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, 1998

                                       OR

[ ]       TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

                         Commission File Number: 0-17601

                      BONSO ELECTRONICS INTERNATIONAL INC.
             (Exact name of Registrant as specified in its charter)

                             British Virgin Islands
                 (Jurisdiction of incorporation or organization)

                               Flat A-D, 8th Floor
                           Universal Industrial Centre
                              23-25 Shan Mei Street
                                 Fo Tan, Shatin
                           New Territories, Hong Kong
                    (Address of principal executive offices)

     Securities  registered or to be registered pursuant to Section 12(b) of the
Act: NONE

     Securities  registered  pursuant to Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $.003; WARRANTS TO PURCHASE COMMON STOCK

     Securities  for which there is a reporting  obligation  pursuant to Section
15(d) of the Act: NONE

     Indicate the number of outstanding  shares of each of the Issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report: 2,828,562 shares of Common Stock, $0.003 par value, at March 31, 1998.

     Indicate by check mark  whether the  registrant:  (i) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark which financial statement item the Registrant has elected
to follow:

                             Item 17 [ ] Item 18 [X]


                                       -i-
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

Item 1.   Description of Business.                                            1
Item 2.   Description of Property.                                           18
Item 3.   Legal Proceedings.                                                 19
Item 4.   Control of Registrant.                                             20
Item 5.   Nature of Trading Market.                                          20
Item 6.   Exchange Controls and Other Limitations Affecting Security
          Holders.                                                           22
Item 7.   Taxation.                                                          22
Item 8.   Selected Financial Data.                                           23
Item 9.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.                                             25
Item 10.  Directors and Officers of Registrant.                              32
Item 11.  Compensation of Directors and Officers.                            34
Item 12.  Options to Purchase Securities from Registrant or Subsidiaries.    36
Item 13.  Interest of Management in Certain Transactions.                    37
Item 14.  Description of Securities to be Registered.                        37
Item 15.  Defaults Upon Senior Securities.                                   37
Item 16.  Changes in Securities and Changes in Security for Registered 
          Securities.                                                        38
Item 17.  Financial Statements.                                              38
Item 18.  Financial Statements.                                              38
Item 19.  Financial Statements and Exhibits.                                 38

     This Annual Report on Form 20-F contains forward-looking statements.  These
statements  are  subject to certain  risks and  uncertainties  that could  cause
actual   results   to  differ   materially   from  those   anticipated   in  the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to, those  discussed in the section  entitled  "Special Risk
Factors" under Item 1 - "Description of Business."

     Readers  should not place  undue  reliance on  forward-looking  statements,
which reflect  management's view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking  statements to
reflect subsequent events or circumstances. Readers should also carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the Securities and Exchange Commission.

                                      -ii-


<PAGE>


                                     PART I
                                     ------


     As used in this Annual Report,  "China" refers to all parts of the People's
Republic of China other than the Special Administrative Region of Hong Kong. The
term "Company"  refers to Bonso  Electronics  International  Inc. and, where the
context so requires or suggests, its direct and indirect subsidiaries.

Item 1. Description of Business.
--------------------------------

Overview

     Bonso Electronics  International Inc. was incorporated on August 8, 1988 as
a limited liability International Business Company under the laws of the British
Virgin  Islands  to serve  as a  holding  company  for the  Company's  operating
subsidiary,  which was formed in 1980. As an International Business Company, the
Company is prohibited  from doing business with persons  resident in the British
Virgin Islands,  owning real estate in the British Virgin Islands or acting as a
bank or insurance  company.  The Company was  incorporated in the British Virgin
Islands  principally to facilitate trading in its securities.  The government of
Hong Kong  imposes  a stamp  duty on the  transfer  of  securities  of Hong Kong
corporations.  No such duty is imposed by the British  Virgin  Islands,  and the
Company is also  exempt  from  income tax in the  British  Virgin  Islands.  The
Company's corporate  administrative matters are conducted through its registered
agent, HWR Services  Limited,  P.O. Box 71, Road Town,  Tortola,  British Virgin
Islands.  The Company's principal executive offices are located at Flat A-D, 8th
Floor,  Universal  Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New
Territories,  Hong Kong. Its telephone  number is  852-2605-5822,  its facsimile
number is 852-2691-1724 and its E-mail address is http//www.info@bonso.com.

     The Company designs, develops,  manufactures and sells a comprehensive line
of electronic scales and weighing instruments and electronic consumer and health
care  products.  The Company's  electronic  scales  include  bathroom,  kitchen,
office,  jewelry,  laboratory,  pocket, hanging,  postal,  industrial and parcel
scales that are used in consumer,  commercial and industrial  applications.  The
Company's   electronic   consumer  and  health  care  products  include  bicycle
computers,  pedometers,  joysticks,  electronic  thermometers and blood pressure
meters.

     The  Company  also plans to enter the field of digital  telecommunications.
The  Company's  first  telecommunications  product,  which  is  currently  under
development, is a 900MHz ISM Band cordless telephone, and management anticipates
that the  prototype of this product  will be  completed in early  calendar  year
1999.  Future products which  management  plans to develop include a 2.4GHz Band
cordless telephone and products in the home security and controls market.  There
can be no assurance,  however, that development of any of these products will be
successfully completed.

     The Company has two wholly-owned Hong Kong subsidiaries - Bonso Electronics
Limited  ("Bonso  Electronics"),  which is mainly  responsible  for the  design,
development,  manufacture and sale of the Company's products, and Bonso Advanced
Technology  Limited  (formerly,  Bonso Optical  Instruments  Limited),  which is
developing the Company's proposed cordless telephone.  Bonso Electronics has one
active Hong Kong subsidiary - Bonso Investment  Limited ("BIL"),  which has been
used to acquire and hold the Company s real estate  investments in Hong Kong and
China.

     The Company  has  manufactured  all of its  products in China since 1989 in
order to take  advantage of lower  overhead  costs and  competitive  labor rates
available  there.  In  January  1997,  the  Company   completed  a  new,  larger
manufacturing  facility  in  the  DaYang  Synthetical  Development  District  in
Shenzhen,  China,  which has  approximately  tripled  the  Company's  production

                                       1
<PAGE>


capacity. The leasehold, facilities,  machinery, furniture and equipment at that
facility  are  owned and  operated  by Bonso  Electronics  (Shenzhen)  Co.  Ltd.
("Shenzhen Bonso"), a 100% Company-owned Chinese limited liability company which
was formed in June 1994. The location of the Company's factory in Shenzhen, only
about  50  miles  from  Hong  Kong,   permits  the  Company  to  manage   easily
manufacturing  operations from Hong Kong, and facilitates  transportation of the
Company's products out of China through the port of Hong Kong.

Business Strategy

     The  Company  has  experienced  dramatic  growth  since 1994 with net sales
increasing  from  $12,548,770  in 1994 to  $23,715,576  in the fiscal year ended
March 31, 1998, and  profitability  increasing  from net income of $1,023,821 in
the fiscal year ended March 31, 1994 to net income of  $2,274,645  in the fiscal
year ended March 31, 1998.  Management  believes  that the  Company's  continued
growth  depends on its ability to strengthen  its customer base by enhancing and
diversifying its products, increasing the number of customers and expanding into
additional  markets,  while  maintaining or increasing  sales of its products to
existing  customers.  The Company's  continued growth and  profitability is also
dependent upon its ability to control  production costs and increase  production
capacity. The Company's strategy to achieve these goals is as follows:

     Product Enhancement and  Diversification.  The Company continually seeks to
improve and enhance its existing  products in order to provide a longer  product
life-cycle and to meet increasing customer demands for additional features.  The
Company's  research and development staff are currently working on such projects
as  redesigning  the existing  pedometer,  bicycle  computer and blood  pressure
monitor,  expanding  the health care line and  attempting  to make the Company's
products  more  competitive  in price and features,  as well as  developing  new
products such as a series of low profile body scales,  a generic LCD scale and a
new pocket  scale.  During the last  fiscal  year,  the  Company  has  completed
development of a built-in kitchen scale, a built-in bathroom scale, a waterproof
thermometer and a palm-top scale.

     The  Company  intends  to enter  the  field of  digital  telecommunications
through the  development  of its cordless  telephone.  Management  believes that
other  potential  opportunities  for the  Company  in  this  field  include  the
development of products in the home security and controls  market.  In addition,
the  Company  has,  in varying  stages of  development,  a bicycle  accelerator,
chronograph and ear protector,  which are being developed to the  specifications
of OEM customers. See "Products," below.

     Maintaining and Expanding Business Relations with Existing  Customers.  The
Company  promotes  its  relationships  with its  significant  customers  through
regular communication with them, visits to its customers in their home countries
and by  providing  direct  access to the  Company's  manufacturing  and  quality
control personnel. This access, together with the Company's concern for quality,
has  resulted  in a  relatively  low  level  of  defective  products.  Moreover,
management believes that the Company's emphasis on timely delivery, good service
and low cost has  contributed  and will continue to contribute to good relations
with its  customers  and increased  orders.  Further,  management of the Company
solicits suggestions from its customers for product enhancement and will develop
and  incorporate the  enhancements  suggested by its customers into its products
when feasible.

     Market  Expansion.  In 1997, the Company expanded its marketing  efforts in
the United  States and Europe.  Management  intends to continue  increasing  its
marketing efforts with the use of its Web page and mailing product brochures. In
addition,  the  Company  intends to  increase  the  frequency  of its direct and
telemarketing contacts with both existing and potential customers.

                                       2
<PAGE>


     Controlling  Production  Costs. In 1989,  recognizing  that labor cost is a
major  factor  permitting  effective  competition  in  the  consumer  electronic
products industry, the Company relocated all of its manufacturing  operations to
China to take advantage of the large  available  pool of relatively  inexpensive
manufacturing  labor.  The  Company has made an effort to locate and operate its
manufacturing  facilities  consistent  with the exigencies of  manufacturing  in
China.  For example,  the location of the  Company's  plant in China is in close
proximity,   approximately   50  miles,   to  Hong  Kong  thereby   facilitating
transportation of the Company's products to markets outside of China.

     The Company is currently  attempting  to control  production  costs by such
means as redesigning its existing scales in order to decrease material and labor
costs, controlling the number of employees, increasing the efficiency of workers
by  providing  regular  training  and  tools  and  redesigning  the  flow of the
production line.

     Increasing Production Capacity.  Since January 1997, the Company's products
have been manufactured at the Company's new manufacturing facility in the DaYang
Synthetical  Development  District in  Shenzhen,  China.  This new  facility has
triple the capacity of the Company's old manufacturing  plant. The floor area of
this new  facility is not fully  utilized and the unused space is intended to be
used  for  production  of  the  proposed  telecommunication  products.  Although
management believes that the remaining space will be adequate, in the event that
the existing floor area is not adequate for the Company's  increased  production
needs,  the  Company  may  need to  lease  an  additional  building.  Additional
machinery and equipment will be needed for production of the Company's  cordless
telephone,  which is currently under development,  as well as additional workers
and  staff  personnel.  Management  believes  that it  will  be  able to  obtain
additional funds to finance these activities from several sources.

Products

     The following  table sets forth the  percentage of net sales of each of the
Company's product lines for the fiscal years ended March 31, 1997 and 1998.

                                Year ended March 31,
                                --------------------
     Product Line                   1997   1998
     ------------                   ----   ----

     Scales                          70%    77%
     Health care products            16     13
     Electronic consumer products     4      3
     Other products and services     10      7
                                    ---    ---

     Total                          100%   100%

Scales

     The Company's  weighing equipment ranges from the simplest spring scales to
high  precision   electronic   scales  that  translate   weight   readings  into
corresponding price and postage calculations.

     All of the Company's  electronic  scales use a strain gauge  sensor,  which
management  believes is one of the most  reliable  and accurate  weight  sensing
systems currently available. A strain gauge sensor is a thin metal foil resistor
which is bonded to a metal  block,  and which  undergoes a change in  electrical
resistance as weight is loaded onto the metal block.  The  measurement of change
in electrical resistance yields a measure of the applied weight.

                                       3
<PAGE>


     The Company offers a variety of scales for diverse consumer, commercial and
industrial  applications.  Scales  currently  offered  by  the  Company  include
bathroom,  kitchen,  office,  jewelry,  laboratory,   pocket,  hanging,  postal,
industrial  and parcel scales.  The following  table sets forth the net sales of
each type of scale as a  percentage  of total scale  sales for the fiscal  years
ended March 31, 1997 and 1998:

                          Year ended March 31,
                          --------------------
     Type of Scale           1997    1998
     -------------           ----    ----

     Postal and office         39%    45%
     Kitchen                   19      6
     Jewelry and laboratory    15     18
     Bathroom                  10     14
     Pocket and hanging        10     11
     Industrial and parcel      7      6
     Mechanical                 0      0
                              ---    ---

     Total scale sales        100%   100%

     The  Company's  electronic  scales offer many  advanced  features such as a
talking feature,  automatic power off,  automatic range,  audio signal,  digital
auto-calibration,  automatic  zero tracking and multiple  measuring  units.  The
scales  are built with  either  metal or  plastic  housings  and come in various
models and case  designs.  The  Company's  scales are  described  in more detail
below.

     Postal Scales. The Company's postal scales are used primarily by businesses
for  weighing  letters  and  parcels  of up to 2,000  grams  (4.4  lbs.) and are
accurate to 1 gram. Postal scales are calibrated to give postal or franking cost
for the various classes of delivery service  available to various  destinations.
The  scales are  marketed  primarily  in Europe  and the  United  States and are
customized for the postal system of the country of destination.

     Office  Scales.  The Company  sells  several  models of office  scales with
capacities ranging from 2,000 grams (4.4 lbs.) to 5,000 grams (11 lbs.), and the
scales are  accurate  to 1 gram.  The scales are used in offices to weigh  small
packages and letters.  The Company's  office scales are sold  principally in the
United States, Europe, Australia, Hong Kong and China.

     Kitchen  Scales.  The Company's  kitchen  scales are used in households and
restaurants  to weigh  ingredients  for cooking and portions  for dieting,  with
capacities ranging from 1,000 grams (2.2 lbs.) to 5,000 grams (11 lbs.), and the
scales are  accurate  to 1 gram.  The  Company's  kitchen  scales  are  marketed
principally in the United States and Europe.

     Jewelry and Laboratory  Scales.  Jewelry and laboratory  scales are used to
weigh  precious  metals and stones.  In the  laboratory,  the scales are used to
weigh  various  chemicals  and chemical  compounds.  The  Company's  jewelry and
laboratory  scales are  principally  sold in the United  States and Europe.  The
capacities  of these  scales range from 120 grams (0.25 lb.) to 1,200 grams (2.6
lbs.), and these scales are accurate to 0.01 gram or 0.1 gram, respectively.

     Bathroom  Scales.  The Company's  bathroom  scales are used by consumers to
monitor weight,  with  capacities up to 150 kilograms (330 lbs.).  The Company's
bathroom scales are marketed primarily in the United States, Europe and Japan.

                                       4
<PAGE>


     Pocket and Hanging Scales.  Pocket and hanging scales are small  electronic
scales  that can be carried by a business  person in his or her attache or brief
case.  The  capacities of the  Company's  pocket scales range from 80 grams (2.8
oz.) to 250 grams  (8.8  oz.),  and the scales  are  accurate  to 0.1 gram.  The
hanging scales range from 15 kilograms (33 lbs.) to 25 kilograms (55 lbs.),  and
the scales are accurate to 10 grams.  The pocket scales are principally  used in
the jewelry  business  for  weighing low value metals and stones and the hanging
scales are primarily  used in fishing.  The Company's  pocket and hanging scales
are marketed primarily in the United States and Europe.

     Industrial/Parcel  Scales.  The Company  manufactures  different  models of
industrial/parcel  scales,  which  are used in  business  or  industry  to weigh
heavier  parcels or objects (i.e.,  objects whose weight exceeds the capacity of
the Company's office scales).  Industrial/parcel  scales have a capacity ranging
from  25  kilograms  (55  lbs.)  to 150  kilograms  (330  lbs.).  The  Company's
industrial/parcel scales are marketed primarily in Europe.

