-----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, F6y95SyQBSjqzc86C+L/wkvvehpLe3lCGJdWzan5+ewPWjhCrWD4c6Fz2SU6GXI8 sCgmpzp8VI/TKIDTIKSJXQ== 0001050502-03-000546.txt : 20030724 0001050502-03-000546.hdr.sgml : 20030724 20030724152002 ACCESSION NUMBER: 0001050502-03-000546 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BONSO ELECTRONICS INTERNATIONAL INC CENTRAL INDEX KEY: 0000846546 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 000000000 STATE OF INCORPORATION: K3 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-17601 FILM NUMBER: 03800895 BUSINESS ADDRESS: STREET 1: UNIT 1106-1110, STAR HOUSE, 3 SALISBURY STREET 2: ROAD, TSIMSHATSUI, KOWLOON CITY: HONG KONG STATE: K3 BUSINESS PHONE: 01185226055822 MAIL ADDRESS: STREET 1: UNIT 1106-1110, STAR HOUSE, 3 SALISBURY STREET 2: ROAD, TSIMSHATSUI, KOWLOON CITY: HONG KONG STATE: K3 20-F 1 bonsoform20-f.txt 20-F SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-17601 BONSO ELECTRONICS INTERNATIONAL INC. ------------------------------------ (Exact name of Registrant as specified in its charter) British Virgin Islands (Jurisdiction of incorporation or organization) Unit 1106 - 1110 11/F, Star House 3 Salisbury Road Tsimshatsui Kowloon, Hong Kong (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.003 WARRANTS TO PURCHASE COMMON STOCK Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 5,709,859 shares of common stock, $0.003 par value, at March 31, 2003 (includes 180,726 shares that are disputed and may be repurchased). Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark which financial statement item the Registrant has elected to follow: Item 17 [ ] Item 18 [X] TABLE OF CONTENTS ----------------- Page PART I Item 1. Identity of Directors, Senior Management and Advisors................2 Item 2. Offer Statistics and Expected Timetable..............................2 Item 3. Key Information......................................................3 Item 4. Information on the Company..........................................14 Item 5. Operating and Financial Review and Prospects........................24 Item 6. Directors, Senior Management and Employees..........................38 Item 7. Major Shareholders and Related Party Transactions...................45 Item 8. Financial Information...............................................47 Item 9. The Offer and Listing...............................................47 Item 10. Additional Information..............................................48 Item 11. Quantitative and Qualitative Disclosures about Market Risk..........53 Item 12. Description of Securities Other Than Equity Securities..............55 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies.....................56 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds................................................56 Item 15. Controls and Procedures.............................................56 Item 16. Reserved............................................................56 PART III Item 17. Financial Statements................................................56 Item 18. Financial Statements................................................56 Item 19. Exhibits............................................................57 SIGNATURES....................................................................59 FORWARD-LOOKING STATEMENTS This Annual Report on Form 20-F contains forward-looking statements. These forward-looking statements could involve known and unknown risks, uncertainties, and other factors that might materially alter the actual results suggested by the statements. In other words, our performance might be quite different from what the forward-looking statements imply. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Risk Factors" under Item 3. - Key Information. You should rely only on the forward-looking statements that reflect management's view only as of the date of this Annual Report. We undertake no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. You should also carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission (the "SEC"). FINANCIAL STATEMENTS AND CURRENCY PRESENTATION We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and publish our financial statements in United States Dollars. REFERENCES In this Annual Report, "China" refers to all parts of the People's Republic of China other than the Special Administrative Region of Hong Kong. The terms "we," "us," and the "Company" refer to Bonso Electronics International Inc. and, where the context so requires or suggests, our direct and indirect subsidiaries. References to "dollars" or "$" are to United States Dollars. "HK$" are to Hong Kong Dollars, "Euros" or "E" are to the European Monetary Union's Currency, "DM" are to the German Deutsch Mark, "RMB" are to Chinese Renminbi and "CDN" are to Canadian Dollars. 1 PART I Item 1. Identity of Directors, Senior Management and Advisors Not Applicable. Item 2. Offer Statistics and Expected Timetable Not Applicable. Item 3. Key Information A. Selected Financial Data. The selected consolidated financial data as of March 31, 2002 and 2003 and for each of the three fiscal years ended March 31, 2003 are derived from the audited Consolidated Financial Statements and notes that are included in this Annual Report, are prepared in accordance with generally accepted accounting principles in the United States of America in United States Dollars, and which appear elsewhere in this Annual Report. The selected consolidated financial data set forth below as of March 31, 1999, 2000 and 2001, and for each of the two fiscal years in the period ended March 31, 2000 have been derived from our audited consolidated financial statements that are not included in this Annual Report. The selected consolidated financial data are qualified in their entirety by reference to, and should be read in conjunction with, the Consolidated Financial Statements and related notes and Item 5 - "Operating and Financial Review and Prospects" included in this Annual Report. The consolidated financial data as of March 31, 2003 reflects the acquisition of a 51% interest in Gram Precision Scales, Inc. ("Gram Precision"), which was effective as of August 1, 2002. Data for the fiscal years ended prior to March 31, 2003 does not include information relating to Gram Precision. The consolidated financial data as of March 31, 2002 and March 31, 2003 reflects the acquisition of KORONA Haushaltswaren GmbH & Co. KG ("Korona"), which was effective as of May 1, 2001. Data for the fiscal years ending prior to March 31, 2002 does not include information relating to Korona. 2
SELECTED CONSOLIDATED FINANCIAL DATA Income Statement Data ----------------------------------------------------------------------------- Year Ended March 31, ----------------------------------------------------------------------------- 1999 2000 2001 2002(2) 2003(1)(2) ----------- ----------- ----------- ----------- ----------- Net Sales $ 13,046 $ 15,380 $ 29,567 $ 53,303 $ 46,330 Cost of Sales (8,812) (11,118) (22,400) (40,192) (35,528) Gross Margin 4,234 4,262 7,167 13,111 10,802 Selling Expenses (197) (261) (382) (2,476) (2,467) Salaries and related costs (1,626) (1,899) (2,334) (3,880) (4,563) Research and Development expenses (566) (186) (298) (427) (393) Administration and general expenses (1,601) (1,646) (2,411) (3,411) (3,957) Amortization of brand name -- -- -- (203) (200) Income (loss) from operations 244 270 1,742 2,714 (777) Interest income 63 130 458 167 85 Interest expense (445) (261) (338) (645) (533) Foreign Exchange gain/(loss) 38 14 43 (40) (96) Other Income 53 192 205 181 169 Consultancy Fee -- -- (381) (381) (381) Income/(loss) before income taxes and minority interest (22) 345 1,729 1,996 (1,534) Income tax benefit/(expense) 36 3 (125) (190) (37) Net income /(loss) before minority interest $ 14 $ 348 $ 1,604 $ 1,806 (1,571) Minority interest -- -- -- -- (72) Net income/ (loss) $ 14 $ 348 $ 1,604 $ 1,806 ($ 1,643) Earning per share - Basic $ 0.0045 $ 0.0989 $ 0.2882 $ 0.3232 ($ 0.2936) - Diluted $ 0.0037 $ 0.0874 $ 0.2824 $ 0.3194 ($ 0.2936) Weighted average shares 3,079,219 3,515,690 5,564,536 5,586,920 5,599,238 Diluted weighted average shares 3,674,303 3,978,079 5,679,911 5,652,852 5,599,238 Dividends declared per share -- -- $ 0.10 $ 0.10 -- - ---------- (1) Includes financial results of the acquisition of Gram Precision Scales that was effective as of August 1, 2002. (2) Includes financial results of the acquisition of Korona that was effective as of May 1, 2001 3 Balance Sheet Data ------------------------------------------------------- Fiscal Year ending March 31, ------------------------------------------------------- 1999 2000 2001 2002 (2) 2003 (1)(2) ------- ------- ------- -------- ----------- Working capital $ 3,316 $12,765 $ 9,323 $ 9,599 $ 9,777 Total assets $18,660 $33,793 $37,497 $44,451 $48,911 Long-term debt and capital lease $ 42 $ 865 $ 404 $ 317 $ 606 Deferred income tax assets $ 112 $ 126 $ 97 $ 112 $ 167 Common Stock $ 9,353 $17,133 $16,484 $16,208 $16,583 Shareholders' Equity $14,626 $27,022 $27,673 $29,200 $28,379 - ---------- (1) Includes financial results of the acquisition of Gram Precision Scales that was effective as of August 1, 2002. (2) Includes financial results of the acquisition of Korona that was effective as of May 1, 2001. Exchange Rate Information The Hong Kong Dollar and the United States Dollar have been fixed at approximately 7.80 Hong Kong Dollars to 1.00 U.S. Dollars 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 (the "Basic Law") was transferred to China. The currency adopted by Korona in Germany changed from the Mark to the Euro on January 1, 2002. The noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York were U.S.$1.00 = CDN$1.3712, U.S.$1.00 = RMB 8.2768, U.S.$1.00 = Euro 1.1766, and U.S.$1.00 = HK$7.7987, respectively, on May 30, 2003. The following table sets forth the high and low noon buying rates between Chinese Renminbi and U.S. Dollars, Hong Kong Dollars and U.S. Dollars, and Euros and U.S. Dollars for each month during the five month period ended June 30, 2003. NOON BUYING RATE --------------------------------------------------------------------------------- CDN$ Per U.S. $1 RMB Per U.S. $1 HK$ PER U.S. $1 U.S. $1 PER EURO ---------------- --------------- --------------- ---------------- High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- --- Jan. 2003 1.5750 1.5220 8.2800 8.2766 7.8001 7.7988 1.0861 1.0361 Feb. 2003 1.5315 1.4880 8.2800 8.2768 7.8000 7.7990 1.0875 1.0708 March 2003 1.4905 1.4659 8.2776 8.2770 7.7995 7.7987 1.1062 1.0545 April 2003 1.4843 1.4336 8.2774 8.2769 7.7998 7.7991 1.1180 1.0621 May 2003 1.4221 1.3446 8.2771 8.2768 7.7995 7.7985 1.1853 1.1200 June 2003 1.3768 1.3348 8.2776 8.2768 7.7980 7.7993 1.1870 1.1423 The following table sets forth the average noon buying rates between Chinese Renminbi and U.S. Dollars, between Hong Kong Dollars and U.S. Dollars, and between Euros and U.S. Dollars for each of the calendar years 1998, 1999, 2000, 2001, 2002 calculated by averaging the noon buying rates on the last day of each month during the relevant year. 4
AVERAGE NOON BUYING RATE CDN$ Per U.S. $1 RMB PER U.S. $1 HK$ PER U.S. $1 U.S. $1 PER EURO ---------------- --------------- --------------- ---------------- 1998 1.4836 8.2772 7.7996 Not Applicable 1999 1.4858 8.2785 7.7599 Not Applicable 2000 1.4855 8.2784 7.7936 Not Applicable 2001 1.5487 8.2772 7.7936 0.8909 2002 1.5704 8.2772 7.7996 0.9495 B. Risk Factors. Forward-Looking Statements Important Factors Related to Forward-Looking Statements and Associated Risks. This Annual Report contains disclosures that are forward-looking statements. These statements address our expectations, intentions, and strategies for the future, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by such words or phrases as "anticipate," "believe," "estimate," "expect," "intend," "project," "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projected" or similar expressions. These statements are based on information available to us on the date of this Annual Report and we assume no obligation to update them. These forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Several factors could cause future results to differ materially from those expressed in any forward-looking statements in this report including, but not limited to: o Timely development, market acceptance and warranty performance of new products o Impact of competitive products and pricing o Continuity of trends o Customers' financial condition o Continuity of sales to major customers o Interruptions of suppliers' operations affecting availability of component materials at reasonable prices o Potential emergence of rival technologies o Success in integrating and operating Korona and Gram Precision o Fluctuations in foreign currency exchange rates o Uncertainties of doing business in China and Hong Kong o Such additional risks and uncertainties as are detailed from time to time in the Company's reports and filings with the Commission. 5 Political, Legal, Economic and Other Uncertainties of Operations in China and Hong Kong We Could Face Increased Currency Risks If China Does Not Maintain The Stability Of The Hong Kong Dollar. The Hong Kong Dollar and the United States Dollar have been fixed at approximately 7.80 Hong Kong Dollars to 1.00 U.S. Dollars 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. If the current exchange rate mechanism is changed, we face increased currency risks. We Face Significant Risks If The Chinese Government Changes Its Policies, Laws, Regulations, Tax Structure, Or Its Current Interpretations Of Its Laws, Rules And Regulations Relating To Our Operations In China. Our manufacturing facility is located in China. As a result, our 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 or regulations or the interpretation of laws or regulations, confiscatory taxation, changes in employment restrictions, restrictions on imports and sources of supply, import duties, corruption, currency revaluation or the expropriation of private enterprise could materially and adversely affect us. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. If the Chinese government does not continue to pursue its present policies that encourage foreign investment and operations in China, or if these policies are either not successful or are significantly altered, then our business operations in China could be adversely affected. We could even be subject to the risk of nationalization, which could result in the total loss of investment in that country. Following the Chinese government's policy of privatizing many state-owned enterprises, the Chinese government has attempted to augment its revenues through increased tax collection. Continued efforts to increase tax revenues could result in increased taxation expenses being incurred by us. 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 we were required to move our manufacturing operations outside of China, our profitability would be substantially impaired, our competitiveness and market position would be materially jeopardized and we might have to discontinue our operations. We Face Risks By Operating In China, Because The Chinese Legal System Relating To Foreign Investment And Foreign Operations Like Bonso's Is New And Evolving And The Application Of Chinese Laws Is 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. The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. Legislation over the past 20 years has significantly enhanced the protections afforded to various forms of foreign investment in Mainland China. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. The Chinese judiciary is relatively inexperienced in enforcing the laws that exist, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate law exists in China, it may not be possible to obtain swift and equitable enforcement of that law. 6 We Could Be Adversely Affected If China Changes Its Economic Policies In The Shenzhen Special Economic Zone Where We Operate. As part of its economic reform, China has designated certain areas, including Shenzhen where our 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 us. 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. Controversies affecting China's trade with the United States could harm our results of operations or depress our stock price. While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies between the United States and China may arise that threaten the status quo involving trade between the United States and China. These controversies could materially and adversely affect our business by, among other things, causing our products in the United States to become more expensive resulting in a reduction in the demand for our products by customers in the United States. Political or trade friction between the United States and China, whether or not actually affecting our business, could also materially and adversely affect the prevailing market price of our common shares. If Our Sole Factory Were Destroyed Or Significantly Damaged As A Result of Fire Or Some Other Natural Disaster, We Would Be Adversely Affected. All of our products are currently manufactured at our manufacturing facility located in Shenzhen, China. Fire fighting and disaster relief or assistance in China may not be as developed as in Western countries. We currently maintain property damage insurance aggregating approximately $22,400,000 covering our stock in trade, goods and merchandise, furniture and equipment and buildings. We do not maintain business interruption insurance. Investors are cautioned that material damage to, or the loss of, our 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 our financial condition, results of operations, business and prospects. Our results could be harmed if we have to comply with new environmental regulations. Our operations create some environmentally sensitive waste that may increase in the future depending on the nature of our manufacturing operations. The general issue of the disposal of hazardous waste has received increasing attention from the PRC national and local governments and foreign governments and agencies and has been subject to increasing regulation. Our business and operating results could be materially and adversely affected if we were to increase expenditures to comply with environmental regulations affecting our operations. 7 Risk Factors Relating to Our Business We Depend Upon Our Largest Customers For A Significant Portion Of Our Sales Revenue, And We Cannot Be Certain That Sales To These Customers Will Continue. If Sales To These Customers Do Not Continue, Then Our Sales Will Decline And Our Business Will Be Negatively Impacted. Traditionally, we have relied upon 3-4 customers for a significant portion of our sales during the fiscal year. Four major customers accounted for approximately 44% of our sales in the fiscal year ended March 31, 2001, one major customer accounted for approximately 22% of our sales in the fiscal year ended March 31, 2002, and four customers accounted for approximately 31% in the fiscal year ended March 31, 2003, with one customer accounting for 14% of our sales. We do not enter into long-term contracts with our customers, but manufacture based upon purchase orders and therefore cannot be certain that sales to these customers will continue. The loss of our largest customers could have a material negative impact on our sales revenue and our business. If We Are Not Able To Increase Our Manufacturing Capacity, We May Not Be Able To Meet The Demands Of Our Customers, Which Could Result In The Loss Of Sales And Our Customer Base. Our long-term competitive position will depend to a significant extent on our ability to increase our manufacturing capacity. We will need to invest in additional plant and equipment to expand capacity in our current facilities or obtain additional capacity through acquisitions. Either of these alternatives will require additional capital, which we may not be able to obtain on favorable terms, or at all. Further, we may not be able to acquire sufficient capacity or successfully integrate and manage additional facilities. The failure to obtain capacity when needed or to successfully integrate and manage additional manufacturing facilities could adversely impact our relationships with our customers and materially harm our business and results of operations. Defects In Our Products Could Impair Our Ability To Sell Our Products Or Could Result In Litigation And Other Significant Costs. Detection of any significant defects in our products may result in, among other things, delay in time-to-market, loss of market acceptance and sales of our products, diversion of development resources, injury to our reputation, or increased warranty costs. Because our products are complex, they may contain defects that cannot be detected prior to shipment. These defects could harm our reputation, which could result in significant costs to us and could impair our ability to sell our products. The costs we may incur in correcting any product defects may be substantial and could decrease our profit margins. Since certain of our products are used in applications that are integral to our customers' businesses, errors, defects, or other performance problems could result in financial or other damages to our customers. Product liability litigation, even if it were unsuccessful, would be time consuming and costly to defend. Our product liability insurance may not be adequate to cover claims. Our Sales Through Retail Merchants Result In Seasonality And Susceptibility To A Downturn In The Retail Economy And Sales Variances Resulting From Retail Promotional Programs. With the acquisition of Korona, a significant portion of our net sales involve sales of bathroom and kitchen scales to retail merchants 8 in Europe. In addition, many of our other customers sell to retail merchants. Accordingly, these portions of our customer base are susceptible to a downturn in the retail economy. Sales of certain of our scale and telecommunications products are seasonal, with sales of our scale products declining in the summer months and sales of our telecommunications products increasing during the summer. A significant portion of our sales in Europe are attributable to the promotional programs of our retail industry customers. These promotional programs result in significant orders by customers who do not carry our products on a regular basis. Promotional programs often involve special pricing terms or require us to spend funds to have our products promoted. We cannot assure you that promotional purchases by our retail industry customers will be repeated regularly, or at all. Our promotional sales could cause our quarterly results to vary significantly. Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results. Typically, we sell our products F.O.B. Hong Kong and our customers are responsible for the transportation of products from Hong Kong to their final destinations. Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges due to rising fuel costs or general price increases could materially and adversely affect our business and operating results. Customer Order Estimates May Not Be Indicative Of Actual Future Sales. Some of our customers have provided us with forecasts of their requirements for our products over a period of time. We make many management decisions based on these customer estimates, including purchasing materials, hiring personnel, and other matters that may increase our production capacity and costs. If a customer reduces its orders from prior estimates after we have increased our production capabilities and costs, this reduction may decrease our net sales and we may not be able to reduce our costs to account for this reduction in customer orders. Many customers do not provide us with forecasts of their requirements for our products. If those customers place significant orders, we may not be able to increase our production quickly enough to fulfill the customers' orders. The inability to fulfill customer orders could damage our relationships with customers and reduce our net sales. Pressure By Our Customers To Reduce Prices And Agree To Long-Term Supply Arrangements May Cause Our Net Sales Or Profit Margins To Decline. Our customers are under pressure to reduce prices of their products. Therefore, we expect to experience pressure from our customers to reduce the prices of our products. Our customers frequently negotiate supply arrangements with us well in advance of delivery dates, thereby requiring us to commit to price reductions before we can determine if we can achieve the assumed cost reductions. We believe we must reduce our manufacturing costs and obtain higher volume orders to offset declining average sales prices. If we are unable to offset declining average sales prices, our gross profit margins will decline. We Depend Upon Our Key Personnel And The Loss Of Any Key Personnel, Or Our Failure To Attract And Retain Key Personnel, Could Adversely Affect Our Future Performance, Including Product Development, Strategic Plans, Marketing And Other Objectives. The loss or failure to attract and retain key personnel could 9 significantly impede our performance, including product development, strategic plans, marketing and other objectives. Our success depends to a substantial extent not only on the ability and experience of our senior management, but particularly upon Anthony So our President, Secretary, Treasurer and Chairman of the Board. We do not have key man life insurance on Mr. So. To the extent that the services of Mr. So would be unavailable to us, we would be required to obtain another person to perform the duties Mr. So otherwise would perform. We may be unable to employ another qualified person with the appropriate background and expertise to replace Mr. So on terms suitable to us. We Face The Pressures Of A Competitive Industry. Our business is in an industry that is highly competitive, and many of our competitors, both local and international, have substantially greater technical, financial and marketing resources than we have. We compete with scale manufacturers in the Far East, the United States, and Europe. We believe that our principal competitor in the scale market is Measurement Specialties, Inc. and principal competitors in the telecommunications market are other Original Equipment or OEM manufacturers; however, as a contract and original equipment manufacturer and original design manufacturer, we compete with all companies engaged in the contract and original equipment manufacturing business. Further, subsequent to the acquisitions of Korona and Gram Precision, we compete with distributors of scales in Europe and Canada. Both the scale and the telecommunications markets are highly competitive and we face pressures on pricing and lower margins as evidenced by the decline in margins that we have experienced with our telecommunications products. Lower margins may effect our ability to cover our costs which could have a material negative impact on our operations and our business. We Are Controlled By Our Management, Whose Interest May Differ From Those Of The Other Shareholders. At the present time, Mr. Anthony So, our founder and President, beneficially owns approximately 35.77% of the outstanding shares of common stock, including shares underlying his outstanding options, or 28.58% without including his outstanding options. Due to his stock ownership, Mr. So may be in a position to elect the board of directors and, therefore, to control our business and affairs including certain significant corporate actions such as acquisitions, the sale or purchase of assets and the issuance and sale of our securities. Mr. So may be able to prevent or cause a change in control. We also may be prevented from entering into transactions that could be beneficial to us without Mr. So's consent. The interest of our largest shareholder may differ from the interests of other shareholders. Our Operating Results and Stock Price Are Subject To Wide Fluctuations. Our 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 our 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 our common stock. Our results have been affected by changes in currency exchange rates. Changes in currency rates involving the Canadian Dollar, Hong Kong dollar, Chinese Renminbi or the Euro could increase our expenses. 10 Our financial results have been affected by currency fluctuations, resulting in total foreign exchange losses of $96,592 during the year ended March 31, 2003. Generally, our revenues are collected in United States Dollars, Euros and Canadian Dollars. Our costs and expenses are paid in United States Dollars, Canadian Dollars, Hong Kong Dollars, Euros and Chinese Renminbi. We face a variety of risks associated with changes among the relative value of these currencies. An appreciation of the Canadian Dollar, Chinese Renminbi, Hong Kong Dollar or the Euro against the U.S. Dollar would increase our expenses when translated into U.S. Dollars and could materially and adversely affect our margins. In addition, a significant devaluation in the Canadian Dollar, Chinese Renminbi, Hong Kong Dollar or Euro could harm our business if it destabilizes the economy of Canada, China, Hong Kong, or the European Union. Strategic acquisitions. Recently we have acquired Gram Precision and Korona to expand our operations. While we are optimistic about these acquisitions, there can be no assurances that we will be successful in our plans regarding the operation of these acquisitions. Further, we can give you no assurance that our acquisitions will perform in accordance with our expectations. Despite our due diligence efforts, we must necessarily base any assessment of potential acquisitions on inexact and incomplete information and assumptions with respect to operations, profitability and other matters that may prove to be incorrect. Any difficulties with these acquisitions could disrupt our ongoing business, distract our management and employees and increase our expenses. Moreover, our profitability may suffer because of acquisition related costs or amortization of acquired goodwill and other intangible assets. Protection and Infringement of Intellectual Property. Except for the trademark for the KORONA mark, we have no patents, licenses, franchises, concessions or royalty agreements that are material to our business. We have obtained a trademark registration in Hong Kong and China for the marks BONSO and MODUS in connection with certain electronic apparatus. Unauthorized parties may attempt to copy aspects of our products or trademarks or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult. Our means of protecting our proprietary rights may not be adequate. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Our failure to adequately protect our proprietary rights may allow third parties to duplicate our products or develop functionally equivalent or superior technology. In addition, our competitors may independently develop similar technology or design around our proprietary intellectual property. Further, we may be notified that we are infringing patents, trademarks, copyrights or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and diversion of resources and could materially and adversely affect our business and operating results. 11 Our business and operating results would be materially and adversely affected if our suppliers of needed components fail to meet our needs. At various times, we have and continue to experience shortages of some of the electronic components that we use, and suppliers of some components lack sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels and reduction in our gross margins. There can be no assurance that such shortages and delays in deliveries of some components will not occur in the future. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain of the components that we use in our business. If we were unable to continue to purchase components from these limited source suppliers, our business and operating results would be materially and adversely affected. Cancellations or delays in orders could materially and adversely affect our gross margins and operating income. Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers' rolling forecasts. Further, during times of potential component shortages we have purchased, and may continue to purchase, raw materials and component parts in the expectation of receiving purchase orders for products that use these components. In the event actual purchase orders are delayed, are not received or are cancelled, we would experience increased inventory levels or possible write-downs of raw material inventory that could materially and adversely affect our business and operating results. We generally have no written agreements with suppliers to obtain components and our margins and operating results could suffer from increases in component prices. We are typically responsible for purchasing components used in manufacturing products for our customers. We generally do not have written agreements with our suppliers of components. This typically results in our bearing the risk of component price increases because we may be unable to procure the required materials at a price level necessary to generate anticipated margins from the orders of our customers. Accordingly, increases in component prices could materially and adversely affect our gross margins and operating results. Certain Legal Consequences of Foreign Incorporation and Operations Judgments Against The Company And Management May Be Difficult To Obtain Or Enforce. We are a holding corporation organized as an International Business Company under the laws of the British Virgin Islands and our principal operating subsidiary is organized under the laws of Hong Kong. Our principal executive offices are located in Hong Kong and our second operating subsidiary is located in Germany. Outside the United States, it may be difficult for investors to enforce judgments obtained against us in actions brought against us in the United States, including actions predicated upon the civil liability provisions of federal securities laws. In addition, most of our officers and directors reside outside the United States and the assets of these persons and of the 12 Company are located outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon these persons, or to enforce against the Company or these persons judgments predicated upon the liability provisions of United States securities laws. Our Hong Kong counsel and our British Virgin Islands counsel have advised that there is substantial doubt as to the enforceability against us or any of our directors or officers in original actions or in actions for enforcement of judgments of United States courts in claims for liability based on the civil liability provisions of federal securities laws. Because We Are Incorporated In The British Virgin Islands, You May Not Have The Same Protections As Shareholders Of U.S. Corporations. We are 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 our management, directors and controlling shareholders and the rights of our shareholders differ from, and may not be as protective of shareholders as, those that would apply if we were incorporated in a jurisdiction within the United States. Our directors have the power to take certain actions without shareholder approval, including an amendment of our 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 United States securities laws. Our Shareholders Do Not Have The Same Protections Or Information Generally Available To Shareholders Of U.S. Corporations Because The Reporting Requirements For Foreign Private Issuers Are More Limited Than Those Applicable To Public Corporations Organized In The United States. We are a foreign private issuer within the meaning of rules promulgated under the Exchange Act. We are not subject to 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 ("SEC") of quarterly reports on Form 10-Q or current reports on Form 8-K, the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect to a security registered under the Exchange Act and the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer's equity securities within six months or less). Because we are not subject to these rules, our shareholders are not afforded the same protections or information generally available to investors in public companies organized in the United States. Our Board's ability to amend our charter without shareholder approval could have anti-takeover effects that could prevent a change in control. As permitted by the law of the British Virgin Islands, our Memorandum and Articles of Association, which are the terms used in the British Virgin Islands for a corporation's charter and bylaws, may be amended by our board of directors without shareholder approval provided that a majority of our independent directors do not vote against the amendment. This includes amendments to increase or reduce our authorized capital stock. Our board's ability to amend our charter documents without shareholder approval could have the effect of delaying, deterring or preventing a change in control of Bonso, including a tender offer to purchase our common shares at a premium over the then current market price. 13 We may not pay dividends in the future. Although we have declared an annual dividend during the fiscal years ended March 31, 2001 and 2002 and on April 2, 2003, we may not be able to declare dividends or may decide not to declare dividends in the future. We will determine the amounts of any dividends when and if they are declared, in the future at the time of declaration. Dispute With Augusta Technologie AG ("Augusta") Regarding Repurchase Obligation May Result In Obligation For The Company To Repurchase Certain Shares. Effective May 1, 2001, we acquired Korona from Augusta. Part of the purchase price was paid to Augusta by the issue of 180,726 shares of our restricted common stock based on an agreed-upon price of $8.00 per share pursuant to the Stock Purchase Agreement (the "Agreement") with Augusta. For accounting purposes, the issue of the shares was originally recorded at the value of $5.00 per share, based on the average price per share for a total of 5 days before and after the completion date of the acquisition. Under the terms of the Agreement we had an obligation to register the common stock with the SEC. The Agreement gave Augusta the right to have us redeem the common stock if the registration of the stock had not been declared effective by the SEC on or before January 31, 2002. We filed a registration statement to register the common stock held by Augusta which was declared effective by the SEC on March 7, 2002. In March 2002, Augusta exercised the repurchase obligation requesting to return the 180,726 shares of common stock to us in exchange for a promissory note of $1,445,808, repayable in nine monthly payments which would have commenced April 1, 2002 and bearing interest at a rate of 8% per annum which would result in an interest cost of approximately $50,000 for the whole period of the promissory note. On October 22, 2002, Augusta filed a request for arbitration in the state of New York asserting breach of the Agreement and registration rights agreement. On January 13, 2003, we filed our answer to Augusta's request for arbitration asserting that Augusta breached the Agreement and the implied duty of good faith and fair dealing by withholding consent from Korona's auditors for the release of Korona's financial statements. We are currently in the process of proceeding through the arbitration. Although we are optimistic that we will be successful in the arbitration, there can be no assurance that this will occur. Further, if the arbitration proceeds, there will be legal fees, travel expenses and other costs related to the arbitration that will be incurred by us in defending the matter. If we do not succeed in the arbitration, we may be obligated to repurchase the stock by exchanging it for the promissory note, to be repaid with accrued interest, over a nine-month period of time. Item 4. Information on the Company A. History and Development of the Company. Bonso Electronics International Inc. was formed on August 8, 1988 as a limited liability International Business Company under the laws of the British Virgin Islands under the name "Golden Virtue Limited." On September 14, 1988, we changed our name to Bonso Electronics International, Inc. We operate under the International Business Companies Ordinance, 1984, of the British Virgin Islands. 14 As part of our ongoing expansion of the sensor-based product business, effective as of August 1, 2002, we acquired 51% of the equity of Gram Precision from a third party for approximately $231,000 in cash, a promissory note in the gross amount of $231,000, and the issuance of 125,000 shares of our common stock valued at approximately $300,000. The purchase price was determined through arms-length negotiations between us and the third party, which negotiations took into consideration Gram Precision's business, financial position, operating history, products, and other factors relating to Gram Precision's business. Gram Precision is primarily engaged in the distribution and marketing of pocket scales in the United States, Canada, and Europe Effective as of May 1, 2001 we acquired 100% of the equity of Korona. We originally acquired Korona for approximately $3,634,000. Augusta exercised its option to redeem the stock it received as part of the purchase price for a promissory note. While Augusta's exercise of the option is disputed, the purchase price has been increased by $542,178 for accounting purposes to reflect the possible redemption. Korona markets consumer scale products throughout Europe to retail merchandisers and distributors. These products feature contemporary designs using the latest materials and attractive packaging. Since 2000, we have manufactured a portion of Korona's product line under an Original Equipment Manufacturers agreement and are very familiar with Korona's stature in Europe and its potential for wider global distribution. Our corporate administrative matters are conducted through our registered agent, HWR Services Limited, P.O. Box 71, Road Town, Tortola, British Virgin Islands. Our principal executive offices are located at Unit 1106 - 1110, 11/F, Star House, 3 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong. Our telephone number is 852-2605-5822, our facsimile number is 852-2691-1724, our e-mail address is info@bonso.com and our website is www.bonso.com. Our registered agent in the United States is Henry F. Schlueter, Esq., 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80265. B. Business Overview. Bonso Electronics International Inc. designs, develops, produces and sells electronic sensor-based and wireless products for private label Original Equipment Manufacturers (individually "OEM" or collectively "OEMs") and Original Design Manufacturers (individually "ODM" or collectively "ODMs"). Since 1989, we have manufactured all of our products in China in order to take advantage of the lower overhead costs and competitive labor rates. Our factory is located in Shenzhen, China, about 50 miles from Hong Kong. The convenient location permits us to easily manage manufacturing operations from Hong Kong and facilitates transportation of our products out of China through the port of Hong Kong. 15 Business Strategy We believe that our continued growth depends upon our ability to strengthen our customer base by enhancing and diversifying our products, increasing the number of customers and expanding into additional markets, while maintaining or increasing sales of our products to existing customers. Our continued growth and profitability is also dependent upon our ability to control production costs and increase production capacity. Our strategy to achieve these goals is as follows: Product Enhancement And Diversification. We continually seek to improve and enhance our existing products in order to provide a longer product life-cycle and to meet increasing customer demands for additional features. Our research and development staff are currently working on a variety of projects to enhance our existing scale products and for the telecommunications industry and in the postal scale/meter area. See "Products" below. Maintaining And Expanding Business Relations With Existing Customers. We promote relationships with our significant customers through regular communication with them, including visiting certain of our customers in their home countries and providing direct access to our manufacturing and quality control personnel. This access, together with our concern for quality, has resulted in a relatively low level of defective products. Moreover, we believe that our emphasis on timely delivery, good service and low cost has contributed and will continue to contribute to good relations with our customers and increased orders. Further, we solicit suggestions from our customers for product enhancement and when feasible plan to develop and incorporate the enhancements suggested by our customers into our products. Market And Product Expansion. We have significantly expanded our marketing efforts in the United States, Canada and Europe. We have done this through the acquisitions of Gram Precision and Korona, and through efforts to introduce the Korona brand name and products into the United States. Further, we have taken significant steps to expand the products that we sell and to position ourselves as both ODMs and OEMs for other companies that require a manufacturing partner with our capabilities. We intend to increase our marketing and sales efforts with both existing and potential customers. Controlling Production Costs. In 1989, recognizing that labor cost is a major factor permitting effective competition in the consumer electronic products industry, we relocated all of our manufacturing operations to China to take advantage of the large available pool of lower cost manufacturing labor. We located our manufacturing facilities within 50 miles of Hong Kong in order to facilitate transportation of our products to markets outside of China, while benefiting from the advantages associated with manufacturing in China. We are actively seeking to control production costs by such means as redesigning our existing products in order to decrease material and labor costs, controlling the number of our employees, increasing the efficiency of workers by providing regular training and tools and redesigning the flow of our production lines. Increasing Production Capacity. We have significantly expanded our production capacity by leasing additional factory and dormitory buildings immediately adjacent to our factory in China. We have the opportunity to increase our capacity through the construction and/or leasing of additional factory and dormitory space near our factory in China. We intend to carefully monitor our capacity needs and to expand capacity as necessary. 