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, 2020
|
OR
|
[_] |
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
OR
|
[_] |
SHELL COMPANY
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 1404, 14/F, Cheuk Nang Centre,
9 Hillwood Road, Tsimshatsui
Kowloon, Hong Kong
(Address of principal executive offices)
Albert So, Chief Financial Officer
Tel: (852) 2605-5822 Fax: (852) 2691-1724
Email: albert@bonso.com
Unit 1404, 14/F, Cheuk Nang Centre,
9 Hillwood Road, Tsimshatsui
Kowloon, Hong Kong
(Name, Telephone, email and/or fax number and address of
Company Contact Person)
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 $0.003
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.
5,828,205 shares of common stock, $0.003 par value, at March 31,
2020 (including 921,739 shares that are held in
treasury)
Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act of 1933.
Yes [_] No [X]
If the report is an annual or transition report, indicate by check
mark if the Registrant is not required to file reports pursuant to
Section 13 or 15D of the Securities Exchange Act of 1934.
Yes [_] No [X]
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 whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).
Yes [X] No [_]
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or an emerging growth company.
Large Accelerated Filer [_] Accelerated
Filer [_] Non-accelerated filer [X]
Emerging Growth Company [_]
Indicate by check mark which basis of accounting the Registrant has
used to prepare the financial statements included in this
filing:
U.S. GAAP [X]
International Financial Reporting Standards as issued by the
International Accounting Standards Board [_]
Other [_]
If “Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the
Registrant has elected to follow:
Item 17 [_] Item 18 [_]
If this is an annual report, indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)
Yes [ _] No [X]
TABLE OF CONTENTS
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Page |
| PART I |
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|
|
|
| Item
1. |
Identity
of Directors, Senior Management and Advisors |
|
6 |
|
| Item 2. |
Offer Statistics and
Expected Timetable |
|
6 |
|
| Item 3. |
Key Information |
|
6 |
|
| Item 4. |
Information on the
Company |
|
25 |
|
| Item 4A. |
Unresolved Staff
Comments |
|
36 |
|
| Item 5. |
Operating and
Financial Review and Prospects |
|
36 |
|
| Item 6. |
Directors, Senior
Management and Employees |
|
50 |
|
| Item 7. |
Major Shareholders
and Related Party Transactions |
|
56 |
|
| Item 8. |
Financial
Information |
|
57 |
|
| Item 9. |
The Offer and
Listing |
|
57 |
|
| Item 10. |
Additional
Information |
|
58 |
|
| Item 11. |
Quantitative and
Qualitative Disclosures about Market Risk |
|
62 |
|
| Item 12. |
Description of
Securities Other Than Equity Securities |
|
62 |
|
| |
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| PART II |
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|
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|
| |
|
|
|
|
| Item 13. |
Defaults, Dividend
Arrearages and Delinquencies |
|
63 |
|
| Item 14. |
Material
Modifications to the Rights of Security Holders and Use of
Proceeds |
|
63 |
|
| Item 15. |
Controls and
Procedures |
|
63 |
|
| Item 16. |
Reserved |
|
65 |
|
| Item 16A. |
Audit Committee
Financial Expert |
|
65 |
|
| Item 16B. |
Code of Ethics |
|
65 |
|
| Item 16C. |
Principal Accountant
Fees and Services |
|
65 |
|
| Item 16D. |
Exemptions from the
Listing Standards for Audit Committees |
|
67 |
|
| Item 16E. |
Purchases of Equity
Securities by the Issuer and Affiliates Purchasers |
|
67 |
|
| Item 16F. |
Changes in
Registrant’s Certifying Accountants |
|
67 |
|
| Item 16G. |
Corporate
Governance |
|
67 |
|
| Item 16H. |
Mine Safety
Disclosure |
|
67 |
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| |
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| PART III |
|
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| |
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| Item 17. |
Financial
Statements |
|
68 |
|
| Item 18. |
Financial
Statements |
|
F-1 to F-43 |
|
| Item 19. |
Exhibits |
|
68 |
|
| SIGNATURES |
|
|
69 |
|
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking
statements. A forward-looking statement is a projection about a
future event or result, and whether the statement comes true is
subject to many risks and uncertainties. These statements often can
be identified by the use of terms such as “may,” “will,” “expect,”
“believe,” “anticipate,” “estimate,” “approximate” or “continue,”
or the negative thereof. The actual results or activities of the
Company will likely differ from projected results or activities of
the Company as described in this Annual Report, and such
differences could be material.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results
and performance of the Company to be different from any future
results, performance and achievements expressed or implied by these
statements. In other words, our performance might be quite
different from what the forward-looking statements imply. You
should review carefully all information included in this Annual
Report.
You should rely only on the forward-looking statements that reflect
management's view as of the date of this Annual Report. We
undertake no obligation to publicly revise or update 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”). The
Private Securities Reform Act of 1995 contains a safe harbor for
forward-looking statements on which the Company relies in making
such disclosures. In connection with the “safe harbor,” we
are hereby identifying important factors that could cause actual
results to differ materially from those contained in any
forward-looking statements made by us or on our behalf. 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.”
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 “Bonso,” “we,” “our,” “us,” “the Group”
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,” “U.S.
Dollars” or “US$” are to United States Dollars, “HK$” are to Hong
Kong Dollars, “Euros” or “euro” are to the European Monetary
Union's Currency and “RMB” are to Chinese Renminbi.
PART I
Item 1. Identity of Directors, Senior Management and
Advisors
Not
Applicable to Bonso.
Item 2. Offer Statistics and Expected Timetable
Not Applicable to Bonso.
Item 3. Key Information
|
|
A. |
Selected
Financial Data |
The selected consolidated financial data as of March 31, 2019 and
2020 and for each of the three fiscal years ended March 31, 2018,
2019 and 2020 are derived from the Audited Consolidated Financial
Statements and notes which appear elsewhere in this Annual
Report.
The Financial Statements are prepared in accordance with generally
accepted accounting principles in the United States of America and
expressed in United States Dollars. The selected consolidated
financial data set forth below as of March 31, 2016, 2017 and 2018,
and for each of the two fiscal years in the period ended March 31,
2016 and 2017, have been derived from our audited consolidated
financial statements that are not included in this Annual Report.
The selected consolidated financial data is qualified in its
entirety by reference to, and should be read in conjunction with,
the Consolidated Financial Statements and related notes included in
the F pages of this Annual Report and Item 5. – “Operating and
Financial Review and Prospects” included in this Annual Report.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
SELECTED CONSOLIDATED FINANCIAL DATA
Statement of Operations Data
(in
000s US$ except for shares and per share data)
| |
|
Year Ended March 31, |
|
|
|
2016(1) |
|
2017(1) |
|
2018 |
|
2019 |
|
2020 |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| Net revenue |
|
|
25,370 |
|
|
|
18,952 |
|
|
|
11,523 |
|
|
|
9,992 |
|
|
|
13,096 |
|
| Cost of revenue |
|
|
(17,081 |
) |
|
|
(11,274 |
) |
|
|
(6,958 |
) |
|
|
(6,035 |
) |
|
|
(5,690 |
) |
| Gross profit |
|
|
8,289 |
|
|
|
7,678 |
|
|
|
4,565 |
|
|
|
3,957 |
|
|
|
7,406 |
|
| Selling, general and administrative
expenses |
|
|
(6,948 |
) |
|
|
(5,066 |
) |
|
|
(4,669 |
) |
|
|
(4,605 |
) |
|
|
(7,479 |
) |
| Other income, net |
|
|
1,961 |
|
|
|
554 |
|
|
|
342 |
|
|
|
108 |
|
|
|
435 |
|
| Income / (loss) from operations |
|
|
3,302 |
|
|
|
3,166 |
|
|
|
238 |
|
|
|
(540 |
) |
|
|
362 |
|
| Non-operating (expenses) / income,
net |
|
|
(121 |
) |
|
|
229 |
|
|
|
(234 |
) |
|
|
77 |
|
|
|
36 |
|
| Income / (loss) before income
taxes |
|
|
3,181 |
|
|
|
3,395 |
|
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
| Income tax expense |
|
|
(310 |
) |
|
|
(600 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Net income / (loss) |
|
|
2,871 |
|
|
|
2,795 |
|
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
| Net earnings
per / (loss) per share - basic(2) |
|
|
0.55 |
|
|
|
0.54 |
|
|
|
0.00 |
|
|
|
(0.10 |
) |
|
|
0.09 |
|
| Weighted average shares |
|
|
5,173,431 |
|
|
|
5,143,648 |
|
|
|
4,910,357 |
|
|
|
4,703,224 |
|
|
|
4,646,966 |
|
| Net earnings /
(loss) per share - diluted(2) |
|
|
0.55 |
|
|
|
0.53 |
|
|
|
0.00 |
|
|
|
(0.10 |
) |
|
|
0.08 |
|
| Diluted weighted average shares |
|
|
5,173,431 |
|
|
|
5,316,393 |
|
|
|
5,290,904 |
|
|
|
4,703,224 |
|
|
|
4,816,736 |
|
(1) Certain amounts in the statement of operations for
the fiscal years ended March 31, 2016 and 2017 have been
reclassified to conform to the presentation for the fiscal year
ended March 31, 2018.
(2) The diluted net earnings / (loss) per share was the
same as the basic net earnings / (loss) per share for the fiscal
years ended March 31, 2016, 2018 and 2019 as all potential common
shares, including the stock options, are anti-dilutive and
therefore excluded from the computation of diluted net (loss) /
earnings per share.
Balance Sheet Data
(in
000s US$ except for shares and per share data)
| |
|
Year Ended March 31, |
| |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
| |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| Cash and
cash equivalents, and fixed deposits maturing over three
months |
|
|
3,547 |
|
|
|
3,745 |
|
|
|
8,751 |
|
|
|
7,527 |
|
|
|
9,111 |
|
| Working capital |
|
|
(530 |
) |
|
|
2,499 |
|
|
|
7,016 |
|
|
|
6,249 |
|
|
|
5,712 |
|
| Total assets |
|
|
23,021 |
|
|
|
20,966 |
|
|
|
24,755 |
|
|
|
22,486 |
|
|
|
24,201 |
|
| Current
liabilities |
|
|
8,137 |
|
|
|
5,244 |
|
|
|
4,369 |
|
|
|
4,155 |
|
|
|
6,139 |
|
| Total
liabilities |
|
|
8,443 |
|
|
|
5,371 |
|
|
|
7,666 |
|
|
|
7,337 |
|
|
|
9,437 |
|
| Common stock |
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
| Stockholders’
equity |
|
|
14,578 |
|
|
|
15,595 |
|
|
|
17,089 |
|
|
|
15,149 |
|
|
|
14,764 |
|
Risk Factors
You should carefully consider the following risks, together with
all other information included in this Annual Report. The
realization of any of the risks described below could have a
material adverse effect on our business, results of operations and
future prospects.
Political, Legal, Economic and Other Uncertainties of Operations
in China and Hong Kong
Recent trade policy initiatives announced by the United States
administration against the PRC may adversely affect our
business. On August 14, 2017, the President of the United
States issued a memorandum instructing the U.S. Trade
Representative (“USTR”) to determine whether to investigate, under
Section 301 of the U.S. Trade Act of 1974 (Trade Act), laws,
policies, practices, or actions of the PRC government that may be
unreasonable or discriminatory and that may be harming U.S.
intellectual property rights, innovation, or technology
development. Based on information gathered in that investigation,
the USTR published a report on March 22, 2018 on the acts, policies
and practices of the PRC government supporting findings that
certain such acts, policies and practices are unreasonable or
discriminatory and burden or restrict U.S. commerce.
On March 8, 2018, the President exercised his authority to issue
the imposition of significant tariffs on imports of steel and
aluminum from a number of countries, including the PRC.
Subsequently, the USTR announced an initial proposed list of 1,300
goods imported from the PRC that could be subject to additional
tariffs and initiated a dispute with the World Trade Organization
against the PRC for alleged unfair trade practices. The President
indicated that his two primary concerns to be addressed by the PRC
were (i) a mandatory $100 billion reduction in the PRC/U.S. trade
deficit and (ii) limiting the planned $300 billion PRC government
support for advanced technology industries including artificial
intelligence, semiconductors, electric cars and commercial
aircraft. On June 15, 2018, the President announced that the U.S.
would proceed with tariffs on $34 billion worth of Chinese goods,
including agriculture and industrial machinery, which prompted the
PRC government to impose tariffs on $34 billion worth of goods from
the U.S., including beef, poultry, tobacco and cars. In response to
the PRC’s proposed retaliatory measures, the President announced on
June 19, 2018 that the U.S. would compile a list of $200 billion in
Chinese goods for levies should the PRC move forward with their
proposed tariffs. On August 7, 2018, the U.S. announced a tariff of
25% on approximately $16 billion worth of predominantly industrial
goods from China, including tractors, plastic tubes and antennas,
which went into effect on August 23, 2018. In response, on August
8, 2018, China announced a 25% tariff on $16 billion worth of U.S.
goods, including large passenger cars, motorcycles, chemical items
and diesel fuel, which also went into effect on August 23, 2018. On
September 7, 2018, the President warned that he was prepared to
impose tariffs on another $267 billion worth of Chinese goods,
which, in addition to the other previously announced tariffs, would
cover virtually all of China’s imports into the U.S. but, instead,
on September 17, 2018 the U.S. imposed a 10% tariff on $200 billion
worth of Chinese goods. On September 18, 2018, China retaliated
with 5% tariffs on $60 billion of US goods. On May 10, 2019 the
U.S. announced an increase from 10% to 25% in the tariff imposed on
September 17, 2018 and on May 13, 2018 China announced increases
from 5% to either 10%, 20% or 25% in the tariffs on many of the
goods covered by the tariffs announced by on September 18, 2018. As
of the date of this filing, the U.S.
has applied 25% tariffs on US$250 billion worth of Chinese
products. In response, China has imposed tariffs on $110 billion
worth of U.S. goods.
In addition to the retaliatory tariffs, the President also directed
the U.S. Secretary of the Treasury to develop new restrictions on
PRC investments in the U.S. aimed at preventing PRC-controlled
companies and funds from acquiring U.S. firms with sensitive
technologies. The Foreign Investment Risk Review Modernization Act,
which modernizes the restrictive powers imposed by the Committee on
Foreign Investment in the United States, was signed by President
Trump on August 13, 2018.
Since late 2019, as a result of ongoing negotiations with the
United States, China unveiled several tariff exemptions for U.S.
products, including various agricultural products. Under the phase
one trade deal agreed with the United States by the end of 2019,
China released additional exemptions from tariffs and agreed to
purchase at least an additional US$200 billion worth of U.S. goods
and services by the end of 2021. It is uncertain whether there will
be any further material changes to China’s tariff policies. Any
further actions to increase existing tariffs or impose additional
tariffs could result in an escalation of the trade conflict, which
would have an adverse effect on manufacturing levels, trade levels
and industries, including logistics, retail sales and other
businesses and services that rely on trade, commerce and
manufacturing, as well as on our marketplaces that rely upon
imports.
The institution of trade tariffs both globally and between the U.S.
and China specifically carries the risk of negatively affecting
China’s overall economic condition, which could have a negative
impact on us. Furthermore, imposition of tariffs could have a
negative impact on our supply chain and on foreign demand for our
products and, thus, could have a material adverse impact on our
business and results of operations. During the year ended March 31,
2020, approximately 56.9% of our sales were to customers in the
United States.
Trade tensions and policy changes have also led to measures that
could have adverse effects on China-based issuers, including
proposed legislation in the United States that would require listed
companies whose audit reports and/or auditors are not subject to
review by the PCAOB to be subject to enhanced disclosure
obligations and be subject to delisting if they do not comply with
the requirements.
The Market Price For Our Shares Could Be Adversely Affected By
Increased Tensions Between The United States and China.
Recently there have been heightened tensions in the economic and
political relations between the United States and China. On
June 30, 2020, the Standing Committee of the PRC National
People's Congress issued the Law of the People's Republic of China
on Safeguarding National Security in the Hong Kong Special
Administrative Region (HKSAR). This law defines the duties and
government bodies of the HKSAR for safeguarding national security
and four categories of offences—secession, subversion, terrorist
activities, and collusion with a foreign country or external
elements to endanger national security—and their corresponding
penalties. On July 14, 2020, U.S. President Donald Trump
signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing
the U.S. administration to impose blocking sanctions against
individuals and entities who are determined to have materially
contributed to the erosion of Hong Kong's autonomy. On
August 7, 2020 the U.S. government imposed HKAA-authorized
sanctions on eleven individuals, including HKSAR chief executive
Carrie Lam. The HKAA further authorizes secondary sanctions,
including the imposition of blocking sanctions, against foreign
financial institutions that knowingly conduct a significant
transaction with foreign persons sanctioned under this authority.
The imposition of sanctions such as those provided in the HKAA is
in practice discretionary and highly political, especially in a
relationship as extensive and complex as that between the United
States and China. It is difficult to predict the full impact of the
HKAA on Hong Kong and companies like Bonso. Furthermore,
legislative or administrative actions in respect of Sino-U.S.
relations could cause investor uncertainty for affected issuers,
including us, and the market price of our shares could be adversely
affected.
It May Be Difficult For Overseas Regulators To Conduct
Investigations Or Collect Evidence Within China. Shareholder
claims or regulatory investigations that are common in the United
States generally are difficult to pursue as a matter of law or
practicality in China. For example, in China, there are significant
legal and other obstacles to providing information needed for
regulatory investigations or litigation initiated outside China.
Although the authorities in China may establish a regulatory
cooperation mechanism with the securities regulatory authorities of
another country or region to implement cross-border supervision and
administration, such cooperation with the securities regulatory
authorities in the Unities States may not be efficient in the
absence of a mutual and practical cooperation mechanism.
Furthermore, according to Article 177 of the PRC Securities Law, or
Article 177, which became effective in March 2020, no overseas
securities regulator is allowed to directly conduct investigation
or evidence collection activities within the territory of the PRC.
While detailed interpretation of or implementation rules under
Article 177 have yet to be promulgated, the inability for an
overseas securities regulator to directly conduct investigation or
evidence collection activities within China may further increase
difficulties faced by our shareholders in protecting their
interests.
We Could Face Increased Currency Risks If China Does Not
Maintain The Stability Of The Hong Kong Dollar Or The Chinese
Renminbi. The Hong Kong Dollar and the United States Dollar
have been fixed at approximately 7.80 Hong Kong Dollars to 1.00
U.S. Dollar since 1983. The market exchange rate has not deviated
materially from the level of HK$7.80 to US$1.00 since the peg was
first established. However, in May 2005, the Hong Kong Monetary
Authority broadened the trading band from the original rate of
HK$7.80 per U.S. dollar to a rate range of HK$7.75 to HK$7.85 per
U.S. dollar. The Hong Kong government has stated its intention to
maintain the link at that rate. From 1994 until July 2005, the
Chinese Renminbi had remained stable against the U.S. Dollar at
approximately 8.28 to 1.00 U.S. Dollar. On July 21, 2005, the
Chinese currency regime was altered to link the RMB to a “basket of
currencies,” which includes the U.S. Dollar, Euro, Japanese Yen and
Korean Won. Under the rules, the RMB was allowed to move 0.3% on a
daily basis against the U.S. Dollar. The People's Bank of China, on
May 21 2007, widened the RMB trading band from 0.3% daily movement
against the U.S. Dollar to 0.5%. Following the removal of the U.S.
Dollar peg, the RMB appreciated more than 20% against the U.S.
Dollar over the following three years. Since July 2008,
however, the RMB has traded within a narrow range against the U.S.
Dollar. As a consequence, the RMB has fluctuated significantly
since July 2008 against other freely traded currencies, in tandem
with the U.S. Dollar. On June 20, 2010, the People’s Bank of China
(“PBOC”) announced that the government of the People’s Republic of
China (“PRC”) would further reform the RMB exchange rate regime and
increase the flexibility of the exchange rate. Since June 2010, the
PRC government has allowed the RMB to appreciate slowly against the
U.S. dollar again, though there have been periods when the U.S.
dollar has appreciated against the Renminbi as well. It is
difficult to predict how market forces or PRC or U.S. government
policy may impact the exchange rate between the RMB and the U.S.
dollar in the future. As of July 15, 2020, the RMB was valued at
6.9871 per U.S. Dollar. Any significant revaluation of the RMB may
materially and adversely affect our cash flows, revenues, earnings
and financial position and the value of our common shares and any
dividends payable to our common shareholders in U.S. Dollars.
The Chinese government in the past has expressed its intention in
the Basic Law of the PRC to maintain the stability of the Hong Kong
currency after the sovereignty of Hong Kong was transferred to
China in July 1997. However, there can be no assurance that the
Hong Kong Dollar will remain pegged against the U.S. Dollar.
If the current exchange rate mechanism is changed, we will face
increased currency risks, which could have a material adverse
effect upon the Company.
We Face Significant Risks If The Chinese Government Changes Its
Policies, Laws, Regulations Or Tax Structure Or Its Current
Interpretations Of Its Laws, Rules And Regulations Relating To Our
Operations In China. Our property in Shenzhen and our
manufacturing facility in Xinxing are 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.
Continuing Economic Weakness May Adversely Affect Our Earnings,
Liquidity And Financial Position. The Company’s business
has been challenging recently as a consequence of adverse worldwide
economic conditions. In particular, there has been an erosion of
global consumer confidence from concerns over declining asset
values, price instability, geopolitical issues, the availability
and cost of credit, rising unemployment and the stability and
solvency of financial institutions, financial markets, businesses
and sovereign nations. These concerns slowed global economic growth
and resulted in recessions in many countries, including in the
U.S., Europe and certain countries in Asia. The global economic
weakness has negatively impacted our operating results since 2008.
Overall, the economic outlook is uncertain as a result of concerns
about the general global economy and the decreased rate of growth
in China and the European Union. Recessionary conditions may
return. If negative economic conditions return, a number of
material adverse effects on our business could occur and could have
a negative impact upon our results of operations. Further, slower
overall growth of the Chinese economy may have a material adverse
effect upon the Company and its results of operations. Also,
portions of the Company’s Xinxing facility are leased out to third
parties whose products are sold domestically. Negative economic
conditions in China would affect the results of operations of these
tenants, which may not be able to pay future rent to the Company in
full or on time according to the lease agreements.