Health Care Products

     Electronic  Thermometers.  The  Company's  electronic  thermometers,  which
include both fahrenheit and centigrade versions,  measure body temperature.  The
Company's electronic  thermometer is classified as a medical device under United
States law.  Medical  devices are  required to be approved by the United  States
Food and Drug Administration  (the FDA) prior to being marketed,  unless the law
provides  a  legal  exemption  from  such  approval.  The  Company's  electronic
thermometer has received  pre-market  approval from the FDA. Sales of electronic
thermometers  were  approximately  15% of the  Company's net sales in the fiscal
year ended March 31,  1997,  and 10% of net sales in the fiscal year ended March
31, 1998.

     Blood Pressure  Meters.  The Company  introduced  electronic blood pressure
meters to its line of products in November 1994. The Company's  electronic blood
pressure  meters have digital  displays for highest blood  pressure  (systolic),
lowest blood pressure  (diastolic) and pulse rate (number of pulses per minute),
as well as mean blood pressure.  The meters have automatic power off,  automatic
pressure release,  manual rubber bulb pump and many other standard features. The
Company has obtained FDA approval for  marketing  blood  pressure  meters in the
United  States.  Sales of blood  pressure  meters were  approximately  1% of the
Company's net sales in the fiscal year ended March 31, 1997, and 3% of net sales
in the fiscal year ended March 31, 1998 .

Electronic Consumer Products

     Pedometers.  The Company began  shipping  electronic  pedometers in 1993. A
pedometer  is worn by a walker or jogger to measure  the  distance  traveled  by
recording the steps taken.  The Company's  pedometer can be adjusted for varying
stride  lengths,  and will keep track of  distance  traveled,  elapsed  time and
average speed.  Sales of pedometers were approximately 2.9% of the Company's net
sales in the fiscal  year  ended  March 31,  1997,  and 0.7% of net sales in the
fiscal year ended March 31, 1998.

     Joysticks.  The Company is manufacturing  three models of joysticks for one
OEM customer.  The Company began manufacturing  joysticks in October 1995. Sales
of joysticks  were  approximately  0.7% of the Company's net sales in the fiscal
year ended March 31, 1997,  and 1.9% of net sales in the fiscal year ended March
31, 1998.

     Bicycle  Computers.  The Company  introduced its first bicycle  computer in
1990. A bicycle computer is a device that will give a cyclist his instant speed,
distance traveled, average speed and elapsed or trip time. The Company's bicycle
computer is battery operated,  water resistant and includes a clock, a timer and
a compact LCD readout.  The Company markets two models of its bicycle computer -
one under its own name and one through  OEMs.  The bicycle  computer is marketed
mainly in Europe.  Sales of the Company's bicycle  computers were  approximately
0.1% of the  Company's  net sales in the fiscal year ended March 31,  1997,  and
0.014% of net sales in the fiscal year ended March 31, 1998.

                                       5
<PAGE>


Proposed Digital Telecommunications Products

     The Company is developing a cordless  telephone which  represents its entry
into  the   field   of   digital   telecommunications.   The   Company's   first
telecommunications  product,  which is currently under development,  is a 900MHz
ISM Band  cordless  telephone  which uses a frequency  hopping  spread  spectrum
technique for radio  propagation.  The software,  which is being  developed by a
German  company  under  contract  with the Company,  is TDMA and TDD,  providing
superior performance and distance.  Management anticipates that the prototype of
this  product will be completed  in early  calendar  year 1999.  Total costs for
development  of  this  product  are  expected  to  be  approximately   $900,000.
Management  anticipates that the core development of this product will be usable
for a  universal  cordless  telephone  through  adjustment  of power  output and
frequency band.

     Future  digital  telecommunications  products  which  management  plans  to
develop  include a 2.4GHz  Band  cordless  telephone  and  products  in the home
security  and  controls  market.  There  can  be  no  assurance,  however,  that
development of any of these products will be successfully completed.

Other Products and Services

     The Company  also  receives  revenue  from  customer  funded  research  and
development  for products  subsequently  produced and sold to them,  the sale of
semi  completed  units  and the  sale of  spare  parts  for  repair  work by its
customers  and from repair  work  performed  by the  Company for its  customers.
During  the  fiscal  years  ended  March  31,  1997  and  1998,  these  revenues
constituted approximately 10% and 7.3% of net sales, respectively.

Product Development, Design and Research

     The major responsibility of the product design and research and development
personnel  is to  develop  and  produce  designs to the  satisfaction  of and in
accordance with the specifications provided by the OEMs. Management believes its
engineering  and product  development  capabilities  are important to the future
success  of the  Company's  business.  Some  of the  Company's  product  design,
research and development  activities are customer funded and are initiated under
verbal agreements with specific customers for specific products. The Company has
successfully  lowered its costs for its research and development  team by moving
most  research  and  development   activities  to  its  facility  in  China  and
principally  employing  Chinese  engineers  and  technicians  at costs  that are
substantially lower than would be required in Hong Kong.

     At March 31, 1998, the Company employed two individuals in Hong Kong and 20
individuals in China on its engineering  staff, who are at various times engaged
in research  and  development.  The Company has also  contracted  with a firm in
Germany to  develop  the  software  for a new  product  being  developed  by the
Company.  The Company  spent  $122,263 and $158,706 on research and  development
during the fiscal years ended March 31, 1997 and 1998, respectively.

                                       6
<PAGE>

     The Company has commenced developing a cordless telephone,  is in the final
stages of developing an ear protector and has recently commenced production of a
chronograph.  In addition,  the Company has recently completed  development of a
bicycle  accelerator  and is awaiting  approval of that  product by the Japanese
government.

Manufacturing

     The Company  currently  manufactures  and  assembles all of its products in
China.  Generally,  raw  materials,  electronic  components  and other parts are
transported  to the  Company's  manufacturing  plant in China where the finished
products are  assembled.  The finished goods are then  transported  back to Hong
Kong for sale by the Company.

     The  Company  manufactures  some of its own  components,  metal  parts  and
casings  and  plastic  parts at its  facility  in China.  In 1997,  the  Company
commenced  manufacturing  its  own  strain  gauges,  and it  currently  produces
approximately  80% of the  strain  gauges  utilized  in its  scales.  Management
believes that the Company will realize a substantial  cost saving from producing
its own strain  gauges in the future.  Management  hopes to produce  100% of the
strain gauges utilized by the Company by the end of the current fiscal year.

     To take  advantage  of lower  overhead  costs and  competitive  labor rates
available  in  China,  the  Company  constructed  a  manufacturing  facility  in
Shenzhen, China in 1989. The location of that factory in Shenzhen, only about 30
miles from Hong Kong,  permitted  the  Company  to manage  easily  manufacturing
operations  from Hong Kong,  and  facilitated  transportation  of the  Company's
products  out of China  through the port of Hong Kong,  the busiest  seaport for
containerized  shipping in the world.  As sales  increased  since the year ended
March 31, 1990, the Company's use of available  factory capacity  increased.  In
planning for its future growth, the Company entered into a contract to acquire a
land  lease  for  construction  of  a  new  manufacturing  complex  which,  when
completed,  would approximately triple the Company's  production  capacity.  The
construction  of phase one of the new  manufacturing  complex was  completed  in
December 1996 and the Company commenced operations in the new complex in January
1997.  The  second,  and  final,  phase  was  completed  in May  1998.  The  new
manufacturing complex is located in the DaYang Synthetical  Development District
in Shenzhen,  China and is  approximately  50 miles from Hong Kong. See Item 2 -
"Description of Property--China," below.

     Because the Company  primarily  sells and ships its products  "F.O.B.  Hong
Kong," most of its customers are responsible for the  transportation of finished
products  from Hong Kong to their  final  destination  and bear the risk of loss
from such  transportation.  Components and finished  products are transported to
and from China  primarily  with the  Company's  own truck.  The  majority of the
Company's component parts purchased from Japan, Taiwan and Korea are transported
by ship or by air to Hong  Kong.  In  recent  years,  the  Company  has not been
materially affected by any transportation problems.

     Management  believes that it has  sufficient  water and power  supplies for
daily usage at its new manufacturing  complex. The Company has drilled two water
wells to obtain additional water and to minimize cost.

     The  availability of adequate power to run the Company's  factory is one of
the  difficulties  of having a factory  located in China.  In order to  minimize
potential  power  problems  that could  develop  in the  Shenzhen  factory,  the
factory, like most Chinese factories,  is equipped with power generators capable
of providing adequate electric power to operate the assembly line.

                                       7
<PAGE>


Component Parts and Suppliers

     The Company  purchases over 1,000 different  component parts from more than
100 major  suppliers and is not dependent  upon any single  supplier for any key
component.  The Company purchases  components for its products from suppliers in
Japan,  Taiwan,  South  Korea,  Hong Kong and  elsewhere.  The  Company  has not
experienced,  and management  does not expect to  experience,  any difficulty in
obtaining needed component parts for its products.

     The major component parts purchased by the Company are integrated  circuits
(chips),  LEDs,  LCDs,  strain  gauges,  force sensors,  resistors,  capacitors,
transistors, diodes, printed circuit boards and batteries. The Company purchases
both stock or off the shelf chips and custom chips.  There are many suppliers of
both stock and custom  chips in Japan and  Taiwan.  At the present  time,  Micro
Chips in Taiwan,  Samsung in South Korea and  Hitachi,  Toshiba and NEC in Japan
provide  most  of the  Company's  chips.  Chips  are one of the  most  expensive
component parts purchased by the Company.

     Strain  gauges are the second most  expensive  components  purchased by the
Company.  The Company currently produces  approximately 80% of the strain gauges
utilized in its scales,  and obtains the remainder  principally  from a Japanese
manufacturer.  However,  the  Company  could also  purchase  strain  gauges from
suppliers  located in the United  States and China.  LEDs and LCDs are generally
custom made to match the chip design and are  principally  supplied by companies
in Taiwan,  Korea and Japan.  The circuit  boards can be purchased  from circuit
board manufacturers in Hong Kong. Resistors, capacitors, transistors, diodes and
batteries are standard stock items and are generally  purchased in Hong Kong and
Taiwan.

     The Company  produces  metal and  plastic  casings and parts for use in its
products.  Plastic resin and metal sheet can be purchased from suppliers in Hong
Kong and Japan.

Quality Control

     Management  maintains  strict quality control  procedures for every product
manufactured by the Company throughout the manufacturing  process.  Incoming raw
materials and components are checked by the Company's quality control personnel.
Moreover,  during the production  stage, the Company's quality control personnel
monitor each operation in the  manufacturing  process,  including the bonding of
the chips,  component  insertion and assembly of the printed  circuit boards and
casings.  All work in  process is also  checked  during  the  manufacturing  and
assembly  processes.  After the  assembly  stage,  every  product is checked for
proper functioning and cosmetic  appearance.  After packing and before shipment,
the  quality  control  personnel  randomly  check  goods  according  to  product
specifications. Historically, the Company's level of defective products has been
low, and not material to its financial  statements.  The Company's  products are
generally  covered by a one-year  limited  warranty which provides for repair or
replacement  of  defective  products.  In  certain  circumstances,  an  extended
warranty may be offered.  To date, claims against the Company under its warranty
program have been negligible.

     In April 1995, the Company received an ISO 9001 certificate from Det Norske
Veritas Industry B.V., The  Netherlands.  The Company passed a reviewed audit by
Det Norske  Veritas,  processed in March 1998,  and is qualified to maintain the
ISO 9001 certificate.

     The  ISO  9000  is a  program  developed  initially  by  the  International
Organization  for  Standardization  in Geneva,  Switzerland,  to provide quality
control  registration  standards that could be relied upon to provide assurances
with regard to a  registrant's  quality  control and  manufacturing  operations.
Management  believes  that ISO 9000  registration  provides its  customers  with
quality control  assurances that are recognized  internationally,  and that such
registration  also provides the Company with a competitive  advantage  over many
other  manufacturers  in the Far  East  who  have  not  registered  for ISO 9000

                                       8
<PAGE>


certification.  In addition,  the Company has submitted  applications for the CE
mark for some  products and, at the present  time,  over 36 product  groups have
been approved,  including the electromagnetic  compatibility directive (EMC) and
the medical  devices  directive  (MDD). A CE mark serves as  confirmation to the
European  authorities  that the marked product  complies with all European Union
directives  relevant to the product and that the product may be traded freely in
the European market.

Customers and Marketing

     The  Company  sells  its  products  in the  United  States,  Europe,  Asia,
Australia and Africa.  Customers for the Company's scales are primarily original
equipment manufacturers, which market the products under their own brand names.

     Net export sales to customers by geographic area consisted of the following
for each of the three years ended March 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>

                                                  Year ended March 31,
                        --------------------------------------------------------------------
                            1996                     1997                    1998

     <S>                <C>              <C>     <C>             <C>     <C>              <C>
     North America      $ 5,356,398      38%     $ 7,537,401     44%     $12,598,672      53%
     Europe               3,960,816      28        5,492,294     33        8,129,063      34
     Asia                 4,140,088      29        3,454,505     20        2,117,914       9
     Australia              723,783       5          425,314      3          756,354       3
     Africa                  67,150      --           79,505     --          113,573       1
                        -----------     ---      -----------    ---       ----------     ---

     Total Net Sales    $14,248,235     100%     $16,989,019    100%     $23,715,576     100%
</TABLE>

     The Company  maintains a marketing team in Hong Kong.  The Company  markets
its  products  primarily  through  use of its Web  page,  advertising  in  trade
publications  such as Hong Kong Enterprise and the use of direct mail catalogues
and product  literature.  In addition,  the  Company's  marketing  team contacts
existing and potential customers by telephone, mail, fax and in person.

     Major  Customers.  Sales of the  Company's  products to OEMs  accounted for
approximately 82%, 87% and 87%,  respectively,  of the Company's total net sales
during the years ended March 31, 1996,  1997 and 1998.  The Company's  principal
OEM customers include the following entities which market the Company's products
under the brand name indicated opposite their respective names:
<TABLE>
<CAPTION>

                                                                     Percent of Company's Sales
                                                                     --------------------------
                                                                        Year ended March 31,
                                                                        --------------------
       Customer             Brand Name         Products                 1996    1997     1998
       --------             ----------         --------                 ----    ----     ----

<S>                        <C>               <C>                        <C>     <C>      <C>   
Pitney Bowes, Inc. (USA)   Pitney Bowes      Postal scales                --     18%      30%

Globaltec Corporation      ACCULAB           Jewelry, educational and
(USA)                                        high precision scales       21%     13%      15%

Werner Dorsch Gmbh & Co.   WEDO              Postal, office and
(Germany)                                    parcel scales               13%     11%       9%

Omron Health Care          OMRON             Digital thermometers         6%     11%       8%

</TABLE>
                                       9
<PAGE>


     Werner Dorsch Gmbh & Co. and Globaltec  Corporation  have been customers of
the Company for thirteen and eleven  years,  respectively.  Management  believes
that the Company offers its customers  superior quality of products and superior
product  design and  development  capabilities,  together  with the low costs of
production associated with its operations in China.

     If the  Company  were to lose any  customers  who  account  for a  material
portion  of total  sales,  or if any of these  customers  were to  substantially
decrease their purchases from the Company, the Company's revenues,  earnings and
financial  position  would be materially and adversely  affected.  The Company's
dependence  on these four  customers is expected to continue in the  foreseeable
future.  The Company  follows  normal and  customary  business  practices in the
acceptance of orders from its customers.  Orders from the Company's four largest
customers  are  generally  supported  by bank  guarantees,  letters of credit or
insurance from the Hong Kong Export Credit  Insurance  Corporation.  For updated
information with respect to a decrease in orders from two of the Company's major
customers  see Item 9 -  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations--Overview."

     Sales of the Company's products directly by the Company under its own brand
name  accounted  for  approximately  18%,  13%  and  13%,  respectively,  of the
Company's total net sales during the years ended March 31, 1996, 1997 and 1998.