16 Products Our sensor-based scale products are comprised of bathroom, kitchen, office, jewelry, laboratory, postal and industrial scales that are used in consumer, commercial and industrial applications. These products accounted for 65% of revenue for the fiscal year ended March 31, 2001, 63% for 2002 and 59% for 2003. Our sensor-based healthcare products are comprised primarily of thermometers and blood pressure meters used by consumers. These products accounted for 2% of revenue for the fiscal year ended March 31, 2001, 0% for 2002 and 0% for 2003. Our wireless telecommunications products are primarily comprised of two-way radios and cordless telephones that are used in consumer and commercial applications. These products accounted for 29% of revenue for the fiscal year ended March 31, 2001, 33% for 2002 and 34% for 2003. We also receive revenue from certain customers for the development and manufacture of tooling and moulding for scales and telecommunication products. Generally these tools and moulds are used by us for the manufacture and sale of products. We also generate some sales of spare parts for repair work by our customers and from repair work performed by us for our customers. These revenues accounted for approximately 4% of net sales for the fiscal year ended March 31, 2001, 4% for 2002 and 7% for 2003. The following table sets forth the percentage of net sales for each of the product lines mentioned above, for the fiscal years ended March 31, 2001, 2002, and 2003. Year ended March 31, ---------------------------------- Product Line 2001 2002 2003 - ------------ ---- ---- ---- Scales 65% 63% 59% Healthcare Products 2% 0% 0% Telecommunications Products 29% 33% 34% Other products and services 4% 4% 7% Total 100% 100% 100% Customers and Marketing We sell our products primarily in the United States and Europe. Customers for our products are primarily OEMs and ODMs, which market the products under their own brand names. The Gram Precision acquisition allows us to engage in the distribution and marketing of pocket scales in the United States, Canada, and Europe. With the acquisition of Korona, we began to distribute scale products directly to the retail and catalogue markets in Europe. 17 Net export sales to customers by geographic area consisted of the following for each of the three years ended March 31, 2001, 2002 and 2003. Year ended March 31, ---------------------------------------------------------------- 2001 2002 2003 ------------------ ------------------ ------------------ North America $13,531,782 46% $24,553,379 46% $22,017,956 48% Europe $14,160,371 48% $25,641,446 48% $21,059,227 45% Asia $ 1,538,650 5% $ 2,223,602 4% $ 2,661,535 6% Others $ 335,877 1% $ 884,674 2% $ 591,336 1% Total $29,566,680 100% $53,303,101 100% $46,330,054 100% We maintain a sales and marketing representative in Hong Kong, a marketing and sales team of ten people in China, a marketing team of two people in Canada and two people in Europe for Gram Precision and a sales team at Korona in Germany of six people (including one sales representative and 4 persons who are directly employed by Korona). Also, our experienced engineering teams work directly with our customers to develop and tailor our products to meet the customer's specific needs. We market our products primarily through a combination of direct contact by our experienced in-house technical sales staff and our sales representatives, and through the use of direct mail catalogues and product literature. Korona sells its products primarily through direct contact by sales agents/employees with customers. In addition, our marketing teams contact existing and potential customers by telephone, mail, facsimile, and in person. A list of our major electronics sensor customers for each of the prior three fiscal years follows: Percent of Sales - Year ended March 31, - -------------------------------------------------------------------------------- Electronics Sensor Customers 2001(1) 2002(1) 2003(1) - ---------------------------- ------- ------- ------- Ohaus Corporation (USA) 10% 4% 0% Gram Precision (Canada) 10% 6% (1) Gottl Kern & Sohn GmbH (Germany) 8% 4% 4% Werner Dorsch GmbH & Co. (Germany) 6% 4% 3% - ---------- (1) The inclusion of Gram Precision Scales has a dilutive effect on sales percentages in the years ended March 31, 2001 and 2002. Effective August 1, 2002, we acquired a 51% interest in Gram Precision, and sales information for the fiscal year ended March 31, 2003, has not been included. A list of our major telecommunications customers for each of the prior three fiscal years follows: 18 Percent of Sales - Year ended March 31, - -------------------------------------------------------------------------------- Telecommunications Customer 2001 2002 2003 - --------------------------- ---- ---- ---- Trisquare Communications (HK) Company Ltd. 0% 22% 14% TTI Tech Co., Ltd 0% 4% 8% Global Link Corporation Ltd. 0% 0% 5% Telson Information & Communications Co., Ltd. (Korea) 12% Less Than 1% 0% Telson Telecommunication Technology Co., Ltd. (Korea) 12% 0% 0% Sales of our products to OEMs accounted for approximately 97% of our total net sales in the year ended March 31, 2001, 65% for the year ended 2002 and 34% for the year ended 2003. Korona contributed $13,112,156 of our total net sales or 28% of total net sales for the year ended March 31, 2003. Gram Precision contributed $4,275,499 of our total net sales or 9% of total net sales for the year ended March 31, 2003. Component Parts and Suppliers We purchase over 1,000 different component parts from more than 100 major suppliers and are not dependent upon any single supplier for key components. We purchase components for our products primarily from suppliers in Japan, Taiwan, South Korea, Hong Kong and the PRC. We have not experienced and don't expect to experience any difficulty in obtaining needed component parts for our products. Quality Control We have received ISO 9001: 2000 certification from Det Norske Veritas Certification B.V., the Netherlands. The ISO 9001: 2000 certification was awarded to our subsidiary, Bonso Electronics Limited and to Bonso Electronics Limited subsidiary Bonso Electronics (Shenzhen) Company Limited, the manufacturing plant. Further, we have received TL 9000 certification for our telecommunications products. ISO 9001 is one of the ISO 9000 series of quality system standards developed by the International Organization for Standardization, a worldwide federation of national standards bodies. ISO 9001 provides a model for quality assurance (and continuous improvement) in product development, manufacturing, installation and servicing that focuses on meeting customer requirements. The TL 9000 standard was developed by the Quality Excellence for Suppliers of Telecommunications (QuEST) Leadership Forum. The TL 9000 certification process was developed exclusively to address the quality of products and services provided by suppliers to the telecommunications industry. 19 Patents, Licenses, Trademarks, Franchises, Concessions and Royalty Agreements We have obtained a trademark registration in Hong Kong and China for the marks BONSO and MODUS in connection with certain electronic apparatus. Also, we have acquired the trademark registration rights to the KORONA mark for 16 European countries and in the United States. We rely on a combination of patent, trademark and trade secret laws, employee and third party non-disclosure agreements and other intellectual property protection methods to protect our proprietary rights. There can be no assurance that third parties will not assert infringement or other claims against us with respect to any existing or future products. We cannot assure you that licenses would be available if any of our technology was successfully challenged by a third party, or if it became desirable to use any third-party technology to enhance the Company's products. Litigation to protect our proprietary information or to determine the validity of any third-party claims could result in a significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor. While we have no knowledge that we are infringing upon the proprietary rights of any third party, there can be no assurance that such claims will not be asserted in the future with respect to existing or future products. Any such assertion by a third party could require us to pay royalties, to participate in costly litigation and defend licensees in any such suit pursuant to indemnification agreements, or to refrain from selling an alleged infringing product or service. Product Research and Development/Competition The major responsibility of the product design, research and development personnel is to develop and produce designs to the satisfaction of and in accordance with the specifications provided by the OEMs and ODMs. We believe our engineering and product development capabilities are important to the future success of our business. As an ODM, we take specifications that are provided to us by the customer and design a product to meet those specifications. Some of our product design, research, and development activities are customer funded and are under agreements with specific customers for specific products. We have successfully lowered the costs for our research and development team by moving most research and development activities to our facility in China. We principally employ Chinese engineers and technicians at costs that are substantially lower than that would be required in Hong Kong. Both the electronic sensor-based and wireless products are highly competitive. Competition is primarily based upon unit price, product quality, reliability, product features and management's reputation for integrity. Accordingly, reliance is placed on research and development of new products, line extensions and technological, quality and other continuous product improvement. There can be no assurance that we will enjoy the same degree of success in these efforts in the future. Research and development expenses, aggregated approximately $298,000 for 2001, $427,000 for 2002 and $393,000 for 2003. 20 Seasonality Generally, the first calendar quarter of each year is typically the slowest sales period because our manufacturing facilities in China are closed for two weeks for the Chinese New Year holidays to permit employees to travel to their homes in China. Throughout the remainder of the year, our products do not appear to be subject to significant seasonal variation. The summer months are generally the lowest sales point of the calendar year for Gram Precision and Korona; however, sales of telecommunication products are generally higher in the summer months off-setting Gram Precision's and Korona's decline in sales. However, the sales patterns may not be indicative of future performance. 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. We believe that this method has resulted in lower employee turnover than might otherwise have occurred. Government Regulation We are subject to comprehensive and changing foreign, federal, state and local environmental requirements, including those governing discharges to the air and water, the handling and disposal of solid and hazardous waste, and the remediation of contamination associated with releases of hazardous substances. We believe that we are in compliance with current environmental requirements. Nevertheless, we use hazardous substances in our operations and as is the case with manufacturers in general, if a release of hazardous substances occurs on or from our properties we may be held liable and may be required to pay the cost of remediation. The amount of any resulting liability could be material. Foreign Operations A significant amount of our products are manufactured at our factory located in China. While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies between the United States and China may arise that threaten the status quo involving trade between the United States and China. These controversies could materially and adversely affect our business by, among other things, causing our products in the United States to become more expensive resulting in a reduction in the demand for our products by customers in the United States. Sovereignty over Hong Kong reverted to China on July 1, 1997. The 1984 Sino-British Joint Declaration, the 1990 Basic Law of Hong Kong, the 1992 United States-Hong Kong Policy Act and other agreements provide some indication of the business climate we believe will continue to exist in Hong Kong. Hong Kong remains a Special Administrative Region ("SAR") of China, with certain autonomies from the Chinese government. Hong Kong is a full member of the WTO. It has separate customs territory from China, with separate tariff rates and export control procedures. It has a separate intellectual property registration system. The Hong Kong Dollar is legal tender in the SAR, freely convertible and not subject to foreign currency exchange controls by China. The SAR government 21 has sole responsibility for tax policies, though the Chinese government must approve the SAR's budgets. Notwithstanding the provisions of these international agreements, we cannot be assured of the continued stability of political, legal, economic or other conditions in Hong Kong. No treaty exists between Hong Kong and the United States providing for the reciprocal enforcement of foreign judgments. Accordingly, Hong Kong courts might not enforce judgments predicated on the federal securities laws of the United States, whether arising from actions brought in the United States or, if permitted, in Hong Kong. Generally, our revenues are collected in United States Dollars, Euros and Canadian Dollars. Our costs and expenses are paid in United States Dollars, Canadian Dollars, Hong Kong Dollars, Euros and Chinese Renminbi. Accordingly, the competitiveness of our products relative to locally produced products may be affected by the performance of the United States Dollar compared with that of our foreign customers' currencies. Fluctuations in the value of the Hong Kong Dollar have not been significant since October 17, 1983, when the Hong Kong government pegged the value of the Hong Kong Dollar to that of the United States Dollar. However, there can be no assurance that the value of the Hong Kong Dollar will continue to be tied to that of the United States Dollar. The value of the Chinese Renminbi has been fairly stable for the last few years. A significant portion of Korona's costs and expenses are paid in United States Dollars. An appreciation of the Canadian Dollar, Chinese renminbi, Hong Kong dollar or the Euro against the U.S. dollar would increase our expenses when translated into U.S. dollars and could materially and adversely affect our margins. We cannot be assured that these currencies will remain stable or will fluctuate to our benefit. To manage our exposure to these risks, we may, but have not yet purchased, currency exchange forward contracts, currency options or other derivative instruments. C. Organizational Structure. We have one wholly-owned Hong Kong subsidiary - Bonso Electronics Limited ("BEL"). BEL was organized under the laws of Hong Kong and is responsible for the design, development, manufacture and sale of our products. BEL has one active Hong Kong subsidiary - Bonso Investment Limited ("BIL"). BIL was organized under the laws of Hong Kong and has been used to acquire and hold our property investments in Hong Kong and China. BEL also has one active PRC subsidiary - Bonso Electronics (Shenzhen) Company Limited, which is organized under the laws of the PRC, and is used to manufacture all of our products. We also have another wholly-owned British Virgin Islands subsidiary - Modus Enterprise International Inc., which owns 100% of Korona and 51% of Gram Precision. Korona is engaged in marketing, distributing and retailing of consumer bathroom and kitchen scale products throughout Europe. Gram Precision is primarily engaged in the distribution and marketing of pocket scales in the United States, Canada, and Europe. 22 D. Property, plant and equipment. British Virgin Islands Our offices are located at Cragmuir Chambers, Road Town, Tortola, British Virgin Islands. Only corporate administrative matters are conducted at such offices, through our registered agent, HWR Services Limited. Hong Kong We own approximately 5,000 square feet of office space located at Unit 1106 - - 1110, 11/F, Star House, 3 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong as our principal executive office. We own approximately 4,593 square feet on the 8th floor of the Universal Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong. This facility now is used exclusively as warehouse space. We own a residential property in Hong Kong, which is located at Savanna Garden, House No. 27, Tai Po, New Territories, Hong Kong. House No. 27 consists of approximately 2,475 square feet plus a 177 square foot terrace and a 2,308 square foot garden area. The use of House No. 27 is provided to Mr. Anthony So as part of his compensation. See Item 6 - "Directors, Senior Management and Employees -- Compensation." China Our existing factory in China is located at Shenzhen in the DaYang Synthetical Development District, close to the border between Hong Kong and China. This factory consists of three factory buildings, which contain approximately 245,000 square feet, three workers' dormitories, containing approximately 155,000 square feet, a canteen and recreation center of approximately 25,500 square feet, an office building, consisting of approximately 25,500 square feet, and staff quarters for our supervisory employees, consisting of approximately 35,000 square feet, for a total of approximately 486,000 square feet. All of the facilities noted above are wholly-owned, except one factory building and one workers' dormitory. These facilities were initially used by us pursuant to a Contract on the Use of Land and Supply of Workers with Shenzhen Baoan Fuan Industrial Company; however, we were granted title to the land on which these buildings are situated by the PRC in May 2001. Prior to being granted title, the Contract on the Use of Land and Supply of Workers provided that we could use approximately 269,000 square feet of land for a period of 50 years, commencing May 10, 1994. To obtain the land lease, we paid $1,810,344 plus a monthly management fee in the amount of $2,750. In April 2000, we increased our production capacity by leasing a third factory building and a third workers' dormitory. 23 We also own four residential properties described as follows: o Lijingge Court, Unit F, 15th Floor, Hai Li Building, Shenzhen, China, consisting of approximately 1,000 square feet. o Lakeview Mansion, B-20C, Hujinju Building No. 63, Xinan Road, Boacheng Baoan Shenzhen, China, consisting of approximately 1,591 square feet. o Lakeview Mansion, B-11B, Hujinju Building No. 63, Xinan Road, Boacheng Baoan Shenzhen, China, consisting of approximately 1,335 square feet. The property in the Hai Li Building is rented to an unaffiliated third party for RMB 2,500 per month (approximately $301) The Lakeview Mansion properties are utilized by directors when they require accommodations in China. We also own two office units in Beijing, namely Units 12 and 13 on the 3rd floor, Block A of Sunshine Plaza in Beijing, China. Unit 12 consists of 1,102 square feet and Unit 13 consists of 1,860 square feet. Both Units are rented to unaffiliated third parties for an aggregate monthly rental of RMB 21,000, or approximately $2,537. Germany Korona leases approximately 885 square meters of office space located at Auf den Huttenberg 1-3, 35428 Langgons-Niederkleen, Germany. This facility is used as Korona's principal executive offices and the monthly rent for this facility is E 6,427.12. Canada Gram Precision leases from an affiliated entity approximately 5,028 square feet of office space located at 31-5155 Spectrum Way, Mississauga, Ontario, L4W 5A1, Canada. This facility is used as Gram Precision's principal executive offices and the monthly rent for this facility is CDN 4,250 including Goods & Services Tax. United Kingdom Vector Europe Limited, a subsidiary of Gram Precision, leases 3,319 square feet of office and warehouse space located at Swansea, Wales, United Kingdom. The monthly rent for this facility is GBP 833.33. Adequacy of Facilities We believe the manufacturing complex, including the newly leased space, will be adequate for our reasonably foreseeable needs. Item 5. Operating and Financial Review and Prospects This section contains forward-looking statements that involve risks and uncertainties. The actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 3 - "Key Information - Risk Factors." The following discussion and analysis should be read in conjunction with Item 3 - "Key Information - Selected Financial Data" and the Consolidated Financial Statements and Notes to Consolidated Financial Statements attached elsewhere in this Annual Report. 24 Financial information as of and for the year ended March 31, 2003 reflects the impact of the acquisition of a majority interest in Gram Precision and the financial information as of and for the year ended March 31, 2002 reflects the impact of the acquisition of Korona effected May 1, 2001 and therefore will not be comparable with the financial information as of or for any past dates or periods and will not be indicative of results of operations for future periods. Critical Accounting Policies The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical policies include inventories, impairment, brand name, trade receivables, and deferred income taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other key accounting policies, such as revenue recognition. We believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. See discussion of all our significant accounting policies in footnote 1 to the Consolidated Financial Statements included elsewhere in this Annual Report. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries (hereinafter collectively referred to as the "Group"). All significant intercompany accounts and transactions are eliminated in consolidation. The companies acquired during the financial period have been consolidated from the date on which control of the net assets and operations was transferred to the Group Acquisitions of companies are accounted for using the purchase method of accounting. Goodwill represents the excess of the purchase cost over the fair value of assets less liabilities of acquired companies. During the financial year ending March 31, 2003, the Group adopted Statement of Financial Accounting Standard ("SFAS") No. 142 "Goodwill and Other Intangible Assets," which requires discontinuance of goodwill amortization and an annual impairment review. Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down to its recoverable amount. 25 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. Inventories are reduced by reserves for obsolescence and slow moving parts, which are determined based on management's assessment of their current status. This provision requires judgment regarding the marketability of certain inventories as certain inventories may be identified as in good condition that are subsequently obsolete and which could result in a subsequent write-off of the related inventories to the statement of operations. Any change in the marketability of inventories that were not previously provided for could significantly change the calculation of reserves and the results of our operations. Impairment of Long-Lived Assets Long-lived assets held and used by us and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Goodwill is also subject to an annual impairment review. If a triggering event occurs indicating that the carrying amount of an asset may not be recoverable, an assessment of the carrying amount of that asset is required. Triggering events include significant adverse changes in the market value of an asset, business plans, legal factors, and the business or the regulatory environment. The interpretation of such events requires judgement from management, whether such an event has occurred and whether management feels that assessment of the carrying value of the asset is required. If an event occurs that could affect the carrying value of the asset and management does not identify it as a triggering event, future operations could be adversely affected if this asset is subsequently written off due to sudden downturns in the business environment or sold for less than its carrying value and the asset had not previously been identified as impaired. Based on occurrence of triggering events the carrying amounts of fixed assets are reviewed to assess whether their recoverable amounts have declined below their carrying amounts. The recoverable amount is the present value of estimated net future cash flows which we expect to recover from the future use of the asset, undiscounted and without interest, plus the asset's residual value on disposal. Where the recoverable amount of fixed and other long-lived assets is less than carrying value, an impairment loss is recognized to write the assets down to their fair value which is based on discounted estimated cash flows from the future use of the asset. The estimated cash flows arising from future use of the asset that are used in the impairment analysis require judgment regarding what we expect to recover from future use of the asset and includes consideration of the change of our market share and customer base, market competition, change in cost structure and change in technology. In addition, the residual value of the asset on disposal requires judgment based on the estimated fair value of the asset at the time of disposal which could change due to changing market conditions and change in expected use of the asset prior to disposal. Any changes in the estimates of cash flows arising from future use of the asset or the residual value of the asset on disposal based on changes in the market conditions, changes in the use of the assets, management's plans, the determination of the useful life of the assets and technology change in the industry could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss, which could significantly affect the results of our operations. Brand Name Brand name acquired as part of the purchase of a business is capitalized based on the estimated fair value as at the date of acquisition and amortized using the straight line method over the related estimated useful life of 15 years. Expected useful lives are reviewed at each balance sheet date and, where these differ significantly from previous estimates, amortization periods are changed accordingly. Where an indication of impairment exists, such as the down turn of economic inflow from the brand name, changes in business plan and so on, the carrying amounts of brand name is assessed and written down to their recoverable amounts. The measurement of the fair value of brand name is subject to management's assumptions regarding future estimated cash flows, discount rates, etc. Changes in these assumptions could significantly affect the recording of an impairment charge related to this asset. Trade Receivables Provision is made against trade receivables to the extent that collection is considered to be doubtful. This provision requires judgment regarding the collectability of certain receivables as certain receivables may be identified as collectible that are subsequently uncollectible and which could result in a subsequent write-off of the related receivable to the statement of operations. Any change in the collectibility of accounts receivable that were not previously provided for could significantly change the calculation of such provision and the results of our operations. Deferred Income Taxes Amounts in the consolidated financial statements related to income taxes are calculated using the principles of 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. As part of this process we are required to estimate our income taxes and tax bases of assets and liabilities in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. We must then assess the likelihood of the recoverability of future tax benefits, such as net operating loss carry forwards, based on estimated future taxable income and recognize such benefits to the extent that realization is more likely than not to occur. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations. Any change in the recoverability of the deferred tax assets could significantly affect the results of our operations or cash flows. 26 Overview We derive our revenues principally from the sale of sensor-based and wireless products manufactured in China, which represent 59% and 34% of total sales for fiscal year ended March 31, 2003 respectively. For the fiscal year ended March 31, 2001, net sales increased to approximately $29,567,000 and net income increased to approximately $1,604,000. In the fiscal year ended March 31, 2002, net sales increased to approximately $53,303,000 and net income increased to approximately $1,806,000. In the fiscal year ended March 31, 2003, net sales were $46,330,000 and net loss was $1,644,000. We were operating at full capacity in our prior manufacturing facility and in January 1997, moved our manufacturing operations to a new facility, almost tripling our manufacturing capacity. In April 2000, we leased an additional 90,000 square feet of space on land adjacent to our manufacturing facility. Management believes that we will be able to increase sales to take advantage of our increased manufacturing capacity and improve margins and financial performance. Increased revenue and net income in future periods will depend on our ability to (i) strengthen our customer base by enhancing and diversifying our products; (ii) increase the number of customers; (iii) expand into additional markets; (iv) maintain or increase sales of our products to existing customers; (v) increase production; and (vi) control all of our costs. Although labor costs are increasing in China, our labor costs continue to represent a relatively small percentage of our total production costs. We believe that increased labor costs in China will not have a significant effect on our total production costs or results of operations, and that we will be able to continue to increase our production at our manufacturing facility without substantially increasing our non-production salaries and related costs. In addition, we have not experienced significant difficulties in obtaining raw materials for our products and management does not anticipate any such difficulties in the foreseeable future. A. Operating Results. The following table sets forth selected income data as a percentage of net sales for the periods indicated. Year ended March 31, ---------------------------- Income Statement Data 2001 2002 2003 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales (75.8) (75.4) (76.7) Gross margin 24.2 24.6 23.3 Selling expenses (1.3) (4.6) (5.3) Salaries and related costs (7.9) (7.3) (9.8) Research and development expenses (1.0) (0.8) (0.8) Administration and general expenses (8.2) (6.4) (8.5) Amortization of brand name -- (0.4) (0.4) Income (loss) from operations 5.9 5.1 (1.7) Interest income 1.6 0.3 0.2 Interest expense (1.1) (1.2) (1.1) Foreign exchange gains/(loss) 0.1 (0.1) (0.2) Other income 0.7 0.3 0.4 Consultancy fee (1.3) (0.7) (0.8) ------ ------ ------ Income (loss) before income taxes and minority interest 5.8 3.7 (3.3) Income tax expense (0.4) (0.4) (0.1) ------ ------ ------ Minority interest 0 0 (0.2) ------ ------ ------ Net income (loss) 5.4 3.4 (3.4) ====== ====== ====== 27 Fiscal year ended March 31, 2003 compared to fiscal year ended March 31, 2002 Net Sales. Our sales decreased 13% from approximately $53,303,101 for the fiscal year ended March 31, 2002, to approximately $46,330,054 for the fiscal year ended March 31, 2003, primarily as a result of the poor performance of one of our subsidiaries, Korona, and the decrease in sales of both our scales and telecommunications products due to the poor worldwide economy. Gram Precision had $4,275,499 in sales consolidated since August 1, 2002 representing 9% of total sales of the group, and Korona had $13,112,156 in sales for the year representing 28% of total sales for the group for the year ended March 31, 2003. Korona had $16,039,000 in sales consolidated since May 1, 2001 representing 30% of total sales of the group for the year ended March 31, 2002. Gross Margin. Gross margin declined slightly from 24.6% for the fiscal year ended March 31, 2002, as compared with 23.3% in the current fiscal year. This is mainly caused by the decrease in selling price of both our scales and telecommunications products. Selling Expenses. Total selling expenses declined only slightly; however, these expenses increased as a percentage of total sales from 4.7% to 5.3%. This increase was attributable primarily to $302,153 in selling expenses from the acquisition and consolidation of Gram Precision in 2003. Salaries And Related Costs. Salaries and related costs increased by 17.6% from approximately $3,880,274 for the fiscal year ended March 31, 2002 to approximately $4,563,453 for the fiscal year ended March 31, 2003. This increase was primarily due to the inclusion of a full year of Korona salaries of $1,421,174 versus $1,287,000, in 2002 and the inclusion of eight months of salaries from Gram Precision of $495,648. Research And Development. Research and development expenses decreased slightly from $426,364 for the fiscal year ended March 31, 2002, to $392,926 for the fiscal year ended March 31, 2003 due to less cost, such as testing fees, involved in the research and development of both our scales and telecommunication projects. Administration And General Expenses. Administration and general expenses increased by 16% from approximately $3,411,336 for the fiscal year ended March 31, 2002 to approximately $3,956,858 for the fiscal year ended March 31, 2003. This increase was primarily due to the inclusion of $394,950 from Gram Precision's general and administrative expenses. Amortization Of Brand Name. We amortized approximately $200,000 and $202,000 relating to the brand name acquired upon the acquisition of Korona during the fiscal year ended March 31, 2003 and March 31, 2002, respectively. The brand name is amortized using the straight line method over the related estimated useful life of 15 years. 28 Income From Operations. As a result of the above changes, income from operations declined by 128.7% from approximately $2,713,992 for the fiscal year ended March 31, 2002 to a loss of $777,779 for the fiscal year ended March 31, 2003. Interest Income. Interest income decreased by 48.9% from approximately $166,723 in the fiscal year ended March 31, 2002, to approximately $85,178 for the fiscal year ended March 31, 2003. This decrease was primarily the result of the reduction of interest rates in Hong Kong. Interest Expense. Interest expense declined 17.4% from approximately $645,045 for the fiscal year ended March 31, 2002 to approximately $532,624 for the fiscal year ended March 31, 2003. This decrease was primarily the result of lower interest rates. Foreign Exchange Losses/Gains. Foreign exchange rates produced a loss of approximately $96,592 for the fiscal year ended March 31, 2003, as compared to a loss of $39,954 for the fiscal year ended March 31, 2002, an increased loss of 141.7%. The loss was primarily attributable to translating U.S. Dollars to HK Dollars, RMB, EURO or Canadian Dollars for the purchase of raw materials and payments of salaries and wages . Other Income. Other income fell slightly from $181,272 for the fiscal year ended March 31, 2002 to $169,456 for the fiscal year ended March 31, 2003. This decrease primarily resulted from the production of less scrap material. The scrap we sell consists primarily of the remains of steel plate and plastics after the production process. Consultancy Fee. We entered into an agreement with a third party to provide consulting/advisory services relating to our capital structure and fund-raising activities. The period of service was from July 2000 to January 2003. A total consultancy fee of $1,144,260 was capitalized in 2000 and was amortized over three years of the contract, resulting in a non-cash consultancy fee of $381,420 for the fiscal years ended March 31, 2003 and 2002, relating to warrants that were issued to the consultant. Income Tax Expense. Income tax expense decreased from approximately $189,962 for the fiscal year ended March 31, 2002 to $37,314 for the fiscal year ended March 31, 2003, representing 0.36% and 0.08% of net sales respectively. This decrease was primarily attributed to the benefit arising from the net loss during this fiscal year of $245,405, offset by an increase in the deferred tax asset valuation allowance of $153,496. The increase in the valuation allowance is due to the portion of the increased net operating losses that more likely than not may not be realized through future taxable earnings of one of our subsidiaries. Net Loss. As a result of the above changes, we incurred a net loss of $1,643,734 for the fiscal year ended March 31, 2003, compared to net income of $1,805,606 for the fiscal year ended March 31, 2002, a decrease of approximately $3,449,340, or 191%. 29 Fiscal year ended March 31, 2002 compared to fiscal year ended March 31, 2001 Net Sales. Our sales increased 80% from approximately $29,567,000 for the fiscal year ended March 31, 2001, to approximately $53,303,000 for the fiscal year ended March 31, 2002, primarily as a result of the contribution from our newly acquired subsidiary Korona and more sales of telecommunications products. Korona had $16,039,000 in sales consolidated since May 1, 2001 representing 30% of total sales of the group. Another source of contribution was originated from additional telecommunications products sales of $9,016,000 as a result of increased marketing efforts. Gross Margin. Gross margin remained fairly stable at 24.6% for the fiscal year ended March 31, 2002, as compared with 24.2% in the prior year. The gain from higher gross margin of Korona products is offset by the loss from lower gross margin of telecom products. Selling Expenses. Selling expenses increased by 548% from approximately $382,000 for the fiscal year ended March 31, 2001 to approximately $2,476,000 for the fiscal year ended March 31, 2002. This increase was attributable primarily to the addition of Korona's selling expenses such as sales commissions and advertising, which amounted to approximately $1,904,000 during the year. Salaries And Related Costs. Salaries and related costs increased by 66% from approximately $2,334,000 for the fiscal year ended March 31, 2001 to approximately $3,880,000 for the fiscal year ended March 31, 2002. This increase was primarily due to the inclusion of Korona's salaries of $1,287,000, which constituted 55% of the increase. Further, there was an increase of three people in the production management team. Research And Development. Research and development expenses increased 43% from approximately $298,000 for the fiscal year ended March 31, 2001 to approximately $427,000 for the fiscal year ended March 31, 2002 due to the increased research and development activities for telecommunications products. Administration And General Expenses. Administration and general expenses increased by 41% from approximately $2,411,000 for the fiscal year ended March 31, 2001 to approximately $3,411,000 for the fiscal year ended March 31, 2002. This increase was primarily due to inclusion of Korona's general and administrative expenses. Further, there was an increase in the allowance for doubtful trade receivables provision of approximately $221,000 in the fiscal year ended March 31, 2002, compared to a nil provision in the fiscal year ended March 31, 2001. Amortization Of Brand Name. We amortized approximately $203,000 relating to the brand name acquired upon the acquisition of Korona during the fiscal year ended March 31, 2002. The brand name is amortized using the straight line method over the related estimated useful life of 15 years. Income From Operations. As a result of the above changes, income from operations increased by 56% from approximately $1,742,000 for the fiscal year ended March 31, 2001 to $2,714,000 for the fiscal year ended March 31, 2002. Interest Income. Interest income decreased by 95% from approximately $458,000 in the fiscal year ended March 31, 2001, to approximately $167,000 for the fiscal year ended March 31, 2002. This decrease was primarily the result of a reduction of cash balances with our banks and the reduction of interest rates in Hong Kong. 30 Interest Expenses. Interest expenses increased 91% from approximately $338,000 for the fiscal year ended March 31, 2001 to approximately $645,000 for the fiscal year ended March 31, 2002. This increase was primarily the result of increased borrowings by Korona (i.e., short term loan and overdraft of approximately $2,847,000 at March 31, 2002). These borrowings incurred an interest expense of approximately $241,000 representing 79% of the increase. Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of approximately $43,000 for the fiscal year ended March 31, 2001 and a loss of approximately $40,000 for the fiscal year ended March 31, 2002. The loss was primarily attributable to the increased strength of the RMB in the People's Republic of China against the U.S. Dollar, which arose when translating U.S Dollars or H.K. Dollars to RMB for the purchase of raw materials and payments of salaries and wages in the People's Republic of China. Other Income. Other income increased 59% from approximately $205,000 for the fiscal year ended March 31, 2001 to approximately $181,000 for the fiscal year ended March 31, 2002. This increase was primarily a result of increased scrap sales. The increase of scrap sales was mainly due to the increase in production volume as the scrap mainly represented the remains of steel plate and plastics after the production process. Consultancy Fee. We entered into an agreement with a third party to provide consulting/advisory services relating to our capital structure and fund-raising activities. The period of service is from July 2000 to January 2003. A total consultancy fee of $1,144,260 was capitalized in 2000 and is being amortized over three years of the contract, resulting in a non-cash consultancy fee of approximately $381,000 for the fiscal year ended March 31, 2002, relating to warrants that were issued to the consultant. Income Tax Expense. Income tax expense increased from approximately $125,000 for the fiscal year ended March 31, 2001 to $190,000 for the fiscal year ended March 31, 2002, representing 7% and 10% of net income respectively. This increase was primarily attributed to an underprovision of income tax for fiscal year ended March 31, 2001 of approximately $19,000 charged in the fiscal year ended March 31, 2002. Net Income. As a result of the above changes, net income increased from approximately $1,604,000 for the fiscal year ended March 31, 2001 to $1,806,000 for the fiscal year ended March 31, 2002, an increase of approximately $202,000, or 13%. Fiscal year ended March 31, 2001 compared to fiscal year ended March 31, 2000 Net Sales. Our net sales increased 92% from approximately $15,380,000 for the fiscal year ended March 31, 2000, to approximately $29,567,000 for the fiscal year ended March 31, 2001, primarily as a result of entering into the new wireless telecommunications business during fiscal year ended March 31, 2000. The full year's effect of the sales has contributed an increase in sales of approximately $7,978,000. In addition, various new and existing customers for electronic sensor-based products have increased their orders resulting in an increase of net sales by 52% in this product segment. 31 Gross Margin. Gross margin decreased from 27.7% to 24.2% primarily due to the write-off of approximately $570,000 in inventory and the increased depreciation charges of approximately $721,000 for newly acquired machinery during the year. Selling Expenses. Selling expenses increased by 46% from approximately $261,000 for the fiscal year ended March 31, 2000 to approximately $382,000 for the fiscal year ended March 31, 2001. This increase was attributable primarily to increases in freight charges. Salaries And Related Costs. Salaries and related costs increased by 23% from approximately $1,899,000 for the fiscal year ended March 31, 2000 to approximately $2,334,000 for the fiscal year ended March 31, 2001. This increase was primarily due to increases in administrative staff to support the diversification in business segments and increased sales. Research And Development. Research and development expenses increased 60% from approximately $186,000 during the fiscal year ended March 31, 2000 to approximately $298,000 for the fiscal year ended March 31, 2001. Research and development costs increased due to development work on our telecommunications products. Administration And General Expenses. Administration and general expenses increased by 46% from approximately $1,646,000 for the fiscal year ended March 31, 2000 to approximately $2,411,000 for the fiscal year ended March 31, 2001. This increase was primarily due to increased trading activities and the related increase in administrative overhead to support the higher sales. Income From Operations. As a net result of the above changes, income from operations increased by 545% from approximately $270,000 for the fiscal year ended March 31, 2000 to approximately $1,742,000 for the fiscal year ended March 31, 2001. Other Income. Other income increased 7% from approximately $192,000 for the fiscal year ended March 31, 2000 to approximately $205,000 for the fiscal year ended March 31, 2001. This small increase was primarily a result of increased scrap sales. Foreign Exchange Losses/Gains. Foreign exchange rates produced a gain of approximately $14,000 for the fiscal year ended March 31, 2000 and a gain of approximately $43,000 for the fiscal year ended March 31, 2001. This difference was primarily attributable to the pegged exchange rate and the actual transaction rate. Interest Income. Interest income increased by 252% from approximately $130,000 in the fiscal year ended March 31, 2000 to approximately $458,000 in the fiscal year ended March 31, 2001, because of an increase in funds available to earn interest resulting from the exercise of warrants in early 2000. Interest Expenses. Interest expenses increased 30% from approximately $261,000 in the fiscal year ended March 31, 2000 to approximately $338,000 for the fiscal year ended March 31, 2001. The increase resulted from the Company's increased use of its banking facilities to support the growth in sales. 