreign Private Issuers. Bonso is a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934. As a result, 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 Securities and Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K, the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect to a security registered under the Exchange Act and the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer's equity securities within six months or less). Because of the exemptions under the Exchange Act applicable to foreign private issuers, shareholders of Bonso are not afforded the same protections or information generally available to investors in public companies organized in the United States. Risks Relating to this Offering You May Not be Able to Sell Your Shares of Common Stock for What You Paid for Them. The exercise prices of the publicly held warrants and the representatives' warrants have been arbitrarily determined through negotiations between Bonso and the representatives of the underwriters of Bonso's 1994 public offering. The exercise prices of the warrants do not necessarily bear any relationship to the assets, operating results, book value or shareholders' equity of Bonso or any other statistical criterion of value. The exercise prices of the warrants should not under any circumstances be regarded as an indication of any future market price of Bonso's common stock. Bonso May Not Receive Enough Money From Warrant Exercises to Fund Its Planned Operations. In 1998, Bonso solicited the exercise of the publicly held warrants. Management intended to utilize a portion of the proceeds from the exercises of these warrants to fund expansion of operations, including the development and production of Bonso's proposed cordless telephone. However, only 25,597 warrants were exercised. There is no assurance that any more of the warrants will be exercised. Accordingly, funding for the expansion of Bonso's operations will be dependent on its ability to generate significant operating -12- revenue or procure additional financing. There can be no assurance that sufficient operating revenue can be generated or that any additional financing can be arranged on favorable terms and in the amounts required to fund Bonso's operations. You May Not Be Able to Exercise Your Warrants. Exercise of Bonso's outstanding warrants is subject to its either maintaining the effectiveness of its registration statement, or filing an effective registration statement with the Securities and Exchange Commission and complying with the appropriate state securities laws. No assurance can be given that at the time a warrant holder seeks to exercise the right to purchase Bonso's common stock an effective registration statement will in fact be in effect or that Bonso will have complied with all appropriate state securities laws. Future Sales of Restricted Shares Into the Public Market Could Depress the Market Price of the Common Stock. As of the date of this prospectus, 1,168,421 outstanding shares of Bonso common stock are restricted securities as that term is defined in Rule 144 under the Securities Act of 1933. Although the Securities Act and Rule 144 place certain prohibitions on the sale of restricted securities, they may be sold into the public market under certain conditions. Further, Bonso has issued options to purchase 1,130,000 shares of common stock and has reserved an additional 30,000 shares for issuance upon exercise of stock options which may be granted in the future under its existing stock option plans, in addition to the 2,504,403 shares which could be issued under this prospectus. 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 Bonso's ability to raise capital in the future. The Market Price of Bonso's Common Stock Fluctuates . The markets for equity securities have been volatile and the price of Bonso's common stock has been and could continue to be subject to wide fluctuations in response to quarter to quarter variations in operating results, news announcements, trading volume, sales of common stock by officers, directors and principal shareholders, general market trends and other factors. Shareholders Who Do Not Exercise Their Warrants Would Be Diluted By the Exercise of Other Warrants. Current shareholders of Bonso who also hold warrants will have their percentage of ownership in Bonso diluted if they choose to let their warrants expire and other warrant holders choose to exercise their warrants. Bonso Might Decide to Redeem the Warrants. The publicly held warrants are redeemable by Bonso at any time at $0.05 per warrant upon 30 to 45 days notice if the closing price of the common stock for 20 consecutive trading days within the 30-day period before the date the notice is given is at least $8.575 per share. If Bonso calls the publicly held warrants for redemption, the holders of the publicly held warrants must either (i) exercise the publicly held warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so; (ii) sell the public warrants at the then current market price when they might otherwise wish to hold the publicly held warrants; or (iii) accept the nominal redemption price, which is likely to be substantially less than the market value of the publicly held warrants. No assurance can be given that at the time of redemption an effective registration statement will be in effect or that Bonso will have complied with all appropriate state securities laws so that a publicly held warrant holder will be able to exercise his public warrants rather than accepting the $0.05 per warrant redemption price. The Market Price of the Common Stock Could Drop Because the Selling Agents May Not Be Allowed to Make a Market For the Stock Until After This Solicitation. The selling agents have advised Bonso that they may make a market in Bonso's securities. Regulation M under the Securities Exchange Act of 1934 may prohibit the selling agents from engaging in any market making activities with regard to Bonso's securities for a specified period prior to any solicitation by the selling agents of the exercise of the public warrants until the later of the termination of any solicitation activity or the termination (by waiver or -13- otherwise) of any right that the selling agents may have to receive a fee for the exercise of the public warrants following a solicitation. As a result, the selling agents may be unable to provide a market for Bonso's securities during certain periods while the public warrants are exercisable. Any temporary cessation of these market making activities could have an adverse effect upon the market price of Bonso's securities. FORWARD-LOOKING STATEMENTS Some statements contained in this prospectus that are not statements of historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding Bonso's future economic performance and financial position and plans and objectives of management for future operations including plans and objectives relating to the development and sale of telecommunications products. Forwar looking statements are subject to factors that could cause the actual results to differ materially from future results expressed or implied by forward-looking statements. They are based on assumptions, including the following: o that political, economic and commercial conditions in Hong Kong and China will not change materially or adversely o that competitive conditions affecting Bonso will not change materially or adversely o that demand for Bonso's products will be strong o that Bonso will retain existing key management personnel o that Bonso's forecasts will accurately anticipate market demand o that there will be no material adverse change in Bonso's operations or business Assumptions relating to these factors involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Bonso's control. Although management believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking information will be realized. Management intends that the forward-looking statements contained in this prospectus be subject to the safe harbors created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES AND CERTAIN FOREIGN ISSUER CONSIDERATIONS Bonso is a British Virgin Islands holding corporation. Bonso has appointed Henry F. Schlueter, 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80265 as its agent upon whom process may be served in any action brought against it under the securities laws of the United States. However, outside the United States, it may be difficult for investors to enforce judgments against Bonso obtained in the United States in any of these actions, including actions predicated upon civil liability provisions of the United States securities laws. In addition, most of Bonso's officers and directors reside outside the United States and the assets of these persons and of Bonso are located outside of the United States. As a result, it may not be possible for investors to effect -14- service of process within the United States upon these persons, or to enforce against Bonso or these persons judgments obtained in United States courts predicated upon the liability provisions of the United States securities laws. Bonso has been advised by Harney, Westwood and Riegels ("HW&R"), its British Virgin Islands counsel, and by Wong & Fok, Solicitors, its Hong Kong counsel, that there is substantial doubt as to the enforceability against Bonso or any of its directors and officers located outside the United States in original actions or in actions for enforcement of judgments of United States courts of liabilities predicated solely on the civil liability provisions of the United States securities laws. Bonso has been advised by Wong & Fok and HW&R that no treaty exists between Hong Kong or the British Virgin Islands and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as evidence of a debt due if: (1) the judgment is for a liquidated amount in a civil matter; (2) the judgment is final and conclusive and has not been stayed or satisfied in full; (3) the judgment is not directly or indirectly for the payment of foreign taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgment was given); (4) the judgment was not obtained by actual or constructive fraud or duress; (5) the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands; (6) the proceedings in which the judgment was obtained were not contrary to natural justice; (7) the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands; (8) the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and (9) the judgment is not on a claim for contribution in respect of damages awarded by a judgment that does not satisfy the above requirements. Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar laws relating to or affecting creditors' rights generally and will be subject to a statutory limitation of time within which proceedings may be brought. Under United States law, majority and controlling shareholders generally have certain "fiduciary" responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders that are obviously unreasonable may be declared null and void. The British Virgin Islands law protecting the interests of the minority shareholders may not be as protective in all circumstances as the law protecting minority -15- shareholders in United States jurisdictions. While British Virgin Islands law does permit a shareholder of a British Virgin Islands company to sue its directors derivatively, i.e. in the name of and for the benefit of the company and to sue the company and its directors for his benefit and the benefit of others similarly situated, the circumstances in which any of these actions may be brought and the procedures and defenses that may be available in respect of any of these actions may result in the rights of shareholders of a British Virgin Islands company being more limited than those rights of shareholders in a United States company. FINANCIAL STATEMENTS AND CURRENCY PRESENTATION Bonso prepares its consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. (See note 1 to the consolidated financial statements.) Bonso publishes its financial statements in United States dollar for the following reasons: (1) Bonso is incorporated in the British Virgin Islands where the currency is the United States dollar; (2) Bonso conducts substantially all of its sales transactions in United States dollars; and (3) the exchange rate between the Hong Kong dollar and the United States dollar has been fixed at 7.80 Hong Kong dollars to $1.00 since 1983. All dollar amounts ("$") set forth in this prospectus are in United States dollars. THE COMPANY Bonso Electronics International Inc. was incorporated on August 8, 1988 as a limited liability International Business Company under the laws of the British Virgin Islands to serve as a holding company for Bonso's operating subsidiary, which was formed in 1980. As an International Business Company, Bonso is prohibited from doing business with persons resident in the British Virgin Islands, owning real estate in the British Virgin Islands or acting as a bank or insurance company. Bonso was incorporated in the British Virgin Islands principally to facilitate trading in its securities. The government of Hong Kong imposes a stamp duty on the transfer of securities of Hong Kong corporations. No duty of this kind is imposed by the British Virgin Islands, and Bonso is also exempt from income tax in the British Virgin Islands. Bonso's corporate administrative matters are conducted through its registered agent, HWR Services Limited, P.O. Box 71, Road Town, Tortola, British Virgin Islands. Bonso's principal executive offices are located at Flat A-D, 8th Floor, Universal Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong. Its telephone number is 852-2605-5822, its facsimile number is 852-2691-1724 and its E-mail address is info@bonso.com. Bonso Electronics Limited ("Bonso Electronics"), Bonso's wholly owned Hong Kong subsidiary, is mainly responsible for the design, development, manufacture and sale of a comprehensive line of electronic scales, weighing instruments and electronic consumer and health care products. Bonso Electronics has one active Hong Kong subsidiary - Bonso Investment Limited ("BIL"), which has been used to acquire and hold Bonso's real estate investments in Hong Kong and China. Since January 1997, Bonso's products have been manufactured at Bonso's manufacturing facility in the DaYang Synthetical Development District in Shenzhen, China. The leasehold, facilities, machinery, furniture and equipment at that facility are owned and operated by Bonso Electronics (Shenzhen) Co. Ltd. ("Shenzhen Bonso"), a 100% company-owned Chinese limited liability company which was formed in June 1994. See "Business--Properties--China." -16- USE OF PROCEEDS If all of the 2,504,403 warrants are exercised, of which there can be no assurance, the maximum estimated net proceeds to Bonso will be approximately $18,164,850 after deduction of fees and the expenses of this offering. Bonso intends to use the net proceeds for working capital. Working capital may be used for further expansion of Bonso's operations, on-going operations, general and administrative expenses or any other use which the board of directors deems appropriate. Pending utilization, management intends to make temporary investments of the proceeds in bank certificates of deposit, interest-bearing savings and checking accounts, prime commercial paper or government obligations. An investment in interest-bearing assets, if continued for an extensive period of time within the definitions of the Investment Company Act of 1940, as amended, could subject Bonso to classification as an "investment company" under the Investment Company Act of 1940 and to registration and reporting requirements thereunder, although Bonso does not intend this to be a result. TAXATION AND DIVIDEND POLICY Dividend Policy Bonso has never paid any dividends on its common stock and does not anticipate paying any dividends in the future. The board of directors has not adopted a policy with respect to the payment of dividends. The declaration of cash dividends may be considered by the board of directors from time to time based on Bonso's results of operations. Bonso's dividend policy will be dependent on its net income, financial position and capital requirements along with economic and market conditions, industry standards and other factors. In addition, dividend distribution and repatriation of profits or funds from Bonso's operations in China are regulated by Chinese laws and regulations. No profits are generated from China because Bonso's Chinese operations involve only the manufacture and assembly of its products which are then shipped to Hong Kong for sale and distribution. However, these laws could be interpreted differently in the future, in which case Bonso's ability to pay dividends could be adversely affected. In light of the above, no assurance can be given as to the amount or timing of future dividend payments, if any. See "Description of Securities--Exchange Controls and Other Limitations Affecting Shareholders." Taxation Under current British Virgin Islands law, Bonso is not subject to tax on its income. Most of Bonso'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 Bonso. Therefore, the overall effective tax rate of Bonso may be lower than that of most United States corporations; however, this 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 Bonso to individuals are not subject to tax as long as the recipient is not a resident of the British Virgin Islands. If Bonso were to pay a dividend, Bonso would not be liable to withhold any tax, but shareholders would receive gross dividends, if any, irrespective of their residential or national status. -17- 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. These 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. Various Internal Revenue Code provisions impose special taxes in certain circumstances on non-United States corporations and their shareholders. Shareholders of Bonso are urged to consult their tax advisors with regard to these 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. PRICE RANGE OF COMMON SHARES Bonso's common stock and publicly held warrants are traded only in the United States over-the-counter market. The common stock is quoted on the National Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") National Market under the trading symbol BNSO; the publicly held warrants are quoted under the trading symbol BNSOW on Nasdaq. The table set forth below presents the range, on a quarterly basis, of high and low closing sales prices per share of common stock and per publicly held warrant as reported by Nasdaq for the last two fiscal years and for the first quarter of the fiscal year ending March 31, 2000. The quotations represent prices between dealers and do not include retail markup, markdown or commissions and may not necessarily represent actual transactions. Common Stock Quarter Ended High Low ------------- ---- --- Fiscal 1998 ----------- June 30, 1997 $ 2.25 $1.6875 September 30, 1997 $ 6.50 $2.0625 December 31, 1997 $ 8.375 $5.375 March 31, 1998 $10.125 $5.875 Fiscal 1999 ----------- June 30, 1998 $11.375 $9.0625 September 30, 1998 $11.125 $5.125 December 31, 1998 $ 6.125 $3.125 March 31, 1999 $ 7.50 $5.375 Fiscal 2000 ----------- June 30, 1999 $ 7.625 $5.75 September 30, 1999 $ 7.50 $6.281 -18- Public Warrants Quarter Ended High Low ------------- ---- --- Fiscal 1998 ----------- June 30, 1997 $0.40625 $0.3125 September 30, 1997 $1.50 $0.40625 December 31, 1997 $2.375 $0.78125 March 31, 1998 $2.5625 $1.125 Fiscal 1999 ----------- June 30, 1998 $3.375 $2.125 September 30, 1998 $3.453 $0.063 December 31, 1998 $0.656 $0.156 March 31, 1999 $0.875 $0.313 Fiscal 2000 ----------- June 30, 1999 $0.688 $0.188 September 30, 1999 $0.469 $0.188 As of September 30, 1999, Bonso had 3,119,159 shares of common stock outstanding. These shares were held by approximately 297 holders of record worldwide, including 293 holders of record in the United States. On ___________, 1999, the closing sale price of the common stock as reported on the Nasdaq National Market was $_____. CAPITALIZATION The following table sets forth the capitalization of Bonso at March 31, 1999 and as adjusted to reflect the sale by Bonso of (i) 2,174,403 shares of common stock underlying the public warrants at an exercise price of $7.35 per share; (ii) 110,000 shares of common stock underlying the representatives' warrants at an exercise price of $9.1875 per unit; and (iii) 220,000 shares of common stock underlying the public warrants contained in the units at an exercise price of $7.35 per share. The table should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements appearing in other sections of this prospectus. Figures in the "as adjusted" column assume the exercise of 100% of the publicly held warrants and 100% of the representatives' warrants. Dollar amounts are in thousands. -19- March 31, 1999 Actual As Adjusted ------ ----------- (unaudited) Long-term debt and capital lease obligations, net of current maturities .......................... $ 42 $ 42 Shareholders equity: Common stock, $0.003 par value per share: 23,333,334 shares authorized; 3,119,159 shares issued and outstanding as of March 31, 1999 ; and 5,623,562 shares to be issued and outstanding as adjusted ......................................... $ 9 $ 17 Additional paid in capital ........................... $ 10,285 $ 28,442 Promissory note receivable from shareholder .......... $ (1,430) $ (1,430) Retained earnings .................................... $ 5,526 $ 5,526 Accumulated other comprehensive income ............... $ 235 $ 235 Total long-term liabilities and shareholders' equity ... $ 14,667 $ 32,832 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below as of March 31, 1998 and 1999 and for each of the three fiscal years in the period ended March 31, 1999 are derived from the audited consolidated financial statements and notes to the consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America in United States dollars, and which appear in another section of this prospectus. The selected consolidated financial data set forth below as of March 31, 1995, 1996 and 1997 and for each of the two fiscal years in the period ended March 31, 1996 have been derived from Bonso's audited consolidated financial statements which do not appear in this prospectus. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in another section of this prospectus. -20-
Year ended March 31, -------------------------------------------------------------- Income Statement Data 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (In thousands of United States dollars, except per share data) Net sales $ 13,266 $ 14,248 $ 16,989 $ 23,716 $ 13,046 Cost of sales (8,936) (9,412) (12,096) (17,071) 8,812 -------- -------- -------- -------- -------- Gross margin 4,330 4,836 4,893 6,645 4,234 Selling expenses (265) (325) (433) (420) (197) Salaries and related costs (1,561) (1,960) (1,973) (1,897) (1,626) Research and development expenses (108) (173) (122) (159) (566) Administration and general expenses 98 (1,234) (1,609) (1,815) (1,601) Provision for permanent diminution in value of investment in a joint venture company -- (153) -- -- -- Net gain on liquidation of a joint venture company -- -- 160 -- -- -------- -------- -------- -------- -------- Income from operations 2,494 991 916 2,354 244 Interest income 751 27 64 73 63 Interest expenses (560) (607) (532) (503) (445) Less: Interest capitalized -- 58 61 46 25 -------- -------- -------- -------- -------- (560) (549) (471) (457) (420) Foreign exchange (losses)/gains (146) (124) (136) 35 38 Other income -- 76 102 243 53 -------- -------- -------- -------- -------- Income/(loss) before income taxes 1,863 521 475 2,248 (22) Income tax (expense)/benefit (67) 96 72 27 36 -------- -------- -------- -------- -------- Income before minority interests 1,796 617 547 2,275 14 Minority interests 47 (10) -- -- -- -------- -------- -------- -------- -------- Net income $ 1,843 $ 607 $ 547 $ 2,275 $ 14 -------- -------- -------- -------- -------- Earnings per share - Basic $ 0.95 $ 0.21 $ 0.19 $ 0.80 0.45 cents - Diluted $ 0.95 $ 0.21 $ 0.19 $ 0.73 0.37 cents As of March 31, ------------------------------------------------------ Balance Sheet Data 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Working capital $ 4,719 $ 3,801 $ 1,663 $ 3,184 $ 3,316 Total assets 18,278 20,700 20,516 20,647 18,660 Long-term debt and capital lease obligations, net of current maturities 68 744 787 243 42 Deferred income taxes(liabilities)/assets (103) (49) 16 74 112 Shareholders' equity 10,764 11,433 12,142 14,479 14,626
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Bonso derives its revenues principally from the sale of electronic scales and electronic consumer and health care products manufactured by it in China. For the fiscal year ended March 31, 1998, Bonso had net sales of $23,715,576 and net income of $2,274,645. However, in the fiscal year ended March 31, 1999, net sales decreased to $13,046,265 and net income decreased to $13,754. Bonso was operating at full capacity in its prior manufacturing facility and, in January 1997, it moved its manufacturing operations to a new facility which has approximately tripled Bonso's manufacturing capacity. Management -21- believes that Bonso 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 Bonso's ability to o strengthen its customer base by enhancing and diversifying its products o increase the number of its customers o expand into additional markets o maintain or increase sales of its products to existing customers o increase production o control all of its costs. Although labor costs are increasing in China, Bonso'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 Bonso will be able to continue to increase its production at its new facility without substantially increasing its non-production salaries and related costs. In addition, Bonso has not experienced significant difficulties in obtaining raw materials for its products, and management does not anticipate any such difficulties in the foreseeable future. Results of Operations The following table sets forth selected income data as a percentage of net sales for the periods indicated.