     Backlog.  The Company's backlog consists of orders from major customers and
purchase orders from other  customers of products  scheduled for shipment within
three to twelve months. It is the Company's  practice to charge customers 50% of
the total order price when orders are  cancelled  and, as a result,  the Company
has  experienced  nominal  cancellations.  This practice is not represented by a
written  agreement,  and the Company may not be able to enforce this arrangement
in every case in the  future.  The Company  generally  has not  experienced  any
difficulty  in shipping  orders by the dates  requested  by its  customers or in
material returns of its products. The amount of backlog that is manufactured and
shipped during any period is dependent on various factors,  including the timing
and scheduling of orders from material customers and accordingly,  the amount of
backlog at any date is not necessarily indicative of actual shipments and sales.
The Company's backlog was $4,386,485 at March 31, 1998, compared to a backlog of
$7,305,470 at March 31, 1997.

Competition

     The electronic products business is highly competitive. The Company's major
competitors in the scale market include Management  Investment & Technology Co.,
Ltd. in Hong Kong, Charder Electronic  Company,  Ltd. in Taiwan and Ohaus in the
United  States.  In  the  blood  pressure  meter  market,  the  Company's  major
competitors  are AnD Co.  Ltd of Japan and Omron  Corporation  of Japan.  In the
electronic  thermometer  market,  its major  competitors are Citizen Company and
Terumo, both of Japan.  Competition is primarily based upon unit price,  product
quality,   reliability,   product  features  and  management's   reputation  for
integrity.  Management believes that the Company competes favorably with respect
to each of these factors.

Employees

     At March 31, 1998, the Company  employed 927 persons on a full-time  basis.
All of the  Company's  27  employees  located in Hong Kong held  administrative,
clerical,  sales and marketing positions. Of the 900 employees located in China,
789 were engaged in  manufacturing  and 111 were engaged in  administrative  and
clerical  positions.  The  Company  is not a  party  to any  labor  contract  or
collective  bargaining  agreement.  The Company has  experienced  no significant
labor stoppages in recent years, and management believes that relations with its
employees are satisfactory.

                                       10
<PAGE>


     The Company  currently  houses all 900 employees  located in the PRC at the
Shenzhen facility, including administrative staff. The facility is able to house
up to 2,180 employees.

Patents, Licenses, Trademarks, Franchises, Concessions and Royalty Agreements

     The Company has no patents,  licenses,  franchises,  concessions or royalty
agreements  that are  material  to its  business  as a whole.  The  Company  has
obtained a trademark registration in Hong Kong and China for the marks BONSO and
MODUS in  connection  with certain  electronic  apparatus and intends to file an
application in the United States for registration of such trademarks.

Government Regulation

     In the United States,  the Medical Device Amendments of 1976 to the federal
Food, Drug and Cosmetic Act (Amendments) and the regulations  issued or proposed
thereunder provide for regulation by the Food and Drug  Administration (the FDA)
of the marketing, manufacturing, labeling, packaging and distribution of medical
devices.  These regulations  include  requirements that manufacturers of medical
devices register with the FDA and furnish lists of devices manufactured by them.
Certain  pre-market  requirements  must be met prior to the marketing of medical
devices introduced after May 28, 1976. These range from a minimum requirement to
wait 90 days  after  notification  to the FDA  before  introduction  of  medical
devices  substantially  similar  to  devices  already on the market to a maximum
requirement to comply with the potentially  expensive and time consuming process
of pre-market analysis and testing necessary to obtain FDA approval prior to the
commercial  marketing of new medical devices. In addition,  the FDA also has the
authority  to  prescribe  performance  standards  for the types of  health  care
products manufactured by the Company.  Should such standards be prescribed,  the
Company's  products  would be  required  to  conform to them.  To date,  no such
standards have been adopted and the Company cannot predict what changes, if any,
may be necessitated in its products should such performance  standards be issued
in  the  future.  In  addition  to  the  Amendments,   there  are  also  certain
requirements of other federal laws and of state,  local and foreign  governments
that may apply to the  manufacture  and marketing of the  Company's  health care
products.

     The only  products of the Company  that are subject to material  government
regulation are its electronic thermometers and electronic blood pressure meters,
which  are  subject  to  qualifying  procedures  with  the FDA.  The  qualifying
procedures  set forth by the FDA for  pre-market  approval  with  respect to the
electronic thermometers and blood pressure meters have been satisfied.

Certain Foreign Issuer Considerations

     Transfer of Sovereignty  over Hong Kong to China.  The principal  executive
offices  of the  Company  and all  manufacturing  operations  and  assets of the
Company are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was
a British Crown Colony with  responsibility  for  administering its own internal
affairs.  After several years of  negotiations  concerning  Hong Kong's  future,
Great  Britain and China  signed  (December  1984) and  ratified  (May 1985) the
Sino-British  Joint  Declaration  on the  Future of Hong Kong (the  Sino-British
Agreement).  Pursuant to the Sino-British  Agreement,  Hong Kong was restored to
China on July 1, 1997.

     Ownership  of  Real  Property.  All  land  in Hong  Kong  is  owned  by the
Government  of the Hong Kong  Special  Administrative  Region (the  Government).
Prior to July 1, 1997, the Government granted Crown Leases to persons, firms and
corporations  on the basis of an annual crown rental payment and other terms and
conditions therein  contained.  Crown Leases were freely assignable during their
term. In  implementation  of the  Sino-British  Agreement,  the New  Territories
Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988.
Pursuant to that Ordinance,  all leases in the New Territories of Hong Kong were
extended up to June 30, 2047.  Such  extension was at no premium but was subject
to an annual fee  equivalent  to 3% of the ratable  value of the  property to be
charged  with  effect  from the date on which  the  original  lease  would  have
expired.

                                       11
<PAGE>


     The land  ownership  system in China is similar to Hong Kong,  in which all
land is  owned  by the  government.  The  Chinese  government  and  its  various
government  instrumentalities grant leases to persons, firms and corporations on
the basis of an annual  rental  payment  and other  terms and  conditions.  Such
leases are generally freely transferable during their term.

     Enforceability  of  Certain  Civil  Liabilities.  The  Company is a British
Virgin  Islands  holding  corporation.   The  Company  has  appointed  Henry  F.
Schlueter,  1050 Seventeenth Street,  Suite 1700, Denver,  Colorado 80265 as its
agent upon whom process may be served in any action brought against it under the
securities laws of the United States. However, outside the United States, it may
be difficult for investors to enforce  judgments against the Company obtained in
the United States in any such actions,  including actions  predicated upon civil
liability provisions of the United States securities laws. In addition,  most of
the Company's  officers and directors  reside  outside the United States and the
assets of these  persons and of the  Company  are located  outside of the United
States.  As a result,  it may not be possible for investors to effect service of
process  within the United States upon such persons,  or to enforce  against the
Company or such persons  judgments  obtained in United States courts  predicated
upon the liability  provisions of the United States securities laws. The Company
has been advised by Harney,  Westwood and Riegels  ("HW&R"),  its British Virgin
Islands counsel, and by Norman M.K. Yeung & Co., Solicitors ("Yeung & Co."), its
Hong Kong  counsel,  that there is  substantial  doubt as to the  enforceability
against the Company or any of its  directors  and officers  located  outside the
United States in original  actions or in actions for enforcement of judgments of
United States courts of  liabilities  predicated  solely on the civil  liability
provisions of the United States securities laws.

     The Company has been advised by Yeung & Co. and HW&R that no treaty  exists
between Hong Kong or the British Virgin Islands and the United States  providing
for the reciprocal enforcement of foreign judgments. However, the courts of Hong
Kong and the British Virgin  Islands are generally  prepared to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Hong Kong
or the British  Virgin Islands for recovery of this debt. A Hong Kong or British
Virgin  Islands court will only accept a foreign  judgment as evidence of a debt
due if: (i) the judgment is for a liquidated amount in a civil matter;  (ii) the
judgment is final and  conclusive  and has not been stayed or satisfied in full;
(iii) the  judgment  is not  directly or  indirectly  for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong
or British  Virgin  Islands court is unlikely to accept a judgment for an amount
obtained  by  doubling,  trebling or  otherwise  multiplying  a sum  assessed as
compensation  for the loss or damage  sustained by the person in whose favor the
judgment  was  given);   (iv)  the  judgment  was  not  obtained  by  actual  or
constructive  fraud or duress;  (v) the foreign court has taken  jurisdiction on
grounds  that are  recognized  by the common law rules as to conflict of laws in
Hong Kong or the  British  Virgin  Islands;  (vi) the  proceedings  in which the
judgment  was  obtained  were  not  contrary  to  natural  justice;   (vii)  the
proceedings  in which the judgment  was  obtained,  the judgment  itself and the
enforcement  of the judgment are not contrary to the public  policy of Hong Kong
or the British  Virgin  Islands;  (viii) the person against whom the judgment is
given is  subject to the  jurisdiction  of the Hong Kong or the  British  Virgin
Islands  court;  and (ix) the  judgment  is not on a claim for  contribution  in
respect of damages  awarded by a judgment  that does not satisfy the  foregoing.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may
also be limited or affected by applicable bankruptcy,  insolvency,  liquidation,
arrangement,  moratorium  or similar laws  relating to or  affecting  creditors'
rights  generally  and will be subject to a statutory  limitation of time within
which proceedings may be brought.

     Under United States law,  majority and controlling  shareholders  generally
have  certain  "fiduciary"   responsibilities  to  the  minority   shareholders.
Shareholder  action  must be taken in good  faith  and  actions  by  controlling
shareholders that are obviously  unreasonable may be declared null and void. The

                                       12
<PAGE>


British Virgin Islands law protecting the interests of the minority shareholders
may not be as protective in all  circumstances  as the law  protecting  minority
shareholders  in United States  jurisdictions.  While British Virgin Islands law
does  permit a  shareholder  of a  British  Virgin  Islands  company  to sue its
directors  derivatively,  i.e. in the name of and for the benefit of the company
and to sue the  company  and its  directors  for his  benefit and the benefit of
others  similarly  situated,  the  circumstances in which any such action may be
brought and the  procedures and defenses that may be available in respect of any
such action may result in the rights of shareholders of a British Virgin Islands
company being more limited than those rights of  shareholders in a United States
company.

Special Risk Factors

THIS ANNUAL REPORT  CONTAINS  FORWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E
OF THE  SECURITIES  EXCHANGE ACT OF 1934 (THE  "EXCHANGE  ACT").  ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE  FORWARD-LOOKING  STATEMENTS
AS A RESULT OF THE RISK FACTORS SET FORTH BELOW.  PROSPECTIVE  INVESTORS  SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION APPEARING IN THIS ANNUAL
REPORT, THE FOLLOWING  FACTORS,  AMONG OTHERS, IN EVALUATING THE COMPANY AND ITS
BUSINESS.

Forward-Looking Statements

     Important  Factors  Related to  Forward-Looking  Statements  and Associated
Risks.  The Company may from time to time make  written or oral  forward-looking
statements.  Written  forward-looking  statements may appear in documents  filed
with  the  Securities  and  Exchange  Commission  (the  "Commission"),  in press
releases and in reports to shareholders. The forward-looking statements included
herein  are based on  current  expectations  that  involve a number of risks and
uncertainties.  These  forward-looking  statements are based on assumptions that
political,  economic and  commercial  conditions in Hong Kong and China will not
change  materially  or  adversely,  that  competitive  conditions  affecting the
Company will not change  materially or adversely,  that demand for the Company's
products will be strong,  that the Company will retain  existing key  management
personnel, that the Company's forecasts will accurately anticipate market demand
and that there will be no material adverse change in the Company's operations or
business.  Assumptions  relating to the foregoing involve judgments with respect
to, among other things,  future economic,  competitive and market conditions and
future business  decisions,  all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking  statements
are reasonable,  any of the assumptions  could prove inaccurate and,  therefore,
there can be no  assurance  that the  results  contemplated  in  forward-looking
information will be realized.

     In addition,  as disclosed elsewhere under other risk factors, the business
and  operations of the Company are subject to  substantial  risks which increase
the uncertainty  inherent in such  forward-looking  statements.  In light of the
significant  uncertainties inherent in the forward-looking  information included
herein,  the  inclusion  of  such  information  should  not  be  regarded  as  a
representation  by the Company or any other person that the  objectives or plans
of the  Company  will be  achieved.  The Private  Securities  Reform Act of 1995
contains  a safe  harbor for  forward-looking  statements  on which the  Company
relies in making  such  disclosures.  In  connection  with this safe  harbor the
Company is hereby identifying  important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company.  Any such statement is qualified by reference to
the cautionary statements included in this Annual Report.

                                       13
<PAGE>


Political,  Legal,  Economic and Other  Uncertainties of Operations in China and
Hong Kong

     Transfer of Sovereignty  over Hong Kong to China.  The principal  executive
and  corporate  offices of the  Company  are  located  in Hong Kong,  formerly a
British Crown Colony.  Sovereignty over Hong Kong was transferred effective July
1, 1997 to China, and Hong Kong became a Special Administrative Region of China.
The  National  People's  Congress of China  enacted the Basic Law in 1990 as the
constitution  of  Hong  Kong  under  China's   sovereignty  (Basic  Law).  While
management  does not believe that the transfer of sovereignty  over Hong Kong to
China will have a material adverse effect on the Company's  business,  there can
be no  assurance  as to  the  continued  stability  of  political,  economic  or
commercial  conditions in Hong Kong, and any  instability  could have an adverse
impact on the Company's business.

     The Hong Kong  dollar  and the  United  States  dollar  have been  fixed at
approximately 7.80 Hong Kong dollars to $1.00 since 1983. The Chinese government
expressed  its  intention in the Basic Law to maintain the stability of the Hong
Kong currency after the sovereignty of Hong Kong was transferred to China. There
can be no assurance that this will continue and the Company could face increased
currency risks if the current exchange rate mechanism is changed.

     Internal Political and Other Risks of Manufacturing in China. The Company's
manufacturing  facility  is  located  in  China.  As  a  result,  the  Company's
operations and assets are subject to significant political,  economic, legal and
other uncertainties.  Changes in policies by the Chinese government resulting in
changes  in  laws,  regulations  or  the  interpretation  thereof,  confiscatory
taxation,  restrictions  on  imports  and  sources  of  supply,  import  duties,
corruption,  currency  revaluations or the  expropriation of private  enterprise
could materially and adversely affect the Company.  Over the past several years,
the Chinese  government  has pursued  economic  reform  policies  including  the
encouragement    of   private    economic    activity   and   greater   economic
decentralization.  There can be no assurance  that the Chinese  government  will
continue to pursue such  policies,  that such  policies  will be  successful  if
pursued,  that such policies will not be significantly altered from time to time
or that  business  operations  in China would not become  subject to the risk of
nationalization,  which  could  result in the total loss of  investment  in that
country.  Economic  development  may be  limited  as well by the  imposition  of
austerity measures intended to reduce inflation,  the inadequate  development of
infrastructure  and the  potential  unavailability  of adequate  power and water
supplies,  transportation and communications. If for any reason the Company were
required to move its  manufacturing  operations  outside of China, the Company's
profitability  would be substantially  impaired,  its competitiveness and market
position would be materially  jeopardized and there can be no assurance that the
Company could continue its operations.

     Recent  Relations  with the U.S.  In 1995,  the  United  States  considered
revocation  of China's most favored  nation (MFN) trade status,  which  provides
China with the trading privileges generally available to trading partners of the
United  States,  and in 1996 the  United  States  and  China  were  involved  in
controversy  over the protection in China of intellectual  property  rights.  In
1996, China and the United States reached an agreement on copyright  protection,
and renewed  China's MFN trade status.  In July 1998, the United States extended
China's MFN status for another year.  Various  interest  groups continue to urge
that the United States not renew China's trade status. There can be no assurance
that future  controversies  will not arise that threaten trade relations between
the United  States and China or that the United States will not revoke or refuse
to extend China's MFN status. In any of such eventualities,  the business of the
Company could be adversely affected.

     Uncertain Chinese Legal System and Application of Laws. The legal system of
China relating to foreign investments is both new and continually evolving,  and
currently  there  can be no  certainty  as to the  application  of its  laws and
regulations in particular instances.  China does not have a comprehensive system
of  laws.  Enforcement  of  existing  laws or  agreements  may be  sporadic  and

                                       14
<PAGE>


implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively  inexperienced in enforcing the laws that exist,  leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate  law  exists  in China,  it may not be  possible  to  obtain  swift and
equitable enforcement of that law.