The Economy Of China Has Been Experiencing Significant Growth,
Leading To Some Inflation and Increased Labor Costs. The
economy in China has grown significantly over the past 20 years,
which has resulted in inflation and an increase in the average cost
of labor, especially in the coastal cities. China’s consumer price
index, the broadest measure of inflation, rose 2.42% in June 2014
from the level in June 2013, 1.40% between June 2014 and June 2015,
1.90% between June 2015 and June 2016, 1.50% between June 2016 and
June 2017, 1.90% between June 2017 and June 2018, 2.70% between
June 2018 and June 2019 and 2.50% between June 2019 and June 2020.
China’s overall economy and the average wage in the PRC are
expected to continue to grow. Continuing inflation and material
increases in the cost of labor in China could diminish our
competitive advantage. If the government tries to control
inflation, it may have an adverse effect on the business climate
and growth of private enterprise in the PRC. An economic slowdown
may reduce our revenues. If inflation is allowed to proceed
unchecked, our costs would likely increase, and there can be no
assurance that we would be able to increase our prices to an extent
that would offset the increase in our expenses.
Changes To PRC Tax Laws And Heightened Efforts By China’s Tax
Authorities To Increase Revenues Are Expected To Subject Us To
Greater Taxes. Since January 1, 2012, our PRC
subsidiaries have been subject to a single PRC enterprise income
tax rate of 25%. We base our tax position upon the anticipated
nature and conduct of our business and upon our understanding of
the tax laws of the various administrative regions and countries in
which we have assets or conduct activities. However, our tax
position is subject to review and possible challenge by taxing
authorities and to possible changes in law, which may have
retroactive effect. We cannot determine in advance the extent to
which some jurisdictions may require us to pay taxes or make
payments in lieu of taxes.
We Face Risks By Operating In China Because The Chinese Legal
System Relating To Foreign Investment And Foreign Operations Such
As Bonso’s Is Evolving And The Application Of Chinese Laws Is
Uncertain. The legal system of China relating to foreign
investments is continually evolving, and 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 41 years has significantly enhanced the
protections afforded to various forms of foreign investment in
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. Further, various disputes may be subject
to the exercise of considerable discretion by agencies of the
Chinese government, and forces and factors unrelated to the legal
merits of a particular matter or dispute may influence their
determination. Continued uncertainty relating to the laws in China
and the application of the laws could have a material adverse
effect upon us and our operations in 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 have arisen 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, which would
have a material adverse effect upon us and our results of
operations. Further, 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 Factories Were Destroyed Or Significantly Damaged As A
Result of Fire, Flood Or Some Other Natural Disaster, We Would Be
Adversely Affected. All of our products are manufactured at our
manufacturing facilities located in Xinxing, Guangdong, 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 $32 million
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 factories due to fire, severe weather, flood or other
act of God or cause, even if insured, 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 China’s 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 any new environmental regulations
affecting our operations.
Enforcement Of The Labor Contract Law, Minimum Wage Increases
And Future Changes In The Labor Laws In China May Result In The
Continued Increase In Labor Costs. On June 29, 2007, the
Standing Committee of the National People’s Congress of China
enacted the Labor Contract Law, which became effective on January
1, 2008. The Labor Contract Law introduces specific provisions
related to fixed-term employment contracts, part-time employment,
probation, consultation with labor union and employee assemblies,
employment without a written contract, dismissal of employees,
severance and collective bargaining, which together represent
enhanced enforcement of labor laws and regulations. According to
the Labor Contract Law, an employer is obliged to sign an
unlimited-term labor contract with any employee who has worked for
the employer for 10 consecutive years. Further, if an employee
requests or agrees to renew a fixed-term labor contract that has
already been entered into twice consecutively, the resulting
contract must have an unlimited term, with certain exceptions. The
employer must also pay severance to an employee in nearly all
instances where a labor contract, including a contract with an
unlimited term, is terminated or expires. In addition, the
government has continued to introduce various new labor-related
regulations after the Labor Contract Law. Among other things,
current annual leave requirements mandate that annual leave ranging
from 5 to 15 days is available to nearly all employees and further
require that the employer compensate an employee for any annual
leave days the employee is unable to take in the amount of three
times his daily salary, subject to certain exceptions. In
addition, as the interpretation and implementation of these new
regulations are still evolving, we cannot assure you that our
employment practices do not, or will not, violate the Labor
Contract Law and other labor-related regulations. Between the
fiscal years ended March 31, 2010 and 2015, we experienced an
increase in the cost of labor caused by the increase in the minimum
hourly rate. In accordance with the new minimum wage set by the
local authorities, we increased the minimum wage for our labor in
Shenzhen from RMB 1,100 (or approximately $162) per month to RMB
1,320 (or approximately $206) per month beginning April 1,
2011. The minimum wage was increased to RMB 1,500 (or
approximately $238) per month beginning February 1, 2012. The
minimum wage in Shenzhen was increased to RMB 1,600 (or
approximately $254) per month beginning March 1, 2013, and later to
RMB 1,808 (or approximately $293) per month beginning February 1,
2014. We started hiring workers in our Xinxing factory during the
fiscal year ended March 31, 2013, and the minimum wage at that time
in Xinxing was RMB 1,010 per month (or approximately $160). On May
1, 2015, the minimum wage at Xinxing was increased to RMB 1,210 per
month (or approximately $181 per month) and since July 1, 2018, it
has been RMB 1,410 (or approximately $213) per month. We believe
that increased labor costs in China will have a significant effect
on our total production costs and results of operations and that we
will not be able to continue to increase our production at our
manufacturing facilities without substantially increasing our
non-production salaries and related costs. If we are subject
to severe penalties or incur significant liabilities in connection
with the enforcement of the Labor Contract Law, disputes or
investigations, our business and results of operations may be
adversely affected. Any future changes in the labor laws in the PRC
could result in our having to pay increased labor costs.
There can be no assurance that the labor laws will not change,
which may have a material adverse effect upon our business and our
results of operations.
If We Were To Lose Our Existing Banking Facilities Or Those
Facilities Were Substantially Decreased Or Less Favorable Terms
Were Imposed Upon Us, The Company Could Be Materially And Adversely
Affected. We maintain banking facilities with Hang Seng Bank
Limited, which are subject to renewal on an annual basis. We use
these banking facilities to fund our working capital requirements.
The credit markets in Hong Kong and throughout the world have
tightened and experienced extraordinary volatility and uncertainty.
We have had discussions with several of our banks and believe that
the availability of our banking facilities will continue on terms
that are acceptable to us. However, as a result of changes in the
capital or other legal requirements applicable to the banks or if
our financial position and operations were to deteriorate further,
our costs of borrowing could increase or the terms of our banking
facilities could be changed so as to impact our liquidity. If we
are unable to obtain needed capital on terms acceptable to us, our
business, financial condition, results of operations and cash flows
could be materially adversely affected.
Risk Factors Relating to Our Business
Our business operations may be adversely affected by the
outbreak of coronavirus COVID-19 or future epidemics or
pandemics. An outbreak of respiratory illness caused by a
novel coronavirus (“COVID-19”) first emerged in Wuhan
city, Hubei province, China in late 2019 and continued to expand
within the PRC and globally. The new strain
of coronavirus is considered highly contagious and poses
a serious public health threat. With the aim of containing the
COVID-19 outbreak, the PRC government imposed extreme measures
across the PRC including, but not limited to, the complete lockdown
of Wuhan city on January 23, 2020, partial lockdown measures across
various cities in the PRC, the extended shutdown of business
operations and mandatory quarantine requirements on infected
individuals and anyone deemed potentially infected. On January 30,
2020, the World Health Organization (“WHO”) declared the outbreak
of COVID-19 a Public Health Emergency of International Concern and
on March 11, 2020, WHO declared COVID-19 a global pandemic.
The COVID-19 pandemic significantly disrupted China’s economy
in the first quarter of 2020. Despite the PRC government’s efforts
to revive China’s economy, China’s economy experienced a
significant slowdown since the outbreak and will continue to face
new difficulties and challenges due to the spread of the pandemic,
increasing risk of imported cases and heightened volatility and
uncertainties in the global economy, and there remains uncertainty
as to how soon or whether economic activities in China will rebound
to the level prior to the COVID-19 pandemic.
The Company’s manufacturing facility and offices in the PRC were
instructed to close for two weeks in February 2020 as a result of
COVID-19. We also experienced limited support from our employees,
delayed access to raw material supplies and the inability to
deliver products to customers on a timely basis. However, in spite
of COVID-19, our total sales for the three months ended March 31,
2020 still increased by approximately 58% over sales for the three
months ended March 31, 2019, and our total sales for the three
months ended June 30, 2020 increased by approximately 85% over
sales for the three months ended June 30, 2019. However, management
anticipates that the increase we have experienced in our sales may
slow down during the fiscal year ending March 31, 2021 as a result
of the global COVID-19 pandemic.
The potential downturn brought by and the duration of the COVID-19
outbreak is difficult to assess or predict and the full impact of
the virus on our operations will depend on many factors beyond our
control. A resurgence of the epidemic in China could negatively
impact our business. In addition, the effect of the pandemic in
other countries where our customers are located, such as the United
States, which accounted for approximately 56.9% of our revenue
during the fiscal year ended March 31, 2020, could negatively
impact sales of our products in those countries. In addition, our
business operations could be disrupted if we are again instructed
to close our manufacturing facility or if any of our employees is
suspected of contracting COVID-19, since they could be quarantined
and/or our facility be shut down for disinfection. Our supply chain
could also be disrupted by the epidemic. The extent to which the
COVID-19 outbreak will impact our business, results of operations
and financial condition remains uncertain. Our business, results of
operations, financial condition and prospects could be materially
adversely affected to the extent that COVID-19 persists in China
and elsewhere or harms the Chinese and global economy in
general.
We may also experience negative effects from future public health
crises beyond our control. These events are impossible to forecast,
their negative effects may be difficult to mitigate and they could
adversely affect our business, financial condition and results of
operations.
Any Limitation On Our Ability to Sell Our Products On Amazon’s
Platform Could Have A Material Adverse Impact On Our Business,
Results Of Operations, Financial Condition And Prospects. A
significant portion of our sales of electronic pet products is
through the Amazon marketplace and any change, limitation or
restriction, even if temporary, on our ability to operate on
Amazon’s platform could have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We sell our electronic pet products on Amazon, both directly and
through an agent. Both our agent and we are subject to Amazon’s
terms of service and various other Amazon seller policies and
services that apply to third parties selling products on Amazon’s
marketplace. Amazon has the right to terminate or suspend its
agreement with us or with our agent at any time and for any reason.
Amazon may take other actions against us, such as suspending or
terminating a seller account or product listing and withholding
payments owed to us or our agent indefinitely. While we endeavor to
materially comply with the terms of services of the marketplaces on
which we operate, and to provide our consumers with a great
experience, we can provide no assurances that these marketplaces
will have the same determination with respect to our
compliance.
Amazon or any other marketplace on which we choose to sell can make
changes to their respective platforms that could require us to
change the manner in which we operate, limit our ability to
successfully launch new products or increase our costs to operate
and such changes could have an adverse effect on our business,
results of operations, financial condition and prospects. Examples
of changes that could impact us relate to platform fee charges
(i.e., selling commissions), exclusivity, inventory warehouse
availability, excluded products and limitations on sales and
marketing. Any change, limitation or restriction on our ability to
sell on Amazon’s platform, even if temporary, could have a material
impact on our business, results of operations, financial condition
and prospects.
In addition, in response to
the COVID-19 pandemic, Amazon has recently implemented changes to
its fulfillment services platform such that certain products deemed
non-essential have extended delivery times and Amazon is currently
not accepting goods to any of its warehouses that are deemed
non-essential. The impact of this change could have a material
effect on our revenues, profitability and financial
condition.
Our Amazon Sales Are Primarily Effected Through a Sales Agent
And Proceeds Of Those Sales Are Collected By The Sales Agent. A
significant portion of our Amazon sales is effected through an
agent pursuant to an Agency Agreement that entitles the agent to a
13% commission on any Amazon sales made through it, or 12.5%
commission if the sales exceed $500,000 in a month. Under the
agreement, we deliver our pet products to the agent, who then ships
the products, along with other products from the PRC, to Amazon.
The agent sells our pet products, and products for other
manufacturers, on Amazon through the agent’s Amazon accounts.
Amazon fulfills the orders, and the agent remits the Company’s
share of the sales proceeds to us. We do not control the agent’s
accounts and are dependent upon the agent to forward our share of
the net sales proceeds to us. If the agent were to fail to remit
our share of the net sales proceeds to us, we would be forced to
take legal action to obtain our share of the net sales
proceeds.
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 Revenue Will Decline And Our Business Will
Be Negatively Impacted. During the fiscal year ended
March 31, 2020, top three customers accounted for 38% of our
revenue. Those same three customers accounted for 59% and 59%
during the fiscal years ended March 31, 2019 and 2018,
respectively. 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. Our largest customer prior to the fiscal year ended March
31, 2018, which accounted for 45% of our revenue during the fiscal
year ended March 31, 2017 and 56% during the fiscal year ended
March 31, 2016, ceased purchasing from us as of June 2017, causing
a significant decrease in revenue. The loss of any of our remaining
three largest customers would have a material negative impact on
our sales revenue and our business. There can be no assurance
that we would be able to compensate for the loss of any of these
major customers.
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, which would likely result in adverse effects upon
our business with these customers. If we were involved in any
product liability litigation, even if it were unsuccessful, it
would be time-consuming and costly to defend. Further, our
product liability insurance may not be adequate to cover
claims.
Our Sales Through Retail Merchants Result In Seasonality,
Susceptibility To A Downturn In The Retail Economy And Sales
Variances Resulting From Retail Promotional Programs.
Many of our customers sell to retail merchants. Accordingly,
these portions of our customer base are susceptible to downturns in
the retail economy. A greater number of our sales of scales
products occur between the months of July and October in
preparation for the Christmas holiday. Throughout the
remainder of the year, our products do not appear to be subject to
significant seasonal variation. However, past sales patterns
may not be indicative of future performance.
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 either F.O.B. Hong Kong, Yantian
(Shenzhen) or Nansha (Guangzhou), and our customers are responsible
for the transportation of products from Hong Kong, Yantian
(Shenzhen) or Nansha (Guangzhou) 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
increasing pressure from our customers to reduce the prices of our
products. Continuing pressure to reduce the price of our
products could have a material adverse effect upon our business and
operating results. Our customers frequently negotiate supply
arrangements with us well in advance of placing orders for delivery
within a year, 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. Further, if we are unable to offset declining average
sales prices, our gross profit margins will decline, which would
have a material adverse effect upon our results of operations.
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 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 Chairman of the Board and Andrew
So, our Chief Executive Officer. We have key man life insurance on
Mr. Andrew So, but not for Mr. Anthony So. To the extent that the
services of either Mr. Anthony So or Mr. Andrew So would be
unavailable to us, we would be required to obtain another person or
persons to perform his duties. We may be unable to employ
another qualified person with the appropriate background and
expertise to replace either of these persons on terms suitable to
us.
Contractual Arrangements We Have Entered Into Among Us And Our
Subsidiaries May Be Subject To Scrutiny By The Respective Tax
Authorities, And A Finding That Bonso And Its Subsidiaries Owe
Additional Taxes Could Substantially Reduce Our Consolidated Net
Income And The Value Of Your Investment. We could face material
and adverse tax consequences if the respective tax authorities
determine that the contractual arrangements among our subsidiaries
and Bonso do not represent an arm’s length price and adjust
Bonso’s, or any of its subsidiaries’, income in the form of a
transfer pricing adjustment. Bonso did not consider it
necessary to make tax provision in this respect. However,
there can be no assurance that the assessment performed by the
local tax authorities will result in the same position. A transfer
pricing adjustment could, among other things, result in a
reduction, for tax purposes, of expense deductions recorded by
Bonso or any of its subsidiaries, which could in turn increase its
tax liabilities. In addition, the tax authorities may impose late
payment fees and other penalties on our affiliated entities for
underpaid taxes. Our consolidated net income may be materially and
adversely affected if our affiliated entities’ tax liabilities
increase or if they are found to be subject to late payment fees or
other penalties.
Increased Prices For Raw Materials May Have A Negative Impact
Upon Us. The price level of certain raw materials has increased
each year since the fiscal year ended March 31, 2016. The price of
some of the raw materials fluctuates directly with the price of
oil. If oil prices increase in the future, it will likely result in
a further increase in the costs of components to us, as well as an
increase in our operating expenses, which could have a material
adverse effect upon our business and results of
operations.
We May Face An Increased Shortage Of Factory Workers.
Currently, we have a sufficient number of factory workers at our
Xinxing factory and do not expect a significant labor shortage in
the next 12 months. However, there can be no assurance that we will
not experience an increased need for workers in China in the future
or that we will be able to adequately staff our factory in Xinxing
in the future. The inability to adequately staff our factories
could have a material adverse impact on production, which could
lead to delays in shipments or missed sales. In the event that we
have delayed or lost sales, we may need to deliver goods by air at
our cost to ensure that our products arrive on time, which would
likely result in an increase in air freight costs and vendor fines
and could result in missed sales, any of which could have a
material adverse effect upon our business and our results from
operations.
Recent Changes In The PRC’s Labor Law Could Penalize Bonso If It
Needs To Make Additional Workforce Reductions. In June
2007, the National People’s Congress of the PRC enacted new labor
law legislation called the Labor Contract Law, which became
effective on January 1, 2008. It formalizes workers’ rights
concerning overtime hours, pensions, layoffs, employment contracts
and the role of trade unions. Considered as one of the
strictest labor laws in the world, among other things, this new law
requires an employer to conclude an “open-ended employment
contract” with any employee who either has worked for the employer
for 10 years or more or has had two consecutive fixed-term
contracts. An “open-ended employment contract” is in effect a
lifetime, permanent contract, which is terminable only in specified
circumstances, such as a material breach of the employer’s rules
and regulations, or for a serious dereliction of duty. Under
the new law, downsizing by 20% or more of each individual entity
may occur only under specified circumstances, such as a
restructuring undertaken pursuant to China’s Enterprise Bankruptcy
Law, or where a company suffers serious difficulties in production
and/or business operations. Also, if we lay off more than 20
employees at one time, we have to communicate with the labor union
of our Company and report to the District Labor Bureau.
During the fiscal year ended March 31, 2014, we paid severance
payments of $1,194,000 for reducing our full workforce in Shenzhen,
PRC as we moved our operations to the new factory in Xinxing, and
the accumulated provision was approximately $444,000 as of March
31, 2020 (2019: $437,000; 2018: $396,000; 2017: $297,000; 2016:
$317,000). This accrued severance payment allowance is reviewed
every year. We may incur much higher costs under China’s
labor laws if we are forced to downsize again, and accordingly,
this new labor law may exacerbate the adverse effect of the
economic environment on our financial results and financial
condition.
We Face Increasing Competition In Our Industry And May Not Be
Able To Successfully Compete With Our Competitors. Our
business is in an industry that is becoming increasingly
competitive, and many of our competitors, both local and
international, have substantially greater technical, financial and
marketing resources than we have. As a result, we may be
unable to compete successfully with these competitors. We
compete with scale manufacturers in the Far East, the United States
and Europe. We believe that our principal competitors in the
scale market are other original equipment manufacturers (“OEMs”)
and original design manufacturers (“ODMs”), and all companies
engaged in the branded, ODM and OEM business. The scale market is
highly competitive, and we face pressures on pricing which could
result in lower margins. Lower margins may affect 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 Interests May Differ
From Those Of The Other Shareholders. As of July 15, 2020, Mr.
Anthony So, our founder and Chairman, owned or controlled
approximately 49.7% of our outstanding shares of common stock.
Andrew So, our Chief Executive Officer and President, owned
approximately 10.1% of our outstanding shares. Albert So, our Chief
Financial Officer, owned approximately 5.5% of our outstanding
shares. The record ownership of Mr. Anthony So, Mr. Andrew So and
Mr. Albert So aggregates 65.3% of the shares entitled to vote. The
other directors of the Company own of record 4.8% of the shares
entitled to vote. Accordingly, the existing management and
directors of the Company can vote in the aggregate 70.1% of the
shares entitled to vote. As a result, the current directors and
management of the Company are 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. The current directors and management
may be able to prevent or cause a change in control of the
Company. We also may be prevented from entering into
transactions that could be beneficial to us without the current
directors’ and management’s consent. The interest of our
largest shareholders may differ from the interests of other
shareholders. There are no agreements, understandings or
commitments among the members of the Board to vote their shares in
any specific manner or to vote collectively for or against any
matter that may come before the shareholders.
We Have Identified Material Weaknesses In Our Internal Control
Over Financial Reporting Which Could, If Not Remediated, Result In
Material Misstatements In Our Financial Statements. We
are responsible for establishing and maintaining adequate internal
control over our financial reporting, as required by
Rule 13a-15 under the Securities Exchange Act of 1934. As
disclosed in Item 15 – “Controls and Procedures,” we have
identified, in conjunction with our independent auditors, certain
material weaknesses in our internal control over financial
reporting related to our financial closing process, the lack of
trained accounting personnel and the failure to enter certain
transactions into the accounting records on a timely
basis.
A material weakness is defined as a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. As a result of these material
weaknesses, our management concluded that our internal control over
financial reporting was not effective as of March 31, 2020, based
on criteria set forth by the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. We have experienced material weaknesses in
our internal controls for several years; however, management has
been unable to implement effective remediation measures.
As discussed in Item 15, we are developing and intend to
implement remediation plans designed to address these material
weaknesses; however, the material weaknesses will not be remediated
until the necessary controls have been implemented and are
determined to be operating effectively. We do not know the specific
time frame needed to fully remediate the material weaknesses
identified. We cannot assure you that our efforts to fully
remediate these internal control weaknesses will be successful or
that similar material weaknesses will not recur. If our remedial
measures are insufficient to address the material weaknesses, or if
additional material weaknesses or significant deficiencies in our
internal control are discovered or occur in the future, our
consolidated financial statements may contain material
misstatements and we could be required to restate our financial
results.
Notwithstanding the identified material weaknesses, management
believes the consolidated financial statements included in this
Annual Report on Form 20-F fairly present in all material respects
our financial condition, results of operations and cash flows at
and for the periods presented in accordance with
U.S. GAAP.