Year ended March 31, -------------------------- Income Statement Data 1997 1998 1999 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales (71.2) (72.0) (67.5) ----- ----- ----- Gross margin 28.8 28.0 32.5 Selling expenses (2.5) (1.8) (1.5) Salaries and related costs (11.6) (8.0) (12.5) Research and development expenses (0.7) (0.7) (4.3) Administration and general expenses (9.5) (7.6) (12.3) Net gain on liquidation of a joint venture company 0.9 -- -- ----- ----- ----- Income from operations 5.4 9.9 1.9 Interest income 0.4 0.3 0.4 Interest expense (3.1) (2.1) (3.4) ----- ----- ----- Less: Interest capitalized 0.3 0.2 0.2 ----- ----- ----- (2.8) (1.9) (3.2) Foreign exchange (losses)/gains (0.8) 0.2 0.3 Other income 0.6 1.0 0.4 ----- ----- ----- Income before income taxes 2.8 9.5 (0.2) Income tax benefit 0.4 0.1 0.3 Net income 3.2% 9.6% 0.1% ===== ===== =====
Fiscal year ended March 31, 1999 compared to fiscal year ended March 31, 1998 Net Sales. Bonso's sales decreased 45.0% from $23,715,576 for the fiscal year ended March 31, 1998, to $13,046,265 for the fiscal year ended March 31, 1999, primarily as a result of decreased orders from two major customers and from various smaller customers. -22- Gross Margin. Gross margin increased from 28.0% to 32.5% primarily due to the fact that Bonso was able to utilize existing inventory by modifying it to fill orders and the fact that Bonso manufactured over 80% of the strain gauges which it used in its products. Implementation of a "just-in-time" inventory system, which resulted in a reduction in inventory, also contributed to this increase. Selling Expenses. Selling expenses decreased by 53.1% from $419,755 for the fiscal year ended March 31, 1998 to $196,974 for the fiscal year ended March 31, 1999. This decrease was attributable primarily to the decrease in sales. Salaries and Related Costs. Salaries and related costs decreased by 14.3% from $1,897,412 for the fiscal year ended March 31, 1998 to $1,625,731 for the fiscal year ended March 31, 1999. This decrease was primarily due to Bonso's efforts to control the number of employees in light of the reduction in orders from two major customers as well as a temporary reduction in management's salaries. Research and Development. Research and development expenses increased 256.7% from $158,706 during the fiscal year ended March 31, 1998 to $566,030 for the fiscal year ended March 31, 1999, primarily as a result of Bonso's increased emphasis on developing new products to diversify its customer base and particularly the expenditure of $392,454 on development of Bonso's proposed cordless telephone. Administration and General Expenses. Administration and general expenses decreased by 11.8% from $1,814,535 for the fiscal year ended March 31, 1998, to $1,601,186 for the fiscal year ended March 31, 1999. This decrease was attributable primarily to various cost saving programs such as negotiating with the owner of the Universal Industrial Centre property for a reduction of rental expenses. Bonso subsequently purchased its office space in an attempt to control this expense in the long run. Income from Operations. Income from operations decreased by 89.6% from $2,354,079 for the fiscal year ended March 31, 1998 to $244,171 for the fiscal year ended March 31, 1999, primarily as a result of reduced sales and a resulting increase in research and development efforts. Other Income. Other income decreased by 78.3% from $242,669 for the fiscal year ended March 31, 1998 to $52,662 for the fiscal year ended March 31, 1999, primarily as a result of reduced orders for scrap and increased efficiency which resulted in a reduction of scrap for resale. Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of $35,187 for the fiscal year ended March 31, 1998 and a gain of $37,882 for the fiscal year ended March 31, 1999. This difference was primarily attributable to the difference between the pegged exchange rate and the actual transaction rate. Interest Expenses. Interest expenses decreased by 8.1% from $457,838 in the fiscal year ended March 31, 1998 to $420,536 in the fiscal year ended March 31, 1999, as a result of reduced bank borrowings. Income Taxes. Bonso received an income tax credit of $27,117 for the fiscal year ended March 31, 1998 and $36,087 for the fiscal year ended March 31, 1999. The increase in tax credit is basically due to approved tax losses of certain of Bonso's subsidiaries during the year. Net Income. Net income decreased by 99.4% from $2,274,645 for the fiscal year ended March 31, 1998 to $13,754 for the fiscal year ended March 31, 1999, primarily as a result of decreased turnover and the other factors described above. -23- Fiscal year ended March 31, 1998 compared to fiscal year ended March 31, 1997 Net Sales. Bonso's sales increased 39.6% from $16,989,019 for the fiscal year ended March 31, 1997, to $23,715,576 for the fiscal year ended March 31, 1998, primarily as a result of increased orders received from two major customers. Increased shipments to Bonso's two largest customers accounted for 32.6% of the net increase in sales. The addition of new products also contributed to the increase in net sales. A new model built-in scale and glass body scale accounted for approximately 2.4% of the net increase, and the balance of 4.6% is the result of increased orders from various existing customers. Gross Margin. Gross margin decreased from 28.8% to 28.0% primarily due to increased production costs and decreased selling prices for certain products. Selling Expenses. Selling expenses decreased by 3.0% from $432,518 for the fiscal year ended March 31, 1997 to $419,755 for the fiscal year ended March 31, 1998. This decrease was attributable primarily to better control over freight costs by shipping out larger lots of goods. Salaries and Related Costs. Salaries and related costs decreased by 3.9% from $1,973,021 for the fiscal year ended March 31, 1997 to $1,897,412 for the fiscal year ended March 31, 1998. This decrease was primarily due to Bonso's efforts to control the number of employees. Research and Development. Research and development expenses increased 29.8% from $122,263 during the fiscal year ended March 31, 1997 to $158,706 for the fiscal year ended March 31, 1998, primarily as a result of the increase in new product development, such as a series of low profile body scales, a generic LCD scale and a new pocket scale. Administration and General Expenses. Administration and general expenses increased by 12.8% from $1,609,217 for the fiscal year ended March 31, 1997, to $1,814,535 for the fiscal year ended March 31, 1998. This increase was attributable primarily to a write-off of deposits on property in the amount of $78,436 and an increase in depreciation expense of $134,401 as a result of placing additional depreciable assets into service. Income from Operations. Income from operations increased by 157.1% from $915,569 for the fiscal year ended March 31, 1997 to $2,354,079 for the fiscal year ended March 31, 1998, primarily as a result of the factors described above. Other Income. Other income increased by 138.3% from $101,843 for the fiscal year ended March 31, 1997 to $242,669 for the fiscal year ended March 31, 1998, primarily as a result of increased assembly subcontracting work for a third party. Foreign Exchange Losses/Gains. Foreign exchange rates produced a loss of $135,780 for the fiscal year ended March 31, 1997 and a gain of $35,187 for the fiscal year ended March 31, 1998. This difference was primarily attributable to the difference between the pegged exchange rate and actual transaction rate. Interest Expenses. Interest expenses decreased by 2.7% from $470,655 in the fiscal year ended March 31, 1997 to $457,838 in the fiscal year ended March 31, 1998, as a result of reduced bank borrowings. Income Taxes. Bonso received an income tax credit of $71,368 for the fiscal year ended March 31, 1997 and $27,117 for the fiscal year ended March 31, 1998. The decrease in tax credit is basically due to the increase in tax expense of $35,926 -24- Net Income. Net income increased by 316.2% from $546,589 for the fiscal year ended March 31, 1997 to $2,274,645 for the fiscal year ended March 31, 1998 primarily as a result of increased turnover, better control of administrative overhead and other factors described above. Seasonality The first calendar quarter of each year is typically the slowest sales period as Bonso'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, Bonso's products do not appear to be subject to significant seasonal variation. Employee incentive compensation is conditioned on the employee's return to work following the Chinese New Year and is paid to employees following the reopening of the factory after the holidays. Management believes that this method has resulted in lower employee turnover than might otherwise have occurred. Liquidity and Capital Resources Bonso 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, 1999, Bonso had in place general banking facilities with three financial institutions aggregating $6,217,949. These facilities include the ability to obtain overdrafts, letters of credit, notes payable and fixed loans. As of March 31, 1999, Bonso had utilized $2,059,357 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 Bonso, by Bonso's real property located at Savanna Garden in Hong Kong and by a bank guarantee in the amount of $150,000. Bonso's bank credit facilities are due for renewal annually. Management of Bonso 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 amount of total short-term bank borrowings outstanding as of March 31, 1998 was $3,199,737, and as of March 31, 1999 it was $1,944,756. During the fiscal year ended March 31, 1999, Bonso paid a total of $445,644 in interest on indebtedness (including capitalized interest). Operating activities provided $2,644,612 of net cash for the fiscal year ended March 31, 1999 compared to $3,262,259 of net cash for the fiscal year ended March 31, 1998. The decrease from the fiscal year ended March 31, 1998 to the fiscal year ended March 31, 1999, was primarily due to the decrease in sales and in net income. Investing activities used $926,312 of net cash for the fiscal year ended March 31, 1999 and used $1,604,013 of net cash for the fiscal year ended March 31, 1998. The decrease in net cash used in investing activities from the fiscal year ended March 31, 1998 to the fiscal year ended March 31, 1999 was primarily due to a decrease in the acquisition of property, plant and equipment. Financing activities used $1,892,619 of net cash for the fiscal year ended March 31, 1999 and used $1,294,420 for the fiscal year ended March 31, 1998. This increase was primarily due to the repayment of banking facilities. As of March 31, 1999, Bonso had $271,447 in cash and cash equivalents as opposed to $448,454 as of March 31, 1998. There are no other material unused sources of liquid assets. Bonso believes that there are no material restrictions (including foreign exchange controls) on the ability of Bonso's subsidiaries to transfer funds to Bonso in the form of cash dividends, loans, advances or product/material purchases. Bonso's current ratio (current assets divided by current liabilities) increased from 1.54 as of March 31, 1998 to 1.83 as of March 31, 1999. Its quick ratio (cash and cash equivalents, restricted cash deposits and receivables divided by current liabilities) increased from 0.53 as of March 31, 1998 to 0.65 as of March 31, 1999. -25- As of March 31, 1999, Bonso had contingent liabilities to banks for outstanding letters of credit of $114,601 as opposed to $502,270 as of March 31, 1998. Impact of Inflation Management does not believe that inflation has had a material effect on Bonso's its business between 1998 and 1999. Bonso has generally been able to modify and improve its product designs so that it could either increase the prices of its products or lower the production cost in order to keep pace with inflation. All of Bonso's manufacturing is being done in China, and China is experiencing deflation. If this trend continues, Bonso could incur decreased labor costs with regard to its Chinese operations, resulting in lower production costs. Although the costs to Bonso of certain components used in the manufacture of its products have increased significantly over the past few years, 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 Bonso's competitive position. Year 2000 Bonso, like many owners of computer software, will be required to modify portions of its software so that it will function properly in the year 2000. Bonso's information technology systems are maintained under a maintenance arrangement with the primary vendor of its information technology software. The vendor has advised that it does not anticipate any problems in making the necessary modifications to Bonso's software. Bonso's inventory and purchasing software, as well as its accounting system, have been updated for Year 2000 compliance, including upgrading of hardware. The total expected costs in relation to these upgrades are immaterial to Bonso. Management anticipates that all necessary changes to Bonso's software will be completed before December 31, 1999, and that it will not experience any significant impact with respect to Year 2000 compliance with Bonso's non-information technology systems and equipment. Taxation Under current British Virgin Islands law, Bonso is not subject to tax on its income. Most of Bonso'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 Bonso. Therefore, the overall effective tax rate of Bonso may be lower than that of most United States corporations; however, this could be materially and adversely affected by changes in the tax laws applicable to Bonso. Exchange Rates Bonso sells most of its products to international customers. Bonso'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 Bonso to its customers. Bonso 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 Bonso are paid for in Japanese yen. Most factory expenses incurred by Bonso are paid in Chinese renminbi. Because the Hong Kong dollar is pegged to the United States dollar, the only material foreign exchange risk to Bonso 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. Bonso does not currently engage in hedging transactions, and does not intend to do so in the future. -26- Recent Accounting Pronouncements The Financial Accounting Standards Board has issued certain pronouncements which are effective as indicated below with respect to the fiscal years presented in the consolidated financial statements. SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. This statement establishes guidelines for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements; it does not address issues of recognition of measurement. The primary element of comprehensive income applicable to Bonso is the foreign currency cumulative translation adjustment. The adoption of SFAS No. 130 in fiscal 1999 has had no impact on Bonso's consolidated results of operations, financial position or cash flows. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. This statement establishes guidelines for the way that public business enterprises report information about operating segments in financial statements. This statement also establishes guidelines for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 in fiscal 1999 has had no impact on Bonso's consolidated results of operations, financial position or cash flows. SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits" is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required. This statement revises employers' disclosures about pension and other post-retirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer useful. The statement suggests combined formats for presentation of pension and other post-retirement benefit disclosures.The adoption of SFAS No. 132 in fiscal 1999 has had no impact on Bonso's consolidated results of operations, financial position or cash flows. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for fiscal years beginning after June 15, 2000. 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. Bonso has evaluated the disclosure requirements of SFAS No. 133 and believes that implementation of the new standard will have no impact on its results of operations and financial position. -27- BUSINESS Overview Bonso designs, develops, manufactures and sells a comprehensive line of electronic scales and weighing instruments and electronic consumer and health care products. Bonso manufactures all of its products in the People's Republic of China. Bonso's electronic scales include bathroom, kitchen, office, jewelry, laboratory, pocket, hanging, postal, industrial and parcel scales that are used in consumer, commercial and industrial applications. Bonso's electronic consumer and health care products include pedometers, chronographs, electronic thermometers and blood pressure meters. Bonso also plans to enter the digital telecommunications market, and anticipates that its first telecommunications product will be a two-way radio. Bonso has engaged a senior manager with experience in telecommunications manufacturing. There can be no assurance, however, that development of any telecommunications products will be successfully completed, that Bonso will obtain customers for any of these products or that sales of any of these products will be profitable. Business Strategy Bonso experienced dramatic growth from 1994 to 1998, with net sales increasing from $12,548,770 in 1994 to $23,715,576 in the fiscal year ended March 31, 1998, and profitability increasing from net income of $1,023,821 in the fiscal year ended March 31, 1994 to net income of $2,274,645 in the fiscal year ended March 31, 1998. However, net sales decreased to $13,046,265 for the fiscal year ended March 31, 1999 and net income decreased to $13,754. Management attributes these decreases primarily to decreased orders from two major customers, as well as various smaller customers of Bonso. Management believes that Bonso's continued growth depends on its ability to strengthen its customer base by enhancing and diversifying its products, increasing the number of customers and expanding into additional markets, while maintaining or increasing sales of its products to existing customers. Bonso's continued growth and profitability is also dependent upon its ability to control production costs and increase production capacity. Bonso's strategy to achieve these goals is as follows: Product Enhancement and Diversification. Bonso continually seeks to improve and enhance its existing products in order to provide a longer product life-cycle and to meet increasing customer demands for additional features. Bonso's research and development staff are currently working on these types of projects such as redesigning the existing pedometer, bicycle computer and blood pressure monitor, redesigning Bonso's bicycle accelerator in response to a change in the requirements of the Japanese government, expanding the health care line and attempting to make Bonso's products more competitive in price and features. During the last fiscal year, Bonso has completed development of a waterproof digital thermometer, a chronograph, an ear protector and two newly designed body scales. In addition, Bonso plans to enter the digital communications market and it also has, in varying stages of development, a bicycle accelerator and postal, kitchen and Gem scales, which are being developed to the specifications of OEM customers. See "Products," below. Maintaining and Expanding Business Relations with Existing Customers. Bonso promotes its relationships with its significant customers through regular communication with them, visits to its customers in their home countries and by providing direct access to Bonso's manufacturing and quality control personnel. This access, together with Bonso's concern for quality, has resulted in a relatively low level of defective products. Moreover, management believes that Bonso's emphasis on timely delivery, good service and low cost has contributed and will continue to contribute to good relations with its customers and -28- increased orders. Further, management of Bonso solicits suggestions from its customers for product enhancement and will develop and incorporate the enhancements suggested by its customers into its products when feasible. Market Expansion. In 1998, Bonso expanded its marketing efforts in the United States and Europe. Management intends to continue increasing its marketing efforts with the use of its Web page and mailing product brochures. In addition, Bonso intends to increase the frequency of its direct and telemarketing contacts with both existing and potential customers and is negotiating with an individual to represent it in Hamburg, Germany, in order to expand Bonso's marketing efforts in the European Union. Controlling Production Costs. In 1989, recognizing that labor cost is a major factor permitting effective competition in the consumer electronic products industry, Bonso relocated all of its manufacturing operations to China to take advantage of the large available pool of relatively inexpensive manufacturing labor. Bonso has made an effort to locate and operate its manufacturing facilities consistent with the exigencies of manufacturing in China. For example, the location of Bonso's plant in China is in close proximity, approximately 50 miles, to Hong Kong thereby facilitating transportation of Bonso's products to markets outside of China. Bonso is currently attempting to control production costs by such means as redesigning its existing scales in order to decrease material and labor costs, controlling the number of employees, increasing the efficiency of workers by providing regular training and tools and redesigning the flow of the production line. Increasing Production Capacity. Since January 1997, Bonso's products have been manufactured at Bonso's new manufacturing facility in the DaYang Synthetical Development District in Shenzhen, China. This new facility has triple the capacity of Bonso's old manufacturing plant. The floor area of this new facility is not fully utilized. Products The following table sets forth the percentage of net sales of each of Bonso's product lines for the fiscal years ended March 31, 1998 and 1999. Year ended March 31, -------------------- Product Line 1998 1999 ------------ ---- ---- Scales 77% 79% Health care products 13 15 Electronic consumer products 3 2 Other products and services 7 4 --- --- Total 100% 100% Scales Bonso's weighing equipment ranges from the simplest spring scales to high precision electronic scales that translate weight readings into corresponding price and postage calculations. All of Bonso's electronic scales use strain gauge sensors, which management believes are one of the most reliable and accurate weight sensing systems currently available. A strain gauge sensor is a thin metal foil resistor which is bonded to a metal block, and which undergoes a change in electrical resistance as weight is loaded onto the metal block. The measurement of change in electrical resistance yields a measure of the applied weight. -29- Bonso offers a variety of scales for diverse consumer, commercial and industrial applications. Scales currently offered by Bonso include bathroom, kitchen, office, jewelry, laboratory, pocket, hanging, postal, industrial and parcel scales. The following table sets forth the net sales of each type of scale as a percentage of total scale sales for the fiscal years ended March 31, 1998 and 1999: Year ended March 31, -------------------- Type of Scale 1998 1999 ------------- ---- ---- Postal and office 45% 29% Kitchen 6 8 Jewelry and laboratory 18 20 Bathroom 14 15 Pocket and hanging 11 19 Industrial and parcel 6 9 --- --- Total scale sales 100% 100% Bonso's electronic scales offer many advanced features such as a talking feature, automatic power off, automatic range, audio signal, digital auto-calibration, automatic zero tracking and multiple measuring units. The scales are built with either metal or plastic housings and come in various models and case designs. Bonso's scales are described in more detail below. Postal Scales. Bonso's postal scales are used primarily by businesses for weighing letters and parcels of up to 2,000 grams (4.4 lbs.) and are accurate to 1 gram. Postal scales are calibrated to give postal or franking cost for the various classes of delivery service available to various destinations. The scales are marketed primarily in Europe and the United States and are customized for the postal system of the country of destination. Office Scales. Bonso sells several models of office scales with capacities ranging from 2,000 grams (4.4 lbs.) to 5,000 grams (11 lbs.), and the scales are accurate to 1 gram. The scales are used in offices to weigh small packages and letters. Bonso's office scales are sold principally in the United States, Europe, Australia, Hong Kong and China. Kitchen Scales. Bonso's kitchen scales are used in households and restaurants to weigh ingredients for cooking and portions for dieting, with capacities ranging from 1,000 grams (2.2 lbs.) to 5,000 grams (11 lbs.), and the scales are accurate to 1 gram. Bonso's kitchen scales are marketed principally in the United States and Europe. Jewelry and Laboratory Scales. Jewelry and laboratory scales are used to weigh precious metals and stones. In the laboratory, the scales are used to weigh various chemicals and chemical compounds. Bonso's jewelry and laboratory scales are principally sold in the United States and Europe. The capacities of these scales range from 120 grams (0.25 lb.) to 1,200 grams (2.6 lbs.), and these scales are accurate to 0.01 gram or 0.1 gram, respectively. Bathroom Scales. Bonso's bathroom scales are used by consumers to monitor weight, with capacities up to 150 kilograms (330 lbs.). Bonso's bathroom scales are marketed primarily in the United States, Europe and Japan. Pocket and Hanging Scales. Pocket and hanging scales are small electronic scales that can be carried by a business person in his or her attache or brief case. The capacities of Bonso's pocket scales range from 80 grams (2.8 oz.) to 320 grams (11.2 oz.), and the scales are accurate to 0.1 gram. The hanging scales range from 15 kilograms (33 lbs.) to 25 kilograms (55 lbs.), and the scales are accurate to 10 grams. The pocket scales are principally used in the -30- jewelry business for weighing low value metals and stones and the hanging scales are primarily used in fishing. Bonso's pocket and hanging scales are marketed primarily in the United States and Europe. Industrial/Parcel Scales. Bonso manufactures different models of industrial/ parcel scales, which are used in business or industry to weigh heavier parcels or objects (i.e., objects whose weight exceeds the capacity of Bonso's office scales). Industrial/parcel scales have a capacity ranging from 25 kilograms (55 lbs.) to 150 kilograms (330 lbs.). Bonso's industrial/parcel scales are marketed primarily in Europe. Health Care Products Electronic Thermometers. Bonso's electronic thermometers, which include both Fahrenheit and centigrade versions, measure body temperature. Bonso's electronic thermometer is classified as a medical device under United States law. Medical devices are required to be approved by the United States Food and Drug Administration (the FDA) prior to being marketed, unless the law provides a legal exemption from FDA approval. Bonso's electronic thermometer has received pre-market approval from the FDA. Sales of electronic thermometers were approximately 10% of Bonso's net sales in the fiscal year ended March 31, 1998, and 12% of net sales in the fiscal year ended March 31, 1999. Blood Pressure Meters. Bonso introduced electronic blood pressure meters to its line of products in November 1994. Bonso's electronic blood pressure meters have digital displays for highest blood pressure (systolic), lowest blood pressure (diastolic) and pulse rate (number of pulses per minute), as well as mean blood pressure. The meters have automatic power off, automatic pressure release, manual rubber bulb pump and many other standard features. Bonso has obtained FDA approval for marketing blood pressure meters in the United States. Sales of blood pressure meters were approximately 3% of Bonso's net sales in each of the fiscal years ended March 31, 1998 and 1999. Electronic Consumer Products Chronographs. Bonso began shipping chronographs in 1998. A chronograph is a device for measuring the speed of a projectile by measuring the time it takes for it to go between two infra-red sensors. Sales of chronographs were approximately 0.9% of Bonso's net sales in the fiscal year ended March 31, 1999. Pedometers. Bonso began shipping electronic pedometers in 1993. A pedometer is worn by a walker or jogger to measure the distance traveled by recording the steps taken. Bonso's pedometer can be adjusted for varying stride lengths, and will keep track of distance traveled, elapsed time and average speed. Sales of pedometers were approximately 0.7% of Bonso's net sales in the fiscal year ended March 31, 1998, and 0.9% of net sales in the fiscal year ended March 31, 1999. Distance Meters. Bonso began shipping distance meters in 1998. Sales of distance meters were less than 0.1% of Bonso's net sales in the fiscal year ended March 31, 1999. Other Electronic Consumer Products. In the past, Bonso also manufactured joysticks and bicycle computers. Sales of joysticks were approximately 1.9% of Bonso's net sales in the fiscal year ended March 31, 1998 and sales of Bonso's bicycle computers were approximately 0.014% of its net sales in the fiscal year ended March 31, 1998. Bonso did not manufacture any joysticks or bicycle computers during the fiscal year ended March 31, 1999. -31- Other Products and Services Bonso also receives revenue from customer funded research and development for products subsequently produced and sold to them, the sale of semi-completed units and the sale of spare parts for repair work by its customers and from repair work performed by Bonso for its customers. These revenues constituted approximately 7% of net sales for the fiscal year ended March 31, 1998 and 4% of net sales for the fiscal year ended March 31, 1999. Product Development, Design and Research The major responsibility of the product design and research and development personnel is to develop and produce designs to the satisfaction of and in accordance with the specifications provided by the OEMs. Management believes its engineering and product development capabilities are important to the future success of Bonso's business. Some of Bonso's product design, research and development activities are customer funded and are initiated under verbal agreements with specific customers for specific products. Bonso 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 would be required in Hong Kong. At March 31, 1999, Bonso employed two individuals in Hong Kong and 16 individuals in China on its engineering staff, who are at various times engaged in research and development. Bonso also contracted with a firm in Germany to develop the software for its proposed cordless telephone. Bonso spent $158,706 and $566,030 on research and development during the fiscal years ended March 31, 1998 and 1999, respectively. Management intends to increase the number of research and development personnel to approximately 25. Bonso has, in varying stages of development, a bicycle accelerator and postal, kitchen and Gem scales, which are being developed to the specifications of OEM customers, and has recently commenced production of an ear protector and newly designed body scales. Manufacturing Bonso currently manufactures and assembles all of its products in China. Generally, raw materials, electronic components and other parts are transported to Bonso's manufacturing plant in China where the finished products are assembled. The finished goods are then transported back to Hong Kong for sale by Bonso. Bonso manufactures some of its own components, metal parts and casings and plastic parts at its facility in China. In 1997, Bonso commenced manufacturing its own strain gauges, and it currently produces over 80% of the strain gauges utilized in its scales. Management believes that Bonso will realize a substantial cost saving from producing its own strain gauges in the future. Management's objective is to eventually produce 100% of the strain gauges utilized by Bonso; however, management may decide not to produce some low-demand strain gauges if it determines that to produce them would not be cost effective. To take advantage of lower overhead costs and competitive labor rates available in China, Bonso constructed a manufacturing facility in Shenzhen, China in 1989. The location of that factory in Shenzhen, only about 30 miles from Hong Kong, permitted Bonso to manage easily manufacturing operations from Hong Kong, and facilitated transportation of Bonso's products out of China through the port of Hong Kong, the busiest seaport for containerized shipping in the world. As sales increased since the year ended March 31, 1990, Bonso's use of available factory capacity increased. In planning for its future growth, Bonso entered into a contract to acquire a land lease for construction of a new -32- manufacturing complex which, when completed, would approximately triple Bonso's production capacity. The construction of phase one of the new manufacturing complex was completed in December 1996 and Bonso commenced operations in the new complex in January 1997. The second, and final, phase was completed in May 1998. The new manufacturing complex is located in the DaYang Synthetical Development District in Shenzhen, China and is approximately 50 miles from Hong Kong. See "Properties--China," below. Because Bonso primarily sells and ships its products "F.O.B. Hong Kong," most of its customers are responsible for the transportation of finished products from Hong Kong to their final destination and bear the risk of loss from transportation. Components and finished products are transported to and from China primarily with Bonso's own truck. The majority of Bonso's component parts purchased from Japan, Taiwan and Korea are transported by ship or by air to Hong Kong. In recent years, Bonso has not been materially affected by any transportation problems. Management believes that it has sufficient water and power supplies for daily usage at its new manufacturing complex. Bonso has drilled two water wells to obtain additional water and to minimize cost. The availability of adequate power to run Bonso's factory is one of the difficulties of having a factory located in China. In order to minimize potential power problems that could develop in the Shenzhen factory, the factory, like most Chinese factories, is equipped with power generators capable of providing adequate electric power to operate the assembly line. Component Parts and Suppliers Bonso purchases over 1,000 different component parts from more than 100 major suppliers and is not dependent upon any single supplier for any key component. Bonso purchases components for its products from suppliers in Japan, Taiwan, South Korea, Hong Kong and elsewhere. Bonso has not experienced, and management does not expect to experience, any difficulty in obtaining needed component parts for its products. The major component parts purchased by Bonso are integrated circuits (chips), LEDs, LCDs, strain gauges, force sensors, resistors, capacitors, transistors, diodes, printed circuit boards and batteries. Bonso purchases both stock or off the shelf chips and custom chips. There are many suppliers of both stock and custom chips in Japan and Taiwan. At the present time, Micro Chips in Taiwan, Samsung in South Korea and Hitachi, Toshiba and NEC in Japan provide most of Bonso's chips. Chips are one of the most expensive component parts purchased by Bonso. Strain gauges are the second most expensive components purchased by Bonso. Bonso currently produces over 80% of the strain gauges utilized in its scales, and obtains the remainder principally from a Japanese manufacturer. However, Bonso could also purchase strain gauges from suppliers located in the United States and China. LEDs and LCDs are generally custom made to match the chip design and are principally supplied by companies in Taiwan, Korea and Japan. The circuit boards can be purchased from circuit board manufacturers in Hong Kong. Resistors, capacitors, transistors, diodes and batteries are standard stock items and are generally purchased in Hong Kong and Taiwan. Bonso produces metal and plastic casings and parts for use in its products. Plastic resin and metal sheet can be purchased from suppliers in Hong Kong and Japan. -33- Quality Control Management maintains strict quality control procedures for every product manufactured by Bonso throughout the manufacturing process. Incoming raw materials and components are checked by Bonso's quality control personnel. Moreover, during the production stage, Bonso's quality control personnel monitor each operation in the manufacturing process, including the bonding of the chips, component insertion and assembly of the printed circuit boards and casings. All work in process is also checked during the manufacturing and assembly processes. After the assembly stage, every product is checked for proper functioning and cosmetic appearance. After packing and before shipment, the quality control personnel randomly check goods according to product specifications. Historically, Bonso's level of defective products has been low, and not material to its financial statements. Bonso's products are generally covered by a one-year limited warranty which provides for repair or replacement of defective products. In certain circumstances, an extended warranty may be offered. To date, claims against Bonso under its warranty program have been negligible. In April 1995, Bonso received an ISO 9001 certificate from Det Norske Veritas Industry B.V., The Netherlands. Bonso passed a reviewed audit by Det Norske Veritas, processed in March 1999, and is qualified to maintain the ISO 9001 certificate. The ISO 9000 is a program developed initially by the International Organization for Standardization in Geneva, Switzerland, to provide quality control registration standards that could be relied upon to provide assurances with regard to a registrant's quality control and manufacturing operations. Management believes that ISO 9000 registration provides its customers with quality control assurances that are recognized internationally, and that this registration also provides Bonso with a competitive advantage over many other manufacturers in the Far East who have not registered for ISO 9000 certification. In addition, Bonso has submitted applications for the CE mark for some products and, at the present time, over 36 product groups have been approved, including the electromagnetic compatibility directive (EMC) and the medical devices directive (MDD). A CE mark serves as confirmation to the European authorities that the marked product complies with all European Union directives relevant to the product and that the product may be traded freely in the European market. Bonso has hired a managing director who will be responsible for changing its quality control to total quality management. Customers and Marketing Bonso sells its products in the United States, Europe, Asia, Australia and Africa. Customers for Bonso's scales are primarily original equipment manufacturers, 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, 1997, 1998 and 1999.