     Possible  Changes and  Uncertainties in Economic  Policies.  As part of its
economic reform,  China has designated  certain areas,  including Shenzhen where
the  Company's  manufacturing  complex is located,  as Special  Economic  Zones.
Foreign  enterprises in these areas benefit from greater  economic  autonomy and
more favorable tax treatment than  enterprises in other parts of China.  Changes
in the policies or laws governing  Special  Economic Zones could have a material
adverse effect on the Company.  Moreover,  economic  reforms and growth in China
have been more successful in certain provinces than others, and the continuation
or increase of such  disparities  could affect the political or social stability
of China.

     Dependence on Single Factory.  All of the Company's  products are currently
manufactured  at its  manufacturing  facility  located in Shenzhen,  China.  The
Company does not own the land  underlying its factory  complex.  It occupies the
site under an agreement with the local Chinese government  pursuant to which the
Company is entitled  to use the land upon which its factory  complex is situated
until May 2044.  This  agreement and the  operations  of the Company's  Shenzhen
factory are dependent on the Company's  relationship  with the local government.
The  Company's  operations  and  prospects  would be  materially  and  adversely
affected by the failure of the local  government to honor the agreement.  In the
event of a dispute, enforcement of the agreement could be difficult in China.

     Moreover,  fire fighting and disaster relief or assistance in China may not
be as  developed  as in  Western  countries.  The  Company  currently  maintains
property damage insurance  aggregating  approximately  $11,923,000  covering its
stock  in  trade,  goods  and  merchandise,  furniture  and  equipment  and  the
buildings.  The  Company  does not  maintain  business  interruption  insurance.
Investors are cautioned  that material  damage to, or the loss of, the Company's
factory due to fire, severe weather, flood or other act of God or cause, even if
insured against, could have a material adverse effect on the Company's financial
condition, results of operations, business and prospects.

     Asian Economic Problems. Recently, several countries in Southeast Asia have
experienced a significant  devaluation  of their  currencies  and decline in the
value of their  capital  markets.  In addition,  several  Asian  countries  have
experienced a number of bank failures and  consolidations.  The Company does not
believe  that the  declines  in  Southeast  Asia will  affect the demand for the
Company's  products,  because  virtually all of the Company's  products are sold
into developed countries not experiencing these declines. Moreover, because most
of the Company's  products are paid for in U.S.  dollars,  the Company  believes
that it is less  susceptible  to the effects of a  devaluation  in the Hong Kong
dollar or Chinese renminbi if either or both were to occur despite assurances to
the contrary by the Chinese government.  However,  the decline in the currencies
of other  Southeast  Asian  countries  could render the Company's  products less
competitive  if competitors  located in these  countries are able to manufacture
competitive  products at a lower  effective  cost.  Investors are cautioned that
there can be no  assurance  that the decline in  Southeast  Asia will not have a
material adverse effect on the Company's business,  financial condition, results
of operations or market price of its securities.

                                       15
<PAGE>

Risk Factors Relating to the Business of the Company

     Dependence  on  Major  Customers.   Four  major  customers   accounted  for
approximately 53% of the Company's sales in the fiscal year ended March 31, 1997
and 62% of its sales  during the fiscal year ended March 31,  1998.  The loss of
any of these  major  customers  could  have a  material  negative  impact on the
Company's  business.  See  Item  1 -  "Description  of  Business--Customers  and
Marketing--Major  Customers" and Item 9 - "Management's  Discussion and Analysis
of Financial Condition--Overview."

     Dependence on Key Personnel.  The Company's future  performance will depend
to a  significant  extent upon the efforts and  abilities of certain  members of
senior  management as well as upon the  Company's  ability to attract and retain
other qualified personnel. In particular,  the Company is largely dependent upon
the continued  efforts of Mr.  Anthony So, the Company's  President,  Secretary,
Treasurer  and  Chairman  of its  Board of  Directors,  and Mr.  Kim Wah  Chung,
Director of  Engineering  and Research and  Development.  To the extent that the
services of Mr. So or Mr. Chung would be unavailable to the Company, the Company
would be  required  to obtain  other  personnel  to perform the duties that they
otherwise  would  perform.  There can be no assurance  that the Company would be
able to  employ  another  qualified  person  or  persons,  with the  appropriate
background  and  expertise,  to replace Mr. So or Mr. Chung on terms suitable to
the Company. See Item 10 - "Directors and Officers of Registrant."

     Competition.  The  Company's  business  is in an  industry  that is  highly
competitive,  and many of its competitors,  both local and  international,  have
substantially  greater  technical,  financial and marketing  resources  than the
Company. See Item 1 - "Description of Business--Competition."

     Need for  Qualified  Employees.  The success of the Company is dependent on
its ability to attract and retain qualified technical,  marketing and production
personnel. The Company will have to compete with other larger companies for such
personnel,  and  there  can be no  assurance  that the  Company  will be able to
attract or retain such qualified personnel.

     Control by Founder. At the present time and without taking into account the
shares of Common  Stock  that will be issued  upon the  exercise  of the  Public
Warrants  and the  Representative's  Warrants,  Mr.  Anthony So, the founder and
President  of  the  Company,   beneficially  owns  approximately  39.6%  of  the
outstanding shares of Common Stock. Due to his stock ownership, Mr. So may be in
a position  to elect the Board of  Directors  and,  therefore,  to  control  the
business  and affairs of the Company  including  certain  significant  corporate
actions  such as  acquisitions,  the sale or purchase of assets and the issuance
and sale of the Company's securities. See Item 4 - "Control of Registrant."

     Potential  Fluctuations in Operating Results.  The Company's  quarterly and
annual  operating  results are  affected by a wide variety of factors that could
materially and adversely affect net sales, gross profit and profitability.  This
could result from any one or a combination of factors,  many of which are beyond
the control of the Company.  Results of  operations  in any period should not be
considered  indicative  of results to be  expected  in any  future  period,  and
fluctuations in operating  results may also result in fluctuations in the market
price of the Company's Common Stock.

     No  Assurance  of Exercise of Warrants  or  Sufficient  Operating  Revenue;
Potential  Need for Outside  Funding.  The Company is currently  soliciting  the
exercise of certain outstanding warrants which were issued to the public in 1994
(the  "Public  Warrants")  and  management  intends  to utilize a portion of the
proceeds  from such  exercises to fund  expansion of  operations,  including the
development and production of the Company's proposed cordless  telephone.  There
is no assurance that any of the Company's  outstanding  Public  Warrants will be
exercised.  Accordingly,  funding for the expansion of the Company's  operations
will be dependent on the  Company's  ability to generate  significant  operating
revenue  or  procure  additional  financing.  There  can  be no  assurance  that
sufficient  operating revenue can be generated or that any additional  financing
can be  arranged  on  favorable  terms and in the  amounts  required to fund the
expanded operations of the Company.

                                       16
<PAGE>


     Possible Inability of Warrantholders to Exercise Warrants.  Exercise of the
Company's   Warrants  is  subject  to  the  Company   either   maintaining   the
effectiveness of its Registration Statement, or filing an effective registration
statement  with  the  Commission  and  complying  with  the  appropriate   state
securities  laws.  No assurance  can be given that at the time a Warrant  holder
seeks to exercise the right to purchase the Company's  Common Stock an effective
registration  statement  will in fact be in effect or that the Company will have
complied with all appropriate state securities laws.

     Future  Sales  of  Common  Stock.  As of the  date of this  Annual  Report,
1,199,171 of the  Company's  outstanding  shares of Common Stock are  restricted
securities as that term is defined in Rule 144 promulgated  under the Securities
Act.  The  Securities  Act and Rule 144  promulgated  thereunder  place  certain
prohibitions on the sale of such restricted securities. Further, the Company has
issued  options to purchase  765,000  shares of Common Stock and has reserved an
additional  30,000  shares for issuance upon exercise of stock options which may
be granted in the future under the Company's  existing  Stock Option Plans.  The
possibility exists that, when permitted, the sale to the public of these shares,
or shares acquired upon exercise of the options,  could have a depressing effect
on the price of the Common Stock.  Further,  future sales of such shares and the
exercise of such options could adversely  affect the Company's  ability to raise
capital in the future.

     Volatility  of Stock  Price.  The markets for equity  securities  have been
volatile and the price of the Company's Common Stock has been and could continue
to be subject to wide fluctuations in response to quarter to quarter  variations
in operating results, news announcements,  trading volume, sales of Common Stock
by officers, directors and principal shareholders of the Company, general market
trends and other factors.

     Potential  Adverse  Effect of  Redemption  of Public  Warrants.  The Public
Warrants are  redeemable by the Company at any time at $0.05 per Warrant upon 30
to 45 days notice if the closing  price of the Common  Stock for 20  consecutive
trading  days within the 30-day  period  preceding  the date the notice is given
equals or exceeds $8.575 per share. If the Company calls the Public Warrants for
redemption,  the holders of the Public  Warrants  must either (i)  exercise  the
Public  Warrants  and pay the exercise  price  therefor at a time when it may be
disadvantageous  for the holders to do so; (ii) sell the Public  Warrants at the
then  current  market  price when they might  otherwise  wish to hold the Public
Warrants;  or (iii) accept the nominal  redemption price,  which is likely to be
substantially  less than the market value of the Public  Warrants.  No assurance
can be given that at the time of redemption an effective  registration statement
will be in effect or that the Company will have  complied  with all  appropriate
state  securities laws so that a Public  Warrantholder  will be able to exercise
his Public  Warrants  rather than  accepting  the $0.05 per  Warrant  redemption
price.

Certain Legal Consequences of Foreign Incorporation and Operations

     Enforceability of Civil Liabilities.  The Company is a holding  corporation
organized as an  International  Business  Company  under the laws of the British
Virgin  Islands and its principal  operating  subsidiary is organized  under the
laws of Hong Kong,  where the  Company's  principal  executive  offices are also
located. Outside the United States, it may be difficult for investors to enforce
judgments  against the Company  obtained in the United States in actions brought
against  the  Company,   including  actions   predicated  upon  civil  liability
provisions  of federal  securities  laws.  In  addition,  most of the  Company's
officers and directors  reside outside the United States and the assets of these
persons  and of the  Company  are  located  outside of the United  States.  As a
result, it may not be possible for investors to effect service of process within

                                       17
<PAGE>


the United States upon such persons,  or to enforce  against the Company or such
persons judgments  predicated upon the liability  provisions of U.S.  securities
laws.  The  Company  has been  advised by its Hong Kong  counsel and its British
Virgin Islands counsel that there is substantial doubt as to the  enforceability
against the Company or any of its  directors  or  officers  located  outside the
United States in original  actions or in actions for enforcement of judgments of
U.S. courts of liabilities  predicated solely on the civil liability  provisions
of federal  securities  laws.  See Item 1 -  "Description  of  Business--Certain
Foreign Issuer Considerations--Enforceability of Certain Civil Liabilities."

     Certain Legal  Consequences of Incorporation in the British Virgin Islands.
The  Company  is  organized  under  the  laws  of the  British  Virgin  Islands.
Principles  of law  relating to matters  affecting  the  validity  of  corporate
procedures,  the  fiduciary  duties of the Company's  management,  directors and
controlling  shareholders  and the rights of the Company's  shareholders  differ
from, and may not be as protective of shareholders as, those that would apply if
the  Company  were  incorporated  in a  jurisdiction  within the United  States.
Directors  of the  Company  have  the  power  to take  certain  actions  without
shareholder  approval,  including an amendment of the  Company's  Memorandum  or
Articles  of  Association  and  certain  fundamental   corporate   transactions,
including  reorganizations,  certain mergers or  consolidations  and the sale or
transfer of assets.  In addition,  there is doubt that the courts of the British
Virgin Islands would enforce liabilities predicated upon U.S. securities laws.

     Exemptions under the Exchange Act as a Foreign Private Issuer.  The Company
is a foreign  private issuer within the meaning of rules  promulgated  under the
Exchange Act. As such,  and though its Common Stock is registered  under Section
12(g) of the Exchange Act, it is exempt from certain  provisions of the Exchange
Act applicable to United States public companies including:  the rules under the
Exchange Act  requiring the filing with the  Commission of quarterly  reports on
Form 10-Q or current  reports on Form 8-K,  the  sections  of the  Exchange  Act
regulating the solicitation of proxies, consents or authorizations in respect to
a security  registered  under the  Exchange Act and the sections of the Exchange
Act  requiring  insiders to file public  reports of their  stock  ownership  and
trading activities and establishing  insider liability for profits realized from
any  short-swing  trading  transaction  (i.e.,  a purchase and sale, or sale and
purchase,  of the issuer's equity securities within six months or less). Because
of the exemptions  under the Exchange Act applicable to foreign private issuers,
shareholders of the Company are not afforded the same protections or information
generally  available to investors  in public  companies  organized in the United
States.


Item 2. Description of Property.
--------------------------------

British Virgin Islands

     The offices of the Company  are  located at Cragmuir  Chambers,  Road Town,
Tortola,  British  Virgin  Islands.  Only corporate  administrative  matters are
conducted at such offices,  through the Company's registered agent, HWR Services
Limited.

Hong Kong

     The  Company  leases  approximately  9,185  square  feet  in the  Universal
Industrial Centre, 23-25 Shan Mei Street, Fo Tan, Shatin, New Territories,  Hong
Kong.  This  facility is used  primarily as the  Company's  principal  executive
office.  The lease expires on May 31, 1999 and provides for a monthly  rental of
$12,820. Management anticipates that the lease for this facility will be renewed
for an additional  one-year  term at  approximately  the same monthly  rental of
$12,820.

     The Company owns a residential  property in Hong Kong,  which is located at
Savanna Garden,  House No. 27, Tai Po, New Territories,  Hong Kong. House No. 27
consists of approximately 2,475 square feet plus a 177 square foot terrace and a
2,308  square  foot  garden  area.  The use of House No. 27 is  provided  to Mr.
Anthony So as part of his compensation. See Item 13 - "Interest of Management in
Certain Transactions."

                                       18
<PAGE>


China

     The  Company's  existing  factory in China is located  at  Shenzhen  in the
DaYang Synthetical  Development District,  close to the border between Hong Kong
and China.  This  factory  consists  of two  factory  buildings,  which  contain
approximately   194,990   square  feet,   two  workers'   quarters,   containing
approximately   115,050  square  feet,  a  canteen  and  recreation   center  of
approximately   25,270   square  feet,   an  office   building,   consisting  of
approximately   25,230  square  feet,  and  staff  quarters  for  the  Company's
supervisory  employees,  consisting of  approximately  35,110 square feet, for a
total of approximately 395,650 square feet. The facility is utilized pursuant to
a Contract  on the Use of Land and Supply of Workers  with  Shenzhen  Baoan Fuan
Industrial   Company.   The  agreement   provides  that  the  Company  will  use
approximately  269,000 square feet of land for a period of 50 years,  commencing
May 10, 1994.  To obtain the land lease,  the Company  agreed to pay  $1,810,344
plus a monthly  management fee in the amount of $2,750. The Company used part of
the proceeds of a  $1,500,000  loan it received in July 1994 to pay a portion of
the initial  acquisition  cost; the balance of the initial  acquisition cost was
paid out of the net proceeds of a public  offering of the  Company's  securities
conducted in December 1994.  The facility is  wholly-owned  by the Company.  The
agreement provides that at the expiration of the land lease, the Company will be
given  priority for  negotiation of a new agreement for the use of the land. The
Company's total  investment in the facility is approximately  $8,000,000.  Phase
one of the facility was completed in December 1996, and manufacturing  commenced
in the new  facility  in January  1997.  The  second,  and  final,  phase of the
facility was completed in May 1998.

     The  Company  also  owns two  residential  properties,  one  consisting  of
approximately  1,000 square feet, located at Lijingge Court, Unit F, 15th Floor,
Hai Li Building,  Shenzhen,  China,  and one consisting of  approximately  1,125
square feet located at the 12th floor, Yuk Yui Court,  Gui Hua Garden,  Shenzhen
Bay, China.  Both properties are utilized by management staff and directors when
they require accommodations in China.