32 Consultancy Fee. We have entered into an agreement with a third party to provide consulting/advisory services relating to our capital structure and fund-raising activities. The period of service is from July 2000 to January 2003 and a consultancy fee of approximately $381,000 was incurred for the fiscal year ended March 31, 2001, relating to warrants issued to the consultant. Net Income. As a result of the above changes, net income increased from the fiscal year ended March 31, 2000 compared to the fiscal year ended March 31, 2001 by approximately $1,256,000. Impact of Inflation We believe that inflation has not had a material affect on our business between 2002 and 2003. During the financial year ended March 31, 2002, Hong Kong had gone through a period of deflation and Germany had sustained a low inflation rate. We have generally been able to modify and improve our product designs so that we could either increase the prices of our products or lower the production cost in order to keep pace with inflation. Although our costs of components used in the manufacture of our products have been relatively stable, we believe that any possible significant increase in material costs would affect the entire electronics industry. Thus it would not have a negative material impact on our competitive position in the industry. We believe any increases in labor costs will not materially impact our operations because of the lower labor costs of operating in China. Taxation Under current British Virgin Islands law, we are not subject to tax on our income. Most of our subsidiaries' profits accrue in Hong Kong, the PRC, Canada and Germany where the corporate tax rates are currently 16%, 15%, 38% and 26.375%, respectively. However, as Korona is a partnership, it is only subject to a local statutory tax rate in Germany of 14.17%. There is no tax payable in Hong Kong on offshore profit or on dividends paid to Bonso Electronics Limited by its subsidiaries or to us by Bonso Electronics Limited. Therefore, our overall effective tax rate may be lower than that of most United States corporations; however, this advantage could be materially and adversely affected by changes in the tax laws of the British Virgin Islands, Germany, Hong Kong or China. Our subsidiary Bonso Electronics (Shenzhen) Company Limited was fully exempt from state income tax in the PRC for the first two years starting from the first profit-making year followed by a 50% reduction over the ensuing three years. The first profit-making year of Bonso Electronics (Shenzhen) Company Limited was deemed to be the financial year ended December 31, 1998. Therefore, we were subject to income tax at the rate of 7.5% in the PRC effective January 1, 2000 to December 31, 2002. As of January 1, 2003, are subject to full taxation from the PRC at a rate of 15%. No reciprocal tax treaty regarding withholding taxes exists between the United States and the British Virgin Islands. Under current British Virgin Islands law, dividends, interest or royalties paid by us to individuals are not subject to tax as long as the recipient is not a resident of the British Virgin Islands. If we were to pay a dividend, we would not be liable to withhold any tax, but shareholders would receive gross dividends, if any, irrespective of their residential or national status. 33 Dividends, if any, paid to any United States resident or citizen shareholder are treated as dividend income for United States federal income tax purposes. Such dividends are not eligible for the 70% dividends-received deduction allowed to United States corporations on dividends from a domestic corporation under Section 243 of the United States Internal Revenue Code of 1986 (the "Internal Revenue Code"). Various Internal Revenue Code provisions impose special taxes in certain circumstances on non-United States corporations and their shareholders. You are urged to consult your tax advisor with regard to such possibilities and your 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. Exchange Rates We sell most of our products to international customers. Our 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 by us to our customers. We sell all of our products in United States Dollars and pay for our material components principally in United States Dollars and Hong Kong Dollars. A very small portion of the components used are paid for in Japanese Yen. Most factory expenses incurred are paid in Chinese Renminbi. Because the Hong Kong Dollar is pegged to the United States Dollar, our only material foreign exchange risk previously arose 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. We don't currently engage in hedging transactions. Gram Precision principally pays for its products in United States Dollars and Canadian dollars and sells its products in Canadian, United States Dollars, and United Kingdom Pound Sterling. Korona primarily pays for its products in United States Dollars and Euros and sells its products in Euros. As a result, we may experience greater foreign exchange risk than we have in the past. B. Liquidity and Capital Resources. We have financed our growth and cash needs to date primarily from internally generated funds and bank debt. We do not use off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities, as sources of liquidity. Our primary uses of cash have been to fund expansions and upgrades of our manufacturing facilities, to make strategic acquisitions and to fund increases in inventory and accounts receivable resulting from increased sales. We believe that our cash flows from operations, our current cash balance and funds available under our working capital and credit facilities will be sufficient to meet our working capital needs and planned capital expenditures for the next 12 months. However, a decrease in the demand for our products may affect our internally generated funds, and we would further look to our banking facilities to meet our working capital demands. 34 Effective May 1, 2001, we acquired Korona from Augusta. Part of the purchase price was paid to Augusta by the issue of 180,726 shares of our restricted common stock based on an agreed-upon price of $8.00 per share pursuant to the Stock Purchase Agreement (the "Agreement") with Augusta. For accounting purposes, the issue of the shares was originally recorded at the value of $5.00 per share, based on the average price per share for a total of 5 days before and after the completion date of the acquisition. Under the terms of the Agreement, we had an obligation to register the common stock with the SEC. The Agreement gave Augusta the right to have us redeem the common stock if the registration of the stock had not been declared effective by the SEC on or before January 31, 2002. We filed a registration statement to register the common stock held by Augusta but it was not declared effective by the SEC until March 7, 2002. In March, 2002, Augusta exercised the repurchase obligation requesting to return the 180,726 shares of common stock to us in exchange for a promissory note of $1,445,808, repayable in nine monthly payments which would have commenced April 1, 2002 and bearing interest at a rate of 8% per annum which is approximately $50,000 for the whole period of the promissory note. If we are not successful in the arbitration, we may have to pay Augusta $1,445,808 plus interest and attorneys fees. While this would be a large cash expenditure for us, we do not believe making that payment to Augusta would have a material adverse effect upon us. The following tables set forth information with respect to our contractual obligations and commercial commitments as of March 31, 2003. Contractual Obligations Payments due by Period ---------------------------------------------------- More than Total 1 to 3 years 4 to 5 years 5 years ----- ------------ ------------ ------- Capital Leases 348,825 348,825 0 0 Operating Leases 1,560,379 1,033,302 244,548 282,529 Other Commercial Commitments Payments due by Period ----------------------------------------------------- More than Total 1 to 3 years 4 to 5 years 5 years ----- ------------ ------------ ------- Letters of credit 4,818,971 4,818,971 0 0 Short-term loans 4,727,988 4,727,988 0 0 Long-term loans 778,712 691,667 87,045 0 Acquisitions of Plant & Machineries 85,123 85,123 0 0 As of March 31, 2003 we had in place general banking facilities with four financial institutions with amounts available aggregating $27,849,377. Such facilities include the ability to obtain overdrafts, letters of credit, short-term notes payable, short-term loans and long-term loans. As of March 31, 2003, we had utilized $11,115,241 from these general banking facilities. Interest on this indebtedness fluctuates with the prime rate and HIBOR as set by 35 the Hong Kong Bankers Association. The bank credit facilities are collateralized by certain of our bank deposits, real property located at Savanna Garden in Tai Po, the warehouse space in Fo Tan, office space in Tsimshatsui, and bank guarantees. Our bank credit facilities are due for renewal annually. We anticipate that the banking facilities will be renewed on substantially the same terms and our utilization in the next year will remain at a similar level as that in the current year. Excluding the current portion of long-term debt and capital lease obligations, the amounts of total short-term bank borrowings outstanding as of March 31, 2003 and 2002 were $9,763,369 and $6,612,010, respectively. During the fiscal year ended March 31, 2003 we paid a total of $532,624 in interest on indebtedness. Operating activities provided $1,708,044 of net cash for the fiscal year ended March 31, 2003 compared to $5,472,469 of net cash for the fiscal year ended March 31, 2002. This increase in the use of cash can be primarily attributed to fund losses from operations. The cash used to fund the losses came primarily from advances under our banking facilities in the amount of $2,934,949. Our investing activities included the purchase of fixed assets for the year ended March 31, 2003 of $1,912,056 compared to purchase of fixed assets in the prior year of $756,010, or an increase of $1,156,046, due to the purchase of an office in Canada and the expansion of the manufacturing facilities. As of March 31, 2003, we had $3,633,528 in cash and cash equivalents as opposed to $1,878,156 as of March 31, 2002. Working capital at March 31, 2003, was $9,777,000 compared to $9,599,000 at March 31, 2002. There are no other material unused sources of liquid assets. We believe there are no material restrictions (including foreign exchange controls) on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, advances or product/material purchases. We do not anticipate incurring any significant capital expenditures during this fiscal year. We believe our working capital is sufficient for our present requirements. Our current ratio (current assets divided by current liabilities) decreased from 1.71 as of March 31, 2002 to 1.53 as of March 31, 2003. Our quick ratio (cash and cash equivalents, restricted cash deposits and receivables divided by current liabilities) decreased from 1.05 as of March 31, 2002 to 0.84 as of March 31, 2003. C. Research and Development, Patents and Licenses, etc. We believe that our engineering and product development capabilities are important to the future success of our business. We have successfully lowered the costs of our research and development team by moving most research and development activities to our facility in China and principally employing Chinese engineers and technicians at costs that are substantially lower than that would be required in Hong Kong. At March 31, 2003, we employed three individuals in Hong Kong and 43 individuals (26 for 2002) in China as our engineering staff, who are at various times engaged in research and development. The major responsibility of the product design and research and development personnel is to develop and produce designs of scales products to the satisfaction of and in accordance with the specifications provided by the ODMs and OEMs. We anticipate hiring additional research and development personnel to meet the increased demand for scales products. 36 During the fiscal year ended March 31, 2003, we spent approximately $393,000 on research and development as opposed to $427,000 for the fiscal year ended March 31, 2002, and approximately $298,000 during the fiscal year ended March 31, 2001. D. Trend Information. During the past three years we have expanded into the telecommunications sector and are manufacturing cordless telephones and family radios (walkie-talkies). Significant expenditures were made to acquire additional production facilities and equipment to support our expansion into the telecommunications market. Although we are optimistic about our future in the manufacture and sale of telecommunications products, we are dependent upon a limited number of customers, and the loss of any of these customers could have a material adverse effect upon us. At May 31, 2003, our backlog of manufacturing orders was $10,760,341 compared to $4,996,530 at May 31, 2002 and $9,009,059 at June 30, 2001. We believe that sales from telecommunications products and scales will be equal in the fiscal year ended March 31, 2004. In 2002, we acquired 51% of the equity of Gram Precision from a third party. Gram Precision is primarily engaged in the distribution and marketing of pocket scales in the United States, Canada, and Europe. In 2001, we acquired Korona, a German company that markets consumer scale products throughout Europe to retail merchandisers and distributors. These products feature contemporary designs using the latest materials and attractive packaging. We have manufactured a portion of Korona's product line under an OEM agreement since 2000 and are very familiar with Korona's stature in Europe and its potential for wider global distribution. Further, the acquisition of Korona was our first step in vertically integrating our manufacturing business with the marketing and distribution of the products we manufacture under our own brand name. Both the scale business and the telecommunication business are subject to some seasonal variation. Typically the first calendar quarter is our slowest quarter. This is due in part to the occurrence of the Chinese New Year's holiday and the fact that our factory workers take leave for the holiday. In addition, sales during the first calendar quarter of both scales and telecommunications products usually dip following the increase in sales during the Christmas season. Retail sales of scales generally decline in the summer, and sales of telecommunications products generally increase during the summer. Recent Accounting Pronouncements In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard does not have a material impact on our consolidated financial statements. 37 In November 2002, the FASB issued Interpretation No. ("FIN") 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees and indemnifications that it has issued and clarifies that a guarantor is required to recognize, at the inception of a guarantee or indemnification, a liability for the fair value of the obligation undertaken in issuing the guarantee or indemnification. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees and indemnifications issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statements ending after December 15, 2002. We believe the adoption of FIN 45 has not significantly impacted our current disclosures and we are currently assessing the impact of FIN 45's initial recognition and measurement provisions on our financial position and results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," an amendment of FAS 123, which provides alternative transition methods to the expensing of employee stock-based compensation under FAS 123. We are not required to adopt the fair value method prescribed by FAS 123 and, accordingly, will continue to account for stock-based compensation under the intrinsic value method in accordance with APB Opinion No. 25. FAS 148 also requires new disclosure requirements that are incremental to FAS 123, which have been included in Note 15 to the Consolidated Financial Statements included in this Annual Report. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. We are currently assessing the impact of this statement on our financial position and disclosures. Item 6. Directors, Senior Management and Employees A. Directors and Senior Management. Our board of directors and executive officers are listed below: Name Age Position with Bonso - ---- --- ------------------- Anthony So 59 President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, Chairman of the Board of Directors Kim Wah Chung 45 Director of Engineering and Research and Development and Director Cathy Kit Teng Pang 41 Director of Finance and Director Woo-Ping Fok 54 Director J. Stewart Jackson, IV 67 Director George O'Leary 65 Director Henry F. Schlueter 52 Director and Assistant Secretary 38 ANTHONY SO is the founder of Bonso. He is our Chief Executive Officer and Chief Financial Officer and has been our President, Chairman of the Board of Directors and Treasurer since inception, and our Secretary since July 1991. Mr. So received his BSE degree in civil engineering from National Taiwan University in 1967 and a master's degree in business administration ("MBA") from the Hong Kong campus of the University of Hull, Hull, England in 1994. Mr. So has been Chairman of the Hong Kong GO Association since 1986, and also served as Chairman of the Alumni Association of National Taiwan University for the 1993-1994 academic year. Mr. So has served as a trustee of the Chinese University of Hong Kong, New Asia College since 1994. KIM WAH CHUNG has been a director since September 21, 1994. Mr. Chung has been employed by us 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. Mr. Chung's entire engineering career has been spent with Bonso, and he has been involved in all of our major product developments. Mr. Chung graduated with honors in 1981 from the Chinese University of Hong Kong with a Bachelor of Science degree in electronics. CATHY KIT TENG PANG has been a director of Bonso since January 1, 1998. Ms. Pang was first employed by us as Financial Controller in December 1996 and was promoted to Director of Finance on April 1, 1998. Ms. Pang was employed as an auditor in an international audit firm from 1987 to 1991, at which time she joined a Hong Kong listed company in the field of magnetic industry as Assistant Financial Controller. From 1994 until she joined us 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. WOO-PING FOK was elected to our Board of Directors on September 21, 1994. Mr. Fok and his firm, Norman M.K. Yeung & Co., have served as our Hong Kong counsel 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. J. STEWART JACKSON IV has been a director since January 10, 2000. From 1962 until its merger with Republic Industries in 1996, Mr. Jackson served in various management capacities, including president, of Denver Burglar Alarm Co., Inc., a business founded by his family. In addition, in the mid-1960's, Mr. Jackson founded Denver Burglar Alarm Products, a separate company which invented, patented, manufactured, distributed and installed contained ionization smoke detectors and which was later sold to a conglomerate manufacturer. After the 39 merger of Denver Burglar Alarm Co., Inc., Mr. Jackson founded Jackson Burglar Alarm Co., Inc., of which he is currently president. Mr. Jackson served on the advisory board of directors for Underwriter's Laboratories for burglar and fire alarm systems for 25 years and has been an officer in the Central Station Protection Association, which, along with the National Burglar Alarm Association, was formed by his family in the late 1940's. Mr. Jackson graduated from the University of Colorado in 1962 with a degree in Business Management and Engineering. GEORGE O'LEARY has been a director 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. HENRY F. SCHLUETER has been a director since October 2001, and has been our Assistant Secretary 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. Mr. Schlueter has served as our United States corporate and securities counsel since 1988. 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. There are no family relationships between any of our directors and executive officers. No arrangement or understanding exists between any such director or officer and any other persons pursuant to which any director or executive officer was elected as a director or executive officer. Our directors 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. B. Compensation. The aggregate amount of compensation paid by us and our subsidiaries during the year ended March 31, 2003 to all directors and officers as a group for services in all capacities was approximately $1,269,574 including compensation in the form of housing in Hong Kong for our Chairman and Chief Executive Officer and Director of Engineering and Research and Development consistent with the practice of other companies in Hong Kong. Total compensation for the benefit of Anthony So was $671,836, for the benefit of Cathy Kit Teng Pang was $125,262, for the benefit of Kim Wah Chung was $149,606, for the benefit of Mr. George O'Leary was $180,000, and for the benefit of Henry F. Schlueter was an aggregate of $142,870. The $142,870 listed as having been paid for the benefit of Mr. Schlueter was paid to his law firm, Schlueter & Associates, P.C. for legal services rendered and expenses incurred. 40 We 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, 2003, other than contributions to our Provident Fund Plan which aggregated $33,553 for officers and directors during the fiscal year ended March 31, 2003. Employment Agreements We have employment agreements with Anthony So, Kim Wah Chung and Cathy Kit Teng Pang. The employment agreements expire on March 31, 2008; however, they are automatically renewable on an annual basis for additional one-year increments. Mr. So's employment agreement provides for a yearly salary of $700,000 per year plus bonus. Mr. Chung's employment agreement provides for a yearly salary of $150,000 per year plus bonus and Ms. Pang's employment agreement provides for a yearly salary of $135,000 per year plus bonus. The employment agreements contain provisions under which we will be obligated to pay Mr. So, Mr. Chung and Ms. Pang all compensation for the remainder of their employment agreements and five times their annual salary and bonus compensation if a change of control as defined in the agreements occur. Options of Directors and Senior Management The following table provides information concerning options owned by the directors and senior management at May 31, 2003. The table excludes our publicly traded warrants owned by the directors and senior management, information about which is disclosed in Item 7 of this Report together with information concerning the beneficial ownership of our common shares by directors and senior management and major shareholders. Number of Common Shares Subject to Exercise Price Name Stock Options Per Share Expiration Date ---- ------------- --------- --------------- Anthony So 158,000 $8.00 January 6, 2010 128,000 $3.65 April 9, 2011 128,000 $2.50 March 6, 2012 222,500 $1.61 April 1, 2013 Kim Wah Chung 20,000 $8.00 January 6, 2010 20,000 $3.65 April 9, 2011 20,000 $2.50 March 6, 2012 55,000 $1.61 April 1, 2013 Cathy Kit Teng Pang 20,000 $8.00 January 6, 2010 20,000 $3.65 April 9, 2011 20,000 $2.50 March 6, 2012 55,000 $1.61 April 1, 2013 George O'Leary 10,000 $8.125 January 12, 2010 10,000 $7.875 January 9, 2011 10,000 $2.55 October 15, 2011 10,000 $1.61 April 1, 2013 Woo-Ping Fok 10,000 $8.125 January 12, 2010 10,000 $7.875 January 9, 2011 10,000 $2.55 October 15, 2011 10,000 $1.61 April 1, 2013 J. Stewart Jackson IV 10,000 $7.875 January 9, 2011 10,000 $2.55 October 15, 2011 10,000 $1.61 April 1, 2013 Henry F. Schlueter 10,000 $8.00 January 6, 2010 10,000 $1.61 April 1, 2013 41 Directors Except for that mentioned above, our directors do not receive any additional monetary compensation for serving in their capacities. However, outside directors receive stock options pursuant to the 1996 Non-Employee Directors' Stock Option Plan and have been granted other options. (See "Stock Option Plans -- The 1996 Non-Employee Directors' Stock Option Plan," below.) All directors are reimbursed for all reasonable expenses incurred in connection with services as a director. Provident Fund Plan With effect from January 1, 1988, Bonso Electronics Limited ("BEL"), our wholly-owned foreign subsidiary, started a Provident Fund Plan (the "Plan") with a major international assurance company to provide life insurance and retirement benefits for its employees. All permanent full time employees who joined BEL before December 2000, excluding factory workers, are eligible to join the Plan. Members of the Plan are required to contribute 5% of their monthly salary. The contribution by BEL is as follows: Years of Service % of salary as BEL's contribution ---------------- --------------------------------- Less than 5 years 5.0% 5 to 10 years 7.5% More than 10 years 10.0% The Mandatory Provident Fund (the "MPF") was introduced by the Hong Kong Government commencing in December 2000. BEL joined the MPF with a major international assurance company. All permanent full time employees who joined BEL in or after December 2000, excluding factory workers, are eligible to join the MPF. Members' and employers' contributions to the MPF are both at 5% of the members' monthly salaries and are subject to a maximum contribution of HK $1,000 monthly. At normal retirement age, death or ill health, the member shall be entitled to receive from the Plan a lump sum equal to the total of the member's and BEL's contributions plus the 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. BEL's total contributions to the Plan and the MPF for the years ended March 31, 2003, 2002 and 2001 amounted to $73,945, $78,995, and $53,704, respectively. 42 C. Board Practices. Messrs. Woo Ping Fok and Henry F. Schlueter are members of our Audit Committee. Mr. Henry F. Schlueter has acted as chairman of the Audit Committee; however, Mr. Fok will become the Chairman effective September 1, 2003. The Audit Committee's responsibilities include recommending to the board the selection of our independent auditors, reviewing the arrangements and the scope of the independent audit and reviewing all financial statements. We don't have a compensation committee. D. Employees. At March 31, 2003, we employed 2,876 persons, compared with 2,064 persons at March 31, 2002; 39 employees in Hong Kong (39 for 2002), 2,795 employees in China (2,001 for 2002), 24 employees in Germany (24 for 2002, 2 in UK) and 16 in Canada. Employees are not covered by collective bargaining agreements. We consider our global labor practices and employee relations to be good. E. Share Ownership. The following table shows the number of shares of common stock beneficially owned by our directors and executive officers as of May 31, 2003:
Total Number of Shares of Shares of Common Stock Common Stock Percent of Owned of Options and Beneficially Beneficial Name Record Warrants Held Owned Ownership ---- ------ ------------- ----- --------- Anthony So 1,626,195(1) 636,500(2)(3)(4) 2,262,695 35.77% Kim Wah Chung 93,700 115,000(5)(6)(7) 208,700 3.60% Cathy Kit Teng Pang 35,438 115,000(5)(6)(7) 150,438 2.60% Henry F. Schlueter 34,403 20,000(8)(9) 54.403 0.95% Woo-Ping Fok 61,907 40,000(10)(11) 101,907 1.77% George O'Leary 17,775 40,000(10)(11) 57,775 1.00% J. Stewart Jackson IV 463,075 130,000(10)(11) 592,575 10.18% (12) All Directors and Officers 2,332,493 1,096,500 3,055,993 50.53% as a group (7 persons)
- ---------- (1) Includes 1,143,421 shares of common stock owned of record by a corporation that is wholly owned by a trust of which Mr. So is the sole beneficiary. (2) Includes options to purchase 158,000 shares of common stock at an exercise price of $8.00 per share expiring January 6, 2010. (3) Includes options to purchase 128,000 shares of common stock at an exercise price of $3.65 per share expiring on April 9, 2011, and options to purchase 128,000 shares of common stock at an exercise price of $2.50 per share expiring on March 6, 2012. (4) Includes options to purchase 222,500 shares of common stock at an exercise price of $1.61 per share expiring on April 1, 2013. 43 (5) Includes options to purchase 20,000 shares of common stock at an exercise price of $8.00 per share expiring January 6, 2010. (6) Includes options to purchase 20,000 shares of common stock at an exercise price of $3.65 per share expiring on April 9, 2011, and options to purchase 20,000 shares of common stock at an exercise price of $2.50 per share expiring on March 6, 2012. (7) Includes options to purchase 55,000 shares of common stock at an exercise price of $1.61 per share expiring on April 1, 2013. (8) Includes options to purchase 10,000 shares of common stock at an exercise price of $8.00 per share expiring January 6, 2010. (9) Includes options to purchase 10,000 shares of common stock at an exercise price of $1.61 per share expiring on April 1, 2013. (10) Includes options to purchase 10,000 shares of common stock at an exercise price of $8.125 per share expiring January 12, 2010. (11) Includes options to purchase 10,000 shares of common stock at an exercise price of $7.875 per share expiring on January 9, 2011, options to purchase 10,000 shares of common stock at an exercise price of $2.55 per share expiring on October 15, 2011 and options to purchase 10,000 shares of common stock at an exercise price of $1.61 per share expiring on April 1, 2003. (12) Includes 100,000 public warrants to acquire shares issued in January 2000. Stock Option Plans The 1996 Stock Option Plan In October 1996, our stockholders adopted the 1996 Stock Option Plan (the "Employees' Plan") which provides for the grant of options to purchase an aggregate of not more than 400,000 shares of our common stock. In January 2000, our shareholders approved the proposal of the Board of Directors to increase from 400,000 to 900,000 in the aggregate the number of options to purchase common stock under the Employees' Plan. The purpose of the Employees' Plan is to make options available to management and employees in order to encourage them to secure or increase on reasonable terms their stock ownership and to encourage them to remain in our Company. The Employees' Plan is administered by a committee appointed by the Board of Directors which determines the persons to be granted options under the Employees' Plan, the number of shares subject to each option, the exercise price of each option and the option period, subject to the requirement that no option may be exercisable more than ten years after the date of grant. The exercise price of an option may be less than fair market value of the underlying shares of common stock. No options granted under the Employee Plan are transferable by the optionee other than by will or the laws of descent and distribution and each option will be exercisable during the lifetime of the optionee, only by such optionee. The exercise price of an option granted pursuant to the Employees' Plan may be paid in cash, by the surrender of options, in common stock, in other property, including the optionee's promissory note, or by a combination of the above, at our discretion. During the fiscal year ended March 31, 2003, no options were granted under the 1996 Stock Option Plan. The 1996 Non-Employee Directors' Stock Option Plan In October 1996, our stockholders adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors' Plan") which provides for the grant of options to purchase an aggregate of not more than 100,000 shares of common stock. In January 2000, our shareholders approved the proposal of the Board of Directors to increase from 100,000 to 600,000 in the aggregate the number of options to purchase common stock under the Non-Employee Directors' 44 Plan. The purpose of the Non-Employee Directors' Plan is to promote the long-term success of the Company by creating a long-term mutuality of interests between the non-employee directors and the stockholders, to provide an additional inducement for such directors to remain with us and to provide a means through which we may attract able persons to serve as directors. The Non-Employee Directors' Plan is administered by a committee (the "Committee") appointed by the Board of Directors. Under the Non-Employee Directors' Plan, on the third business day following each Annual Meeting of the stockholders, each director who is not then an employee of the Company or any of its subsidiaries is automatically granted a stock option to purchase 10,000 shares of common stock. The exercise price of all options granted under the Non-Employee Directors' Plan is equal to the fair market value of the underlying shares on the date of grant, based on guidelines set forth in the Non-Employee Directors' Plan. The exercise price may be paid in cash, by the surrender of options, in common stock, in other property, including the optionee's promissory note, or by a combination of the above, at the discretion of the Company. The term of each option granted pursuant to the Non-Employee Directors' Plan is ten years from the date of grant; however, no such option may be exercised during the first six months of its term. The term of an option granted pursuant to the Non-Employee Directors' Plan may be reduced in the event that the optionee ceases to be a director. No option granted pursuant to the Non-Employee Directors' Plan is transferable otherwise than by will or the laws of descent and distribution. During the fiscal year ended March 31, 2003, no options were granted under the 1996 Non-Employee Directors' Plan. Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders. We are not directly or indirectly owned or controlled by any foreign government or by another corporation. The following table sets forth, as of May 31, 2003, beneficial ownership of our common stock by each person known by us to own beneficially 5% or more of our common stock outstanding as of such date. Except as otherwise indicated, all shares are owned directly and hold equal voting rights. Name Amount Owned - ---- ----------------------------------- Percent of Class (1) Shares of Options/Warrants to Beneficially Common Stock Purchase Common Stock Owned ------------ --------------------- ----- Anthony So 1,626,195(2) 636,500(3) 35.77% John Stewart Jackson IV 462,575 130,000(3) 10.18% W. Douglas Moreland 501,400 0 8.81% - ---------- (1) Based on beneficial ownership of both shares of common stock and of options to purchase common stock that are immediately exercisable. (2) Includes 1,143,421 shares of common stock owned of record by a corporation that is wholly owned by a trust of which Mr. So is the sole beneficiary. (3) See "Share Ownership" for additional information. There are no arrangements known to us the operation of which may at a subsequent date result in a change in control of the Company. 45 Of the 5,689,159 (including 180,726 shares that are disputed and may be repurchased) shares of common stock outstanding as of May 31, 2003, 4,231,350 were held in the United States by 251 holders of record. We have 246 shareholders of record and estimate that we have in excess of 850 shareholders holding their stock in street name (who have not objected to their names being disclosed to us) B. Related Party Transactions. Mr. George O'Leary, a director, is paid a commission on orders placed by customers which he obtains for us. The amount of the commission is negotiated on a deal-by-deal basis, without a written agreement. During the fiscal year ended March 31, 2003, Mr. O'Leary was paid an aggregate of $180,000 as consultancy fee for provision of support and marketing services such as soliciting customers, negotiating prices and public relations in the United States. During the fiscal year ended March 31, 2003 we paid Schlueter & Associates, P.C. an aggregate of $142,870 for legal fees and expenses. Mr. Henry F. Schlueter, a director, is the Managing Director of Schlueter & Associates, P.C. C. Interests of Experts and Counsel. Not Applicable. D. Legal Proceedings. We are not a party to any legal proceedings other than routine litigation incidental to our business and there are no material legal proceedings pending with respect to our property or assets. However, we are involved in a dispute with Augusta Technologie AG ("Augusta"), relating to the acquisition of Korona from Augusta. Augusta is based in Frankfurt am Main, Germany. Effective May 1, 2001, we acquired Korona from Augusta. Part of the purchase price was paid to Augusta by the issue of 180,726 shares of our restricted common stock based on an agreed-upon price of $8.00 per share pursuant to the Stock Purchase Agreement (the "Agreement") with Augusta. For accounting purposes, the issue of the shares was originally recorded at the value of $5.00 per share, based on the average price per share for a total of 5 days before and after the completion date of the acquisition. Under the terms of the Agreement we had an obligation to register the common stock with the SEC. The Agreement gave Augusta the right to have us redeem the common stock if the registration of the stock had not been declared effective on or before January 31, 2002. We filed a registration statement to register the common stock held by Augusta which was declared effective by the SEC on March 7, 2002. In March 2002, Augusta exercised the repurchase obligation. Augusta asserts that it has the right to tender the 180,726 shares of common stock to us in exchange for a promissory note of $1,445,808, repayable in nine monthly payments. We believe we are not required to accept Augusta's tender of their shares because Augusta hindered the registration process by refusing to allow Korona's auditors to update and certify Korona's financial statements. Augusta and Korona had used the same auditors and under German law Augusta had to consent to the auditors continuing to work for Korona after the acquisition. Augusta withheld their consent until October 12, 2001. We believe this delay of approximately three months was the direct cause of our inability to meet the January 31, 2002 deadline. 46 On October 22, 2002, Augusta filed a request for arbitration in the state of New York asserting breach of the Agreement and the registration rights agreement. On January 13, 2003, we filed our answer to Augusta's request for arbitration asserting that Augusta breached the Agreement and the implied duty of good faith and fair dealing by withholding consent from Korona's auditors for the release of Korona's financial statements. We are currently in the process of proceeding through the arbitration. Although we are optimistic that we will be successful in the arbitration, there can be no assurance that this will occur. Further, if the arbitration proceeds, there will be legal fees, travel expenses and other costs related to the arbitration that will be incurred by us in defending the matter. If we do not succeed in the arbitration, we may be obligated to repurchase the stock by exchanging it for the promissory note to be repaid, with accrued interest, over a nine-month period of time. Item 8. Financial Information Financial Statements A. Consolidated Statements and Other Financial Information. Please refer to Item 18. B. Significant Changes. None. Item 9. The Offer and Listing A. Offer and Listing Details. Our common stock is traded only in the United States over-the-counter market. It is quoted on the Nasdaq National Market System ("NASDAQ") under the trading symbol "BNSO." The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share reported by NASDAQ. The quotations represent prices between dealers and do not include retail markup markdown or commissions and may not necessarily represent actual transactions. The following table sets forth the high and low closing sale prices as reported by NASDAQ for each of the last five years: Period High Low ------ ---- --- April 1, 1998 to March 31, 1999 $11.375 $3.5625 April 1, 1999 to March 31, 2000 $19.875 $5.75 April 1, 2000 to March 31, 2001 $17.5625 $6.00 April 1, 2001 to March 31, 2002 $7.625 $2.38 April 1, 2002 to March 31, 2003 $3.45 $1.41 47 The following table sets forth the high and low closing sale prices as reported by NASDAQ during each of the quarters in the two-year period ended March 31, 2003. Period High Low ------ ---- --- April 1, 2001 to June 30, 2001 $7.625 $3.64 July 1, 2001 to September 30, 2001 $4.85 $2.38 October 1, 2001 to December 31, 2001 $3.42 $2.45 January 1, 2002 to March 31, 2002 $3.15 $2.47 April 1, 2002 to June 30, 2002 $3.45 $2.52 July 1, 2002 to September 30, 2002 $2.90 $1.80 October 1, 2002 to December 31, 2002 $2.59 $1.41 January 1, 2003 to March 31, 2003 $2.39 $1.61 The following table sets forth the high and low closing sale prices as reported by NASDAQ during each of the most recent six months. Period High Low ------ ---- --- January 2003 $1.99 $1.64 February 2003 $2.39 $1.84 March 2003 $2.17 $1.61 April 2003 $2.29 $1.80 May 2003 $2.28 $1.96 June 2003 $5.20 $2.28 Transfer and Warrant Agent The transfer agent and registrar for the common stock and the warrant agent for the warrants is U.S. Stock Transfer Corporation, 1745 Gardena Avenue #200, Glendale, California 91204. Item 10. Additional Information. A. Share Capital. Our authorized capital is $170,000 consisting of 23,333,334 shares of common stock, $0.003 par value per share, and 10,000,000 authorized shares of preferred stock, $0.01 par value, divided into 2,500,000 shares each of class A preferred stock, class B preferred stock, class C preferred stock and class D preferred stock. Information with respect to the number of shares of common stock outstanding at the beginning and at the end of the last three fiscal years, is presented in the Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 2001, 2002 and 2003 included herein in Item 18. At May 31, 2003, there were 5,689,159 (including 180,726 shares that are disputed and may be repurchased) shares of our common stock outstanding, all of which were fully paid. At May 31, 2003, we had outstanding 2,174,403 warrants to 48 purchase common stock which are publicly traded and are exercisable to purchase 1,087,201 shares of common stock at $17.50 per share. The warrants originally were exercisable any time prior to 2:00 p.m. (Pacific Time) on December 31, 2001. In October 2001, our board of directors extended the expiration date until December 31, 2002, and in July 2002, extended the expiration date until December 31, 2003. In addition, at May 31, 2003, we had outstanding 1,044,500 options to purchase common stock as follows: Number of Exercise Price Expiration Options per Share Date ------- --------- ---- 228,000 $8.00 January 6, 2010 20,000 $8.125 January 12, 2010 30,000 $7.875 January 9, 2011 196,000 $3.65 April 9, 2011 30,000 $2.55 October 14, 2011 168,000 $2.50 March 6, 2012 372,500 $1.61 April 1, 2013 At May 31, 2003 there were no shares of our preferred stock outstanding. B. Memorandum and Articles of Association. We are registered in the British Virgin Islands and have been assigned company number 9032 in the register of companies. Our registered agent is HWR Services Limited and is at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. The object or purpose of the Company is to engage in any act or activity that is not prohibited under British Virgin Islands law as set forth in Paragraph 4 of our Memorandum of Association. As an International Business Company, we are 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. We do not believe that these restrictions materially affect our operations. Paragraph 57(c) of our Amended Articles of Association (the "Articles") provides that a director may be counted as one of a quorum in respect of any contract or arrangement in which the director is materially interested; however, if the agreement or transaction cannot be approved by a resolution of directors without counting the vote or consent of any interested director, the agreement or transaction may only be validated by approval or ratification by a resolution of the members. Paragraph 53 of the Articles allows the directors to vote compensation to themselves in respect of services rendered to the Company. Paragraph 66 of the Articles provides that the directors may by resolution exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of ours or of any third party. Such borrowing powers can be altered by an amendment to the Articles. There is no provision in the Articles for the mandatory retirement of directors. Directors are not required to own shares of the Company in order to serve as directors. 49 Our authorized share capital is $170,000 divided into 23,333,334 shares of common stock, $0.003 par value, and 10,000,000 authorized shares of preferred stock, $0.01 par value. Holders of our 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 our common stock do not have cumulative voting rights in the election of directors. All of our common shares are equal to each other with respect to liquidation and dividend rights. Holders of our common shares are entitled to receive dividends if and when declared by our board of directors out of funds legally available under British Virgin Islands law. In the event of our liquidation, all assets available for distribution to the holders of our common shares are distributable among them according to their respective holdings. Holders of our common stock have no preemptive rights to purchase any additional unissued common shares. Paragraph 7 of the Memorandum of Association provides that without prejudice to any special rights previously conferred on the holders of any existing shares, any share may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the directors may from time to time determine. Paragraph 10 of the Memorandum of Association provides that if at any time the authorized share capital is divided into different classes or series of shares, the rights attached to any class or series may be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of any other class or series of shares which may be affected by such variation. Paragraph 105 of the Articles of Association provide that our Memorandum and Articles of Association may be amended by a resolution of members or a resolution of directors. Thus, our board of directors without shareholder approval may amend our Memorandum and Articles of Association. This includes amendments to increase or reduce our authorized capital stock. Our ability to amend our Memorandum and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in control of the Company, including a tender offer to purchase our common shares at a premium over the then current market price. Provisions in respect of the holding of general meetings and extraordinary general meetings are set out in Paragraphs 68 through 77 of the Articles and under the International Business Companies Act. The directors may convene meetings of the members at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of members holding more than 30% of the votes of our outstanding voting shares. British Virgin Islands law and our Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote our securities. There are no provisions in the Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed. A copy of our Memorandum and Articles of Association, as amended, has been filed as an exhibit to the Registration Statement on Form F-2 (SEC File No. 333-32524). 