Year ended March 31, --------------------------------------------------------------- 1997 1998 1999 ---- ---- ---- North America $ 7,537,401 44% $12,598,672 53% $ 5,597,402 43% Europe 5,492,294 33 8,129,063 34 6,248,263 48 Asia 3,454,505 20 2,117,914 9 1,041,377 8 Australia 425,314 3 756,354 3 130,173 1 Africa 79,505 -- 113,573 1 29,050 -- ----------- ---- ----------- ---- ----------- ---- Total Net Sales $16,989,019 100% $23,715,576 100% 13,046,265 100% -34-
Bonso maintains a marketing team in Hong Kong. Bonso markets its products primarily through 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, Bonso's marketing team contacts existing and potential customers by telephone, mail, fax and in person. Major Customers. Sales of Bonso's products to OEMs accounted for approximately 87% of Bonso's total net sales during each of the years ended March 31, 1997, 1998 and 1999. Bonso's principal OEM customers include the following entities which market Bonso's products under the brand name indicated opposite their respective names:
Percent of Company's Sales -------------------------- Year ended March 31, -------------------------- Customer Brand Name Products 1997 1998 1999 -------- ---------- -------- ---- ---- ---- Pitney Bowes, Inc. (USA) Pitney Bowes Postal scales 18% 30% 15% Werner Dorsch Gmbh & Co. WEDO Postal, office and (Germany) parcel scales 11% 9% 15% Globaltec Corporation ACCULAB Jewelry, educational and (USA) high precision scales 13% 15% 11% Omron Health Care OMRON Digital thermometers 11% 8% 10% Gottl Kern & Sohn Gmbh KERN Laboratory, hanging, 3% 4% 7% pocket and parcel scales
Werner Dorsch Gmbh & Co. and Globaltec Corporation have been customers of Bonso for fourteen and twelve years, respectively. Management believes that Bonso offers its customers superior quality of products and superior product design and development capabilities, together with the low costs of production associated with its operations in China. If Bonso were to lose any customers who account for a material portion of total sales, or if any of these customers were to substantially decrease their purchases from Bonso, Bonso's revenues, earnings and financial position would be materially and adversely affected. With the exception of Globaltec Corporation, Bonso's dependence on the above-listed customers is expected to continue in the foreseeable future. Bonso follows normal and customary business practices in the acceptance of orders from its customers. Orders from the above-listed customers are generally supported by bank guarantees, letters of credit or insurance from the Hong Kong Export Credit Insurance Corporation. For updated information with respect to a decrease in orders from two of Bonso's major customers, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Sales of Bonso's products directly by Bonso under its own brand name accounted for approximately 13% of Bonso's total net sales during the years ended March 31, 1997, 1998 and 1999. Backlog. Bonso's backlog consists of orders from major customers and purchase orders from other customers of products scheduled for shipment within three to twelve months. It is Bonso's practice to charge customers 50% of the total order price when orders are cancelled and, as a result, Bonso has experienced nominal cancellations. This practice is not represented by a written agreement, and Bonso may not be able to enforce this arrangement in every case in the future. Bonso generally has not experienced any difficulty in shipping -35- orders by the dates requested by its customers or in material returns of its products. The amount of backlog that is manufactured and shipped during any period is dependent on various factors, including the timing and scheduling of orders from material customers and accordingly, the amount of backlog at any date is not necessarily indicative of actual shipments and sales. Bonso's backlog was $3,040,771 at March 31, 1999, compared to a backlog of $4,386,485 at March 31, 1998 Competition The electronic products business is highly competitive. Bonso's major competitors in the scale market include Management Investment & Technology Co., Ltd. in Hong Kong and Charder Electronic Company, Ltd. in Taiwan. In the blood pressure meter market, Bonso's major competitor is AnD Co. Ltd of Japan. In the electronic thermometer market, its major competitors are Citizen Company and Terumo, both of Japan. Competition is primarily based upon unit price, product quality, reliability, product features and management's reputation for integrity. Management believes that Bonso competes favorably with respect to each of these factors. Employees At September 30, 1999, Bonso employed 950 persons on a full-time basis. All of Bonso's 30 employees located in Hong Kong held administrative, clerical, sales and marketing positions. Of the 920 employees located in China, 810 were engaged in manufacturing and 110 were engaged in administrative and clerical positions. Bonso is not a party to any labor contract or collective bargaining agreement. Bonso has experienced no significant labor stoppages in recent years, and management believes that relations with its employees are satisfactory. Bonso currently houses all 920 employees located in China at the Shenzhen facility, including administrative staff. The facility is able to house up to 2,180 employees. Patents, Licenses, Trademarks, Franchises, Concessions and Royalty Agreements Bonso has no patents, licenses, franchises, concessions or royalty agreements that are material to its business as a whole. Bonso has obtained a trademark registration in Hong Kong and China for the marks BONSO and MODUS in connection with certain electronic apparatus and intends to file an application in the United States for registration of these trademarks. 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 of the marketing, manufacturing, labeling, packaging and distribution of medical devices. These regulations include requirements that manufacturers of medical devices register with the FDA and furnish lists of devices manufactured by them. Certain pre-market requirements must be met prior to the marketing of medical devices introduced after May 28, 1976. These range from a minimum requirement to wait 90 days after notification to the FDA before introduction of medical devices substantially similar to devices already on the market to a maximum requirement to comply with the potentially expensive and time consuming process of pre-market analysis and testing necessary to obtain FDA approval prior to the commercial marketing of new medical devices. In addition, the FDA also has the authority to prescribe performance standards for the types of health care products manufactured by Bonso. Should standards of this nature be prescribed, Bonso's products would be required to conform to them. To date, no standards of this nature have been adopted and Bonso cannot predict what changes, if any, may be necessitated in its products should these type of performance standards be issued in the future. In addition to the Amendments, there are also certain requirements of other federal laws and of state, local and foreign governments that may apply to the manufacture and marketing of Bonso's health care products. -36- The only products of Bonso that are subject to material government regulation are its electronic thermometers and electronic blood pressure meters, which are subject to qualifying procedures with the FDA. The qualifying procedures set forth by the FDA for pre-market approval with respect to the electronic thermometers and blood pressure meters have been satisfied. In the European Union, Medical Devices Approval is required for the sale of Bonso's electronic thermometers and blood pressure meters. Bonso has obtained Medical Devices Approval for its electronic thermometers. A customer is currently seeking Medical Devices Approval, on behalf of Bonso, for Bonso's blood pressure meters and management expects such approval to be granted within six months to a year. Properties British Virgin Islands The offices of Bonso are located at Cragmuir Chambers, Road Town, Tortola, British Virgin Islands. Only corporate administrative matters are conducted at these offices, through Bonso's registered agent, HWR Services Limited. Hong Kong Bonso owns approximately 9,185 square feet in the Universal Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong. This facility is used primarily as Bonso's principal executive office. Bonso purchased the property from an unaffiliated third party in May 1999 for approximately $743,590. Bonso 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 "Management-- Certain Transactions." China Bonso'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 two factory buildings, which contain approximately 194,990 square feet, two workers' quarters, containing approximately 115,050 square feet, a canteen and recreation center of approximately 25,270 square feet, an office building, consisting of approximately 25,230 square feet, and staff quarters for Bonso's supervisory employees, consisting of approximately 35,110 square feet, for a total of approximately 395,650 square feet. The facility is utilized pursuant to a Contract on the Use of Land and Supply of Workers with Shenzhen Baoan Fuan Industrial Company. The agreement provides that Bonso will use approximately 269,000 square feet of land for a period of 50 years, commencing May 10, 1994. To obtain the land lease, Bonso agreed to pay $1,810,344 plus a monthly management fee in the amount of $2,750. Bonso 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 Bonso's securities conducted in December 1994. The facility is wholly-owned by Bonso. The agreement provides that at the expiration of the land lease, Bonso will be given priority for negotiation of a new agreement for the use of the land. Bonso's total investment in the facility is approximately $8,000,000. Phase one of the facility was completed in December 1996, and manufacturing commenced in the new facility in January 1997. The second, and final, phase of the facility was completed in May 1998. -37- Bonso also owns two residential properties, one consisting of approximately 1,000 square feet, located at Lijingge Court, Unit F, 15th Floor, Hai Li Building, Shenzhen, China, and one consisting of approximately 1,125 square feet located at the 12th floor, Yuk Yui Court, Gui Hua Garden, Shenzhen Bay, China. Both properties are utilized by management staff and directors when they require accommodations in China. On June 18, 1998, Bonso purchased Units 12 and 13 on the 3rd floor, Block A of Sunshine Plaza in Beijing, China for an aggregate purchase price of $600,999, payable as follows: $383,468 was paid before June 18, 1998; and the balance of $217,531, plus interest in the amount of $30,241, is payable on or before May 18, 2000. Unit 12 consists of 102.38 square meters. Unit 13 consists of 172.77 square meters. Both Units are rented to unaffiliated third parties for an aggregate monthly rental of $3,353. Adequacy of Facilities. Management believes that Bonso's new manufacturing complex will be adequate for its reasonably foreseeable needs. Legal Proceedings On August 28, 1998, a lawsuit was filed in the United States District Court for the Central District of California against Bonso and Bonso's warrant agent alleging that Bonso had committed securities fraud, common law fraud and breach of contract arising out of the original sale of the public warrants in 1994 and the issuance on July 22, 1998 of a notice to redeem those warrants on September 4, 1998 for $0.05 per warrant. The lawsuit was dismissed, without prejudice, on September 2, 1998, and Bonso rescinded the redemption of the warrants that was noticed on July 22, 1998. Management is not aware of any legal proceedings contemplated by any governmental authority involving Bonso, its subsidiaries or their property. No director, officer or affiliate of Bonso, or any associate of a director, officer or affiliate of Bonso: (1) is a party adverse to Bonso or its subsidiaries in any legal proceedings; or (2) has an adverse interest to Bonso or its subsidiaries in any legal proceedings. Except as described herein, Bonso and its subsidiaries are not parties to any legal proceedings and there are no other material legal proceedings pending with respect to the property of Bonso and its subsidiaries. Certain Foreign Issuer Considerations Transfer of Sovereignty over Hong Kong to China. The principal executive offices of Bonso and all manufacturing operations and assets of Bonso are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was a British Crown Colony with responsibility for administering its own internal affairs. After several years of negotiations concerning Hong Kong's future, Great Britain and China signed (December 1984) and ratified (May 1985) the Sino-British Joint Declaration on the Future of Hong Kong (the "Sino-British Agreement"). Pursuant to the Sino-British Agreement, Hong Kong was restored to China on July 1, 1997. Ownership of Real Property. All land in Hong Kong is owned by the government of the Hong Kong Special Administrative Region. Prior to July 1, 1997, the government granted Crown Leases to persons, firms and corporations on the basis of an annual crown rental payment and other terms and conditions therein contained. Crown Leases were freely assignable during their term. In implementation of the Sino-British Agreement, the New Territories Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988. Pursuant to that Ordinance, all leases in the New Territories of Hong Kong were extended up to June 30, 2047. This extension was at no premium but was subject to an annual fee equivalent to 3% of the ratable value of the property to be charged with effect from the date on which the original lease would have expired. -38- The land ownership system in China is similar to Hong Kong, in which all land is owned by the government. The Chinese government and its various government instrumentalities grant leases to persons, firms and corporations on the basis of an annual rental payment and other terms and conditions. These leases are generally freely transferable during their term. MANAGEMENT Directors and Executive Officers The directors, executive officers and a key employee of Bonso are as follows: Name Age Position with Bonso - ---- --- ------------------- Anthony So 55 President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, Chairman of the Board and Director Kim Wah Chung 41 Director of Engineering and Research and Development and Director Kam Sun Luk 54 General Manager and Director Cathy, Kit Teng Pang 36 Director of Finance and Director Henry F. Schlueter 48 Assistant Secretary Woo-Ping Fok 50 Director George O'Leary 61 Director Key Employee - ------------ Michael Byrne 51 Managing Director ANTHONY SO is the founder of Bonso. He has been president, chairman of the board of directors and treasurer of Bonso since its inception and has been secretary of Bonso 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 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 Bonso since September 21, 1994. Mr. Chung has been employed by Bonso 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 Bonso. Mr. Chung's entire engineering career has been spent with Bonso, and he has been involved with every major product development made by Bonso. Mr. Chung was graduated with honors in 1981 from the Chinese University of Hong Kong with a bachelor of science degree in electronics. KAM SUN LUK was elected to the board of directors of Bonso on September 21, 1994 and has been employed by Bonso as director of new projects and quality control since October 1993. Mr. Luk obtained his bachelors degree in electrical engineering from National Taiwan University in 1968. Mr. Luk is also a member of the Institute of Electrical Engineers United Kingdom and a chartered engineer in -39- electrical engineering. Mr. Luk was employed by Semiconductor Devices Ltd. of Hong Kong in a variety of positions between 1970 and 1992 when he joined Bonso, including serving as Semiconductor Devices' general manager and senior vice president. CATHY, KIT TENG PANG has been a director of Bonso since January 1, 1998. Ms. Pang was first employed by Bonso as financial controller in December 1996 and was promoted to director of finance on January 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 Bonso in 1996, she was employed as deputy chief accountant in a management and property development company in Hong Kong and China. Ms. Pang has a bachelor of business administration degree from York University in Toronto, Canada. She is a member of the American Institute of Certified Public Accountants and of the Hong Kong Society of Accountants. HENRY F. SCHLUETER has served as assistant secretary of Bonso 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. Mr. Schlueter received his law degree from the University of Wyoming College of Law in 1978. WOO-PING FOK was elected to the board of directors of Bonso on September 21, 1994. Mr. Fok and his firm - Norman M.K. Yeung & Co., from 1993 to 1999 and, currently, Wong & Fok - have served as Hong Kong counsel to Bonso 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 Bonso 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. MICHAEL BYRNE has served as managing director for Bonso since October, 1998. Mr. Byrne has been employed by various manufacturing firms, including International Harvester, Prince Engineering, Combustion Engineering Canada and Aerospace Technologies of Australia, since 1964. From 1993 to 1995, Mr. Byrne was employed as a senior manufacturing executive by Henderson's Automotive Group, a supplier of metal and foam seating components to all four automotive assemblers. In that position he managed three factories in Melbourne, Adelaide and Geelong and led Henderson's very successful productivity and quality -40- improvement programs. In July 1995, Mr. Byrne established Henderson's first venture into automotive trim products, specifically leather seat covers for Mitsubishi's export Diamante program. The new Henderson's trim plant became a model for demonstrating the effectiveness of focused customer service, total quality management and innovative human resource strategies. Mr. Byrne received his masters of business administration degree from the University of Adelaide in December 1998 and also holds a graduate management qualification from the Australian Graduate School of Management. At the present time no family relationship exists among any of the named directors and executive officers; however, Mr. Cham Some So, who served as a director until his resignation on April 30, 1998, is the father of Anthony So. No arrangement or understanding exists between any of these directors or officers and any other persons pursuant to which any director or executive officer was elected as a director or executive officer of Bonso. The directors of Bonso 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 Bonso. Compensation Executive Officers and Directors. The following table sets forth certain information as to the compensation paid to certain of Bonso's executive officers and directors and for all directors and executive officers as a group for the year ended March 31, 1999:
Cash Non-Cash Name of Individual Capacities in Which Served Compensation Compensation - ------------------ -------------------------- ------------ ------------ Anthony So President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, Chairman of the Board and Director $346,153(1) $ 95,385(1) Kim Wah Chung Director of Engineering and Research and Development and Director $ 59,615(2) $ 53,974(2) Kam Sun Luk Director of New Projects and Quality Control and Director $ 86,539(3) $ 4,615(3) Cathy Pang Director of Finance and Director $ 85,817(4) $ 4,577(4) Henry F. Schlueter Assistant Secretary $ -- $ -- Woo Ping Fok Director $ -- $ -- George O'Leary Director $115,342(5) $ -- Cham Some So Director $ 13,000(6) $ -- All directors and officers as a group (8 persons)(7) $706,466(7) $158,551 - ----------------------
(1) Cash compensation consists of emoluments of $346,153. Non-cash compensation consists of a $15,385 contribution to Bonso's Provident Fund Plan and the value of housing provided to Mr. So valued at $80,000 during fiscal 1999. See "Provident Fund Plan," below, and "Management--Certain Transactions." (2) Cash compensation consists of emoluments of $59,615. Non-cash compensation consists of a $10,461 contribution to Bonso's Provident Fund Plan, life insurance of $5,051 and a housing allowance of $38,462. See "Provident Fund Plan," below, and "Management--Certain Transactions." (3) Cash compensation consists of emoluments of $86,539. Non-cash compensation consists of a $4,615 contribution to Bonso's Provident Fund Plan. See "Provident Fund Plan," below. (4) Cash compensation consists of emoluments of $85,817. Non-cash compensation consists of a $4,577 contribution to Bonso's Provident Fund Plan. See "Provident Fund Plan," below. -41- (5) Consists of payments made pursuant to a sales commission arrangement with Bonso. See "Management--Certain Transactions." (6) Consists of $13,000 paid as a director's fee. Mr. Cham Some So resigned from the Board of Directors as of April 30, 1998. (7) Includes Mr. Cham Some So who resigned as a director as of April 30, 1998. Bonso 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, 1999, other than contributions to Bonso's Provident Fund Plan which aggregated $35,038 for officers and directors in 1999. Directors. Except for Cham Some So, who was paid a director's fee of $13,000 during the fiscal year ended March 31, 1999, directors do not receive any additional monetary compensation for serving as directors of Bonso. 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" and "Options to Purchase Securities from Bonso or its Subsidiaries," below.) All directors are reimbursed for all reasonable expenses incurred in connection with services as a director. Provident Fund Plan. On January 1, 1988, Bonso started a provident fund plan with a major international assurance company to provide life insurance and retirement benefits to its employees. All permanent full-time employees, excluding employees of the China subsidiaries, are eligible to join the plan. Each participant is required to contribute 5% of his salary, which amount is deducted monthly from the participant's salary. The contribution by Bonso is either 5%, 7.5% or 10% of the participant's salary, depending on whether the length of the participant's service is less than five years, between five and ten years or more than ten years, respectively. At normal retirement age or "ill health" (defined essentially as disability), the participant is entitled to receive from the plan a lump sum equal to the total of the participant's and Bonso's balances. On resignation prior to normal retirement age, a participant is entitled to receive from the plan a lump sum equal to his balance plus a percentage of the employer's balance determined in accordance with a predetermined scale. Upon the death of a participant, the benefit (calculated as at normal retirement age) is paid to the employer to be held in trust for the participant's beneficiaries and paid to them as the employer determines. Bonso's aggregate contributions to the Provident Fund Plan amounted to $54,924 for the year ended March 31, 1997, $45,227 for the year ended March 31, 1998 and $54,046 for the year ended March 31, 1999. Options to Purchase Securities from Bonso or its Subsidiaries The following table sets forth all options to purchase common stock granted by Bonso which are outstanding as of the date of this prospectus: Number of Exercise Price Expiration Options per Share Date ------- --------- ---- 20,000 $2.25 October 16, 2006 420,000 $2.00 January 31, 2007 40,000 $5.06 September 8, 2007 220,000 $6.20 January 2008 415,000 $3.60 October 2008 15,000 $3.70 October 2008 -42- Stock Option Plans The 1996 Stock Option Plan. In August 1996, the board of directors of Bonso adopted the 1996 Stock Option Plan which provides for the grant of options to purchase an aggregate of not more than 400,000 shares of Bonso's common stock. The purpose of the 1996 Stock Option Plan is to make options available to management and employees of Bonso in order to encourage them to secure or increase on reasonable terms their stock ownership in Bonso and to encourage them to remain in the employ of Bonso. The 1996 Stock Option Plan is administered by a committee appointed by the board of directors which determines the persons to be granted options under the 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 plan will be transferable by the optionee other than by will or the laws of descent and distribution and each option will be exercisable, during the lifetime of the optionee, only by the optionee. The exercise price of an option granted pursuant to the 1996 Stock Option Plan may be paid in cash, by the surrender of options, in common stock, in other property, including the optionee's promissory note, or by a combination of the above. The 1996 Non-Employee Directors' Stock Option Plan. In August 1996, the board of directors of Bonso adopted a 1996 Non-Employee Directors' Stock Option Plan which provides for the grant of options to purchase an aggregate of not more than 100,000 shares of Bonso's common stock. The purpose of the 1996 Non-Employee Directors' Plan is to promote the long-term success of Bonso by creating a long-term mutuality of interests between the non-employee directors and the stockholders of Bonso, to provide an additional inducement for the non-employee directors to remain with Bonso and to provide a means through which Bonso may attract able persons to serve as directors of Bonso. The 1996 Non-Employee Directors' Plan is administered by a committee appointed by the board of directors. Under the 1996 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 Bonso or any of its subsidiaries will automatically be granted a stock option to purchase 10,000 shares of common stock. The exercise price of all options granted under the 1996 Non-Employee Directors' Plan will be equal to the fair market value of the underlying shares on the date of grant, based on guidelines set forth in the plan. The exercise price may be paid in cash, by the surrender of options, in common stock, in other property, including the optionee's promissory note, or by a combination of the above. The term of each option granted pursuant to the 1996 Non-Employee Directors' Plan will be ten years from the date of grant; however, no option may be exercised during the first six months of its term. The term of an option granted pursuant to the 1996 Non-Employee Directors' Plan may be reduced in the event that the optionee ceases to be a director of Bonso. No option granted pursuant to the plan will be transferable otherwise than by will or the laws of descent and distribution. Certain Transactions Over the years, Bonso has provided to and received from its officers and directors cash advances. In October 1994, the board of directors adopted a policy resolution prohibiting Bonso from making any loan or advance of money or property, or guaranteeing the obligation of any directors of Bonso, and limiting Bonso's ability to make these loans, advances or guarantees to officers of Bonso or its subsidiaries unless a majority of independent, disinterested outside -43- directors determine that the loan, advance or guarantee may reasonably be expected to benefit Bonso. Further, all future material affiliated transactions, loans and loan guarantees, if any, will be made on terms that are no less favorable to Bonso than those that are generally available from unaffiliated third parties. Bonso has neither provided nor received any cash advances to it officers or directors since this policy resolution was adopted. It is common practice in Hong Kong, the location of Bonso's principal executive offices, to provide a housing allowance or living accommodations for senior executives as part of their compensation. Bonso provides Mr. Anthony So with living accommodations consisting of a company-owned townhouse, for which Bonso paid a total purchase price of approximately $1,337,000. Bonso valued this benefit at $80,000 during the fiscal year ended March 31, 1999. Bonso also provides Mr. Kim Wah Chung, its director of engineering and research and development and a director of Bonso, with a housing allowance which amounted to $38,462 during the fiscal year ended March 31, 1999. Mr. George O'Leary, a director of Bonso, is paid a commission on orders placed by customers which he obtains for Bonso. The amount of the commission is negotiated on a deal-by-deal basis, without a written agreement. During the fiscal year ended March 31, 1998, Mr. O'Leary was paid an aggregate of $354,835 in commissions and during the fiscal year ended March 31, 1999, he was paid an aggregate of $115,342 in commissions. PRINCIPAL SHAREHOLDERS Bonso is not directly or indirectly owned or controlled by any foreign government or by another corporation. The following table sets forth, as of September 30, 1999, the beneficial ownership of Bonso's common stock by each person known by Bonso to own beneficially more than 5% of the common stock of Bonso outstanding as of that date and by the officers and directors of Bonso as a group. Except as otherwise indicated, all shares are owned directly. Person or Group Amount Owned --------------- ---------------------------------- Shares of Options to Purchase Percent of Common Stock Common Stock Class ------------ ------------ ----- Anthony So 1,168,421 567,000 47.1% Officers and directors 1,168,421 1,021,000 52.9% as a group (7 persons) The above percentages are based on beneficial ownership of both shares of common stock and options to purchase common stock which are immediately exercisable. All of the shares beneficially owned by Mr. Anthony So are owned of record by a corporation that is wholly owned by a trust of which Mr. So is the sole beneficiary. There are no arrangements known to Bonso the operation of which may at a subsequent date result in a change in control of Bonso. SELLING SHAREHOLDERS The following table sets forth the number of Bonso's shares of common stock and/or warrants owned of record and beneficially by the selling shareholders as of the date of this prospectus, the number of shares of common stock that are to be offered and sold by the selling shareholders from time to time under this prospectus, assuming exercise of all of the representatives' warrants and all of the public warrants underlying the representatives' warrants, and the amount of Bonso's shares of common stock to be owned by the selling shareholders after the offering, assuming the sale of all 530,000 of the shares of common stock by the -44- selling shareholders. With the exception of the shares owned by Advantage List & Marketing Corporation, the shares listed below represent the number of shares issuable upon exercise of representatives' warrants issued in 1994 and the public warrants underlying those representatives' warrants.