Due To Inherent Limitations, There Can Be No Assurance That Our
System Of Disclosure And Internal Controls And Procedures Will Be
Successful In Preventing All Errors Or Fraud Or In Informing
Management Of All Material Information In A Timely Manner. Our
disclosure controls and internal controls and procedures may not
prevent all errors and all fraud. A control system, no matter
how well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Further, the design of a control system reflects that
there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been or will be detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur simply
because of error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people or by circumvention of the internal control
procedures. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future
conditions; over time, a control may become inadequate because of
changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and may not be detected. Management has
concluded that the Company’s disclosure controls and procedures for
the fiscal year ended March 31, 2020, were ineffective.
There Are Inherent Uncertainties Involved In Estimates,
Judgments And Assumptions Used In The Preparation Of Financial
Statements In Accordance With U.S. GAAP. Any Changes In Estimates,
Judgments And Assumptions Could Have A Material Adverse Effect On
Our Business, Financial Position And Results Of Operations. The
consolidated financial statements included in the periodic reports
we file with the SEC are prepared in accordance with U.S. GAAP. The
preparation of financial statements in accordance with U.S. GAAP
involves making estimates, judgments and assumptions that affect
reported amounts of assets (including intangible assets),
liabilities and related reserves, revenues, expenses and income.
Estimates, judgments and assumptions are inherently subject to
changes in the future, and any such changes could result in
corresponding changes to the amounts of assets, liabilities,
revenues, expenses and income. Any such changes could have a
material adverse effect on our financial position and results of
operation.
Compliance Costs With The Securities Laws, The Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley Act”), The Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”), And Other Regulatory
Initiatives Have Increased and May Continue to Increase Our
Costs. Changes in corporate governance practices due to the
Dodd-Frank Act and the Sarbanes-Oxley Act, changes in the continued
listing rules of the NASDAQ Stock Market, new accounting
pronouncements and new regulatory legislation, rules or accounting
changes have increased our cost of being a U.S. public company and
may have an adverse impact on our future financial position and
operating results. These regulatory changes and other legislative
initiatives have made some activities more time-consuming and have
increased financial compliance and administrative costs for public
companies, including foreign private issuers like us. In addition,
any future changes in regulatory legislation, rules or accounting
may cause our legal and accounting costs to further increase. In
addition, these new rules and regulations require increasing time
commitments and resource commitments from our company, including
from senior management. This increased cost could negatively impact
our earnings and have a material adverse effect on our financial
position and results of operations. Further, the new rules may
increase the expenses associated with our director and officer
liability insurance.
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 Could Be Affected By Changes In Currency Exchange
Rates. Changes in currency rates involving the Hong Kong Dollar
or Chinese Renminbi could increase our expenses. During the fiscal
years ended March 31, 2018 and 2019 our financial results were
affected by currency fluctuations, resulting in a total foreign
exchange loss of approximately $353,000 and approximately $21,000,
respectively. During the fiscal year ended March 31, 2020, our
financial results were affected by currency fluctuations, resulting
in a total foreign exchange gain of approximately $42,000.
Generally, our revenues are collected in United States Dollars and
Chinese Renminbi. Our costs and expenses are paid in United States
Dollars, Hong Kong Dollars and Chinese Renminbi. We face a variety
of risks associated with changes among the relative value of these
currencies. Appreciation of the Chinese Renminbi against the Hong
Kong Dollar and the United States Dollar would increase our
expenses when translated into United States Dollars and could
materially and adversely affect our margins and results of
operations. If the trend of Chinese Renminbi appreciation continues
against the Hong Kong Dollar and the United States Dollar, our
operating costs will further increase and our financial results
will be adversely affected. In addition, a significant devaluation
in the Chinese Renminbi or Hong Kong Dollar could have a material
adverse effect upon our results of operations. If we determined to
pass onto our customers through price increases the effect of
increases in the Chinese Renminbi relative to the Hong Kong Dollar
and the United States Dollar, it would make our products more
expensive in global markets, such as the United States and the
European Union. This could result in the loss of customers,
who may seek, and be able to obtain, products and services
comparable to those we offer in lower-cost regions of the
world. If we did not increase our prices to pass on the
effect of increases in the Chinese Renminbi relative to the Hong
Kong Dollar and the United States Dollar, our margins and
profitability would suffer.
Protection And Infringement Of Intellectual Property. 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 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 have a material adverse effect on our business and results of
operations.
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
canceled, 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.
Prices of components may increase in the future for a variety of
reasons. Accordingly, additional increases in component prices
could materially and adversely affect our gross margins and results
of operations.
We May Encounter Difficulties In Obtaining Approval To Redevelop
Our Shenzhen Factory Land, Which Could Adversely Affect Our Growth
And Business Prospects. As part of our ongoing business
strategy we intend to focus our efforts on redeveloping our
Shenzhen factory into a high-end commercial complex containing
retail space, office space and some residential space. We
anticipate that it will take several years to obtain all necessary
governmental approvals for us to redevelop the Shenzhen factory,
and we think it is likely that we will obtain the necessary
approvals. However, there can be no assurance that we will be able
to obtain all requisite permits and approvals from relevant
government authorities in relation to the redevelopment of the
land, and the development of the commercial complex. Our planned
real estate project is subject to significant risks and
uncertainties, including without limitation the following:
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we do
not currently have strong brand recognition or relationships in the
real estate development and management business; |
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we may not be able to obtain all
necessary government approvals or all requisite permits and
approvals from relevant government authorities in relation to the
redevelopment of the land, or to successfully redevelop the land in
a timely manner; |
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we face intense competition from
real estate developers that are already in the business for
years; |
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our experience and expertise
gained from our manufacturing business may not be particularly
relevant or applicable to a real estate development and management
business; and |
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we may not be able to generate
enough revenues to offset our costs in our real estate development
and management business. |
We signed an agreement with a property developer in
Shenzhen--Shenzhen Fangda Property Development Company Limited
(“Fangda”) to cooperate in reconstructing and redeveloping the
Shenzhen factory in November 2017, and we signed a supplementary
agreement with Fangda in July 2018. Fangda is a wholly owned
subsidiary of Fangda Group Co., Ltd. (“Fangda Group”), which is
listed on the Shenzhen Stock Exchange. Under the terms of the
agreement, Fangda is responsible for applying for necessary
government approvals and for financing and handling the
redevelopment project, including facilitating the obtaining of
necessary governmental approvals. We anticipate completing
the approval process in 2020; however, there can be no assurance
that we will be successful in obtaining all necessary
approvals. If we are not successful in the implementation of
our property development project, our growth, business, financial
condition and results of operations could be adversely
affected.
We May Not Have Adequate Financing, Whether Through Bank Loans
Or Other Arrangements, To Fund The Redevelopment Of Our Shenzhen
Factory Site, And Capital Resources May Not Be Available On
Commercially Reasonable Terms, Or At All. Although we have
entered into an agreement for redevelopment of the Shenzhen factory
under which Fangda will bear the costs of redevelopment, there can
be no assurance that Fangda will have the funds available to
redevelop the Shenzhen factory. If Fangda either does not have
sufficient available capital or is unwilling to bear the costs of
redevelopment of the Shenzhen factory, we will be required to
undertake the redevelopment. Property development is capital
intensive, and we do not currently have the necessary capital to
fund the redevelopment project. If it were to be necessary, we
would finance our property redevelopment from our cash on hand,
bank facilities and other sources. We cannot assure you that
lenders will grant us sufficient financing in the future to fully
fund the redevelopment project or that funding will be available
from other sources. Further, the financing policies of the PRC
government relating to the property development sector have varied.
It is possible that the PRC government may further tighten
financing policies on PRC financial institutions for the property
development sector. These property-related financing policies may
limit our ability and flexibility to use bank borrowings to finance
our property redevelopment project.
Fangda or We May Fail To Obtain, Or Experience Material Delays
In Obtaining, Requisite Certificates, Licenses, Permits Or
Governmental Approvals For Redevelopment Of Our Shenzhen Factory,
And As A Result Our Redevelopment Plans, Business, Results Of
Operations And Financial Condition May Be Materially And Adversely
Affected. Property development in the PRC is heavily regulated.
Property developers in China must abide by various laws and
regulations, including implementation rules promulgated by local
governments to enforce these laws and regulations. During various
stages of our property redevelopment project, we/Fangda will be
required to obtain and maintain various certificates, licenses,
permits and governmental approvals, including but not limited to
qualification certificates, land use rights certificates,
construction land planning permits, construction works planning
permits, construction works commencement permits, pre-sale permits
and completion certificates. Before the government authorities
issue any certificate, license or permit, we/Fangda must also meet
specific conditions. We cannot assure you that we/Fangda will be
able to adapt to new PRC land policies that may come into effect
from time to time with respect to the property development industry
or that we/Fangda will not encounter other material delays or
difficulties in fulfilling the necessary conditions to obtain all
necessary certificates, licenses or permits for our property
development in a timely manner, or at all, in the future. If
we/Fangda fail to obtain or encounter significant delays in
obtaining the necessary certificates, licenses or permits we will
not be able to continue with our redevelopment plans, and our
business, results of operations and financial condition may be
adversely affected.
Our Income From The Rental and Management Segment Has Dropped
Due To The Termination Of The Lease Agreement For Rental Of Our
Shenzhen Factory.
Previously, we derived a majority of our rental income from the
rental of our Shenzhen factory facility. That lease was terminated
as at January 31, 2019, and management was unable to lease the
factory to another tenant. Assuming appropriate governmental
approvals are obtained, of which there can be no assurance,
development of the Shenzhen factory site is expected to begin in
early 2021. It will be several years before development is
completed and before we will have any revenues relating to the
redevelopment of the Shenzhen factory property. During that time
there will not be rents generated from our Shenzhen factory
facility. However, we believe that we will have sufficient cash
reserves plus cash flow from the rental of factory space at Xinxing
and from manufacturing for our operations to continue and to meet
the Company’s liquidity requirements.
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 (“BVI”), and our principal operating subsidiaries are
organized under the laws of Hong Kong and the laws of the PRC. Our
principal executive offices are located in Hong Kong and the PRC.
Outside the United States, it may be difficult for investors to
enforce judgments obtained against us in actions brought in the
United States, including actions predicated upon the civil
liability provisions of United States federal securities laws. In
addition, most of our officers and directors reside outside the
United States, and the assets of these persons are located outside
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 federal 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 United States
federal securities laws.
No treaty exists between Hong Kong or the British Virgin Islands
and the United States providing for the reciprocal enforcement of
foreign judgments. However, the courts of Hong Kong and the British
Virgin Islands are generally prepared to accept a foreign judgment
as evidence of a debt due. An action may then be commenced in Hong
Kong or the British Virgin Islands for recovery of this debt. A
Hong Kong or British Virgin Islands court will only accept a
foreign judgment as evidence of a debt due if:
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the
judgment is for a liquidated amount in a civil matter; |
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the judgment is final and
conclusive; |
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the judgment is not, directly or
indirectly, for the payment of foreign taxes, penalties, fines or
charges of a like nature (in this regard, a Hong Kong court is
unlikely to accept a judgment for an amount obtained by doubling,
trebling or otherwise multiplying a sum assessed as compensation
for the loss or damage sustained by the person in whose favor the
judgment was given); |
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the judgment was not obtained by
actual or constructive fraud or duress; |
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the foreign court has taken
jurisdiction on grounds that are recognized by the common law rules
as to conflict of laws in Hong Kong or the British Virgin
Islands; |
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the proceedings in which the
judgment was obtained were not contrary to natural justice (i.e.
the concept of fair adjudication); |
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the proceedings in which the
judgment was obtained, the judgment itself and the enforcement of
the judgment are not contrary to the public policy of Hong Kong or
the British Virgin Islands; |
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the person against whom the
judgment is given is subject to the jurisdiction of a foreign
court; and |
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the judgment is not on a claim
for contribution in respect of damages awarded by a judgment, which
fall under Section 7 of the Protection of Trading Interests
Ordinance, Chapter 7 of the Laws of Hong Kong. |
Enforcement of a foreign judgment in Hong Kong or the British
Virgin Islands may also be limited or affected by applicable
bankruptcy, insolvency, liquidation, arrangement and moratorium, or
similar laws relating to or affecting creditors’ rights generally,
and will be subject to a statutory limitation of time within which
proceedings may be brought.
In the PRC, the recognition and enforcement of foreign
judgments are provided for under PRC Civil Procedure Law. PRC
courts may recognize and enforce foreign judgments in
accordance with the requirements of PRC Civil Procedure Law based
either on treaties between China and the country where the judgment
is made or on reciprocity between jurisdictions. China does not
have any treaties or other form of reciprocity with the United
States or the British Virgin Islands that provide for the
reciprocal recognition and enforcement
of foreign judgments. In addition, according to the PRC
Civil Procedure Law, courts in the PRC will not enforce
a foreign judgment against us or our directors and
officers if they decide that the judgment violates the basic
principles of PRC law or national sovereignty, security
or public interest. As a result, it is uncertain whether and on
what basis a PRC court would enforce a judgment rendered by a court
in the United States or in the British Virgin Islands.
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 amending our Memorandum or Articles of Association, which
are the terms used in the British Virgin Islands for a
corporation’s charter and bylaws, respectively, and approving
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 federal securities laws.
Future Issuances Of Preference Shares Could Materially And
Adversely Affect The Holders Of Our Common Shares Or Delay Or
Prevent A Change Of Control. Our Memorandum and Articles of
Association provide the ability to issue an aggregate of 10,000,000
shares of preferred stock in four classes. While no preferred
shares are currently issued or outstanding, we may issue preferred
shares in the future. Future issuance of preferred shares could
materially and adversely affect the rights of the holders of our
common shares, dilute the common shareholders’ holdings or delay or
prevent a change of control.
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 Securities Exchange Act of
1934 (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 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 with 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 laws of the
British Virgin Islands, our Memorandum and Articles of Association
may be amended by our Board of Directors without shareholder
approval. 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 current market price.
We Have Not Paid Dividends Since 2007 And May Not Pay Dividends
In The Future. We have not paid dividends on our common stock
since 2007, and we may not be able to declare dividends, or the
Board of Directors 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.
Item
4. Information on the Company
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 BVI Business
Companies Act.
For a description of our current operating subsidiaries, see
“Organizational Structure,” below.
Our corporate administrative offices are located at Cragmuir
Chambers, Road Town, Tortola, British Virgin Islands and corporate
administrative matters are conducted through our registered agent,
Harneys Corporate Services Limited, located at P.O. Box 71, Road
Town, Tortola, British Virgin Islands. Our principal executive
offices are located at Unit 1404, 14/F, Cheuk Nang Centre, 9
Hillwood 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.
Organizational Structure
We have two wholly-owned Hong Kong subsidiaries, Bonso Electronics
Limited (“BEL”) and Bonso Advanced Technology Limited (“BATL”). BEL
and BATL are 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 investment properties in Hong Kong and
China.
BEL also has one active PRC subsidiary, Bonso Electronics
(Shenzhen) Company, Limited (“BESCL”), which is organized under the
laws of the PRC and was used to manufacture our products until
January 2014. BESCL leased its factory to a third party from August
2013 to August 2019; however, the tenant terminated the lease as at
January 31, 2019, and the Company was unable to lease the factory.
Effective with the transfer of manufacturing operations to Xinxing,
we ceased manufacturing in this subsidiary. Subject to receiving
the necessary governmental approvals, we will commence
reconstruction of the existing Shenzhen factory into a high-rise
industrial and commercial complex through our agreement with a
property developer in Shenzhen (“Fangda”), which is described below
under “Business Overview.”
BATL has two active PRC subsidiaries, Bonso Advanced Technology
(Xinxing) Company, Limited (“BATXXCL”), which is organized under
the laws of the PRC and is used to acquire and hold our new
manufacturing facility in Xinxing, Guangdong, China, and Bonso
Technology (Shenzhen) Company Limited (“BTL”), in Shenzhen, PRC,
which provides product design and distribution services for the
Group.
We also have a wholly-owned British Virgin Islands subsidiary,
Modus Enterprise International Inc. (“Modus”), which owned 100% of
Bonso USA Inc. (“Bonso USA”). Bonso USA, which was organized under
the laws of the United States, has been dormant since 2009 and was
formally deregistered during the fiscal year ended March 31,
2017.
Business Overview
Since inception, Bonso Electronics International Inc. has designed,
developed, produced and sold electronic sensor-based and wireless
products for private label original equipment manufacturers
(individually “OEM” or, collectively, “OEMs”), original brand
manufacturers (individually “OBM” or, collectively, “OBMs”) 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. From 1989 until 2013, all of our production took place
in our Shenzhen factory; however, during the fiscal year ended
March 31, 2013 we began production in our Xinxing factory. We moved
all production processes from our Shenzhen factory to the Xinxing
factory during the fiscal year ended March 31, 2014, and we rented
out the old Shenzhen factory to a third party as a source of rental
income.
We have two factory properties in China and our business operations
are organized based upon the products we offer. Our manufacturing
operations are conducted at our factory in Xinxing. We operate in
four business segments:
|
· |
Scales—manufactured at our factory in
Xinxing; |
|
· |
Pet
Electronic Products—manufactured at our factory in
Xinxing; |
|
· |
Rental and Management—involves
the leasing of our factory in Shenzhen, and the leasing of both
factory space and equipment at our Xinxing facility;
and |
|
· |
Others—principally includes the
activities of (i) tooling and mould charges for scales and pet
electronic products, and (ii) sales of scrap materials. |
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, 2018, 2019 and 2020:
| |
|
Year ended March 31, |
| Product Line |
|
2018 |
|
2019 |
|
2020 |
| Scales
and Others |
|
|
68 |
% |
|
|
67 |
% |
|
|
45 |
% |
| Pet Electronic
Products |
|
|
16 |
% |
|
|
14 |
% |
|
|
48 |
% |
|
Rental and Management |
|
|
16 |
% |
|
|
19 |
% |
|
|
7 |
% |
| Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Our primary business has been the design, development, production
and sale of electronic sensor-based scales and pet electronic
products. Effective with the transfer of manufacturing operations
to our factory in Xinxing we leased our factory in Shenzhen to a
third party. This lease marked our entry into the “Rental and
Management” business, into which we have been expanding and intend
to expand further in the future.
The lease with the third party for the Shenzhen factory was
terminated as of January 31, 2019. We have engaged consultants to
assist us in obtaining the necessary governmental approvals to
permit us to redevelop the Shenzhen factory into a high-end
commercial complex, containing retail space, office space and some
residential space. In July 2017, we signed a letter of intent, and
in November 2017, we signed the definitive agreement with a
property developer in Shenzhen (“Fangda”) to cooperate in
reconstructing and redeveloping the Shenzhen factory. Fangda is a
wholly owned subsidiary of Fangda Group Co., Ltd. (“Fangda Group”),
which is listed on the Shenzhen Stock Exchange. In July 2018, we
signed a supplementary agreement with Fangda to modify our approach
in obtaining government approvals. Under the terms of the
agreement, Fangda is responsible for applying for necessary
government approvals and for financing and handling the
redevelopment project. The agreement provides that both companies
will share the redeveloped property after
reconstruction/redevelopment is completed with Bonso holding a 45%
interest in the total floor area. However, the final
sharing ratio is subject to government approval of the total
floor area. Fangda is in the process of obtaining necessary
governmental approvals. We expect that Fangda will obtain all
necessary approvals by the end of calendar year 2020; however,
there can be no assurance that it will be successful in obtaining
all necessary approvals. If we are successful in obtaining the
necessary governmental approvals for the redevelopment, we believe
that the rental income derived from leasing the redeveloped
property will be a significant contributing factor to our profit in
the future.
In addition, since October 2016 we have leased excess space and
equipment in our Xinxing facility to third parties in order to
supplement our manufacturing revenues, and in June 2018, we
completed construction of two additional buildings at our Xinxing
facility that are being leased to third parties. See “Property,
Plant and Equipment – China.”
Our principal capital expenditures on property, plant and
equipment, including investment property over the last three years
are set forth below:
| |
|
On March 31, |
| |
|
2018 |
|
2019 |
|
2020 |
| Property,
plant & equipment and including investment property |
|
$ |
364,000 |
|
|
$ |
592,000 |
|
|
$ |
1,124,000 |
|
Our capital expenditures include construction-in-progress,
leasehold improvement and the purchase of machinery used in the
production of certain of our products.
All of the foregoing capital expenditures were financed principally
from internally generated funds, except for three motor vehicles
purchased with capital leases.
Business Strategy
Management of the Company believes that is in the best interest of
the Company and our shareholders to further expand the Rental and
Management segment. From 2013 to January 31, 2019, the Company
leased its entire Shenzhen facility, consisting of seven buildings
for a total of approximately 375,000 square feet, to an
unaffiliated third party, and it is also currently leasing an
aggregate of approximately 243,000 square feet of its Xinxing
facility to unaffiliated third parties. In addition, the Company,
through its partner, Fangda, is in the process of applying for the
required permits to redevelop the Shenzhen facility into a high-end
commercial complex, containing retail space, office space and some
residential space, all of which is intended to be leased out.
Management believes that the Rental and Management segment will
increase and constitute a more significant part of our total
revenues in the future.
Scales, Pet Electronic Products and Other Segments
Products. Our sensor-based scale products include bathroom,
kitchen, office, jewelry, laboratory, postal and industrial scales
that are used in consumer, commercial and industrial
applications. These products accounted for 67% of revenue for
the fiscal year ended March 31, 2018, 66% for 2019 and 44% for
2020. We believe that our sensor-based scale products will continue
to be a major portion of our scales revenue as we are able to
secure orders from our major customers.
During the fiscal year ended March 31, 2013, the Company began to
produce certain pet electronic products that are sold to
wholesalers and pet shops. The Company also sells its pet
electronic products through online platforms including Taobao,
Tmall, Alibaba and Amazon. These products accounted for 16% of
revenue for the fiscal year ended March 31, 2018, 14% for 2019 and
48% for 2020.
We also receive revenue from certain customers for the development
and manufacture of tooling and moulding for scales and pet
electronic products although most of the tools and moulds that we
produce are used by us for the manufacture of our products. We also
generate some sales of scrap materials. These revenues accounted
for approximately 1% of net sales for each of the last three fiscal
years.