Adequacy of Facilities

     Management  believes that the Company's new  manufacturing  complex will be
adequate for its reasonably foreseeable needs.

Item 3. Legal Proceedings.
--------------------------

     On August 28, 1998, a lawsuit was filed in the United States District Court
for the Central District of California against the Company and the Warrant Agent
alleging that the Company had committed  securities fraud,  common law fraud and
breach of contract  arising out of the original sale of the Public  Warrants and
the  issuance  on July 22,  1998 of a notice to redeem  the Public  Warrants  on
September  4, 1998 for $0.05 per Public  Warrant.  The  lawsuit  was  dismissed,
without  prejudice,  on  September  2,  1998,  and  the  Company  rescinded  the
redemption of the Public  Warrants  that was noticed on July 22, 1998.  However,
the plaintiffs have agreed not to refile the lawsuit for at least four months.

     Management  is not  aware  of any  legal  proceedings  contemplated  by any
governmental   authority  involving  the  Company,  its  subsidiaries  or  their
property. No director,  officer or affiliate of the Company, or any associate of
a director,  officer or affiliate of the Company:  (i) is a party adverse to the
Company or its  subsidiaries  in any legal  proceedings;  or (ii) has an adverse
interest to the Company or its subsidiaries in any legal proceedings.  Except as
described herein,  the Company and its subsidiaries are not parties to any legal
proceedings  and there are no other  material  legal  proceedings  pending  with
respect to the property of the Company and its subsidiaries.

                                       19
<PAGE>


Item 4. Control of Registrant.
------------------------------

     The  Company is not  directly  or  indirectly  owned or  controlled  by any
foreign government or by another corporation. The following table sets forth, as
of June 30, 1998, the beneficial ownership of the Company's Common Stock by each
person  known by the  Company  to own  beneficially  more than 10% of the Common
Stock  of the  Company  outstanding  as of such  date  and by the  officers  and
directors of the Company as a group. Except as otherwise  indicated,  all shares
are owned directly.

     Person or Group                      Amount Owned
     ---------------           -----------------------------------

                                 Shares of     Options to Purchase    Percent of
                               Common Stock       Common Stock         Class(1)
                               ------------       ------------         --------
     Anthony So                 1,199,171(2)        303,000             45.1%
     Officers and directors     1,199,171           627,000             50.0%
       as a group (7 persons)

----------------------

(1)  Based on beneficial ownership of both shares of Common Stock and options to
     purchase Common Stock which are immediately exercisable.

(2)  Owned of record by a  corporation  that is wholly owned by a trust of which
     Mr. So is the sole beneficiary.

     There are no  arrangements  known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.

Item 5. Nature of Trading Market.
---------------------------------

     The  Company's  Common  Stock and Public  Warrants  are traded  only in the
United  States  over-the-counter  market.  The  Common  Stock is  quoted  on the
National  Association of Securities  Dealers,  Inc.  Automated  Quotation System
("Nasdaq")  National Market under the trading symbol BNSOF;  the Public Warrants
are quoted under the trading symbol BNSWF on Nasdaq.

     The table set forth below presents the range, on a quarterly basis, of high
and low closing sales prices per share of Common Stock and per Public Warrant as
reported  by Nasdaq for the last two fiscal  years and for the first  quarter of
the fiscal year ending March 31, 1999. The quotations  represent  prices between
dealers and do not include  retail markup,  markdown or commissions  and may not
necessarily represent actual transactions.

                                       20
<PAGE>

Common Stock

         Quarter Ended                            High              Low
         -------------                            ----              ---

     Fiscal 1997
     -----------
     June 30, 1996                              $ 3-1/8          $ 2-1/4
     September 30, 1996                         $ 3-1/8          $ 2-1/8
     December 31, 1996                          $ 2-13/16        $ 2
     March 31, 1997                             $ 2-5/8          $ 1-3/4

     Fiscal 1998
     -----------
     June 30, 1997                              $ 2-1/4          $ 1-11/16
     September 30, 1997                         $ 6-1/2(2)       $ 2-1/16(2)
     December 31, 1997                          $ 8-3/8(2)       $ 5-3/8(2)
     March 31, 1998                             $ 10-1/8(2)      $ 5-7/8(2)

     Fiscal 1999
     -----------
     June 30, 1998                              $ 11-3/8(2)      $ 9-1/16(2)

Public Warrants(1)

         Quarter Ended                            High              Low
         -------------                            ----              ---

     Fiscal 1997
     -----------
     June 30, 1996                              $ 1-3/16         $ 13/32
     September 30, 1996                         $ 7/8            $ 5/8
     December 31, 1996                          $ 13/16          $ 13/32
     March 31, 1997                             $ 19/32          $ 13/32

     Fiscal 1998
     -----------
     June 30, 1997                              $ 13/32          $ 5/16
     September 30, 1997                         $ 1-1/2(2)       $ 13/32(2)
     December 31, 1997                          $ 2-3/8(2)       $ 25/32(2)
     March 31, 1998                             $ 2-9/16(2)      $ 1-1/8(2)

     Fiscal 1999
     -----------
     June 30, 1998                              $ 3-3/8(2)       $ 2-1/8(2)

----------------------

(1)  The Public  Warrants  were  issued in  December  1994  pursuant to a public
     offering  of Units  each  consisting  of one share of Common  Stock and two
     Public Warrants.

(2)  Reflects high and low closing prices as reported by Nasdaq.

                                       21
<PAGE>

     The 2,828,562 shares of Common Stock outstanding as of June 30, 1998 (which
does  not  include  200,000  shares  of  Common  Stock   subscribed  for  by  an
unaffiliated  party which will be issued by the Company's  transfer agent in the
near  future),  were held by  approximately  312  holders  of record  worldwide,
including 309 holders of record in the United States.  Management  believes that
holders of record hold for approximately 1,051 beneficial holders.

Transfer and Warrant Agent

     The transfer agent and registrar for the Common Stock and the Warrant Agent
for the Public Warrants is U.S. Stock Transfer Corporation,  1745 Gardena Avenue
#200, Glendale, California 91204.

Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
---------------------------------------------------------------------------

     There are no exchange control  restrictions on payments of dividends on the
Company's Common Stock or on the conduct of the Company's  operations  either in
Hong Kong, where the Company's  principal  executive offices are located, or the
British Virgin Islands,  where the Company is incorporated.  Other jurisdictions
in which the Company  conducts  operations may have various  exchange  controls.
Taxation and  repatriation of profits  regarding the Company's China  operations
are regulated by Chinese laws and regulations.  To date, these controls have not
had and are not expected to have a material  impact on the  Company's  financial
results.  There are no material  British Virgin Islands laws that impose foreign
exchange  controls  on the  Company  or that  affect the  payment of  dividends,
interest or other  payments to holders of the Company's  securities  who are not
residents of the British  Virgin  Islands.  British  Virgin  Islands law and the
Company's  Memorandum and Articles of  Association  impose no limitations on the
right of nonresident or foreign owners to hold or vote the Company's securities.

Item 7. Taxation.
-----------------

Taxation

     Under current British Virgin Islands law, the Company is not subject to tax
on its income. Most of the Company's  subsidiaries' profits accrue in Hong Kong,
where the corporate tax rate is currently 16.5%. There is no tax payable in Hong
Kong on offshore profit or on dividends paid to Bonso Electronics Limited by its
subsidiaries  or by Bonso  Electronics  Limited to the Company.  Therefore,  the
overall  effective tax rate of the Company may be lower than that of most United
States corporations; however, such could be materially and adversely affected by
changes in the tax laws of the British Virgin Islands, Hong Kong or China.

     No reciprocal tax treaty  regarding  withholding  exists between the United
States and the British Virgin Islands. Under current British Virgin Islands law,
dividends,  interest or  royalties  paid by the Company to  individuals  are not
subject to tax as long as the recipient is not a resident of the British  Virgin
Islands. If the Company were to pay a dividend,  the Company would not be liable
to withhold any tax, but  shareholders  would receive gross  dividends,  if any,
irrespective of their residential or national status.

     Dividends,   if  any,  paid  to  any  United  States  resident  or  citizen
shareholder would be treated as dividend income for United States federal income
tax   purposes.   Such   dividends   would   not  be   eligible   for   the  70%
dividends-received  deduction allowed to United States corporations on dividends
from a domestic  corporation  under  Section 243 of the United  States  Internal
Revenue Code of 1986 (the "Internal  Revenue Code").  Various  Internal  Revenue
Code  provisions  impose  special taxes in certain  circumstances  on non-United
States  corporations  and their  shareholders.  Shareholders  of the Company are
urged to consult their tax advisors with regard to such  possibilities and their
own tax situation.

                                       22
<PAGE>


     In addition to United States federal income  taxation,  shareholders may be
subject to state and local taxes upon their receipt of dividends.

Dividend Policy

     The Company has never paid any  dividends  on its Common Stock and does not
anticipate  paying any  dividends in the future.  The Board of Directors has not
adopted a policy with respect to the payment of dividends.  The  declaration  of
cash  dividends may be  considered  by the Board of Directors  from time to time
based on the Company's results of operations. The Company's dividend policy will
be dependent  on its net income,  financial  position  and capital  requirements
along with economic and market conditions, industry standards and other factors.
In addition, dividend distribution and repatriation of profits or funds from the
Company's operations in China are regulated by Chinese laws and regulations.  No
profits are  generated  from China  because  the  Company's  Chinese  operations
involve only the manufacture and assembly of its products which are then shipped
to Hong Kong for sale and distribution. No assurance can be given, however, that
such laws will not be interpreted  differently in the future,  in which case the
Company's ability to pay dividends could be adversely affected.  In light of the
above,  no assurance can be given as to the amount or timing of future  dividend
payments,  if  any.  See  Item 6 -  "Exchange  Controls  and  Other  Limitations
Affecting Security Holders."


Item 8. Selected Financial Data.
--------------------------------

     The selected  consolidated  financial  data set forth below as of March 31,
1997 and 1998 and for each of the three  fiscal  years in the period ended March
31, 1998 are derived  from the audited  Consolidated  Financial  Statements  and
notes  thereto,  which  are  prepared  in  accordance  with  generally  accepted
accounting  principles in the United States of America in United States dollars,
and which appear  elsewhere  in this Annual  Report.  The selected  consolidated
financial data set forth below as of March 31, 1994,  1995 and 1996 and for each
of the two fiscal  years in the period  ended March 31,  1995 have been  derived
from the Company's audited consolidated financial statements which do not appear
in this Annual Report. The selected consolidated financial data are qualified in
their  entirety by reference  to, and should be read in  conjunction  with,  the
Consolidated  Financial  Statements and related notes and Item 9 - "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere in this Annual Report.


                                       23
<PAGE>
<TABLE>
<CAPTION>


                                  SELECTED CONSOLIDATED FINANCIAL DATA

                                                                 Year ended March 31, 
                                              --------------------------------------------------------
Income Statement Data                           1994         1995        1996       1997         1998
                                                ----         ----        ----       ----         ----
                                           (In thousands of United States dollars, except per share data)

<S>                                           <C>         <C>         <C>         <C>         <C>     
Net sales                                     $ 12,549    $ 13,266    $ 14,248    $ 16,989    $ 23,716
Cost of sales                                   (8,502)     (8,936)     (9,412)    (12,096)    (17,071)
                                              --------    --------    --------    --------    --------
Gross margin                                     4,047       4,330       4,836       4,893       6,645
Selling expenses                                  (214)       (265)       (325)       (433)       (420)
Salaries and related costs                      (1,461)     (1,561)     (1,960)     (1,973)     (1,897)
Research and development expenses                  (11)       (108)       (173)       (122)       (159)
Administration and general expenses               (954)         98      (1,234)     (1,609)     (1,815)
Provision for permanent diminution in value
  of investment in a joint venture company        --          --          (153)       --          --
Net gain on liquidation of a joint venture
  company                                         --          --          --           160        --
                                              --------    --------    --------    --------    --------
Income from operations                           1,407       2,494         991         916       2,354
Interest income                                     94          75         127          64          73
Interest expenses                                 (384)       (560)       (607)       (532)       (503)
Less: Interest capitalized                        --          --            58          61          46
                                              --------    --------    --------    --------    --------
                                                  (384)       (560)       (549)       (471)       (457)
                                                                                              --------
Foreign exchange (losses)/gains                    (71)       (146)       (124)       (136)         35
Other income                                        21        --            76         102         243
                                              --------    --------    --------    --------    --------
Income before income taxes                       1,067       1,863         521         475       2,248
Income tax (expense)/benefit                       (72)        (67)         96          72          27
                                              --------    --------    --------    --------    --------
Income before minority interests                   995       1,796         617         547       2,275
Minority interests                                  29          47         (10)       --          --
                                              --------    --------    --------    --------    --------
Net income                                    $  1,024    $  1,843    $    607    $    547    $  2,275
                                              --------    --------    --------    --------    --------
Earnings per share  - Basic                   $   0.68    $   0.95    $   0.21    $   0.19    $   0.80
                    - Diluted                 $   0.68    $   0.95    $   0.21    $   0.19    $   0.73

                                                                     As of March 31,
                                                -------------------------------------------------------
Balance Sheet Data                                 1994        1995        1996        1997       1998
                                                   ----        ----        ----        ----       ----

Working capital                                 $   (314)   $  4,719    $  3,801    $  1,663   $  3,184
Total assets                                      12,906      18,278      20,700      20,516     20,647
Long-term debt and capital lease obligations,
  net of current maturities                        1,789          68         744         787        243
Deferred income taxes(liabilities)/assets           (120)       (103)        (49)         16         74
Shareholders' equity                               3,459      10,764      11,433      12,142     14,479



                                                   24
</TABLE>


<PAGE>


Item 9. Management's  Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations.
--------------

     This section  contains  forward-looking  statements  that involve risks and
uncertainties.  The Company's actual results could differ  materially from those
anticipated in these forward-looking  statements as a result of certain factors,
including those set forth under Item 1 - "Description of Business--Special  Risk
Factors." The following  discussion  and analysis  should be read in conjunction
with  Item  8  -  "Selected  Financial  Data"  and  the  Consolidated  Financial
Statements and notes thereto appearing elsewhere in this Annual Report.

Overview

     The Company  derives its revenues  principally  from the sale of electronic
scales and electronic  consumer and health care products  manufactured  by it in
China.  Net sales have grown from $12,548,770 in the fiscal year ended March 31,
1994 to $23,715,576 in the fiscal year ended March 31, 1998. The Company's sales
growth was achieved with a corresponding  increase in net income from $1,023,821
in the fiscal  year ended  March 31,  1994 to net  income of  $2,274,645  in the
fiscal year ended March 31, 1998.  The Company was operating at full capacity in
its  prior   manufacturing   facility   and,  in  January  1997,  it  moved  its
manufacturing  operations to a new facility which has approximately  tripled the
Company's manufacturing  capacity.  Management believes that the Company will be
able  to  continue  to  increase  sales  to  take  advantage  of  its  increased
manufacturing capacity and improve margins and financial performance.  Increased
revenue and net income in future periods will depend on the Company's ability to
(i)  strengthen  its customer base by enhancing and  diversifying  its products;
(ii) increase the number of its customers; (iii) expand into additional markets;
(iv)  maintain or increase  sales of its  products  to existing  customers;  (v)
increase production; and (vi) control all of its costs. Although labor costs are
increasing  in  China,  the  Company's  labor  costs  continue  to  represent  a
relatively small percentage of its total production costs.  Management  believes
that  increased  labor costs in China will not have a significant  effect on its
total production costs or results of operations. Salaries and related costs have
increased  significantly in Hong Kong and China for senior personnel,  and these
increases are reflected in the higher costs  experienced  by the Company  during
the last three years.  Management  believes  that it will be able to continue to
increase its production at its new facility without substantially increasing its
non-production  salaries and related  costs.  In  addition,  the Company has not
experienced  significant   difficulties  in  obtaining  raw  materials  for  its
products,  and  management  does not  anticipate  any such  difficulties  in the
foreseeable future.