Selling Shares Owned Shares to be Shares Owned Shareholder Prior to Offering Offered After Offering ----------- ----------------- ------- -------------- Advantage List & Marketing Corporation 200,000 200,000 0 H.J. Meyers & Associates, Inc. 152,700 152,700 0 EBI Securities Corporation 54,120 54,120 0 (formerly Cohig & Associates, Inc.) Harold Meyers 22,650 22,650 0 Gene McColley 17,160 17,160 0 Rick Rappaport 15,855 15,855 0 Steve Bathgate 13,200 13,200 0 Fred Birner 12,540 12,540 0 Steven R. Hinkle 10,560 10,560 0 Dennis Gentry 8,580 8,580 0 F.B. Rodgers 6,795 6,795 0 James Hosch 6,600 6,600 0 Ed Larkin 5,280 5,280 0 David Drennen 2,640 2,640 0 Rike Wooten 1,320 1,320 0 It is anticipated that H.J. Meyers & Associates, Inc. and EBI Securities Corporation will transfer representatives' warrants exercisable for the number of shares of common stock indicated below, including the shares of common stock issuable upon exercise of the public warrants underlying the representatives' warrants, to the following individuals immediately after they indicate a desire to exercise the representatives' warrants. Selling Shares Owned Shares to be Shares Owned Shareholder Prior to Offering Offered After Offering ----------- ----------------- ------- -------------- Aaron Gurewitz 2,100 2,100 0 Myrna Domingo 2,100 2,100 0 Steven R. Hinkle 14,859 14,859 0 Richard Lawrence 6,315 6,315 0 Clarence Bixler, Jr. 4,875 4,875 0 Joseph Lavigne 4,275 4,275 0 Ralph Olson 4,275 4,275 0 -45- Selling Shares Owned Shares to be Shares Owned Shareholder Prior to Offering Offered After Offering ----------- ----------------- ------- -------------- Terri E. Lowe 1,206 1,206 0 Jacob Kuijper 2,232 2,232 0 David Lavigne 1,578 1,578 0 Gary Gossett 465 465 0 Kathleen N. Gavin 555 555 0 Gregory Norton 2,787 2,787 0 Kelly McCarthy 648 648 0 Russell Bean 537 537 0 Harold Golz 1,395 1,395 0
Bonso will not receive any proceeds from the sale of the shares by the selling shareholders. The selling shareholders will not participate in Bonso's offering of common stock. The selling shareholders have no agreement with the selling agents with respect to the sale of their shares of common stock. The common stock may be sold from time to time to purchasers directly by the selling shareholders. Alternatively, the selling shareholders may from time to time offer the common stock through underwriters, dealers or agents, which may receive compensation in the form of underwriting discounts, concessions or commissions from the selling shareholders and/or the purchasers of the common stock for whom they may act as agents. The selling shareholders and any agents, dealers or underwriters that participate in the distribution of the common stock may be deemed to be "underwriters" under the Securities Act of 1933, and any profit on the sale of the common stock by them and any discounts, commissions or concessions received by any person deemed to be underwriters, dealers or agents might be determined to be underwriting discounts and commissions under the Securities Act. At the time a particular offer of the shares is made by or on behalf of the selling shareholders, to the extent required, a prospectus supplement will be distributed which will set forth the number of shares of common stock being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, the purchase price paid by any underwriter for common stock purchased from the selling shareholders, any discounts, commissions and other items constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or re-allowed or paid to dealers, and the proposed selling price to the public. The shares may be sold from time to time in one or more transactions at a fixed offering price, which may be changed, at varying prices determined at the time of sale or at negotiated prices. These prices will be determined by the selling shareholders or by agreement between the selling shareholders and any underwriters. In order to comply with the applicable securities laws of certain states, if any, the shares will be offered or sold through registered or licensed brokers or dealers in those states. In addition, in certain states the shares may not be offered or sold unless they have been registered or qualified for sale in those states or an exemption from the registration or qualification requirement is available and is complied with. -46- Under applicable rules and regulations promulgated under the Securities Exchange Act of 1934, any person engaged in a distribution of securities may not simultaneously engage in any market making activities with regard to Bonso's securities for a period from five business days (or any other applicable period as Regulation M may provide) prior to the commencement of the distribution. See "Plan of Distribution." DESCRIPTION OF SECURITIES Common Stock Bonso's authorized capital consists of 23,333,334 shares of common stock, $0.003 par value per share. Holders of common stock are entitled to one vote for each whole share on all matters to be voted upon by shareholders, including the election of directors. Holders of common stock do not have cumulative voting rights in the election of directors. All shares of common stock are equal to each other with respect to liquidation and dividend rights. Holders of common stock are entitled to receive dividends if and when declared by Bonso's board of directors out of funds legally available therefor under British Virgin Islands law. In the event of the liquidation of Bonso, all assets available for distribution to the holders of the common stock are distributable among them according to their respective holdings. Holders of common stock have no preemptive rights to purchase any additional, unissued shares of common stock. All of the outstanding shares of common stock of Bonso are, and those to be issued pursuant to this offering will be, fully paid and non-assessable. Under Bonso's Memorandum and Articles of Association and the laws of the British Virgin Islands, Bonso's Memorandum and Articles of Association may be amended by the board of directors without shareholder approval. This includes amendments increasing or reducing the authorized capital stock of Bonso and increasing or reducing the par value of its shares. The board of directors may also increase the capital of Bonso without shareholder approval by transferring a portion of Bonso's surplus to capital or reduce the capital of Bonso by transferring a portion of Bonso's capital to surplus. The ability of Bonso to amend its Memorandum and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in control of Bonso without any further action by the shareholders, including but not limited to a tender offer to purchase the common stock at a premium over then current market prices. Under United States law, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders that are obviously unreasonable may be declared null and void. The British Virgin Islands law protecting the interests of the minority shareholders may not be as protective in all circumstances as the laws protecting minority shareholders in United States jurisdictions. While British Virgin Islands law does permit a shareholder of a British Virgin Islands company to sue its directors derivatively, i.e., in the name of and for the benefit of the company, and to sue the company and its directors for his benefit and the benefit of others similarly situated, the circumstances in which any action may be brought and the procedures and defenses that may be available with respect to any action may result in the rights of shareholders of a British Virgin Islands company being more limited than those rights of shareholders in a United States company. -47- Warrants Public Warrants. Bonso issued and sold 2,200,000 publicly registered warrants (the "public warrants") in a public offering of units conducted in 1994. Each public warrant entitles the holder to purchase one share of common stock at a price of $7.35 per share at any time, or from time to time, until December 14, 1999. An aggregate of 25,597 of the public warrants have been exercised. The public warrants are redeemable by Bonso, at $0.05 per warrant, upon 30 to 45 days notice, at any time if the closing price per share of common stock for 20 consecutive trading days within the 30-day period prior to the date notice of redemption is given equals or exceeds $8.575 per share. Establishment of the exact number of days for the redemption period will be based upon a number of factors including the time of year, the day of the week upon which the decision to redeem the public warrants is made, the day of the week upon which the notice of redemption is sent to holders, the number of intervening holidays during the redemption period and other similar practical considerations that may affect the time within which holders may elect to exercise the public warrants or accept the redemption price. In the event Bonso gives notice of its intention to redeem, a holder would be forced either to exercise his or her public warrants within the 30 to 45 days specified in the notice of redemption or accept the redemption price. Bonso may, in the sole discretion of its board of directors, reduce the exercise price and/or extend the expiration date of the public warrants should it deem that action to be in the best interests of Bonso. Bonso's board of directors has no present intention to extend the expiration date of, or to reduce the exercise price of, the public warrants. At this time, the board of directors is unable to predict whether or not it may at any time in the future take these types of actions. In addition, the board of directors has not determined the criteria that it may use in making this type of decision in the future. In the event that the board of directors determines, at some future date, to reduce the exercise price of the public warrants (as to which there can be no assurance), the board of directors may or may not determine to refund all public warrant holders the difference between the exercise price immediately prior to the reduction and the exercise price immediately following the reduction. This determination will be made solely in the absolute discretion of the board of directors. Any modification of the terms of the public warrants will be made in compliance with Rules 13e-4 and 14e under the Securities Exchange Act of 1934 to the extent applicable. The public warrants are in registered form. They are detachable from the units and may be traded separately in the over-the-counter market. The shares of common stock underlying the public warrants, when issued upon exercise of a public warrant, will be fully paid and non-assessable, and Bonso will pay any transfer tax incurred as a result of the issuance of common stock to the holder upon its exercise. The public warrants contain provisions that protect the holders against dilution by adjustment of the exercise price in certain events, such as stock dividends and distributions, stock splits, recapitalizations, mergers or consolidations. Bonso is not required to issue fractional shares upon the exercise of a public warrant, and any fractional shares will be paid in cash at the current market price of the common stock on the date of exercise. The current market price is defined in the warrant agreement as the average for the 30 consecutive trading days immediately preceding the date of exercise of the daily per share closing prices of the common stock in the National Market. The holder of a public warrant will not possess any rights as a shareholder of Bonso until the holder exercises the public warrant. A copy of the form of warrant agreement was filed as an exhibit to the registration statement under which the public warrants were registered. Exercise of Public Warrants. The public warrants may be exercised on surrender of the applicable warrant certificate on or prior to expiration of the warrant exercise period, with the "Purchase Form" on the reverse side of the certificate executed as indicated, and accompanied by payment of the full exercise price for the number of public warrants being exercised. Payment must be by cash or by certified or official bank check payable in United States currency to the order of the warrant agent. -48- Tax Consequences of Public Warrants. For federal income tax purposes, no gain or loss will be realized by any holder of public warrants who, upon exercise of his public warrants, receives common stock in exchange for his public warrants and payment of the exercise price. The holder's basis in the common stock received will be equal to his basis in the public warrants exercised, plus the amount of the exercise price. If the public warrants being exercised have been purchased by the holder as part of a Unit, the basis of the holder in the public warrants for the purposes of the preceding sentence will be determined by separately allocating the consideration paid for the Unit to the underlying common stock and public warrants, in proportion to the fair market values of the common stock and public warrants at the time the Unit was purchased. Any loss realized by a public warrant holder due to a failure to exercise the public warrants prior to their expiration will be treated for federal income tax purposes as a loss from the sale or exchange of property which has the same character as would the common stock if acquired by the holder. Whether the loss realized by the holder is long-term or short-term capital loss or ordinary loss will be determined by the length of the period for which the holder has held the public warrants and by whether the common stock would have been a capital asset if it had been acquired by the public warrant holder. Public warrant exercise price adjustments, or the omission of these adjustments, may under certain circumstances be deemed to be distributions that could be taxable as dividends for federal income tax purposes to the public warrant holders or to the holders of the common stock. The United States Internal Revenue Code provides that a corporation does not recognize gain or loss upon the issuance, lapse or repurchase of a warrant to acquire its own stock. Therefore, Bonso will not recognize income upon the expiration of any unexercised public warrants. Representatives' Warrants. Bonso has outstanding 110,000 representatives' warrants which were issued to the representatives of the underwriters of its 1994 public offering. Each representatives' warrant entitles the holder thereof to purchase one unit, consisting of one share of common stock and two public warrants, at $9.1875 per unit at any time prior to 5:00 p.m. (Pacific Time) on December 14, 1999. The representatives' warrants are not redeemable. Upon any transfer of the representatives' warrants to a person other than an officer, shareholder or director of the representatives, the transferred representatives' warrants must be exercised immediately or they will lapse. Transfer and Warrant Agent The transfer agent and registrar for the common stock and the warrant agent for the public warrants is U.S. Stock Transfer Corporation, 1745 Gardena Avenue #200, Glendale, California 91204. Reports to Shareholders Bonso intends to furnish annual reports to shareholders which include audited financial statements reported on by its independent accountants and quarterly reports for each of its first three quarters which contain unaudited financial statements. Bonso will continue to comply with the periodic reporting requirements imposed on foreign issuers by the Exchange Act. Bonso plans to furnish the same annual and quarterly reports to holders of its public warrants. -49- Exchange Controls and Other Limitations Affecting Shareholders There are no exchange control restrictions on payments of dividends on Bonso's common stock or on the conduct of Bonso's operations either in Hong Kong, where Bonso's principal executive offices are located, or the British Virgin Islands, where Bonso is incorporated. Other jurisdictions in which Bonso conducts operations may have various exchange controls. Taxation and repatriation of profits regarding Bonso'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 Bonso's financial results. There are no material British Virgin Islands laws that impose foreign exchange controls on Bonso or that affect the payment of dividends, interest or other payments to nonresident holders of Bonso's securities. British Virgin Islands law and Bonso's Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote Bonso's securities. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, Bonso will have 5,623,562 shares of common stock outstanding. Of these, approximately 4,455,141 shares of common stock, other than shares held by affiliates of Bonso, will be freely transferable and tradable without restriction under the Securities Act. This includes the 2,504,403 shares to be issued upon exercise of the public warrants and the representatives' warrants and the 200,000 restricted shares being registered by this prospectus on behalf of a selling shareholder. The remaining 1,168,421 shares of common stock are beneficially owned by Anthony So and may only be sold in the public United States market pursuant to an effective registration statement or in accordance with Rule 144 promulgated under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated) who has beneficially owned his or her shares for at least one year, including affiliates of Bonso, would be entitled to sell within any three-month period a number of shares equal to the greater of 1% of the then outstanding shares of common stock of Bonso (approximately 56,236 shares immediately after this offering if all of the warrants are exercised) or the average weekly trading volume of Bonso's common stock during the four calendar weeks preceding the filing of the required notice of the sale. Sales under Rule 144 also are subject to certain manner of sale restrictions, notice requirements and the availability of current public information about Bonso. Under Rule 144(k), a person who is not deemed to have been an affiliate of Bonso at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell the shares without regard to the requirements described above. Sales of substantial numbers of shares of common stock pursuant to a registration statement, Rule 144 or otherwise, whether in the United States or abroad, could adversely affect the market price of the common stock. Bonso also has reserved 1,130,000 shares of common stock for issuance upon exercise of certain outstanding options and 30,000 shares for issuance upon exercise of stock options which may be granted in the future under Bonso's stock option plans. If the holders of the options exercise the options, the shares of common stock to be issued will constitute restricted securities, subject to Rule 144. -50- PLAN OF DISTRIBUTION Warrant Solicitation Bonso has entered into an exclusive agency agreement with EBI Securities Corporation (formerly Cohig & Associates, Inc.) pursuant to which it will advise, direct, solicit and coordinate the solicitation of the exercise of the public warrants. This type of agreement includes an agreement to pay a fee equal to 2% of the gross U. S. dollars paid pursuant to the exercise of the public warrants. EBI Securities Corporation is referred to in this prospectus as the "selling agent." The selling agent may enter into sub-agency agreements with other NASD member broker/dealer firms pursuant to which it may re-allow up to the full amount of its fee to the broker/dealer firms. No NASD member broker/dealers will be entitled to receive a solicitation fee if (1) the exercise of the public warrants is made at a time when the market price of Bonso's common stock is lower than the exercise price of the public warrants; or (2) the public warrants to be exercised are held in a discretionary account. Each NASD member broker/dealer will be required to commit to an undertaking to the effect that as a participating dealer (1) it did not, within the 10 business days immediately preceding the exercise of the public warrants, bid for or purchase Bonso's common stock or any security of Bonso which is immediately convertible into or exchangeable for Bonso's common stock, including the warrants; and (2) it did not, within the 10 business days immediately preceding the date of exercise of the public warrants, otherwise engage in any activity that would be prohibited by Rule 10b-6 under the Securities Act of 1934 to one engaged in the distribution of Bonso's securities. The selling agent acted as a representative of the underwriters of the 1994 public offering. Other than the securities underlying the representatives' warrants granted to the selling agent, Bonso is not aware of any other securities of Bonso owned by the selling agent. Regulation M may prohibit the selling agent from engaging in any market making activities with regard to Bonso's securities for a period from five business days (or any other applicable period as Regulation M may provide) prior to any solicitation by the selling agent of the exercise of the public warrants until the later of the termination of the solicitation activity or the termination (by waiver or otherwise) of any right that the selling agent may have to receive a fee for the exercise of public warrants following the solicitation. As a result, the selling agent may be unable to provide a market for Bonso's securities during certain periods, including while the public warrants are exercisable. Sales by Selling Shareholders Bonso has been advised that the shares of common stock offered hereby by the Selling Shareholders may be sold by the Selling Shareholders or by their transferees or other successors in interest. The distribution of the shares may be effected from time to time in one or more transactions on the Nasdaq National Market or on other exchanges on which the common stock may be traded, in the over-the-counter market, in negotiated transactions, through the writing of options on the common stock or a combination of the methods of sale, or through other means. Sales may be effected at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. The Selling Shareholders are not restricted as to the price or prices at which they may sell their securities. Sales of shares by Selling Shareholders may depress the market price of the common stock. Transactions may be effected by sales to or through broker-dealers and the broker-dealers may receive compensation in the form of discounts, concessions or commissions from the sellers or the purchasers of the shares for whom the broker-dealers may act as agent or to whom they sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). The Selling Shareholders and any broker-dealers or agents who participate in the distribution of common stock hereunder may be -51- deemed to be "underwriters" as that term is defined in the Securities Act, and any commissions received by them and profit on any resale of the common stock as principal might be deemed to be underwriting discounts and commissions under that Act. No underwriter is being utilized in connection with this offering. Certain of the Selling Shareholders are subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including without limitation Regulation M, which provisions may limit the timing of purchases and sales of shares of common stock. Bonso has agreed to pay the expenses of registration in connection with this offering. At the time a particular offer of common stock is made, to the extent required, a supplement to this prospectus will be distributed which will identify and set forth the aggregate amount of common stock being offered and the terms of the offering. In order to comply with certain states' securities laws, if applicable, the common stock may be sold in those jurisdictions only through registered or licensed brokers or dealers. In certain states the common stock may not be sold unless it has been registered or qualified for sale in any of those states, or unless an exemption from registration or qualification is available and is obtained. LEGAL MATTERS The validity of the common stock underlying the warrants will be passed upon by Harney, Westwood & Riegels, Tortola, British Virgin Islands, who have also advised Bonso on all matters of BVI law disclosed in this prospectus. Schlueter & Associates, P.C., Denver, Colorado has acted as United States counsel for Bonso in connection with this offering. Wong & Fok, Solicitors, Hong Kong, has acted as Hong Kong counsel with respect to all matters herein concerning the Hong Kong subsidiaries and Hong Kong law. EXPERTS The financial statements as of March 31, 1999 and 1998 and for each of the three years in the period ended March 31, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers, Hong Kong, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION Bonso is subject to the reporting requirements of the Securities Exchange Act of 1934 and in accordance with that Act it files reports and other information with the Securities and Exchange Commission. Reports and other information filed by Bonso can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the Securities and Exchange Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Furthermore, copies of those materials can be obtained from the Public Reference Section of the Securities and Exchange Commission, Washington, D.C., at prescribed rates. Bonso intends to furnish to its shareholders annual reports containing audited financial statements certified by independent accountants. -52- Bonso has filed a registration statement under the Securities Act of 1933, as amended, with the U.S. Securities and Exchange Commission with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, omits certain of the information contained in the registration statement and the exhibits to the registration statement on file with the Securities and Exchange Commission in accordance with the Securities Act and the rules and regulations of the Securities and Exchange Commission. Statements contained in this prospectus such as the contents of any contract or other document referred to are not necessarily complete and in each instance that reference is made to the copy of a contract or other document filed as an exhibit to the registration statement, each statement is qualified in all respects by any reference to the exhibits. A copy of the registration statement, including the exhibits to the registration statement, may be inspected without charge at the Commission's principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies of all or any part of the registration statement, may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. The Commission also maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants, such as Bonso, that file electronically with the Commission. The address of the site is http://www.sec.gov. Bonso does not file electronically with the Commission since it is a foreign private issuer and is not required to do so. Accordingly, copies of Bonso's filings are not available on the Commission's web site. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents are hereby incorporated herein by reference: 1. Bonso's Annual Report on Form 20-F for the fiscal year ended March 31, 1999 filed with the Commission on August 4, 1999; and 2. Bonso's Form 6-K filed with the Commission on August 3, 1999. All subsequent annual reports filed on Form 20-F, Form 40-F or Form 10-K, and all subsequent filings on Forms 10-Q and 8-K filed by Bonso with the Commission under the Exchange Act, prior to the termination of the offering, shall be deemed to be incorporated by reference into this prospectus. Bonso may incorporate by reference into this prospectus certain Forms 6-K subsequently submitted to the Commission by identifying in the forms that they are being incorporated by reference into this prospectus. Any statement incorporated herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes the statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. Bonso hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this prospectus has been delivered, upon written or oral request of the person, a copy of any or all of the foregoing documents incorporated herein by reference (other than exhibits to those documents, unless the exhibits are specifically incorporated by reference into the documents). Requests for the documents should be submitted to Bonso, C/O Schlueter & Associates, P.C., 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80265; telephone: (303) 292-3883; facsimile: (303) 296-8880. -53- Consolidated Financial Statements Bonso Electronics International Inc. (Incorporated in the British Virgin Islands) and Subsidiaries March 31, 1999 PricewaterhouseCoopers Independent Accountants Bonso Electronics International Inc. and Subsidiaries Index to Consolidated Financial Statements Contents Pages Report of Independent Accountants............................................. 2 Consolidated Balance Sheets as of March 31, 1998 and 1999..................... 3 Consolidated Statements of Income and Comprehensive Income for the years ended March 31, 1997, 1998 and 1999............................. 4 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1997, 1998 and 1999..................... 5 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1998 and 1999................................................. 6 Notes to Consolidated Financial Statements...............................7 to 27 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, 1998 and 1999 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, 1999. 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, in all material respects, the financial position of the Group as of March 31, 1998 and 1999 and the results of their operations and cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles in the United States of America. PricewaterhouseCoopers Hong Kong, May 28, 1999 F-2