50 C. Material Contracts. The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which Bonso or any subsidiary of Bonso is a party, for the two years immediately preceding the filing of this report: We entered into a Stock Purchase Agreement with Augusta Technologie AG relating to the acquisition of Korona Haushaltswaren GmbH & Co. KG dated April 25, 2001. We entered into a Stock Purchase Agreement dated July 22, 2002, with Modus Enterprise International Inc. (a wholly-owned subsidiary of Bonso), and a third party relating to the acquisition of 51% of Gram Precision. We entered into an employment agreement with Anthony So our President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer effective April 1, 2003. This agreement is attached hereto as Exhibit 4.3. We entered into an employment agreement with Cathy Kit Teng Pang our Director of Finance effective April 1, 2003. This agreement is attached hereto as Exhibit 4.4. We entered into an employment agreement with Kim Wah Chung our Director of Research and Development effective April 1, 2003. This agreement is attached hereto as Exhibit 4.5. We signed a credit facility letter on March 31, 2003 with Bank of America (Asia) Ltd. for a HK $13,000,000 overdraft and import and export line of credit. A copy of this letter is attached hereto as Exhibit 4.6. We signed a credit facility letter on April 8, 2003 and amended the letter of April 22, 2003 (exhibit 4.7) with Standard Chartered Bank for a HK $53,000,000 trade finance facilities agreement. A copy of this letter is attached hereto as Exhibit 4.8. This letter amended previous agreements with Standard Chartered Bank on May 17, 2002, May 11, 2001 and March 5, 2001. Copies of these agreements are included as Exhibits to this filing as Exhibits 4.9, 4.10 and 4.11 respectively. We signed a Banking Facility Letter, dated April 25, 2003 between Bonso and DBS Kwong on Bank Limited for a HK $11,500,000 overdraft, letter of credit, trust receipt, export invoice financing and negotiation under documentary credit. A copy of this letter is attached hereto as Exhibit 4.12. This letter amended a previous agreement dated May 16, 2002 attached hereto as Exhibit 4.13. We signed a Banking Facility Letter, dated May 8, 2003 between Korona, Bonso and Commerzbank Aktiengesellschaft Bank for a EURO 1,900,000 line of credit. A copy of this letter is attached hereto as Exhibit 4.14. We signed a Banking Facility Letter, dated May 21, 2003 between Bonso and Hang Seng Bank Limited for a HK $49,000,000 letter of credit, trust receipt facility, export D/P bills, export trade loan and overdraft facility. A copy of this letter is attached hereto as Exhibit 4.15. 51 We signed a Banking Facility Letter, dated April 8, 2003 between Bonso and the Hong Kong and Shanghai Banking Corporation Limited for a HK $20,000,000 overdraft facility, import/export facility, trust receipt facility and a D/A bill facility. A copy of this letter is attached hereto as Exhibit 4.16. We signed a Banking Facility Letter, dated April 8, 2003 between Bonso and the Hong Kong and Natexis Banques Populaires Hong Kong Branch for a U.S. $2,000,000 Export Credit Insurance Corporation discount invoices, negotiation of export letter of credit discrepencies, and export bills. A copy of this letter is attached hereto as Exhibit 4.17. D. Exchange Controls. There are no exchange control restrictions on payments of dividends on our common stock or on the conduct of our operations either in Hong Kong, where our principal executive offices are located, or the British Virgin Islands, where we are incorporated. Other jurisdictions in which we conduct operations may have various exchange controls. Taxation and repatriation of profits regarding our 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 our financial results. There are no material British Virgin Islands laws that impose foreign exchange controls on us or that affect the payment of dividends, interest or other payments to holders of our securities who are not residents of the British Virgin Islands. British Virgin Islands law and our Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote our securities. E. Taxation. Under current British Virgin Islands law, we are not subject to tax on our income. Most of our subsidiaries' profits accrue in Hong Kong, Canada and Germany where the corporate tax rates are currently 16%, 38% and 26.375%, respectively. However, as Korona is a partnership, it is only subject to 14.17% of the local statutory rate in Germany. There is no tax payable in Hong Kong on offshore profit or on dividends paid to Bonso Electronics Limited by its subsidiaries or to us by Bonso Electronics Limited. Therefore, our overall effective tax rate may be lower than that of most United States corporations; however, this advantage could be materially and adversely affected by changes in the tax laws of the British Virgin Islands, Germany, Hong Kong or China. Our subsidiary Bonso Electronics (Shenzhen) Company Limited was fully exempt from state income tax in the PRC for the first two years starting from the first profit making year followed by a 50% reduction over the ensuing three years. The first profit-making year of Bonso Electronics (Shenzhen) Company Limited was deemed to be the fiscal year ended December 31, 1998. Therefore, we have been subject to income tax at the rate of 7.5% in the PRC from January 1, 2000 to December 31, 2002. Effective January 1, 2003, we became subject to tax at the full rate of 15%. 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 us to individuals are not subject to tax as long as the recipient is not a resident of the British Virgin Islands. If we were to pay a dividend, we would not be liable to withhold any tax, but shareholders would receive gross dividends, if any, irrespective of their residential or national status. 52 Dividends, if any, paid to any United States resident or citizen shareholder are treated as dividend income for United States federal income tax purposes. Such dividends are not eligible for the 70% dividends-received deduction allowed to United States corporations on dividends from a domestic corporation under Section 243 of the United States Internal Revenue Code of 1986 (the "Internal Revenue Code"). Various Internal Revenue Code provisions impose special taxes in certain circumstances on non-United States corporations and their shareholders. You are urged to consult your tax advisor with regard to such possibilities and your own tax situation. In addition to United States federal income taxation, shareholders may be subject to state and local taxes upon their receipt of dividends. F. Dividends and Paying Agents. Not Applicable. G. Statement by Experts. Not Applicable. H. Documents on Display. You may read and copy documents referred to in this Annual Report on Form 20-F that have been filed with the Securities and Exchange Commission (the "Commission") at the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission filings by going to the Commission's website at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Annual Report on Form 20-F. I. Subsidiary Information. Not Applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk We are exposed to a certain level of foreign currency exchange risk and interest rate risk. Foreign Currency Risk The majority of our net sales are priced in United States Dollars. Our costs and expenses are priced in United States Dollars, Hong Kong Dollars, Chinese Renminbi, Euros and Japanese Yen. Accordingly, the competitiveness of 53 our products relative to products produced domestically (in foreign markets) may be affected by the performance of the United States Dollar compared with that of our foreign customers' currencies. Additionally, we are exposed to the risk of foreign currency transaction and translation losses which might result from adverse fluctuations in the values of the Hong Kong Dollar, the Chinese Renminbi, the Euro, the Canadian Dollar and the Japanese Yen. These factors are also applicable as a result of our acquisition of Gram Precision in the fiscal year ended March 31, 2003 and Korona in the fiscal year ended March 31, 2002. Recent fluctuations in the value of the United States dollar versus other currencies (primarily the Canadian dollar and the Euro), and fluctuations in the relative values of those currencies, have had a negative impact upon our financial performance. A significant portion of Gram Precision's net sales were in paid in Canadian Dollars and Euros, while Gram Precision's costs were paid in United States Dollars and Canadian Dollars. The majority of Korona's net sales were in German Marks prior to January 1, 2002 and are currently in Euros, while a significant portion of Korona's costs and expenses are paid for in United States Dollars and Euros. Further fluctuation of the value of the Canadian Dollar or the Euro compared to the United States Dollar could expose us to additional risk of foreign currency transaction and translation losses. A summary of our debts as at March 31, 2003 which were subjected to foreign currency risk is as below: March 31, Currencies: 2003 ----------- ---- Euro 4,369,800 Hong Kong Dollars 1,924,582 Japanese Yen 179,828 United States Dollars 4,315,888 Canadian Dollars 325,143 ---------- 11,115,241 ---------- All the balances above are due within one year. Fluctuations in the value of the Hong Kong Dollar have not been significant since October 17, 1983, when the Hong Kong government tied the value of the Hong Kong Dollar to that of the United States Dollar. However, there can be no assurance that the value of the Hong Kong Dollar will continue to be tied to that of the United States Dollar. China adopted a floating currency system on January 1, 1994, unifying the market and official rates of foreign exchange. China approved current account convertibility of the Chinese Renminbi on July 1, 1996, followed by formal acceptance of the International Monetary Fund's Articles of Agreement on December 1, 1996. These regulations eliminated the requirement for prior government approval to buy foreign exchange for ordinary trade transactions, though approval is still required to repatriate equity or debt, including interest thereon. There can be no assurance that these currencies will remain stable or will fluctuate to our benefit. 54 To manage our exposure to foreign currency and translation risks, we may purchase currency exchange forward contracts, currency options, or other derivative instruments, provided such instruments may be obtained at suitable prices. Management intends to take corrective action in an effort to attempt to minimize any negative impact foreign currency fluctuations may have upon us. However, to date we have not done so. If we are unsuccessful in hedging against currency fluctuations, it may have a material adverse effect on us. Interest Rate Risk Our interest rate risk primarily arises from our long-term debt and our general banking facilities. At March 31, 2003 our total long-term debt was $778,712, and we had utilized approximately $11,115,241 of our total banking facilities of $27,849,377. Based on the maturity profile and composition of our long-term debt and general banking facilities, including the fact that our banking facilities are at variable interest rates, we estimate that changes in interest rates will not have a material impact on our operating results or cash flows. We intend to manage our interest rate risk through appropriate borrowing strategies. We have not entered into interest rate swap or risk management agreements; however, it is possible that we may do so in the future. A summary of our debts as at March 31, 2003 which were subjected to variable interest rates is as below: March 31, Interest 2003 rate ---- ---- Notes payable $4,818,971 Prime rate minus 0.5% to prime rate or HIBOR + 2.5% Short-term loans $4,727,988 Prime rate minus 0. 5% or HIBOR + 2.25% to HIBOR + 2.5% HIBOR: Hong Kong Interbank Offered Rate Prime rate: The prime rate as determined by the Hong Kong Bankers Association All the balances above are due within one year. For further information concerning our banking facilities the interest rates payable, and repayment terms please see Note 7 to our Consolidated Financial Statements. Item 12. Description of Securities Other Than Equity Securities Not applicable. 55 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies. None. Item 14. Material Modifications to the rights of Security Holders and Use of Proceeds. None. Item 15. Controls and Procedures Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in US Exchange Act Rules 13a-14(c)) as of the end of the period covered by this Annual Report, have concluded that, as of such date, the Company's disclosure controls and procedures were effective to ensure that material information relating to the Company was made known to them by others within the Company particularly during the period in which this Form 20-F was being prepared. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date our Chief Executive Officer and our Chief Financial Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls requiring corrective actions. Item 16. Reserved. PART III Item 17. Financial Statements. Not applicable. Item 18. Financial Statements. The following Financial Statements are filed as part of this Annual Report: Page ---- Index to Consolidated Financial Statements F-1 Report of Independent Auditors F-2 Consolidated Balance Sheets as of March 31, 2002 and 2003 F-3 Consolidated Statements of Income (Loss) and Comprehensive F-4 Income (Loss) for the years ended March 31, 2001, 2002 and 2003 Consolidated Statements of Changes in Shareholders' Equity F-5 for the years ended March 31, 2001, 2002 and 2003 Consolidated Statements of Cash Flows for the years ended F-6 March 31, 2001, 2002 and 2003 Notes to Consolidated Financial Statements F-8 through F-35 56 Item 19. Exhibits. 4.1 Stock Purchase Agreement between Bonso Electronics International Inc. and Augusta Technologie AG relating to the acquisition of Korona Haushaltswaren GmbH & Co. KG dated April 25, 2001 (1) 4.2 Stock Purchase Agreement dated July 22, 2002, between Bonso Electronics International Inc., Modus Enterprise International Inc. (a wholly-owned subsidiary of Bonso), and Mohan Thadani (2) 4.3 Anthony So Employment Agreement effective April 1, 2003 4.4 Cathy Kit Teng Pang Employment Agreement effective April 1, 2003 4.5 Kim Wah Chung Employment Agreement effective April 1, 2003 4.6 Banking Facility Letter, as amended, dated March 31, 2003 between Bonso and Bank of America (Asia) Ltd. 4.7 Banking Facility Letter, as amended, dated April 22, 2003 between Bonso and Standard Charter Bank 4.8 Banking Facility Letter, as amended, dated April 8, 2003 between Bonso and Standard Charter Bank 4.9 Banking Facility Letter, dated March 5, 2001 between Bonso and Standard Charter Bank 4.10 Banking Facility Letter, as amended, dated May 11, 2001 between Bonso and Standard Charter Bank 4.11 Banking Facility Letter, as amended, dated May 17, 2002 between Bonso and Standard Charter Bank 4.12 Banking Facility Letter, dated May 16, 2002 between Bonso and DBS Kwong on Bank Limited 4.13 Banking Facility Letter, as amended, dated April 25, 2003 between Bonso and DBS Kwong on Bank Limited 4.14 Banking Facility Letter, dated May 8, 2003 between Bonso, Korona and Commerzbank Aktiengesellschaft Bank 4.15 Banking Facility Letter, dated May 21, 2003 between Bonso and Hang Seng Bank Limited 4.16 Banking Facility Letter, dated April 8, 2003 between Bonso and the Hong Kong and Shanghai Banking Corporation Limited 57 4.17 Banking Facility Letter, dated February 13, 2003 between Bonso and Natexis Banques Populaires Hong Kong Branch 12.1 Certification Pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 12.2 Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 12.3 Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. - ---------- (1) This document has been previously filed as Exhibit 4.1 to the Registrant's Annual Report for the fiscal year ending March 31, 2001 on Form 20-F and is hereby incorporated by reference. (2) This document has been previously filed as Exhibit 4.1 to the Registrant's Annual Report for the fiscal year ending March 31, 2002 on Form 20-F and is hereby incorporated by reference. 58 SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. BONSO ELECTRONICS INTERNATIONAL INC. Dated: July 24, 2003 /s/ Anthony So ------------- ------------------------------------- Anthony So, President 59 Consolidated Financial Statements Bonso Electronics International Inc. (Incorporated in the British Virgin Islands) and Subsidiaries March 31, 2003 Index to Consolidated Financial Statements Contents Pages Report of Independent Auditors...............................................F-2 Consolidated Balance Sheets as of March 31, 2002 and 2003....................F-3 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended March 31, 2001, 2002 and 2003............................F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 2001, 2002 and 2003..........................................F-5 Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2002 and 2003..........................................F-6 - F-7 Notes to Consolidated Financial Statements............................F-8 - F-35 F-1 Report of Independent Auditors ------------------------------ Board of Directors and Shareholders of Bonso Electronics International Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income (loss) and comprehensive income (loss), of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of Bonso Electronics International Inc. and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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 financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers - -------------------------- PricewaterhouseCoopers Hong Kong, July 18, 2003 F-2
Bonso Electronics International Inc. and Subsidiaries Consolidated Balance Sheets (Expressed in United States Dollars) March 31 -------------------------- 2002 2003 ----------- ----------- $ $ Assets Current assets Cash and cash equivalents 1,878,156 3,633,528 Restricted cash deposits 3,972,542 4,104,168 Trade receivables, net 6,838,576 6,191,627 Inventories 8,861,952 12,656,518 Notes receivable 686,258 358,188 Tax recoverable -- 52,087 Deferred income tax assets - current 27,219 38,348 Other receivables, deposits and prepayments 822,646 1,166,234 ----------- ----------- Total current assets 23,087,349 28,200,698 ----------- ----------- Deposits 16,038 551,399 Deferred income tax assets - non current 84,422 128,887 Goodwill 204,217 1,100,962 Brand name, net 2,797,392 2,597,392 Property, plant and equipment Leasehold land and buildings 12,567,309 12,505,141 Plant and machinery 11,995,871 12,801,183 Furniture, fixtures and equipment 4,239,602 5,251,171 Motor vehicles 343,068 343,068 ----------- ----------- 29,145,850 30,900,563 Less: accumulated depreciation and amortization (10,884,191) (14,569,165) ----------- ----------- Net property, plant and equipment 18,261,659 16,331,398 ----------- ----------- Total assets 44,451,077 48,910,736 ----------- ----------- Liabilities and shareholders' equity Current liabilities Bank overdraft -- 216,410 Notes payable 2,857,533 4,818,971 Accounts payable 4,122,443 6,350,527 Accrued charges and deposits 2,022,472 1,827,286 Income taxes payable 83,614 -- Short-term loans 3,754,477 4,727,988 Current portion of long-term debt and capital lease obligations 647,501 482,940 ----------- ----------- Total current liabilities 13,488,040 18,424,122 ----------- ----------- Long-term debt and capital lease obligations, net of current maturities 317,009 606,488 Commitments and contingencies (Notes 6(b) and 12) Minority interests -- 55,275 Redeemable common stock Redeemable common stock par value $0.003 per share - issued and outstanding shares: 2002 - 180,726; 2003 - 180,726 1,445,808 1,445,808 Shareholders' equity Preferred stock par value $0.01 per share - authorized shares - 10,000,000 - issued and outstanding shares: 2002-0; 2003-0 -- -- Common stock par value $0.003 per share - authorized shares - 23,333,334 - issued and outstanding shares: 2002 - 5,404,133; 2003 - 5,529,133 16,208 16,583 Additional paid-in capital 21,152,502 21,458,376 Deferred consultancy fee (381,420) -- Retained earnings 8,176,958 6,533,224 Accumulated other comprehensive income 235,972 409,692 Common stock held in treasury, at cost -19.900 shares -- (38,832) ----------- ----------- 29,200,220 28,379,043 ----------- ----------- Total liabilities and shareholders' equity 44,451,077 48,910,736 ----------- ----------- See notes to these consolidated financial statements F-3 Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Expressed in United States Dollars) Year ended March 31, ----------------------------------------- 2001 2002 2003 ----------- ----------- ----------- $ $ $ Net sales 29,566,680 53,303,101 46,330,054 Cost of sales 22,400,017 40,192,242 35,527,943 ----------- ----------- ----------- Gross margin 7,166,663 13,110,859 10,802,111 Selling expenses 382,422 2,476,285 2,466,653 Salaries and related costs 2,333,776 3,880,274 4,563,453 Research and development expenses 297,740 426,364 392,926 Administration and general expenses 2,410,872 3,411,336 3,956,858 Amortization of brand name -- 202,608 200,000 ----------- ----------- ----------- Income (loss) from operations 1,741,853 2,713,992 (777,779) Interest income 458,328 166,723 85,178 Interest expenses (337,526) (645,045) (532,624) Foreign exchange gains (losses) 42,722 (39,954) (96,592) Other income 204,585 181,272 169,456 Consultancy fee (381,420) (381,420) (381,420) ----------- ----------- ----------- Income (loss) before income taxes and minority interest 1,728,542 1,995,568 (1,533,781) Income tax expense (124,743) (189,962) (37,314) ----------- ----------- ----------- Net income (loss) before minority interest 1,603,799 1,805,606 (1,571,095) Minority interest -- -- (72,639) ----------- ----------- ----------- Net income (loss) 1,603,799 1,805,606 (1,643,734) Other comprehensive income, net of tax: Foreign currency translation adjustments net of tax -- -- 173,720 ----------- ----------- ----------- Comprehensive income (loss) 1,603,799 1,805,606 (1,470,014) ----------- ----------- ----------- Earnings (loss) per share Basic $ 0.29 $ 0.32 $ (0.29) ----------- ----------- ----------- Diluted $ 0.28 $ 0.32 $ (0.29) ----------- ----------- ----------- See notes to these consolidated financial statements F-4 Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Expressed in United States Dollars) Common stock -------------------------- Promissory note receivable Shares Additional from Common issued and Amount paid-in shareholder Stock held outstanding outstanding capital (note 8(b)) at treasury ----------- ----------- ----------- ----------- ----------- $ $ $ $ Balance, March 31, 2000 5,712,610 17,133 22,325,500 (1,430,000) -- Net income -- -- -- -- -- Common stock issued upon exercise of share options 7,023 21 (21) -- -- Deferred consultancy fee (note 16(c)) -- -- 1,144,260 -- -- Amortization of deferred consultancy fee (note 16(c)) -- -- -- -- Common stock issued upon exercise of warrants 50,000 150 399,850 -- -- Cash dividends declared on common stock ($0.1 per share) -- -- -- -- -- Purchase of common stock -- -- -- -- (1,185,249) Retirement of common stock (73,500) (220) (586,029) -- 586,249 Cancellation of common stock subscribed (200,000) (600) (1,429,400) 1,430,000 -- ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2001 5,496,133 16,484 21,854,160 -- (599,000) Net income -- -- -- -- -- Amortization of deferred consultancy fee (note 16(c)) -- -- -- -- -- Cash dividends declared on common stock ($0.1 per share) -- -- -- -- -- Purchase of common stock -- -- -- -- (102,934) Retirement of common stock (92,000) (276) (701,658) -- 701,934 ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2002 5,404,133 16,208 21,152,502 -- -- Net (loss) -- -- -- -- -- Amortization of deferred consultancy fee (note 16(c)) -- -- -- -- -- Common stock issued upon acquisition of a subsidiary 125,000 375 305,874 -- -- Purchase of common stock -- -- -- -- (38,832) Foreign exchange translation adjustment -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2003 5,529,133 16,583 21,458,376 -- (38,832) ----------- ----------- ----------- ----------- ----------- Table continues on following page. F-5 Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Expressed in United States Dollars) (Continued) Accumulated other comprehensive Deferred income-foreign Total consultancy Retained currency shareholders' fee earnings adjustments equity ----------- ----------- ----------- ----------- $ $ $ $ Balance, March 31, 2000 -- 5,873,656 235,972 27,022,261 Net income -- 1,603,799 -- 1,603,799 Common stock issued upon exercise of share options -- -- -- -- Deferred consultancy fee (note 16(c)) (1,144,260) -- -- -- Amortization of deferred consultancy fee (note 16(c)) 381,420 -- -- 381,420 Common stock issued upon exercise of warrants -- -- -- 400,000 Cash dividends declared on common stock ($0.1 per share) -- (549,613) -- (549,613) Purchase of common stock -- -- -- (1,185,249) Retirement of common stock -- -- -- -- Cancellation of common stock subscribed -- -- -- -- ----------- ----------- ----------- ----------- Balance, March 31, 2001 (762,840) 6,927,842 235,972 27,672,618 Net income -- 1,805,606 -- 1,805,606 Amortization of deferred consultancy fee (note 16(c)) 381,420 -- -- 381,420 Cash dividends declared on common stock ($0.1 per share) -- (556,490) -- (556,490) Purchase of common stock -- -- -- (102,934) Retirement of common stock -- -- -- -- ----------- ----------- ----------- ----------- Balance, March 31, 2002 (381,420) 8,176,958 235,972 29,200,220 Net (loss) -- (1,643,734) -- (1,643,734) Amortization of deferred consultancy fee (note 16(c)) 381,420 -- -- 381,420 Common stock issued upon acquisition of a subsidiary -- -- -- 306,249 Purchase of common stock -- -- -- (38,832) Foreign exchange translation adjustment -- -- 173,720 173,720 ----------- ----------- ----------- ----------- Balance, March 31, 2003 -- 6,533,224 409,692 28,379,043 ----------- ----------- ----------- ----------- See notes to these consolidated financial statements F-5 (Continued) Bonso Electronics International Inc. and Subsidiaries Consolidated Statements of Cash Flows (Expressed in United States Dollars) Year Ended March 31, -------------------------------------- 2001 2002 2003 ---------- ---------- ---------- $ $ $ Cash flows from operating activities Net income (loss) 1,603,799 1,805,606 (1,643,734) Adjustments to reconcile net income to net cash provided by operating activities : Depreciation 2,019,621 2,738,937 3,297,608 Amortization 329,564 548,978 550,300 Consultancy fee 381,420 381,420 381,420 Minority interest -- -- 72,639 Other 124,743 8,040 152,929 Changes in assets and liabilities: Trade receivables (1,857,893) 499,236 1,077,932 Other receivables, deposits and prepayments (384,007) (99,911) (111,441) Notes receivable (561,774) 400,691 328,070 Inventories 865,373 (932,725) (2,314,599) Accounts payable 407,603 352,023 2,056,513 Accrued charges and deposits 147,128 (203,540) (2,094,096) Other 51,315 (26,286) (45,497) ---------- ---------- ---------- Net cash provided by operating activities 3,126,892 5,472,469 1,708,044 ---------- ---------- ---------- Cash flows from investing activities Restricted cash deposits (801,946) (1,098,644) (131,626) Deposits for property, plant and equipment (70,511) (16,038) (551,399) Proceeds from disposal of property, plant and Equipment 441 26,555 250,103 Acquisition of property, plant and equipment (5,846,296) (756,010) (1,912,056) Acquisition of a subsidiary, net of cash acquired -- (3,044,184) (519,805) ---------- ---------- ---------- Net cash used in investing activities (6,718,312) (4,888,321) (2,864,783) ---------- ---------- ---------- Cash flows from financing activities Issue of shares on exercise of warrants and options 400,000 -- -- Repurchase of common stock (1,185,249) (102,934) (38,832) Proceeds from long-term borrowings -- -- 488,389 Principal payments under long-term debt (65,016) (38,451) (65,245) Capital lease payments (526,227) (681,748) (623,592) Net (repayment) advance under banking facilities 2,880,518 (2,648,766) 3,151,359 Capital contribution by minority shareholder -- -- 32 Payment of dividends to stockholders (549,613) (556,490) -- ---------- ---------- ---------- Net cash (used in) provided by financing activities 954,413 (4,028,389) 2,912,111 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (2,637,007) (3,444,241) 1,755,372 Cash and cash equivalents, beginning of year 7,959,404 5,322,397 1,878,156 ---------- ---------- ---------- Cash and cash equivalents, end of year 5,322,397 1,878,156 3,633,528 ---------- ---------- ---------- See notes to these consolidated financial statements F-6 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Expressed in United States Dollars) 2001 2002 2003 --------- --------- --------- $ $ $ Supplemental disclosure of cash flow information Cash paid during the year for: Interest paid 337,526 645,045 532,624 Income tax paid, net of refund -- 204,169 249,873 Non-cash investing and financing activities Property acquired under capital leases -- 743,821 -- Acquisition: Fair value of net assets acquired -- 1,294,512 (18,107) Cash acquired -- 8,737 (150,728) See notes to these consolidated financial statements 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 Bonso Electronics International Inc. ("the Company") and its subsidiaries (collectively, the "Group") are engaged in the designing, manufacturing and selling of a comprehensive line of electronic scales and weighing instruments, electronic consumer products, health care products and telecommunication products. Effective May 1, 2001, the Group acquired 100% of the equity of Korona Haushaltswaren Gmblt & Co. KG ("Korona") from Augusta Technologies AG ("Augusta"). Korona is a German company engaged in the distribution of electronic scales in Europe. Effective August 1, 2002, the Group acquired 51% of the equity of Gram Precision Scales Inc. ("Gram"). Gram is a Canadian company engaged in the distribution of electronic scales in North America and Europe. 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, and the valuation of long-lived assets. Actual results could differ from those estimates. The significant accounting policies are as follows: (a) Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries (hereinafter collectively referred to as the "Group"). All significant intercompany accounts and transactions are eliminated in consolidation. The companies acquired during the financial period have been consolidated from the date on which control of the net assets and operations was transferred to the Group. Acquisitions of companies are accounted for using the purchase method of accounting. Goodwill represents the excess of the purchase cost over the fair value of assets acquired less liabilities assumed of acquired companies. During the financial year ending March 31, 2003, the Group adopted Statement of Financial Accounting Standard ("SFAS") No. 142 "Goodwill and Other Intangible Assets", which requires discontinuance of goodwill amortization and an annual impairment review. Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down to its recoverable amount. (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. F-8 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 1 Description of business and significant accounting policies (Continued) (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. Inventories are reduced by reserves for obsolescence and slow moving parts. (d) Revenue recognition Revenue is recognized on the transfer of title of ownership, which generally coincides with the time when the products are shipped to customers. (e) Impairment of long lived assets Long-lived assets held and used by the Group and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Group evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets calculated using a discounted future cash flows analysis. Goodwill is subject to an annual impairment review. (f) Brand name Brand name acquired as part of the purchase of a business is capitalized based on the estimated fair value as at the date of acquisition and amortized using the straight line method over the related estimated useful life of 15 years. Where an indication of impairment exists, the carrying amount of the brand name is assessed and written down to its recoverable amount. (g) 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) 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% Furniture, fixtures and equipment - 20% Motor vehicles - 20% (iii) The cost of major improvements and betterments is capitalized, whereas the cost of maintenance and repairs is expensed in the year incurred. (iv) Any gain or loss on disposal is included in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). F-9 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 1 Description of business and significant accounting policies (Continued) (h) Trade receivables Provision is made against trade receivables to the extent that collection is considered to be doubtful. (i) Research and development costs Research and development costs are expensed in the financial period during which they are incurred. (j) Advertising Advertising costs are expensed as incurred and are included within selling expenses. (k) Deferred income taxes Amounts in the consolidated financial statements related to income taxes are calculated using the principles of 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. (l) Foreign currency translations (i) The functional currency of the Company, one of its Hong Kong subsidiaries and two subsidiaries in the United States is the United States dollar, the functional currency of the other Hong Kong subsidiaries is the Hong Kong dollar and the functional currency of the German subsidiary is the Euro. The functional currency of the Group's subsidiary in the People's Republic of China (the "PRC") is the Renminbi, the national currency of the PRC. The functional currency of the Group's subsidiary in Canada is the Canadian Dollar. The functional currency of the Group's subsidiary in the United Kingdom is the sterling. The Group's functional currency is the United States dollar. (ii) The financial statements of foreign subsidiaries where the United States dollar is the functional currency and which have certain transactions denominated in non-United States dollar currencies are remeasured into the United States dollar. The remeasurement of local currencies into United States dollars creates transaction adjustments which are included in net income (loss). (iii) The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into United States 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 these financial statements are reflected as a separate component of shareholders' equity in accumulated other comprehensive income. F-10 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 1 Description of business and significant accounting policies (Continued) (m) Stock options and warrants Stock options are granted to employees, directors and non-employee directors and warrants are issued to certain shareholders. Upon exercise of the options and warrants, the holder can acquire ordinary shares of the Group at an exercise price determined by the board of directors. The options are exercisable based on the vesting terms stipulated in the option schemes. The Group follows the intrinsic method of accounting for these options. For options and warrants granted with an exercise price being equal or higher than the market price of the common stock on the date of grant, no compensation expense is recognized in the financial statements. (n) Warrants issued for non - cash consideration Warrants issued in consideration for services rendered are recorded at fair value and a charge equivalent to fair value is included in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). (o) Recent accounting pronouncements In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard does not have a material impact on the Group's financial statements. In November 2002, the FASB issued Interpretation No. ("FIN") 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees and indemnifications that it has issued and clarifies that a guarantor is required to recognize, at the inception of a guarantee or indemnification, a liability for the fair value of the obligation undertaken in issuing the guarantee or indemnification. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees and indemnifications issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statements ending after December 15, 2002. The Group believes the adoption of FIN 45 has not significantly impacted its current disclosures and is currently assessing the impact of FIN 45's initial recognition and measurement provisions on its financial position and results of operations. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure--an Amendment of FAS 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends APB Opinion No. 28 "Interim Financial Reporting" to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for financial statements for fiscal years ending after and for interim period beginning December 15, 2002. The adoption of this standard does not have a material impact on the Group's financial statements. In May 2003, the FASB issued SFAS No.150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with SFAS No.150, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Group is currently assessing the impact of this statement on its financial position and disclosures. F-11 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 comprises: 2001 2002 2003 -------- -------- -------- $ $ $ Balance, April 1 -- -- 220,838 Exchange adjustment -- -- 28,549 Acquisition of subsidiary -- -- 20,027 Additions charged to expense -- 220,838 290,556 Write-off -- -- (138,631) -------- -------- -------- Balance, March 31 -- 220,838 421,339 -------- -------- -------- 3 Inventories (a) The components of inventories are as follows: 2002 2003 ----------- ----------- $ $ Raw materials 4,287,203 5,720,006 Work in progress 1,012,311 3,339,078 Finished goods 4,131,054 4,181,709 ----------- ----------- 9,430,568 13,240,793 Inventories reserves (568,616) (584,275) ----------- ----------- 8,861,952 12,656,518 ----------- ----------- (b) Changes in the inventories reserves comprises: 2001 2002 2003 -------- -------- -------- $ $ $ Balance, April 1 323,126 339,475 568,616 Additions charged to expense 210,362 229,141 18,451 Write-off (194,013) -- (2,792) -------- -------- -------- Balance, March 31 339,475 568,616 584,275 -------- -------- -------- F-12 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 4 Long-term debt Long-term debt comprises:
March 31 -------------------- 2002 2003 -------- -------- $ $ Bank loan for acquisition of fixed assets, denominated in United States dollars, due on February 12, 2006 -- 466,667 Long term bank loan at bank's floating base rate + 4%, denominated in Canadian dollars, due on March 2006 -- 108,733 Bank loans at 5.3% per annum denominated in Renminbi 30,231 -- Promissory note for the acquisition of Gram due on March 31, 2008 (see Note 10) -- 203,312 Less: current portion (30,231) (235,000) -------- -------- Long-term debt, less current maturities -- 543,712 -------- --------
Long term debt principal repayments are due as follows: $ 2004 235,000 2005 235,000 2006 221,667 2007 46,381 2008 40,664 -------- Total $778,712 ======== 5 Taxation (a) The companies comprising the Group are subject to tax on an entity basis on income arising in or derived from Hong Kong, the PRC, Germany, the United States, the United Kingdom and Canada. The current rates of taxation of the subsidiaries operating in Hong Kong and, Shenzhen in the PRC are 16% and 15% respectively. The subsidiary of the Group in Germany is registered as a partnership in Germany which is subject to a statutory rate of 14.17%. The Group is not subject to income taxes in the British Virgin Islands. The statutory tax rates in the United States, the United Kingdom and Canada are 15%, 19.64%, and 38% respectively. (b) Pursuant to the relevant income tax laws in the PRC, Bonso Electronics (Shenzhen) Co., Ltd, a wholly owned subsidiary of the Company, is fully exempt from PRC state income tax for two years starting from the first profit-making year followed by a 50% reduction over the ensuing three years. The first profit-making year of Bonso Electronics (Shenzhen) Co., Ltd. was deemed to be the financial year ended December 31, 1998. (c) The components of the income tax benefit (expense) are as follows: 2001 2002 2003 -------- -------- -------- $ $ $ Deferred income tax benefit (expense) (28,937) 14,206 76,858 Current income tax expense (95,806) (204,168) (114,172) -------- -------- -------- Total income tax expense (124,743) (189,962) (37,314) -------- -------- -------- F-13 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 5 Taxation (Continued) (d) Deferred tax assets are comprised of the following: 2002 2003 -------- -------- $ $ Deferred tax liabilities Accelerated depreciation (7,147) (33,626) Deferred tax assets Tax loss carry forwards 85,503 326,158 Inventories reserves 43,434 38,348 Less: Valuation allowance (10,149) (163,645) -------- -------- 118,788 200,861 -------- -------- Net deferred tax assets 111,641 167,235 Less: current portion (27,219) (38,348) -------- -------- Non current portion 84,422 128,887 -------- -------- As of March 31, 2003, the Group had accumulated tax losses amounting to $2,224,289 (the tax effect thereon is $326,157), which may be carried forward and applied to reduce future taxable income which is earned in or derived from Hong Kong and Germany. 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 not be utilized by the Group or its subsidiaries. As of March 31, 2003, the Group's accumulated tax losses have no definite period of expiration. (e) Changes in the valuation allowance consist of: 2001 2002 2003 ------- ------- ------- $ $ $ Balance, April 1 15,420 10,149 10,149 Reduction credited to income tax expense (5,271) -- -- Addition debited to income tax expense -- -- 153,496 ------- ------- ------- Balance, March 31 10,149 10,149 163,645 ------- ------- ------- F-14 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 5 Taxation (Continued) (f) The actual income tax expense attributable to earnings for the years ended March 31, 2001, 2002 and 2003 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:
2001 2002 2003 -------- -------- -------- $ $ $ Hong Kong statutory tax rate 16.0% 16.0% 16.0% Income tax (expense) credit at the Hong Kong statutory tax rate (276,567) (319,291) 245,405 Offshore profit not subject to income tax 171,520 197,676 27,544 Expenses not deductible for income tax purposes (13,480) (48,049) (66,920) Changes in valuation allowance 5,271 -- (153,496) Over (under) provision for Hong Kong tax in prior years 3,194 (18,803) (91,129) Income tax rate differentials (14,681) (1,495) (27,047) Tax losses utilized -- -- 28,329 -------- -------- -------- Total income tax expense (124,743) (189,962) (37,314) -------- -------- -------- 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 ------------------------ ------------------------ 2002 2003 2002 2003 ---------- ---------- ---------- ---------- $ $ $ $ Cost 110,065 110,065 2,626,620 939,049 Less: accumulated amortization (7,338) (29,351) (999,432) (392,966) ---------- ---------- ---------- ---------- 102,727 80,714 1,627,188 546,083 ---------- ---------- ---------- ---------- F-15
Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 6 Leases (Continued) (a) (Continued) During the years ended March 31, 2001, 2002 and 2003, the Group entered into additional capital lease obligations amounting to $Nil, $743,821 and $Nil respectively. Future minimum payments under capital leases as of March 31, 2003 with an initial term of more than one year are as follows: $ 2003 278,444 2004 70,381 -------- Total minimum lease payments 348,825 Less: amount representing interest (38,109) -------- Present value of net minimum lease payments (including current portion of $247,940 as of March 31, 2003) 310,716 -------- (b) Operating leases As of March 31, 2003, future minimum lease commitments in respect of noncancellable operating leases for factory, office premises and staff quarters in Hong Kong, the PRC, Germany, the United States, the United Kingdom and Canada are as follows: $ 2004 379,131 2005 506,772 2006 147,399 2007 125,043 2008 119,505 Thereafter 282,529 --------- 1,560,379 --------- Rent expense for all operating leases amounted to $123,124, $286,351 and $311,417 for the years ended March 31, 2001, 2002 and 2003, respectively. F-16 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 7 Banking facilities As of March 31, 2003, the Group had general banking facilities for bank overdrafts, letters of credit, notes payable, short-term loans and long-term loans. The facilities are interchangeable with total amounts available of $27,849,377 (2002: $25,430,340). The general banking facilities utilized by the Group are denominated in United States dollars, Hong Kong dollars, Renminbi, Japanese Yen and Canadian dollars. The Group's general banking facilities, expressed in United States Dollars, are further detailed as follows:
Amount available Amount utilized Terms of banking facilities as of March 31 March 31 March 31, 2003 ------------------------ ---------------------- --------------------------------- 2002 2003 2002 2003 Interest Repayment $ $ $ $ rate terms ------------------------ ---------------------- --------------------------------- Import and export Facilities Letters of credit 12,012,821 12,756,410 3,308,973 5,595,443 Including sublimit of: Notes payable 12,012,821 12,756,410 2,857,533 4,818,971 Prime rate minus Repayable in 0.5% to Prime full within rate or four months HIBOR +2.5% Short-term loans 11,656,519 12,869,375 3,754,477 4,727,988 Prime rate Repayable in minus 0.5% full within or HIBOR twelve months +2.25% to HIBOR +2.5% Other facilities Bank overdrafts 1,730,769 1,648,192 - 216,410 Prime rate or Repayable HIBOR +0.5% on demand to Prime rate plus 0.5% or 0.75% Long-term loans 30,231 575,400 30,231 575,400 Prime rate +4% Repayable (Note 4) or HIBOR in full within +2.25% thirty-six months ---------- ---------- --------- ---------- 25,430,340 27,849,377 7,093,681 11,115,241 ---------- ---------- --------- ---------- F-17
Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 7 Banking facilities (Continued) The amount of banking facilities utilized by the Group are denominated in the following currency: Amount utilized March 31 -------------------------- 2002 2003 ---------- ---------- $ $ Euro 2,846,593 4,369,800 Hong Kong dollars 1,712,006 1,924,582 Japanese Yen 198,755 179,828 Renminbi 30,231 -- United States dollars 2,306,096 4,315,888 Canadian dollars -- 325,143 ---------- ---------- 7,093,681 11,115,241 ---------- ---------- The Prime rate and HIBOR rate were 5% and 1.375% per annum, respectively, as of March 31, 2003. The Prime rate is determined by the Hong Kong Bankers Association and is subject to revision from time to time. The banking facilities are collateralized by the following: (a) a legal charge over leasehold properties of the Group with net book value of $3,521,810 (2002: $3,942,336); and (b) bank guarantee of $6,178,615 (2002:$5,129,908) and restricted cash deposits of $4,104,168 (2002: $3,972,542). The restricted cash deposits have original maturities of less than three months. (c) a legal charge over certain assets of one of the Group's subsidiaries. (d) personal guarantee of $102,000 (2002:Nil) by a director of one of the Group's subsidiaries. The weighted average interest rate of short-term borrowings of the Group is as follows: Year ended March 31 ------------------- 2002 2003 Bank overdrafts 6.5% 5.45% Notes payable 5.9% 5.05% Short-term loans 5.9% 5.05% F-18 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 8 Related party transactions (a) The Group paid emoluments, commissions and/or consultancy fees to its directors as follows: Year ended Mr So Hung Gun, Ms Pang Kit Mr Chung Kim Mr Luk Kam March 31 Anthony Teng, Cathy Wah Sun -------- --------------- ----------- ------------ ----------- 2001 $559,672 (iii) $106,359 $137,285(ii) $20,816(iv) 2002 $559,672 (iii) $109,497 $140,016(ii) N/A 2003 $671,836 (iii) $125,262 $149,606(ii) N/A Mr Fok Woo Mr George Mr J Stewart Mr Henry Ping O'Leary Jackson Schlueter -------------- ----------- ------------ ----------- 2001 Nil $170,134(i) Nil N/A 2002 Nil $165,000(i) Nil $108,379(v) 2003 Nil $180,000(i) Nil $142,870(v) (i) This represented commissions and consultancy fee paid to Mr George O'Leary. Mr O'Leary received commissions on orders placed by customers which he obtained for the Group for the years ended March 31, 2001, 2002 and 2003. Since April 1, 2001, a monthly consultancy fee was paid to Mr O'Leary for provision of support and marketing services in the United States. (ii) Included in the emoluments is a housing allowance for $38,462 for each of the three years in the period ended March 31, 2003 payable to a company in which Mr Chung Kim Wah has a beneficial interest. (iii) Apart from the emoluments paid by the Group as above, one of the properties of the Group in Hong Kong is also provided to Mr So Hung Gun, Anthony as part of his compensation. (iv) Mr Luk Kam Sun resigned as a director of the Company on April 3, 2000. (v) Mr Henry Schlueter was appointed as a director of the Company on October 10, 2001. The amount for the years ended March 31, 2002 and 2003 represented professional fee paid to Schlueter & Associates, P.C., the Group's SEC counsel in which Mr Henry Schlueter is one of the principals. (b) Promissory note receivable from shareholder On March 27, 1998, Advantage List & Marketing Corporation ("ALMC") subscribed for 200,000 shares of common stock of the Company at a price of $6.75 per share which represented the fair market value at the date of subscription, in exchange for ALMC's promissory note of $1,470,000. On the same date, ALMC entered into a pledge agreement simultaneously under which ALMC agreed to pledge the common stock to the Company as security for the payment of the promissory note. The promissory note was with full recourse, interest free and was fully repayable on or before September 27, 2000. On September 17, 1998, a total of 200,000 shares of common stock were issued and the shares were held by the Company as security for payment of the promissory note. The promissory note was recorded at its discounted value of $1,350,000. Interest of $80,000 accrued thereon in the year ended March 31, 1999 was included in additional paid in capital. On November 10, 1999, the Company has entered into an agreement with ALMC to rescind the previous share subscription such that in April 2000, the 200,000 shares of common stock held by ALMC were returned to the Company in exchange for cancellation of the promissory note of $1,470,000. The 200,000 shares of common stock were cancelled in 2002 and returned to the status of authorized but unissued shares. F-19 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 9 Provident fund plan (a) With effect from January 1, 1988, Bonso Electronics Limited ("BEL"), a wholly-owned foreign subsidiary of the Company, implemented a defined contribution plan (the "Plan") with a major international assurance company to provide life insurance and retirement benefits for its employees. All permanent full time employees who joined BEL before December 2000, excluding factory workers, are eligible to join the provident fund plan. The Mandatory Provident Fund (the "MPF") was introduced by the Hong Kong Government, and commenced in December 2000. BEL joined the MPF by implementing a plan with a major international assurance company. All permanent Hong Kong full time employees who joined BEL in or after December 2000, excluding factory workers, are eligible to join the MPF. (b) Members of the Plan are required to contribute 5% of their monthly salary. The contribution by BEL is as follows: Years of service % of salary as BEL's contribution ---------------- --------------------------------- Less than 5 years 5.0% 5 to 10 years 7.5% More than 10 years 10.0% Members' and employers' contributions to the MPF are both at 5% of the members' monthly salaries and are subject to a maximum contribution of HK$1,000 monthly. (b) At normal retirement age, death or ill health, the member shall be entitled to receive from the Plan a lump sum equal to the total of the member's and BEL's contributions plus the return on their investment. On resignation prior to normal retirement age, a member shall be entitled to receive from the Plan a lump sum equal to the member's contributions plus a percentage of the employer's balance determined in accordance with a predetermined set scale. On resignation or at normal retirement age, death or ill health, the member of the MPF shall be entitled to a lump sum equal to the total of the member's and BEL's contributions plus the return on their investment. (c) BEL's total contributions to the Plan and the MPF for the years ended March 31, 2001, 2002 and 2003 amounted to $53,704, $78,995 and $73,945 respectively. F-20 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 10 Business acquisition Acquisition of Korona Effective May 1, 2001, the Group acquired 100% of the equity of Korona from Augusta. Korona is a German company engaged in the distribution of electronic scales in Europe. The acquisition was accounted for using the purchase method of accounting. Under purchase accounting, the total purchase price has been allocated to the acquired assets and liabilities of Korona based on management's best estimate of the fair value of assets acquired and the liabilities assumed as of May 1, 2001. Due to legal restrictions on the timing of the transfer of the title of certain assets, the net assets purchased included a warehouse and an investment in a wholly owned subsidiary of Korona. As required under the terms of the sale and purchase agreement, in June and July 2001, respectively, Augusta repurchased the warehouse and the investment from Korona at their approximate net book values for cash. The purchase consideration included cash consideration of $2,730,000 and common stock consideration by issuance of 180,726 shares of restricted common stock based on an agreed-upon price of $8.00 per share pursuant to the Stock Purchase Agreement (the "Agreement") with Augusta. For accounting purposes, the issue of the shares was originally recorded at the value of $5.00 per share, based on the average price per share for a total of 5 days before and after the completion date of the acquisition. Under the terms of the Agreement the Company had an obligation to register the common stock with the United States Securities and Exchange Commission (the "SEC"). The Agreement gave Augusta the right to redeem the common stock if the registration of the stock had not cleared the SEC by January 31, 2002. The Company filed a registration statement to register the common stock held by Augusta which was declared effective by the SEC on March 7, 2002. In March 2002, Augusta exercised the repurchase obligation requesting to repurchase the 180,726 shares of common stock to the Company in exchange for a promissory note of $1,445,808, repayable in nine monthly payments which would have commenced April 1, 2002 and bearing interest at a rate of 8% per annum which would result in an interest cost of approximately $50,000 for the whole period of the promissory note. On October 22, 2002, Augusta filed a request for arbitration in the state of New York and on January 13, 2003, the Group filed its answer to Augusta's request for arbitration asserting that Augusta breached the agreement and the implied duty of good faith and fair dealing by withholding consent from Korona's auditors for the release of Korona's financial statements. It is currently in the process of proceeding through the arbitration process. If the arbitration proceeds, there will be legal fees, travel expenses and other costs related to the arbitration that will be incurred by the Group in defending the case. If the Group does not succeed in the arbitration, we may be obligated to repurchase the stock by exchanging it for the promissory note, to be repaid with accrued interest, over a nine-month period of time. As the redemption option was exercised by Augusta prior to March 31, 2002, the Group has adjusted the carrying amount of the redeemable common stock to the full redemption amount. The adjustment of $542,178 to accrete to the value of the promissory note of $1,445,808 was treated as an adjustment to the original purchase price and resulted in the recognition of goodwill. Any final amendment to the redemption amount resulting from the current negotiations with Augusta will result in a subsequent adjustment to this goodwill amount. The allocation of the purchase price is as follows: $ Cash consideration 2,730,000 Common stock consideration 1,445,808 Less: Fair value of net assets acquired (1,294,512) Less: Fair value of brand name (3,000,000) Less: Cash received for the warehouse and investment (1,176,975) Plus: Book value of warehouse and investment 1,176,975 Plus: Transaction and closing costs 376,845 ---------- Goodwill 258,141 ---------- The Group incurred additional transaction costs in year ended March 31, 2003 related to the acquisition of Korona, which have resulted in an increase to goodwill of $53,924. No amortization charge related to goodwill was incurred during the current financial year. F-21 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 10 Business acquisition (continued) Acquisition of Gram As part of the Group's ongoing expansion of its sensor-based product business, effective August 1, 2002, the Group acquired 51% of the equity of Gram. Gram is a Canadian company engaged in the distribution of digital scales in North America and Europe. The acquisition was accounted for using the purchase method of accounting. Under purchase accounting, the total purchase price has been allocated to the acquired assets and liabilities of Gram based on management's best estimate of the fair value of assets acquired and the liabilities assumed as of August 1, 2002. The allocation of the purchase price is as follows: $ Cash consideration 230,644 Promissory note 203,312 Common stock consideration 306,250 Plus: Fair value of net liabilities acquired 35,503 Less: Minority shareholders' interest (17,396) Plus: Transaction and closing costs 84,508 -------- Goodwill 842,821 -------- Total consideration consisted of cash, common stock and a promissory note issued by the buyer of Gram. The value of the common stock issued (125,000 shares at $2.45 each) was determined based on the market price of the Group's stock on the date of the acquisition, which was also the date the terms of acquisition were agreed to and announced. The total promissory note of $231,000 is unsecured, non-interest bearing and repayable in five yearly installments through March 31, 2008 (see Note 4). The value at acquisition of $203,312 was calculated based on an imputed interest rate of 4%. The goodwill above arose on August 1, 2002 and is not amortized but subject to annual impairment review. The following unaudited pro forma consolidated summary of operations presents information of the Group's results as if the acquisition occurred on April 1, 2001: 2002 2003 $ $ (unaudited) Net sales 54,554,827 47,866,091 Net income (loss) 1,713,211 (1,649,072) Basic earnings (losses) per share 0.31 (0.29) Diluted earnings (losses) per share 0.30 (0.29) Shares used in per share calculation: Basic 5,586,920 5,599,238 Diluted 5,652,852 5,599,238 These unaudited pro forma results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which would have resulted had the acquisition occurred on April 1, 2001 or of future results of operations of the consolidated entities. F-22 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 11 Goodwill and Brand name Goodwill and brand name are analysed as follows:
Goodwill Brand name ----------------------- ------------------------ March 31 March 31 ----------------------- ------------------------ 2002 2003 2002 2003 $ $ $ $ Cost 204,217 1,100,962 3,000,000 3,000,000 Less: accumulated amortization -- -- (202,608) (402,608) ---------- ---------- ---------- ---------- 204,217 1,100,962 2,797,392 2,597,392 ---------- ---------- ---------- ----------
The Group adopted SFAS No. 142 during the year ended March 31, 2003. Goodwill of the Group of $204,217 and $1,100,962 as at March 31, 2002 and 2003 respectively was not subject to amortization. Amortization expense related to brand name was nil, $202,608 and $200,000 for the years ended March 31, 2001, 2002 and 2003, respectively. 12 Commitments and contingencies (a) As of March 31, 2003, the Group had commitments to acquire plant and machineries from third parties for an aggregate consideration of $125,882 (2002: $17,820), of which $40,759 (2002: $16,038) had been paid as deposits. (b) The dispute with Augusta as discussed in Note 10. (c) Vector Distribution System Inc., a subsidiary of Gram, was subject to two cases of lawsuits for alleged patent infringement. The Group considers the possibility of an unfavourable outcome to be remote and as such have not made any provision for these cases as at March 31, 2003. F-23 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 13 Earnings per share Year ended March 31 ------------------------------------- 2001 2002 2003 $ $ $ Income (loss) available to common shareholders 1,603,799 1,805,606 (1,643,734) Weighted average shares outstanding 5,564,536 5,586,920 5,599,238 Incremental shares from assumed exercise of: Warrants 48,547 -- -- Stock options 66,828 65,932 -- ---------- ---------- ---------- Dilutive potential common shares 115,375 65,932 ---------- ---------- ---------- Diluted weighted average shares 5,679,911 5,652,852 5,599,238 ---------- ---------- ---------- Basic earnings (loss) per share $ 0.29 $ 0.32 $ (0.29) Diluted earnings (loss) per share $ 0.28 $ 0.32 $ (0.29) Basic earnings per share is computed by dividing net income/(loss) available to common shareholders by the weighted average number of shares of common stock issued and outstanding. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive shares of common stock that were outstanding during the period, including warrants and stock options. Options to purchase 168,000 shares, 30,000 shares, 196,000 shares, 10,000 shares, 30,000 shares, 218,000 shares and 20,000 shares of common stock at $2.50, $2.55, $3.65, $5.06, $7.875, $8.00 and $8.125 per share respectively and warrants to purchase 2,174,403 shares of common stock at $17.50 per share were outstanding during the fiscal year ended March 31, 2003 but were not included in the calculation of diluted earnings per share during the year ended March 31, 2003 due to their anti-dilutive effect. F-24 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 14 Shareholders' equity (a) Repurchase of common stock In June 2000, the Board of Directors authorized the repurchase of the common stock of the Company up to a total consideration of $1,000,000. The Board of Directors believed that the common stock was undervalued, and that the repurchase of common stock would be beneficial to the Company's shareholders. At various times from July 2000 to November 2000, the Company repurchased 123,500 shares of the Company's common stock, at an average cost of $7.78 per share, for a total cost of $960,249. In December 2000, the Board of Directors further authorized the repurchase of 25,000 shares of the common stock of the Company. The Board of Directors believed that the common stock was undervalued, and that the repurchase of common stock would be beneficial to the Company's shareholders. Subsequently in December 2000, the Company repurchased 25,000 shares of the Company's common stock, at an average cost of $9.00 per share, for a total cost of $225,000. In March 2001, 73,500 shares of the repurchased common stock have been cancelled, and returned to the status of authorized but unissued shares. The remaining 75,000 repurchased shares of the common stock were cancelled and returned to the status of authorized but unissued shares in May 2001. In April 2001, the Board of Directors authorized the repurchase of the common stock of the Company up to a total consideration of $500,000. The Board of Directors believed that the common stock was undervalued, and that the repurchase of common stock would be beneficial to the Company's shareholders. During April 2001 to October 2001, the Company repurchased 17,000 shares of the Company's common stock at an average cost of $6.05 per share, for a total cost of $102,934. In October 2001 and March 2002, 15,000 shares and 2,000 shares of the repurchased common stock have been cancelled, and returned to the status of authorized but unissued shares respectively. During December 2002 to March 2003, the Company repurchased 19,900 shares of the Company's common stock at an average cost of $1.95 per share, for a total cost of $38,832. (b) Preferred stock On October 10, 2001, the Company's Memorandum and Articles of Association were amended such that the authorized share capital of the Company was increased by $100,000 by the creation of 10,000,000 shares of preferred stock, with par value of $0.01 each, divided into 2,500,000 shares each of class A preferred stock, class B preferred stock, class C preferred stock and class D preferred stock. Shares may be issued within each class from time to time by the Company's Board of Directors in its sole discretion without the approval of the shareholders with such designations, power, preferences, rights, qualifications, limitation and restrictions as the Board of Directors shall fix and as have not been fixed in the Company's Memorandum of Association. The Company has not issued any shares of preferred stock up to March 31, 2003. F-25 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 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 900,000 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 2000, the Company granted options to certain employees to purchase an aggregate of 23,700 shares of common stock of the Company at an exercise price of $8.00 per share, which was equal to the market value on the date of grant, in accordance with the 1996 Stock Option Plan. The options shall expire on January 6, 2010 and can be exercised at any time immediately after granting. None of the options were exercised during the year ended March 31, 2000, and 13,700 stock options were exercised to purchase 7,023 shares of common stock of the Company during the year ended March 31, 2001. None of the options have been exercised during the years ended March 31, 2002 and 2003. F-26 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 Stock option plan (Continued) (a) (Continued) Under the 1996 Non-Employee Directors' Stock Option Plan, the non-employee directors are automatically granted stock options on the third business day following the day of each annual general meeting of the Company to purchase an aggregate of 600,000 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 under certain conditions stipulated in the 1996 Non-Employee Directors' Stock Option Plan. In October 1996, the Company issued options to three non-employee directors in accordance with the 1996 Non-Employee Directors' Stock Option Plan to purchase an aggregate of 30,000 shares of common stock of the Company at an exercise price of $2.25 per share, which was equal to the market value on the date of grant. The options shall expire October 16, 2006 and can be exercised at any time after granting. During the years ended on March 31, 2000 and 2001, 10,000 and 20,000 stock options were exercised to purchase 10,000 and 18,868 shares of common stock of the Company respectively. In January 2000, the Company issued options to two non-employee directors in accordance with the 1996 Non-Employee Directors' Stock Option Plan to purchase an aggregate of 20,000 shares of the common stock of the Company at an exercise price of $8.125 per share, which was equal to the market value on the date of grant. The options shall expire on January 12, 2010 and can be exercised at any time immediately after granting. None of the options have been exercised during the years ended March 31, 2001, 2002 and 2003. In January 2001, the Company issued options to three non-employee directors in accordance with the 1996 Non-Employee Directors' Stock Option Plan to purchase an aggregate of 30,000 shares of the common stock of the Company at an exercise price of $7.875 per share, which was equal to the market value on the date of grant. The options shall expire on January 9, 2011 and can be exercised at any time after granting. None of the options have been exercised during the years ended March 31, 2001, 2002 and 2003. F-27 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 Stock option plan (Continued) (b) In January 2000, the Company issued options to the directors and an employee of the Company to purchase an aggregate of 218,000 shares of common stock of the Company at an exercise price of $8.00. The options shall expire on January 6, 2010 and can be exercised at any time after granting. The exercise prices of these options were equal to the fair market value at the time of grant. No options have been exercised during the years ended March 31, 2001, 2002 and 2003. (c) In April 2001, the Company issued options to certain directors and certain employees of the Company to purchase an aggregate of 196,000 shares of common stock of the Company at an exercise price of US$3.65. The options shall expire on April 9, 2011 and can be exercised at any time after granting. The exercise prices of these options were equal to the fair market value at the time of grant. No options have been exercised during the years ended March 31, 2002 and 2003. F-28 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 Stock option plan (Continued) (d) (Continued) In October 2001, the Company issued options to certain non-employee directors of the Company to purchase an aggregate of 30,000 shares of common stock of the Company at an exercise price of US$2.55. The options shall expire on October 15, 2011 and can be exercised at any time after granting. The exercise prices of these options were equal to the fair market value at the time of grant. No options have been exercised during the years ended March 31, 2002 and 2003. In March 2002, the Company issued options to certain directors of the Company to purchase an aggregate of 168,000 shares of common stock of the Company at an exercise price of US$2.50. The options shall expire on March 6, 2012 and can be exercised at any time after granting. The exercise prices of these options were equal to the fair market value at the time of grant. No options have been exercised during the years ended March 31, 2002 and 2003. No options or warrants have been granted or exercised during the year ended March 31, 2003. The stock options summary as of March 31, 2003 is summarized as follows: Average per share ---------------------- Number Exercise Market of shares price price --------- ----- ----- Balance, March 31, 2000 261,700 $8.01 $8.01 Exercised (13,700) $8.00 $8.00 Granted 30,000 $7.875 $7.875 ------- ------ ------ Balance March 31, 2001 278,000 $7.996 $7.996 Granted 394,000 $3.076 $3.076 ------- ------ ------ Balance, March 31, 2002 and 2003 672,000 $5.11 $5.11 ------- ------ ------ (e) The following table summarizes the information about all stock options of the Company outstanding at March 31, 2003: Weighted Number average Exercisable Weighted average outstanding at remaining life shares at exercise price March 31, 2003 (years) March 31, 2003 -------------- -------------- ------- -------------- $2.50 168,000 8.9 168,000 $2.55 30,000 8.5 30,000 $3.65 196,000 8.0 196,000 $7.875 30,000 7.8 30,000 $8.00 228,000 6.8 228,000 $8.125 20,000 6.8 20,000 -------- -------- $5.11 672,000 7.8 672,000 -------- -------- F-29 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 15 Stock option plan (Continued) (f) 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, as 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 has been recognized for the years ended March 31, 2001, 2002 and 2003. 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, 2001, 2002 and 2003 were $153,988, $939,314 and $0 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 years ended March 31, 2001, 2002 and 2003:
2001 2002 2003 $ $ $ Weighted risk-free interest rate 4.70% 4.55% N/A Dividend yield - - - Weighted volatility factor of the expected market price of the Company's common share 76.30% 102.35% N/A Weighted average expected life of the option 5 years 5 years N/A For purposes of pro forma disclosure, the estimated fair value of the options is charged to net income (loss) of the respective years. The Group's pro forma information is as follows: 2001 2002 2003 ---------- ---------- ---------- $ $ $ Net income (loss) as reported 1,603,799 1,805,606 (1,643,734) Deduct: Total stock-based employee compensation expense determined under fair value based method for all stock options, net of related tax effects (153,988) (939,314) -- ---------- ---------- ---------- Pro forma net income (loss) 1,449,811 866,292 (1,643,734) Basic earnings (losses) per share As reported $ 0.29 $0.32 $(0.29) Pro forma $ 0.26 $0.16 $(0.29) Diluted earnings (losses) per share As reported $ 0.28 $0.32 $(0.29) Pro forma $ 0.26 $0.15 $(0.29) F-30
Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 16 Warrants (a) As a result of the Company's second public offering in December 1994, the Company issued 2,200,000 five-year warrants to its public shareholders. Each warrant entitled the holder thereof to purchase one share of common stock of the Company at $7.35 per share, which was equal to the market price on the date. The expiration date of the warrants was January 31, 2001. The warrants were 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. A total of 25,597 warrants and 1,673,776 warrants were exercised to purchase 25,597 shares and 1,673,776 shares of common stock of the Company at $7.35 per share during the years ended March 31, 1999 and March 31, 2000 respectively. The remaining 500,627 warrants expired on January 31, 2001. (b) On January 5, 2000, the Company declared a one-for-one warrant dividend on all warrants which either were outstanding as of the close of trading on January 19, 2000 or which were exercised during the period commencing on November 22, 1999 and ending at the close of trading on January 19, 2000. A total of 2,174,403 new warrants were issued accordingly on June 1, 2000. Each two new warrants were exercisable to purchase 1 share of common stock of the Company at an exercise price of $17.50, which was equal to the market price on that date. The warrants originally expired on December 31, 2002 but the Board of Directors, in July 2002, extended the expiration date until December 31, 2003. No warrants have been exercised during the years ended March 31, 2001, 2002 and 2003. (c) On January 14, 2000, the Company entered into an agreement with Profit Concepts Limited ("Profit Concepts"), which provided consulting services to the Company. The agreement provided for the issuance by the Company to Profit Concepts of non-callable warrants to purchase 250,000 shares of the Company's common stock at $8.00 per share, which was equal to the market price on that date. Profit Concepts was engaged in the provision of advisory services for equity fund raising exercise of the Company and the warrants were exercisable for a period of three years from January 14, 2000. No warrants were exercised up to March 31, 2000 and 50,000 warrants were exercised to purchase 50,000 shares of common stock of the Company at $8.00 per share during the year ended March 31, 2001. No warrants have been exercised during the years ended March 31, 2002 and 2003 and the warrants expired on January 13, 2003. The fair value of the warrants on the date of issue was US$1,144,260 and was being recognized as consultancy fee in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) on a straight-line basis over the period of services by Profit Concepts which commenced on July 1, 2000 and concluded on January 13, 2003. The consultancy fee charged to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) amounted to $381,420, $381,420 and $381,420 for the years ended March 31, 2001, 2002 and 2003 respectively. F-31 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 17 Business segment information (a) The Group is organized based on the products it offers. Under this organizational structure, the Group's operation can be classified into four business segments, Scales, Telecommunications products, Health care products and Other. Scales operations principally involves production and marketing of sensor based scales products. These include bathroom, kitchen, office, jewelry, laboratory, postal and industrial scales that are used in consumer, commercial and industrial applications. Telecommunications products operations principally involve production and modification of two-way radios and cordless telephones that are used in consumer and commercial applications. Health care products operations principally involve production of thermometers and blood pressure meters used by consumers. The Group established the "Other" segment which principally includes the activities of (i) tooling and mould charges for scales and telecommunication products, and (ii) supporting service to customers including performing repairs work for customers and sales of spare parts. The accounting policies of the Group's reportable segments are the same as those described in the description of business and significant accounting policies. F-32 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 17 Business segment information (Continued) Summarized financial information by business segment for 2001, 2002 and 2003 is as follows:
Identifiable Depreciation Net Operating assets as of and Capital sales profit/(loss) March 31 amortization expenditure ----- ------------- -------- ------------ ----------- $ $ $ $ $ 2003 Scales 27,443,774 3,855,701 24,672,560 2,019,590 837,113 Telecommunication products 15,729,490 94,623 7,158,520 1,177,268 66,310 Health care products -- -- -- -- -- Other 3,156,790 290,626 1,403,184 183,356 84,354 ---------- ---------- ---------- ---------- ---------- Total operating segments 46,330,054 4,240,950 33,234,264 3,380,214 987,777 Corporate -- (5,018,729) 15,676,472 467,694 940,317 ---------- ---------- ---------- ---------- ---------- Group 46,330,054 (777,779) 48,910,736 3,847,908 1,928,094 ---------- ---------- ---------- ---------- ---------- 2002 Scales 33,451,978 6,990,999 21,403,551 1,266,122 919,550 Telecommunication products 17,359,570 821,153 6,677,075 1,109,584 610,533 Health care products 81,660 1,110 2,499 233 202 Other 2,409,893 1,762,854 3,967,575 370,670 320,493 ---------- ---------- ---------- ---------- ---------- Total operating segments 53,303,101 9,576,116 32,050,700 2,746,609 1,850,778 Corporate -- (6,862,124) 12,400,377 541,306 934,993 ---------- ---------- ---------- ---------- ---------- Group 53,303,101 2,713,992 44,451,077 3,287,915 2,785,771 ---------- ---------- ---------- ---------- ---------- 2001 Scales 19,119,293 4,396,476 14,797,805 1,152,366 1,242,650 Telecommunication products 8,679,253 760,968 5,728,041 784,610 2,639,195 Health care products 460,817 11,123 37,439 2,916 3,144 Other 1,307,317 815,139 2,743,622 213,657 230,396 ---------- ---------- ---------- ---------- ---------- Total operating segments 29,566,680 5,983,706 23,306,907 2,153,549 4,115,385 Corporate -- (4,241,853) 14,189,763 195,636 2,242,955 ---------- ---------- ---------- ---------- ---------- Group 29,566,680 1,741,853 37,496,670 2,349,185 6,358,340 ---------- ---------- ---------- ---------- ----------
Operating profit by segment equals total operating revenues less expenses which are related to the segment's operating revenues. Operating loss of the corporate segment consists principally of salaries and related costs of administrative staff, and administration and general expenses of the Group. Identifiable assets by segment are those assets that are used in the operation of that segment. Corporate assets consist principally of cash and cash equivalents, deferred income tax assets and other identifiable assets not related specifically to individual segments. Goodwill of $204,217 and $1,100,962 which is arising from the purchase of Korona and Gram, is included in identifiable assets of the Scales segment as of March 31, 2002 and 2003, respectively. F-33 Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 17 Business segment information (Continued) (b) The Group primarily operates in Hong Kong, the PRC, Germany, Canada, the United States and the United Kingdom. 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. Subsidiaries in Germany, Canada, the United States and the United Kingdom in the Group are responsible for the distribution of electronics scales in Europe and in North America. As the operations are integrated, it is not practicable to distinguish the net income derived among the activities in Hong Kong, the PRC, Germany, Canada, the United States and the United Kingdom. Identifiable assets by geographical areas are as follows: 2002 2003 $ $ Hong Kong 14,784,311 17,823,526 The PRC 18,959,106 20,707,989 Germany 10,707,660 6,335,920 Canada -- 1,880,559 United States of America -- 1,444,464 United Kingdom -- 718,278 ---------- ---------- Total assets 44,451,077 48,910,736 ---------- ---------- (c) The following is a summary of net export sales by geographical areas constituting 10% or more of total sales of the Group for the years ended March 31, 2001, 2002 and 2003:
Year ended March 31 --------------------------------------------------------------------------- 2001 2002 2003 ----------------------- ----------------------- ----------------------- $ % $ % $ % United States of America 10,945,310 37 23,578,878 44 22,017,956 48 Europe 14,160,371 48 25,641,446 48 21,059,227 45 Others 4,460,999 15 4,082,777 8 3,252,871 7 ---------- ---------- ---------- ---------- ---------- ---------- 29,566,680 100 53,303,101 100 46,330,054 100 ---------- ---------- ---------- ---------- ---------- ---------- (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 2001 2002 2003 segment ------------------- ------------------ ------------------- $ % $ % $ % Ohaus Corporation Scales 2,875,027 10 2,078,647 4 - - Telson Telecommunication Tele- and Technology Company communication Limited products 3,505,516 12 - - - - Telson Information and Tele- Communication Company communication Limited products 3,657,135 12 210,978 0 - - Gram Precision Scales, Scales 2,919,960 10 3,245,184 6 - - Inc. Trisquare Communications Tele- (HK) Company communication Limited products - - 11,497,223 22 6,693,470 14 Salter Weightronix Scales 2,496,612 8 2,724,635 5 4,686,207 10 ---------- -- ---------- -- ---------- -- 19,611,031 66 23,939,604 45 14,425,154 31 ---------- -- ---------- -- ---------- -- F-34
Bonso Electronics International Inc. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) 18 Fair value of financial instruments SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" defines the fair value of a financial instrument at which the instrument could be exchanged in a current transaction between willing parties. The carrying value of all of the Group's financial instruments classified as current assets or current liabilities are deemed to approximate fair value because of the short maturity of these instruments. These would include cash and cash equivalents, accounts receivable, accounts payable and accrued and other liabilities, which are reflected on the consolidated balance sheets. In the opinion of management, the carrying amount of the Group's long-term debt approximates fair value as the interest rate applicable is believed to approximate the market rates that would be offered to the Group for debt of the same remaining maturities. 19 Subsequent event Pursuant to a special meeting held by the Board of Directors on April 1, 2003, the Group granted options to three employees to purchase an aggregate of 332,500 shares of common stock of the Group at an exercise price of $1.61 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 March 31, 2013 and can be exercised at any time immediately after granting. The Group also 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 Group at an exercise price of $1.61 per share, which was equal to the market value on the date of grant. The options shall expire March 31, 2013 and can be exercised at any time after granting. Pursuant to a special meeting held by the Board of Directors on April 2, 2003, a cash dividend of $0.05 per share was declared to common stock shareholders. This cash dividend, totalling $284,458, was paid on May 31, 2003. F-35 EX-4.3 3 bonsoso.txt AGREEMENT EXHIBIT 4.3 BONSO ELECTRONICS INTERNATIONAL INC. EMPLOYMENT AGREEMENT WITH ANTHONY SO This Employment Agreement is made and entered into effective this 1st day of April, 2003, by and between Bonso Electronics International Inc., a British Virgin Islands international business company (the "Company"), and Anthony So, an individual ("Executive"). RECITALS A. The Company desires to be assured of the association and services of Executive for the Company. B. Executive is willing and desires to be employed by the Company, and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth. AGREEMENT NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Employment. The Company hereby employs Executive as its Chairman of the Board of Directors, Chief Executive Officer and President. 2. Term. The term of this Agreement shall be for a period of five (5) years effective as of April 1, 2003, and ending on March 31, 2008 (the "Initial Term"), unless terminated earlier pursuant to Section 6 below. This Agreement shall be automatically renewed for successive one year periods (the "Renewal Term") unless, at least 90 days prior to the expiration of the Initial Term or any Renewal Term, either party gives written notice to the other party specifically electing to terminate this Agreement at the end of the Initial Term or any such Renewal Term. 3. Compensation; Reimbursement. 3.1 Base Salary. For all services rendered by Executive under this Agreement, the Company shall pay Executive a base salary of Seven Hundred Thousand United States Dollars (US$700,000) per year (the "Base Salary"). The Base Salary shall be payable in equal, consecutive monthly installments. Payment of the Salary shall be subject to the customary withholding tax and other employment taxes as required with respect to compensation paid by a corporation to an employee in Hong Kong. It is expressly understood and agreed that the Base Salary may be increased upon the approval of the Company's Compensation Committee (if such a committee exists) or by a majority of the members of the Board of Directors. 3.2 Bonus. In addition to the Base Salary and the Deferred Compensation, the Company shall pay Executive such Bonus or Bonuses as the Board of Directors shall determine in their sole discretion. 3.3 Additional Benefits. In addition to the Base Salary and the Bonus, Executive shall be provided the exclusive use and possession of the property located at Savanna Garden, House No. 27, Tai Po, New Territories, Hong Kong ("Savanna Garden House") without any cost or charge to the Executive. If the Savanna Garden House is sold during the term of this Agreement or during any period that Company is obligated to provide Executive or his family with the exclusive use and possession of Savanna Garden House, then Company agrees to provide Executive with the possession and use of a property in the Hong Kong Special Administrative Region that is substantially identical to the Savanna Garden House of Executive's choice (or if Executive is deceased his family's choice). References to Savanna Garden House in the remainder of this paragraph shall be deemed to mean the property that is substantially identical to the Savanna Garden House referenced in the preceding sentence as the context may require. Executive shall be provided the exclusive possession and use of the Savanna Garden House for the term of this Agreement and for five years after this Agreement has been terminated for any reason without any cost or charge to the Executive. If Executive should die while in possession and use of the Savanna Garden House, Executive's family shall be entitled to remain in possession and use of the Savanna Garden House until the later of the period to which Executive would have been entitled to possession and use or five years after the date of Executive's death. The Company shall be responsible for and shall pay all costs of upkeep and maintenance of the Savanna Garden House for so long as Executive or his family are entitled to possession and use, including but not limited to taxes, insurance, maintenance, repairs, and all costs associated with living in the Savanna Garden housing estate. Company agrees to take no action to convey any interest in or to the Savanna Garden House to any party other than Executive or his family during any period that Executive or his family is entitled to the possession and use of the Savanna Garden House. Company shall provide Executive with an automobile of Executive's choice ("Automobile") for his or his family's exclusive use during the term of this Agreement and for five years after this Agreement is terminated. Company shall be responsible for all costs of taxes, licensing, insurance, repair, maintenance, fuel, and upkeep of the Automobile during this period. Company shall pay such fees, dues, assessments and costs for memberships and use of such clubs as Executive shall desire to join or continue as a member during the term of this Agreement and for the five year period after this Agreement is terminated. Company agrees to transfer any or all club membership interests to Executive or his family upon request by Executive or members of his immediate family (if Executive is deceased) without any charge or cost to Executive or members of his immediate family. Company shall pay and be responsible to pay for any costs associated with the transfer of club memberships. In addition, as part of his compensation Executive shall be entitled to all other benefits of employment provided to the employees of the Company. 3.4 Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses for business travel and business entertainment incurred in connection with the performance of his duties under this Agreement. The reimbursement of Executive's business expenses shall be upon monthly presentation to and approval by the Company of valid receipts and other appropriate documentation for such expenses. 2 4. Scope of Duties. 4.1 Assignment of Duties. Executive shall have such duties as may be assigned to him from time to time by the Company's Board of Directors commensurate with his experience and responsibilities in the positions for which he is employed pursuant to Section 1 above. Such duties shall be exercised subject to the control and supervision of the Board of Directors of the Company. 4.2 General Specification of Duties. Executive's duties shall include, but not be limited to those duties that are generally associated with the positions of Chairman of the Board of Directors, Chief Executive Officer and President of a company similarly situated to the Company. The foregoing specifications are not intended as a complete itemization of the duties which Executive shall perform and undertake on behalf of the Company in satisfaction of his employment obligations under this Agreement. 4.3 Executive's Devotion of Time. Executive hereby agrees to devote his full time abilities and energy to the faithful performance of the duties assigned to him and to the promotion and forwarding of the business affairs of the Company, and not to divert any business opportunities from the Company to himself or to any other person or business entity. 4.4 Conflicting Activities. (a) Executive may, during the Initial Term or any Renewal Term of this Agreement, be engaged in other business activities without the prior consent of the Board of Directors of the Company; provided, however, that Executive may not compete directly with the Company. Further, nothing in this Agreement shall be construed as preventing Executive from investing his personal assets in passive investments in business entities which are not in competition with the Company or its affiliates, or from pursuing business opportunities as permitted by Section 4.4(b). (b) Executive hereby agrees to promote and develop all business opportunities that come to his attention relating to current or anticipated future business of the Company, in a manner consistent with the best interests of the Company and with his duties under this Agreement. Should Executive discover a business opportunity that does not relate to the current or anticipated future business of the Company, he shall be free to pursue that opportunity without first offering such opportunity to the Company. It is expressly understood that in developing any business opportunity for himself; such development may not in any material way conflict or interfere with the duties owed by Executive to the Company under this Agreement. As used herein, the term "business opportunity" shall not include business opportunities involving investment in publicly traded stocks, bonds or other securities, or other investments of a personal nature. 5. Change of Control. If any time during the Initial Term or any Renewal Term of this Agreement there is a change of control of the Company, as defined below, and Executive's employment is terminated by the Company under Section 6.1(a), (b), (c) or (d) within the greater of one (1) year following the change of control or the remaining term of this Agreement (the "Change of Control Date"), the Company shall pay to Executive (a) the balance of all amounts due 3 from the Change of Control Date until the end of the Initial Term, including deferred compensation, due under this Agreement plus (b) an amount equal to five times the sum of (i) his annual Base Salary as in effect on the date of termination plus (ii) the amount of bonus paid in the prior year to executive, and (c) any other amounts due to Executive under any other provision of this Agreement. This amount shall be paid to Executive in one lump sum as soon as practicable, but in no event later than one hundred twenty (120) days, after the date that Executive's employment is terminated. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.2 at the same time as the lump sum payment is made. For example, if the Change of Control Date was April 1, 2003, the amount paid to would be equal to [$700,000 (Base Salary) + $0.00 (Deferred Compensation)] X 5 (years remaining on contract)] + [$700,000 (base salary) + $0.00 (deferred compensation) X 5] or an aggregate of $7,000,000). In addition, Executive shall be entitled to the possession and use of the Savanna Garden House until the end of the Initial Term or any additional term plus five calendar years thereafter without cost or charge to the Executive. The Company shall continue to pay and be responsible for the payment of all taxes, insurance, repairs, maintenance, upkeep, or costs associated with the Savanna Garden Housing estate. For purposes of this subsection, a Change of Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not the Company is subject to such reporting requirement; provided, however, that, anything in this Agreement to the contrary notwithstanding, a Change in Control shall be deemed to have occurred if: (1) Any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (2) During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement) individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (3) Within two years after a tender offer or exchange offer for voting securities of the Company, the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board; 4 (4) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case, with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50 percent of the combined voting power of the Company or other corporation resulting from such Transaction; or (5) All or substantially all of the assets of the Company are sold, liquidated or distributed. 