     As of the date of filing this  Annual  Report on Form 20-F,  the  Company's
year to date revenues have  declined when compared to the  comparable  period in
the  prior  year.   Management   believes  that  this  decline  in  revenues  is
attributable  to a general  decline in the worldwide  economy and reduced orders
from two of the Company's  major  customers.  One of these customers has reduced
its orders  significantly and management does not believe that it is likely that
this customer's orders will increase in the future. Management believes that the
other major customer's order reduction is temporary and expects that orders from
that customer will increase in the third and fourth fiscal quarters.  Readers of
this report are cautioned that both gross revenue and net income for the current
fiscal  year will be reduced as a result of this  decline in orders.  Management
has  initiated  a cost  savings  program in order to reduce the effect  upon the
Company's net income of the reduced sales volume.  The cost saving steps include
a voluntary  reduction in managements'  salaries.  Management is optimistic that
the  Company  will be able to not only  replace  sales lost  during the  current
fiscal year but to increase sales volume during the next fiscal year as a result
of increased  marketing  activities.  Readers are cautioned that there can be no
assurance that management will be successful in achieving these objectives.

                                       25
<PAGE>


Results of Operations

     The following  table sets forth selected income data as a percentage of net
sales for the periods indicated.
                                             
                                                         Year ended March 31,
                                                      -------------------------
Income Statement Data                                  1996      1997      1998
                                                       ----      ----      ----
Net sales                                             100.0%    100.0%    100.0%
Cost of sales                                         (66.1)    (71.2)    (72.0)
                                                      -----     -----     -----
Gross margin                                           33.9      28.8      28.0
Selling expenses                                       (2.3)     (2.5)     (1.8)
Salaries and related costs                            (13.8)    (11.6)     (8.0)
Research and development expenses                      (1.2)     (0.7)     (0.7)
Administration and general expenses                    (8.6)     (9.5)     (7.6)
Provision for permanent diminution in value
  of investment in a joint venture company             (1.1)      --        --
Net gain on liquidation of a joint venture company      --        0.9       --
                                                      -----     -----     -----
Income from operations                                  6.9       5.4       9.9
Interest income                                         0.9       0.4       0.3
Interest expense                                       (4.2)     (3.1)     (2.1)
                                                      -----     -----     -----
Less: Interest capitalized                              0.4       0.3       0.2
                                                      -----     -----     -----
                                                       (3.8)     (2.8)     (1.9)
Foreign exchange (losses)/gains                        (0.9)     (0.8)      0.2
Other income                                            0.5       0.6       1.0
                                                      -----     -----     -----
Income before income taxes                              3.6       2.8       9.5
Income tax benefit                                      0.7       0.4       0.1
Income before minority interests                        4.3       3.2       9.6
Minority interests                                     (0.1)      --        --
                                                      -----     -----     -----
Net income                                              4.2%      3.2%      9.6%
                                                      =====     =====     =====

Fiscal year ended March 31, 1998 compared to fiscal year ended March 31, 1997

     Net Sales.  The Company's sales  increased  39.6% from  $16,989,019 for the
fiscal year ended March 31, 1997, to $23,715,576 for the fiscal year ended March
31,  1998,  primarily as a result of increased  orders  received  from two major
customers.  Increased shipments to the Company's two largest customers accounted
for 32.6% of the net  increase  in sales.  The  addition  of new  products  also
contributed  to the increase in net sales.  A new model built-in scale and glass
body scale accounted for approximately 2.4% of the net increase, and the balance
of 4.6% is the result of increased orders from various existing customers.

     Gross Margin.  Gross margin  decreased from 28.8% to 28.0% primarily due to
increased production costs and decreased selling prices for certain products.

     Selling Expenses.  Selling expenses decreased by 3.0% from $432,518 for the
fiscal year ended March 31, 1997 to $419,755 for the fiscal year ended March 31,
1998.  This decrease was  attributable  primarily to better control over freight
costs by shipping out larger lots of goods.

     Salaries and Related  Costs.  Salaries and related costs  decreased by 3.9%
from  $1,973,021  for the fiscal year ended March 31, 1997 to $1,897,412 for the
fiscal  year ended  March 31,  1998.  This  decrease  was  primarily  due to the
Company's efforts to control the number of employees.

                                       26
<PAGE>


     Research and Development. Research and development expenses increased 29.8%
from  $122,263  during the fiscal year ended March 31, 1997 to $158,706  for the
fiscal year ended March 31,  1998,  primarily as a result of the increase in new
product development, such as a series of low profile bod y scales, a generic LCD
scale and a new pocket scale.

     Administration  and General Expenses.  Administration  and general expenses
increased by 12.8% from  $1,609,217 for the fiscal year ended March 31, 1997, to
$1,814,535  for the  fiscal  year  ended  March  31,  1998.  This  increase  was
attributable  primarily  to a write-off of deposits on property in the amount of
$78,436  and an  increase  in  depreciation  expense of  $134,401 as a result of
placing additional depreciable assets into service.

     Income from  Operations.  Income from  operations  increased by 157.1% from
$915,569 for the fiscal year ended March 31, 1997 to  $2,354,079  for the fiscal
year ended March 31, 1998, primarily as a result of the factors described above.

     Other Income. Other income increased by 138.3% from $101,843 for the fiscal
year ended March 31, 1997 to $242,669  for the fiscal year ended March 31, 1998,
primarily  as a result of  increased  assembly  subcontracting  work for a third
party.

     Foreign  Exchange  Losses/Gains.  Foreign exchange rates produced a loss of
$135,780  for the fiscal year ended March 31, 1997 and a gain of $35,187 for the
fiscal year ended March 31, 1998. This difference was primarily  attributable to
the difference between the pegged exchange rate and actu al transaction rate.

     Interest Expenses. Interest expenses decreased by 2.7% from $470,655 in the
fiscal  year ended March 31, 1997 to $457,838 in the fiscal year ended March 31,
1998, as a result of reduced bank borrowings.

     Income Taxes.  The Company received an income tax credit of $71,368 for the
fiscal year ended March 31, 1997 and $27,117 for the fiscal year ended March 31,
1998. The decrease in tax credit is basically due to the increase in tax expense
of $35,926

     Net Income.  Net income  increased  by 316.2% from  $546,589 for the fiscal
year ended March 31, 1997 to $2,274,645 for the fiscal year ended March 31, 1998
primarily as a result of increased  turnover,  better control of  administrative
overhead and other factors described above.

Fiscal year ended March 31, 1997 compared to fiscal year ended March 31, 1996

     Net Sales.  The Company's sales  increased  19.2% from  $14,248,235 for the
fiscal year ended March 31, 1996 to $16,989,019  for the fiscal year ended March
31, 1997,  primarily as a result of the expansion of the Company's business with
a new product to a new customer.

     Gross Margin.  Gross margin  decreased from 33.9% to 28.8% primarily due to
the write-off of slow moving inventory and increased production costs.

     Selling Expenses. Selling expenses increased by 32.9% from $325,344 for the
fiscal year ended March 31, 1996 to $432,518 for the fiscal year ended March 31,
1997. This increase was  attributable  primarily to the increase in shipping the
Company's  products by air  freight  instead of by sea freight as per request of
customer.

                                       27
<PAGE>


     Salaries and Related Costs.  Salaries and related costs increased 0.6% from
$1,960,716 for the fiscal year ended March 31, 1996 to $1,973,021 for the fiscal
year ended March 31, 1997.  These costs  increased due to increases in personnel
and wage levels; however, the increases were offset by a reduction in the number
of higher paid, administrative employees located in Hong Kong and Canada.

     Research and Development. Research and development expenses decreased 29.3%
from  $172,920  during the fiscal year ended March 31, 1996 to $122,263  for the
fiscal year ended March 31, 1997,  primarily as a result of the consolidation of
research and development personnel in China.

     Administration  and General Expenses.  Administration  and general expenses
increased by 30.4% from  $1,233,925  for the fiscal year ended March 31, 1996 to
$1,609,217  for the  fiscal  year  ended  March  31,  1997.  This  increase  was
attributable primarily to additional cost incurred on moving the production line
into the new factory during the period.

     Provision  for  Permanent  Diminution  in  Value of  Investment  in a Joint
Venture  Company.  The Company and its Chinese  co-venturer  agreed to terminate
their joint venture  company  Shenzhen Bonso  Electronics  Limited in 1996. As a
result,  the directors of the Company  estimated  that a provision for permanent
diminution in value of this joint  venture  company was necessary for the fiscal
year ended March 31, 1996.

     Net Gain on Liquidation of a Joint Venture Company.  During the fiscal year
ended  March 31,  1997,  upon the  liquidation  of  Shenzhen  Bonso  Electronics
Limited,  a gain of $159,654 was  recognized by the Company,  of which  $152,480
represents  the reversal of the  provision for  permanent  diminution  discussed
above.

     Income from  Operations.  Income  from  operations  decreased  by 7.6% from
$991,162  for the fiscal year ended  March 31,  1996 to $915,569  for the fiscal
year ended March 31, 1997,  primarily as the result of a gain on the disposition
of plant and  equipment  included in 1996 income from  operations  and the other
factors referenced above.

     Other Income. Other income increased from $76,207 for the fiscal year ended
March 31, 1996 to $101,843 for the fiscal year ended March 31,  1997,  primarily
as a result of increased subcontracting work for third parties.

     Foreign Exchange Losses. Foreign exchange rates produced a loss of $124,469
for the fiscal year ended  March 31, 1996 and a loss of $135,780  for the fiscal
year ended  March 31,  1997.  This  difference  was  primarily  attributable  to
differences  between the pegged  exchange  rate in Hong Kong  dollars and actual
exchange transactions.

     Interest  Expenses.  Interest expenses  decreased by 14.2% from $548,573 in
the fiscal  year ended March 31, 1996 to $470,655 in the fiscal year ended March
31, 1997, as a result of reduced bank borrowings.

     Income Taxes.  The Company received an income tax credit of $96,444 for the
fiscal year ended March 31, 1996 and $71,364 for the fiscal year ended March 31,
1997.

     Net Income. Net income decreased by 10.0% from $607,537 for the fiscal year
ended  March 31,  1996 to  $546,589  for the fiscal  year ended  March 31,  1997
primarily as a result of a decrease in gross profit margin.

                                       28
<PAGE>

Seasonality

     The first  calendar  quarter of each year is  typically  the slowest  sales
period as the  Company's  manufacturing  facilities  in China are closed for two
weeks for Chinese New Year holidays to permit employees to travel to their homes
in China.  Throughout the remainder of the year,  the Company's  products do not
appear to be subject to significant seasonal variation.

     Employee incentive  compensation is conditioned on the employee's return to
work  following  the Chinese  New Year and is paid to  employees  following  the
reopening  of the factory  after the  holidays.  Management  believes  that this
method  has  resulted  in lower  employee  turnover  than might  otherwise  have
occurred.

Liquidity and Capital Resources

     The  Company has  traditionally  relied on  borrowings  to meet its working
capital  requirements.  These  borrowings  have been  supplemented by internally
generated  funds and trade  credits from  suppliers.  As of March 31, 1998,  the
Company  had  in  place  general   banking   facilities   with  three  financial
institutions  aggregating  $6,948,717.  Such  facilities  include the ability to
obtain  overdrafts,   letters  of  credit,  import  facilities,   trust  receipt
financing,  inward bills financing,  shipping  guarantees and fixed loans. As of
March 31, 1998, the Company had utilized  $4,009,699  under its general  banking
facilities.  Interest on this  indebtedness  fluctuates  with the prime rate and
HIBOR as set by the Hong Kong Bankers  Association.  The bank credit  facilities
are  collateralized  by certain bank  deposits of the Company,  by the Company's
leasehold property located in Hong Kong and by a bank guarantee in the amount of
$150,000.  The Company's bank credit  facilities  are due for renewal  annually.
Management  of the  Company  anticipates  that the  banking  facilities  will be
renewed on substantially  the same terms.  Excluding the current portion of long
term debt and capital lease  obligations,  the amounts of total  short-term bank
borrowings  outstanding  as of  March  31,  1998 and 1997  were  $3,199,737  and
$3,728,151,  respectively.  During the fiscal  year ended  March 31,  1998,  the
Company  paid a  total  of  $503,896  in  interest  on  indebtedness  (including
capitalized interest).

     Operating  activities  provided  $3,262,259 of net cash for the fiscal year
ended March 31,  1998  compared  to  $3,524,306  of net cash for the fiscal year
ended March 31, 1997.  The decrease from the fiscal year ended March 31, 1997 to
the fiscal year ended March 31, 1998, was primarily due to decreases in accounts
payable,  accrued charges and deposits.  Investing activities used $1,604,013 of
net cash for the fiscal  year ended March 31,  1998 and used  $1,966,801  of net
cash for the fiscal year ended March 31, 1997.  The decrease in net cash used in
investing  activities  from the fiscal  year ended  March 31, 1997 to the fiscal
year ended March 31, 1998 was primarily due to a decrease in the  acquisition of
property,  plant and  equipment  and an increase in  restricted  cash  deposits.
Financing activities used $1,294,420 of net cash for the fiscal year ended March
31, 1998 and used  $1,657,826  for the fiscal year ended  March 31,  1997.  This
decrease was primarily due to a decrease in the amount of bank borrowings repaid
during the fiscal year ended March 31, 1998.

     As of March 31, 1998, the Company had $448,454 in cash and cash equivalents
as opposed to $89,147 as of March 31, 1997.  There are no other material  unused
sources of liquid  assets.  The  Company  believes  that  there are no  material
restrictions  (including  foreign  exchange  controls)  on  the  ability  of the
Company's  subsidiaries  to  transfer  funds to the  Company in the form of cash
dividends, loans, advances or product/material purchases.

     The Company's current ratio (current assets divided by current liabilities)
increased from 1.22 as of March 31, 1997 to 1.54 as of March 31, 1998. Its quick
ratio (cash and cash  equivalents,  restricted  cash  deposits  and  receivables
divided by current liabilities) increased from 0.40 as of March 31, 1997 to 0.53
as of March 31, 1998.

                                       29
<PAGE>


     As of March 31, 1998, the Company had commitments:  (i) to acquire land and
buildings  from third  parties for an aggregate  consideration  of $703,415,  of
which $447,735 had been paid in deposits;  and (ii) for construction  work on an
office building and staff quarters in the amount of $1,133,367 of which $766,718
had been  paid as  progress  payments.  In  addition,  the  Company's  telephone
development  project is  expected  to require  substantial  expenditures  in the
future.  In order to complete  development  of the  telephone and to acquire the
necessary  material,   equipment  and  personnel  to  begin  production  of  the
telephone,  the Company must obtain additional funds.  Management estimates that
the funds  necessary  to begin serial  production  of the  telephone  range from
$3,000,000  to  $9,000,000  United States  Dollars,  depending  upon whether the
Company purchases or leases equipment and the financing  approaches  utilized by
the Company.  The funds for the telephone  project may come from the exercise of
outstanding  warrants,  the offer and sale of public or  private  equity or debt
instruments,  the lease of  equipment,  or from loans  obtained  from  financial
institutions.  To  date  only a  minimal  amount  of the  Company's  outstanding
warrants  have  been  exercised.  Readers  are  cautioned  that  there can be no
assurance that the Company will be successful in obtaining the necessary  funds,
or that even if funds are obtained,  that the  telephone  project will result in
significant amounts of revenue or net income.

Impact of Inflation

     Management  believes that  inflation  has not had a material  effect on its
business  between 1997 and 1998.  The Company has generally  been able to modify
and improve its product  designs so that it could either  increase the prices of
its products or lower the production  cost in order to keep pace with inflation.
All of the  Company's  manufacturing  is  being  done in  China,  and  China  is
experiencing  inflation.  If such  trend  continues,  the  Company  could  incur
increased labor costs with regard to its Chinese operations, resulting in higher
production costs.  Although the costs to the Company of certain  components used
in the manufacture of its products has increased significantly over the past few
years,  management believes that any possible  significant  increase in material
costs would  affect the entire  electronics  industry  and thus would not have a
negative material impact on the Company's competitive position.