Bonso Electronics International Inc. and Subsidiaries Consolidated Balance Sheets (Expressed in United States Dollars) March 31 ----------------------------- 1998 1999 ---- ---- $ $ Assets Current assets Cash and cash equivalents ...................................... 448,454 271,447 Restricted cash deposits (Note 7) .............................. 952,267 1,011,688 Trade receivables, net (Note 2) ................................ 964,958 362,236 Inventories, net (Note 3) ...................................... 5,966,700 4,697,928 Notes receivable ............................................... 340,518 690,449 Deferred income tax assets - current (Note 5(d)) ............... 35,088 31,251 Other receivables, deposits and prepayments .................... 400,924 243,231 ----------- ----------- Total current assets ........................................... 9,108,909 7,308,230 ----------- ----------- Deposits ........................................................ 447,735 -- Deferred income tax assets - non current (Note 5(d)) ............ 38,430 81,223 Property, plant and equipment Leasehold land and buildings ................................... 7,259,414 8,997,073 Construction-in-progress ....................................... 785,364 -- Plant and machinery ............................................ 3,385,846 3,495,632 Molds .......................................................... 2,108,967 2,112,608 Furniture, fixtures and equipment .............................. 2,122,805 2,661,718 Motor vehicles ................................................. 306,946 306,979 ----------- ----------- 15,969,342 17,574,010 Less: accumulated depreciation and amortization ................ (4,917,853) (6,303,179) ----------- ----------- Net property, plant and equipment .............................. 11,051,489 11,270,831 ----------- ----------- Total assets ................................................... 20,646,563 18,660,284 ----------- ----------- (cont'd) See notes to these consolidated financial statements Bonso Electronics International Inc. and Subsidiaries Consolidated Balance Sheets (continued) (Expressed in United States Dollars) March 31 --------------------------- 1998 1999 ---- ---- $ $ Liabilities and shareholders' equity Current liabilities Bank overdrafts (Note 7) ....................................... 600,721 643,278 Notes payable (Note 7) ......................................... 2,260,384 581,349 Accounts payable ............................................... 1,560,954 1,135,910 Accrued charges and deposits ................................... 482,222 516,458 Income taxes payable ........................................... 30,000 11,667 Short-term loans (Note 7) ...................................... 338,632 720,129 Current portion of long-term debt and capital lease obligations (Notes 4 and 6(a)) ........................................... 652,041 383,409 ----------- ----------- Total current liabilities ...................................... 5,924,954 3,992,200 ----------- ----------- Long-term debt and capital lease obligations, net of current maturities (Notes 4 and 6(a)) .................................. 242,889 42,397 Commitments and contingencies (Note 10) Shareholders' equity (Notes 8(b), 14 and 15) Common stock par value $0.003 per share - authorized shares - 23,333,334 - issued and outstanding shares - 3,119,159 ................... 8,485 9,353 Additional paid-in capital ..................................... 8,724,503 10,285,105 Promissory note receivable from shareholder (Note 8(b)) ........ (1,350,000) (1,430,000) Common stock subscribed (Note 8(b)) ............................ 1,350,000 -- Retained earnings .............................................. 5,512,204 5,525,958 Accumulated other comprehensive income ......................... 233,528 235,271 ----------- ----------- 14,478,720 14,625,687 ----------- ----------- Total liabilities and shareholders' equity ...................... 20,646,563 18,660,284 ----------- -----------
See notes to these consolidated financial statements F-3
Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (Expressed in United States Dollars) Year ended March 31 ----------------------------------------- 1997 1998 1999 $ $ $ Net sales (Note 16) ....................... 16,989,019 23,715,576 13,046,265 Cost of sales ............................. 12,096,085 17,071,089 8,812,173 ----------- ----------- ----------- Gross margin .............................. 4,892,934 6,644,487 4,234,092 Selling expenses .......................... 432,518 419,755 196,974 Salaries and related costs ................ 1,973,021 1,897,412 1,625,731 Research and development expenses (Note 11) 122,263 158,706 566,030 Administration and general expenses ....... 1,609,217 1,814,535 1,601,186 Net gain on liquidation of a joint venture company (Note 13) ........................ (159,654) -- -- ----------- ----------- ----------- Income from operations .................... 915,569 2,354,079 244,171 Interest income ........................... 64,248 73,431 63,488 Interest expenses ......................... (532,068) (503,896) (445,644) Less: Interest capitalized ................ 61,413 46,058 25,108 ----------- ----------- ----------- (470,655) (457,838) (420,536) Foreign exchange (losses)/gains ........... (135,780) 35,187 37,882 Other income .............................. 101,843 242,669 52,662 ----------- ----------- ----------- Income/(loss) before income taxes ......... 475,225 2,247,528 (22,333) Income tax benefit (Note 5(c)) ............ 71,364 27,117 36,087 ----------- ----------- ----------- Net income ................................ 546,589 2,274,645 13,754 Other comprehensive income, net of tax: Foreign currency translation adjustments .. 162,970 43,129 1,743 ----------- ----------- ----------- Comprehensive income ...................... 709,559 2,317,774 15,497 ----------- ----------- ----------- Earning per share (Note 12) Basic .................................... 19.34 cents 80.39 cents 0.45 cents ----------- ----------- ----------- Diluted .................................. 19.21 cents 72.57 cents 0.37 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) Promissory Common stock note ----------------------- receivable Shares Amount Additional from outstanding outstanding paid-in capital shareholder ----------- ----------- --------------- ----------- $ $ $ Balance, March 31, 1996 ............ 2,825,949 8,477 8,705,917 -- Net income ......................... Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustments Reversal upon liquidation of a joint venture company ....... Comprehensive income ............... ----------- ----------- ----------- ---------- Balance, March 31, 1997 ............ 2,825,949 8,477 8,705,917 -- Net income ......................... Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustments Reversal upon liquidation of a subsidiary ...................... ----------- ----------- ----------- ---------- Comprehensive income ............... Common stock issued upon exercise of warrant (Note 15) .............. 2,613 8 18,586 Common stock subscribed (Note 8(b)) ....................... -- -- -- (1,350,000) ----------- ----------- ----------- ---------- Balance, March 31, 1998 ............ 2,828,562 8,485 8,724,503 (1,350,000) Net income ......................... 13,754 -- 13,754 Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustment.. -- 1,743 1,743 ----------- ----------- ----------- ---------- Comprehensive income ............... Issue of common stock (Note 8(b))... 200,000 600 1,349,400 -- Common stock issued upon exercise of share option (Note (14). 5,000 193 131,202 -- Common stock issued upon exercise of warrant, net of expenses (Note 15) 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) ----------- ----------- ----------- ---------- (cont'd) Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (continued) (Expressed in United States Dollars) Accumulated other comprehensive income- Common foreign Total stock Retained currency shareholders' subscribed earnings adjustments equity ---------- -------- ----------- ------------ $ $ $ $ Balance, March 31, 1996 ............ -- 2,690,970 27,429 11,432,793 Net income ......................... 546,589 -- 546,589 Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustments -- 57,746 57,746 Reversal upon liquidation of a joint venture company ....... -- 105,224 105,224 Comprehensive income ............... 546,589 162,970 709,559 ---------- ----------- ----------- ----------- Balance, March 31, 1997 ............ -- 3,237,559 190,399 12,142,352 Net income ......................... 2,274,645 -- 2,274,645 Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustments -- 45,779 45,779 Reversal upon liquidation of a subsidiary ...................... -- (2,650) (2,650) ---------- ----------- ----------- ----------- Comprehensive income ............... -- 2,274,645 43,129 2,317,774 Common stock issued upon exercise of warrant (Note 15) .............. -- -- -- 18,594 Common stock subscribed (Note 8(b)) ....................... 1,350,000 -- -- -- ---------- ----------- ----------- ----------- Balance, March 31, 1998 ............ 1,350,000 5,512,204 233,528 14,478,720 Net income ......................... 13,754 -- 13,754 Other comprehensive income, net of tax Foreign currency adjustments: Cumulative translation adjustment.. -- 1,743 1,743 ---------- ----------- ----------- ----------- Comprehensive income ............... 13,754 1,743 15,497 Issue of common stock (Note 8(b))... (1,350,000) -- -- -- Common stock issued upon exercise of share option (Note (14). -- -- -- 131,395 Common stock issued upon exercise of warrant, net of expenses (Note 15 -- -- -- 75 Interest income from promissory note receivable (Note 8(b)) - ..... -- -- -- -- ---------- ----------- ----------- ----------- Balance, March 31, 1999 ............ -- 5,525,958 235,271 14,625,687 ---------- ----------- ----------- -----------
See notes to these consolidated financial statements F-5
Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Cash Flows (Expressed in United States Dollars) Year ended March 31 -------------------------------------------- 1997 1998 1999 ---- ---- ---- $ $ $ Cash flows from operating activities Net income ............................................................ 546,589 2,274,645 13,754 Adjustments to reconcile net income to net cash provided by operating activities Depreciation .......................................................... 681,730 942,894 1,109,286 Amortization .......................................................... 279,201 482,214 275,323 Other ................................................................. (71,716) 113,794 (51,187) Changes in assets and liabilities, net of disposed subsidiary: Trade receivables ..................................................... 394,234 45,929 596,696 Other receivables, deposits and prepayments ........................... 773,636 (57,577) 157,693 Notes receivable ...................................................... (535,685) 427,015 (349,931) Inventories ........................................................... 275,537 53,994 1,341,075 Accounts payable, accrued charges and deposits ........................ 1,237,089 (1,084,467) (390,808) Other ................................................................. (56,309) 63,818 (57,289) ---------- ---------- ---------- Net cash provided by operating activities ............................. 3,524,306 3,262,259 2,644,612 ---------- ---------- ---------- Cash flows from investing activities Restricted cash deposits .............................................. 664,820 (65,947) (59,421) Deposit for properties ................................................ -- (64,215) -- Proceeds from disposal of property, plant and equipment ............................................................ 212,494 83,418 -- Acquisition of property, plant and equipment .......................... (2,844,115) (1,557,269) (866,891) ---------- ---------- ---------- Net cash used in investing activities ................................. (1,966,801) (1,604,013) (926,312) ---------- ---------- ---------- Cash flows from financing activities Issue of shares on exercise of warrants and options ................... -- -- 317,966 Expenses paid for warrant redemption .................................. -- -- (201,586) Principal payments under long-term debt ............................... (307,692) (410,256) (381,826) Capital lease payments ................................................ (169,569) (355,750) (372,192) Net repayment under banking facilities ................................ (1,180,565) (528,414) (1,254,981) ---------- ---------- ---------- Net cash used in financing activities ................................. (1,657,826) (1,294,420) (1,892,619) ---------- ---------- ---------- Effect of foreign exchange rate changes on cash ....................... 23,457 (4,519) (2,688) ---------- ---------- ---------- Net (decrease)/increase in cash ....................................... (76,864) 359,307 (177,007) Cash and cash equivalents, beginning of year .......................... 166,011 89,147 448,454 ---------- ---------- ---------- 89,147 448,454 271,447 ---------- ---------- ---------- Supplemental disclosure of cash flow information Cash paid during the year for: Interest paid, net of amounts capitalized ............................ 470,655 457,838 420,536 Income tax paid, net of refund ....................................... 50,383 (33,818) (21,202)
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 products and health care products. The consolidated financial statements have been prepared in United States dollars and in accordance with generally accepted accounting principles in the United States of America. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include provisions made against inventories and trade receivables. Actual results could differ from those estimates. The significant accounting policies are as follows: (a) Principles of consolidation The consolidated financial statements include the accounts of the Company and its foreign subsidiaries (hereinafter collectively referred to as the "Group"). All significant intercompany accounts and transactions are eliminated. (b) Cash and cash equivalents Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value because of the short term maturity of these instruments. (c) Inventories Inventories are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Net realizable value is the price at which inventories can be sold in the normal course of business after allowing for the costs of completion and disposal. (d) Revenue recognition Revenue is recognized when the products are shipped to customers. (e) Property, plant and equipment (i) Property, plant and equipment are stated at cost. Leasehold land and buildings are amortized on a straight-line basis over 15 to 50 years, representing the shorter of the remaining term of the lease or the expected useful life to the Group. (ii) Construction-in-progress represents factories and office buildings under construction and is stated at cost. Cost includes the costs of construction and interest charges arising from borrowings used to finance these assets during the period of construction. Construction-in-progress is not depreciated during the period of construction. F-7 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 1 Description of business and significant accounting policies (cont'd) (e) Property, plant and equipment (cont'd) (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, 1997, 1998 and 1999 amounted to $22,315 and $9,078 and $43,424 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 (cont'd) (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 Peoples' Republic of China (the "PRC") is the Renminbi, the national currency of the PRC. The functional currency of the Company's subsidiary in Canada, which was liquidated in 1998, is the Canadian dollar. (ii) The financial statements of foreign subsidiaries where the U.S. dollar is the functional currency and which have certain transactions denominated in non-U.S. dollar currencies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of local currencies into U.S. dollars creates translation adjustments which are included in net income. (iii)The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for statement of income. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity. (k) Adoption of new accounting standards The Group adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". This statement establishes guidelines for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements; it does not address issues of recognition or measurement. The primary element of comprehensive income applicable to the Group is the foreign currency cumulative translation adjustment. The Group adopted this standard from December 15, 1998. The comparative figures have been restated. The Group adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement establishes guidelines for the way that public business enterprises report information about operating segments in financial statements. This statement also establishes guidelines for related disclosures about products and services, geographic areas, and major customers. The Group adopted this standard from December 15, 1998. F-9 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 2 Allowance for doubtful accounts Changes in the allowance for doubtful accounts consist of: 1997 1998 1999 ---- ---- ---- $ $ $ Balance, April 1 ....................... 52,919 99,856 33,333 Additions charged to expense ........... 46,937 -- 6,026 Write-off .............................. -- (26,126) -- Provision written back ................. -- (40,397) -- ------- ------- ------- Balance, March 31 ...................... 99,856 33,333 39,359 ------- ------- ------- 3 Inventories (a) The components of inventories are as follows: March 31 -------------------------- 1998 1999 ---- ---- $ $ Raw materials ...................... 4,288,182 3,601,695 Work in progress ................... 849,343 841,008 Finished goods ..................... 1,096,799 450,546 ---------- ---------- 6,234,324 4,893,249 ---------- ---------- Provisions ......................... (267,624) (195,321) ---------- ---------- 5,966,700 4,697,928 ---------- ---------- (b) Changes in the inventories provisions consist of the following: 1997 1998 1999 ---- ---- ---- $ $ $ Balance, April 1 ................... 49,014 146,530 267,624 Additions charged to expense ....... 131,516 121,094 -- Write-back ......................... (34,000) -- (72,303) -------- -------- -------- Balance, March 31 .................. 146,530 267,624 195,321 -------- -------- -------- F-10 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 4 Long-term debt Long-term debt denominated in Hong Kong dollars consists of the following: March 31 ---------------- 1998 1999 ---- ---- $ $ Loan payable to a bank at HIBOR plus 2.25% per annum (8.5% as of March 31, 1998) ............................. 307,692 -- Loan payable to a property developer at 14% per annum ... -- 131,786 Less: current portion ................................... (307,692) (111,494) -------- -------- Long-term debt, less current maturities .................. -- 20,292 -------- -------- 5 Taxation (a) The companies are subject to tax on an entity basis on income arising in or derived from Hong Kong and the PRC. The current rates of taxation of the subsidiaries operating in Hong Kong and Shenzhen in the PRC are 16% and 15%, respectively. The Group is not subject to income taxes in the British Virgin Islands. (b) Pursuant to the relevant income tax laws in the PRC, Bonso Electronics (Shenzhen) Co., Ltd, a wholly owned subsidiary of the Company, is fully exempt from PRC state income tax for two years starting from the first profit-making year followed by a 50% reduction over the ensuing three years. Bonso Electronics (Shenzhen) Co., Ltd. was loss-making for the years ended March 31, 1997, 1998 and 1999. (c) The components of the income tax benefit are as follows: Year ended March 31 --------------------------- 1997 1998 1999 ---- ---- ---- $ $ $ Deferred income tax benefit ................. 65,438 57,117 38,956 Current income tax benefit/(expense) ....... 5,926 (30,000) (2,869) ------- ------- ------- Total income tax benefit .................... 71,364 27,117 36,087 ------- ------- ------- F-11 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 5 Taxation (cont'd) (d) Deferred tax assets are comprised of the following: March 31 ---------------- 1998 1999 ---- ---- $ $ Deferred tax liabilities Accelerated depreciation .............. (34,387) (11,807) Deferred tax assets Tax loss carry forwards ............... 133,993 127,723 Valuation allowance ................... (61,176) (34,693) -------- -------- 72,817 93,030 -------- -------- Other ................................. 35,088 31,251 -------- -------- 107,905 124,281 -------- -------- 73,518 112,474 -------- -------- Less: current portion .................. 35,088 31,251 -------- -------- Deferred tax assets, non current portion 38,430 81,223 -------- -------- As of March 31, 1999, the Group had accumulated tax losses amounting to $798,265 (the tax effect thereon is $127,723) 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, 1999, the Group's accumulated tax losses have no definite period of expiration. (e) Changes in the valuation allowance consist of: 1997 1998 1999 ---- ---- ---- $ $ $ Balance, April 1 ........................ 89,112 147,716 61,176 Additions/(reductions) charged/(credited) to income tax expense .................. 58,604 55,082 (4,630) Release of valuation allowance upon: - liquidation of subsidiary ............ -- (62,089) -- - approval of losses by tax authorities -- (77,621) (21,853) Effect of change in tax rate ............ -- (1,912) -- -------- -------- -------- Balance, March 31 ....................... 147,716 61,176 34,693 -------- -------- -------- F-12 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 5 Taxation (cont'd) (f) The actual income tax benefit attributable to earnings for the years ended March 31, 1997, 1998 and 1999 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:
Year ended March 31 ------------------------------- 1997 1998 1999 ---- ---- ---- $ $ $ Hong Kong statutory tax rate ............... 16.5% 16.5% 16.0% Income tax (expense)/credit at the Hong Kong statutory tax rate ........................ (78,412) (370,842) 3,573 Offshore profit not subject to income tax .. 181,409 381,167 40,477 Valuation allowance on tax loss ............ (58,604) 22,539 26,483 Over/(under)provision for Hong Kong tax in prior years ............................... 5,926 10,246 (22,064) Other ...................................... 21,045 (15,993) (12,382) -------- -------- -------- Total income tax benefit ................... 71,364 27,117 36,087 -------- -------- --------
F-13 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 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 ---------------- ---------------- 1998 1999 1998 1999 ---- ---- ---- ---- $ $ $ $ Cost ......................... 45,835 45,835 1,397,129 1,495,847 Less: accumulated amortization 7,639 16,806 344,684 643,041 --------- --------- --------- --------- 38,196 29,029 1,052,445 852,806 --------- --------- --------- --------- During the years ended March 31, 1997, 1998 and 1999, the Group entered into additional capital lease obligations amounting to $880,261, $143,471 and $78,974 respectively. The amortization charge on leased assets held by the Group amounted to $120,458, $284,845 and $307,524 for the years ended March 31, 1997, 1998 and 1999 respectively. Future minimum payments for capital leases as of March 31, 1999 with an initial term of more than one year are as follows: $ 2000 ........................................................ 326,686 2001 ........................................................ 13,812 ------- Total minimum lease payments ................................ 340,498 Less: amount representing interest .......................... 46,478 ------- Present value of net minimum lease payments (including current portion of $271,915, as of March 31, 1999) ......... 294,020 ------- (b) Operating leases As of March 31, 1999, future minimum lease commitments in respect of noncancellable operating leases for office premises and staff quarters in Hong Kong and the PRC are $46,795, payable in the year ending March 31, 2000. Rent expense for all operating leases amounted to $279,311, $196,622 and $166,824 for the years ended March 31, 1997, 1998 and 1999, respectively. F-14 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 7 Banking facilities As of March 31, 1999, the Group had general banking facilities for bank overdrafts, notes payable, short-term loans and long-term debt. The facilities are interchangeable with total amounts available of $6,217,949 (1998: $6,948,717), including facilities in respect of letters of credit of $1,410,257 (1998: $1,282,051). All general banking facilities granted to the Group are denominated in Hong Kong dollars. The Group's general banking facilities, expressed in United States Dollars, are further analyzed as follows:
Amount available Amount utilized Terms of banking facilities as of March 31 March 31 March 31, 1998 ---------------- ----------------- --------------------------- 1998 1999 1998 1999 Interest Repayment ---- ---- ---- ---- rate terms $ $ $ $ -------- --------- Trade financing facilities: Notes payable ....... 3,635,726 2,771,089 2,260,384 581,349 Prime rate Repayable in to Prime rate full within plus 0.5% or four months HIBOR plus 2% Short-term loans .... 723,248 1,075,064 338,632 720,129 Prime rate Repayable in to Prime rate full within plus 0.5% or three months HIBOR plus 2% Letters of credit .... 1,282,051 1,410,257 502,270 114,601 Nil Nil Other facilities: Bank overdrafts ...... 897,436 961,539 600,721 643,278 Prime rate Repayable plus 0.25% on demand to Prime rate plus 1.5% Long-term debt, ...... 410,256 -- 307,692 -- HIBOR Nil including current ... plus 2.25% maturities (Note 4) --------- --------- ---------- ------------ 6,948,717 6,217,949 4,009,699 2,059,357 --------- --------- ---------- ------------
The Prime rate and HIBOR rate were 8.75% and 5.63%, respectively, as of March 31, 1999. The Prime rate is determined by the Hong Kong Bankers Association and is subject to revision from time to time. F-15 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 7 Banking facilities (cont'd) The banking facilities are collateralized by the following: (a) a legal charge over a leasehold property of the Group with net book value of $1,241,712 (1998: $1,269,917); and (b) a bank guarantee of $150,000 (1998: $150,000) and restricted cash deposits of $1,011,688 (1998: $952,267). 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 ------------------- 1998 1999 ---- ---- Bank overdrafts ............................... 9.5% 10.2% Notes payable ................................. 9.4% 9.5% Short-term loans .............................. 9.4% 9.5% 8 Related party transactions (a) The Group paid emoluments, commissions and/or consultancy fees to their directors as follows:
Year ended Mr So Hung Gun, March 31 Anthony Mr So Cham Some Mr Ray Mehra Mr Chung Kim Wah -------- -------------- --------------- ------------ ---------------- 1997 $443,590 $ 66,410 $ 21,986 $115,226(ii) 1998 $500,560 $ 66,410 $ 11,000 $140,175(ii) 1999 $441,538 $ 13,000 -- $113,589(ii) Mr George Ms Pang Kit Mr Luk Kam Sun Mr Fok Woo Ping O'Leary Teng, Cathy -------------- --------------- --------- ----------- 1997 $100,564 $ 12,000 $ 52,605(i) Nil 1998 $106,923 Nil $354,835(i) $ 24,029 1999 $ 91,154 Nil $115,342(i) $ 90,394