The following table sets forth the percentage of net revenue for
each of the product lines mentioned above for the fiscal years
ended March 31, 2018, 2019 and 2020:
| |
|
Fiscal Year Ended March 31, |
|
Product Line |
|
2018 |
|
2019 |
|
2020 |
| Scales |
|
|
67 |
% |
|
|
66 |
% |
|
|
44 |
% |
| Pet Electronic Products |
|
|
16 |
% |
|
|
14 |
% |
|
|
48 |
% |
| Other |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
| Total |
|
|
84 |
% |
|
|
81 |
% |
|
|
93 |
% |
Business Strategy – Scales and Pet Electronic Products. With
respect to our scales and pet electronic products business, we
believe that our future 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, and focusing upon the production
and sale of higher margin products. Our future growth and our
ability to maintain and increase profitability are also dependent
upon our ability to control production costs and increase
production capacity. Our strategy to achieve these goals is
as follows:
Increased Focus upon Manufacturing and Selling Higher Margin
Products and the Elimination or Decrease in the Production and Sale
of Lower Margin Products. Since 2015 we have focused upon
eliminating the production and sale of lower margin products that
require the employment of larger numbers of workers and the
commitment of substantial resources to carry or stock raw materials
and components inventory. We advised our largest customer for these
low margin electronic scale products that without substantial price
increases, we would not be in position to continue manufacturing
these products in the calendar year beginning January 1, 2015. That
customer did not agree to the price increases that we requested,
and has shifted this business to alternative suppliers. In
addition, the Company is able to generate a higher margin for its
products sold through online platforms where the products are sold
directly to the end users without a middleman. With the decrease in
the production and sale of lower margin products and increase in
the sale of higher margin products, the Company increased its gross
profit from 21.9% for the fiscal year ended March 31, 2015, to
32.7% for the fiscal year ended March 31, 2016, 40.5% for the
fiscal year ended March 31, 2017, 39.6% for the fiscal year ended
March 31, 2018, 39.6% for the fiscal year ended March 31, 2019 and
56.6% for the fiscal year ended March 31, 2020.
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 is
currently working on a variety of projects to enhance our existing
scale products and in the postal scale/meter area. Further, we are
developing certain pet electronic products for distribution into
the China market. See “Product Research and Development” and
“Competition,” below.
Maintaining and Expanding Business Relations with Existing
Customers. We promote relationships with our significant
customers through regular communication, 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, attempt to develop and incorporate the
enhancements suggested by our customers into our products.
Controlling Production Costs. In 1989, recognizing that
labor cost was 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. Continuing
this approach and recognizing that labor costs are significantly
lower in Xinxing than in Shenzhen, we moved all of our
manufacturing from Shenzhen to Xinxing, and there was a reduction
in our labor costs as a result. In addition, we have continued to
shift production and manufacturing of various parts and components
to third party suppliers, including plastic injection molded parts
and metal parts. In some cases, we have entered into agreements
with third parties in which they lease our equipment and part of
our manufacturing facility from us, and then manufacture parts and
components that we use in assembling our final products. Those
third parties provide the workers and supervisors, and the
necessary raw materials. We lease our machinery or equipment, a
portion of our dormitory and manufacturing facilities for their
workers and supervisory staff and our meals or cafeteria services
for the third party’s workers and staff. There are other
third-party contractors that utilize their own equipment and their
own facilities in manufacturing specific components or parts for
us.
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.
Xinxing Manufacturing Facility. In November 2006,
Bonso entered into a land purchase agreement to acquire 133,500
square meters of land use right for future expansion in Xinxing,
China. In July 2015, the Company entered into an agreement to
sell approximately 23,500 square meters of that land use right,
leaving the Company with approximately 110,000 square meters. The
office building on the Xinxing site was completed in February 2015,
and its leasehold renovations were completed in January 2016. All
manufacturing operations have been moved from Shenzhen to
Xinxing. We intend to carefully monitor our capacity needs
and to expand or reduce capacity as necessary in the future. Excess
space in this facility is currently being rented out to third
parties.
Customers and Marketing. We sell our products
primarily in the United States and Europe. Customers for our
products are primarily OEMs, OBMs and ODMs, which market the
products under their own brand names. We market our products to
OEMs, OBMs and ODMs through our sales staff at trade shows, via
e-mail and via our website. In addition, we market our pet
electronic products to end users worldwide through online
platforms. We have made sales through this medium primarily to end
users in the United States, Europe and China.
Net export sales to customers in the United States and Europe
constituting 10% or more of total revenue of the Company consisted
of the following for each of the three years ended March 31, 2018,
2019 and 2020.
| |
|
Year ended March 31, |
| |
|
2018 |
|
2019 |
|
2020 |
| |
|
$ in thousands |
|
% |
|
$ in thousands |
|
% |
|
$ in thousands |
|
% |
| United
States of America |
|
|
4,807 |
|
|
|
42 |
|
|
|
3,184 |
|
|
|
32 |
|
|
|
7,453 |
|
|
|
57 |
|
| Germany |
|
|
3,621 |
|
|
|
31 |
|
|
|
3,760 |
|
|
|
38 |
|
|
|
3,613 |
|
|
|
28 |
|
| Total |
|
|
8,428 |
|
|
|
73 |
|
|
|
6,944 |
|
|
|
70 |
|
|
|
11,066 |
|
|
|
85 |
|
We maintain a marketing and sales team of six people. Also,
our experienced engineering teams work directly with our customers
to develop and tailor our products to meet the customers’ specific
needs. We market our products primarily through a combination of
direct contact by our experienced in-house technical sales staff
and through trade shows, e-mail and our website. Commission
payments of approximately $34,000 were paid to the sales team
during the fiscal year ended March 31, 2020 (2019: $11,000; 2018:
$13,000). We hire third-party agents to handle sales and customer
service for some of our online selling platforms. Commission
payments of approximately $802,000 were paid to agents during the
fiscal year ended March 31, 2020 (2019: $26,000; 2018: $nil).
Our top customers and their percentage of revenue for the prior
three fiscal years are below:
Percent of Revenue– Year ended March 31,
|
Customer |
|
2018 |
|
2019 |
|
2020 |
| Customer
A |
|
|
31 |
% |
|
|
37 |
% |
|
|
27 |
% |
| Customer C |
|
|
14 |
% |
|
|
12 |
% |
|
|
9 |
% |
| Customer B |
|
|
14 |
% |
|
|
10 |
% |
|
|
2 |
% |
| Customer
E(1) |
|
|
9 |
% |
|
|
10 |
% |
|
|
— |
|
| Customer
D(2) |
|
|
10 |
% |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Rental income from this customer ended as of
February 2019.
(2) This customer is no longer purchasing from us
as of June 2017.
Component Parts and Suppliers. We are not dependent
upon any single supplier for key components. We purchase
components for our products primarily from suppliers in Japan,
Taiwan, Hong Kong and China.
We have taken steps to reduce our exposure to any inability to
obtain components by forecasting with an increased buffer rate and
placing orders for components earlier to allow for longer delivery
lead times. Because of these actions, we do not expect to
experience any difficulty in obtaining needed component parts for
our products. The price level of certain raw materials has
increased each year since the fiscal year ended March 31, 2016.
Quality Control. We have received ISO 9001:2015
certification from BSI Assurance UK Limited. The ISO
9001:2015 certification was awarded to our subsidiary, Bonso
Advanced Technology (Xinxing) Company Limited. 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. We have also received
certification on the management system for medical devices of
ISO13485:2016, which ensures that we have implemented and
maintained a quality system for the design and manufacture of
medical devices and allows us to develop and manufacture safe and
effective medical devices.
The European Union has enacted the Restriction of the Use of
Certain Hazardous Substances in Electrical and Electronic Equipment
Directive (“RoHS”). RoHS prohibits the use of certain substances,
including lead, in certain products. We believe that we are in
compliance with RoHS and have a supply of compliant components from
suppliers.
The Company provides to certain customers an additional one to two
percent of certain products ordered in lieu of a warranty, which
are recognized as cost of sales when these products are shipped to
customers from our facility.
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.
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 were 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. 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, OBMs 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. To reduce costs, we conduct our research and
development at our facilities in China. We principally employ
Chinese engineers and technicians at costs that are substantially
lower than those that would be required in Hong Kong. At March 31,
2020, we employed 11 individuals in Hong Kong and China for our
engineering staff, who are at various times engaged in research and
development.
Competition. The manufacture and sale of electronic
sensor-based and wireless products is 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 $152,000, $175,000 and $213,000 during the fiscal
years ended March 31, 2018, 2019 and 2020, respectively.
Seasonality. 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. In addition, sales during the first calendar quarter of
scales products usually dip following the increase in sales during
the Christmas season. Throughout the remainder of the year, our
products do not appear to be subject to significant seasonal
variation. However, past sales patterns may not be indicative of
future performance.
Transportation. Typically, we sell products either F.O.B.
Hong Kong, Yantian (Shenzhen) or Nansha (Guangzhou), which means
that our customers are responsible for the transportation of
finished products from Hong Kong, Yantian (Shenzhen) or Nansha
(Guangzhou) to their final destination. Transportation of
components and finished products to and from the point of shipment
is by truck. To date, we have not been materially affected by any
transportation problems. However, transportation difficulties
affecting air cargo or shipping, such as an extended closure of
ports that materially disrupts the flow of our customers’ products
to their destination, mainly the United States and Europe, could
materially and adversely affect our sales and margins if, as a
result, our customers delay or cancel orders or seek concessions to
offset expediting charges they incurred pending resolution of the
problems causing the port closures. For products sold through
online platforms, the Company ships to customers directly by
door-to-door courier services from our factory to customers located
in China. For products sold through the Amazon selling platform,
goods are supplied to Amazon fulfillment centers, and are shipped
by Amazon with Fulfillment by Amazon service.
Government Regulation. We are subject to comprehensive and
changing foreign, federal, provincial, state and local
environmental requirements, including those governing discharges
into 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. 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 have arisen that threaten the status quo
involving trade between the United States and China. The U.S.
government has recently imposed tariffs on certain foreign goods,
including some of the Company’s products, and has indicated a
willingness to impose tariffs on imports of other products. Related
to this action, certain foreign governments, including China, have
instituted retaliatory tariffs on certain U.S. goods, and have
indicated a willingness to impose additional tariffs on U.S.
products. It remains unclear what the U.S. government or foreign
governments will or will not do with respect to recent or future
tariffs or other international trade agreements and policies. A
trade war or other governmental action related to tariffs or
international trade agreements or policies has the potential to
adversely impact our supply chain and foreign demand for our
products and, thus, to have a material adverse effect on our
business and results of operations. During the fiscal year ended
March 31, 2020, the United States accounted for approximately 57%
of net export sales of our manufactured products as opposed to 32%
and 42% for the years ended March 31, 2019 and 2018.
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 World Trade Organization. It has separate customs territory
from China, with separate tariff rates and export control
procedures. It has a separate intellectual property registration
system. The Hong Kong Dollar is legal tender in the SAR, freely
convertible and not subject to foreign currency exchange controls
by China. The SAR government has sole responsibility for tax
policies, though the Chinese government must approve the SAR’s
budgets. Notwithstanding the provisions of these international
agreements, 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.
Adequacy of Facilities. We believe our manufacturing complex
will be adequate for our reasonably foreseeable needs.
Rental and Management Segment
Since 2014, when we leased our Shenzhen manufacturing facility to a
third party, we have gradually been developing a rental and
management segment of our business. The lease with the third party
for the Shenzhen factory was terminated as at January 31, 2019. We
currently lease approximately 243,000 square feet of space in
Xinxing, as well as machinery to third parties for an aggregate
gross monthly income of approximately RMB 318,000, or $45,000.
During the fiscal year ended March 31, 2020, rental and management
income accounted for approximately 7% of our net income. A
description of the leases of factory space and equipment that we
have entered into is set forth below under “Real Property.”
Real Property. A description of our real properties
follows:
Hong Kong. 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 as quarters to Mr. Anthony So, the Chairman of the
Company.
China. Our Shenzhen factory is located in the DaYang
Synthetical Development District, close to the border between Hong
Kong and China. This factory consists of one factory building,
which contains approximately 186,000 square feet, two workers’
dormitories, containing approximately 103,000 square feet, a
canteen and recreation center of approximately 26,000 square feet,
an office building consisting of approximately 26,000 square feet
and two staff quarters for supervisory employees, consisting of
approximately 34,000 square feet, for a total of approximately
375,000 square feet. The Company entered into a rental agreement in
June 2013 to rent out the Shenzhen factory to a third party from
August 2013 to July 31, 2019. However, in December 2018, the local
environmental protection bureau ordered the tenant to cease
production of its primary products as a result of the imposition of
higher pollution standards resulting from the conversion two years
ago of a nearby industrial factory to residential buildings. The
tenant terminated the lease agreement as at January 31, 2019 and
relocated, and the Company was not able to find another tenant. As
a result the Company lost the monthly rental income of
approximately $107,000 per month.
We have engaged consultants to assist us in obtaining the necessary
governmental approvals to permit us to redevelop the Shenzhen
factory into a high-end commercial complex, containing retail
space, office space and some residential space. In November
2017, we entered into an agreement with Fangda, a property
developer in Shenzhen. Fangda has taken over the process to
facilitate and obtain the necessary governmental approvals. We
anticipate that Fangda will complete the approval process in 2020;
however, there can be no assurance that it will be successful in
obtaining all necessary approvals. If Fangda is successful in
obtaining the necessary governmental approvals for the
redevelopment, we believe that the rental income derived from
leasing the redeveloped property will be a significant contributing
factor to our profit in the future.
In November 2018, the Company paid approximately RMB 6,035,000, or
approximately $905,000, to a third party for a residential unit in
Shenzhen. This unit, namely Unit 302, 5th Building, Hua
Qiang City, is located at Feng Tang Road in Fu Hai, Bao An,
Shenzhen. This unit, consisting of 1,354 square feet, is located
near our existing Shenzhen factory and is utilized as quarters for
the senior officers of the Company during their visits and
monitoring of the redevelopment of the Shenzhen factory.
In addition, we own two office units in Beijing, namely Units 12
and 13 on the third 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. One unit is rented to an
unaffiliated third party for an aggregate monthly rental of
approximately RMB 19,000, or approximately $3,000, while the other
unit is rented to another unaffiliated third party for an aggregate
monthly rental of approximately RMB 12,000, or approximately
$2,000.
Our Xinxing factory is located in Xinxing High-Tech Industrial
Estate, Xinxing, Yunfu City, Guangdong, China. This factory
land area is approximately 1,185,000 square feet, with six factory
buildings consisting of approximately 421,000 square feet, three
dormitories consisting of an aggregate of approximately 85,000
square feet, a canteen consisting of 15,000 square feet and an
office building consisting of 49,000 square feet.
The following table summarizes all the rental agreements with
respect to portions of our Xinxing factory that we are renting to
third parties.
|
Tenant |
Leased
assets |
Area in square
feet |
From |
To |
Current Monthly
Rent in RMB |
Remarks |
|
Tenant
A |
factory space,
machines and equipment |
42,440 |
Jan 01,
2015 |
Dec 31,
2020 |
52,877 |
|
|
Tenant
B |
machines and
equipment |
|
Jul 01,
2016 |
Jun 30,
2020 |
26,095 |
new rental
agreement signed for July 1, 2020 to June 30, 2023 with monthly
rent of RMB 16,506 |
|
Tenant
C |
factory
space |
29,063 |
Oct 01,
2016 |
Sep 30,
2024 |
37,800 |
additional rental
agreement signed for June 1, 2020 to September 30, 2024 with
monthly rent of RMB 14,400 |
|
Tenant
D |
factory
space |
43,271 |
Feb 14,
2017 |
Feb 13,
2026 |
50,853 |
|
|
Tenant
E |
factory
space |
18,891 |
Jun 15,
2017 |
Dec 31,
2022 |
21,236 |
|
|
Tenant
F |
factory
space |
12,917 |
Dec 01,
2017 |
May 31,
2020 |
13,200 |
rental agreement
with this tenant was not renewed after May 31, 2020 |
|
Tenant
G |
factory
space |
51,171 |
Jun 15,
2018 |
Jun 14,
2024 |
62,505 |
|
|
Tenant
H |
factory
space |
23,681 |
Feb 01,
2019 |
Jan 31,
2021 |
28,600 |
|
|
Tenant
I |
factory
space |
11,883 |
Sep 14,
2019 |
Aug 12,
2025 |
13,800 |
|
|
Tenant
J |
factory
space |
1,991 |
Nov 06,
2019 |
Jun 05,
2024 |
2,590 |
|
|
Tenant
K |
factory
space |
7,535 |
Mar 01,
2020 |
Feb 13,
2026 |
8,750 |
|
|
Total |
|
242,843 |
|
|
318,306 |
|
The Company entered into a rental agreement in December 2016 to
rent out 957 square feet of an apartment unit in Shenzhen to a
third party from December 2016 to November 2018. We received a
monthly rental income of approximately RMB 2,800, or approximately
$400 under that rental agreement. The rental agreement was renewed
up to November 2019 with a monthly rental income of approximately
RMB 3,000, or approximately $400. Since the termination of the
rental agreement in November 2019, the Company has utilized the
apartment as staff quarters.
Item 4A. Unresolved Staff Comments
Not Applicable to Bonso.
Item 5. Operating and Financial Review and Prospects
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 included elsewhere in this Annual Report.
Overview
During the fiscal year ended March 31, 2020, the Company
experienced increased revenues from our scales and pet electronic
products segments and decreased revenues from our rental and
management segment.
We derive our revenues principally from the sale of sensor-based
scales and pet electronic products manufactured in China, which
together represent 92% of total revenue for the fiscal year ended
March 31, 2020. As mentioned in Item 3. – “Key Information – Risk
Factors,” we are dependent upon a limited number of major customers
for a significant portion of our revenues. Our revenues and
business operation are subject to fluctuation if there is a loss of
orders from any of our largest customers. Further, the pricing of
our scale products is becoming increasingly competitive, especially
to our customers in the United States and Germany, who together
contributed approximately 85% of our revenue during the fiscal year
ended March 31, 2020.
During the fiscal year ended March 31, 2020, we derived
approximately $901,000 of rental and management income from leasing
our real properties to third parties.
Net revenue, income/(loss) from operations and net income/(loss)
were approximately $11,523,000, $238,000 and $4,000, respectively,
for the fiscal year ended March 31, 2018, $9,992,000, ($540,000)
and ($463,000), respectively, for the fiscal year ended March 31,
2019 and $13,096,000, $362,000 and $398,000, respectively, for the
fiscal year ended March 31, 2020.
Labor costs per worker are increasing in China. In Xinxing,
Guangdong, PRC, the minimum wage was RMB 1,010 (or approximately
$160) per month beginning in May 1, 2013, RMB 1,210 (or
approximately $181) per month beginning in May 1, 2015, and since
July 1, 2018 it has been RMB 1,410 (or approximately $213). We
believe that future increases in labor costs in China would have a
significant effect on our total production costs and results of
operations. Our labor costs represented approximately 14.3% of our
total production costs in the fiscal year ended March 31, 2020,
compared to 14.0% in the fiscal year ended March 31, 2019 and 13.2%
in the fiscal year ended March 31, 2018. Total labor costs
decreased from approximately $919,000 in the fiscal year ended
March 31, 2018 to approximately $844,000 in the fiscal year ended
March 31, 2019 and $814,000 in the fiscal year ended March 31,
2020. The decrease in overall labor costs was the result of reduced
sales in the fiscal year ended March 31, 2019 and the result of
increased production efficiency in the fiscal year ended March 31,
2020. There can be no assurance that labor costs will not increase
in the future or that any future increase in labor costs will not
have a material adverse effect upon our results of operations.
We have continued to shift production and manufacturing of various
parts and components to third party suppliers, including plastic
injection molded parts and metal parts. In some cases, we have
entered into agreements with third parties in which they lease our
equipment from us, and then manufacture parts and components that
we use in assembling our final products. Those third parties
provide the workers and supervisors, and the necessary raw
materials. We lease our machinery or equipment, our dormitory and
manufacturing facilities for their workers and supervisory staff
and our meals or cafeteria services for the third party’s workers
and staff. There are other third-party contractors that utilize
their own equipment and their own facilities in manufacturing
specific components or parts for us.
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. The price of raw
materials has increased over each of the last four fiscal years.
There can be no assurance that raw material costs will not
fluctuate or that any future increase in raw material costs will
not have a material adverse effect upon our results of
operations.
In 2014 we analyzed our product mix and concluded that it would be
advisable to eliminate the production and sale of lower margin
products that require the employment of larger numbers of workers
and the commitment of substantial resources to carry or stock raw
materials and components inventory. With the decrease in the
production and sale of lower margin products and the increase in
sale of higher margin products through online platforms, the
Company has increased its gross profit margin from 21.9% for the
fiscal year ended March 31, 2015, to 56.6% for the fiscal year
ended March 31, 2020.