Year 2000

     The  Company,  like many owners of computer  software,  will be required to
modify  portions of its software so that it will  function  properly in the year
2000.  The  Company's  information  technology  systems are  maintained  under a
maintenance  arrangement  with the primary vendor of its information  technology
software.  The vendor has advised  that it does not  anticipate  any problems in
making  the  necessary  modifications  to the  Company's  software.  To date the
Company's accounting system has been updated for Year 2000 compliance, including
upgrading of hardware.  Inventory  and  purchasing  software  will be completely
upgraded early next year. The total expected costs in relation to these upgrades
are immaterial to the Company. Management anticipates that all necessary changes
to its software will be completed before December 31, 1999, and that the Company
will not experience any significant  impact with respect to Year 2000 compliance
with the Company's non-information technology systems and equipment.

Taxation

     Under current British Virgin Islands law, the Company is not subject to tax
on its income.  Most of the  Company's  profits  accrue in Hong Kong,  where the
corporate tax rate is currently  16.5%.  There is no tax payable in Hong Kong on
offshore  profit  or on  dividends  paid to  Bonso  Electronics  Limited  by its
subsidiaries  or by Bonso  Electronics  Limited to the Company.  Therefore,  the
overall  effective tax rate of the Company may be lower than that of most United
States corporations; however, such could be materially and adversely affected by
changes in the tax laws applicable to the Company.

                                       30
<PAGE>


Exchange Rates

     The Company  sells most of its  products to  international  customers.  The
Company's principal export markets are North America (mainly the United States),
Europe (mainly  Germany) and Asia.  Other markets are other  European  countries
(such as the United  Kingdom),  Australia  and  Africa.  Sales to  international
customers are made directly from the Company to its customers. The Company sells
all of its  products  in  United  States  dollars  and  pays  for  its  material
components  principally  in United  States and Hong Kong  dollars.  A very small
portion of the components used by the Company are paid for in Japanese yen. Most
factory expenses incurred by the Company are paid in Chinese  renminbi.  Because
the Hong Kong dollar is pegged to the United  States  dollar,  the only material
foreign  exchange risk to the Company arises from potential  fluctuations in the
Chinese  renminbi;  however,  the Chinese  renminbi  was very stable in the past
fiscal year and it is unlikely that there will be material  fluctuations  in the
coming year. The Company does not currently engage in hedging transactions,  and
does not intend to do so in the future.

Recent Accounting Pronouncements

     The Financial Accounting Standards Board has issued certain  pronouncements
which are not  effective  with  respect to the  fiscal  years  presented  in the
consolidated financial statements.

     SFAS No. 130,  "Reporting  Comprehensive  Income," is effective  for fiscal
years  beginning  after  December  15,  1997.   Reclassification   of  financial
statements for earlier periods  provided for  comparative  purposes is required.
This  statement  establishes   guidelines  for  the  reporting  and  display  of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of  general-purpose  financial  statements.  It requires  that all
items  that  are  required  to  be  recognized  under  accounting  standards  as
components of comprehensive  income be reported in a financial statement that is
displayed with the same  prominence as other financial  statements;  it does not
address  issues  of  recognition  of   measurement.   The  primary   element  of
comprehensive   income  applicable  to  the  Company  is  the  foreign  currency
cumulative  translation  adjustment.  The  adoption of SFAS No. 130 will have no
impact on the Company's  consolidated results of operations,  financial position
or cash flows.

     SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information,"  is effective for fiscal years  beginning after December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.  This statement establishes guidelines for the
way that public business enterprises report information about operating segments
in financial statements.  This statement also establishes guidelines for related
disclosures  about products and services,  geographic areas and major customers.
The  Company  has  evaluated  the  disclosure  requirements  of SFAS No. 131 and
believes the adoption will not have a material  impact on its future  disclosure
requirements.

     SFAS  No.  132,   "Employers'   Disclosures   about   Pensions   and  Other
Post-retirement  Benefits,"  is  effective  for  fiscal  years  beginning  after
December 15, 1997.  Restatement of disclosures for earlier periods  provided for
comparative purposes is required.  This statement revises employers' disclosures
about pension and other  post-retirement  benefit plans.  It does not change the
measurement  or  recognition  of those plans.  It  standardizes  the  disclosure
requirements  for  pensions  and other  post-retirement  benefits  to the extent
practicable,   requires  additional   information  on  changes  in  the  benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures  that are no longer useful.  The
statement  suggests  combined  formats  for  presentation  of pension  and other
post-retirement  benefit  disclosures.  The Company has evaluated the disclosure
requirements  of SFAS No. 132 and believes the adoption will not have a material
impact on its future disclosure requirements.

                                       31
<PAGE>


     SFAS  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities,"  is  effective  for fiscal  years  beginning  after June 15,  1999.
Restatement of disclosures for earlier periods provided for comparative purposes
is required.  This statement establishes  accounting and reporting standards for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts,  and for hedging  activities.  The statement  requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial position and measure those instruments at fair value. The
Company is  currently  evaluating  the  effect  that  implementation  of the new
standard will have on its results of operations and financial position.

Item 10. Directors and Officers of Registrant.
----------------------------------------------

     The directors and executive officers of the Company are as follows:

Name                    Age     Position with the Company
----                    ---     -------------------------

Anthony So               54     President, Chief Executive Officer, Secretary,
                                Treasurer, Chief Financial Officer, Chairman of
                                the Board and Director

Kim Wah Chung            40     Director of Engineering and Research and 
                                Development and Director

Kam Sun Luk              53     General Manager and Director

Cathy, Kit Teng Pang     35     Director of Finance and Director

Henry F. Schlueter       47     Assistant Secretary

Woo-Ping Fok             49     Director

George O'Leary           60     Director


     ANTHONY SO is the founder of the Company.  He has been President,  Chairman
of the Board of Directors  and  Treasurer of the Company since its inception and
has been  Secretary  of the Company  since July 1991.  Mr. So  received  his BSE
degree  in civil  engineering  from  National  Taiwan  University  in 1967 and a
masters degree in business  administration  ("MBA") from the Hong Kong campus of
the University of Hull,  Hull,  England in 1994. Mr. So has been Chairman of the
Hong Kong GO  Association  since 1986, and also served as Chairman of the Alumni
Association of National Taiwan  University for the 1993-1994  academic year. Mr.
So has  served as a trustee of the  Chinese  University  of Hong Kong,  New Asia
College since 1994.

     KIM WAH CHUNG has been a director of the Company since  September 21, 1994.
Mr. Chung has been employed by the Company  since 1981 and  currently  holds the
position of Director of Engineering and Research and  Development.  Mr. Chung is
responsible for all research  projects and product  developm ent of the Company.
Mr. Chung's entire  engineering  career has been spent with the Company,  and he
has been involved with every major product development made by the Company.  Mr.
Chung was graduated with honors in 1981 from the Chinese University of Hong Kong
with a Bachelor of Science degree in electronics.

     KAM SUN LUK was  elected  to the  Board  of  Directors  of the  Company  on
September  21,  1994 and has been  employed  by the  Company as  Director of New
Projects and Quality  Control since October 1993. Mr. Luk obtained his bachelors
degree in electrical  engineering  from National Taiwan  University in 1968. Mr.
Luk is also a member of the Institute of Electrical Engineers United Kingdom and
a  Chartered  Engineer  in  Electrical  Engineering.  Mr.  Luk was  employed  by
Semiconductor  Devices Ltd. of Hong Kong in a variety of positions  between 1970
and 1992 when he joined the Company, including serving as Semiconductor Devices'
General Manager and Senior Vice President.

                                       32
<PAGE>


     CATHY,  KIT TENG PANG has been a director of the Company  since  January 1,
1998.  Ms. Pang was first  employed by the Company as  Financial  Controller  in
December  1996 and was  promoted to Director of Finance on January 1, 1998.  Ms.
Pang was  employed  as an  auditor in an  international  audit firm from 1987 to
1991,  at which  time she  joined a Hong  Kong  Listed  company  in the field of
magnetic industry as Assistant Financial Controller.  From 1994 until she joined
the Company in 1996, she was employed as Deputy Chief Accountant in a management
and property development company in Hong Kong and China. Ms. Pang has a Bachelor
of Business  Administration degree from York University in Toronto,  Canada. She
is a member of the American Institute of Certified Public Accountants and of the
Hong Kong Society of Accountants.

     HENRY F.  SCHLUETER has served as Assistant  Secretary of the Company since
October 6, 1988.  Since 1992,  Mr.  Schlueter has been the managing  director of
Schlueter & Associates, P.C., a law firm, practicing in the areas of securities,
mergers and acquisitions, finance and corporate law. From 1989 to 1991, prior to
establishing  Schlueter & Associates,  P.C., Mr.  Schlueter was a partner in the
Denver,  Colorado office of Kutak Rock (formerly  Kutak,  Rock & Campbell),  and
from 1984 to 1989,  he was a partner in the  Denver  office of Nelson & Harding.
Mr.  Schlueter  is a  member  of the  American  Institute  of  Certified  Public
Accountants,  the  Colorado  Society  of CPA's,  the  Colorado  and  Denver  Bar
Associations  and the Wyoming State Bar. Mr.  Schlueter  received his law degree
from the  University  of Wyoming  College of Law in 1978.  Mr.  Schlueter  is an
officer and director of JNS Marketing, Inc., an Exchange Act reporting company.

     WOO-PING  FOK was  elected  to the Board of  Directors  of the  Company  on
September 21, 1994.  Mr. Fok and his firm,  Norman M.K. Yeung & Co., have served
as Hong Kong  counsel to the  Company  since 1993.  Mr. Fok was  admitted to the
Canadian  Bar as a Barrister & Solicitor  in December  1987 and was a partner in
the law firm of Woo & Fok, a Canadian law firm with its head office in Edmonton,
Alberta,  Canada.  In 1991,  Mr. Fok was qualified to practice as a Solicitor of
England  & Wales,  a  Solicitor  of Hong Kong and a  Barrister  &  Solicitor  of
Australian  Capital  Territory.  Mr.  Fok  practices  law in Hong  Kong and is a
partner with Norman M.K.  Yeung & Co. Mr. Fok's major areas of practice  include
conveyancing  or real property law,  corporations  and business law,  commercial
transactions  and  international  tr ade with a special  emphasis in China trade
matters.

     GEORGE O'LEARY has been a director of the Company since January 1997.  From
November 1994 to the present time, Mr. O'Leary has been President of Pacific Rim
Products,  Newport Beach,  California,  a trading company that provides offshore
sourcing alternatives to U.S. based electronics companies. For eight years prior
to 1994,  Mr.  O'Leary  was  President,  CEO and a  director  of  Micro  General
Corporation, Santa Ana, California, a manufacturer and distributor of mechanical
and electronic  scale  products.  For eight years prior to that, Mr. O'Leary was
Vice  President  and  General  Manager  of Lanier  Business  Products,  Atlanta,
Georgia,  a manufacturer and distributor of office  products.  Mr. O'Leary has a
Bachelor  of  Science  degree  in  Electrical   Engineering  from   Northeastern
University, Boston, Massachusetts.

     At the present  time no family  relationship  exists among any of the named
directors and  executive  officers;  however,  Mr. Cham Some So, who served as a
director  until his  resignation on April 30, 1998, is the father of Anthony So.
No arrangement or understanding  exists between any such director or officer and
any other  persons  pursuant  to which any  director  or  executive  officer was
elected as a director or executive officer of the Company.  The directors of the
Company are elected  annually  and serve until their  successors  take office or
until their death,  resignation or removal.  The executive officers serve at the
pleasure of the Board of Directors of the Company.

                                       33
<PAGE>
<TABLE>
<CAPTION>


Item 11. Compensation of Directors and Officers .
-------------------------------------------------

Executive Officers and Directors

     The following table sets forth certain  information as to the  compensation
paid to certain of the  Company's  executive  officers and directors and for all
directors and executive officers as a group for the year ended March 31, 1998:

                                                                          Cash            Non-Cash
Name of Individual             Capacities in Which Served             Compensation      Compensation
------------------             --------------------------             ------------      ------------

<S>                        <C>                                        <C>                <C>
Anthony So                 President, Chief Executive Officer,
                           Secretary, Treasurer, Chief Financial
                           Officer, Chairman of the Board and
                           Director                                   $  401,873(1)      $ 98,687(1)

Kim Wah Chung              Director of Engineering and Research
                           and Development and Director               $   88,162(2)      $ 52,013(2)

Kam Sun Luk                Director of New Projects and Quality
                           Control and Director                       $  102,308(3)      $  4,615(3)

Cathy Pang                 Director of Finance and Director           $   22,885         $  1,144

Henry F. Schlueter         Assistant Secretary                        $  --              $  --

Woo Ping Fok               Director                                   $  --              $  --

George O'Leary             Director                                   $  354,835(4)      $  --

Cham Some So               Director(5)                                $   66,410         $  --

All directors and
officers as a group (8 persons)                                       $1,036,473         $156,459

----------------------

(1)  Cash compensation consists of emoluments of $401,873. Non-cash compensation
     consists of a $12,500  contribution  to the Company's  Provident Fund Plan,
     life insurance of $6,187 and the value of housing provided to Mr. So valued
     at $80,000 during fiscal 1998. See "Provident  Fund Plan," below,  and Item
     13 - "Interest of Management in Certain Transactions."

(2)  Cash compensation consists of emoluments of $88,162.  Non-cash compensation
     consists of a $8,500  contribution  to the Company's  Provident  Fund Plan,
     life insurance of $5,051 and a housing allowance of $38,462. See "Provident
     Fund Plan,"  below,  and Item 13 - "Interest  of  Management  in Certain Tr
     ansactions."

(3)  Cash compensation consists of emoluments of $102,308. Non-cash compensation
     consists of a $4,615 contribution to the Company's Provident Fund Plan. See
     "Provident Fund Plan," below.

(4)  Consists of payments made pursuant to a sales  commission  arrangement with
     the   Company.   See  Item  13  -  "Interest  of   Management   in  Certain
     Transactions."

(5)  Consists of $66,410  paid as a  director's  fee.  Mr. Cham Some So resigned
     from the Board of Directors as of April 30, 1998.

     The  Company  did not set aside or accrue any  amounts to provide  pension,
retirement  or similar  benefits for  directors and officers for the fiscal year
ended March 31, 1998, other than  contributions to the Company's  Provident Fund
Plan which aggregated $26,759 for officers and directors in 1998.

                                       34
</TABLE>
<PAGE>


Directors

     Except for Cham Some So, who was paid director's fees of $66,410 during the
fiscal  year ended March 31,  1998,  directors  do not  receive  any  additional
monetary compensation for serving as directors of the Company.  However, outside
directors  receive stock options  pursuant to the 1996  Non-Employee  Directors'
Stock  Option Plan and have been  granted  other  options.  (See  "Stock  Option
Plans--The 1996 Non-Employee Directors' Stock Option Plan," below, and Item 12 -
"Options to Purchase Securities from Registrant or Subsidiaries.") All directors
are reimbursed for all reasonable  expenses incurred in connection with services
as a director.

Provident Fund Plan

     On January 1, 1988, the Company  started a provident fund plan with a major
international  assurance  company  to  provide  life  insurance  and  retirement
benefits  to  its  employees.  All  permanent  full-time  employees,   excluding
employees of the China subsidiary, are eligible to join the plan.

     Each  participant is required to contribute 5% of his salary,  which amount
is deducted  monthly from the  participant's  salary.  The  contribution  by the
Company is either 5%,  7.5% or 10% of the  participant's  salary,  depending  on
whether the length of the participant's service is less than five years, between
five and ten years or more than ten years, respectively.

     At  normal   retirement  age  or  "ill  health"  (defined   essentially  as
disability),  the  participant  is entitled to receive  from the plan a lump sum
equal  to  the  total  of the  participant's  and  the  Company's  balances.  On
resignation prior to normal retirement age, a participant is entitled to receive
from  the  plan  a lump  sum  equal  to his  balance  plus a  percentage  of the
employer's balance determined in accordance with a predetermined scale. Upon the
death of a participant,  the benefit (calculated as at normal retirement age) is
paid to the employer to be held in trust for the participant's beneficiaries and
paid to them as the employer determines.

     The Company's  aggregate  contributions  to the Provident Fund Plan for the
years  ended March 31,  1996,  1997 and 1998  amounted  to $41,414,  $54,924 and
$45,227, respectively.