6. Termination. 6.1 Bases for Termination. (a) Executive's employment hereunder may be terminated at any time by mutual agreement of the parties. (b) This Agreement shall automatically terminate on the last day of the month in which Executive dies or becomes permanently incapacitated. "Permanent incapacity" as used herein shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of his duties hereunder and which appears reasonably certain to continue for at least six consecutive months without substantial improvement. Executive shall be deemed to have "become permanently incapacitated" on the date the Company's Board of Directors has determined that Executive is permanently incapacitated and so notifies Executive. If Executive's employment under this Agreement is terminated pursuant to this Section 6.1(b), the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination; and (3) any other amounts due to Executive under any other provision of this Agreement. In addition, Company shall pay Executive or his family (if Executive is deceased) an amount equal to Three times the Executive's annual Base Salary within 60 days after termination is effective. For purposes of this provision, Executive's annual Base Salary shall be calculated as of the termination date. After the Company's termination of Executive under this provision, the Company shall continue to be obligated to provide the benefits to Executive described in Section 3.3. (c) Executive's employment may be terminated by the Company (for any reason or no reason at all) at any time by giving Executive 180 days prior written notice of termination, which termination shall be effective on the 180th day following such notice. If Executive's employment under this Agreement is so terminated, the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed 5 expenses accrued to the date of termination; (3) an amount equal to the greater of (a) Five times the Executive's annual Base Salary (i.e., 60 months of Base Salary), or (b) amounts remaining due to Executive as Base Salary (assuming that payments under this Agreement were made until expiration of the Initial Term or if applicable the Renewal Term), and (4) any other amounts due to Executive under any other provision of this Agreement. For purposes of this provision, Executive's annual Base Salary and the remaining portion of the term of the Agreement shall be calculated as of the termination date. After the Company's termination of Executive under this provision, the Company shall continue to be obligated to provide the benefits to Executive described in Section 3.3. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive the Bonus provided for in Section 3.2 based upon the number of days in the year that Executive was employed by the Company, within one hundred five days after the end of the fiscal year in which Executive was terminated. (d) Executive may terminate his employment hereunder by giving the Company 60 days prior written notice, which termination shall be effective on the 60th day following such notice. 6.2 Payments Upon Termination Pursuant To Sections 6.1(a), or (d). Upon termination under Sections 6.1(a), or (d), the Company shall pay to Executive within 10 days after termination an amount equal to the sum of (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination, and (3) any other amounts due to Executive under any other provision of this Agreement. Except for the foregoing compensation then due and owing and the benefits provided for in Section 3.3, the Company shall not be obligated to compensate Executive, his estate or representatives after any such termination. 7. Miscellaneous. 7.1 Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns. 7.2 Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect. 7.3 Governing Law. This Agreement is made under and shall be construed pursuant to the laws of Hong Kong. 7.4 Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts. 6 7.5 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promise, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein. 7.6 Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver. 7.7 Attorneys' Fees and Costs. In the event of any dispute arising out of the subject matter of this Agreement, the prevailing party shall recover, in addition to any other damages assessed, its attorneys' fees and court costs incurred in litigating or otherwise settling or resolving such dispute whether or not an action is brought or prosecuted to judgment. In construing this Agreement, none of the parties hereto shall have any term or provision construed against such party solely by reason of such party having drafted the same. 7.8 Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature. 7.9 Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy. 7.10 Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement. 7.11 Notices. Any notice under this Agreement must be in writing, may be telecopied provided that evidence of the transmission and receipt is created at the time of transmission, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows: If to the Company: Bonso Electronics International Inc. If to Executive: Anthony So 7 Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above. 7.12 Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company. 7.13 Right of Set-Off. Upon termination or expiration of this Agreement, the Company shall have the right to set-off against the amounts due Executive hereunder the amount of any outstanding loan or advance from the Company to Executive. 7.14 Effective Date. This Agreement shall become effective as of the date set forth on page 1 when signed by Executive and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above. ANTHONY SO BONSO ELECTRONICS INTERNATIONAL INC. /s/ Anthony So By: /s/ Kim Wah Chung - -------------- --------------------- Kim Wah Chung, Director By: /s/ Cathy Kit Teng Pang --------------------------- Cathy Kit Teng Pang, Director 8 EX-4.4 4 bonsopang.txt AGREEMENT EXHIBIT 4.4 BONSO ELECTRONICS INTERNATIONAL INC. EMPLOYMENT AGREEMENT WITH CATHY KIT TENG PANG This Employment Agreement is made and entered into effective this 1st day of April, 2003, by and between Bonso Electronics International Inc., a British Virgin Islands international business company (the "Company"), and Cathy Kit Teng Pang, an individual ("Executive"). RECITALS A. The Company desires to be assured of the association and services of Executive for the Company. B. Executive is willing and desires to be employed by the Company, and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth. AGREEMENT NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Employment. The Company hereby employs Executive as its Director of Finance. 2. Term. The term of this Agreement shall be for a period of five (5) years effective as of April 1, 2003, and ending on March 31, 2008 (the "Initial Term"), unless terminated earlier pursuant to Section 6 below. This Agreement shall be automatically renewed for successive one year periods (the "Renewal Term") unless, at least 90 days prior to the expiration of the Initial Term or any Renewal Term, either party gives written notice to the other party specifically electing to terminate this Agreement at the end of the Initial Term or any such Renewal Term. 3. Compensation; Reimbursement. 3.1 Base Salary. For all services rendered by Executive under this Agreement, the Company shall pay Executive a base salary of One Hundred Twenty Six Thousand United States Dollars (US$126,000) per year (the "Base Salary"). The Base Salary shall be payable in equal, consecutive monthly installments. Payment of the Salary shall be subject to the customary withholding tax and other employment taxes as required with respect to compensation paid by a corporation to an employee in Hong Kong. It is expressly understood and agreed that the Base Salary may be increased upon the approval of the Company's Compensation Committee (if such a committee exists) or by a majority of the members of the Board of Directors. 3.2 Bonus. In addition to the Base Salary and the Deferred Compensation, the Company shall pay Executive such Bonus or Bonuses as the Board of Directors shall determine in their sole discretion. 3.3 Additional Benefits. In addition to the Base Salary and the Bonus, Executive shall be entitled to all other benefits of employment provided to the employees of the Company. 3.4 Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses for business travel and business entertainment incurred in connection with the performance of her duties under this Agreement. The reimbursement of Executive's business expenses shall be upon monthly presentation to and approval by the Company of valid receipts and other appropriate documentation for such expenses. 4. Scope of Duties. 4.1 Assignment of Duties. Executive shall have such duties as may be assigned to her from time to time by the Company's Board of Directors commensurate with her experience and responsibilities in the position for which she is employed pursuant to Section 1 above. Such duties shall be exercised subject to the control and supervision of the Board of Directors of the Company and the Chief Executive Officer of the Company. 4.2 General Specification of Duties. Executive's duties shall include, but not be limited to those duties that are generally associated with the position of the Director of Finance of a company similarly situated to the Company. The foregoing specification is not intended as a complete itemization of the duties which Executive shall perform and undertake on behalf of the Company in satisfaction of her employment obligations under this Agreement. 4.3 Executive's Devotion of Time. Executive hereby agrees to devote her full time abilities and energy to the faithful performance of the duties assigned to her and to the promotion and forwarding of the business affairs of the Company, and not to divert any business opportunities from the Company to herself or to any other person or business entity. 4.4 Conflicting Activities. (a) Executive may, during the Initial Term or any Renewal Term of this Agreement, be engaged in other business activities without the prior consent of the Board of Directors of the Company; provided, however, that Executive may not compete directly with the Company. Further, nothing in this Agreement shall be construed as preventing Executive from investing her personal assets in passive investments in business entities which are not in competition with the Company or its affiliates, or from pursuing business opportunities as permitted by Section 4.4(b). (b) Executive hereby agrees to promote and develop all business opportunities that come to her attention relating to current or anticipated future business of the Company, in a manner consistent with the best interests of the Company and with her duties under this Agreement. Should Executive discover a business opportunity that does not relate to the current or 2 anticipated future business of the Company, she shall be free to pursue that opportunity without first offering such opportunity to the Company. It is expressly understood that in developing any business opportunity for herself; such development may not in any material way conflict or interfere with the duties owed by Executive to the Company under this Agreement. As used herein, the term "business opportunity" shall not include business opportunities involving investment in publicly traded stocks, bonds or other securities, or other investments of a personal nature. 5. Change of Control. If any time during the Initial Term or any Renewal Term of this Agreement there is a change of control of the Company, as defined below, and Executive's employment is terminated by the Company under Section 6.1(a), (b), (c) or (d) within the greater of one (1) year following the change of control or the remaining term of this Agreement (the "Change of Control Date"), the Company shall pay to Executive (a) the balance of all amounts due from the Change of Control Date until the end of the Initial Term, including deferred compensation, due under this Agreement plus (b) an amount equal to five times the sum of (i) her annual Base Salary as in effect on the date of termination plus (ii) the amount of bonus paid in the prior year to executive, and (c) any other amounts due to Executive under any other provision of this Agreement. This amount shall be paid to Executive in one lump sum as soon as practicable, but in no event later than one hundred twenty (120) days, after the date that Executive's employment is terminated. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.2 at the same time as the lump sum payment is made. For example, if the Change of Control Date was April 1, 2003, the amount paid to would be equal to [$130,000 (Base Salary) + $0.00 (Deferred Compensation)] X 5 (years remaining on contract)] + [$130,000 (base salary) + $0.00 (deferred compensation) X 5] or an aggregate of $1,260,000). For purposes of this subsection, a Change of Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not the Company is subject to such reporting requirement; provided, however, that, anything in this Agreement to the contrary notwithstanding, a Change in Control shall be deemed to have occurred if: (1) Any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (2) During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement) individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; 3 (3) Within two years after a tender offer or exchange offer for voting securities of the Company, the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board; (4) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case, with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50 percent of the combined voting power of the Company or other corporation resulting from such Transaction; or (5) All or substantially all of the assets of the Company are sold, liquidated or distributed. 6. Termination. 6.1 Bases for Termination. (a) Executive's employment hereunder may be terminated at any time by mutual agreement of the parties. (b) This Agreement shall automatically terminate on the last day of the month in which Executive dies or becomes permanently incapacitated. "Permanent incapacity" as used herein shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of her duties hereunder and which appears reasonably certain to continue for at least six consecutive months without substantial improvement. Executive shall be deemed to have "become permanently incapacitated" on the date the Company's Board of Directors has determined that Executive is permanently incapacitated and so notifies Executive. If Executive's employment under this Agreement is terminated pursuant to this Section 6.1(b), the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination; and (3) any other amounts due to Executive under any other provision of this Agreement. In addition, Company shall pay Executive or her family (if Executive is deceased) an amount equal to Three times the Executive's annual Base Salary within 60 days after termination is effective. For purposes of this provision, Executive's annual Base Salary shall be calculated as of the termination date. (c) Executive's employment may be terminated by the Company (for any reason or no reason at all) at any time by giving Executive 180 days prior written notice of termination, which termination shall be effective on the 180th day following such notice. If Executive's employment under this Agreement is so terminated, the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) 4 Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination; (3) an amount equal to the greater of (a) Five times the Executive's annual Base Salary (i.e., 60 months of Base Salary), or (b) amounts remaining due to Executive as Base Salary (assuming that payments under this Agreement were made until expiration of the Initial Term or if applicable the Renewal Term), and (4) any other amounts due to Executive under any other provision of this Agreement. For purposes of this provision, Executive's annual Base Salary and the remaining portion of the term of the Agreement shall be calculated as of the termination date. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive the Bonus provided for in Section 3.2 based upon the number of days in the year that Executive was employed by the Company, within one hundred five days after the end of the fiscal year in which Executive was terminated. (d) Executive may terminate her employment hereunder by giving the Company 60 days prior written notice, which termination shall be effective on the 60th day following such notice. 6.2 Payments Upon Termination Pursuant To Sections 6.1(a), or (d). Upon termination under Sections 6.1(a), or (d), the Company shall pay to Executive within 10 days after termination an amount equal to the sum of (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination, and (3) any other amounts due to Executive under any other provision of this Agreement. Except for the foregoing compensation then due and owing, the Company shall not be obligated to compensate Executive, her estate or representatives after any such termination. 7. Miscellaneous. 7.1 Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns. 7.2 Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect. 7.3 Governing Law. This Agreement is made under and shall be construed pursuant to the laws of Hong Kong. 7.4 Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts. 5 7.5 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promise, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein. 7.6 Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver. 7.7 Attorneys' Fees and Costs. In the event of any dispute arising out of the subject matter of this Agreement, the prevailing party shall recover, in addition to any other damages assessed, its attorneys' fees and court costs incurred in litigating or otherwise settling or resolving such dispute whether or not an action is brought or prosecuted to judgment. In construing this Agreement, none of the parties hereto shall have any term or provision construed against such party solely by reason of such party having drafted the same. 7.8 Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature. 7.9 Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy. 7.10 Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement. 7.11 Notices. Any notice under this Agreement must be in writing, may be telecopied provided that evidence of the transmission and receipt is created at the time of transmission, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows: If to the Company: Bonso Electronics International Inc. If to Executive: Cathy Pang 6 Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above. 7.12 Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company. 7.13 Right of Set-Off. Upon termination or expiration of this Agreement, the Company shall have the right to set-off against the amounts due Executive hereunder the amount of any outstanding loan or advance from the Company to Executive. 7.14 Effective Date. This Agreement shall become effective as of the date set forth on page 1 when signed by Executive and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above. CATHY KIT TENG PANG BONSO ELECTRONICS INTERNATIONAL INC. /s/ Cathy Kit Teng Pang By: /s/ Anthony So - ----------------------- ------------------ April 1, 2003 Anthony So, Chief Executive Officer and Director 7 EX-4.5 5 bonsochung.txt AGREEMENT EXHIBIT 4.5 BONSO ELECTRONICS INTERNATIONAL INC. EMPLOYMENT AGREEMENT WITH KIM WAH CHUNG This Employment Agreement is made and entered into effective this 1st day of April, 2003, by and between Bonso Electronics International Inc., a British Virgin Islands international business company (the "Company"), and Kim Wah Chung, an individual ("Executive"). RECITALS A. The Company desires to be assured of the association and services of Executive for the Company. B. Executive is willing and desires to be employed by the Company, and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth. AGREEMENT NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Employment. The Company hereby employs Executive as its Director of Engineering and Research and Development. 2. Term. The term of this Agreement shall be for a period of five (5) years effective as of April 1, 2003, and ending on March 31, 2008 (the "Initial Term"), unless terminated earlier pursuant to Section 6 below. This Agreement shall be automatically renewed for successive one year periods (the "Renewal Term") unless, at least 90 days prior to the expiration of the Initial Term or any Renewal Term, either party gives written notice to the other party specifically electing to terminate this Agreement at the end of the Initial Term or any such Renewal Term. 3. Compensation; Reimbursement. 3.1 Base Salary. For all services rendered by Executive under this Agreement, the Company shall pay Executive a base salary of One Hundred Fifty Thousand United States Dollars (US$150,000) per year (the "Base Salary"). The Base Salary shall be payable in equal, consecutive monthly installments. Payment of the Salary shall be subject to the customary withholding tax and other employment taxes as required with respect to compensation paid by a corporation to an employee in Hong Kong. It is expressly understood and agreed that the Base Salary may be increased upon the approval of the Company's Compensation Committee (if such a committee exists) or by a majority of the members of the Board of Directors. 3.2 Bonus. In addition to the Base Salary and the Deferred Compensation, the Company shall pay Executive such Bonus or Bonuses as the Board of Directors shall determine in their sole discretion. 3.3 Additional Benefits. In addition to the Base Salary and the Bonus, Executive shall be entitled to all other benefits of employment provided to the employees of the Company. 3.4 Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses for business travel and business entertainment incurred in connection with the performance of his duties under this Agreement. The reimbursement of Executive's business expenses shall be upon monthly presentation to and approval by the Company of valid receipts and other appropriate documentation for such expenses. 4. Scope of Duties. 4.1 Assignment of Duties. Executive shall have such duties as may be assigned to him from time to time by the Company's Board of Directors commensurate with his experience and responsibilities in the position for which he is employed pursuant to Section 1 above. Such duties shall be exercised subject to the control and supervision of the Board of Directors of the Company and the Chief Executive Officer of the Company. 4.2 General Specification of Duties. Executive's duties shall include, but not be limited to those duties that are generally associated with the position of the Director of Finance of a company similarly situated to the Company. The foregoing specification is not intended as a complete itemization of the duties which Executive shall perform and undertake on behalf of the Company in satisfaction of his employment obligations under this Agreement. 4.3 Executive's Devotion of Time. Executive hereby agrees to devote his full time abilities and energy to the faithful performance of the duties assigned to him and to the promotion and forwarding of the business affairs of the Company, and not to divert any business opportunities from the Company to himself or to any other person or business entity. 4.4 Conflicting Activities. (a) Executive may, during the Initial Term or any Renewal Term of this Agreement, be engaged in other business activities without the prior consent of the Board of Directors of the Company; provided, however, that Executive may not compete directly with the Company. Further, nothing in this Agreement shall be construed as preventing Executive from investing his personal assets in passive investments in business entities which are not in competition with the Company or its affiliates, or from pursuing business opportunities as permitted by Section 4.4(b). (b) Executive hereby agrees to promote and develop all business opportunities that come to his attention relating to current or anticipated future business of the Company, in a manner consistent with the best interests of the Company and with his duties under this Agreement. Should Executive discover a business opportunity that does not relate to the current or anticipated future business of the Company, he shall be free to pursue that opportunity without first offering such opportunity to the Company. It is 2 expressly understood that in developing any business opportunity for himself; such development may not in any material way conflict or interfere with the duties owed by Executive to the Company under this Agreement. As used herein, the term "business opportunity" shall not include business opportunities involving investment in publicly traded stocks, bonds or other securities, or other investments of a personal nature. 5. Change of Control. If any time during the Initial Term or any Renewal Term of this Agreement there is a change of control of the Company, as defined below, and Executive's employment is terminated by the Company under Section 6.1(a), (b), (c) or (d) within the greater of one (1) year following the change of control or the remaining term of this Agreement (the "Change of Control Date"), the Company shall pay to Executive (a) the balance of all amounts due from the Change of Control Date until the end of the Initial Term, including deferred compensation, due under this Agreement plus (b) an amount equal to five times the sum of (i) his annual Base Salary as in effect on the date of termination plus (ii) the amount of bonus paid in the prior year to executive, and (c) any other amounts due to Executive under any other provision of this Agreement. This amount shall be paid to Executive in one lump sum as soon as practicable, but in no event later than one hundred twenty (120) days, after the date that Executive's employment is terminated. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive any accrued and unpaid Bonuses as provided for in Section 3.2 at the same time as the lump sum payment is made. For example, if the Change of Control Date was April 1, 2003, the amount paid to would be equal to [$150,000 (Base Salary) + $0.00 (Deferred Compensation)] X 5 (years remaining on contract)] + [$150,000 (base salary) + $0.00 (deferred compensation) X 5] or an aggregate of $1,500,000). For purposes of this subsection, a Change of Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not the Company is subject to such reporting requirement; provided, however, that, anything in this Agreement to the contrary notwithstanding, a Change in Control shall be deemed to have occurred if: (1) Any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (2) During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement) individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; 3 (3) Within two years after a tender offer or exchange offer for voting securities of the Company, the individuals who were directors of the Company immediately prior thereto shall cease to constitute a majority of the Board; (4) There occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a "Transaction"), in each case, with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50 percent of the combined voting power of the Company or other corporation resulting from such Transaction; or (5) All or substantially all of the assets of the Company are sold, liquidated or distributed. 6. Termination. 6.1 Bases for Termination. (a) Executive's employment hereunder may be terminated at any time by mutual agreement of the parties. (b) This Agreement shall automatically terminate on the last day of the month in which Executive dies or becomes permanently incapacitated. "Permanent incapacity" as used herein shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of his duties hereunder and which appears reasonably certain to continue for at least six consecutive months without substantial improvement. Executive shall be deemed to have "become permanently incapacitated" on the date the Company's Board of Directors has determined that Executive is permanently incapacitated and so notifies Executive. If Executive's employment under this Agreement is terminated pursuant to this Section 6.1(b), the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination; and (3) any other amounts due to Executive under any other provision of this Agreement. In addition, Company shall pay Executive or his family (if Executive is deceased) an amount equal to Three times the Executive's annual Base Salary within 60 days after termination is effective. For purposes of this provision, Executive's annual Base Salary shall be calculated as of the termination date. (c) Executive's employment may be terminated by the Company (for any reason or no reason at all) at any time by giving Executive 180 days prior written notice of termination, which termination shall be effective on the 180th day following such notice. If Executive's employment under this Agreement is so terminated, the Company shall (i) make a lump sum cash payment to Executive within 10 days after termination is effective of an amount equal to (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed 4 expenses accrued to the date of termination; (3) an amount equal to the greater of (a) Five times the Executive's annual Base Salary (i.e., 60 months of Base Salary), or (b) amounts remaining due to Executive as Base Salary (assuming that payments under this Agreement were made until expiration of the Initial Term or if applicable the Renewal Term), and (4) any other amounts due to Executive under any other provision of this Agreement. For purposes of this provision, Executive's annual Base Salary and the remaining portion of the term of the Agreement shall be calculated as of the termination date. In addition to the lump sum payment referenced in the preceding sentence, the Company shall pay to Executive the Bonus provided for in Section 3.2 based upon the number of days in the year that Executive was employed by the Company, within one hundred five days after the end of the fiscal year in which Executive was terminated. (d) Executive may terminate his employment hereunder by giving the Company 60 days prior written notice, which termination shall be effective on the 60th day following such notice. 6.2 Payments Upon Termination Pursuant To Sections 6.1(a), or (d). Upon termination under Sections 6.1(a), or (d), the Company shall pay to Executive within 10 days after termination an amount equal to the sum of (1) Executive's Base Salary accrued to the date of termination; (2) unreimbursed expenses accrued to the date of termination, and (3) any other amounts due to Executive under any other provision of this Agreement. Except for the foregoing compensation then due and owing, the Company shall not be obligated to compensate Executive, his estate or representatives after any such termination. 7. Miscellaneous. 7.1 Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon and inure to the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns. 7.2 Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect. 7.3 Governing Law. This Agreement is made under and shall be construed pursuant to the laws of Hong Kong. 7.4 Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts. 5 7.5 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promise, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein. 7.6 Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver. 7.7 Attorneys' Fees and Costs. In the event of any dispute arising out of the subject matter of this Agreement, the prevailing party shall recover, in addition to any other damages assessed, its attorneys' fees and court costs incurred in litigating or otherwise settling or resolving such dispute whether or not an action is brought or prosecuted to judgment. In construing this Agreement, none of the parties hereto shall have any term or provision construed against such party solely by reason of such party having drafted the same. 7.8 Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature. 7.9 Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy. 7.10 Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement. 7.11 Notices. Any notice under this Agreement must be in writing, may be telecopied provided that evidence of the transmission and receipt is created at the time of transmission, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows: If to the Company: Bonso Electronics International Inc. If to Executive: Kim Wah Chung 6 Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above. 7.12 Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company. 7.13 Right of Set-Off. Upon termination or expiration of this Agreement, the Company shall have the right to set-off against the amounts due Executive hereunder the amount of any outstanding loan or advance from the Company to Executive. 7.14 Effective Date. This Agreement shall become effective as of the date set forth on page 1 when signed by Executive and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above. KIM WAH CHUNG BONSO ELECTRONICS INTERNATIONAL INC. /s/ Kim Wah Chung By: /s/ Anthony So - ----------------- ------------------ Anthony So, Chief Executive Officer and Director 7 EX-4.6 6 bonso4-6.txt LETTER EXHIBIT 4.6 Central Banking Center Bank of America (Asia) Ltd. G/F, 9 Queen's Road Central Hong Kong Our Ref : CB/03/111 Date : March 31, 2003 Tel (852) 2844 7016 Fax (852) 2844 7065 Bonso Electronics Ltd. Unit 1106-1110, 10/F., Star House, 3 Salisbury Road, Tsimshatsui, Kowloon. Attn.: Ms. Cathy Pang - Director of Finance - ------------------------------------------- Dear Madam, Re: Banking Facilities to Bonso Electronics Ltd. - ------------------------------------------------ We are pleased to set out the terms and conditions upon which we would make available to you the following facilities (the "Facilities"), for a total amount not to exceed at any one time HK$13,000,000.00 (or the equivalent, at our spot selling rates for the time being in other freely available and convertible currencies subject, in the Bank's opinion, to such currencies being available). The terms set out in this letter supersede and replace those set out in our letter of December 31, 2001. A. UTILISATION 1. Facility I - Overdraft Line ............................... HK$200,000.00 ---------- -------------- Within the amount stated, this facility is available for overdraft on your current account no. 295632 with us and is repayable on demand. The amount overdrawn is expected to be fluctuating provided total amount overdrawn is within the line limit and the account to have active debits and credits. II. Facility II - Import Line ............................... HK$6,800,000.00 ----------- ----------- Within the amount stated, this facility is available for:- 1. Commercial Letters of Credit With or Without Title Documents: Issuance of sight commercial Letters of Credit, with or without title documents calling for merchandise which is contracted for on an arms-length basis and for full value. Local letters of Credit beneficiaries are to be pre-approved by us. -1- Borrower: Bonso Electronics Ltd. - -------------------------------- You undertake that such credits, including the issuance of Local Letters of Credit calling for documents such as cargo receipts or local warehouse receipts, will not be used by you to refinance suppliers' credits previously extended or in respect of shipments already made, or in any way to obtain credits for merchandise which is contracted for other than on an arms-length basis and for full value, and/or 2. Inward Bills Financing: Inward bills financing under Letters of Credit issued by us supported by title documents over the merchandise with tenors of up to 30 days, and/or 3. Advances against Trust Receipts: Advances with tenors of up to 120 days from date of release of title documents to you against Trust Receipts covering merchandise called for in commercial Letters of Credit issued by us; and/or 4. Shipping Guarantees under Letters of Credit: Issuance of Shipping Guarantees with tenors of up to 30 days supported by Trust Receipts covering merchandise called for in commercial Letters of Credit issued by us. Total tenor for each inward bills transaction is not to exceed 120 days: III. Facility III - Export Line.................................HK$6,000,000.00 ------------ ----------- Within the amount stated, this facility is available for:- 1. Indemnities for Discrepancies in Letters of Credit Documents: Negotiation of documentary bills under Letters of Credit with discrepancies noted on documents presented. B. SECURITY/SUPPORT ---------------- Your obligation in respect of the Facilities is to be secured/supported by:- 1. A Corporate Guarantee executed by Bonso Electronics International Inc. (the "Guarantor") for HK$16,000,000.00; which must be in a form satisfactory to us. C. UNDERTAKINGS ------------ Applications by you to use any of the Facilities will not be accepted by us unless you comply with the following conditions/covenants and such other provisions as we may determine from time to time:- -2- Bank of America Borrower: Bonso Electronics Ltd. - -------------------------------- 1. You will have delivered to us the attached copy of this letter duly signed by the authorized signatory(ies). 2. Your obligations under the Facilities must rank at all times at least pari passu with all the claims (whether present or future, actual or contingent) of your unsecured creditors other than any claims preferred solely by law. 3. You will provide your and the Guarantor's annual audited and semi-annual financial statements within 10 months and 3 months of the relevant year end and will promptly provide any other information which we may request. Such financial statements shall be accompanied by an opinion satisfactory to the Bank. You represent that financial statements (whether audited or unaudited) delivered by you under the terms of the agreement fairly capture all material contingent liabilities in accordance with applicable accounting principles. 4. Any finance extended to you hereunder should be made on the understanding that you will route to us your documentary export letters of credit bills of no less than HY$10,000,000.00 within the period from the date of your acceptance of this letter until the date as indicated at the third paragraph under Section E for Facility III of this same letter. 5. Local L/C beneficiaries are restricted to the following companies: (a) Arrow / Components Agent Ltd. (b) Avnet WKK Components Ltd. (c) Career (Universal) Electronics Ltd. (d) EDAL Electronics Co. Ltd. (e) Enterprise Electronic Component Co., Ltd. (f) General Glory Co., Ltd. (g) Global Circuits Board Co., Ltd. (h) GPI International Ltd. (i) HongKong Noble Electronics Co. Ltd. (j) Hong Kong Satori Co., Ltd. (k) Hop Hing Industrial Co., Ltd. (1) Interquip Ltd. (m) Jack Tung Ltd. (n) Joint Harvest Industries Ltd. (o) KEC HK Corp. Ltd. (p) Kingchamp Industrial Co. (q) Kwang Sung Electronics HK Co .Ltd. (r) Leader Printed Circuit Boards Ltd. (s) Li Seng Technology Ltd. (t) Philconic International Ltd. (u) Sanyu Technology (H.K.) Ltd. -3- Bank of America Borrower: Bonso Electronics Ltd. - -------------------------------- (v) Sumikin Bussan International (HK) Ltd. (w) Toshiba Electronic Asia Ltd. (x) Weltronics Component Ltd. (y) Win Industrial (HK) Co. Ltd. (z) Wing Kay Industrial Co. (aa) Wui Lee Metals Co. Ltd. 6. You represent and warrant that acceptance of the Facilities on the terms and conditions set out herein and utilization of the Facilities does not and will not exceed your objects or powers or the powers of your directors, including, without limitation, any limit on your or your directors' power to borrow. 7. You agree that we may provide any person proposing to give a guarantee or third party security in relation to the Facilities (a "Surety") or the legal advisers of any Surety with (i) a copy of this letter and any document in connection with the Facilities evidencing the obligations to be guaranteed or secured, (ii) a copy of any formal demand for overdue payment that is sent to you if you fail to settle any overdue amount in connection with the Facilities following customary reminder and (iii) a copy of the latest statement of account provided to you (if any) in connection with the D. INTEREST, CHARGES, OTHER TERMS AND CONDITIONS --------------------------------------------- Any financing extended by us will be subject to the following interest rates and/or commissions and/or charges determined by us and documentation in form and substance satisfactory to us, containing other provisions to be prescribed by us at the time of any application by you to use any of the Facilities. 1. In respect of Overdraft Line (Facility I), interest is calculated on a daily basis and charged at the higher of (1) the prime rate for lending Hong Kong dollars as published and/or announced and/or applied by Bank of America (Asia) Ltd. from time to time or (2) 0.5% per annum plus one-month Hong Kong Interbank Offered Rate (quoted on Reuters monitor screen at or about 11:00 a.m. on the relevant day), in each case as determined by the Bank, subject to fluctuations at our discretion and is payable monthly in arrears. 2. In respect of Import and Export Line (Facility II and III), interest is calculated on a daily basis and charged at: (i) to the extent the amounts outstanding are denominated in Hong Kong dollars, 2% per annum plus Hong Kong Interbank Offered Rate (quoted. on Reuters monitor screen at or about 11:00 am. on the relevant day), in each case as determined by the Bank and/or -4- Bank of America Borrower: Bonso Electronics Ltd. - -------------------------------- (ii) to the extent the amounts outstanding are denominated in currencies other than Hong Kong dollars, 2% per annum plus Singapore Interbank Offered Rate (quoted on Reuters monitor screen at or about 11:00 a.m. on the relevant day), in each case as determined by the Bank. subject to fluctuations at our discretion and is payable in arrears. 3. Please note that the rates, commissions and other charges are subject to changes at our discretion. E. APPLICATIONS AND OTHER CONDITIONS --------------------------------- Each application by you to use the Facilities in whole or in part shall be a request by you to us to extend financing on the terms set out or referred to above. No commitment by us to extend financing shall arise until any application by you is accepted by us either expressly or by our extending finance to you. Local and Euro currency borrowings are subj ect to availability of funds at the time requested. Such applications shall be made, where applicable, on our standard forms and supported by such documentation as we may require in a form satisfactory to us. Applications made after March 31, 2004 to use Facilities 1, II and III on the terms set out herein will not normally be considered by us but if we accommodate your request after such date, then all terms set out or referred to herein shall apply to such accommodation. Any finance so extended shall in addition be subject to and in accordance with the terms set out in all current standard agreements and other documentation signed by you or on your behalf applying generally to credit and other banking facilities and accommodation and banking services granted or continued by us to you including, without limitation the General Agreement by Customer(s). Notwithstanding any other provision of this letter, all of your liabilities hereunder whether actual or contingent will, on demand by us at our absolute discretion, become immediately due and payable together with accrued interest and the Facilities will thereafter be cancelled if we, at any time, serve a notice upon you terminating the Facilities and requiring payment. F. LAW AND JURISDICTION -------------------- This letter will be governed by and construed in all respects in accordance with the laws of Hong Kong. Upon acceptance of the terms and conditions of the Facilities you irrevocably submit for our benefit to the non-exclusive jurisdiction of the Hong Kong courts. -5- Bank of America Borrower: Bonso Electronics Ltd. - -------------------------------- Please confirm your agreement to the foregoing terms and conditions of the Facilities by signing and returning to us the enclosed duplicate copy of this letter at your earliest convenience and in any event not later than April 30, 2003. Notwithstanding your failure to return this letter, the use of the Facilities by you shall be deemed as your acceptance of all terms and conditions as stated. Yours faithfully, For and on behalf of BANK OF AMERICA (ASIA) LTD. Central Banking Center /s/ Kamman Chu /s/ Alfred Lau - ----------------------------- ------------------------------- Kamman Chu Alfred Lau Assistant Vice President First Vice Preside & Manager We confirm our agreement to the terms and conditions of the Facilities set out in a letter to us from Bank of America (Asia) Ltd. of which this is a copy. Borrower: For and on behalf of Bonso Electronics Ltd. /s/ Anthony So - ----------------------------- Date AL/KC/RqW/sl -6- Bank of America EX-4.7 7 bonso4-7.txt LETTER EXHIBIT 4.7 150 years STANDARD with you CHARTERED Date: 22nd April 2003 Our ref: C&I/LC/TEAM3/BKK CONFIDENTIAL - ------------ Bonso Electronics Ltd. Units 1106-1110 11/F., Star House 3 Salisbury Road Tsimshatsui Kowloon Attn.: Mr. Anthony So/Ms. Cathy Pang - ------------------------------------ Dear Sirs, BANKING FACILITIES: BONSO ELECTRONICS LTD. We refer to our letter dated 5th March 2001 setting out the facilities made available to your company (the "Company"), as varied by our letters dated 11th May 2001, 17th May 2002 and 8th April 2003. Following our recent discussions, we confirm that the terms of the facilities have been further varied as follows: INTEREST, COMMISSIONS AND FEES Under this paragraph, interest on Trade Finance Facilities is revised to read as follows with immediate effect:- Export bills will be discounted and import bills will be financed at HIBOR plus 2% peg annum for Hong Kong Dollar bills (previously at our standard bills finance rate minus 0.5% per annum), at LIBOR plus 2% per annum for United States Dollar bills and at our standard bills finance rates plus 0.25% per annum for other foreign currency bills. All past due bills shall bear interest at 4% per annum above the rates charged on your regular bills outstandings. This letter will amend the terms of the existing facility letters which the Bank has issued to the Company as previously varied, as set out above. In all other respects, the terms of the existing facility letters as previously varied will remain in full force and effect. This letter will be governed by Hong Kong SAR law. Standard Chartered Bank Corporate & Institutional Banking Credit Operations 11 th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Hong Kong Incorporated in England with limited liability by Royal Charter 1853 The principal office of the Company is situated in England at 1 Aldermanbury Square London EC2V 79B Reference Number ZC 18 ================================================================================ Bonso Electronics Ltd. Page 2 If you have any queries, please contact our Senior Relationship Manager Ms. Rons Fong, whose telephone number is 2821-1953. We are pleased to be of service to you and take this opportunity to thank you again for your custom. Yours faithfully, For and on behalf of STANDARD CHARTERED BANK /s/ Anita Poon - ---------------------------------- Anita Poon Senior Credit Documentation Manager AP/ky ================================================================================ EX-4.8 8 bonso4-8.txt LETTER EXHIBIT 4.8 150 years STANDARD with you CHARTERED Date: 8th April 2003 Our ref: C&I/LC/TEAM3/BKH CONFIDENTIAL - ------------ Bonso Electronics Ltd. Units 1106-1110 11/F., Star House 3 Salisbury Road Tsimshatsui Kowloon Attn.: Mr. Anthony So/Ms. Cathy Pang - ------------------------------------ Dear Sirs, BANKING FACILITIES: BONSO ELECTRONICS LTD. We refer to our letter dated 5th March 2001 setting out the facilities made available to your company (the "Company"), as varied by our letters dated 11th May 2001 and 17th May 2002. Following our recent discussions, we confirm that the terms of the facilities have been further varied as follows: STANDBY LETTER OF CREDIT - HKD15,000,000.00 (previously HKD20,000,000.00) The amount of this facility is reduced from HKD20,000,000.00 to HKD15,000,000.00 The tenor is one year up to 10th May 2003. DOCUMENTATION The following documentation is no longer required: o All monies charge over deposits held by the Company with the Bank in an amount of not less than HKD5,000,000.00 (10% extra margin required for major foreign currency deposits. The Bank reserves the right to require a higher margin.) An arrangement fee of HKD10,000.00 will be debited to your current account. Standard Chartered Bank Corporate & Institutional Banking Credit Operations 11 th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Hong Kong Incorporated in England with limited liability by Royal Charter 1853 The principal office of the Company is situated in England at 1 Aldermanbury Square London EC2V 79B Reference Number ZC 18 ================================================================================ Bonso Electronics Ltd. Page 2 This letter will amend the terms of the existing facility letters which the Bank has issued to the Company as previously varied, as set out above. In all other respects, the terms of the existing facility letters as previously varied will remain in full force and effect. This letter will be governed by Hong Kong SAR law. If you have any queries, please contact our Senior Relationship Manager Mr. Joseph Ng, whose telephone number is 2821-1810. We are pleased to be of service to you and take this opportunity to thank you again for your custom. Yours faithfully, For and on behalf of STANDARD CHARTERED BANK /s/ Anita Poon - ---------------------------------- Anita Poon Senior Credit Documentation Manager AP/ky EX-4.9 9 bonso4-9.txt LETTER EXHIBIT 4.9 Standard & Chartered Standard Chartered Bank Date: 5th March 2001 Corporate & institutional Banking Our ref: C&I(LC/TEAM3IBKH Credit Operations 11 th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong CONFIDENTIAL Hong Kong - ------------ Telephone Fax Bonso Electronics Ltd. Units 1106-1110 11/F., Star House 3 Salisbury Road Tsimshatsui Kowloon Attn.: Mr. Anthony So/Ms. Cathy Pang - ------------------------------------ Dear Sirs, BANKING FACILITIES: BONSO ELECTRONICS LTD. We are pleased to confirm that the Bank is willing to make available to your company (the "Company") the following working capital facilities up to the amounts indicated. 