Operating Results
The following table presents selected statement of operations data
expressed in thousands of United States Dollars and as a percentage
of revenue for the fiscal years indicated below:
|
Statement of Operations Data |
|
Year Ended March 31, |
| |
|
2018 |
|
2019 |
|
2020 |
|
|
|
|
$‘000 |
|
|
|
% |
|
|
|
$’000 |
|
|
|
% |
|
|
|
$’000 |
|
|
|
% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
revenue - scales and others |
|
|
7,862 |
|
|
|
68.2 |
|
|
|
6,686 |
|
|
|
66.9 |
|
|
|
5,936 |
|
|
|
45.3 |
|
| Net revenue - pet
electronic products |
|
|
1,861 |
|
|
|
16.2 |
|
|
|
1,410 |
|
|
|
14.1 |
|
|
|
6,259 |
|
|
|
47.8 |
|
|
Net revenue - rental and management |
|
|
1,800 |
|
|
|
15.6 |
|
|
|
1,896 |
|
|
|
19.0 |
|
|
|
901 |
|
|
|
6.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net revenue -
subtotal |
|
|
11,523 |
|
|
|
100.0 |
|
|
|
9,992 |
|
|
|
100.0 |
|
|
|
13,096 |
|
|
|
100.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of revenue -
scales and others |
|
|
(4,809 |
) |
|
|
(41.7 |
) |
|
|
(4,340 |
) |
|
|
(43.4 |
) |
|
|
(3,194 |
) |
|
|
(24.4 |
) |
| Cost of revenue - pet
electronic products |
|
|
(1,139 |
) |
|
|
(9.9 |
) |
|
|
(915 |
) |
|
|
(9.2 |
) |
|
|
(1,757 |
) |
|
|
(13.4 |
) |
|
Cost of revenue - rental and management |
|
|
(1,010 |
) |
|
|
(8.8 |
) |
|
|
(780 |
) |
|
|
(7.8 |
) |
|
|
(739 |
) |
|
|
(5.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of revenue -
subtotal |
|
|
(6,958 |
) |
|
|
(60.4 |
) |
|
|
(6,035 |
) |
|
|
(60.4 |
) |
|
|
(5,690 |
) |
|
|
(43.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit - scales
and others |
|
|
3,053 |
|
|
|
26.5 |
|
|
|
2,346 |
|
|
|
23.5 |
|
|
|
2,742 |
|
|
|
20.9 |
|
| Gross profit - pet
electronic products |
|
|
722 |
|
|
|
6.3 |
|
|
|
495 |
|
|
|
5.0 |
|
|
|
4,502 |
|
|
|
34.4 |
|
|
Gross profit - rental and management |
|
|
790 |
|
|
|
6.8 |
|
|
|
1,116 |
|
|
|
11.2 |
|
|
|
162 |
|
|
|
1.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit -
subtotal |
|
|
4,565 |
|
|
|
39.6 |
|
|
|
3,957 |
|
|
|
39.6 |
|
|
|
7,406 |
|
|
|
56.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and
administrative expenses |
|
|
(4,669 |
) |
|
|
(40.5 |
) |
|
|
(4,605 |
) |
|
|
(4.6 |
) |
|
|
(7,479 |
) |
|
|
(57.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income,
net |
|
|
342 |
|
|
|
3.0 |
|
|
|
108 |
|
|
|
1.1 |
|
|
|
435 |
|
|
|
3.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income / (loss) from
operations |
|
|
238 |
|
|
|
2.1 |
|
|
|
(540 |
) |
|
|
(5.4 |
) |
|
|
362 |
|
|
|
2.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-operating
(expenses) / income, net |
|
|
(234 |
) |
|
|
(2.0 |
) |
|
|
77 |
|
|
|
0.8 |
|
|
|
36 |
|
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income / (loss)
before income taxes |
|
|
4 |
|
|
|
— |
|
|
|
(463 |
) |
|
|
(4.6 |
) |
|
|
398 |
|
|
|
3.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax
expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income /
(loss) |
|
|
4 |
|
|
|
— |
|
|
|
(463 |
) |
|
|
(4.6 |
) |
|
|
398 |
|
|
|
3.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2020 compared to fiscal year ended
March 31, 2019
Net Revenue. Our revenue increased approximately $3,104,000,
or 31.1%, from approximately $9,992,000 for the fiscal year ended
March 31, 2019 to approximately $13,096,000 for the fiscal year
ended March 31, 2020. The increase was mainly related to an
increase in revenue generated from online sales of pet electronic
products in excess of the decrease in revenue from scales and from
the rental and management segment.
The decrease in sales revenue from the scales segment was primarily
due to a lower demand for our electronic scales.
The revenue increase in the pet electronic products segment was due
to an increased demand for those products sold through online
channels.
The revenue decrease in the rental and management segment was due
to the termination of the rental agreement with the tenant for our
Shenzhen factory as of January 31, 2019.
Gross Profit. Gross profit as a percentage of revenue was
approximately 56.6% during the fiscal year ended March 31, 2020, as
compared to approximately 39.6% during the fiscal year ended March
31, 2019. The increase in gross profit margin was primarily the
result of increased sales of pet electronic products with higher
margin through online platforms.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by approximately
$2,874,000, or 62.4%, from approximately $4,605,000 for the fiscal
year ended March 31, 2019 to approximately $7,479,000 for the
fiscal year ended March 31, 2020. The increase was primarily the
result of an increase in selling expenses relating to promotion and
shipping of our products sold through online platforms and an
increase in research and development expenses due to an increase in
the number of engineers employed.
Other Income, Net. Other income, net increased by
approximately $327,000 or 302.8% from approximately $108,000 for
the fiscal year ended March 31, 2019 to approximately $435,000 for
the fiscal year ended March 31, 2020. The increase was primarily
the result of an increase in government subsidies received during
the fiscal year ended March 31, 2020. Management does not
anticipate receiving these increased subsidies in the future.
Income / (Loss) from Operations. As a result of the factors
described above, income from operations increased by 167.0% from a
loss of approximately $540,000 for the fiscal year ended March 31,
2019 to a gain of approximately $362,000 for the fiscal year ended
March 31, 2020.
Non-operating (Expenses) / Income, Net. Non-operating
(expenses) / income, net decreased approximately $41,000 or 53.2%
from an income of approximately $77,000 for the fiscal year ended
March 31, 2019 to an income of approximately $36,000 for the fiscal
year ended March 31, 2020. The decrease was primarily the result of
increased interest expense due to the increased utilization of bank
loans during the fiscal year ended March 31, 2020.
Income Tax Expense. Income tax expense was $nil for both the
fiscal year ended March 31, 2020 and the fiscal year ended March
31, 2019.
Net Income / (Loss). As a result of the factors described
above, consolidated net income increased from a net loss of
approximately $463,000 for the fiscal year ended March 31, 2019 to
net income of approximately $398,000 for the fiscal year ended
March 31, 2020, an increase in income of approximately $861,000, or
186.0%.
Foreign Currency Translation Adjustments, Net of Tax.
Foreign currency translation adjustments, net of tax, decreased
from a loss of approximately $1,113,000 for the fiscal year ended
March 31, 2019 to a loss of approximately $985,000 for the fiscal
year ended March 31, 2020, a decrease of approximately $128,000, or
11.5%. The decreased foreign currency translation loss, net of tax,
was primarily the result of the reduced fluctuation in currency
exchange for assets denominated in Chinese RMB translated to USD
from March 31, 2019 to March 31, 2020.
Comprehensive Income / (Loss). As a result of the factors
described above, our comprehensive loss decreased from a loss of
approximately $1,576,000 for the fiscal year ended March 31, 2019
to a loss of approximately $587,000 for the fiscal year ended March
31, 2020, a decrease of approximately $989,000, or 62.8%.
Fiscal year ended March 31, 2019 compared to fiscal year ended
March 31, 2018
Net Revenue. Our revenue decreased approximately $1,531,000,
or 13.3%, from approximately $11,523,000 for the fiscal year ended
March 31, 2018 to approximately $9,992,000 for the fiscal year
ended March 31, 2019. The decrease was mainly related to a decrease
in sales revenue of approximately $1,176,000 in our scales segment
and a decrease of approximately $451,000 from the pet electronic
products segment, offsetting an increase of approximately $96,000
from the rental and management segment.
The decrease in sales revenue from scales segment was primarily due
to lower demand of our scales products during the fiscal year ended
March 31, 2019 since one of the major customers has stopped
purchasing from us as of June 2017 and we completed all prior
orders for that customer during the fiscal year ended March 31,
2019.
The revenue decrease in the pet electronic products segment was due
to lower demand of our pet electronic products to be exported to
the United States and decreased orders from a major customer.
The revenue increase in the rental and management segment was due
to increased floor area rented out in our Xinxing factory.
Gross Profit. Gross profit as a percentage of revenue
remained at approximately 39.6% during the fiscal year ended March
31, 2019, as compared to approximately 39.6% during the fiscal year
ended March 31, 2018. The same level of gross margin was
primarily the result of same cost structure for the two years.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses decreased by approximately
$64,000, or 1.4%, from approximately $4,669,000 for the fiscal year
ended March 31, 2018 to approximately $4,605,000 for the fiscal
year ended March 31, 2019. The decrease was primarily the
result of reduced salaries and related costs during the fiscal year
ended March 31, 2019, as compared to those during the fiscal year
ended March 31, 2018.
Other Income, Net Other income, net decreased
approximately $234,000 or 68.4% from approximately $342,000 for the
fiscal year ended March 31, 2018 to approximately $108,000 for the
fiscal year ended March 31, 2019. The decrease was primarily
the result of lower gain from investment of financial instruments
and less government subsidies received during the fiscal year ended
March 31, 2019.
Income / (Loss) from Operations. As a result of the factors
described above, income from operations decreased by 326.9% from a
profit of approximately $238,000 for the fiscal year ended March
31, 2018 to a loss of approximately $540,000 for the fiscal year
ended March 31, 2019.
Non-operating (Expenses) / Income, Net. Non-operating
(expenses) / income, net increased approximately $311,000 or 132.9%
from a loss of approximately $234,000 for the fiscal year ended
March 31, 2018 to an income of approximately $77,000 for the fiscal
year ended March 31, 2019. The increase was primarily the
result of an increase in interest income resulting from more bank
deposits placed for fixed deposits.
Income Tax Expense. Income tax expense was $nil during the
fiscal year ended March 31, 2019, as compared to an income tax
expense of $nil during the fiscal year ended March 31, 2018.
Net Income / (Loss). As a result of the factors described
above, consolidated net income decreased from approximately $4,000
for the fiscal year ended March 31, 2018 to a net loss of
approximately $463,000 for the fiscal year ended March 31, 2019, a
decrease in income of approximately $467,000, or 11,675.0%.
Foreign Currency Translation Adjustments, Net of Tax.
Foreign currency translation adjustments, net of tax, decreased
from a gain of approximately $2,062,000 for the fiscal year ended
March 31, 2018 to a loss of approximately $1,113,000 for the fiscal
year ended March 31, 2019, a decrease of approximately $3,175,000,
or 154.0%. The decreased foreign currency translation gain, net of
tax, was primarily the result of the reduced amount of assets
denominated in Chinese RMB since the Chinese RMB depreciated
against the USD from March 31, 2018 to March 31, 2019.
Comprehensive Income. As a result of the factors described
above, comprehensive income decreased from approximately $2,066,000
for the fiscal year ended March 31, 2018 to a loss of approximately
$1,576,000 for the fiscal year ended March 31, 2019, a decrease of
approximately $3,642,000, or 176.3%.
Impact of Inflation
Although we believe that the impact of inflation on our business
was minimal during the fiscal year ended March 31, 2017 due to the
lower price of oil, we believe that inflation did affect our
business during the fiscal years ended March 31, 2018, 2019 and
2020. Although the minimum wage in Xinxing, PRC has been stable at
RMB 1,410 per month (or approximately $213) since July 1, 2018, we
believe that inflation will continue to increase our operating
costs and the cost of raw materials and that it will have a
significant impact upon us in the future. 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
costs in order to keep pace with inflation. Oil prices have been
volatile in recent years. If oil prices increase, it will likely
result in an increase in the cost of components to us, as well as
an increase in our operating expenses, which will have a material
adverse effect upon our business and results of operations.
Further, the increase in labor costs in 2018 and the increase in
other operating costs in the PRC has had a material impact on our
profitability.
Taxation
The companies comprising the Group are subject to tax on an entity
basis on income arising in, or derived from, Hong Kong and the PRC.
The current rate of taxation of the subsidiary operating in Hong
Kong is 16.5%. However, BATL, which operates in Hong Kong, is
subject to a Hong Kong profits tax rate of 8.25% on its first HKD 2
million of estimated assessable profits and at 16.5% on the
remaining estimated assessable profits. The Group is not subject to
income taxes in the British Virgin Islands.
The tax rate for our subsidiary in the PRC has been 25% since 2012.
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, Hong Kong or China.
Efforts by the Chinese government to increase tax revenues could
result in decisions or interpretations of the tax laws by the
Chinese tax authorities that are unfavorable to us and which
increase our future tax liabilities or deny our expected refunds.
Changes in Chinese tax laws or their interpretation or application
may subject us to additional Chinese taxation in the future.
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, irrespective of
their residential or national status.
Contractual arrangements we have entered into among us and our
subsidiaries in different locations may be subject to scrutiny by
respective tax authorities, and a finding against the Company and
its subsidiaries may result in additional tax liabilities that
could substantially reduce our consolidated net income. We could
face material and adverse tax consequences if respective tax
authorities determine that the contractual arrangements among our
subsidiaries and Bonso do not represent an arm’s length price and
adjust Bonso’s or its subsidiaries’ income. Our consolidated net
income may be materially and adversely affected if our affiliated
entities’ tax liabilities increase.
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 50% 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, as amended
(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.
Foreign Currency 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 Chinese Renminbi and pay for our material components
principally in United States Dollars, Hong Kong Dollars and Chinese
Renminbi. Most factory expenses incurred are paid in Chinese
Renminbi. Because the Hong Kong Dollar is pegged to the United
States Dollar, in the past our only material foreign exchange risk
arose from potential fluctuations in the Chinese Renminbi and a
devaluation in United States Dollars. For the reasons discussed in
the paragraphs below, management believes that it may be possible
that there will be some fluctuation in the coming year. During the
fiscal year ended March 31, 2020, we experienced a foreign currency
exchange gain of approximately $42,000.
A summary of our debts from our banking facilities utilized as at
March 31, 2019 and 2020 which were subject to foreign currency risk
is as follows:
| |
|
March 31, 2019 |
|
March 31, 2020 |
| |
|
|
$ in
thousands |
|
|
|
$ in
thousands |
|
| |
|
|
|
|
|
|
|
|
| Hong Kong
dollars |
|
|
445 |
|
|
|
1,937 |
|
The
amount above is 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. From 1994 until July
2005, the Chinese Renminbi had remained stable against the United
States Dollar at approximately 8.28 to 1.00 United States Dollar.
On July 21, 2005, the Chinese currency regime was altered to link
the RMB to a “basket of currencies,” which includes the United
States Dollar, Euro, Japanese Yen and Korean Won. Under the rules,
the RMB was allowed to move 0.3% on a daily basis against the
United States Dollar. The People's Bank of China, on May 21 2007,
widened the RMB trading band from 0.3% daily movement against the
United States Dollar to 0.5%. On June 20, 2010, the People's Bank
of China increased the flexibility of the exchange rate and between
June 30, 2010 and December 31, 2013, the value of the Renminbi
appreciated approximately 12.0% against the United States Dollar,
although the value of the Renminbi depreciated approximately 2.5%
against the United States Dollar in 2014. In August 2015, the
People's Bank of China changed the way it calculates the mid-point
price of Renminbi against the United States Dollar, requiring the
market-makers who submit for reference rates to consider the
previous day's closing spot rate, foreign-exchange demand and
supply as well as changes in major currency rates. As a result, in
2015, the value of the Renminbi depreciated approximately 5.8%
against the United States Dollar, and from December 31, 2015
through May 20, 2016, the value of the Renminbi further depreciated
approximately 1.1% against the United States Dollar. From May 20,
2016 to July 14, 2017, the value of Renminbi further depreciated
approximately 3.5% against the United States Dollar, and from July
2017 to July, 2018 it appreciated by approximately 1.2% against the
U.S. Dollar. From July 2018 to July 2019, it depreciated by
approximately 2.8% against the U.S Dollar and from July 2019 to
July 2020 it depreciated by approximately 1.6% against the U.S.
Dollar. There remains significant international pressure on the PRC
government to adopt a more flexible currency policy, which could
result in greater fluctuations of the Renminbi against the United
States Dollar. Accordingly, it is difficult to predict how market
forces or PRC or U.S. government policy may impact the exchange
rate between the Renminbi and the United States Dollar in the
future. As of July 15, 2020, the RMB was valued at 6.9871 per U.S.
Dollar as compared to 6.8802 per U.S. Dollar as of July 14,
2019.
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.
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
upgrades to our manufacturing facilities and purchases of equipment
and toolings.
Operating activities generated approximately $1,158,000 of net cash
for the fiscal year ended March 31, 2020, as compared to
approximately $15,000 of net cash for the fiscal year ended March
31, 2019. This increase in the amount of cash generated by
operating activities was primarily attributable to an increase in
net income for the fiscal year ended March 31, 2020 and an increase
in accounts payable as of March 31, 2020 as compared to that as of
March 31, 2019.
As of March 31, 2020, we had approximately $9,111,000 in cash and
cash equivalents, as compared to approximately $7,527,000 in cash
and cash equivalents as of March 31, 2019. Working capital at March
31, 2020 was approximately $5,712,000, as compared to approximately
$6,249,000 at March 31, 2019. The decrease in working capital was
primarily the result of an increase in short-term bank loan
obtained for acquiring long-term held-to-maturity debt securities.
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 believe our working capital is
sufficient for our present requirements.
As of March 31, 2020, we had approximately $811,000 in net trade
receivables, as compared to approximately $600,000 as of March 31,
2019. This increase of approximately $211,000 was primarily
attributable to an increase in sales during the month of March 2020
as compared to sales during March 2019.
As of March 31, 2020, we had approximately $1,178,000 in
inventories, as compared to approximately $829,000 as of March 31,
2019. This increase of approximately $349,000 was primarily
attributable to an increase in raw materials purchased before March
31, 2020 in preparation for the production in the following months,
and an increase in finished goods manufactured in anticipation of
increasing online sales for the months following March 2020.
As of March 31, 2020, we had a total of approximately $775,000 in
notes and accounts payable, as compared to approximately $443,000
as of March 31, 2019. The increase of approximately $332,000 was
primarily attributable to an increase in raw materials purchased
before March 31, 2020.
As of March 31, 2020, we had in place general banking facilities
with one financial institution with amounts available aggregating
approximately $5,128,000 (2019: $5,128,000). Such facility includes
the ability to obtain overdrafts, letters of credit, short-term
notes payable, factoring, short-term loans, long-term loans and
financial instruments. As of March 31, 2020, we had utilized
approximately $1,937,000 from this general banking facility.
Interest on this indebtedness fluctuates with the prime rate and
the Hong Kong Interbank Offer Rate as set by the Hong Kong Bankers
Association. The bank credit facility is collateralized by our bank
guarantee, an investment property of the Company and the rental
assignment over such property, a life insurance contract and a
listed debt instrument. Our bank credit facility is due for renewal
annually. We anticipate that the banking facility 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.
During the fiscal years ended March 31, 2019 and 2020, we paid a
total of approximately $23,000 and $64,000, respectively, in
interest on indebtedness.
Our current ratio decreased from 2.50 as of March 31, 2019 to 1.93
as of March 31, 2020. Our quick ratio decreased from 2.30 as of
March 31, 2019 to 1.74 as of March 31, 2020.
As of March 31, 2020, we expect to spend approximately $40,000 on
additional construction, leasehold improvements, new machinery and
tooling in our Xinxing manufacturing facility in the next twelve
months.
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 at least the next 12 to 24 months.
However, a decrease in the demand for our products or increase in
our costs of goods sold or expenses may affect our internally
generated funds, and we would further look to our banking
facilities, as well as to leasing out of excess space at our
Xinxing facility, to meet our working capital demands.
Commitments
The following table sets forth information with respect to our
commitments as of March 31, 2020:
| |
|
|
|
Payments due by Period |
| |
|
Total |
|
Within 1 year |
|
2 to 3 years |
|
4 to 5 years |
|
More than 5 years |
| |
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
| Bank
loans |
|
|
1,937 |
|
|
|
1,937 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Construction in
Xinxing, and mould |
|
|
40 |
|
|
|
40 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Income tax
liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total |
|
|
1,977 |
|
|
|
1,977 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
For a discussion of interest rates on our notes payable and bank
loans, see Item 11. – “Qualitative and Quantitative Disclosures
About Market Risk,” below.
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 valuation of inventories, revenue recognition,
impairment of long-lived assets, stock-based compensation,
allowance for trade receivables and income and deferred income
taxes.
Below, we discuss these policies further, as well as the estimates
and judgments involved. We believe that our 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. For a discussion of all our significant
accounting policies, see footnote 1 to the Consolidated Financial
Statements included elsewhere in this Annual Report.
Valuation of 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. The Company continuously reviews slow-moving and obsolete
inventory and assesses any inventory obsolescence based on
inventory levels, material composition and expected usage as of
that date.
Revenue Recognition
Effective April 1, 2018, the Company adopted the new guidance of
ASC Topic 606, “Revenue from Contracts with Customers (Topic
606)”, which supersedes the revenue recognition requirements in
ASC Topic 605, “Revenue Recognition”. Topic 606 requires the
Company to recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The Company applies the
following steps to recognize revenues: (1) identify the contract
with a customer; (2) identify the performance obligations in the
contract; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations in the contract;
and (5) recognize revenue when, or as, the Company satisfies a
performance obligation.
Product sales
The Company’s revenue from contracts with customers is derived from
product revenue principally from the sales of electronic scales and
pet electronic products directly to customers. The Company sells
goods to customers based on purchase orders received from the
customers. The Company has determined there is one performance
obligation for each model included in the purchase orders. The
performance obligation is considered to be met and revenue is
recognized when the customer obtains control of the goods, which is
generally the point at which products are leaving the ports of Hong
Kong, Shenzhen or Nansha (Guangzhou), or when risks and rewards are
transferred to the customer. The Company did not recognize any
revenue from contracts with customers for performance obligations
satisfied over time during the year ended March 31, 2020. The
timing of revenue recognition is not impacted by the new
standard.
The transaction price is generally in the form of a fixed price
which is agreed with the customer at contract inception. The
transaction price is recorded net of any sales return, surcharges
and value-added taxes on gross sales. The Company allocates the
transaction price to each performance obligation based on the
purchase orders. Customers are required to pay over an agreed-upon
credit period, usually between 15 to 119 days. In certain
circumstances, the Company will request a deposit from a customer.
Customers’ deposits are settled part of the outstanding bill upon
receiving an acknowledgement from customers. For the remaining
balance of the outstanding bill, the customer is required to pay
over an agreed-upon credit period, usually between 0 to 15
days.
Return rights
The Company does not generally provide its customers with a right
of return or production protection. Each customer is required to
perform a product quality check before accepting delivery of goods.
The Company provides to certain customers an additional one to two
percent of the quantity of certain products ordered in lieu of a
warranty, which is recognized as cost of sales when these products
are shipped to customers from the Company’s facilities.