(i) This represented commissions paid to Mr George O'Leary. (ii) Included in the emoluments is a housing allowance for $38,462 payable to a company in which Mr Chung Kim Wah has a beneficial interest for each of the three years in the period ended March 31, 1999. F-16 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 8 Related party transactions (cont'd) (b) Promissory note receivable from shareholder On March 27, 1998, Advantage List & Marketing Corporation ("ALMC") subscribed 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, 1999. 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. 9 Provident fund plan (a) With effect from January 1, 1988, Bonso Electronics Limited ("BEL"), a wholly-owned foreign subsidiary of the Company, started a provident fund plan (the "Plan") with a major international assurance company to provide life insurance and retirement benefits for its employees. All permanent full time employees, excluding factory workers, are eligible to join the provident fund plan. (b) Members of the Plan are required to contribute 5% of their monthly salary. The contribution by BEL is as follows: Years of service % of salary as BEL's contribution ---------------- --------------------------------- Less than 5 years 5.0% 5 to 10 years 7.5% More than 10 years 10.0% (c) At normal retirement age, death or ill health, the member shall be entitled to receive from the Plan a lump sum equal to the total of the member's and BEL's contributions plus a return on their investment. On resignation prior to normal retirement age, a member shall be entitled to receive from the Plan a lump sum equal to the member's contributions plus a percentage of the employer's balance determined in accordance with a predetermined set scale. (d) BEL's contributions to the Plan for the years ended March 31, 1997, 1998 and 1999 amounted to $54,924, $45,227 and $54,046 respectively. 10 Commitments and contingencies As of March 31, 1999, the Group had contingent liabilities to banks for outstanding letters of credit of $114,601 (1998: $502,270). 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. F-17 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 12 Earnings per share Year ended March 31 --------------------------- 1997 1998 1999 ---- ---- ---- $ $ $ Income available to common shareholders: ............................ 546,589 2,274,645 13,754 Weighted average shares outstanding ....... 2,825,949 2,829,448 3,079,219 Incremental shares from assumed exercise of: Warrants ................................ -- 25,562 166,024 Stock options ........................... 20,095 279,362 429,060 Dilutive potential common shares .......... 20,095 304,924 595,084 --------- --------- --------- Diluted weighted average shares ........... 2,846,044 3,134,372 3,674,303 --------- --------- --------- Basic earnings per share .................. 19.34 cents 80.39 cents 0.45 cents Diluted earnings per share ................ 19.21 cents 72.57 cents 0.37 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 16,667 shares of common stock at $6.00 per share were outstanding for the fiscal years ended March 31, 1997 but were not included in the calculation of earnings per share because the warrants' exercise price was greater than the market price of the Company's common stock. The warrants were exercised during the year ended March 31, 1998. Warrants to purchase 110,000 shares of common stock at $9.1875 per share were outstanding during the fiscal years ended March 31, 1997, 1998 but were not included in the calculation of diluted earnings per share because the warrants' exercise price was greater than the market price of the Company's common stock. The warrants, which expire on December 14, 1999, were still outstanding as of March 31, 1999. Warrants to purchase 2,200,000 shares of common stock at $7.35 per share were outstanding during the fiscal years ended March 31, 1997 and 1998 but were not included in the calculation of diluted earnings per share during the year ended March 31, 1997 because the warrants' exercise price was greater than the market price of the Company's common stock. During the year ended March 31, 1999, 25,597 warrants were exercised by the public shareholders to purchase 25,597 shares of common stock of the Company. Warrants to purchase 2,174,403 shares of common stock at $7.35 per share, which expire on December 14, 1999, were still outstanding as of March 31, 1999. F-18 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 13 Minority interests In April 1993, the Group, together with a Chinese partner, formed and invested in a joint venture company in the PRC, Shenzhen Bonso Electronics Limited ("SBEL"), owned as to 60% by the Group and 40% by the Chinese partner. According to the joint venture agreement, the registered share capital of SBEL was $3,205,128 (HK$25 million); the Group and the Chinese partner could appoint three and two directors, respectively, to the board of SBEL. The Group effectively controlled all major financial and operating policy decisions of SBEL. Accordingly, this joint venture company was consolidated. In accordance with an agreement between the Group and the Chinese partner, SBEL was liquidated on October 31, 1996. The land and buildings originally contributed to the joint venture by the Chinese partner reverted to same and all other assets and liabilities including the plant and machinery were taken up by the Group. During the year ended March 31, 1996, the directors estimated that a provision for permanent diminution in value of SBEL amounting to $152,480 was necessary and accordingly a provision for this amount was recorded. During the year ended March 31, 1997, upon the liquidation of SBEL, a gain of $159,654 was recognized by the Group of which $152,480 represents the reversal of the provision for permanent diminution in value. 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 Board of Directors delegated to Mr So Hung Gun, Anthony, the authority to issue options to employees and directors of the Company for an additional 25,000 shares. 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. 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 is 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. No options have been exercised during the years ended March 31, 1998 and 1999. F-19 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 14 Stock option plan (cont'd) (a) (cont'd) The stock options outstanding in respect of the 1996 Stock Option Plan as of March 31, 1999 is summarized as follows: Average per share -------------------- Number Exercise Market of shares price price Balance, March 31, 1997 ........................ 375,000 $2.00 $2.00 Grant at exercise price greater than the market value of the common shares ............. 25,000 $6.20 $6.13 ------- ----- ----- Balance, March 31, 1998 and 1999 ............... 400,000 $2.26 $2.26 ------- ----- ----- 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 and the options shall expire October 16, 2006 and can be exercised at any time immediately after granting. 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 and the options shall expire on September 8, 2007 and can be exercised at any time immediately after granting. 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. No options have been exercised during the year ended March 31, 1998 and 10,000 stock options were exercised to purchase 10,000 common stock of the Company at an exercise price of $2.25 per share during the year ended 31, 1999. F-20 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 14 Stock option plan (cont'd) (a) (cont'd) The stock options activity in respect of the 1996 Non-Employee Directors' Stock Option Plan as of March 31, 1999 is summarized as follows: Average per share ----------------- Number Exercise Market of shares price price Balance, March 31, 1997 ....................... 30,000 $2.25 $2.25 Grant at exercise price equal to the market value of the common shares ................... 40,000 $5.06 $5.06 ------- ----- ----- 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 ------- ----- ----- (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 was equal to the market value of the Company's common stock on the date of grant. The options shall expire on January 31, 2007 and can be exercised at any time immediately after granting. No options have been exercised during the years ended March 31, 1997 and 1998, and 55,000 options were exercised to purchase 55,000 common stock of the Company at an exercise price of $2.00 per share during the year ended March 31, 1999. The stock options summary as of March 31, 1999 is summarised as follows: Average per share ------------------ Number Exercise Market of shares price price Balance, March 31, 1997 ...................... -- -- -- Grant at exercise price equal to the market value of the common shares .................. 100,000 $2.00 $2.00 -------- ----- ----- 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 -------- ----- ----- F-21 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 14 Stock option plan (cont'd) 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 years ended March 31, 1998 and 1999. 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 fair market value at the time of grant. No options have been exercised during the year ended March 31, 1999. (e) The following table summarizes the information about stock options outstanding at March 31, 1999: Number Exercisable outstanding at Average life shares at Exercise price March 31, 1999 (years) March 31, 1999 -------------- -------------- ------------ -------------- $2.00 420,000 7.8 420,000 $2.25 20,000 7.5 20,000 $3.60 415,000 9.5 415,000 $3.70 15,000 9.5 15,000 $5.06 40,000 8.4 40,000 $6.20 220,000 8.8 220,000 --------- --- --------- $2.00 to $6.20 1,130,000 8.7 1,130,000 --------- --- --------- (f) Included in the options outstanding as of March 31, 1999 were 10,000 and 63,000 units held by Mr Ray Mehra and Mr So Cham Some, respectively, both of whom have resigned as directors of the Company on January 2, 1998 and April 30, 1998, respectively. F-22 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 14 Stock option plan (cont'd) (g) 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, 1997, 1998 and 1999 were $463,250, $820,200 and $2,503,363, 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, 1999: risk-free interest rates of 5.48% to 5.49%; no dividend yield; volatility factor of the expected market price of the Company's common share of 81.20%; and a weighted-average expected life of the option of ten years. 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:
1997 1998 1999 ---- ---- ---- $ $ $ Net income As reported ........................... 546,589 2,274,645 13,754 Pro forma ............................. 83,339 1,454,445 (2,489,609) Basis earnings/(losses) per share As reported ........................... 19.34 cents 80.39 cents 0.45 cents Pro forma ............................. 2.95 cents 51.40 cents (80.85) cents Diluted earnings/(losses) per share As reported ........................... 19.21 cents 72.57 cents 0.37 cents Pro forma ............................. 2.93 cents 46.40 cents (67.76) 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. F-23
Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 Warrants In 1994, the Company issued 16,667 warrants under a loan agreement to the lender to purchase common shares of the Company at $6.00 per share. No warrants were exercised during the year ended March 31, 1997. In December 1997, 2,613 shares of common stock were issued at $7.11 per share, which represented the fair market value at the date of issue, upon the exercise of all the warrants on a cashless basis. As a result of the Company's second public offering in December 1994, the Company issued 2,200,000 five-year warrants to its public shareholders. Each warrant entitles the holder thereof to purchase one share of common stock of the Company at $7.35 per share. The warrants expire on December 14, 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 were exercised or redeemed during the years ended March 31, 1997 and 1998. A total of 25,597 warrants were exercised to purchase 25,597 shares of common stock of the Company at $7.35 per share during the year ended March 31, 1999. 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. Upon any transfer to a person other than an officer, shareholder or director of the representatives of the underwriters, the transferred five-year warrants must be exercised immediately or they will lapse. No warrants have been transferred during the years ended March 31, 1997, 1998 and 1999. 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 three business segments: scales, health care products and other. Summarized financial information by business segment for 1997, 1998 and 1999 is as follows:
Identifiable Depreciation Net Operating assets as of and Capital sales profit March 31 amortization expenditure ----- --------- ------------ ------------ ----------- $ $ $ $ $ 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 Other ................................... 782,776 532,353 2,053,884 172,361 22,476 ---------- ---------- ---------- ---------- ---------- Total operating segments ................ 13,046,265 3,630,355 14,364,514 1,205,462 157,196 Corporate ............................... -- (3,386,184) 4,295,770 179,147 1,442,324 ---------- ---------- ---------- ---------- ---------- Group ................................... 13,046,265 244,171 18,660,284 1,384,609 1,599,520 ---------- ---------- ---------- ---------- ---------- 1998 Scales .................................. 18,260,994 5,234,759 14,604,822 1,110,023 1,280,219 Health care products .................... 3,083,025 73,197 204,218 15,521 17,901 Other ................................... 2,371,557 534,778 1,492,015 113,399 130,786 ---------- ---------- ---------- ---------- ---------- Total operating segments ................ 23,715,576 5,842,734 16,301,055 1,238,943 1,428,906 Corporate ............................... -- (3,488,655) 4,345,508 186,165 271,834 ---------- ---------- ---------- ---------- ---------- Group ................................... 23,715,576 2,354,079 20,646,563 1,425,108 1,700,740 ---------- ---------- ---------- ---------- ---------- 1997 Scales .................................. 11,892,313 3,188,072 13,369,205 656,807 4,534,113 Health care products .................... 2,718,243 66,246 277,802 13,648 94,216 Other ................................... 2,378,463 720,500 3,021,421 148,438 1,024,703 ---------- ---------- ---------- ---------- ---------- Total operating segments ................ 16,989,019 3,974,818 16,668,428 818,893 5,653,032 Corporate ............................... -- (3,059,249) 3,847,183 142,038 8,100 ---------- ---------- ---------- ---------- ---------- Group ................................... 16,989,019 915,569 20,515,611 960,931 5,661,132 ---------- ---------- ---------- ---------- ----------
Operating profit by segment equals total operating revenues less expenses which are related to the segment's operating revenues. Identifiable assets by segment are those assets that are used in the operation of that segment. Corporate assets consist principally of cash and cash equivalents, income tax recoverable, deferred income tax assets and other identifiable assets not related specifically to individual segments. F-25 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 16 Business segment information (cont'd) (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: 1998 1999 ---- ---- $ $ Hong Kong .................... 7,469,828 5,314,252 The PRC ...................... 13,176,735 13,346,032 ---------- ---------- Total assets ................. 20,646,563 18,660,284 ---------- ---------- (c) The following is a summary of net export sales to customers by geographical area for the years ended March 31, 1997, 1998 and 1999:
Year ended March 31 --------------------------------------------------------- 1997 % 1998 % 1999 % ---- - ---- - ---- - $ $ $ United States of America .......... 6,873,780 40 12,570,427 53 5,609,457 43 Germany ............ 3,994,167 24 6,290,634 27 4,212,958 32 Others ............ 6,121,072 36 4,854,515 20 3,223,850 25 ---------- --- ---------- --- ---------- --- 16,989,019 100 23,715,576 100 13,046,265 100 ---------- --- ---------- --- ---------- ---
(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 1997 % 1998 % 1999 % segment $ $ $ --------- ---- - ---- - ---- - Pitney Bowes, Inc. (USA) ............... Scales 3,007,070 18 7,075,338 30 2,011,393 15 Globaltec Corporation (USA) ............ Scales 2,252,184 13 3,721,060 15 1,454,550 11 Werner Dorsch Gmbh & Co. ............... (Germany) ............................. Scales 1,906,961 11 2,105,307 9 1,998,505 15 Omron Healthcare ....................... Health care Group ................................. products 1,888,335 11 1,841,427 8 1,358,356 10 --------- --------- ---- ---------- ---- ---------- ---- 9,054,550 53 14,743,132 62 6,822,804 51 --------- --------- ---- ---------- ---- ---------- ----
F-26 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 17 Financial instruments In accordance with SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", the carrying amounts and fair values of the Group's financial instruments are as follows:
Carrying amount Fair value March 31 March 31 -------------------- ----------------- 1998 1999 1998 1999 ---- ---- ---- ---- $ $ $ $ Cash and cash equivalents ............ 448,454 271,447 448,454 271,447 Restricted cash deposits ............. 952,267 1,011,688 952,267 1,011,688 Deposits ............................. 447,735 -- 447,735 -- Bank overdrafts ...................... 600,721 643,278 600,721 643,278 Notes payable ........................ 2,260,384 581,349 2,260,384 581,349 Short-term loans ..................... 338,632 720,129 338,632 720,129 Long-term debt ....................... 307,692 131,786 299,215 136,013 Promissory note receivable ........... 1,350,000 1,350,000 1,350,000 1,350,000 --------- --------- --------- ---------
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: (a) Cash and cash equivalents, restricted cash deposits, bank overdrafts, notes payable and short-term loans - the carrying amount approximates fair value because of the short maturity of these instruments. (b) Long term debt - interest rates that are currently available to the Group for issuance of debt with similar terms and remaining maturities are used to estimate the fair value of debt issues that are not quoted on an exchange. Fair value estimates are made at a specific point in time and based on relevant market information. These estimates are subjective in nature, involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (c) Deposits - the carrying amount of refundable deposits approximates fair value based on the terms of the related contracts. (d) Promissory note receivable - the fair value of promissory note receivable approximates the carrying value based on a comparison of interest rate to current market rate for instruments of similar nature. All other financial instruments included among current assets and liabilities are stated at cost which approximates their fair value. 18 Post balance sheet date events In May 1999, the Group acquired an office premise in Hong Kong at a consideration of $743,590. F-27 PART II Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the estimated expenses in connection with this registration: SEC Registration Fees ..................... $ 0(1) NASD Filing Fees .......................... $ 0(2) Printing Registration Statement, Prospectus and Related Documents .................. $ 25,000(3) Accounting Fees and Expenses .............. $ 10,000(3) Legal Fees and Expenses ................... $ 75,000(3) Transfer/Warrant Agent Fees and Expenses .. $ 1,500(3) Miscellaneous ............................. $ 13,500(3) ---------- Total ..................................... $125,000(3) - -------------------------------- (1) Previously paid. (2) Exempt under NASD Rule 2710(b)(7)(C)(i) (3) Estimated Item 15. Indemnification of Directors and Officers. The Articles of Association of Bonso provide that, subject to British Virgin Islands law, every director or other officer of Bonso shall be entitled to be indemnified out of the assets of Bonso against all losses or liabilities which he may sustain or incur in or about the execution of the duties of his office or otherwise in relation thereto. No director or other officer shall be liable for any loss, damage or misfortune which may happen to, or be incurred by Bonso in the execution of the duties of his office, or in relation thereto. Item 16. Exhibits. The following Exhibits are filed as part of this Registration Statement, or are incorporated by reference to previously filed documents: Exhibit No. Description - ----------- ----------- 1.1 Selling Agreement between Bonso and H.J. Meyers & Co., Inc. (1) and Cohig & Associates, Inc. 4.1 Specimen Certificate of Common Stock, $.0001 par value and (2) relevant portions of Memorandum and Articles of Association of the Registrant, as amended 5.1 Opinion and consent of Schlueter & Associates, P.C. as to legality of securities being registered II-1 Exhibit No. Description - ----------- ----------- 5.2 Opinion and consent of Harney, Westwood & Riegels, P.O. Box 71, Road Town, Tortola, British Virgin Islands, as to the legality of securities being registered 5.3 Opinion and consent of Wong & Fok, Solicitors, Room 2014-15 Hutchison House, 10 Harcourt Road, Central, Hong Kong, as to certain matters regarding the Hong Kong subsidiaries and Hong Kong law 5.4 Opinion and consent of Shenzhen Jinyuan Law Firm, 7/F Office Tower, Shun Hing Square, Di Wang Commercial Centre, Shen Nan Dong Road, Shenzhen, PRC 518008, as to certain matters regarding the PRC subsidiary and PRC law 10.1 Lease for real property located at Universal Industrial (1) Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong 10.2 English translation of Amendment to Contract for the Use of (1) Land and Supply of Workers between Bonso and Shenzhen Boaon Fuan Industrial Company 10.3 Forms of Warrant Solicitation and Warrant Subscription Form 23.1 Consent of PricewaterhouseCoopers 23.2 Consent of Schlueter & Associates, P.C. (included in Exhibit 5.1) 23.3 Consent of Harney, Westwood & Riegels (included in Exhibit 5.2) 23.4 Consent of Wong & Fok, Solicitors (included in Exhibit 5.3) 23.5 Consent of Shenzhen Jinyuan Law Firm (included in Exhibit 5.4) - -------------------------- (1) This documemnt has been previously filed as an Exhibit to the Registrant's Registration Statement on Form F-3 (SEC Registration No. 333-9002), and is hereby incorporated by reference. (2) This documemnt has been previously filed as Exhibit 4.1 to the Registrant's Registration Statement on Form F-2 (SEC Registration No. 33-84872), and is hereby incorporated by reference. II-2 Item 17. Undertakings With regard to the securities of the Registrant being registered pursuant to Rule 415 under the Securities Act of 1933, the Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To file a post-effective amendment to the Registration Statement to include any financial statements required by Rule 3-19 of Regulation S-X at the start of any delayed offering or throughout a continuous offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Hong Kong, on October 27, 1999. BONSO ELECTRONICS INTERNATIONAL INC. By: /s/ Anthony So ------------------ Anthony So, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Date: October 27, 1999 /s/ Anthony So -------------- Anthony So, President (Chief Executive Officer), Secretary, Treasurer (Chief Financial Officer) and Chairman of the Board of Directors Date: October 27, 1999 /s/ Kim Wah Chung ----------------- Kim Wah Chung, Director Date: October 27, 1999 /s/ Woo Ping Fok ---------------- Woo Ping Fok, Director Date: October 27, 1999 /s/ Kam Sun Luk --------------- Kam Sun Luk, Director Date: October 27, 1999 /s/ Cathy Pang -------------- Cathy Pang, Director SCHLUETER & ASSOCIATES, P.C. Date: October 27, 1999 /s/ Henry F. Schlueter ---------------------- Henry F. Schlueter, Authorized Representative in the United States II-4 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 1.1 Selling Agreement between Bonso and H.J. Meyers & Co., Inc. (1) and Cohig & Associates, Inc. 4.1 Specimen Certificate of Common Stock, $.0001 par value and (2) relevant portions of Memorandum and Articles of Association of the Registrant, as amended 5.1 Opinion and consent of Schlueter & Associates, P.C. as to legality of securities being registered 5.2 Opinion and consent of Harney, Westwood & Riegels, P.O. Box 71, Road Town, Tortola, British Virgin Islands, as to the legality of securities being registered 5.3 Opinion and consent of Wong & Fok, Solicitors, Room 2014-15 Hutchison House, 10 Harcourt Road, Central, Hong Kong, as to certain matters regarding the Hong Kong subsidiaries and Hong Kong law 5.4 Opinion and consent of Shenzhen Jinyuan Law Firm, 7/F Office Tower, Shun Hing Square, Di Wang Commercial Centre, Shen Nan Dong Road, Shenzhen, PRC 518008, as to certain matters regarding the PRC subsidiary and PRC law 10.1 Lease for real property located at Universal Industrial (1) Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong 10.2 English translation of Amendment to Contract for the Use of (1) Land and Supply of Workers between Bonso and Shenzhen Boaon Fuan Industrial Company 10.3 Forms of Warrant Solicitation and Warrant Subscription Form 23.1 Consent of PricewaterhouseCoopers 23.2 Consent of Schlueter & Associates, P.C. (included in Exhibit 5.1) 23.3 Consent of Harney, Westwood & Riegels (included in Exhibit 5.2) 23.4 Consent of Wong & Fok, Solicitors (included in Exhibit 5.3) 23.5 Consent of Shenzhen Jinyuan Law Firm (included in Exhibit 5.4) - -------------------------- (1) This documemnt has been previously filed as an Exhibit to the Registrant's Registration Statement on Form F-3 (SEC Registration No. 333-9002), and is hereby incorporated by reference. (2) This documemnt has been previously filed as Exhibit 4.1 to the Registrant's Registration Statement on Form F-2 (SEC Registration No. 33-84872), and is hereby incorporated by reference. EX-5.1 2 EXHIBIT 5.1 Board of Directors Bonso Electronics International Inc. October 20, 1999 Page 1 SCHLUETER & ASSOCIATES, P.C. 1050 Seventeenth Street, Suite 1700 Denver, Colorado 80265 (303) 292-3883 Facsimile (303) 296-8880 October 20, 1999 Board of Directors Bonso Electronics International Inc. Flat A-D, 8th Floor Universal Industrial Centre 23-25 Shan Mei Street Fo Tan, Shatin, N.T., Hong Kong Gentlemen: We have served as your counsel in connection with the preparation and filing with the United States Securities and Exchange Commission of Post-Effective Amendment No. 1 to the Registration Statement on Form F-3 (SEC File No. 333-9002) and Post-Effective Amendment No. 3 to the Registration Statement on Form F-2 (SEC File No. 33-84872) of Bonso Electronics International Inc. (the "Company"). The Post-Effective Amendments are being combined under Rule 429 adopted under the Securities Act of 1933, as amended, and shall collectively be referred to as the "Combined Registration Statement." The Combined Registration Statement covers an offering of up to 2,704,403 shares of the Company's $0.003 par value common stock (the "Common Stock"), of which 2,504,403 would be new shares issued by the Company pursuant to the exercise of 2,174,403 Public Warrants, 110,000 Representatives' Warrants and 220,000 Public Warrants underlying the Representatives' Warrants, and 200,000 would be outstanding shares sold by an existing shareholder (the "Selling Shareholder's Stock"). The Warrants were issued pursuant to the Company's Registration Statement on Form F-2 which was declared effective by the United States Securities and Exchange Commission on December 15, 1994. Each Public Warrant may be exercised to purchase one share of Common Stock at $7.35 per share. Each Representatives' Warrant may be exercised to purchase one unit, consisting of one share of Common Stock and two Public Warrants, at $9.1875 per unit. In connection with this opinion, we have made such investigations and examined such records, including the Company's Memorandum and Articles of Association, as amended, and corporate minutes, as we deemed necessary to the performance of our services and to give this opinion. We have also examined and are familiar with the originals or copies, certified or otherwise identified to our satisfaction, of such other documents, corporate records and other Board of Directors Bonso Electronics International Inc. October 20, 1999 Page 2 instruments as we have deemed necessary for the preparation of this opinion. In expressing this opinion we have relied, as to any questions of fact upon which our opinion is predicated, upon representations and certificates of the officers of the Company. We are not qualified to practice law in any jurisdiction other than the State of Colorado, and with respect to those matters involving the laws of the British Virgin Islands, China and Hong Kong we have relied exclusively on the opinions of local counsel in those jurisdictions. In rendering this opinion, we have relied with respect to matters involving the laws of the British Virgin Islands on the opinion of Harney, Westwood & Riegels, British Virgin Islands counsel for the Company; with respect to matters involving the laws of Hong Kong, we have relied on the opinion of Wong & Fok, Solicitors, Hong Kong counsel for the Company; and with respect to matters involving the laws of China upon Shenzhen Jinyuan Law Firm, Solicitors for the People's Republic of China. In giving this opinion we have assumed: (a) the genuineness of all signatures and the authenticity and completeness of all documents submitted to us as originals; (b) the conformity to originals and the authenticity of all documents supplied to us as certified, photocopied, conformed or facsimile copies and the authenticity and completeness of the originals of any such documents; (c) the proper, genuine and due execution and delivery of all documents by all parties to them and that there has been no breach of the terms thereof; and (d) that the performance of any obligation under any documents in any jurisdiction outside the United States will not be illegal or ineffective under the laws of that jurisdiction. Based upon the foregoing and subject to the qualifications set forth above, we are of the opinion that: 1. The Company is a validly existing corporation in good standing as a limited liability International Business Company under the laws of the British Virgin Islands, with full corporate power and authority to own and operate its properties and to carry on its business as it is now being conducted. 2. The Company's authorized capital consists of 23,333,334 shares of $0.003 par value Common Stock. As September 30, 1999, the Company had issued and outstanding 3,119,159 shares of Common Stock, $0.003 par value. All of the issued and outstanding shares of Common Stock were validly issued, fully paid and non-assessable. Board of Directors Bonso Electronics International Inc. October 20, 1999 Page 3 3. All necessary corporate proceedings of the Company have been duly taken to authorize the filing of the Combined Registration Statement and the proposed public offering of the securities noted above in accordance with the terms of that Registration Statement. 