1. CURRENT ACCOUNT OVERDRAFT - HKD6,000,000.- 2. TRADE FINANCE GROUP 1 - HKD35,000,000.- 3. TRADE FINANCE GROUP 2 - HKD30,000,000.- 4. TRADE FINANCE GROUP 3 - HKD25;000,000.- The above Trade Finance Groups 1, 2 and 3 are complementary and the combined outstandings are not to exceed HKD35,000,000.- Similarly the combined outstandings of Trade Finance Groups 2 and 3 are not to exceed HKD30,000,000.For product availability, please see the attachment to this letter. Prior evidence of insurance is required for all "free on board" and "cost and freight" shipments under import letters of credit. Combined usance and loan period of any one transaction under import facilities is not to exceed 120 days. Usance period of export facilities is not to exceed 60 days. Incorporated in England with limited liability by Royal Charter 1853 The principal office of the Company is situated in England at 1 Aldermanbury Square London EC2V 79B Reference Number ZC 18 Standard Chartered Bonso Electronics Ltd. Page 2 Sub-limit for import outstanding under Trade Finance Group 1 is allowed up to HKD20,000,000.- only. "Documents Against Acceptance" ("D/A") bills under ECIC limit is only available to the following approved drawee with ECIC policy assigned to the Bank:- Drawee Limit - ------ ----- Sumbeam - Oster Household Products (U.S.A.) HKD2,000,000.- Packing credits is allowed with 70% advance for up to 90 days or the expiry date of the related letters of credit, whichever is earlier. Export invoice discounting facility is available to the following approved drawees:- Drawees Tenor Limit - ------- ----- ----- Omron Healthcare GmbH 45 days } Omron Healthcare Inc. (Del) 45 days } HKD3,000,000.- (combined limit for Omron Singapore Pte Ltd. 45 days } Omron Group of companies is Omron Healthcare Europe BV 45 days ) HKD3,000,000.-) Werner Dorsch GmbH 30 days HKD1,500,000. (secured by Bank guarantee of USD150,000.-) Globaltec Corporation 30 days HKD1,500,000.- The Company undertakes not to accept any amendments to the master letters of credit without the prior written consent of the Bank. INTEREST, COMMISSIONS AND FEES Unless otherwise specified, interest on all sums advanced will be payable monthly in arrears *at. Prime. A default rate-of Prime plus 8% per annum will apply to amounts not paid when due or in excess of agreed facility amounts. "Prime" means the rate which we announce or apply from time to time as our prime rate for lending Hong Kong Dollars. Commissions will be charged at our standard rates unless otherwise . stipulated. Export bills will be discounted and import bills will be financed at our standard bills finance rate minus 0.5% for Hong Kong Dollar and United States Dollar bills and at our standard bills finance rates plus 0.2% per annum for other foreign currency bills. All past due bills shall bear interest at 4% per annum above the rates charged on your regular bills outstandings. Letters of Credit Opening Commission & Commission in lieu of Exchange - --------------------------------------------------------------------- First USD50,000.- 1/4% Balance 1/8% Standard (Chartered Bonso Electronics Ltd. Page 3 Commission on other Trade Finance Facilities - -------------------------------------------- Invoice discounting 1/8% flat (minimum HKD400:-) You shall pay to the Bank an arrangement fee of HKD10,000.-, payable on the date on which the Bank's offer of the above facilities are accepted by you as signified by your counter-signing of this letter. The arrangement fee is non-refundable in any event. A handling fee in an amount to be mutually agreed will be payable on each anniversary of the date of this letter if the facilities are continuing. The fees will be debited to your current account. Whether or not the documentation for the above facilities is executed or the facilities are made available to you as contemplated following your acceptance of this letter, you shall forthwith on demand reimburse the Bank all out - of pocket expenses (including but not limited to legal fees and disbursements) incurred by the Bank in connection with the facilities including, without limitation, the negotiation, preparation, execution and/or enforcement of this letter and the documentation referred to below. AVAILABILITY AND REPAYMENT The above facilities are subject to periodic review by the Bank at its discretion, and it is expressly agreed that they will at all times be available at the sole discretion of the Bank- Notwithstanding any other provisions contained in this letter or in any other document, the Bank will at all times have the right to require immediate payment and/or. cash, collateralisation of all or part of any sums actually or contingently owing to it, and the right to immediately terminate or suspend, in whole or in part, the facilities and all further utilisation of the facilities. ASSIGNMENT The Company may not assign or transfer all or any of its rights, benefits or obligations under this letter (and any documentation or transactions to which this letter relates) without the Bank's prior written consent. The Bank may at any time assign or transfer to any one or more banks or other financial institutions all or any of its rights, benefits or obligations under this letter (and any documentation or transactions to which this letter relates) or change its lending office. DOCUMENTATION Before the above facilities may be used, the enclosed copy of this letter must be signed and returned to us together with a certified copy of appropriate authorising board resolutions. Standard Chadered Bonso Electronics Ltd. Page 4 The following documentation are held/will also be required: o General Customer Agreement executed by the Company. o All monies charge over deposits held by the Company with the Bank in an amount of not less than HKD5,000,000.- (10% extra margin required for major foreign currency deposits. The Bank reserves the right to require a higher margin.) o All monies first tripartite legal charge over the property known as House 27, Savanna Garden, No. 4283 Tai Po Road, Tai Po Kau, Tai Po, Kowloon in the name of Bonso Investment Ltd. Insurance for the insurable value is to be arranged through mutually acceptable insurers and is to be assigned to and held by the Bank. If not otherwise paid, we will have the right to pay the premiums and debit your current account. We will require a formal valuation before the facilities are used, and annually thereafter a desk-top valuation with a full valuation every third year. o Bank Guarantee of not less than USD150,000.- issued by Dresdner Bank AG in Frankfurt am Main in favour of the Bank. (10% extra margin required for other major foreign currencies. The Bank reserves the right to require a higher margin.) o Unlimited corporate guarantee by Bonso Electronics International Inc. o Signed original copies of audited financial statements of the Company and Bonso Electronics International Inc. within 9 months after their financial year end. A signed original copy of quarterly financial statements of Bonso Electronics International Inc. within 3 months from each quarter end. Such other information as the Bank may request from time to time. UNDERTAKINGS The Company undertakes to the Bank that it will: o Ensure Ensure loan from Holding Company (Bonso Electronics International Inc.) not to be less than HKD40,000,000.- at all times. o Utilize the trade finance facilities of no less than average 60% of the available facilities. o Immediately inform the Bank of any change of the Company's directors or beneficial shareholders or amendment of its memorandum or articles of association. Standard Chartered Bonso Electronics Ltd. Page 5 By acceptance of this letter the Company gives consent to the Bank to disclose details of the Company's account relationship with the Bank (including credit balances and any security given for the facilities) to (i) its Head Office and any of its offices, branches, related companies or associates, (ii) any actual or proposed participant or sub-participant in, or assignee or novatee of the Bank's rights in relation to the Company's accounts, (iii) any agent, contractor or third party service provider which provides services of any kind to the Bank in connection with the operation of its business, and (iv) any financial institution with which the Company has or proposes to have dealings to enable credit checks to be conducted on the Company. Please sign the enclosed copy of this letter and return it to the Bank's Credit Operations at 11th Floor, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, for the attention of the undersigned, within one month after the date of this letter, after which this offer will lapse. When accepted, this letter will supersede any previous facility letter which the Bank has issued to the Company. This letter will be governed by Hong Kong SAR law. We enclose a set of documents which should also be completed and returned to the Bank at the above mentioned address. If you have any queries regarding the completion of the required documents, please contact the undersigned, whose telephone number is 2282-6376. With regard to queries on banking arrangements, you can contact your Senior Relationship Mr. Philip Chow, whose telephone number is 2282-6324. We are pleased to be of service to you and take this opportunity to thank you for your custom. Yours faithfully, For and on behalf of STANDARD CHARTERED BANK /s/ Anita Poon - ----------------------------- Anita Poon Senior Credit Documentation Manager AP/bn Encl. Agreed. For and on behalf of BONSO ELECTRONICS LTD. /s/ Anthony So - ----------------------------- Standard Chartered Bonso Electronics Ltd. ---------------------- Attachment Regarding Trade Finance Products - ------------------------------------------- This attachment forms an integral part of our banking facility letter dated 5th March 2001. You may use any product or aggregate of products in any one group up to the limit shown in the attached banking facility letter. Trade Finance Group 1 - --------------------- o Discrepant Credit Bills Negotiated - with recourse o Purchase of Documents Against Payment Bills of Exchange secured by goods o Purchase of Documents Against Acceptance Bills of Exchange with ECA/approved insurance cover o Back to Back Letters of Credit o Import Letters of Credit - sight and usance - secured by goods Trade Finance Group 2 - --------------------- o Purchase of Documents Against Acceptance Bills of Exchange without ECA/approved insurance cover o Purchase of Documents Against Payment Bills of Exchange not secured by goods o Quasi Back to Back Letters of Credit - not secured by goods o Import Letters of Credit - sight and usance - not secured by goods o Shipping Guarantees o Export Invoice Discounting under ECIC cover Trade Finance Group 3 - --------------------- o Pre-shipment Loan - i.e. Packing Credit o Acceptance of draft under Import Letter of Credit o Release of Documents Against Acceptance or Trust Receipt o Loans Against Trust Receipt o Import Loans o Export Invoice Discounting BOARD MINUTES - BM1 (94) ------------------------------------------- (newfacility letter-authority for variations) Minutes of a Meeting of the Board of Directors of Bonso Electronics ----------------- Unit 1106-1110 11/F Star House Limited ("the Company") held at 3 Salisbuzv Road. Tsimhatsui. Kowloon - --------- ------------------------------------- on the 12 day of March 2001. ---- ---------- Present: Mr. Anthony SO Miss Kit Teng PANG Mr. K. W. CHUM 1. With the approval of the meeting, Mr. Anthony SO presided as Chairman. ---------------- 2. The Chairman noted that, due notice of the meeting having been given to all the directors and a quorum being present, the meeting could proceed. 3. The Chairman reported that Standard Chartered Bank ("the Bank") had offered to make available certain facilities ("the Facilities") to the Company on the terms set out in the Bank's facility letter dated 5th March 2001 ("the Facility Letter"), a copy of which was tabled. 5. The directors declared their interests (if any) in the transactions contemplated by the Facility Letter and the Chairman noted that, pursuant to the articles of association of the Company, none of the directors was thereby prohibited from voting at the meeting 6. Discussion then took place on the terms of the Facility Letter 7. IT WAS NOTED that from time to time the Company may wish to vary the Facilities and that it would be appropriate for certain variations to be authorised in advance at this meeting. 8. IT WAS RESOLVED that: # (a) it was in the interests of the Company. to its benefit and in furtherance of its objects, that the Company accept the Facilities; (b) any director of the Company (a "director") or any other person from time to time authorised to operate the Company's current account with the Bank (an "authorised signatory'7, be and is hereby authorised to sign on behalf cf the Company the Facility Letter and such other documents as such director or authorised signatory may deem necessary and proper in connection therewith: (e) any director or any authorised signatory be and is hereby authorised from time to time on behalf of the Company to approve any temporary excess borrowing or other accommodation or other temporary variation of the Facilities or of the terms of the Facility Letter: 9. IT WAS FURTHER RESOLVED that: (a) any director be and is hereby authorised from time to time on behalf of the Company to agree with the Bank to (i) increase or otherwise vary the limits or accommodation available under the Facilities, (ii) vary the terms on which the Facilities are to be made available or continued (whether as to security or otherwise) and (iii) for this purpose, execute any amendment or supplement to the Facility Letter and such other documents and do such other things as such director may deem necessary and proper in connection therewith; (b) any director or any authorised signatory be and is hereby authorised to sign on behalf of the Company any further security document which is to be executed under hand and which is required to be executed in connection with any variation of the Facilities approved by a director pursuant to resolution 9(a) above. 10. IT WAS FURTHER RESOLVED that any director or any authorised signatory be and is hereby authorised on behalf of the Company to execute such other documents and do such other things relating to any of the matters aforesaid as such director or authorised signatory may deem necessary and proper in connection therewith. 11. IT WAS FURTHER RESOLVED that a copy of these minutes (certified as a true copy by a director or the secretary) be delivered to the Bank and that the resolutions referred to herein shall remain in force, and the Bank shall be entitled to rely thereon, until a certified copy of an amending resolution duly passed by the board of directors of the Company shall have been delivered to the C&I, Wholesale Bank of the Bank. 12. There being no further business the Chairman declared the meeting closed. /s/ Anthony So --------------------------------- Chairman * To be completed/deleted (as appropriate). # The directors should satisfy themselves as to the accuracy of these paragraphs Board Minutes - BM 1 (94) -------------------------------------------- (new facility letter-authority for variations) Minutes of a Meting of the Board of Directors of Bonso Electronics ------------------------ Limited ("the Company") held at UNIT 06-10, 11 /F. , STAR HOUSE, - -------------- -------------------------------- 3 SALISBURY ROAD, TST, KOWLMN on the 14th day of MAY.2001 - ----------------------------- ------- -------- Present: SO HUNG GUN CHUNG KIM WAH PANG KIT TENG 1. With the approval of the meeting, SO HUNG GUN ANTHONY presided as Chairman. ------------------- 2. The Chairman noted that, due notice of the meeting having been given to all the directors and a quorum being present, the meeting could proceed. 3. The Chairman reported that Standard Chartered Bank ("the Bank") had offered to make available certain facilities ("the Facilities") to the Company on the terms set out in the Bank's facility letter dated 5th March 2001 as amended by the Bank's supplemental ("the Facility Letter"), a copy of which was tabled. facility letter dated 11th May 2001 # 5.The directors declared their interests (if any) in the transactions contemplated by the Facility Letter and the Chairman noted that, pursuant to the articles of association of the Company. * none of the directors was thereby prohibited from voting at the meeting. 6. Discussion then took place on the terms of the Facility Letter. 7. IT WAS NOTED that from time to time the Company may wish to vary the Facilities and that it would be appropriate for certain variations to be authorised in advance at this meeting. 8. IT WAS RESOLVED that; # (a) it was in the interests of the Company, to its benefit and in furtherance of its objects, that the Company accept the Facilities; (b) any director of the Company (a "director") or any other person from time to time suthortsed to operate the . Gompany's current account with the Bank (an'authorlsed signatory"), be and Is hereby authorised to sign on behalf of the Company the Facility Letter and such other documents as such director or authorlsed signatory may deem necessary and proper in connection therewith: (e) any director or any authorised signatory be and is hereby authorised from time to time on behalf of the Company to approve any temporary excess borrowing or other accommodation or other temporary variation of the Facilities or of the terms of the Facility Letter. 9. IT WAS FURTHER RESOLVED that: (a) any director be and is hereby authorised from time to time on behalf of the Company to agree with the Bank to (i) increase or otherwise vary the limits or accommodation available underthe Facilities, (ii) vary the terms on which the Facilities are to be made available or continued (whether as to security or otherwise) and (iii) for this purpose, execute any amendment or supplement to the Facility Letter and such other documents and do such other things as such director may deem necessary and proper in connection therewith; (b) any director or any authorised signatory be and is hereby authorised to sign on behalf of the Company any further security document which is to be executed under hand and which is required to be executed in connection with any variation of the Facilities approved by a director pursuant to resolution 9(a) above. 10. IT WAS FURTHER RESOLVED that any director or any authorised signatory be and is hereby authorised on behalf of the Company to execute such other documents and do such other things relating to any of the matters aforesaid as such director or authorised signatory may deem necessary and proper in connection therewith. 11. IT WAS FURTHER RESOLVED that a copy of these minutes (certified as a true copy by a director or the secretary) be delivered to the Bank and that the resolutions referred to herein shall remain in force, and the Bank shall be entitled to rely thereon, until a certified copy of an amending resolution duly passed by the board of directors of the Company shall have been delivered to the C&I, Wholesale Bank of the hank. 12. There being no further business the Chairman declared the meeting closed. /s/ Anthony So ----------------------------------- Chairman * To be completed/deleted (as appropriate). # The directors should satisfy themselves as to the accuracy of these paragraphs EX-4.10 10 bonso4-10.txt LETTER EXHIBIT 4.10 Standard Chartered Date: 11th May 2001 Standard Chartered Bank Our ref: C&I/LC/TEAM3/BKH Corporate & Institutions, Wholesale Bank Credit Operations 11th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Hong Kong Telephone Fax CONFIDENTIAL - ------------ Bonso Electronics Ltd. Units 1106-1110 11/F., Star House 3 Salisbury Road Tsimshatsui Kowloon Attn.: Mr. Anthony So/Ms. Cathy Pang - ------------------------------------ Dear Sirs, BANKING FACILITIES: BONSO ELECTRONICS LTD. We refer to our letter dated 5th March 2001 setting out the facilities made available to your company (the "Company"), as varied by our letters dated 11th May 2001 and 17th May 2002. Following our recent discussions, we confirm that the terms of the facilities have been varied as follows: The following facility is added: STANDBY LETTER OF CREDIT - HKD20,000,000.- (NEW) For the issuance to Deutsche Bank in support of credit facilities granted to Korona Haushaltswaren GmbH & Co. by Deutsche Bank. The tenor is one year up to 10th May 2002. Commision will be charged at 1.5% per annum. CURRENT ACCOUNT OVERDRAFT - HDK3,000,000 - (previously HKD3,000,000.-) The amount of this facility is reduced from HKD6,000,000.- to HKD3,000,000.- INTEREST, COMMISSIONS AND FEES Under this paragraph, interest on Trade Finabce Facilities is revised to read as follows: - Export bills will be discounted and import bills will be financed at our standard bills finance rate minus 0.5% for Hong Kong Dollar and United States Dollar bills and at our standard bills finance rates plus 0.5% per annum (previously at our standard bills finance rates plus 0.25% per annum) for other foreign currency bills. All past due bills shall bear interest at 4% per annurn above the rates charged on your regular bills outstandings. Other terms and conditions remain unchanged. Incorporated in England with limited liability by Royal Charter 1853 The principal office of the Company is situated in England at 1 Aldermanbury Square London EC2V 79B Reference Number ZC 18 STANDARD CHARTERED Bonso Electronics Ltd. Page 2 DOCUMENTATION The following documentation is no longer required: o All monies charge over deposits held by the Company with the Bank in an amount of not less than HKD5,000,000. (10% extra margin required for major foreign currency deposits. The Bank reserves the right to require a higher margin.) . o A signed original copy of quarterly financial statements of Korana Haushaltswaren GmbH & Co. within 2 months from each quarter end. The variations set out above will take effect when we have received: o The enclosed copy of this letter duly signed together with a certified copy of appropriate authortsing board resolutions. o The required documentation mentioned in the Documentation Section. Please sign the enclosed copy of this letter and return It to the Banks Credit Operations at 11th Floor, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Hong Kong for the attention of the undersigned within one month after the date of this letter. This letter will amend the terms of the existing facility letter which the Bank has Issued to the Company, as set out above. In all other respects, the terms of the existing facility letter will remain in full force and effect. This letter will be governed by Hong Kong SAR law. We enclose a set of documents which should also be completed and returned to the Bank at the above mentioned address. If you have any queries regarding the completion ot the required documents, please contact the undersigned, whose telephone number is 2282-6376. With regard to queries on banking arrangements, you can contact your Senior Relationship Manager Mr. PhIlip Chow, whose telephone number is 2282-6324. STANDARD CHARTERED Bonso Electronics Ltd. Page 3 We are pleased to be of service to you and take this opportunity to thank you again for your custom. Yours faithfully, For and on behalf of STANDARD CHARTERED BANK /s/ Anita Poon - ----------------------------- Anita Poon Senior Credit Documentation Manager AP/bn Encl. Agreed. For and on behalf of BONSO ELECTRONICS LTD. /s/ Anthony So - ----------------------------- EX-4.11 11 bonso4-11.txt LETTER EXHIBIT 4.11 Standard Date: 17th May 2002 Chartered Our ref: C&I/LC/TEAM3/BKH CONFIDENTIAL - ------------ Bonso Electronics Ltd. Units 1106-1110 11 /F., Star House 3 Salisbury Road Tsimshatsui, Kowloon Attn.: Mr: Anthony So/Ms. Cathy Pang - ------------------------------------ Dear Sirs, BANKING FACILITIES: BONSO ELECTRONICS:LTD We refer to our letter dated 5th March 2001 setting out the facilities made available to your company (the "Company"), as varied by our letter dated 11th May 2001. Following our recent discussions, we confirm that the facilities have been renewed on unchanged basis except the following variations: STANDBY LETTER OF CREDIT - HKD20,000,000.- The tenor of the Standby Letter of Credit issued to Deutsche Bank in support of credit facilities granted to Korona Haushaltswaren GmbH & Co. by Deutsche Bank has been extended for another 12 months. INTEREST, COMMISSIONS AND FEES The first paragraph under this heading is revised to read as follows:- Unless otherwise specified, interest on all sums advanced will be payable monthly in arrears at Prime or HIBOR, whichever is higher. A default rate of 8% per annum over Prime or HIBOR, whichever is higher, will apply to amounts not paid when due or in excess of agreed facility amounts. "Prime" means the rate which we announce or apply from time to time as our prime rate for lending Hong Kong Dollars, "HIBOR" means the rate which we determine to be the Hong Kong Interbank Offered Rate for the relevant period and "LIBOR" means the rate which we determine to be the London Interbank Offered Rate for the relevant period. Export bills will be discounted and import bills will be financed at our standard bills finance rate minus 0.5% per annum for Hong Kong Dollar bills, at LIBOR plus 2% per annum for United States Dollar' bills and at our standard bills finance rates plus 0.25% per annum for other foreign currency bills. All past due bills shall bear interest at % per annum above the rates charged on your regular bills outstandings. Standard Chartered Bank Corporate & Institutional Banking Credit Operations 11th Floor Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Hong Kong Incorporated in England with limited liability by Royal Charter 1853 The principal office of the Company is situated in England at 1 Aldermanbury Square London EC2V 79B Reference Number ZC 18 ================================================================================ Bonso Electronics Ltd. Page 2 An arrangement fee of HKD10,000.- will be payable upon your acceptance of this letter. DOCUMENTATION The following documentation is no longer required: o All movies charge over deposits held by the Company with the Bank in an amount of not less than HKD7,000,000.- to cover the Standby Letter of Credit Facility. (10% extra margin required for major foreign currency deposits. The Bank reserves the right to require a higher margin.) By acceptance of this letter the Company gives consent to the Bank to disclose details of the Company's account relationship with the Bank (including credit balances and any security given for the facilities) to all or any of the following persons (whether in or outside Hong Kong): (i) its Head Office and any of its offices, branches, related companies or associates, (ii) any actual or proposed participant or sub-participant in, or assignee or novatee of the Bank's rights in relation to the Company's accounts, (iii) any agent, contractor or third party service provider which provides services of any kind to the Bank in connection with the operation of its business, (iv) any financial institution with which the Company has or proposes to have dealings to enable credit checks to be conducted on the Company, and (v) any person to whom the Bank is under an obligation to make disclosure under the requirements of any law binding on the Bank or any of its branches. Please sign the enclosed copy of this letter by a director on behalf of the Company and return it to the Bank's Credit Operations at 11th Floor, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon, for the attention of the undersigned, within one month after the date of this letter. This letter will amend the terms of the existing facility letters which the Bank has issued to the Company as previously varied, as set out above. In all other respects, the terms of the existing facility letters as previously varied will remain in full force and effect. This letter will be governed by Hong Kong SAR law. . If you have any queries, please contact our Senior Relationship Manager Mr. Joseph Ng, whose telephone number is 2821-1810. ================================================================================ Bonso Electronics Ltd. Page 3 We are pleased to be of service to you and take this opportunity to thank you again for your custom. Yours faithfully, For and on behalf of STANDARD CHARTERED BANK /s/ Anita Poon - ----------------------------- Anita Poon Senior Credit Documentation Manager AP/ky Encl. Agreed. For and on behalf of BONSO ELECTRONICS LTD. /s/ Anthony So - ----------------------------- Director EX-4.12 12 bonso4-12.txt LETTER EXHIBIT 4.12 DBSKWONG ON BANK Our ref: DKOB/CS&S/FL IDC/8493 Date: 16th May 2002 Bonso Electronics Limited Units 1106-1110, llib Floor Star House, 3 Salisbury Road Tsimshatsui, Kowloon Attention: Ms. Cathy Pang - ------------------------- Dear Sirs, Banking Facilities : Bonso Electronics Limited ("Borrower") ----------------------------------------------------------- We are pleased to advise you that we are prepared to make available to you the following banking facilities (the "Facilities") upon the following terms and conditions: Facilities 1. Overdraft -HKD500,000: Interest at prime rate quoted by the Bank from time to time. Note: Unutilised Overdraft Facility is available for Letter of Credit, Trust Receipt and Negotiation under Documentary Credit Facilities mentioned below but not vice versa. 2a. Letter of Credit - HKD11,000,000: For issuance of foreign or local letter of credit with or without title documents at sight or usance up to 60 days. Local lelter of credit beneficiaries are restricted to the following companies subject to variation and notification from time to time at the Bank's sole discretion: (i) Arrow/Texny (HK) Limited (ii) Avnet Hong Kong Limited (iii) Dee Van Enterprise Company (HK) Limited (iv) Enterprise Electronic Component Company Limited (v) General Glory Company Limited (vi) GPI International Limited (vii) Hong Kong Satori Company Limited (viii) Jack Tung Limited (ix) Li Seng Technology Limited (x) Ilssan (Hong Kong) Limited (xi) Leader Printed Circuit Boards Limited (xii) Marketa Scmi-Conductor Limited (xiii) SCT Electronics Limited (xiv) Sumikin Bussan International (HK) Limited (xv) Techtrend Limited (xvi) Toshiba Electronics Asia Limited (xvii) Tung Ah Printing Company Limited (xviii) Varta Batteries Pte Limited (xix) Weltroaics Component Limited DBS KWONO ON BANK LIMITED 139 Queen's Road Central. Central, Hong Kong Tel (852) 2815 3636 Fax (852) 2167 8222 Bonso Electronics Limited - -------------------------------------------------------------------------------- (xx) Willas Company Limited (xxi) A & E Enterprise Company Limited (xxii) Wui Lee Metals Company Limit (xxiii) Wing Kay Industrial Company 2b. Trust Receipt - HID11,000,000: Trust receipt under letter of credit is allowed up to 120 days. Shipping guarantee under letter of credit or inward collection is allowed up to 30 days. Interest at 2.25% per annum over Interbank Offer Rate quoted by the Bank from time to tune. 2c. Export Invoice Financing - BIXD5,000,000: To provide 100% financing for delivery of goods on open account basis drawn on Tnsquare Communications (Hong Kong) Company Limited with maximum loan tenor of 60 days. Drawdown is subject to the presentation of copies of transportation documents and commercial invoices certified by the authorized signors of the Borrower. Interest at 2.25% per annum over Interbank Offer Rate quoted by the Bank from time to time. Notes: ----- (1) The Letter of Credit Facility, the Trust Receipt Facility and Export Invoice Financing Facility are complementary and the aggregate limit in respect of these facilities shall not exceed HKD11,000,000.-. (2) Total tenor of each inward bills transaction including trust receipt financing shall not exceed 120 days. (3) Unutilised Letter of Credit and Trust Receipt Facilities is available for Negotiation under Documentary Credit Facility mentioned below but not vice versa. 3. Negotiation under Documentary Credit (with recourse) - HICD6,000,000.- At sight or usance up to 90 days. Interest at 2.25% per annum over Interbank Offer Rate quoted by the Bank from time to time. If a discrepancy is found in the underlying letter of credit documents, then notwithstanding anything contained in this Letter, the Bank may at its absolute discretion refuse to negotiate any documentary credit and/or bill(s). Commission of Trade Facilities: L/C Opening Commission / Commission in Lieu of Exchange / --------------------------------------------------------- Handling Commission Advanced Bills) ---------------------------------- The Bank's standard prevailing commission unless otherwise agreed. Handling Commission of Exuort InvoiceFinancine: 1/8% flat. ---------------------------------------------- 2 Bonso Electronics Limited - -------------------------------------------------------------------------------- Conditions Precedent : The availability of the Facilities is conditional upon completion and delivery of the appropriate supporting board minutes and/or shareholders' resolutions, and the following documentation, items and evidence in form and substance satisfactory to the Bank: (a) the Bank's standard form General Commercial Agreement duly executed by the Borrower; (b) (i) the Bank's standard form all monies Memorandum of Charge on Deposit Accounts duly executed by the Borrower; (ii) the deposit by the Borrower for an amount of not less than HKD3,000,000.- or its equivalent in US Dollars, with interest being maintained with the Bank, (c) the Bank's standard form all monies Guarantee duly executed by Bonso Electronics International Inc.; (d) such other documents, items or evidence as the Bank may require. Prime Rate : The prime rate shall mean Hong Kong Dollar prime rate quoted by the Bank from time to time unless otherwise provided herein. If the interest rate in respect of any Facility is expressed to be a margin over the prime rate quoted by the Bank from time to time, the Bank shall be entitled, in its reasonable discretion, at any time without reference or notice to the Borrower, to substitute the rate of "HIBOR plus 0.5%" for the prime rate in calculating the interest payable under such Facility. If the interest rate in respect of any Facility, is expressed to be a percentage less than the prime rate quoted by the Bank from time to time, the Bank shall be entitled, in its reasonable discretion, at any time without reference or notice to the Borrower, to replace such interest rate by the rate: of "HIBOR plus 0.5%" as the applicable interest rate in respect of such Facility. Overdue Interest : Any amount under this Letter which is unpaid on due date or in excess of the Overdraft Facility limit, the sum overdue or in excess, as the case may be, will be subject to the Bank's then prevailing overdue or over limit interest rate, as the case may be, and may be compounded monthly or at such other intervals as the Bank determines. The Bank may, without prejudice to its other rights, increase the interest rate on the entire amount outstanding under this Letter if any amount becomes overdue. Renewal Fee: HCD10,000.- Interest Calculation : Save as otherwise provided herein, interest will accrue on a daily basis and will be calculated by reference to the number of days elapsed and a 365-day year if the loan is in HK Dollars or Pounds Sterling or a 360-day year if the loan is in any other approved foreign currency. Payments : All payments by the Borrower are to be made to the Bank in accordance with the Bank's directions in the currency in which the Facility (or the part in question) is denominated or, as the case may be, in which the same was incurred or, if the Bank shall so require, in HK Dollars, in each case in immediately available funds without set-off or counterclaim and free and clear and without any deduction or withholding for any taxes, duties or any other charges whatsoever. Fees and Expenses : Whether or not any monies are advanced to the Borrower pursuant to this Letter or otherwise, the Borrower shall pay on demand by the Bank all costs and expenses (including, but not limited to, debt collection agents', legal and other professional advisers' fees on a full indemnity basis, travel, communications, publicity and other expenses and charges) reasonably and properly incurred by the Bank in connection with the preparation, negotiation and entry into of this Letter, the General Commercial Agreement and other security doouments to be given by the Borrower or other security providers (collectively "Loan Documents") or in perfeetM, preserving or protecting any rights under the Loan Documents or in exercising or enforcing or attempting to exercise or enforce any rights under the Loan Documents. 3 Bonso Electronics Limited - -------------------------------------------------------------------------------- A handling fee in an amount to be determined by the Bank will be payable in respect of the annual review to be carried out by the Bank so long as the Facilities are continuing. The fees will be debited to your account. Undertakings : By signing this Letter, the Borrower shall be deemed to undertake to and in favour of the Bank the following (a) The Borrower will keep and prepare its books of account and financial statements in accordance with applicable law and generally accepted accounting principles and practices in Hong Kong. (b) The Borrower shall deliver to the Bank: (i) as soon as available, and in any event within 10 months after the end of each of the financial years, copies of audited (and, as appropriate, consolidated) accounts and the related directors' and auditors' reports for each financial year of the Borrower and Bonso Electronics International Inc. and as soon as reasonably required by the Bank, all such other information relating to their financial condition and business as the Bank may request; (ii) as soon as available, and in any event within 3 months after the end of the first . half of each financial years, copies of semi-annual accounts of Bonso Electronics International Inc.; (iii) with reasonable promptness, details of any material litigation, arbitration of administrative proceeding current or, to its knowledge, threatened by or against it. (c) The Borrower will notify the Bank promptly of any change of its directors or beneficial shareholders or any amendment to its memorandum or articles of association. (d) The Borrower will promptly notify the Bank upon becoming aware of any factor which may inhibit, impair or delay performance by the Borrower or any security providers of their obligations under the Loan Documents. (e) The Borrower will channel Import and Export bills of not less than HKD30,000,000.- to the Bank per annum. Demand Facilities (a) Notwithstanding any other provision of this Letter, the Bank shall be entitled at any time in its absolute discretion to cancel the Facilities or any part thereof and/or to demand immediate repayment or payment (as the case may be) of all principal, interest, fees and other amounts outstanding under this Letter or any part thereof ("Liabilities") and/or to require the Borrower immediately to provide full cash collateral in respect of the Liabilities (whereupon the facilities or such part shall be so cancelled and/or the Liabilities shall be immediately so payable and/or such cash collateral shall be so provided). (b) Notwithstanding the clause headed "Payments" above (which shall only apply where no demand has been made), all monies received by the Bank at any time after the Bank has exercised its rights under paragraph (a) mentioned above shall be applied, subject to any prior ranking claims and the right of the Bank to place them in a suspense account pursuant to the General Commercial Agreement: first: in or towards discharging all costs and expenses incurred by the Bank in perfecting, preserving, enforcing or attempting to so perfect, preserve or enforce its rights under the Loan Documents; 4 Bonso Electronics Limited - -------------------------------------------------------------------------------- secondly: in or towards discharging all unpaid Liabilities in such order and manner as the Bank may prescribe; thirdly: subject to the rights of third parties of which the Bank has actual notice, any balance in payment to the Borrower. Assignment (a) The Borrower may not assign or transfer any or all of its rights or obligations under this Letter. (b) The Bank may at any time transfer all or any part of its rights and/or of its obligations under this Letter. All references in this Letter to `Bank' include any other person with which the Bank merges or consolidates and will be read as if such entity formed by the merger or amalgamation had been a party to this Letter in place of the Bank. (c) The Borrower agrees that the Bank may use, store, disclose, transfer (whether within or outside Hong Kong), and/or exchange such information including personal data about the Borrower, its accounts and this transaction to or with such persons as the Bank may consider necessary including without limitation any other member of the Bank's group for any and all purposes in connection with any or all of the Facilities, the Loan Documents and the matters contemplated thereby, and/or in connection with matching for whatever purpose (whether or not with a view to taking any adverse action against the Borrower), and/or for the purpose of promoting, improving and furthering the provision of other services by the Bank and any other member of the Bank's group to the Borrower generally, and/or any other purposes in accordance with the Bank's general policies on handling personal data as set out in statements, circulars or notices made available by the Bank to the Borrower from time to time, and the Borrower agrees to be bound by the provisions of such statements, circulars and notices which shall form part of the Borrower's agreement with the Bank. Section 83 of the Banking Ordinance: Please note that Section 83 of the Banking Ordinance has imposed on the Bank as a bank certain limitations on advances to persons related to the Bank's directors or employees. In acknowledging this Letter the Borrower undertakes to advise the Bank whether the Borrower is in any way related to any of the Bank's directors or employees within the meaning of Section 83 and in the absence of such advice the Bank will assume that the Borrower is not so related. The Borrower further undertakes to, upon its becoming so related subsequent to acknowledging this Letter, immediately advise the Bank thereof in writing. Miscellaneous : (a) Time shall be of the essence of this Letter, but no failure or delay on the part of the Bank to exercise or enforce any right or remedy will operate as a waiver thereof, nor will any single or partial or defective exercise of any right or remedy preclude any other exercise or enforcement thereof or the exercise of any other right or remedy. The rights and remedies in this Letter are cumulative, may be exercised as often as the Bank considers appropriate and are not exclusive of any rights or remedies provided by law. Should there be a change of address to which notices must be sent, the Borrower must promptly inform the Bank. Such changes shall not be effective until duly entered in the Bank's records. (b) The illegality, invalidity or unenforceability of any provision of this Letter under the law of any jurisdiction shall not affect its legality, validity or enforceability under the laws of any other jurisdiction nor the legality, validity or enforceability of any other provision. General Commercial Agreement : The provisions of the General Commercial Agreement, including without limitation, provisions relating to interest periods, shall also apply to this Letter. If there is any conflict between them, this Letter shall prevail. 