During the year ended March 31, 2020, the Company began to sell its
products through Amazon’s online platform. Customers purchasing
products through Amazon have a 30-day right of return from the date
of receipt of the product. The Company recorded a refund liability
of approximately $69,000 at March 31, 2020 (2019: $nil; 2018: $nil)
for these expected returns, which was based on the average monthly
returns received for Amazon sales.
Value-added taxes and surcharges
The Company presents revenue net of value-added taxes (“VAT”) and
surcharges incurred. Surcharge are sales related taxes representing
the City Maintenance and Construction Tax and Education Surtax.
VAT, business taxes and surcharges collected from customers, net of
VAT paid for purchases, are recorded as a liability in the
consolidated balance sheets until these are paid to the tax
authorities.
Outbound freight and handling costs
The Company accounts for product outbound freight and handling
costs as fulfillment activities and presents the associated costs
in selling, general and administrative expenses in the period in
which it sells the product.
Disaggregation of revenue
The Company disaggregates its revenue from different types of
contracts with customers by principal product categories, as the
Company believes it best depicts the nature, amount, timing and
uncertainty of its revenue and cash flows. See Note 19 to our
Consolidated Financial Statements included elsewhere in this Annual
Report for product revenues by segment.
Contract balances
The Company did not recognize any contract asset as of March 31,
2019 or March 31, 2020. The timing between the recognition of
revenue and receipt of payment is not significant. The Company’s
contract liabilities consist of deposits received from customers.
As of March 31, 2019 and 2020, the balances of the contract
liabilities are approximately $17,000 and $12,000, respectively.
All contract liabilities at the beginning of the year ended March
31, 2020 were recognized as revenue during the year ended March 31,
2020 and all contract liabilities as of the end of the year ended
March 31, 2020 are expected to be realized in the following
year.
Lease income includes minimum rents which are recognized on an
accrual basis over the terms of the related leases on a
straight-line basis. Lease revenue recognition commences when the
lessee is given possession of the leased space and there are no
contingencies offsetting the lessee’s obligation to pay
rent.
Impairment of Long-Lived Assets and Intangible
Assets
Long-lived assets held and used by the Company 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 Company 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.
Stock-based Compensation
The Company follows the guidance of ASC 718, “Accounting for
Stock Options and Other Stock-Based Compensation.” ASC 718
requires companies to record compensation expense for share-based
awards issued to employees and directors in exchange for services
provided. The amount of the compensation expense is based on the
estimated fair value of the awards on their grant dates and is
recognized over the required service periods. Our share-based
awards include stock options and restricted stock awards. The
estimated fair value underlying our calculation of compensation
expense for stock options is based on the Black-Scholes pricing
model. Forfeitures of share-based awards are estimated at the time
of grant and revised, if necessary, in subsequent periods if our
estimates change based on the actual amount of forfeitures we have
experienced.
Trade Receivables
Allowance is made against trade receivables to the extent that
collection is considered to be doubtful. This allowance is
primarily determined from our monthly aging analysis. It also
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. Most of the Company’s trade receivables
are generally unsecured. To determine the necessity of a provision,
the Company analyzes the age of the receivables and the customer’s
ability to pay based on past payment history, financial statements
and various information of the customer. Any change in the
collectability of accounts receivable that were not previously
provided for could significantly change the calculation of such
provision and the results of our operations.
Income and Deferred Income Taxes
The Company complies with ASC 740 which prescribes a recognition
threshold and measurement attributes for the financial statement
recognition and measurement of a tax position taken or expected to
be taken in a tax return. ASC 740 also provides guidance on
derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. Only tax
positions that meet the more-likely-than-not recognition threshold
at the effective date may be recognized or continue to be
recognized upon adoption of ASC 740. The Company’s accounting
policy is to treat interest and penalties as a component of income
taxes.
Amounts in the consolidated financial statements related to income
taxes are calculated using the principles of ASC 740 and ASU
2013-11 “Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists.” ASC 740 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 bases and the tax bases
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 as deferred tax assets. Recognized deferred tax
assets are reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
Trend Information
We continue to be dependent upon a limited number of customers for
a significant portion of our revenues, and the loss of any of these
customers could have a material adverse effect upon us and our
results of operations. As of March 31, 2020, our backlog of
manufacturing orders was approximately $1,328,000 as compared to
approximately $679,000 as of March 31, 2019. We expect that the
demand for our products in the fiscal year ending March 31, 2021
will be similar to that in the fiscal year ended March 31,
2020.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Recent Accounting Pronouncements
The new accounting pronouncements in the United States that may be
relevant to the Group are as follows:
In June 2016, the FASB issued ASU 2016-13, "Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments" ("ASU 2016-13"), which improves
financial reporting by providing timelier recording of credit
losses on loans and other financial instruments held by financial
institutions and other organizations. The ASU requires an
organization to measure all expected credit losses for financial
assets held at the reporting date based on historical experience,
current conditions and reasonable and supportable forecasts.
Forward-looking information will now be used to better inform
credit loss estimates. This ASU is effective for interim and annual
periods beginning after December 15, 2019 and early adoption is
permitted. The Company's allowances for doubtful accounts have
historically not been significant and the Company does not expect
the adoption of this ASU will have a significant impact on its
consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value
Measurement (Topic 820): Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement,” ("ASU
2018-13") which is part of the FASB disclosure framework project to
improve the effectiveness of disclosures in the notes to the
financial statements. The amendments in the new guidance remove,
modify and add certain disclosure requirements related to fair
value measurements covered in Topic 820, “Fair Value Measurement.”
The new standard is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early
adoption is permitted for either the entire standard or only the
requirements that modify or eliminate the disclosure requirements,
with certain requirements applied prospectively, and all other
requirements applied retrospectively to all periods presented. The
Company is currently evaluating the impact of adopting this
guidance.
In October 2018, the FASB issued ASU No. 2018-17,
“Consolidation: Targeted Improvements to Related Party Guidance
for Variable Interest Entities,” ("ASU 2018-17") which modifies
the guidance related to indirect interests held through related
parties under common control for determining whether fees paid to
decision makers and service providers are variable interest. ASU
2018-17 is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019 and early
adoption is permitted. The Company is currently evaluating the
impact of adopting this guidance.
In November 2018, the FASB issued ASU No. 2018-19, “Codification
Improvements to Topic 326, Financial Instruments—Credit
Losses,” (“ASU 2018-19”) which clarifies and improves guidance
related to credit losses, hedging, and recognition and measurement.
Same as ASU 2016-13, this ASU is effective for interim and annual
periods beginning after December 15, 2019 and early adoption is
permitted. The Company is currently evaluating the impact of this
ASU on its consolidated financial statements.
In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic
842): Codification Improvements,” (“ASU 2019-01”) which
provides guidance on determining the fair value of the underlying
asset by lessors that are not manufacturers or dealers and
presenting sales-type and direct financing leases on the statement
of cash flows. ASU 2019-01 is effective for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2019 and early adoption is permitted. The Company is currently
evaluating the impact of adopting this guidance.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes”. ASU
2019-12 will simplify the accounting for income taxes by removing
certain exceptions to the general principles in Topic 740. The
amendments also improve consistent application of and simplify GAAP
for other areas of Topic 740 by clarifying and amending existing
guidance. For public business entities, the amendments in this ASU
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020. For all other
entities, the amendments are effective for fiscal years beginning
after December 15, 2021, and interim periods within fiscal years
beginning after December 15, 2022. The Company is evaluating the
impact of the adoption of ASU 2019-12, but does not expect it to
have a material impact on income taxes as reported in its
consolidated financial statements.
We believe there is no additional new accounting guidance adopted,
but not yet effective that is relevant to the readers of our
financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a
significant impact on our financial reporting.
Item 6. Directors, Senior Management and Employees
Directors and Senior Management
Our
Board of Directors and executive officers are listed
below:
| Name |
Age |
Position
with Bonso |
|
Anthony
So |
76 |
Chairman of the
Board, and Director |
|
|
Andrew
So |
34 |
Deputy Chairman of
the Board, President, Chief Executive Officer and
Director |
|
|
Albert
So |
42 |
Director, Chief
Financial Officer, Treasurer, Financial Controller and
Secretary |
|
|
Kim Wah
Chung |
62 |
Director, Director
of Engineering and Research and Development |
|
|
Woo-Ping
Fok |
71 |
Director |
|
|
Henry F.
Schlueter |
69 |
Director and
Assistant Secretary |
|
| |
|
|
|
|
ANTHONY SO is the founder of Bonso. He has been our Chairman of the
Board of Directors since July 1988. He was appointed as the Chief
Executive Officer and President on November 16, 2006, and served in
those capacities until March 20, 2015 when Andrew So was appointed
President. On March 15, 2019, Mr. Anthony So resigned from the
position of Chief Executive Officer. Mr. So received his BSE degree
in civil engineering from National Taiwan University in 1967 and a
Master 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 years. Mr. So has served as a
trustee of the Chinese University of Hong Kong, New Asia College
since 1994.
ANDREW SO joined the Company in August 2009 and has been a director
since February 25, 2012. Mr. So currently holds the position of
Chief Executive Officer, and has also held the positions of Deputy
Chairman of the Board and President since March 20, 2015. Andrew So
was appointed as the Chief Executive Officer on March 15, 2019. Mr.
So graduated with distinctions in 2008 from the University of
Toronto, Canada, with a Bachelor of Commerce degree (BComm). From
2008 to 2009, prior to his employment with the Company, Mr. So
worked as a Derivatives Analyst at State Street Trust Company
Canada, Toronto, Canada. Mr. So graduated from the MBA Program of
Hong Kong University of Science and Technology in the Fall of
2014.
ALBERT SO was appointed as the Chief Financial Officer and
Secretary of the Company on March 27, 2009. He was appointed
Treasurer and Financial Controller of the Company on March 20,
2015. Mr. So was previously employed as the Financial
Controller of the Company in January 2008 and as a management
trainee of the Company in November 2004. Mr. So has been a
director since March 1, 2013. Prior to his employment as a
management trainee of the Company, Mr. So was a student. Mr. So is
a Certified Management Accountant and Financial Risk Manager, and
received a Master degree in Business Administration from
Heriot-Watt University, Edinburgh, United Kingdom, and a Bachelor
degree in Mathematics from Simon Fraser University in Burnaby,
British Columbia, Canada.
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.
WOO-PING FOK was elected to our Board of Directors on September 21,
1994. Mr. Fok has practiced law in Hong Kong since 1991 and is a
Consultant with Messrs. C.K. Mok & Co. Mr. Fok’s major areas of
practice include conveyancing and real property law, corporations
and business law, commercial transactions and international trade
with a special emphasis in China trade matters. 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.
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 and Denver Bar Associations and the
Wyoming State Bar. Mr. Schlueter is registered with the Hong Kong
Law Society as a Foreign Lawyer.
Anthony So, the Company’s Chief Executive Officer and Chairman of
the Board of Directors is the father of Andrew So, the Company’s
President and Chief Executive Officer, and Albert So, the Company’s
Chief Financial Officer, Treasurer and Secretary.
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.
Compensation
The aggregate amount of compensation paid by us and our
subsidiaries during the year ended March 31, 2020 to all directors
and officers as a group for services in all capacities was
approximately $1,301,000. Total compensation for the benefit of
Anthony So was approximately $643,000, for the benefit of Kim Wah
Chung was approximately $171,000, for the benefit of Andrew So was
approximately $265,000, for the benefit of Albert So was
approximately $162,000 and for the benefit of Henry F. Schlueter
was an aggregate of approximately $60,000. One of the properties of
the Company in Hong Kong is also provided to Mr. Anthony So for his
accommodation. The approximately $60,000 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. The
amount for the year ended March 31, 2020, included unpaid vacation
payments of approximately $43,000, $11,000, $16,000 and $10,000 for
Mr. Anthony So, Mr. Kim Wah Chung, Mr. Andrew So and Mr. Albert So,
respectively.
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, 2020, other than contributions to our
Provident Fund Plan, which aggregated $18,000 for officers and
directors.
Employment Agreements
We have employment agreements with Anthony So and Kim Wah
Chung. Mr. So’s employment agreement provides for a maximum
salary of approximately $800,000 per year plus bonus, and Mr.
Chung’s employment agreement provides for a maximum salary of
approximately $200,000 per year plus bonus. The initial term of the
employment agreements expired on March 31, 2013 (“Initial Term”);
however, the employment agreements have been renewed under a
provision in the agreements that provides for automatic renewal for
successive one-year periods, 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 the agreement. One of the properties of the Group in Hong
Kong is also provided to Mr. So as part of his compensation. Mr.
So’s employment agreement contains a provision under which the
Company will be obligated to pay Mr. So all compensation for the
remainder of his employment agreement and five times his annual
salary and bonus compensation if a change of control, as defined in
his employment agreement, occurs.
Options of Directors and Senior Management
The following table provides information concerning options owned
by the directors and senior management at July 15, 2020.
|
Name |
|
Number of Common Shares Subject to Stock Options |
|
Exercise Price Per Share |
|
Expiration Date |
| Anthony
So |
|
|
150,000 |
|
|
$ |
1.50 |
|
|
March
31, 2025 |
| Andrew So |
|
|
125,000 |
|
|
$ |
1.50 |
|
|
March 31, 2025 |
| Albert So |
|
|
60,000 |
|
|
$ |
1.50 |
|
|
March 31, 2025 |
| Kim Wah Chung |
|
|
40,000 |
|
|
$ |
1.50 |
|
|
March 31, 2025 |
| Woo-Ping Fok |
|
|
25,000 |
|
|
$ |
1.50 |
|
|
March 31, 2025 |
| Henry F.
Schlueter |
|
|
25,000 |
|
|
$ |
1.50 |
|
|
March 31, 2025 |
Directors
Except as mentioned above, our directors do not receive any
additional monetary compensation for serving in their capacities as
directors. All directors are reimbursed for all reasonable
expenses incurred in connection with their services as a
director.
Employee retirement benefits
|
(a) |
With effect from
January 1, 1988, BEL, a wholly-owned foreign subsidiary of the
Company in Hong Kong, 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. Eligible employees of the Plan are required to
contribute 5% of their monthly salary, while BEL is required to
contribute from 5% to 10% based on the eligible employee’s salary,
depending on the number of years of the eligible employee’s
service.
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 on or after December 2000, excluding factory workers,
are eligible to join the MPF. Eligible employees’ and the
employer’s contributions to the MPF are both at 5% of the eligible
employee’s monthly salary and are subject to a maximum mandatory
contribution of HK$1,000 (US$128) monthly. The maximum
mandatory contribution was increased to HK$1,250 (US$160) monthly
starting from June 1, 2012. The maximum mandatory
contribution was increased to HK$1,500 (US$192) per month starting
from June 1, 2014.
Pursuant to the relevant PRC regulations, the Group is required to
make contributions for each employee, at rates based upon the
employee’s standard salary base as determined by the local Social
Security Bureau, to a defined contribution retirement scheme
organized by the local Social Security Bureau in respect of the
retirement benefits for the Group’s employees in the
PRC. |
|
(b) |
The contributions
to each of the above schemes are recognized as employee benefit
expense when they are due and are charged to the consolidated
statement of income (loss). The Group’s total contributions to the
above schemes for the years ended March 31, 2018, 2019 and 2020
amounted to approximately $255,000, $264,000 and $258,000,
respectively. The Group has no other obligation to make payments in
respect of retirement benefits of the employees. |
Board Practices
All directors hold office until our next annual meeting of
shareholders or until their respective successors are duly elected
and qualified or their positions are earlier vacated by resignation
or otherwise. All executive officers are appointed by the
Board and serve at the pleasure of the Board. There are no
director service contracts providing for benefits upon termination
of employment or directorship.
NASDAQ Exemptions and Home Country Practices
NASDAQ Marketplace Rule 4350 provides that foreign private issuers
may elect to follow certain home country corporate governance
practices so long as they provide NASDAQ with a letter from outside
counsel in their home country certifying that the issuer 's
corporate governance practices are not prohibited by home country
law.
On July 19, 2005, we submitted a letter to NASDAQ certifying that
certain of Bonso’s corporate governance practices are not
prohibited by the relevant laws of the British Virgin Islands. We
will follow British Virgin Island law in respect to the following
requirements:
|
· |
A
majority of Bonso’s Board of Directors will not be
independent; |
|
· |
Bonso
will not have a nominating committee; |
|
· |
Bonso
will not have a compensation committee; |
|
· |
Bonso’s independent directors will not meet in
executive session; and |
|
· |
Bonso’s audit committee may have only one
member. |
Audit Committee
Mr. Woo-Ping Fok is the sole member of the Audit Committee and Mr.
Schlueter serves as an ad hoc member. Mr. Fok is “independent” as
defined in the NASDAQ listing standards, and Mr. Schlueter may not
be considered “independent” since his law firm serves as Bonso’s
United States counsel.
The Audit Committee was established to: (i) review and approve the
scope of audit procedures employed by our independent auditors;
(ii) review and approve the audit reports rendered by our
independent auditors; (iii) approve the audit fee charged by the
independent auditors; (iv) report to the Board of Directors with
respect to such matters; (v) recommend the selection of independent
auditors; and (vi) discharge such other responsibilities as may be
delegated to it from time to time by the Board of Directors.
Effective as of June 30, 2015, the Board of Directors adopted an
amended charter for its Audit Committee.
Employees
At March 31, 2020, we employed a total of 217 persons (8 in Hong
Kong and 209 in China), as compared to 231 at March 31, 2019 (8 in
Hong Kong and 233 in China). Our number of employees has decreased
each year since March 31, 2015 when we employed 528 persons.
Employees are not covered by collective bargaining agreements. We
consider our global labor practices and employee relations to be
good.
Share Ownership
The
following table shows the number of shares of common stock
beneficially owned by our directors and executive officers as of
July 15, 2020:
|
Name |
|
Shares of Common Stock Owned of
Record |
|
Options Held |
|
Total Number of
Shares of Common Stock Beneficially Owned |
|
Percent of
Beneficial Ownership(1) |
| Anthony
So |
|
|
2,431,770 |
(2) |
|
|
150,000 |
(3) |
|
|
2,581,770 |
|
|
|
51.2 |
% |
|
| Andrew So |
|
|
493,540 |
|
|
|
125,000 |
(4) |
|
|
618,540 |
|
|
|
12.3 |
% |
|
| Albert So |
|
|
269,459 |
|
|
|
60,000 |
(5) |
|
|
329,459 |
|
|
|
6.7 |
% |
|
| Kim Wah Chung |
|
|
133,700 |
|
|
|
40,000 |
(6) |
|
|
173,700 |
|
|
|
3.5 |
% |
|
| Woo-Ping Fok |
|
|
91,507 |
|
|
|
25,000 |
(7) |
|
|
116,507 |
|
|
|
2.4 |
% |
|
| Henry F.
Schlueter |
|
|
9,567 |
|
|
|
25,000 |
(8) |
|
|
34,567 |
|
|
|
0.7 |
% |
|
| All Directors and
Officers as a group (6 persons) |
|
|
3,429,543 |
|
|
|
425,000 |
|
|
|
3,854,543 |
|
|
|
72. |
5% |
|
(1) The number of shares outstanding is 4,893,123
shares, with 5,828,205 total number of shares issued, of which
935,082 shares are held in treasury. The calculations herein are
based on the number of shares outstanding of 4,893,123.
(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) Includes options to purchase 150,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
(4) Includes options to purchase 125,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
(5) Includes options to purchase 60,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
(6) Includes options to purchase 40,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
(7) Includes options to purchase 25,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
(8) Includes options to purchase 25,000 shares of
common stock at an exercise price of $1.50 per share expiring on
March 31, 2025.
Stock Option and Bonus Plans
The 2004 Stock Option Plan
On March 23, 2004, our stockholders adopted the 2004 Stock Option
Plan (the “2004 Plan”), which provided for the grant of up to six
hundred thousand (600,000) shares of the Company’s common stock in
the form of stock options, subject to certain adjustments as
described in the 2004 Plan. At the Annual Meeting of Shareholders
held on March 20, 2015, the shareholders approved an amendment to
the 2004 Plan to increase the number of shares that could be
granted from 600,000 to 850,000.
The purpose of the 2004 Plan is to induce key employees to remain
in the employ of the Company and to encourage such employees to
secure or increase on reasonable terms their common stock ownership
in the Company. The Company believes that the 2004 Plan
promotes continuity of management and increased incentive and
personal interest in the welfare of the Company.
The 2004 Plan is administered by a committee appointed by the Board
of Directors, which consists of at least two but not more than
three members of the Board, one of whom shall be a non-employee of
the Company. The committee members currently are Anthony So
and Woo-Ping Fok. The committee determines the specific terms of
the options granted, including the employees to be granted options
under the plan, the number of shares subject to each option grant,
the exercise price of each option and the option period, subject to
the requirement that no option may be exercisable more than 10
years after the date of grant. The exercise price of an
option may be less than the fair market value of the underlying
shares of common stock. No options granted under the plan
will be transferable by the optionee other than by will or the laws
of descent and distribution, and each option will be exercisable
during the lifetime of the optionee only by the optionee.
The exercise price of an option granted pursuant to the 2004 Plan
may be paid in cash, by the surrender of options, in common stock,
in other property, including a promissory note from the optionee,
or by a combination of the above, at the discretion of the
Committee.
As of July 15, 2015, 850,000 options, all with an exercise price of
$1.50 per share, had been granted to officers and directors of the
Company under the 2004 Plan. Options for 425,000 shares were
exercised during the fiscal year ended March 31, 2020, resulting in
the issuance of 284,566 shares of common stock and the surrender of
140,434 options in connection with cashless exercises.
The following table describes the option exercises during the
fiscal year ended March 31, 2020.
|
Name of Holder |
|
Date of Exercise |
|
Number of Options Exercised |
|
Type of Exercise |
|
Anthony So |
|
|
March 9,
2020 |
|
|
|
150,000 |
|
|
|
Cash |
|
|
Andrew So |
|
|
March 9, 2020 |
|
|
|
125,000 |
|
|
|
Cashless(1) |
|
|
Albert So |
|
|
March 9, 2020 |
|
|
|
60,000 |
|
|
|
Cashless(2) |
|
| Kim
Wah Chung |
|
|
March 9, 2020 |
|
|
|
40,000 |
|
|
|
Cash |
|
|
Woo-ping Fok |
|
|
March 9, 2020 |
|
|
|
25,000 |
|
|
|
Cash |
|
|
Henry Schlueter |
|
|
March 27, 2020 |
|
|
|
25,000 |
|
|
|
Cashless(3) |
|
(1) Upon exercise of his options, Mr. Andrew So received
40,540 shares of common stock and surrendered 84,460 options in
connection with his cashless exercise.