4. The 2,504,403 shares of $0.003 par value Common Stock to be issued upon the exercise of the Warrants will, upon the purchase, receipt of full payment, issuance and delivery thereof in accordance with the terms of the offering described in the Registration Statement, be duly and validly authorized, legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of our name in the Prospectus included as part of the Registration Statement in connection with the matters referred to under the caption "Legal Matters." Sincerely, SCHLUETER & ASSOCIATES, P.C. /s/ Henry F. Schlueter ---------------------- EX-5.2 3 EXHIBIT 5.2 14 October 1999 BY COURIER Bonso Electronics International Inc Flat A-D, 8th Floor Universal Industrial Centre 23 - 25 Shan Mei Street, Fo Tan Shatin, New Territories Hong Kong Dear Sirs Bonso Electronics International Inc We have acted as British Virgin Islands counsel for Bonso Electronics International Inc., a British Virgin Islands corporation (the "Company"), in connection with the registration under the United States Securities Act of 1933 of 2,504,403 Common Shares issuable on exercise of Common Share Purchase Warrants and 200,000 outstanding Common Shares offered by selling shareholders (the "Selling Shareholders") (together the "Securities"). All capitalized terms used herein which are not defined herein shall have the meanings ascribed thereto in the Registration Statement. 1. For the purpose of this opinion we have reviewed the following documents: (a) the Registration Statement on Form F-3 provided to us ("Registration Statement") filed by the Company with the United States Securities and Exchange Commission for the purpose of registering the Securities; (b) (i) the Memorandum & Articles of Association and Certificate of Corporation of the Company; (ii) resolutions of directors of the Company authorising the issue of the Warrants and, pursuant thereto, the Common Shares; and (iii)registered agent's certificate dated 5 October 1999 issued by HWR Services Ltd, the registered agent of the Company in the British Virgin Islands. We have also made such other enquiries and reviewed such matters of law and examined the originals, certified or otherwise identified to our satisfaction, of such other documents, records, agreements and certificates as we have considered relevant for the purposes of giving the opinion expressed below. 2. In giving this opinion we have assumed the following: (a) the genuineness of all signatures and the authenticity and completeness of all documents submitted to us as originals; (b) the conformity to originals and the authenticity of all documents supplied to us as certified, photocopied, conformed or facsimile copies and the authenticity and completeness of the originals of any such documents; (c) the proper, genuine and due execution and delivery of all documents by all parties to them and that there has been no breach of the terms thereof; and (d) that the performance of any obligation under any documents in any jurisdiction outside the British Virgin Islands will not be illegal or ineffective under the laws of that jurisdiction. 3. Based on the foregoing and subject to the qualifications set forth in paragraph 4 below, we are of the following opinions: (a) The Company has been duly organized and is validly existing and in good standing as a limited liability International Business Company under the laws of the British Virgin Islands. Bonso has full power and authority (corporate and otherwise) to conduct its business as described in the Registration Statement. (b) The Company's authorized capital consists of 23,333,334 Common Shares, $0.003 par value. Prior to the sale of the Securities, the Company's issued and outstanding shares consisted of 3,119,159 Common Shares which are held of record as indicated in the Registration Statement. All of such issued shares have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to pre-emptive rights of any shareholders of the Company. There are no securities laws in the British Virgin Islands to which the issue of the shares are subject. (c) The 2,504,403 Common Shares issuable upon exercise of The Warrants have been duly authorized and upon the purchase, receipt of full payment, issuance and delivery thereof in accordance with the terms of the Registration Statement will be validly issued, fully paid and non-assessable, are not subject to pre-emptive rights of any shareholder of the Company and conform to the description thereof in the Registration Statement. The 200,000 Common Shares to be sold by the Selling Shareholders have been duly authorized and will not be subject to pre-emptive rights of any shareholder of the Company and will conform to the description thereof in the Registration Statement. (d) Upon purchase of the Securities, any underwriter or other purchaser thereof will, to the best of our knowledge, receive good, valid and marketable title to the Securities, free and clear of all liens, encumbrances, claims, security interests, restrictions on transfer, stockholders' agreements, voting trusts and other defects of title whatsoever. (e) To the best of our knowledge, there are no outstanding options, warrants, calls, rights or other commitments relating to the share capital of the Company other than as disclosed in the Registration Statement. (f) To the best of our knowledge, all of the Common Shares of Bonso Electronics Limited, a company incorporated under the laws of Hong Kong ("Bonso HK"), owned by Bonso are owned beneficially by the Company and are subject to no mortgage, pledge, lien, encumbrance, charge or adverse claim. (g) The conduct of the business of the Company as described in the Registration Statement, does not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Company's Memorandum and Articles of Association or of any indenture, mortgage, agreement, instrument, order, writ, judgment or decree known to us to which the Company is a party or by which any of its properties are bound, nor violate any existing law, rule, regulation, judgment or decree of any governmental body or court of the British Virgin Islands having jurisdiction over the Company or any of its properties. (h) No British Virgin Islands governmental approvals, authorisations or other actions are required in connection with the issue of the Securities and the conduct of the business of the Company as described in the Registration Statement. (i) The descriptions in the Registration Statement of applicable British Virgin Islands law are accurate and fairly present such law. (j) We have no reason to believe that the Registration Statement (except that we do not express an opinion as to the financial statements or other financial data included therein) contains any untrue statement of a material fact required to be stated therein or omits any material fact necessary to make the statements therein not misleading. 4. This legal opinion is confined to and given on the basis of the laws of the British Virgin Islands at the date hereof and is currently applied by the courts of the British Virgin Islands. We have not investigated and we do not express or imply nor are we qualified to express or imply any opinion in the laws of any other jurisdiction. 5. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the statement with respect to our firm under the headings "Certain Legal Consequences of Foreign Incorporations and Operations", "Enforceability of Certain Civil Liabilities and Certain Foreign Issuer Considerations" and "Legal Matters" included in the Registration Statement. Yours faithfully HARNEY WESTWOOD & RIEGELS /s/ Wendy A. Walker - ------------------- Wendy A. Walker EX-5.3 4 EXHIBIT 5.3 WONG & FOK Central Office: Room 2014-15 Hutchison House, SOLICITORS 10 Harcourt Road, Central, Hong Kong Telephone: (852) 2868 9777 Fascimile: (852) 2868 2369 Partners: SAMUEL K. WONG FOK WOO PING YVONNE Y.F. LAU LLB In reply please quote for the attention of: Associates: W.P.FOK Mickey K.M. Cheung BBA Maggie S.N. Ho LLB Irene K.Y. Au LLB Consultant: Almon C.H. Poon LLB Our Ref: WPF/800366/99 Your Ref: Date: Oct 26, 1999 Bonso Electronics International Inc. Flat A-D, 8th Floor Universal Industrial Centre 23-25 Shan Mei Street Fo Tan, Sha Tin Town, N.T. Hong Kong and Heny F. Schlueter, Esq. Schlueter & Associates, P.C. 1050 Seventeenth Street, Suite 1700 Denver, Colorado 80265 U.S.A. Dear Sirs: Re: Bonso Electronics International Inc. Letter of Opinion We are the Hong Kong Special Administrative Region solicitors for Bonso Advance Technology Limited (formerly known as Bonso Optical Instruments Limited) ("Bonso Technology"), Bonso Electronics Limited ("Bonso Electronics"), and its Hong Kong subsidiary Bonso Investment Limited ("Bonso Investment"), (collectively "the Companies") in connection with the proposed offering of 2,504,403 shares of Common Stocks to the holders of Warrants and prospectus included in the Registration Statement (collectively the "Registration Statement") filed with the United States Securities and Exchange Commission in October, 1999. Terms defined in the Registration Statement shall have the same meaning when used in this opinion, unless the context otherwise requires. We are practitioners of Hong Kong Special Administrative Region Law only and our opinion is confined to and given on the basis of Hong Kong Special Administrative Region Law as currently applied by the Hong Kong Special Administrative Region Courts and we have made no investigation of the laws of any country or jurisdiction other than Hong Kong Special Administrative Region and we do not express or imply any opinion thereon. Our opinion is to be construed in accordance with and is governed by Hong Kong Special Administrative Region law. To the extent that this opinion refers to any corporations not incorporated or entities not constituted under the laws of Hong Kong Special Administrative Region, we have assumed that such corporations or entities are duly organized or constituted as the case may be and legally existing under the laws of the jurisdictions in which they were incorporated or constituted. 1. DOCUMENTS In giving this opinion we confirm examination of the following document: Final draft of Post-Effective Amendment No. 1 to Form F-3 and Post-Effective Amendment No. 3 to Registration Statement on Form F-2 on Form F-3 of Bonso Electronics International Inc. (BEII) to be filed with the U.S. Securities and Exchange Commission in October, 1999 and we have examined originals or copies, certified or otherwise identified to our satisfaction, of such other instruments, documents and records as we have deemed necessary for the purposes of this opinion and have made such investigations as we consider to be proper. 2. ASSUMPTIONS In giving this opinion, we have assumed: (a) The genuineness of all signatures and the authenticity and completeness of all documents submitted to us as originals; (b) The conformity to originals and authenticity of all documents supplied to us as certified, photocopied, conformed or facsimile copies and the authenticity and completeness of the originals of any such documents; (c) The proper, genuine and due execution and delivery of all documents by all parties to them and that there has been no breach of the terms thereof; (d) That the performance of any obligation under any documents in any jurisdiction outside Hong Kong Special Administrative Region will not be illegal or ineffective under the laws of that jurisdiction; (e) That the representations and warranties as to matters of fact made in the Registration Statement are true and accurate; (f) That all facts stated in all documents are correct, that all actions stated to have been so taken, that all assets and rights stated to be vested in any party have been so vested and that certificates and other documents dated earlier than the date of this opinion and on which we have expressed reliance are accurate as regards material matters stated therein which have not been independently established, remain valid and in full force and effect, that no power or authority has been revoked, modified and superseded prior to execution of any relevant document by any appointee appointed in that power or authority, and that none of the corporate resolutions have been amended or rescinded; (g) That any person described in any document as holding any office in a company has been validly appointed to and holds the office described; (h) That the files at the Hong Kong Special Administrative Region Companies Registry relating to the corporations mentioned herein which have been incorporated under the Laws of Hong Kong Special Administrative Region contained all matters which ought to have been recorded therein and certificates and searches were and will continue to remain accurate; (i) That there are no provisions of the laws in the United States of America, the People's Republic of China and the British Virgin Islands which would have any effect on the opinion we express; (j) That the Registration Statement filed with the United States Securities and Exchange Commission have been duly autthorised, executed and delivered by the parties; and (k) That no pre-restructuring commitment has been entered into by any one or more of the Companies in Hong Kong Special Administrative Region with any person firm or corporation in relation to BEII and which would be influenced affected or revoked by the restructuring unless consented to by such company or companies. 3 QUALIFICATIONS This opinion is subject to the following qualifications: (a) In giving our opinion as to the enforceability of any particular documents, we have used the word "enforceable" as referring to the legal character of the obligations assumed by the respective parties to such documents, in that they are of a character which the law enforces or recognises. It does not mean or imply that any such documents will be enforced in all circumstances by or against a particular party or that any particular remedy will be available; (b) Our opinion does not apply to any amendment or variation of any documents which we have not seen; (c) We neither express nor imply an opinion as to any law other than the laws of Hong Kong Special Administrative Region in force as at the date of this opinion; (d) Enforcement may be limited by the general principles of equity. In particular, equitable remedies are discretionary, subject to equitable defenses and are not available where damages are considered to be an adequate remedy, nor will specific performance normally be ordered in respect of a monetary obligation; (e) Our opinion is subject to any laws from time to time in effect relating to money lending, bankruptcy, liquidation, receivership, re-organisation, moratoria, court schemes or other similar laws which may be applicable and affecting generally enforcement of creditors' rights; (f) Claims may become barred under statutes imposing limited periods within which suits, actions or proceedings can be brought or may be or become subject to defenses of set-off, abatement or counterclaim; (g) Enforcement proceedings are subject to the general jurisdiction of the Court in regard to award of costs, even as against a successful party; (h) Enforcement is subject to the general common law doctrine of estoppel in relation to representations, acts or omissions of any relevant party which may preclude, limit or affect the ability of that party to enforce against any other party the obligations of that other party; (i) We express no opinion as to the validity or binding effect of any obligations of any party which may be construed as penalty. A Court would not give effect to a provision if it could be established that the amount expressed as being payable was such that the provision was in the nature of a penalty, being a requirement for a stipulated sum to be paid irrespective of, or necessarily greater than, the loss likely to be sustained. Should a Court decide that any provision of any relevant obligation to pay damages or interest were in the nature of a penalty, it would only award to the plaintiff damages, or interest on the whole or any part of the sums not paid under any such obligation when due (or, as the case may be, when duly demanded) at whatever rate that the Court thinks fit in the particular circumstances for the whole or any part of the period of the default until judgement or until the date of payment if later; (j) Any provision in any document relating to the severability of any invalid provision may not be enforceable in accordance with its items, as a Court may reserve to itself a decision as to whether any such provision is severable; (k) Any provision in any document which purports to give conclusive effect to any calculation, determination or certification may not be enforced as a Court may review the grounds on which such calculation, documentation or certification is made or given; (l) Where any party to a document is vested with a discretion or may determine a matter in its opinion, Hong Kong Special Administrative Region law may require that such discretion be exercised reasonably and that such opinion be based on reasonable grounds; (m) The enforceability of any obligations under the Registration Statement is subject to the requirement that the resolutions by the directors of those companies authorising the entry into the Registration Statement were passed by those directors bona fide and in the interests and for the respective benefits of each such company; (n) We express no opinion on any provisions of any document imposing currency indemnity obligations; (o) Hong Kong Special Administrative Region Courts may stay any proceedings commenced therein against a party under any obligation if there are other proceedings in respect of the relevant obligation in other jurisdictions simultaneously on foot against that party; (p) Any claims in a foreign currency against a Hong Kong Special Administrative Region corporate defendant in liquidation will, as a matter of practice, be converted by the Official Receiver and Liquidator into Hong Kong dollars at the rate of exchange prevailing at the date of the commencement of the winding up; (q) We express no opinion on the enforceability of any obligations to negotiate in good faith; (r) It is possible that a winding-up order may have been made, a resolution passed, a winding-up petition presented, or a receiver appointed in respect of the Companies and for such facts not to be revealed by search due to the fact that details thereof do not yet appear on the face of the records maintained in respect of the Companies at the Companies Registry either on account of delay in presentation for filing or on account of delay in the administration of the Companies Registry; (s) Where any obligations are to be performed in jurisdictions outside Hong Kong Special Administrative Region, such obligations may not be enforceable under the laws of Hong Kong Special Administrative Region to the extent that such performance would be illegal under the laws of any such jurisdiction; (t) We have made no inquiry whatsoever into the financial status or standing of the Companies and nothing in this opinion shall be taken to constitute any representation in relation to the solvency or otherwise of the Companies or in relation to their financial status and standing; (u) The choice of a particular law to govern documents is a valid choice of law but such chosen law may, by virtue of repugnance, illegality or other principles in conflict with the laws of Hong Kong Special Administrative Region, not necessarily be applied by the Courts of Hong Kong Special Administrative Region in the enforcement of the documents; (v) It is doubtful as to whether an action could be brought in Hong Kong Special Administrative Region against the Company's officers and directors on the first instance on the basis of liability predicated solely upon the civil liability provisions of the United States securities laws; *(w) Although we are of the opinion that no stamp duty in respect of any document other than transfers of shares will be charged in Hong Kong Special Administrative Region, the Collector of Stamp Revenue has wide discretionary powers of assessment under the Stamp Ordinance, Chapter 117 of the laws of Hong Kong Special Administrative Region and, therefore, our above opinion is in all respects given subject to such discretionary powers. No instrument chargeable with stamp duty under the Stamp Ordinance shall be received in evidence in any proceedings whatsoever (except criminal proceedings and civil proceedings to recover stamp duty) nor shall the same be acted upon, filed or registered by any Public Office or by any company unless such instrument is duly stamped. Offenses under the Stamp Ordinance are punishable by criminal proceedings; (x) The rate of Hong Kong Special Administrative Region for Profits Tax chargeable on taxable profits of Corporations is 16%. 4. OPINlON Based upon and subject to the assumptions and qualifications set out above and the reservations set out below and based on the documents we have examined, we are of the opinion that: (1) Each of Bonso Electronics, Bonso Technology, and Bonso Investment has been duly organised and is legally existing under the laws of Hong Kong Special Administrative Region. Each such corporation has full corporate power and authority to conduct its business as described in the Registration Statement. (2) Bonso Electronics' authorised share capital consists of One Million (1,000,000) ordinary share, par value HK$10.00 per share. Bonso Electronics' issued share capital consists of Five Hundred Thousand (500,000) ordinary shares, Four Hundred Ninety Nine Thousand and Nine Hundred and Ninety Nine (499,999) of which are held by BEII and one (1) of which is held by Anthony SO Hung Gun in trust for BEII. All of such issued shares have been duly authorised and legally issued and are fully paid. (3) Bonso Technology's authorised share capital consists of One Hundred Thousand (100,000) ordinary shares, par value HK$10.00 per share. Bonso Technology's issued share capital consists of One Hundred Thousand (100,000) ordinary shares, Ninety Nine Thousand and Nine Hundred Ninety Nine (99,999) of which are held by BEII and one of which is held by Anthony SO Hung Gun in trust for BEII. All of such issued shares have been duly authorised and legally issued and are fully paid. (4) Bonso Investment's authorised share capital consists; of Three Hundred Thousand (300,000) ordinary shares, par value HK$10.00 per share. Bonso Investment's issued share capital consists of Three Hundred Thousand (300,000) ordinary shares, Two Hundred Ninety Nine Thousand and Nine Hundred Ninety Nine (299,999) of which are held by Bonso Electronics and one of which is held by Anthony SO Hung Gun in trust for Bonso Electronics. All of such issued shares have been duly authorised and legally issued and fully paid. (5) To the best of our knowledge and after reasonable inquiry with the respective directors and shareholders of the companies, there are no outstanding options, warrants, calls, rights or other commitments relating to the capital stock of Bonso Electronics, Bonso Technology and Bonso Investment. (6) To the best of our knowledge and after reasonable inquiry, all of the issued shares of Bonso Investment owned by Bonso Electronics are owned beneficially by Bonso Electronics, and all of the issued shares of Bonso Technology and Bonso Electronics owned by BEII are owned beneficially by BEII. To the best of our knowledge and after reasonable inquiry with the respective directors and shareholders of the companies, none of the said shares is subject to mortgage, pledge, lien, encumbrance, charge or adverse claim. (7) To the best of our knowledge and after reasonable inquiry: (i) Anthony SO Hung Gun owns (a) one share in each of Bonso Technology and Bonso Electronics in trust for BEII, (b) one share in Bonso Investment in trust for Bonso Electronics. (ii) All of such shares have been duly authorised and legally issued and are fully paid and legally and properly held by Anthony SO Hung Gun in trust respectively for BEII and for Bonso Electronics as respective beneficial owners thereof. (8) To the best of our knowledge and after reasonable inquiry with the respective directors and shareholders of the companies, we are not aware of any facts or circumstances which may render the conduct of the business of Bonso Electronics, as described in its latest audited financial accounts, and of Bonso Technology and Bonso Investment in violation of each such corporation's articles of association or any agreement, instrument, order, writ, judgement or decree to which such corporation is a party or subject. (9) To the best of our knowledge and after reasonable inquiry with the respective directors and shareholders of the companies, we are not aware of any facts or circumstances which may render the conduct of the business of Bonso Electronics, Bonso Technology and Bonso Investment as described in the Registration Statement in breach of any material Hong Kong Special Administrative Region governmental approvals, permits, authorisations, or other actions in connection with the conduct of such business. (10) To the best of our knowledge and after reasonable inquiry, the descriptions in the Registration Statement of Hong Kong Special Administrative Region statutes, Hong Kong Special Administrative Region legal and governmental proceedings and applicable Hong Kong Special Administrative Region laws accurately and fairly represent the information required to be shown. (11) We have no reason to believe that the Registration Statement (except that we do not express any opinion as to the financial statements and other financial data included therein) contains any untrue statement of material fact required to be stated therein or omits any material fact necessary to make the statements therein not misleading. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the statements with respect to our firm under the headings "Legal Matters", "Enforceability of Certain Civil Liabilities and Certain Foreign Issuer Considerations", "Business Certain Foreign Issuer Considerations", "Risk Factors-Country Risks, Service and Enforcement of Legal Process" in the Prospectus included in the Registration Statement. This opinion is addressed to the addressees on the basis that none of them will, without our prior written consent, release the same to any person other than its officers, staff and such advisers as in the ordinary course of business are required to have access to its papers and records in connection with the Registration Statement and on the basis that they will similarly make no further disclosure. It may not be relied upon by the addressees for an purpose other than in connection with the said proposed public offering and the Registration Statement. With the exception of the filing of this opinion with the United States Securities and Exchange Commission and the references to our firm in the Prospectus included in the Registration Statement to which we have given our express consent in the immediately preceding paragraph, this opinion is not to be quoted or referred to in any other public documents or filed with any other government agency or other persons without our express written consent. In addition, this opinion is limited strictly to matters stated herein and is not to be read as extending by implication to any other matter not specifically referred to herein. Yours faithfully, WONG & FOK per: /s/ Woo-ping FOK - ---------------- WP/ff EX-5.4 5 EXHIBIT 5.4 SHENZHEN JINYUAN LAW FIRM 7/F Office Tower, Shun Hing Square Di Wang Commercial Centre Shen Nan Dong Road, Shenzhen, PRC 518008 Tel: (755) 246 1575 and 246 1576 Fax: (755) 246 1373 Web Address http://www.szjy.com - -------------------------------------------------------------------------------- Legal Opinion BONSO ELECTRONICS (SHENZHEN) CO., LTD.: In accordance with the authorization agreement between Bonso Electronics (Shenzhen) Co., Ltd. (hereafter "BONSO") and JinYuan Law Firm (hereafter "JINYUAN"), and the relevant documents and information provided by BONSO, JINYUAN provides this legal opinion. Pursuant to the authorization agreement, in order to provide this legal opinion, JINYUAN has visited BONSO and examined the relevant information provided by BONSO. This legal opinion is based on the facts which had occurred prior to the date of this opinion. This legal opinion is provided after the examination of the relevant document and information provided by BONSO, including: 1. BONSO's Corporation Constitution 2. BONSO's Corporation Operating License (QiDuYueShen No. 302966B) 3. Certificate of Approval for Establishment of Enterprises with Investment Taiwan, HongKong, Macao and Overseas Chinese in the People's Republic issued by the Shenzhen Municipal government.(Foreign Trade E Commerce Foreign Investment Certificate [1994] No. 1032) 4. Foreign Investment Corporation Approval Registration Notice issued by - Shenzhen Industry and Commerce Administration Bureau 5. Organization Certificate (No. 980729610) issued by the State Bureau Quality 6. State Taxation Registration Certificate No. 440306618881356 (04) 7. Municipal Taxation Registration Certificate No 440306618881356 8. Customs Self-declaration Organization Registration Certificate issued by Shenzhen Customs (Registration No: 4403943506) 9. Capital Validation Reports issued by the Shenzhen YongMing Certified Public Accountants: Capital Validation EE (1995) No. 090, (1996) No. 222. 10. Capital Validation Report issued by Shenzhen GaoXin Certified Public Accountants: ShenGao Foreign Capital Validation (1997) No. 018 11. 1998 Annual Auditing Report of Bonso issued by Shenzhen DaHua Certified Public Accountants 12. 1998 Foreign Currencies Composition Auditing Report issued by Shenzhen DaHua Certified Public Accountants Bonso assures that it has provided the necessary, true, accurate and complete written information and entire relevant facts to JINYUAN to provide this legal Opinion. According to the investigation of above mentioned facts and legal matters, examination of the documents, verification of the certificates, and the guarantee by Bonso, JINYUAN provides the following legal opinion: 1. Corporation Registration of Bonso Bonso Electronics (Shenzhen) Co., Ltd., is a corporation which was approved by Shenzhen Municipal Government on June 28 of 1994, and was invested by HongKong Bonso Electronics Ltd. as a solely foreign owned corporation. It has received Corporation Operating License (QiDuYueShen No. 302966B) issued by the State Industry and Commerce Administration Bureau on June 28, 1994. The registered capital of the corporation is in the amount of US $5,000,000. The business scope includes: manufacture and sales of Electronic Weighing Devices, Pressure Censors, Bicycle Meters, Smoke Detectors, Electronic Dictionaries, Thermometers, Electronics Parts, Molds, Metal Products and Plastic Products. 