5 Bonso Electronics Limited - -------------------------------------------------------------------------------- Law: This Letter and the Facilities shall be governed by the laws of the Hong Kong Special Administrative Region and the parties hereto hereby submit to the non-exclusive jurisdiction of the Hong Kong Courts. Please signify your understanding and acceptance of this offer by signing and returning to us the duplicate copy of this Letter for the attention of Mr. James Cheung, within one month from the date of this Letter, after which this offer will lapse. When accepted, this Letter will supersede any previous facility letter which we have issued to you. We enclose a set of documents which should be completed and returned to us. For queries regarding the completion of the required documents, please contact Mr. Donald Chung, whose telephone numbr is 3199-7973. For queries on banking arrangements, please contact our Senior Relationship Manager Mr. James Chcung, whose telephone number is 2218-4804. We are pleased to be of service to you. Signed for and on behalf of DBS Kwong On Bank Limited by : /s/ Frankie Lam /s/ Steven Lai - ----------------------------- ------------------------------- Frankie Lam Steven Lai Manager Vice President FL/SLADC/cy Encl. We agree to the terms of this Letter. Signed for and on behalf of Bonso Electronics Limited /s/ Anthony So - ----------------------------- 6 Bonso Electronics Limited ("Company") ------------------------------------- The following is a true extract of minutes of a duly and properly convened meeting of the Board of Directors of the Company held at 1106-1110, 11/F STAR HOUSE 3 SALISBURY ROAD, TSIMSHATSUI, KOWLOON,HONG KONG. on 17 MAY 2002 of which due notice had been given to all Directors and at which a valid quorum of Directors (of which every interested Director had declared his/her interests in the business of the meeting pursuant to the Company's Articles of Association and was therefore entitled to vote and be counted in the quorum at the meeting pursuant to the Company's Articles of Association) was present and acted throughout. NOTED that - ---------- DBS Kwong On Bank Limited ("Bank") has agreed to make/continue to make available certain banking facilities ("Facilities") to the Company on the terms and conditions set out in the Bank's facility letter dated 16th May 2002 Facility Letter"), a copy of which has been tabled. . RESOLVED that - ------------- (1) it was in the interests of the Company, to its benefit and in furtherance of its objects, that the Company accept the Facilities; (2) the Facility Letter be and is hereby approved and confirmed with such amendments and modifications thereto as any director of the Company (a "director") may approve, such approval to be conclusively evidenced by the execution thereof in accordance with the terms of these resolutions; (3) any director be and is hereby authorised to sign on behalf of the Company the Facility Letter and any director be and is hereby authorised to sign on behalf of the Company such other documents and do on behalf of the Company such acts as such director may deem necessary and proper in connection with the Facility Letter and to complete and perfect the same and the transaction contemplated or, as the case may be, the security constituted by the same. FURTHER RESOLVED that - --------------------- (1) any director be and is hereby authorised from time to time on behalf of the Company to agree with the Bank to (i) increase or otherwise vary the limits or accommodation available under the Facilities, (ii) vary the terms on which the Facilities arc to be made available or continued . (whether as to security or otherwise) and (iii) for this purpose, execute any amendment or supplement to the Facility Letter and such other documents and. do such other things as such director may deem necessary and proper in connection therewith; Bonso Electronics-Limited Page 2 (2) any director be and is hereby authorised to sign on behalf of the Company any further security document which is to be executed under band and which is required to be executed. in connection with any variation of the Facilities approved by a director pursuant to resolution mentioned above. Certified by /s/ Cathy Kit Teng Pang - ----------------------------- Name: Company Secretary # The directors should satisfy themselves as to the accuracy of these paragraphs EX-4.13 13 bonso4-13.txt LETTER EXHIBIT 4.13 DBSKWONG ON BANK Our ref : DKOB/CS&S/LK/CCB493 Date: 25 April 2003 Bonso Electronics Limited Unit 1106-1110, Star House 3 Salibury Road Tsimshatsui, Kowloon Attention: Ms Cathy Pang - ------------------------ Dear Sirs, Banking Facilities : Bonso Electronics Limited ("Borrower") ----------------------------------------------------------- We, DBS Kwong On Bank Limited ("Bank"), refer to our letter dated 16 May 2002 setting out the facilities made available to you ("the Existing Facility Letter"). We are pleased to confirm that all the terms under the Existing Facility Letter shall remain unchanged except the following variations until further notice Facilities: 2a. Letter of Credit - BKD11,000,000. The following clause is added under this Facility: Beneficiaries of local letters of credit and each of its individual limits are each subject to the Bank's prior written approval on case by case basis (if so required by the Bank). The Bank may from time to time carry out at the Borrower's expense updated searches of the beneficiaries of local letters of credit. All related costs and fees may be debited to the Borrower's account. Conditions Precedent: The following documentation under this heading will no longer be required: --------------------------- (b) (i) the Bank's standard form all movies Memorandum of Charge on Deposit Accounts duly executed by the Borrower; (ii) the deposit by the Borrower for an amount of not less than HKD3,000,000.- or its equivalent in US Dollars, with interest being maintained with the Bank; The clause Section 83 of the Banking Ordinance is substituted by the following clause: Relationship with Directors/Employees: As a liceneed bank, the Bank is subject to certain limitations on advances to persons related to the directors or employees of the Bank or of other DBS Group banks. By signing this Letter, the Borrower confirms to the Bank that it is not in any way related to any of the directors or employees of the Bank and/or its parent The Development Bank of Singapore Limited or its other subsidiaries, including Dao Heng Bank Limited and Overseas Trust Bank Limited. The Borrower undertakes, upon becoming so related at any time while any loan or other indebtedness to the Bank is outstanding, immediately to advise the Bank in writing. DBSKWONG ON BANK --------- Bonso Electronics Limited A handling fee of HKD 10,000.- will be debited to your account. Please sign the enclosed copy of this Letter and return it to the Bank for the attention of Mr James Cheung, within one month from the date of this Letter. If you have any queries, please contact our Senior Relationship Manager Mr James Cheung, whose telephone number is 2218-4804. We are pleased to be of service to you. Signed for and on behalf of DBS Kwong On Bank Limited by /s/ /s/ - ----------------------------- ------------------------------- Authorised Signature Authorised Signature Credit Support & Services Sales & Distribution Enterprise Banking Enterprise Banking LK/CC/cy We agree to the terms of this Letter. Signed for and on behalf of Bonso Electronics Limited For and on behalf of BONSO ELECTRONICS LTD. /s/ Cathy Kit Teng Pang - ----------------------------- EX-4.14 14 bonso4-14.txt LETTER EXHIBIT 4.14 COMMERZBANK FILIALE GVTTINGEN Postanachirft: 1531 37005 Gdttlngen Vertraulich / Confidential GeschSftsr3uma: Korona- Haushaltswaren GmbH & Co. KG PrinzenstraGe 2 37073 G6ttingen S.W.I.F.T.-Code: COBADEFF 260 - - Geschaftsleitung - Telefon: 0551/408-0 Landeszentralbank-Giro: Auf d. Huttenberge 1 - 3 Telefax: 0551/408-223 (Bankleitzahl) 26040030 Internet:www.aommembank.de 35428 Langgoens. Ihre/Your/Votre Ref. Unsere/Our/Notre Ref. Phone extension Date H. Grubl/LCO - 25.1 8 May 2003 Credit Agreement Account nos. 4300422 and 4343133 with our Northeim branch Dear Sirs, Referring to our previous credit agreements and to the talks conducted with you, we are pleased to confirm our willingness to grant you an operating credit amounting to Eur 1,900,000.00 (in words: (euro) one million nine hundred thousand). This credit will be valid until 31 December 2003. Notwithstanding the rights of termination resulting from the "General Terms and Conditions", either-the Bank or the Customer shall be entitled to terminate the credit at any time without prior notice and without stating any reasons. When exercising the right of termination, the Bank will duly consider the legitimate interests of the Customer and grant him a reasonable settlement period. The credit may be used via the accounts nos. 4343133 and 4300422; except for sub-account no. 4300422.00 EUR due to the rights of Heller Bank AG and the assignment declaration, which we are going to sign in this context and in which we undertake to strictly keep said sub-account on a non-borrowing basis. In this context you shall authorise us to balance your account no. 4300422.00 EUR by transfer to the debit of your account no. 4343133.00 EUR. At present and pending further notice, we charge you an interest rate of 5.5 % p.a. for drawn credit amounts. Interest is due for payment at the end of each quarter for the corresponding current quarter. Additionally, we charge you a credit commission of 0.2% p.a. for the granted credit line. Pending further notice, this credit can be used at choice via special credit schemes, such as money market operations, eligible commercial bills with bill debto'es of our consent and of excellent credit standing, USD credits (max. 30% of the line), forward exchange dealings and Commerzbank Aktiengesellschaft - Sitz der Bank: Frankfurt am Main (HRB 320001) Vorsitzender des Aufsichtsrates: Martin Kohlhaussen Vorstand: Klaus-Peter MOUer, Sprecher Martin Blessing, Mehmet Delman, Wolfgang Hartmann, Andreas de Maizi&re, Klaus M_ Patlg, Axel Frhr. v. Ruedorffer, Nicholas R. Teller COMMERZBANK FILIALE GOTTINGEN page 2 - `Letter to: I Korona- Haushaltswaren GmbH & Co KG - Geschaftsleitung - - -------------------------------------------------------------------------------- dated 8 May 2003' - ----------------- the provision of guarantees and documentary credits. Within the scope of the credit line, we will also buy promissory notes issued by you for Commerzbank AG as payee, or notes showing another company or self-employed person with registered office in Germany as__party to the bill and which you have endorsed to us. The individual features of the special credit schemes, such as amount / utilisation, term, conditions, must be agreed with us individually before concluding a deal. As stated above, the credit line will also be available for the conclusion of OTC foreign exchange transactions (spot, futures, options on foreign exchange transactions) with a maximum term of 7 months. Foreign exchange transactions with a term exceeding the above stated credit time limit of 31 December 2003 are to be agreed individually; they must also be covered by collateral. In this respect, we would like to refer to our provisions on page 3 of this letter. We will set off the individual financial futures against the credit limit at,their current market value plus a surcharge - which will be subject to change during the term of the contract - for potentially higher future risks ("set-off amount"). Offsetting transactions are also considered. As far as the individual financial futures (including offsetting transactions) are covered by a netting agreement, we will consider the risk-reducing effect of the netting by decreasing the set-off amounts. As unexpected market fluctuations can cause additional risks,. we will only conclude new financial futures (including offsetting transactions) within the scope of the above mentioned cash credit line, if the set-off amount of the new transaction in consideration of the current utilisation of the cash credit line will not exceed 70% of the line then available. Upon request, we will be pleased to tell you the current utilisation of. this limit. Should it become necessary to change the set-off method due to changes of laws, decrees, ordinances, publications or disclosures of the supervising authorities or other regulations currently in force, we will inform you accordingly in time. Moreover, we can switch from one set-off method to another legally admitted set-off method upon prior notice, if the latter corresponds better with the default risk. The change of the set-off method will come into force at the date mentioned in our notice. The following collateral shall serve to cover the granted credit line: EUR 1,900,000.00 Standby Letter of Credit of -Hang Seng Bank Ltd., Hong Kong, applicant Bonso Electronics Ltd., dated 1 1 May 2001, time limit now 20 January 2004. For details and conditions, please refer to the Letter of Credit. Other assets serve as collateral as stipulated under item 14 of our "General Terms and Conditions". We would like to be informed no later than- 12 December 2003 about any extension of the letter of credit (and its future amount) by a timely and binding extension letter of the creditopening bank, so that we can initiate the necessary steps within our bank for extending the credit in due time before it expires. COMMERZBANK FILIALE GOTTINGEN page - 3 - 'Letter to: I Korona- Haushaltswaren GmbH & Co. KG - Geschaftsleitung - -------------------------------------------------------------------------------- - - , dated 8 May 2003' - --------------------- Moreover it is understood that guarantees still furnished upon termination of the credit agreement must then be. covered in cash. The same shall apply for special credit schemes, if their terms exceed that of the credit, especially for risk positions resulting from OTC.foreign exchange transactions (they are to be increased by a flat risk supplement of 30% for unexpected market fluctuations). Moreover, it shall be agreed that any future cash shortage will be covered by your parent company Bonso Electronics International Inc. For the term of the credit it is agreed that any current and future obligation stipulated with other banks as regards maintaining or complying with certain economic and financial relations or ratios shall also apply to our credit. You will provide us with timely copies of reports, notices or confirmations sent to these banks as regards maintaining or complying with such obligations. Additionally, you undertake to inform us immediately about any current and future obligations entered into. Compliance with the above stipulations is a precondition for granting and maintaining the credit. In case of non-compliance with the granting and / or of insufficient statements we are --entitled to terminate the, credit for good cause with immediate effect. This- applies notwithstanding the bank's rights of termination .resulting from the "General Terms and Conditions" (Allgemeine Geschaftsbedingungen, AGB). or other agreements. Due to banking authorities' provisions, especially pursuant to ss. 18 KWG (German Banking Act), the Bank must be informed about the economic situation of the borrower before granting the credit and during the credit term. Thus, the borrower herewith undertakes to keep the Bank timely informed concerning the economic situation of its company and any affiliated companies and to make its Annual Financial Statements available to the Bank immediately and unsolicitedly upon completion, duly signed and. audited, however, at the latest nir5e months after the end of the corresponding business year. Additionally, it is understood that the borrower will provide the Bank with further information and documents upon request and that he / she will keep the Bank posted concerning the further development of the company by providing quarterly data, sales / earnings and cash schemes in addition to performance reports. In compliance with the requirements of the Bundesanstalt fur Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority), the Bank reserves the right to terminate the credit agreement with immediate effect, if the borrower does not comply with its obligation to disclose, inform and present. This applies notwithstanding the bank's other rights of termination resulting from the "General Terms and Conditions" (Allgemeine Geschaftsbedingungen, AGB) or other agreements and legal requirements. Should credit claims be transferred or assigned to a central bank or another credit institute (subsequently referred to as refinancing institute) to refinance the Bank or be used for refinancing purposes via another legal instrument, the borrower agrees in such cases that the Bank will disclose his name and address - apart from other necessary data (credit amount, maturity, (partial) repayments, extensions) - to the refinancing institute. COMMERZBANK FILIALE GOTTINGEN Page - 4 - 'Letter to: 1 Korona- Haushaltswaren GmbH & Co. KG - GeschAftsleitung - -------------------------------------------------------------------------------- - , dated 8 May 2003 - - ----------------------- We would like to point out that we expect an increase in business and turnover corresponding with our share and the ratio of your short-term credit lines. You must inform us timely and in advance about changes regarding your shareholders. Our "General Terms and Conditions" shall apply additionally; they are an integral part of our Credit Confirmation. To cover our expenses occurred by the credit examination and by entering into contact with Hong Kong in connection with granting this credit, we will charge you with an amount of (euro) 1,900.00 which we will debit to your account no. 4343133.00. Please confirm by duly signing and returning the enclosed copy that you consent to the stipulations of this Agreement and that you .have received our enclosed "General Terms and Conditions". Thus, our previous credit confirmation letters become void. We are looking forward to continuing our pleasant business relationship. Yours sincerely, COMMERZBANK Aktiengesellscaft Filiale Gottingen We consent to all stipulations of the above document and confirm receipt of-your "General a Terms and Conditions" (AGB). Korona-Haushaltswaren GmbH & Co. KG Auf d.Huttenberge 1-3 35428 Langgons Tel 06447 / 8861 -D Fax Langgoens, (Date) /s/ ------------ --------------------------------- (Seal and Signatures Korona-Haushaltswaren GmbH & Co. KG) We consent to the content of the above letter and confirm acceptance of the stipulations referring to us. BONSO ELECTRONICS INTERNATIONAL INC. Hong Kong, Date /s/ Anthony So -------------- --------------------------------- (Seal and Signatures Bonso Electronics Inc.) EX-4.15 15 bonso4-15.txt LETTER EXHIBIT 4.15 EXCEED.EXCEL - -------------------------------------------------------------------------------- Hang Seng Bank Our Ref.: Commercial Banking - Relationship Management Private & Confidential Bonso Electronics Limited 21 May 2003 Unit 1106-1110 11/F Star House 3 Salisbury Road Tsimshatsui Kowloon Attention: Mr. Anthony So - ------------------------- Dear Sirs BANKING FACILITIES With reference to our recent discussions, we wish to advise that we have reviewed your banking facilities and offer you the undermentioned revised limits (the "Facilities") which will be made available subject to the terms and conditions outlined herein:- Facilities and Limits - --------------------- For establishment of documentary letters of credit (LC) for your account in favour of third parties and covering import of goods in the ways acceptable to us and/or acceptance of bills drawn thereunder, and/or for trust receipt facility (TR) relating to goods imported HK$28,000,000.00 and financed under our documentary letters of credit established for your account, and/or for purchase of documentary export D/P bills (DP) drawn on parties acceptable to us, and/or for purchase of documentary export D/A bills (DA) drawn on parties acceptable to us, of which for extension of export trade loans (ETL) to finance your (HK$10,000,000.00) export of goods as evidenced by your sale invoices and any other relevant documents as required, for overdraft facility (OD) on your current account No. (HK$5,000,000.00) 259-229698-001. The aggregate amount owing under LC, TR, DP, DA, ETL and OD facilities shall not exceed HK$28,000,000.00 at any one time. 1 Bonso Electronics Limited Negotiation of discrepant documents, secured or unsecured by HK$15,000,000.00 goods, presented under export letters of credit issued by banks acceptable to us. For establishment of Stand-by Letters of Credit (SBLC) for EUR$1,900,000.00 your account in favour of third parties and covering services and/or other performances in the ways acceptable to us and/or acceptance of bills drawn thereunder. Term Loan outstanding balance under A/C No. 272-826769. US$440,000.10 Security - -------- (i) As security, we continue to hold the "All Moneys" legal charge already executed in our favour on the property situated at Units 1106-1110 on 11th Floor of Star House, No.3 Salisbury Road, Kowloon. (iii) Unlimited Deed of Guarantee already executed by Bonso Electronics International Inc. (the " Guarantor") in our favour. Interest - -------- (i) Interest on financed bills/loans in Hong Kong Dollar shall be charged at 0.5% per annum below the Hong Kong Dollar Prime Lending Rate as quoted by Hang Seng Bank Limited from time to time, the present effective Hong Kong Dollar Prime Lending Rate being 5% per annum and subject to fluctuation at our discretion. Interest on loans will be payable on monthly basis.. (ii) Interest on financed bills/loans in United States Dollar and other foreign currencies shall be charged at 0.75% and 0.5% per annum below board rate respectively as quoted by us from time to time and subject to fluctuation. Interest on loans will be payable on monthly basis. (iii) Interest on the overdraft facility shall be charged at 0.5% per annum over the Hong Kong Dollars Prime Lending Rate as quoted by us from time to time with monthly rests and subject to fluctuation at our discretion. Tenor - ----- Maximum loan tenor for import loans will be 120 days. Fee - --- A non-refundable facility review fee of HK$20,000.00 shall be payable by you to us upon acceptance of the Facilities and thereafter a review fee in such amount as we may prescribe from time to time shall be payable upon each review of the Facilities. We are authorised to debit the current account maintained by you with us for the facility review fee upon receipt of your acceptance of the Facilities as mentioned in this letter and in all subsequent reviews. 2 Hang Seng Bank Limited Bonso Electronics Limited Insurance - --------- The above property shall be insured against the risks of fire, earthquake (fire, shock & flood), landslip and subsidence endorsement, explosion, typhoon, windstorm and flood for the facilities amount or the cost of reinstating the property. The insurer must first be approved by us and the insurance policy denoting our interest as chargee, together with the receipt for premium paid, has to be lodged with us on or before execution of the Legal Charges; the renewal policy, also with our interest being denoted thereon, must be lodged with us no later than fourteen days prior to the renewal date of the policy. Otherwise, we will insure the property on the Borrower's behalf, the premium of which shall be debited to your account with us. If the insured amount is based on the reinstatement cost, a valuation and administration fee will be charged for the initial, and each subsequent renewal. The current valuation and administration fee of each mortgaged property is HKD1,000.00. Default Interest - ---------------- Notwithstanding the provisions above for the charging of interest, all sums (whether principal,' interest, fees, charges or otherwise) due but unpaid in respect of the Facilities shall bear interest at such rate from time to time determined by us at our absolute discretion. Set-off - ------- We may, at any time and without notice, apply and set-off any credit balance to which you are entitled on any account with us or any other moneys owed by us to you in or towards satisfaction of any obligations owing to us by you. For this purpose, we are authorised to purchase, at our prevailing exchange rate, such other currencies as may be necessary to effect such application with the moneys standing to the credit of such account or to effect conversion of one currency into another in any other manner. Expenses - -------- All expenses, legal or otherwise, if any, in connection with the Facilities are to be borne by you. Taxes - ----- All payments of principal and interest on amounts due under the Facilities shall be made free and clear of all present and future taxes, withholdings of any nature whatsoever. Governing Law - ------------- These Facilities are subject to the laws of Hong Kong Special Administrative Region with non-exclusive jurisdiction of Hong Kong Special Administrative Region Courts. 3 Hang Seng Bank Limited Bonso Electronics Limited Others - ------ (1) You and the Guarantor shall provide us with certified copies of the annual audited accounts within 6 months following the end of each financial year and such other relevant financial information as we shall from time to time reasonably request. (ii) The legal charge and discharge of the above property will contain the usual provisions that are currently in use in Hong Kong to be approved by solicitors designated by us. (iii)We may from time to time at our absolute discretion and without prior notice to or consent from you, impose further charges and fees which may be chargeable on facilities of the same type and change the terms of the existing and future charges and fees, including the rate thereof. Notwithstanding anything to the contrary hereinbefore contained, we shall not be bound to grant any of the Facilities at all or beyond such sum as we may at our sole discretion consider safe to the intent that we retain the absolute right to withdraw, suspend and/or reduce from time to time the Facilities or any of them and/or the extent of any of the Facilities for so long and to or in such amount as we may at our sole discretion deem fit without prior notice to or consent from you. The Facilities are subject to our usual review annually and at any time as well as our customary overriding right of repayment on demand and are subject to our right to call for cash cover on demand for prospective and contingent liabilities. Kindly sign and return to us the duplicate of this letter together with the attached "Extracts from the Minutes of a Meeting of the Board of Directors" to indicate your acceptance of this credit facility arrangement by 21 June 2003 and if not accepted by that date, unless extended by us at our sole and absolute discretion, will be deemed to have lapsed. All other security documentation required, if any, under the Facilities must be executed to our complete satisfaction within thirty days from the date of this letter, failing which the Facilities are subject to withdrawal or revision at our absolute discretion. Our Insurance Agency Department offers a full range of insurance services and will be pleased to quote you competitive rates on fire, marine and other coverages upon your request. Should you require further information, please feel free to contact Mr. Yeung Tung, Manager, Marketing at 2198 4960. Should you have any queries, please do not hesitate to contact our Miss Sarah Lau at 2198 4103. 4 Hang Seng Bank Limited Bonso Electronics Limited We trust that you will make active use of the Facilities and are pleased to be of continued assistance to you. Yours faithfully /s/ Dennis Chan - ----------------------------- Dennis Chan Assistant General Manager /s/ Donald Lam - ----------------------------- Donald Lam Department Head, Relationship Management Commercial Banking For and on the behalf of BONSO ELECTRONICS LTD. /s/ Anthony So Chop & Sign - ----------------------------- /wwh 5 Hang Seng Bank Limited EX-4.16 16 bonso4-16.txt LETTER EXHIBIT 4.16 HSBC Commercial Banking - Division C Ref: CONFIDENTIAL Bonso Electronics Ltd Unit 1106-1110, 11/F Star House 3 Salisbury Road Tsimshatsui Kowloon 8 April 2003 Attention: Ms Cathy Pang Dear Madam BANKING FACILITIES A/C No 557-002615 With reference to our recent discussions, we are pleased to advise that we have reviewed your banking facilities and offer a renewal within the following limits which will be made available on the specific terms and conditions outlined below. These facilities are subject to review at any time and in any event by 1 April 2004, and also subject to our overriding right of withdrawal and repayment on demand, including the right to call for cash cover on demand for prospective and contingent liabilities. Limits ------ Overdraft HKD 500,000 - --------- Interest on the overdraft facility will continue to be charged on daily balances at our best lending rate, (currently 5 % per annum, but subject to fluctuation at our discretion), payable monthly in arrears to the debit of your current account. Import / Export Facilities HKD22,000,000 - -------------------------- Documentary credits with import finance up to 120 days (less any usance or credit periods granted by your suppliers) and / or D/P bills purchased on approved drawees. Within which - ------------ (1) Goods under your control and/or Trust Receipts. (HKD20,000,000) (2) D/A bills purchased up to 90 days on (HKD16,000,000) approved drawees. The aggregate outstanding of (1) and (2) should not exceed HKD20,000,000.The outstanding export bills purchased for an approved drawee should not be greater than HKD2,000,000 and are required to be covered by the Hong Kong Export Credit Insurance Corporation's Comprehensive Cover Policy taken out by you and duly assigned to us. We may, at our sole and absolute discretion, refuse to allow drawings under the facilities if the drawee is considered by us to be unacceptable and / or if the transaction in question does not meet our operational requirements in respect of these facilities. The Hongkong and Shanghai Banking Corporation Limited ...... /2 Hong Kong Main Office: 1 Queen's Road Central, Hong Kong Tel:28221111 Fax: Telex: 73205 Hssc Hx Telegrams: Hongbank Hongkong Web: www.hsbc.com.hk Bonso Electronics Ltd 8 April 2003 -2- - -------------------------------------------------------------------------------- Interest on your HKD import/export loans will continue to be charged on a daily basis at our best lending rate, (currently 5 % per annum, but subject to fluctuation at our discretion) and is payable monthly in arrears to the debit of your current account. Interest on foreign currency import/export loans will continue to be charged on a daily basis at our USD best lending rate, (currently 3 % per annum, but subject to fluctuation at our discretion) and is payable monthly in arrears to the debit of your current account. Opening Commission on Documentary Credits (per 6 months), Commission in lieu of exchange, Export Commission for acceptance, finance of HKD bills will continue to be charged as follows For the first USD50,000.- or its equivalent :1/4% For the balance in excess of USD50,000.- or its equivalent :1/8% Accrual of Interest and Other Sums - ---------------------------------- Please note that interest and other sums expressed to be chargeable or payable on a periodic basis will nonetheless accrue from day to day and amounts so accrued may be demanded at any time. Please note that interest will be payable on sums which are overdue or overlimit (as well as amounts demanded and not paid) in respect of all or any of these facilities and such interest is the same as that charged by us from time to time on unauthorised overdrafts. Such interest will be payable monthly in arrears to the debit of your Current Account. Security - -------- As security for the foregoing facilities, we continue to hold 1. A Corporate Guarantee dated 8 May 2002 for HKD22,500,000 from Bonso Electronics International Inc supported by Board Resolution dated 8 May 2002 and Legal Opinion dated 29 May 2002 from Harney Westwood & Riegels & the Register of Mortgages, Charges and other encumbrances dated 21 June 2002. 2. An Registered Assignment of DC Proceeds from Bonso Electronics Ltd supported by Board Resolution both dated 7 May 2001. Covenants - --------- You will be required for so long as these facilities are available to you to comply with the following covenants. Your compliance or otherwise with the following covenants will not in any way prejudice or affect our right to suspend, withdraw or make demand in respect of the whole or any part of the facilities made available to you at any time. By signing this letter, you expressly acknowledge that we may suspend, withdraw or make demand for repayment of the whole of any part of the facilities at any time notwithstanding the fact that the following covenants are included in this letter and whether or not you are in breach of any such covenants. You covenant and undertake that you will at all times ensure 1) to direct to us Import/Export business of HKD8,000,000 per month; Bonso Electronics Ltd 8 April 2003 -3- - -------------------------------------------------------------------------------- 2) to achieve a pari passu position with all your bankers by 31 March 2004. Bonso Electronics International Inc, as the corporate guarantor, covenants and undertakes that it will at all times ensure to maintain its gearing below 1. Please note that all costs and expenses (including legal fees) incurred by us in connection with the extension of these facilities and any matters arising are to be reimbursed by you on demand. Please arrange for your authorised signers, in accordance with the terms of the mandate given to the bank, to sign and return to us the duplicate copy of this letter to signify your understanding and acceptance of the terms and conditions under which these facilities are granted. We also require the authorised signers of Bonso Electronics International Inc to sign on the duplicate copy of this letter to signify its agreement and acceptance of the covenant undertaken by it as stated in this offer letter. A review fee of HKD13,500.- will be charged to the debit of your current account upon receipt of your acceptance to these facilities. Section 83 of the Banking Ordinance - ----------------------------------- Please note that Section 83 of the Banking Ordinance has imposed on us as a bank certain limitations on advances to persons related to our directors or employees. In acknowledging this Facility Letter you should advise us whether you are in any way related to any of our directors or employees within the meaning of Section 83 and in the absence of such advice we will assume that you are not so related. We would also ask, should you become so related subsequent to acknowledging this Facility Letter, that you immediately advise us in writing. These facilities will remain open for acceptance until the close of business on 7 May 2003 and if not accepted by that date will be deemed to have lapsed. We are pleased to be of continued assistance. Yours faithfully For and on behalf of BONSO ELECTRONICS LTD. /s/ Anthony So --------------------------------- Authorized Signature(s) /s/ David Yeung - ----------------------------- David Yeung Relationship Manager DY\em\bonS0403 EX-4.17 17 bonso4-17.txt LETTER EXHIBIT 4.17 NATEXIS BANQUES POPULAIRES HONG KONG BRANCH 12th Floor, CITIC Tower, I Tim Mel Avenue, Central, Hong Kong Telephone : (852) 28 28 09 99 - Fax: (852) 25 83 98 01 Tlx : 80186 BFCEX Our ref: CCIB/SC/mch/03-L0013BONS0 13th February 2003 Bonso Electronics Limited Unit 1106-1110 11/F, Star House 3 Salisbury Road Hong Kong Attn.: Mr. Hung-Gun Anthony SO Chairman Dear Sirs, RE: GENERAL BANKING FACILITIES ------------------------------ We are pleased to inform that Natexis Banques Populaires, Hong Kong Branch (the "Lender") is prepared to make available the following uncommitted general banking facilities (the "Facilities") to you subject to the accompanying terms and conditions as stipulated in this letter (the "Facility Letter") and subject to the terms contained in our standard General Commercial Agreement, which terms shall apply to all transactions contemplated by this Facility Letter. 1. BORROWER -------- Bonso Electronics Limited 2. CORPORATE GUARANTOR ------------------- Bonso Electronics International Inc. Telephone : 01 48 00 48 00 Siege social : 115, rue Montmartre - 75002 Paris Adresse postale : BP 265 09 - 75427 Paris Cedex 09 - -------------------------------------------------------------------------------- Societe anonyme au capital de 512 548 160 euros - RCS Paris 542 044 524 Page 2 of 6 Our Ref. CCIB/SC/mch/03-L0013BONS0 3. FACILITIES ---------- Up to USD2,000,000.00 (Say, United States Dollars Two Million only) available for: a) Discount of export buyers' invoices with or without Export Credit Insurance Corporation ("ECIC") coverage up to 80% of total value of invoices for maximum tenor of 120 days; b) negotiation of export Letter of Credit with discrepancies; c) packing loan up to 70% of the value of the Export Letter of Credit issued by banks acceptable to the Lender up to 90 days; d) purchase of Export Bills on the basis of Document against Payment ("D/P") and/or Document against Acceptance ("D/A") with recourse for a maximum duration of 90 days; with sub-limit oh ----------------- e) Up to USD1,500,000.00 available for: i) the issuance of sight and/or usance Letter of Credit ("L/C") for a maximum usance period of 120 days; ii) Trust Receipt financing ("T/R") for a maximum tenor of 120 days for imports under L/C issued by the Lender; iii) the issuance of shipping guarantee under LIC issued by the Lender; iv) up to a notional sum of USD1,500,000.00 or its equivalent in other major convertible currencies available for Foreign Exchange Spot/Forward Contracts with a maximum tenor of six months; f) Up to USD500,000.00 for discount of D/P, D/A export bills to Korona Haushaltswaren GmbH & Co. KG in Germany up to 120 days. Remarks: -------- 1) e) + f) shall not exceed USD1,500,000.00. 2) Aggregate tenor of T/R and Usance L/C shall not exceed 120 days. 3) The discount of DIP, D/A and export invoice is restricted to the pre-approved drawees only. Advance will be made against submission of invoice copy and/or copy of bill of lading and/or transport document. Upon maturity of the financing period, the relevant buyers shall remit payment directly to the Lender in favor of the Borrower. 4. PURPOSE ------- Trade activities requirements. 5. SUPPORT / COLLATERAL -------------------- > Corporate Guarantee duly executed by Bonso Electronics International Inc_ limit of USD2,000,000.00. > Assignment of ECIC policy on approved drawees with the Lender as loss payee for discount of ECIC-covered export buyers' invoices. Page 3of6 Our Ref. CCIB/SC/mch/03-L0013BONS0 6. UNDERTAKING ----------- The Borrower and Corporate Guarantor undertake to a) deliver to the Lender certified true copies of the Borrower's and the Corporate Guarantor's annual audited financial statements within 180 days after each fiscal year and such other information (financial or otherwise) as the Lender may request; b) notify the Lender promptly of the occurrence of any event which might affect the Borrower's and the Corporate Guarantor's ability to perform their obligations hereunder or any change in the shareholding or control of the Borrower or of the Corporate Guarantor. 7. FACILITY ARRANGEMENT FEE ------------------------ HKD5,000.00 (Say, Hong Kong Dollars Five Thousand), payable upon acceptance of this Facility Letter. 8. BILL COMMISSIONS ---------------- UC Opening Commission and In Lieu of Exchange Commission -------------------------------------------------------- First US$50,000 or its equivalent 1/4% Balance 1/16% Handling Fee for Export Invoice Discount ---------------------------------------- 1/16% flat on the invoice value or minimum charge at HKD300.00. All other banking charges shall be subject to the Lender's standard scale of charge and the rules of The Hong Kong Association of Banks. 9. INTEREST -------- Trade Finance : The Lender's Cost of Funds + 2% p.a. Export invoice discount with ECIC covered bills : The Lender's Cost of Funds + 1% p.a. The interest shall be calculated on the basis of actual number of days elapsed on a year of 360 or 365 days, whichever is applicable to the currency concerned in accordance with general banking practice. Interest on Trade Finance is to be payable in arrears on the last day of each interest period. If any sum is not paid when due, that sum shall bear an overdue interest at a rate of 3% per annum above the rate as specified above from the due date to the date when actual payment is made in full. Page 4 of 6 Our Ref. CCIB/SC/mch/03-L0013BONS0 10. CONDITIONS PRECEDENT -------------------- The Facilities will be available until further notice subject to the availability of funds and the receipt of the followings that are in form and substance satisfactory to the Lender a) the attached copy of the Facility Letter duly signed by authorized signatories of the Borrower and the Corporate Guarantor signifying the acceptance of the agreement to the terms and conditions contained herein, with respective supporting board resolutions; b) the Corporate Guarantee duly executed by. the Corporate Guarantor, with supporting board resolutions; (received) c) certified copies of constitutional documents of the Borrower and the Corporate Guarantor, including Certificate of Incorporation, Business Registration Certificate, and Memorandum & Articles of Association; (received) d) the General Commercial Agreement duly completed and executed by the Borrower, with supporting board resolutions; (received) e) account opening documentation duly completed by the Borrower; (received) f) certified copies of Identification/Passport of the authorized signatories of the Borrower and the Corporate Guarantor; (received) g) such other documentation as may be reasonably requested by the Lender to validate the above Facilities. 11. WARRANTY -------- The Borrower and the Corporate Guarantor hereby warrant that there has been no material adverse change in their respective financial conditions which would reduce their ability to meet their obligations hereunder. 12. LAW AND VENUE ------------- This Facility Letter and the execution thereof shall be governed by and construed in accordance with the laws of Hong Kong Special Administrative Region ("Hong Kong"). The Borrower and the Corporate Guarantor hereby irrevocably agree to submit to the non-exclusive jurisdiction of the Hong Kong courts. 13. SERVICE AGENT ------------- The Borrower agrees to accept the appointment of the Corporate Guarantor to be its service agent to receive and acknowledge on behalf of the Corporate Guarantor of any writ, summons judgment or other notice of legal process in Hong Kong issued in relation to this Facility Letter. If for any reason that the Borrower (or its successor) no longer services as service agent of the Corporate Guarantor for this purpose, they shall promptly request the Corporate guarantor to appoint a successor service agent and notify the Lender thereof. The Corporate Guarantor agrees that any such legal process Page 5 of 6 Our Ref.CCIB/SC/mch/03-L0013BONS0 shall be sufficiently served on the Corporate Guarantor if delivered to the Borrower for service at its address for the time being in Hong Kong whether or not such agent gives notice thereof to the Corporate Guarantor. As a general banking practice and notwithstanding any terms and conditions specified above, the Lender reserves its overriding right to cancel, modify or demand immediate repayment of all outstanding balances whether due or owing, actual or contingent under the Facilities without prior notice. The usage and the continual availability of the Facilities are subject to the Lender's standard documentation, periodic review and the usual requirement that there will be no material adverse change in the financial position of the Borrower and the Corporate Guarantor. Please indicate your acceptance of the above terms and conditions by signing and returning to us the duplicate of this Facility Letter. This Facility Letter, once accepted and upon our confirmation that all Conditions Precedent have been satisfied, shall supersede our Facility Letter dated 30'" January 2002 (Our ref. CORP/RC/mch/02-L0006Bonso) and the outstanding thereunder shall be transferred as outstanding hereunder. We are pleased to be of service to your company and look forward to a mutually beneficial relationship. Yours faithfully, For and on behalf of Natexis Banques Populaires Hong Kong Branch /s/ Tony AU /s/ Frederick FAN - ----------------------------- ---------------------------------- Tony AU Frederick FAN Deputy General Manager Head of Operations We confirm our acceptance on the terms and conditions stated in above and agree to be bound thereby. For and on behalf of BONSO ELECTRONICS LTD. /s/ SO HUNG GUN ANTHONY - ----------------------------- Name: S0 HUNG GUN ANTHONY Title:CHAIRMAN Date: FEB 20, 2003 Page 6 of 6 Our Ref. CCIB/SC/mch/03-L0013BONS0 We, as Corporate Guarantor, hereby confirm and consent to the terms and conditions of the Facilities, and confirm that our obligations under the Guarantee of 18 MAR, 2002 continue in full force and effect and expressly extend to and guarantee the performance of the terms and conditions of the Facilities. For and on behalf of Bonso Electronics International Inc. /s/ SO HUNG GUN ANTHONY - ----------------------------- Name: SO HUNG GUN ANTHONY Title:CHAIRMAN Date: fEB 20, 2003 EX-12.1 18 bonso12-1.txt CERTIFICATION EXHIBIT 12.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Bonso Electronics International, Inc., a British Virgin Islands international business company (the "Corporation"), does hereby certify, to such officer's knowledge, that: The Annual Report on Form 20-F for the year ended March 31, 2003 (the "Form 20-F") of the Corporation fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Corporation. Dated: July 24, 2003 /s/ Anthony So --------------------------------------- Anthony So Chief Executive Officer Dated: July 24, 2003 /s/ Cathy Kit Teng Pang --------------------------------------- Cathy Kit Teng Pang Chief Financial Officer EX-12.2 19 bonso12-3.txt CERTIFICATION Exhibit 12.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Cathy Kit Teng Pang, certify that: 1. I have reviewed this annual report on Form 20-F of Bonso Electronics International, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period discovered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure control and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date") and; c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls, and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 24, 2003 /s/ Cathy Kit Teng Pang -------------------------------------------- Cathy Kit Teng Pang, Chief Financial Officer EX-12.3 20 bonso12-2.txt CERTIFICATION EXHIBIT 12.3 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Anthony So, certify that: 1. I have reviewed this annual report on Form 20-F of Bonso Electronics International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. Date: June 24, 2003 /s/ Anthony So -------------------------------------- Anthony So, President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, Chairman of the Board and Director -----END PRIVACY-ENHANCED MESSAGE-----