(2) Upon exercise of his options, Mr. Albert So received
19,459 shares of common stock and surrendered 40,541 options in
connection with his cashless exercise.
(3) Upon exercise of his options, Mr. Schlueter received
9,567 shares of common stock and surrendered 15,433 options in
connection with his cashless exercise.
The options for 425,000 shares that remain outstanding as of March
31, 2020 will expire on March 31, 2025.
2004
Stock Bonus Plan
On September 7, 2004, our stockholders adopted the 2004 Stock Bonus
Plan (the “Stock Bonus Plan”), which authorizes the issuance of up
to five hundred thousand (500,000) shares of the Company’s common
stock in the form of a stock bonus.
The purpose of the Stock Bonus Plan is to: (i) induce key
employees to remain in the employ of the Company or of any
subsidiary of the Company; (ii) encourage such employees to secure
or increase their stock ownership in the Company; and (iii) reward
employees, non-employee directors, advisors and consultants for
services rendered, or to be rendered, to or for the benefit of the
Company or any of its subsidiaries. The Company believes that
the Stock Bonus Plan will promote continuity of management and
increased incentive and personal interest in the welfare of the
Company.
The Stock Bonus Plan is administered by a committee appointed by
the Board of Directors which consists of at least two but not more
than three members of the Board, one of whom shall be a
non-employee of the Company. The Committee members currently
are Anthony So and Woo-Ping Fok. The Committee has the authority,
in its sole discretion: (i) to determine the parties to
receive bonus stock, the times when they shall receive such awards,
the number of shares to be issued and the time, terms and
conditions of the issuance of any such shares; (ii) to construe and
interpret the terms of the Stock Bonus Plan; (iii) to establish,
amend and rescind rules and regulations for the administration of
the Stock Bonus Plan; and (iv) to make all other determinations
necessary or advisable for administering the Stock Bonus Plan.
As of March 31, 2020, no shares had been granted under the Stock
Bonus Plan.
Item 7. Major Shareholders and Related Party
Transactions
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 July 15, 2020, beneficial ownership of our
common stock by each person, to the best of our knowledge, known 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 |
|
Shares of Common Stock Owned |
|
Options to Purchase Common Stock |
|
Percent of Beneficial
Ownership(1)
|
| Anthony
So |
|
|
2,431,770 |
(2) |
|
|
150,000 |
|
|
|
51.2 |
% |
| Andrew So |
|
|
493,000 |
|
|
|
125,000 |
|
|
|
12.3 |
% |
| Albert So |
|
|
269,459 |
|
|
|
60,000 |
|
|
|
6.7 |
% |
| CAS Corporation |
|
|
290,654 |
(3) |
|
|
— |
|
|
|
5.9 |
% |
|
|
(1) |
The number of
shares outstanding is 4,893,123 shares, with 5,828,205 total number
of shares issued, of which 935,082 shares are held in treasury. The
calculations above are based upon the number of shares outstanding
of 4,893,123. |
|
|
(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) |
According to the
Schedule 13D filed by CAS Corporation on December 11,
2007. |
There are no arrangements known to us that may at a subsequent date
result in a change in control of the Company.
Related Party Transaction
We paid Schlueter & Associates, P.C. an aggregate of
approximately $60,000 in each of the fiscal years ended March 31,
2018, 2019 and 2020, for legal fees. Mr. Henry F. Schlueter, a
director of the Company, is the Managing Director of Schlueter
& Associates, P.C.
During the fiscal year ended March 31, 2015, Anthony So, our
Chairman and Chief Executive Officer, made an interest-free loan to
Bonso Advanced Technology Limited, a subsidiary of Bonso
Electronics International Inc., in the principal amount of
HK$4,200,000 (approximately US$538,000 as of the date of the
loan). The loan was payable in 48 equal monthly installments
of HK$87,500 each (approximately US$11,000), which commenced on
October 31, 2014. As of March 31, 2019, the Company had repaid this
loan in its entirety.
One of the Company’s subsidiaries in Shenzhen, PRC, rents an
apartment unit located in Shenzhen from Mr. Anthony So, a director
of the Company, for staff quarters. The monthly rental payment for
the unit is approximately $260. The total rental payment paid to
Mr. Anthony So during the fiscal year ended March 31, 2020 was
approximately $3,000 (2019: $3,000; 2018: $3,000). The rental
agreement for this apartment unit terminated on July 31, 2020;
however, the Company expects to renew it on the same terms for
another two years.
One of the Company’s subsidiaries in Xinxing, PRC rents an
apartment unit located in Xinxing from Mr. Andrew So, our President
and Chief Executive Officer and a director of the Company, for
staff quarters. Mr. Andrew So is the sole owner of this apartment
unit. Since December 1, 2018, the monthly rental payment has been
approximately $580, and the total rental payment paid to Mr. Andrew
So during the fiscal year ended March 31, 2020 was approximately
$7,000 (2019: $6,000; 2018: $5,000). The rental agreement for this
apartment unit terminates on November 30, 2020. The Company expects
to renew this agreement on the same terms for another two
years.
In February 2018, Mr. Henry F. Schlueter, a director of the
Company, sold 10,000 shares of the Company’s common stock to the
Company at a purchase price of $3.48 per share, pursuant to the
Company’s repurchase program. See Item 16E. – “Purchases of Equity
Securities by the Issuer and Affiliated Purchasers.”
Interests of Experts and Counsel
Not Applicable to Bonso.
Legal Proceedings
Not Applicable to Bonso.
Item 8. Financial Information
Financial Statements
Our Consolidated Financial Statements are set forth under Item 18.
– “Financial Statements.”
Item 9. The Offer and Listing
Offer and Listing Details
Our common stock is traded only in the United States
over-the-counter market. It is quoted on the NASDAQ Capital
Market 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 sale prices for
each of the last five years:
|
Period |
|
High |
|
Low |
|
|
April 1, 2015 to
March 31, 2016 |
|
|
$ |
3.25 |
|
|
$ |
1.00 |
|
|
|
April 1, 2016 to
March 31, 2017 |
|
|
$ |
4.25 |
|
|
$ |
1.23 |
|
|
|
April 1, 2017 to
March 31, 2018 |
|
|
$ |
4.10 |
|
|
$ |
1.96 |
|
|
|
April 1, 2018 to
March 31, 2019 |
|
|
$ |
5.04 |
|
|
$ |
1.62 |
|
|
|
April 1, 2019 to
March 31, 2020 |
|
|
$ |
3.06 |
|
|
$ |
1.72 |
|
The following table sets forth the high and low sale prices during
each of the quarters in the two-year period ended June 30,
2020.
|
Period |
|
High |
|
Low |
|
|
July 1, 2018 to
September 30, 2018 |
|
|
$ |
3.96 |
|
|
$ |
2.76 |
|
|
|
October 1, 2018 to
December 31, 2018 |
|
|
$ |
3.49 |
|
|
$ |
1.62 |
|
|
|
January 1, 2019 to
March 31, 2019 |
|
|
$ |
3.30 |
|
|
$ |
1.87 |
|
|
|
April 1, 2019 to
June 30, 2019 |
|
|
$ |
3.06 |
|
|
$ |
2.43 |
|
|
|
July 1, 2019 to
September 30, 2019 |
|
|
$ |
2.76 |
|
|
$ |
2.05 |
|
|
|
October 1, 2019 to
December 31, 2019 |
|
|
$ |
2.65 |
|
|
$ |
1.72 |
|
|
|
January 1, 2020 to
March 31, 2020 |
|
|
$ |
2.75 |
|
|
$ |
2.00 |
|
|
|
April 1, 2020 to
June 30, 2020 |
|
|
$ |
2.79 |
|
|
$ |
1.94 |
|
The following table sets forth the high and low sale prices during
each of the most recent six months.
|
Period |
|
High |
|
Low |
|
|
January
2020 |
|
|
$ |
2.37 |
|
|
$ |
2.12 |
|
|
|
February
2020 |
|
|
$ |
2.75 |
|
|
$ |
2.21 |
|
|
|
March
2020 |
|
|
$ |
2.58 |
|
|
$ |
2.00 |
|
|
|
April
2020 |
|
|
$ |
2.30 |
|
|
$ |
1.96 |
|
|
|
May
2020 |
|
|
$ |
2.60 |
|
|
$ |
1.94 |
|
|
|
June
2020 |
|
|
$ |
2.79 |
|
|
$ |
2.16 |
|
On July 15, 2020, the closing price of our common stock was $2.88.
Of the 5,828,205 shares of common stock issued as of July 15, 2020,
4,893,123 shares were outstanding, 1,888,156 shares were held in
the United States by 136 holders of record and 935,082 shares were
held by the Company as treasury stock. We have 151 shareholders of
record.
Transfer and Warrant Agent
The transfer agent and registrar for the common stock is
Computershare, 8742 Lucent Boulevard, Suite 225, Highlands Ranch,
Colorado 80129.
Item 10. Additional Information
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 Stockholders’ Equity for the fiscal years ended March 31, 2018,
2019 and 2020 included herein in Item 18.
At July 15, 2020, there were 5,828,205 shares of our common stock
issued, 4,893,123 shares were outstanding and 935,082 shares were
held by the Company in treasury. All shares were fully paid. In
addition, we had outstanding 425,000 options to purchase common
stock as follows:
|
Number of Options |
|
Exercise Price per Share |
|
Expiration Date |
|
|
425,000 |
|
|
$ |
1.50 |
|
|
March
31, 2025 |
| |
|
|
|
|
|
|
|
|
At
July 15, 2020, there were no shares of our preferred stock
outstanding.
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 Harneys Corporate Services Limited 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.
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 therefor under British Virgin
Islands law. In the event of our liquidation, all assets available
for distribution to the holders of our common stock 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. No shares of our preferred
stock have been issued; however, the Board of Directors has the
ability to determine the rights, preferences and restrictions of
the preferred stock at their discretion.
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 provides 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,
was filed as an exhibit to our Registration Statement on Form F-2
(SEC File No. 333-32524) filed with the SEC.
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 signed a Banking Facilities Letter dated April 4, 2019 with Hang
Seng Bank for an approximately HK$40.0 million (or approximately
US$5.1 million) letter of credit, trust receipt facility, export
D/P bills, export trade loan, factoring, overdraft facility, term
loans and financial instruments including forward contracts. A copy
of this Banking Facilities Letter was filed with the SEC on August
15, 2019 as Exhibit 4.1 to the Company’s Annual Report on Form 20-F
and is incorporated herein by this reference.
In November 2017, we signed an agreement with a property developer
in Shenzhen (Fangda) to cooperate in reconstructing and
redeveloping the Shenzhen factory. Under the terms of the
agreement, Fangda is responsible for applying for necessary
government approvals and for financing and handling the
redevelopment project. Under the agreement, both companies will
share the redeveloped property after reconstruction/redevelopment
is completed with Bonso holding a 45% interest in the total floor
area. In July 2018, we signed a supplementary agreement with
Fangda to modify our approach in obtaining government approvals.
Summaries of the November 2017 agreement and the supplementary
agreement were filed as Exhibit 99.1 to the Company’s Current
Report on Form 6-K which was filed with the SEC on March 27, 2018,
and Exhibit 4.2 to the Company’s Annual Report on Form 20-F for the
fiscal year ended March 31, 2018 which was filed with the SEC on
August 15, 2018, respectively. Both agreements are incorporated
herein by this reference.
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.
With respect to our PRC subsidiaries, with the exception of a
requirement that approximately 10% of profits be reserved for
future developments and staff welfare, there are no restrictions on
the payment of dividends and the removal of dividends from China
once all taxes are paid and assessed and losses, if any, from
previous years have been made good. 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.
Taxation
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.
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 50% dividends-received deduction allowed to United States
corporations on dividends from a domestic corporation under Section
243 of 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.
A foreign corporation will be treated as a passive foreign
investment company (“PFIC”) for United States federal income tax
purposes if, after applying relevant look-through rules with
respect to the income and assets of subsidiaries, 75% or more of
its gross income consists of certain types of passive income or 50%
or more of the gross value of its assets is attributable to assets
that produce passive income or are held for the production of
passive income. For this purpose, passive income generally includes
dividends, interest, royalties, rents (other that rents and
royalties derived in the active conduct of a trade or business),
annuities and gains from assets that produce passive income. We
presently believe that we are not a PFIC and do not anticipate
becoming a PFIC. This is, however, a factual determination made on
an annual basis and is subject to change. If we were to be
classified as a PFIC in any taxable year, (i) U.S. holders would
generally be required to treat any gain on sales of our shares held
by them as ordinary income and to pay an interest charge on the
value of the deferral of their United States federal income tax
attributable to such gain; and (ii) distributions paid by us to our
United States holders could also be subject to an interest charge.
In addition, we would not provide information to our United States
holders that would enable them to make a “qualified electing fund”
election under which, generally, in lieu of the foregoing
treatment, our earnings would be currently included in their United
States federal income.
In addition to United States federal income taxation, shareholders
may be subject to state and local taxes upon their receipt of
dividends.
Documents on Display
You may read and copy documents referred to in this Annual Report
on Form 20-F that have been filed with the SEC at the SEC’s Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may
obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You can also obtain copies of
our SEC filings by going to the SEC’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.
Item 11. Quantitative and Qualitative Disclosures About
Market Risk
We
are exposed to a certain level of interest rate risk and foreign
currency exchange risk.
Interest Rate Risk
Our interest rate risk primarily arises from our bank borrowings
and our general banking facilities. As at March 31, 2020, we had
utilized approximately $1,937,000 of our total banking facilities
of approximately $5,128,000. 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, 2020 which were subject to
variable interest rates is as below:
| |
|
March
31, |
|
Interest |
| |
|
2020 |
|
Rate |
| Notes payable |
|
|
Nil |
|
|
|
HIBOR(1)
+2.50% |
|
| Short term
loans(2) |
|
$ |
1,000,000 |
|
|
|
HIBOR(1)
+2.25% |
|
| Long term
loans(2) |
|
$ |
937,000 |
|
|
|
HIBOR(1)
+2.00% |
|
| |
|
|
|
|
|
|
|
|
(1) HIBOR is the Hong Kong Interbank Offer Rate.
(2) A clause in the banking facility states that the
term loans are subject to review any time and also subject to the
bank's overriding right of repayment on demand, including the right
to call for cash cover on demand for prospective and contingent
liabilities. Therefore, all long-term loans were classified
as current liabilities in the consolidated balance
sheets.
A change in the interest rate of 1% will increase or decrease the
interest expense of the Company by approximately $15,000.
For further information concerning our banking facilities, the
interest rates payable and repayment terms, please see Note 7 to
our Consolidated Financial Statements included elsewhere in this
Annual Report.
Foreign Currency Exchange Rates
For a discussion of our Foreign Currency Exchange Risk, See Item 5.
– “Operating and Financial Review and Prospects - Foreign Currency
Exchange Rates.”
Item 12. Description of Securities Other Than Equity
Securities
Not
applicable to Bonso.
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
The Company’s management directed that an evaluation of our
disclosure controls and procedures, as defined in paragraph (e) of
Rule 13a-15 or 15d-15 under the Exchange Act, be conducted as of
March 31, 2020. Our Company's internal control over financial
reporting is a process designed under the supervision of the Chief
Executive Officer, the Chief Operating Officer and the Chief
Financial Officer 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. Our internal control over financial
reporting includes those policies and procedures that:
|
· |
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of our assets; |
|
· |
provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of our Company are
being made only in accordance with authorizations of our management
and directors; and |
|
· |
provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial
statements. |
There are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable assurances
with respect to financial statement preparation. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In making this assessment, management used the criteria established
in 2013 Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on the assessment, the Company’s management,
including its Chief Operating Officer and Chief Financial Officer,
have concluded that, as of March 31, 2020, there were certain
material weaknesses in our internal controls over financial
reporting related to our financial closing process, the lack of
trained accounting personnel and the failure to enter certain
transactions into the accounting records on a timely basis. All of
these weaknesses were identified in the Form 20-F that we filed
during the previous year. As a result of that evaluation and
other assessments and observations, management concluded that both
our internal controls over financial reporting and disclosure
controls and procedures for the fiscal year ended March 31, 2020,
were ineffective.
|
· |
We
have not maintained effective internal control over the financial
closing process to provide reasonable assurance that the financial
statements (including our interim financial statements) are
prepared in accordance with Generally Accepted Accounting
Principles (GAAP). |
|
· |
a
sufficient number of experienced personnel in our accounting and
finance departments to provide reasonable assurance that
transactions were being recorded, and adequate supervisory reviews
and monitoring activities over financial reporting matters and
controls performed, as necessary to permit the preparation of the
financial statements (including our interim financial statements)
in accordance with GAAP; |
|
· |
timely and accurate preparation
and review of period-end account analyses and timely disposition of
any required adjustments; and |
|
· |
adequate training of and communication to
employees regarding their duties and control responsibilities
within the accounting and finance organization to ensure that
processes and control activities were being carried out
appropriately. |
Notwithstanding the identified material weaknesses, management
believes the consolidated financial statements included in this
Annual Report on Form 20-F fairly present in all material respects
our financial condition, results of operations and cash flows at
and for the periods presented in accordance with U.S.
GAAP.
Remediation Efforts
In response to the material weaknesses described above, management
intends to do the following:
|
· |
Provide further training and communication to its
accounting staff with regard to the recording of transactions in
the accounting records, and closing procedures and
practices. |
|
· |
Increase supervisory review and
monitoring activities over financial reporting matters and
controls. |
|
· |
Consider hiring either an
additional experienced accountant with U.S. GAAP experience or
outside consultants to work with the Company and its accounting
staff. |
If the remedial measures described above are insufficient to
address any of the identified material weaknesses or are not
implemented effectively, or additional deficiencies arise in the
future, material misstatements in our interim or annual financial
statements may occur in the future. We are currently working to
implement enhanced controls, as discussed above, to address the
material weaknesses in our internal control over financial
reporting and to remedy the ineffectiveness of our disclosure
controls and procedures. A key element of our remediation effort is
the ability to recruit and retain qualified individuals to support
our remediation efforts. While our Audit Committee and Board of
Directors have been supportive of our efforts by supporting the
hiring of various individuals in finance, as well as funding
efforts to improve our financial reporting system, improvement in
internal control will be hampered if we cannot recruit and retain
more qualified professionals. Among other things, any unremediated
material weaknesses could result in material post-closing
adjustments in future financial statements. Furthermore, any such
unremediated material weaknesses could have the effects described
above in the Risk Factor captioned “We have identified material
weaknesses in our internal control over financial reporting which
could, if not remediated, result in material misstatements in our
financial statements.” Management believes that the remediation
items listed above, if executed, will ensure that data and reports
can be relied upon for the purpose of accurately and timely
recording transactions in accordance with GAAP. However, we
have experienced material weaknesses in our internal controls for
several years and, to date, management has been unable to
implement effective remediation measures.
Changes in Internal Controls
There were no changes in the Company’s internal controls during the
period covered by this Report that have materially affected or are
reasonably likely to materially affect our internal control over
financial reporting.
Item
16. Reserved
Item
16A. Audit Committee Financial Expert
Henry F. Schlueter is an ad hoc member of the Company’s Audit
Committee and is deemed to be a financial expert. Mr. Schlueter,
the Company’s outside securities counsel, may not be deemed to be
“independent” within the definition of “independence” published by
NASDAQ.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to our Chief
Executive Officer and Chief Financial Officer. We intend to
disclose any changes in, or waivers from, our code of ethics by
filing a Form 6-K. Stockholders may request a free copy in
print form from our Chief Financial Officer at:
Bonso Electronics International, Inc.
Unit 1404, 14/F, Cheuk Nang Centre
9 Hillwood Road, Tsimshatsui
Kowloon
Hong Kong
Item 16C. Principal Accountant Fees and Services
Audit Committee’s Pre-approval Policies and
Procedure
The Audit Committee must pre-approve the audit and non-audit
services performed by the independent auditor in order to assure
that the provision of such services does not impair the auditor's
independence. Before the Company or any of its subsidiaries engage
the independent auditor to render a service, the engagement must be
either:
|
|
·
specifically
approved by the Audit Committee; or |
|
|
·
entered into
pursuant to this Pre-Approval Policy. |
The term of any pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee specifically provides for
a different period. The Audit Committee may periodically revise the
list of pre-approved services.
The Audit Committee may delegate pre-approval authority to one or
more of its members. The member or members to whom such authority
is delegated shall report any pre-approval decisions to the Audit
Committee at its next scheduled meeting. The Audit Committee may
not delegate to management the Audit Committee's responsibilities
to pre-approve services performed by the independent
auditor.
The Audit Committee must specifically pre-approve the terms of the
annual audit services engagement. The Audit Committee shall
approve, if necessary, any changes in terms resulting from changes
in audit scope, Company structure or other matters. In
addition to the annual audit services engagement approved by the
Audit Committee, the Audit Committee may grant pre-approval for
other audit services, which are those services that only the
independent auditor reasonably can provide.
The Audit Committee may grant pre-approval to those permissible
non-audit services classified as other services that it believes
would not impair the independence of the auditor, including those
that are routine and recurring services.
The Audit Committee may consider the amount or range of estimated
fees as a factor in determining whether a proposed service would
impair the auditor's independence. Where the Audit Committee has
approved an estimated fee for a service, the pre-approval applies
to all services described in the approval. However, in the event
the invoice in respect of any such service is materially in excess
of the estimated amount or range, the Audit Committee must approve
such excess amount prior to payment of the invoice. The Audit
Committee expects that any requests to pay invoices in excess of
the estimated amounts will include an explanation as to the reason
for the overage. The Company’s independent auditor will be informed
of this policy.
The Company’s management shall inform the Audit Committee of each
service performed by the independent auditor pursuant to this
Pre-Approval Policy. Requests or applications to provide services
that require separate approval by the Audit Committee shall be
submitted to the Audit Committee by both the independent auditor
and the Chief Financial Officer and must include a joint statement
as to whether, in their view, the request or application is
consistent with the SEC’s and the Public Company Accounting
Oversight Board (United States)’s rules on auditor
independence.