90% of the sales of the electronic dictionaries and 80% of the sales of the other products are for export. Additional Business: manufacture and sales of Bicycle Assisting Devices, SoundProof Telephone Receivers, and Telephone Sets. Among the additional products, 100% sales of the telephone sets and 90% of the other products are for export. The time limit of the business operation is thirty years, from June 28 of 1994 to June 28 of 2024. Bonso is set up in accordance with the law of People's Republic of China and is a Chinese legal entity regulated and protected by the Chinese law. 2. Registered Capital and Actual Capital Contribution According to Bonso's company Constitution approved by the examination organization authorized by the Shenzhen Municipal Government, Bonso's capital investment is in the amount of US $8,000,000 in total. The registered capital is US $5,000,000, including US $3,000,000 in cash and US $2,000,000 in equipment. The registered capital of Bonso has been invested entirely after the corporation registration of Bonso and prior to December 31, 1996, Shenzhen YongMing Certified Public accountants and Shenzhen GaoXin Certified Public Accountants have individually provided capital validation reports of the actual capital contribution as follows: (1) Hong Kong Bonso Electronics Ltd. invested cash capital in the amount of HK $ 2,700,000.00, equivalent to US $349,171.04 in June of 1994, and invested cash capital in the amount of HK $ 10,000,000.00, equivalent to US $ 1,293,226.08 in January of 1995. The above mentioned investment was validated by the Shenzhen YongMing Certified Public Accountants under Capital Validation EE (1995) No. 090 on April 13, 1995. (2) Hong Kong Bonso Electronics Ltd. invested cash capital in the amount of HK $ 3,000,000,00, equivalent to US $ 387,967.82 between June of 1995 and January of 1996. The above mentioned investment was validated by the Shenzhen YongMing Certified Public Accountants under Capital Validation EE (1996) No. 222 on April 23, 1996. (3) HongKong Bonso Electronics invested cash capital in the amount of HK $ 16,400,000.00, equivalent to US $ 2,120,890.77, and invested equipment in the amount of US $ 2,419,690.12. The excess of registered capital in the amount of 1,570,945.83 is partially put into "other payment". The value of the invested equipment is appraised by the Business Inspection Bureau under Value Appraisal Report No. 4403/BJH96000011. The above mentioned investment was validated by Shenzhen GaoXin Certified Public Accountants under ShenGao Foreign Capital Validation (1997) No. 018 on March 21, 1997. So far, Bonso has satisfied the investment of the entire registered capital the amount of US. $500,000. 3. Bonso's Basic Operation In compliance with the Bonso's Corporation Constitution and the relevant laws and regulations of the People's Republic of China, Bonso has obtained State Taxation Registration Certificate No. 440306618881356 (04), Municipal Taxation Registration Certificate No 440306618881356, Organization Certificate (No. 980729610) issued by the State Bureau of Quality and Technical Supervision, Customs Self-declaration Organization Registration Certificate issued by the Shenzhen Customs (Registration No: 4403943506) and etc. According to the 1998 Auditing Report ShenHua (99) No. 167 of Bonso, and ShenHua (99) No. 167 Foreign Currencies Composition Auditing Report issued by Shenzhen DaHua Certified Public Accountants, the accounting report of the Bonso is complied with the relevant regulations of Corporation Accounting Guideline and Foreign Investment Corporation Accounting System, and the policies of the state foreign currencies administration, and fairly reflects its financial status of December 31, 1998, operation results, cash flow and foreign currencies of 1998. This legal opinion has both Chinese and English versions. If there is any controversy between the Chinese and the English version, the Chinese version shall be used as the standard. We hereby consent to the filing of this legal opinion as an exhibit to the Registration Statement with the United States Securities and Exchange Commission and to make reference to our firm and this opinion in other related document. This opinion is not to be quoted or referred to in any other documents without our written consents. Shenzhen JinYuan Law Firm Lawyer: July 26, 1999 EX-10.3 6 EXHIBIT 10.3 THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY PROSPECTUS. WARRANT SOLICITATION BY BONSO ELECTRONICS INTERNATIONAL INC. TO OUR WARRANT HOLDERS: Enclosed herewith is the final prospectus, dated _________, 1999 of Bonso Electronics International Inc. ("Bonso") relating to a Warrant Solicitation pursuant to which the holders of Bonso's Warrants may exercise their Warrants and purchase shares of Common Stock at $7.35 per share. We are requesting your instructions as to whether your Warrants should be exercised. THE WARRANTS WILL EXPIRE AT 2:00 P.M. PACIFIC TIME ON DECEMBER 14, 1999. Warrants may be exercised only pursuant to your instructions. You should carefully review the Prospectus which describes in greater detail the nature of the Warrant Solicitation and the risks attendant in the exercise of the Warrants. If you decide to exercise your Warrants, please complete the enclosed Warrant Subscription Form and return it to U.S. Stock Transfer Corporation, 1745 Gardena Avenue #200, Glendale, California 91204. If you have any questions concerning the Warrant Solicitation, please call _____________ at (___)________; facsimile: (___) ___________. INSTRUCTIONS TO EXERCISE SHOULD BE FORWARDED TO U.S. STOCK TRANSFER CORPORATION AS PROMPTLY AS POSSIBLE AND MUST BE RECEIVED BY U.S. STOCK TRANSFER CORPORATION ON OR BEFORE DECEMBER 14, 1999. ----------------------------------- THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY PROSPECTUS. WARRANT SOLICITATION BY BONSO ELECTRONICS INTERNATIONAL INC. TO SECURITIES DEALERS, BANKS AND TRUST COMPANIES: Enclosed herewith are documents, consisting of the final prospectus dated _______, 1999 relating to a Warrant Solicitation being conducted by Bonso Electronics International Inc. ("Bonso") pursuant to which the holders of its Warrants may exercise their Warrants and purchase shares of Common Stock at $7.35 per share. We are asking you, as securities dealer, bank or trust company, to contact your clients for whom you hold Warrants of Bonso Electronics International Inc., to bring to their attention as promptly as possible the Warrant Solicitation. The Warrants will expire as of 2:00 p.m. (Pacific Time) on December 14, 1999. Bonso will promptly reimburse any holder of record for reasonable expenses incurred by it in forwarding the enclosed letter and Prospectus to the beneficial owners of the Warrants. For your information, we are enclosing herewith copies of the following material: 1. Prospectus, dated ________, 1999; 2. A letter to be sent to your clients for whose accounts you hold Warrants; and 3. A Warrant Subscription Form which may be used to exercise the Warrants. We urge you to contact your clients promptly. Please note that the Warrants will expire at 2:00 p.m. (Pacific Time) on December 14, 1999. Additional copies of the enclosed material may be obtained from _____________(Insert Name and Address)________________________________. If you have any questions concerning the Warrant Solicitation, please call ___________________ at (___) _________; facsimile: (___) _________. Very truly yours, BONSO ELECTRONICS INTERNATIONAL INC. --------------------------- NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF BONSO ELECTRONICS INTERNATIONAL INC. OR AUTHORIZE YOU TO MAKE ANY STATEMENTS ON ITS BEHALF WITH RESPECT TO THE ENCLOSED OFFER OTHER THAN THE STATEMENTS SPECIFICALLY SET FORTH HEREIN OR THEREIN. THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY PROSPECTUS. WARRANT SOLICITATION BY BONSO ELECTRONICS INTERNATIONAL INC. TO OUR CLIENTS: Enclosed herewith is the final prospectus, dated ______, 1999 of Bonso Electronics International Inc. ("Bonso") relating to a Warrant Solicitation pursuant to which the holders of Bonso's Warrants may exercise their Warrants and purchase shares of Common Stock at $7.35 per share. We are requesting your instructions as to whether your Warrants should be exercised. THE WARRANTS WILL EXPIRE AT 2:00 P.M. PACIFIC TIME ON DECEMBER 14, 1999. Warrants may be exercised by us only pursuant to your instructions. You should carefully review the Prospectus which describes in greater detail the nature of the Warrant Solicitation and the risks attendant in the exercise of the Warrants. If you decide to exercise your Warrants, please complete the enclosed Warrant Subscription Form and return it to us. We will then exercise the number of Warrants indicated for exercise on the Warrant Subscription Form on your behalf. If you have any questions regarding the means of exercising your Warrants, please call ________________________________ at (___) ________; facsimile: (___)_________. INSTRUCTIONS TO EXERCISE SHOULD BE FORWARDED TO US AS PROMPTLY AS POSSIBLE AND MUST BE RECEIVED BY THE WARRANT AGENT ON OR BEFORE DECEMBER 14, 1999. ----------------------------------- THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY PROSPECTUS. ** WARRANT SOLICITATION BY BONSO ELECTRONICS INTERNATIONAL INC. TO OUR WARRANT HOLDERS: Enclosed herewith is the final prospectus, dated _______, 1999 of Bonso Electronics International Inc. ("Bonso") relating to a Warrant Solicitation pursuant to which the holders of Bonso's Warrants may exercise their Warrants and purchase shares of Common Stock at $7.35 per share. We are requesting your instructions as to whether your Warrants should be exercised. THE WARRANTS WILL EXPIRE AT 2:00 P.M. PACIFIC TIME ON DECEMBER 14, 1999. Warrants may be exercised only pursuant to your instructions. You should carefully review the Prospectus which describes in greater detail the nature of the Warrant Solicitation and the risks attendant in the exercise of the Warrants. If you decide to exercise your Warrants, please complete the enclosed Warrant Subscription Form and return it to your broker. If you have any questions concerning the Warrant Solicitation, please call ______________________ at (___) ________; facsimile: (___). INSTRUCTIONS TO EXERCISE SHOULD BE FORWARDED TO YOUR BROKER AS PROMPTLY AS POSSIBLE AND MUST BE RECEIVED BY THE WARRANT AGENT ON OR BEFORE DECEMBER 14, 1999. ----------------------------------- For Use By Record Holders of Warrants BONSO ELECTRONICS INTERNATIONAL INC. WARRANT SUBSCRIPTION FORM Return to: U.S. STOCK TRANSFER CORPORATION 1745 Gardena Avenue #200 Glendale, California 91204 Telephone: (818) 502-1404 Facsimile: (818) 502-0674 A. To EXERCISE WARRANTS: The undersigned acknowledges receipt and review of the Prospectus dated _________, 1999 and hereby irrevocably elects to exercise the following Warrants and to purchase the shares of Common Stock issuable upon the exercise thereof, as follows: - -------------------------------------------------------------------------------- EXERCISE OF WARRANTS (See Instruction 1 of Instructions for Exercise of Warrants) - -------------------------------------------------------------------------------- EXERCISE OF WARRANTS (See Instruction 1 of Instructions For Exercise of Warrants) - -------------------------------------------------------------------------------- Exercised Number of Name(s) and Address(es) of Registered Certificate Warrants Amount Owner(s) as shown on Certificate(s) Number(s) Exercised* Enclosed** - -------------------------------------------------------------------------------- Tax Identification or Social Security Number(s) of present registered owner(s) if not listed above NOTE: If additional space is required, attach a separate sheet * If fewer than all the Warrants which are evidenced by any Certificate listed above are to be exercised, please indicate in this column the exact number which are to be exercised. Otherwise, all the Warrants evidenced by such Certificate will be deemed to have been exercised. ** Payment must be made by certified or cashier's check payable to the order of "U.S. Stock Transfer Corporation for Bonso Electronics International Inc." in the total amount of the exercise price. The exercise price is $7.35 for each Warrant exercised. FOR USE BY WARRANT AGENT ONLY - -------------------------------------------------------------------------------- WARRANTS - -------------------------------------------------------------------------------- Number of Number of Number of Warrant Date Warrants Warrants Amount Warrants Certificate Received Received Exercised Received Returned Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL REPORT, ISSUANCE AND DELIVERY INSTRUCTIONS To be Used Only If Issuance or Delivery Is To Be Made To Other Than the Undersigned The Certificates for the Common Stock to be issued upon exercise of the Warrants will be issued to the order of the undersigned and mailed to the address shown under the signatures on this Warrant Subscription Form unless otherwise indicated below. SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS ISSUE SHARES AND NEW WARRANT DELIVER SHARES AND NEW WARRANT CERTIFICATES TO: CERTIFICATES TO: Name__________________________________ Name__________________________________ (Type or print, use full given name, initial and last name) ______________________________________ Social Security Number Address Address ______________________________________ ______________________________________ (Number) (Street) (Number) (Street) ______________________________________ ______________________________________ (City) (State) (Zip) (City) (State) (Zip) DATE AND SIGN HERE _________________________, 1999 _______________________________________________ (Signature of Warrant holder) _______________________________________________ (Signature of Warrant holder) (Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) or by person(s) authorized to become registered holder(s) by Certificate(s) and documents transmitted. (See Instruction 2) Please Print: Name(s) __________________________________ Address __________________________________ __________________________________________ (City) (State) (Zip) Telephone Number(s)_______________________ (Include Area Code) Tax Identification or Social Security Number____________________ Signature(s) Guaranteed By: __________________________________________ (Authorized Signature - See Instruction 2) INSTRUCTIONS FOR EXERCISE OF WARRANTS To exercise your Warrants of Bonso Electronics International Inc. ("Bonso"), this Warrant Subscription Form must be properly completed, dated, signed and delivered, prior to the expiration of the Warrants, together with your Warrant Certificate and a certified or cashier's check payable in United States currency to the order of "U.S. Stock Transfer Corporation for Bonso Electronics International Inc." for the entire exercise price, to the Warrant Agent at the following address: U.S. Stock Transfer Corporation 1745 Gardena Avenue #200 Glendale, California 91204 Telephone: (818) 502-1404 Facsimile: (818) 502-0674 The method of delivery is at the option and risk of the holder, but delivery will be deemed effective only when actually received by the Warrant Agent. If such delivery is by mail, it is suggested that insured, registered mail be used. If the Warrants are not exercised prior to 2:00 p.m. (Pacific Time) on December 14, 1999, the Warrants will expire unexercised. Inquiries and requests for assistance may be directed to your broker or bank, or to __________________________ at (___)________; facsimile: (___) __________. DO NOT SEND WARRANT SUBSCRIPTION FORMS OR WARRANT CERTIFICATES TO BONSO. 1. Description of Warrants Name. If the Warrant Certificates owned by you are registered in more than one name on several Warrant Certificates, it will be necessary for you to complete, sign and submit as many separate Warrant Subscription Forms as there are different registrations of your Warrants. Number of Warrants. All the Warrants represented by each of the Certificates that you list on the Warrant Subscription Form will be deemed to have been exercised unless you indicate otherwise on the "Exercise of Warrants" table in the column entitled "Number of Warrants Exercised." If less than all the Warrants are exercised, a new Certificate for the remainder of the Warrants will be sent to you. Any Warrants that have not been exercised by 2:00 p.m. (Pacific Time) on December 14, 1999, will expire as of that time. Warrant Number. Copy exactly in the indicated boxes the Warrant Number(s) appearing on the Certificate(s) representing the Warrants you wish to exercise. Tax Identification Number. Enter the tax identification or social security number of the present registered owner(s) of the Warrants being exercised. 2. Signature If you are the person whose name appears on the Certificate(s) representing the Warrants that you are exercising, the Purchase Form on the reverse of the Certificate(s) should be duly executed, or you may sign the Warrant Subscription Form attached hereto exactly as your name appears on such Certificate(s). If you are exercising Warrants represented by Certificates on which there appears a name other than your own, (i) you must sign the Warrant Subscription Form attached hereto, (ii) the Warrant Certificate must be endorsed by a stock power signed by the registered owner, and (iii) the signature on the endorsement or stock power must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule 17Ad-15. Also, if you request in the Warrant Subscription Form that the Common Stock to which you are entitled be issued in the name of a third party, your signature on the Warrant Subscription Form must be guaranteed as described above. In case of joint ownership, all joint owners must sign the Warrant Subscription Form. Warrant Subscription Forms submitted by trustees, executors, administrators, guardians, officers of corporations, attorneys-in-fact or others acting in a fiduciary capacity must be accompanied by evidence satisfactory to the Warrant Agent and to Bonso as to the signer's authority to act. Additional evidence of authority may be required by the Warrant Agent or Bonso in their discretion. 3. Transfer Fees and Taxes The Warrant Agent imposes a Transfer Fee of $10.00 for each stock certificate to be issued. Bonso will pay the Transfer Fee for the issuance of one (1) stock certificate for each Warrant holder. If a Warrant holder desires more than one stock certificate, the amount of $10 per additional stock certificate must accompany the Warrant Subscription Form, and may be in the form of a separate check payable to "U.S. Stock Transfer Corporation" or included in the exercise price. If adequate funds do not accompany the Warrant Exercise Form, only that number of stock certificates for which the appropriate Transfer Fee has been received will be issued. Other than the foregoing, all necessary transfer taxes, if any, will be paid by Bonso, and no transfer tax stamps need be affixed to the tendered Warrant Certificates. 4. General Matters Bonso reserves full discretion to determine whether the documentation with respect to exercised Warrants is complete and generally to determine all questions as to exercise, including the date and hour of receipt of an exercise, the propriety of execution of any document and other questions as to the eligibility or acceptability of any exercise. Bonso reserves the right to reject any exercise not in proper form or to waive any irregularities or conditions, and Bonso's interpretation of the terms and conditions of the Warrant Solicitation and of the Warrant Exercise Form, including these instructions, will be final. All improperly exercised Warrants will be returned, unless irregularities are waived, without cost to the exercising Warrant holder. For Use By Street Name Holders of Warrants BONSO ELECTRONICS INTERNATIONAL INC. WARRANT SUBSCRIPTION FORM Please return this Warrant Subscription Form to your Securities Dealer A. To EXERCISE WARRANTS: The undersigned acknowledges receipt and review of the Prospectus dated ______, 1999 and hereby irrevocably elects to exercise the following Warrants and to purchase the shares of Common Stock issuable upon the exercise thereof, as follows: - -------------------------------------------------------------------------------- EXERCISE OF WARRANTS (See Instruction 1 of Instructions for Exercise of Warrants) - -------------------------------------------------------------------------------- EXERCISE OF WARRANTS (See Instruction 1 of Instructions For Exercise of Warrants) - -------------------------------------------------------------------------------- Exercised Number of Name(s) and Address(es) of Registered Certificate Warrants Amount Owner(s) as shown on Certificate(s) Number(s) Exercised* Enclosed** - -------------------------------------------------------------------------------- Tax Identification or Social Security Number(s) of present registered owner(s) if not listed above NOTE: If additional space is required, attach a separate sheet * If fewer than all the Warrants which are evidenced by any Certificate listed above are to be exercised, please indicate in this column the exact number which are to be exercised. Otherwise, all the Warrants evidenced by such Certificate will be deemed to have been exercised. ** Payment must be made by certified or cashier's check payable to the order of "U.S. Stock Transfer Corporation for Bonso Electronics International Inc." in the total amount of the exercise price. The exercise price is $7.35 for each Warrant exercised. FOR USE BY WARRANT AGENT ONLY - -------------------------------------------------------------------------------- WARRANTS - -------------------------------------------------------------------------------- Number of Number of Number of Warrant Date Warrants Warrants Amount Warrants Certificate Received Received Exercised Received Returned Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL REPORT, ISSUANCE AND DELIVERY INSTRUCTIONS To be Used Only If Issuance or Delivery Is To Be Made To Other Than the Undersigned The Certificates for the Common Stock to be issued upon exercise of the Warrants will be issued to the order of the undersigned and mailed to the address shown under the signatures on this Warrant Subscription Form unless otherwise indicated below. SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS ISSUE SHARES AND NEW WARRANT DELIVER SHARES AND NEW WARRANT CERTIFICATES TO: CERTIFICATES TO: Name__________________________________ Name__________________________________ (Type or print, use full given name, initial and last name) ______________________________________ Social Security Number Address Address ______________________________________ ______________________________________ (Number) (Street) (Number) (Street) ______________________________________ ______________________________________ (City) (State) (Zip) (City) (State) (Zip) DATE AND SIGN HERE _________________________, 1999 _______________________________________________ (Signature of Warrant holder) _______________________________________________ (Signature of Warrant holder) (Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) or by person(s) authorized to become registered holder(s) by Certificate(s) and documents transmitted. (See Instruction 2) Please Print: Name(s) __________________________________ Address __________________________________ __________________________________________ (City) (State) (Zip) Telephone Number(s)_______________________ (Include Area Code) Tax Identification or Social Security Number____________________ Signature(s) Guaranteed By: __________________________________________ (Authorized Signature - See Instruction 2) INSTRUCTIONS FOR EXERCISE OF WARRANTS To exercise your Warrants of Bonso Electronics International Inc. ("Bonso"), this Warrant Subscription Form must be properly completed, dated, signed and delivered, prior to the expiration of the Warrants, together with your Warrant Certificate and a certified or cashier's check payable in United States currency to the order of "U.S. Stock Transfer Corporation for Bonso Electronics International Inc." for the entire exercise price, to your Securities Dealer. The method of delivery is at the option and risk of the holder, but delivery will be deemed effective only when actually received by the Warrant Agent. If such delivery is by mail, it is suggested that insured, registered mail be used. If the Warrants are not exercised prior to 2:00 p.m. (Pacific Time) on December 14, 1999, the Warrants will expire unexercised. Inquiries and requests for assistance may be directed to your broker or bank, or to ______________________ at (___) ________; facsimile: (___) ________. Do not send Warrant Subscription Forms or Warrant Certificates to Bonso. 1. Description of Warrants Name. If the Warrant Certificates owned by you are registered in more than one name on several Warrant Certificates, it will be necessary for you to complete, sign and submit as many separate Warrant Subscription Forms as there are different registrations of your Warrants. Number of Warrants. All the Warrants represented by each of the Certificates that you list on the Warrant Subscription Form will be deemed to have been exercised unless you indicate otherwise on the "Exercise of Warrants" table in the column entitled "Number of Warrants Exercised." If less than all the Warrants are exercised, a new Certificate for the remainder of the Warrants will be sent to you. Any Warrants that have not been exercised by 2:00 p.m. (Pacific Time) on December 14, 1998, will expire as of that time. Warrant Number. Copy exactly in the indicated boxes the Warrant Number(s) appearing on the Certificate(s) representing the Warrants you wish to exercise. Tax Identification Number. Enter the tax identification or social security number of the present registered owner(s) of the Warrants being exercised. 2. Signature If you are the person whose name appears on the Certificate(s) representing the Warrants that you are exercising, the Purchase Form on the reverse of the Certificate(s) should be duly executed, or you may sign the Warrant Subscription Form attached hereto exactly as your name appears on such Certificate(s). If you are exercising Warrants represented by Certificates on which there appears a name other than your own, (i) you must sign the Warrant Subscription Form attached hereto, (ii) the Warrant Certificate must be endorsed by a stock power signed by the registered owner, and (iii) the signature on the endorsement or stock power must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule 17Ad-15. Also, if you request in the Warrant Subscription Form that the Common Stock to which you are entitled be issued in the name of a third party, your signature on the Warrant Subscription Form must be guaranteed as described above. In case of joint ownership, all joint owners must sign the Warrant Subscription Form. Warrant Subscription Forms submitted by trustees, executors, administrators, guardians, officers of corporations, attorneys-in-fact or others acting in a fiduciary capacity must be accompanied by evidence satisfactory to the Warrant Agent and to Bonso as to the signer's authority to act. Additional evidence of authority may be required by the Warrant Agent or Bonso in their discretion. 3. Transfer Fees and Taxes The Warrant Agent imposes a Transfer Fee of $10.00 for each stock certificate to be issued. Bonso will pay the Transfer Fee for the issuance of one (1) stock certificate for each Warrant holder. If a Warrant holder desires more than one stock certificate, the amount of $10 per additional stock certificate must accompany the Warrant Subscription Form, and may be in the form of a separate check payable to "U.S. Stock Transfer Corporation" or included in the exercise price. If adequate funds do not accompany the Warrant Exercise Form, only that number of stock certificates for which the appropriate Transfer Fee has been received will be issued. Other than the foregoing, all necessary transfer taxes, if any, will be paid by Bonso, and no transfer tax stamps need be affixed to the tendered Warrant Certificates. 4. General Matters Bonso reserves full discretion to determine whether the documentation with respect to exercised Warrants is complete and generally to determine all questions as to exercise, including the date and hour of receipt of an exercise, the propriety of execution of any document and other questions as to the eligibility or acceptability of any exercise. Bonso reserves the right to reject any exercise not in proper form or to waive any irregularities or conditions, and Bonso's interpretation of the terms and conditions of the Warrant Solicitation and of the Warrant Exercise Form, including these instructions, will be final. All improperly exercised Warrants will be returned, unless irregularities are waived, without cost to the exercising Warrant holder. EX-23.1 7 EXHIBIT 23.1 Consent of Independent Accountants We hereby consent to the use in this Registration Statement on Form F-3 of Bonso Electronics International Inc. of our report dated May 28, 1999 relating to the financial statements as of March 31, 1999 and 1998 and for each of the three years in the period ended March 31, 1999, which appear in such Registration Statement. We also consent to the reference to us under the headings, "Experts" in such Registration Statement. PricewaterhouseCoopers Hong Kong October 26, 1999 -----END PRIVACY-ENHANCED MESSAGE-----