All audit related services, tax services and other services
indicated below were pre-approved by the Audit Committee.
Audit Fees
The aggregate fees billed by Moore Stephens CPA Limited for
professional services rendered for the audit of the Company’s
annual consolidated financial statements for the fiscal years ended
March 31, 2020 and 2019 were approximately $150,000 and $150,000,
respectively.
Audit Related Fees
There were no fees billed by Moore Stephens CPA Limited for
professional services rendered for assurance and related services
that were reasonably related to the performance of the audit and
are not reported above under “Audit Fees” for the fiscal year ended
March 31, 2020 or for the fiscal year ended March 31, 2019.
Tax
Fees
The aggregate fees billed for professional services rendered for
tax compliance for the fiscal years ended March 31, 2020 and 2019
were approximately $5,000 and $5,000, respectively.
Other Fees
No other fees were incurred or billed to us by our auditors for
agreed-upon procedures rendered during the fiscal years ended March
31, 2020 or 2019.
Item
16D. Exemptions from the Listing Standards for Audit
Committees
Pursuant to NASDAQ Marketplace Rule 4350(a), a foreign private
issuer may follow its home country practice in lieu of Rule 4350,
which sets forth the qualitative Listing Requirements for NASDAQ
listed companies. Rule 4350 requires, among other things, that a
listed company have at least three members on its audit committee.
The Company currently has an audit committee consisting of two
directors, one of whom is deemed to be “independent” as defined in
NASDAQ Marketplace Rule 4200. The Company has obtained a letter
from independent counsel in the British Virgin Islands certifying
that having a single member audit committee is not prohibited by
British Virgin Island law. See Item 6. – “Directors, Senior
Management and Advisors - NASDAQ Exemptions and Home Country
Practices.”
Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
In August of 2001, the Company's Board of Directors authorized a
program for the Company to repurchase up to $500,000 of its common
stock. This repurchase program does not obligate the Company to
acquire any specific number of shares or acquire shares over any
specified period of time. On November 16, 2006 and on September 17,
2015, the Company's Board of Directors authorized an additional
$1,000,000 and an additional $1,500,000, respectively, for the
Company’s repurchase of its common stock under the same repurchase
program. On April 25, 2018,
the Board of Directors approved the expenditure of an additional
$3,000,000 to repurchase shares of the Company’s common stock,
bringing the aggregate amount available for repurchases to
$6,000,000. As of March 31,
2020, the Company has repurchased 955,739 shares of its common
stock and expended approximately $2,985,000 to repurchase those
shares. Effective April 25, 2018, with the adoption of the
above-mentioned increase, the Company had up to approximately
$3,499,000 available to fund additional repurchases of the
Company’s common stock. As of March 31, 2020, the Company had
4,906,466 shares of its common stock issued and
outstanding.
The following table contains the Company’s purchases of equity
securities in the fiscal year ended March 31, 2020.
|
Issuer Purchases of Equity Securities |
|
Period |
|
(a) Total Number of Shares (or Units) Purchased |
|
(b) Average Price Paid per Share (or Unit) |
|
(c) Total Number of Shares (or Units) Purchased as Part of Publicly
Announced Plans or Programs |
|
(d) Maximum Number (or Approximate Dollar Value) of Shares (or
Units) that May Yet Be Purchased Under the Plans or Programs |
| April 1, 2019 to April 30,
2019 |
|
|
1,320 |
|
|
$ |
2.63 |
|
|
|
1,320 |
|
|
$ |
3,131,000 |
|
| May 1, 2019 to May 31, 2019 |
|
|
9,006 |
|
|
$ |
2.65 |
|
|
|
9,006 |
|
|
$ |
3,107,000 |
|
| June 1, 2019 to June 30, 2019 |
|
|
7,078 |
|
|
$ |
2.73 |
|
|
|
7,078 |
|
|
$ |
3,088,000 |
|
| July 1, 2019 to July 31, 2019 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
$ |
3,088,000 |
|
| August 1, 2019 to August 31, 2019 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
$ |
3,088,000 |
|
| September 1, 2019 to September 30,
2019 |
|
|
8,449 |
|
|
$ |
2.38 |
|
|
|
8,449 |
|
|
$ |
3,068,000 |
|
| October 1, 2019 to October 31,
2019 |
|
|
5,000 |
|
|
$ |
2.40 |
|
|
|
5,000 |
|
|
$ |
3,056,000 |
|
| November 1, 2019 to November 30,
2019 |
|
|
6,822 |
|
|
$ |
2.24 |
|
|
|
6,822 |
|
|
$ |
3,040,000 |
|
| December 1, 2019 to December 31,
2019 |
|
|
2,225 |
|
|
$ |
2.21 |
|
|
|
2,225 |
|
|
$ |
3,035,000 |
|
| January 1, 2020 to January 31,
2020 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
$ |
3,035,000 |
|
| February 1, 2020 to February 29,
2020 |
|
|
0 |
|
|
$ |
— |
|
|
|
0 |
|
|
$ |
3,035,000 |
|
| March 1, 2020 to March 31, 2020 |
|
|
8,973 |
|
|
$ |
2.28 |
|
|
|
8,973 |
|
|
$ |
3,015,000 |
|
| TOTAL |
|
|
48,873 |
|
|
$ |
2.44 |
|
|
|
48,873 |
|
|
$ |
3,015,000 |
|
*
From April 1, 2020 to July 15, 2020, the Company repurchased an
additional 13,343 shares of its common stock for an aggregate
purchase price of approximately $29,000.
As of July 15, 2020, 34,000 repurchased shares had been removed
from the total number of shares issued. The Company (through its
subsidiary) had repurchased and held an aggregate of 935,082 shares
of its common stock. The Company may from time to time repurchase
additional shares of its common stock under this program.
Item 16F. Changes in Registrant’s Certifying
Accountants.
Not applicable to Bonso.
Item 16G. Corporate Governance.
For a discussion of the ways in which the Company’s corporate
governance differs from those followed by domestic companies under
the NASDAQ Marketplace listing requirements, see Item 6. –
“Directors, Senior Management and Advisors - NASDAQ Exemptions and
Home Country Practices,” above.
Item 16H. Mine Safety Disclosure.
Not applicable to Bonso.
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
The
following Financial Statements are filed as part of this Annual
Report:
| Contents |
|
|
Pages |
|
| Report of Independent Registered
Public Accounting Firm |
|
|
F-2 |
|
| |
|
|
|
|
| Consolidated Balance Sheets as of March 31, 2019 and 2020 |
|
|
F-3 |
|
| |
|
|
|
|
| Consolidated Statements of Operations
and Comprehensive Income for the years ended March 31, 2018, 2019
and 2020 |
|
|
F-4 |
|
| |
|
|
|
|
Consolidated Statements of Changes in
Stockholders’ Equity for the years ended
March 31, 2018, 2019 and 2020 |
|
|
F-5 |
|
| |
|
|
|
|
Consolidated Statements of Cash
Flows for the years ended
March 31, 2018, 2019 and 2020 |
|
|
F-6 |
|
| |
|
|
|
|
| Notes to Consolidated Financial
Statements |
|
|
F-7 to F-43 |
|
Item
19. Exhibits
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
| Dated: August 17,
2020 |
BONSO ELECTRONICS INTERNATIONAL INC. |
| |
|
|
|
By: |
/s/ Andrew So |
| |
|
Andrew So, Chief Executive Officer and Director
|
| Dated: August 17,
2020 |
|
| |
|
|
|
By: |
/s/ Albert So |
| |
|
Albert So, Chief Financial Officer, Treasurer and
Secretary
|
Bonso
Electronics International Inc.
(Incorporated
in the British Virgin Islands)
Consolidated
Financial Statements
March
31, 2020
Bonso
Electronics International Inc.
Index
to Consolidated Financial Statements
| Contents |
Pages |
| |
|
| Report of Independent Registered Public Accounting Firm |
F-2 |
| Consolidated Balance
Sheets as of March 31, 2019 and 2020 |
F-3 |
| Consolidated Statements of Operations and Comprehensive Income
for the years ended March 31, 2018, 2019 and 2020 |
F-4 |
| Consolidated Statements
of Changes in Stockholders’ Equity for the years ended March 31,
2018, 2019 and 2020 |
F-5 |
| Consolidated Statements of Cash Flows for the years ended March
31, 2018, 2019 and 2020 |
F-6 |
| Notes to
Consolidated Financial Statements |
F-7 - F-43 |
Report of Independent Registered Public Accounting
Firm
To
the Board of Directors and Stockholders of
Bonso
Electronics International Inc.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Bonso
Electronics International Inc. and subsidiaries (the “Company”) as
of March 31, 2019 and 2020, and the related consolidated statements
of operations and comprehensive income, changes in stockholders’
equity, and cash flows for each of the three years in the period
ended March 31, 2020, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company as of
March 31, 2019 and 2020, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended March 31, 2020, in conformity with accounting
principles generally accepted in the United States of
America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/
Moore Stephens CPA Limited
Moore
Stephens CPA Limited
Certified
Public Accountants
We
have served as the Company's auditor since 2009.
Hong
Kong
August
17, 2020
Bonso
Electronics International Inc.
Consolidated
Balance Sheets
(Expressed
in United States Dollars)
| |
|
|
|
March
31, |
|
|
|
Note |
|
2019 |
|
2020 |
|
|
|
|
|
$ in
thousands |
|
$ in
thousands |
| Assets |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
|
|
7,527 |
|
|
|
9,111 |
|
|
Trade
receivables, net |
|
|
2 |
|
|
|
600 |
|
|
|
811 |
|
|
Other
receivables, deposits and prepayments |
|
|
|
|
|
|
1,341 |
|
|
|
692 |
|
| Inventories |
|
|
3 |
|
|
|
829 |
|
|
|
1,178 |
|
|
Income tax recoverable |
|
|
8 |
|
|
|
5 |
|
|
|
5 |
|
|
Financial instruments at fair value |
|
|
9 |
|
|
|
102 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
|
|
|
|
10,404 |
|
|
|
11,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in life insurance contract |
|
|
10 |
|
|
|
153 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
instruments at amortized cost |
|
|
23 |
|
|
|
— |
|
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net |
|
|
4 |
|
|
|
9,591 |
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net |
|
|
6 |
|
|
|
2,338 |
|
|
|
1,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use
assets |
|
|
11(b) |
|
|
|
— |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
|
|
|
|
22,486 |
|
|
|
24,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable - secured |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
Bank
loans - secured |
|
|
7 |
|
|
|
445 |
|
|
|
1,937 |
|
|
Accounts
payable |
|
|
|
|
|
|
443 |
|
|
|
775 |
|
|
Contract
liabilities |
|
|
|
|
|
|
17 |
|
|
|
12 |
|
|
Accrued
charges and deposits |
|
|
|
|
|
|
3,168 |
|
|
|
3,174 |
|
|
Refund
liabilities |
|
|
|
|
|
|
— |
|
|
|
69 |
|
|
Payable
to affiliated parties |
|
|
15 |
|
|
|
54 |
|
|
|
80 |
|
|
Current portion of capital lease obligations |
|
|
11(a) |
|
|
|
28 |
|
|
|
— |
|
|
Lease liabilities |
|
|
11(b) |
|
|
|
— |
|
|
|
92 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
|
|
|
|
4,155 |
|
|
|
6,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations - non current portion |
|
|
11(a) |
|
|
|
5 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liabilities (non-current) |
|
|
11(b) |
|
|
|
— |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
loan |
|
|
20 |
|
|
|
2,485 |
|
|
|
2,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
deposit received |
|
|
20 |
|
|
|
692 |
|
|
|
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
|
|
|
|
7,337 |
|
|
|
9,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingent liabilities |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
|
|
|
|
|
|
|
|
| Common
stock par value $0.003 per share |
|
|
|
|
|
|
|
|
|
|
|
|
| -
authorized shares - 23,333,334 |
|
|
|
|
|
|
|
|
|
|
|
|
-
issued shares: March 31, 2019: 5,543,639; March 31, 2020:
5,828,205.
- outstanding shares: March 31, 2019: 4,670,773; March 31, 2020:
4,906,466. |
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
Additional
paid-in capital |
|
|
|
|
|
|
22,474 |
|
|
|
22,795 |
|
|
Treasury
stock at cost: March 31, 2019: 872,866; March 31, 2020:
921,739. |
|
|
|
|
|
|
(2,773 |
) |
|
|
(2,892 |
) |
|
Accumulated
deficit |
|
|
|
|
|
|
(6,492 |
) |
|
|
(6,094 |
) |
|
Accumulated
other comprehensive income |
|
|
|
|
|
|
1,923 |
|
|
|
938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,149 |
|
|
|
14,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
|
|
|
|
|
22,486 |
|
|
|
24,201 |
|
See
notes to these consolidated financial statements.
Bonso
Electronics International Inc.
Consolidated
Statements of Operations and Comprehensive Income
(Expressed
in United States Dollars)
| |
|
|
|
Years
ended March 31, |
|
|
|
Note |
|
2018 |
|
2019 |
|
2020 |
| |
|
|
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
| |
|
|
|
|
|
|
|
|
|
Net
revenue |
|
|
19 |
|
|
|
11,523 |
|
|
|
9,992 |
|
|
|
13,096 |
|
|
Cost
of revenue |
|
|
|
|
|
|
(6,958 |
) |
|
|
(6,035 |
) |
|
|
(5,690 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
|
|
|
|
4,565 |
|
|
|
3,957 |
|
|
|
7,406 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
|
|
|
|
(4,669 |
) |
|
|
(4,605 |
) |
|
|
(7,479 |
) |
|
Other
income, net |
|
|
21 |
|
|
|
342 |
|
|
|
108 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
/ (loss) from operations |
|
|
19 |
|
|
|
238 |
|
|
|
(540 |
) |
|
|
362 |
|
|
Non-operating
(expenses) / income, net |
|
|
22 |
|
|
|
(234 |
) |
|
|
77 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
/ (loss) before income taxes |
|
|
|
|
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
|
Income
tax expense |
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income / (loss) |
|
|
|
|
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income / (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments, net of tax |
|
|
|
|
|
|
2,062 |
|
|
|
(1,113 |
) |
|
|
(985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income / (loss) |
|
|
|
|
|
|
2,066 |
|
|
|
(1,576 |
) |
|
|
(587 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income / (loss) attributable to common shareholders |
|
|
|
|
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
earnings / (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
basic |
|
|
18 |
|
|
$ |
0.00 |
|
|
($ |
0.10 |
) |
|
$ |
0.09 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted
average number of shares outstanding in calculating net earnings
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
basic |
|
|
18 |
|
|
|
4,910,357 |
|
|
|
4,703,224 |
|
|
|
4,646,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
earnings / (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
diluted |
|
|
18 |
|
|
$ |
0.00 |
|
|
($ |
0.10 |
) |
|
$ |
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted
average number of shares outstanding in calculating net earnings
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
diluted |
|
|
18 |
|
|
|
5,290,904 |
|
|
|
4,703,224 |
|
|
|
4,816,736 |
|
See
notes to these consolidated financial statements.
Bonso
Electronics International Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
(Expressed
in United States Dollars)
|
|
|
Common stock |
|
|
|
Treasury
stock |
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive
income- |
|
|
|
|
|
|
|
|
|
Additional |
|
Treasury |
|
|
|
|
|
foreign |
|
Total |
|
|
|
Shares |
|
Amount |
|
paid-in |
|
Shares |
|
Amount |
|
Accumulated |
|
currency |
|
stockholders’ |
| |
|
Issued |
|
outstanding |
|
capital |
|
held |
|
outstanding |
|
deficit |
|
adjustments |
|
equity |
|
|
|
|
|
$ in
thousands |
|
$ in
thousands |
|
|
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2017 |
|
|
5,577,639 |
|
|
|
17 |
|
|
|
22,566 |
|
|
|
568,519 |
|
|
|
(1,929 |
) |
|
|
(6,033 |
) |
|
|
974 |
|
|
|
15,595 |
|
|
Net
income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
Shares
repurchased (Note 13(a)) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
213,498 |
|
|
|
(572 |
) |
|
|
— |
|
|
|
— |
|
|
|
(572 |
) |
|
Removal
of treasury shares from the total number of shares issued (Note
13(a)) |
|
|
(34,000 |
) |
|
|
— |
|
|
|
(92 |
) |
|
|
(34,000 |
) |
|
|
92 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign
currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,062 |
|
|
|
2,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2018 |
|
|
5,543,639 |
|
|
|
17 |
|
|
|
22,474 |
|
|
|
748,017 |
|
|
|
(2,409 |
) |
|
|
(6,029 |
) |
|
|
3,036 |
|
|
|
17,089 |
|
|
Net
loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(463 |
) |
|
|
— |
|
|
|
(463 |
) |
|
Shares
repurchased (Note 13(a)) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
124,849 |
|
|
|
(364 |
) |
|
|
— |
|
|
|
— |
|
|
|
(364 |
) |
|
Foreign
currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,113 |
) |
|
|
(1,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019 |
|
|
5,543,639 |
|
|
|
17 |
|
|
|
22,474 |
|
|
|
872,866 |
|
|
|
(2,773 |
) |
|
|
(6,492 |
) |
|
|
1,923 |
|
|
|
15,149 |
|
|
Net
income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
398 |
|
|
|
— |
|
|
|
398 |
|
|
Shares
repurchased (Note 13(a)) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
48,873 |
|
|
|
(119 |
) |
|
|
— |
|
|
|
— |
|
|
|
(119 |
) |
|
Options
exercised (Note 14(c)) |
|
|
284,566 |
|
|
|
— |
|
|
|
321 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
321 |
|
|
Foreign
currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(985 |
) |
|
|
(985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2020 |
|
|
5,828,205 |
|
|
|
17 |
|
|
|
22,795 |
|
|
|
921,739 |
|
|
|
(2,892 |
) |
|
|
(6,094 |
) |
|
|
938 |
|
|
|
14,764 |
|
See
notes to these consolidated financial statements.
Bonso
Electronics International Inc.
Consolidated
Statements of Cash Flows
(Expressed
in United States Dollars)
|
|
|
Years
Ended March 31, |
|
|
|
2018 |
|
2019 |
|
2020 |
|
|
|
$ in
thousands |
|
$ in
thousands |
|
$ in
thousands |
| |
|
|
|
|
|
|
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income / (loss) |
|
|
4 |
|
|
|
(463 |
) |
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
|
1,099 |
|
|
|
859 |
|
|
|
841 |
|
| Amortization |
|
|
277 |
|
|
|
275 |
|
|
|
264 |
|
|
Loss
/ (gain) on disposal of property, plant and equipment |
|
|
12 |
|
|
|
(5 |
) |
|
|
3 |
|
| Write-down
of inventories |
|
|
569 |
|
|
|
73 |
|
|
|
87 |
|
|
Write
off of property, plant and equipment |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
Change
in cash surrender value of life insurance contract |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
Change
in fair value of financial instruments |
|
|
7 |
|
|
|
(4 |
) |
|
|
5 |
|
|
Dividend
income from financial instruments at fair value |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(4 |
) |
|
Coupons
received from financial instruments at amortized cost |
|
|
— |
|
|
|
— |
|
|
|
(79 |
) |
|
(Gain)
/ loss from sale of financial instruments at fair value |
|
|
(58 |
) |
|
|
(16 |
) |
|
|
1 |
|
|
Loss
from redemption of financial instruments at amortized
cost |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
Interest
expense |
|
|
62 |
|
|
|
116 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables |
|
|
498 |
|
|
|
166 |
|
|
|
(230 |
) |
|
Other
receivables, deposits and prepayments |
|
|
965 |
|
|
|
(586 |
) |
|
|
(203 |
) |
|
Right-of-use
assets |
|
|
— |
|
|
|
— |
|
|
|
(308 |
) |
|
Lease
liabilities |
|
|
— |
|
|
|
— |
|
|
|
308 |
|
| Inventories |
|
|
(563 |
) |
|
|
18 |
|
|
|
(513 |
) |
|
Accounts
payable |
|
|
(419 |
) |
|
|
(407 |
) |
|
|
379 |
|
|
Contract
liabilities |
|
|
— |
|
|
|
17 |
|
|
|
(5 |
) |
|
Accrued
charges and deposits |
|
|
122 |
|
|
|
4 |
|
|
|
20 |
|
|
Refund
liabilities |
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
Payable
to affiliated parties |
|
|
19 |
|
|
|
(23 |
) |
|
|
24 |
|
|
Income
tax liabilities |
|
|
(539 |
) |
|
|
— |
|
|
|
— |
|
|
Long-term
deposit received |
|
|
738 |
|
|
|
(46 |
) |
|
|
(45 |
) |
|
Long-term
loan |
|
|
— |
|
|
|
42 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities |
|
|
2,786 |
|
|
|
15 |
|
|
|
1,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from disposal of property, plant and equipment |
|
|
4 |
|
|
|
5 |
|
|
|
32 |
|
|
Acquisition
of property, plant and equipment |
|
|
(364 |
) |
|
|
(578 |
) |
|
|
(260 |
) |
|
Acquisition
of financial instruments at fair value |
|
|
(517 |
) |
|
|
(226 |
) |
|
|
(68 |
) |
|
Acquisition
of financial instruments at amortized cost |
|
|
— |
|
|
|
— |
|
|
|
(1,007 |
) |
| Coupons
received from financial instruments at amortized cost |
|
|
— |
|
|
|
— |
|
|
|
59 |
|
|
Proceeds
from sale of financial instruments at fair value |
|
|
657 |
|
|
|
223 |
|
|
|
110 |
|
|
Proceeds
from redemption of financial instruments at amortized
cost |
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
Dividends
received from financial instruments at fair value |
|
|
4 |
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities |
|
|
(216 |
) |
|
|
(575 |
) |
|
|
(630 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease payments |
|
|
(44 |
) |
|
|
(28 |
) |
|
|
(28 |
) |
|
Advance
from notes payable |
|
|
467 |
|
|
|
237 |
|
|
|
14 |
|
|
Repayment
of notes payable |
|
|
(502 |
) |
|
|
(336 |
) |
|