Stock Option Plans

The 1996 Stock Option Plan

     In August  1996,  the Board of  Directors  of the Company  adopted the 1996
Stock  Option  Plan (the  "Employees'  Plan")  which  provides  for the grant of
options  to  purchase  an  aggregate  of not more  than  400,000  shares  of the
Company's  Common Stock.  The purpose of the Employees'  Plan is to make options
available to management  and employees of the Company in order to encourage them
to secure or increase on reasonable  terms their stock  ownership in the Company
and to encourage them to remain in the employ of the Company.

     The Employees' Plan will be  administered  by a committee  appointed by the
Board of Directors which  determines the persons to be granted options under the
Employees' Plan, the number of shares subject to each option, the exercise price
of each option and the option period,  subject to the requirement that no option
may be  exercisable  more than 10 years  after the date of grant.  The  exercise
price of an option may be less than fair market value of the  underlying  shares
of Common Stock. No options granted under the Employee Plan will be transferable
by the optionee other than by will or the laws of descent and  distribution  and
each option will be  exercisable,  during the lifetime of the optionee,  only by
such optionee.

     The exercise price of an option granted pursuant to the Employees' Plan may
be paid in  cash,  by the  surrender  of  options,  in  Common  Stock,  in other
property,  including the optionee's  promissory note, or by a combination of the
above.

                                       35
<PAGE>


The 1996 Non-Employee Directors' Stock Option Plan

     In  August  1996,  the Board of  Directors  of the  Company  adopted a 1996
Non-Employee  Directors' Stock Option Plan (the "Non-Employee  Directors' Plan")
which  provides  for the grant of options to purchase an  aggregate  of not more
than  100,000  shares  of  the  Company's  Common  Stock.  The  purpose  of  the
Non-Employee  Directors' Plan is to promote the long-term success of the Company
by  creating  a  long-term  mutuality  of  interests  between  the  non-employee
directors  and  the  stockholders  of the  Company,  to  provide  an  additional
inducement  for such directors to remain with the Company and to provide a means
through  which the Company may attract able persons to serve as directors of the
Company.  The  Non-Employee  Directors' Plan will be administered by a committee
(the "Committee") appointed by the Board of Directors.

     Under the Non-Employee Directors' Plan, on the third business day following
each  Annual  Meeting  of the  stockholders,  each  director  who is not then an
employee of the Company or any of its subsidiaries will automatically be granted
a stock option to purchase 10,000 shares of Common Stock.  The exercise price of
all options granted under the Non-Employee  Directors' Plan will be equal to the
fair  market  value of the  underlying  shares  on the date of  grant,  based on
guidelines set forth in the Non-Employee Directors' Plan. The exercise price may
be paid in  cash,  by the  surrender  of  options,  in  Common  Stock,  in other
property,  including the optionee's  promissory note, or by a combination of the
above. The term of each option granted  pursuant to the Non-Employee  Directors'
Plan will be ten years from the date of grant;  however,  no such  option may be
exercised during the first six months of its term. The term of an option granted
pursuant to the  Non-Employee  Directors'  Plan may be reduced in the event that
the optionee ceases to be a director of the Company.  No option granted pursuant
to the Non-Employee  Directors' Plan will be transferable otherwise than by will
or the laws of descent and distribution.


Item 12. Options to Purchase Securities from Registrant or Subsidiaries.
------------------------------------------------------------------------

Public Warrants

     As a result of a public  offering of Units  conducted in December 1994, the
Company  issued  2,200,000  Public  Warrants.  Each Warrant  entitles the holder
thereof  to  purchase  one share of Common  Stock at $7.35 per  share.  By their
terms, the Public Warrants expire on December 14, 1999, unless extended.

Representatives' Warrants

     In conjunction  with a public offering of Units conducted in December 1994,
the Company issued  Representatives'  Warrants  entitling the holders thereof to
purchase up to 110,000 Units,  each Unit to consist of one share of Common Stock
and two  Public  Warrants,  at an  exercise  price  of  $9.1875  per  Unit.  The
Representatives'  Warrants are  exercisable  until  December 16, 1999.  Upon any
transfer after December 15, 1996 to a person other than an officer,  shareholder
or director of the Representatives,  the transferred  Representatives'  Warrants
must be  exercised  immediately  or they will lapse.  In  addition,  the Company
granted certain rights to the holders of the Representatives' Warrants under the
Securities Act.

                                       36
<PAGE>


Options

     The following table sets forth all options to purchase Common Stock granted
by the Company which are outstanding as of the date of this Annual Report.

     Number of              Exercise Price               Expiration
      Options                  per Share                    Date
      -------                  ---------                    ----

      20,000                     $2.25                October 16, 2006
      420,000                    $2.00                January 31, 2007
      40,000                     $5.06                September 8, 2007
      220,000                    $6.20                  January 2008

Item 13. Interest of Management in Certain Transactions.
--------------------------------------------------------

     Over the years, the Company has provided to and received cash advances from
its officers and directors.  In October 1994,  the Board of Directors  adopted a
policy  resolution  prohibiting  the Company  from making any loan or advance of
money or  property,  or  guaranteeing  the  obligation  of any  directors of the
Company,  and limiting  the  Company's  ability to make such loans,  advances or
guarantees to officers of the Company or its  subsidiaries  unless a majority of
independent,  disinterested  outside directors determine that such loan, advance
or guarantee  may  reasonably be expected to benefit the Company.  Further,  all
future material affiliated transactions, loans and loan guarantees, if any, will
be made on terms that are no less  favorable  to the Company than those that are
generally  available from  unaffiliated  third parties.  The Company has neither
provided nor received any cash  advances to it officers or directors  since this
policy resolution was adopted.

     It is common practice in Hong Kong, the location of the Company's principal
executive offices,  to provide a housing allowance or living  accommodations for
senior  executives  as part of their  compensation.  The  Company  provides  Mr.
Anthony So with living accommodations  consisting of a Company-owned  townhouse,
for which the Company paid a total purchase price of  approximately  $1,337,000.
The Company  valued this  benefit at $80,000  during the fiscal year ended March
31,  1998.  The  Company  also  provides  Mr. Kim Wah  Chung,  its  Director  of
Engineering and Research and  Development and a director of the Company,  with a
housing  allowance  which amounted to $38,462 during the fiscal year ended March
31, 1998.

     Mr.  George  O'Leary,  a director of the Company,  is paid a commission  on
orders placed by customers  which he obtains for the Company.  The amount of the
commission is negotiated on a deal-by-deal  basis,  without a written agreement.
During the fiscal year ended March 31, 1998,  Mr.  O'Leary was paid an aggregate
of $354,835 in commissions.


                                     PART II
                                     -------

Item 14. Description of Securities to be Registered.
----------------------------------------------------

     Not applicable.

                                    PART III
                                    --------

Item 15. Defaults Upon Senior Securities.
-----------------------------------------

     Not applicable.

                                       37
<PAGE>



Item  16.   Changes  in  Securities  and  Changes  in  Security  for  Registered
--------------------------------------------------------------------------------
Securities.
-----------

     On July 22, 1998 the Company issued a notice to redeem the Public  Warrants
on September  4, 1998 for $0.05 per Public  Warrant.  On September 2, 1998,  the
notice to redeem was rescinded.

                                     PART IV
                                     -------

Item 17. Financial Statements.
------------------------------

     Not applicable.

Item 18. Financial Statements.
------------------------------

     Reference  is made to Item  19(a)  for a list of all  financial  statements
filed as part of this Annual Report on Form 20-F.

Item 19. Financial Statements and Exhibits.
-------------------------------------------

     (a) The  following  Financial  Statements  are filed as part of this Annual
Report:

                                                                      Page
                                                                      ----
     Index to Consolidated Financial Statements                        F-1
     Report of Independent Accountants                                 F-2
     Consolidated Balance Sheets as of March 31, 1997 and 1998         F-3
     Consolidated Statements of Income for the years ended             F-4
     March 31, 1996, 1997 and 1998
     Consolidated Statements of Shareholders' Equity for the years     F-5
     ended March 31, 1996, 1997 and 1998
     Consolidated Statements of Cash Flows for the years ended         F-6
     March 31, 1996, 1997 and 1998
     Notes to Consolidated Financial Statements                   F-7 through 25

     The  following  Exhibits  are filed as part of this Annual  Report,  or are
incorporated by reference to previously filed documents:

Exhibit No.                          Description
-----------                          -----------

    10.1  Lease for real property located at Universal  Industrial  Centre,  (1)
          23-25 Shan Mei Street, Fo Tan, Shatin, New Territories, Hong Kong

    10.2  English  translation  of Amendment to Contract for the Use of      (1)
          Land and Supply of Workers between the Company and Shenzhen Boaon 
          Fuan Industrial Company

--------------------------

(1)  This document has been previously  filed as an Exhibit to the  Registrant's
     Registration Statement on Form F-3 (SEC Registration No. 333-9002),  and is
     hereby incorporated by reference.


                                       38
<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Index to Consolidated Financial Statements



Contents                                                                 Pages


Report of Independent Accountants ....................................    F-2


Consolidated Balance Sheets as of March 31, 1997 and 1998 ............    F-3


Consolidated Statements of Income for the years ended ................    F-4
 March 31, 1996, 1997 and 1998


Consolidated Statements of Changes in Shareholders' Equity for the ...    F-5
 years ended March 31, 1996, 1997 and 1998


Consolidated Statements of Cash Flows for the years ended ............    F-6
 March 31, 1996, 1997 and 1998


 Notes to Consolidated Financial Statements ......................   F-7 to F-25


                                      F-1
<PAGE>





Coopers certified public accountants      SUNNING PLAZA      telephone 2839-4321
& Lybrand                                 10 Hysan Avenue    telegrams Colybrand
                                          Hong Kong          telex HX 74378
                                                             fax 2576-5356






                        Report of Independent Accountants


 Board of Directors and Shareholders
 Bonso Electronics International Inc. and Subsidiaries


     We have  audited  the  accompanying  consolidated  balance  sheets of Bonso
Electronics  International  Inc. and Subsidiaries  (the "Group") as of March 31,
1997 and 1998 and the  related  consolidated  statements  of income,  changes in
shareholders'  equity and cash  flows for each of the three  years in the period
ended  March  31,  1998.  These  consolidated   financial   statements  are  the
responsibility of the Group's  management.  Our  responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards in the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of Bonso
Electronics  International  Inc. and  Subsidiaries as of March 31, 1997 and 1998
and the results of their  operations  and cash flows for each of the three years
in the period  ended March 31,  1998,  in  conformity  with  generally  accepted
accounting principles in the United States of America.




Coopers & Lybrand



Hong Kong,
May 29, 1998
except as to the information presented
in Note 18, for which the date is
September 30, 1998

                                      F-2

<PAGE>
<TABLE>
<CAPTION>

                            Bonso Electronics International Inc. and Subsidiaries
                                         Consolidated Balance Sheets
                                     (Expressed in United States Dollars)

                                                                                 March 31
                                                                      -----------------------------
                                                                         1997               1998
               Assets                                                          $                   $
<S>                                                                    <C>                <C>    
Current assets
  Cash and cash equivalents                                               89,147             448,454
  Restricted cash deposits  (Note 8)                                     886,320             952,267
  Trade receivables, net (Note 2)                                        970,490             964,958
  Inventories, net (Note 3)                                            6,141,788           5,966,700
  Notes receivable                                                       767,533             340,518
  Income tax recoverable                                                  33,818                --
  Deferred income tax assets - current (Note 6(d))                        16,204              35,088
  Other  receivables,  deposits  and  prepayments                        344,620             400,924
                                                                     -----------         ----------
  Total  current assets                                                9,249,920           9,108,909
                                                                     -----------         ----------
Deposits (Note 11(b))                                                    461,554             447,735
Deferred income tax assets - non  current  (Note  6(d))                      199              38,430
Property, plant and equipment
  Leasehold land and buildings                                         7,187,364           7,259,414
  Construction-in-progress                                                19,103             785,364
  Plant and machinery                                                  2,954,370           3,385,846
  Molds                                                                2,082,940           2,108,967
  Furniture, fixtures and equipment                                    2,236,628           2,122,805
  Motor vehicles                                                         207,050             306,946
                                                                     -----------         ----------
                                                                      14,687,455          15,969,342
Less: accumulated depreciation and amortization                       (3,883,517)         (4,917,853)
                                                                     -----------         ----------
  Net property, plant and equipment                                   10,803,938          11,051,489
                                                                     -----------         ----------
  Total assets                                                        20,515,611          20,646,563
                                                                     ===========         ==========

                      Liabilities and shareholders'  equity

Current  liabilities
  Bank overdrafts (Note 8)                                               780,976             600,721
  Notes payable (Note 8)                                               1,993,533           2,260,384
  Accounts  payable                                                    1,745,617           1,560,954
  Accrued charges and deposits                                         1,382,026             482,222
  Income  taxes  payable                                                    --                30,000
  Short-term  loans (Note 8)                                             953,642             338,632
  Current portion of long-term debt and
   capital lease obligations (Notes 5 and 7(a))                          730,780             652,041
                                                                     -----------         ----------
  Total current liabilities                                            7,586,574           5,924,954
                                                                     -----------         ----------
Long-term debt and capital lease obligations, net of
   current maturities (Notes 5 and 7(a))                                 786,685             242,889
Commitments and contingencies (Note 11)
Minority interests (Note 13)                                                --                 --   
Shareholders'equity (Notes 9(b), 14 and 15)
  Common stock par value $0.003 per share - authorized
   shares - 23,333,334 
   - issued and outstanding shares - 2,828,562                                                             8,477               8,485
  Additional  paid-in capital                                          8,705,917           8,724,503
  Promissory  note  receivable from
   shareholder (Note 9(b))                                                  --            (1,350,000)
  Common stock subscribed (Note 9(b))                                       --             1,350,000
  Retained earnings                                                    3,237,559           5,512,204
  Cumulative translation adjustment                                      190,399             233,528
                                                                     -----------         ----------
                                                                      12,142,352          14,478,720
                                                                     -----------         ----------
  Total liabilities and shareholders' equity                          20,515,611          20,646,563
                                                                     ===========         ==========


                           See notes to these consolidated financial statements

                                                   F-3
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
              




                            Bonso Electronics International Inc. and Subsidiaries
                                        Consolidated Statements of Income
                                       (Expressed in United States Dollars)

                                                                        Year ended March 31
                                                      --------------------------------------------------------
                                                         1996                  1997                  1998
                                                      ----------            -----------            -----------
                                                               $                      $                      $

<S>                                                   <C>                    <C>                    <C>       
Net sales (Note 16)                                   14,248,235             16,989,019             23,715,576
Cost of sales                                          9,411,688             12,096,085             17,071,089
                                                     -----------            -----------            -----------
Gross margin                                           4,836,547              4,892,934              6,644,487

Selling expenses                                         325,344                432,518                419,755
Salaries and related costs                             1,960,716              1,973,021              1,897,412
Research and development expenses                        172,920                122,263                158,706
Administration and general expenses                    1,233,925              1,609,217              1,814,535
Provision for permanent diminution in
  value of investment in a joint venture
  company (Note 13)                                      152,480                   --                     --
Net gain on liquidation of a joint venture
  company (Note 13)                                         --                 (159,654)                  --
                                                     -----------            -----------            -----------

Income from operations                                   991,162                915,569              2,354,079

Interest income                                          127,061                 64,248                 73,431

Interest expenses                                       (606,300)              (532,068)              (503,896)
Less: Interest capitalized                                57,727                 61,413                 46,058

                                                        (548,573)              (470,655)              (457,838)
Foreign exchange (losses)/gains                         (124,469)              (135,780)                35,187
Other income                                              76,207                101,843                242,669
                                                     -----------            -----------            -----------

Income before income taxes                               521,388                475,225              2,247,528

Income tax benefit (Note 6(c))                            96,444                 71,364                 27,117
                                                     -----------            -----------            -----------

Income before minority interests                         617,832                546,589              2,274,645

Minority interests (Note 13)                             (10,295)                  --                     --
                                                     -----------            -----------            -----------

Net income                                               607,537                546,589              2,274,645
                                                     ===========            ===========            ===========

Earnings per share (Note 12)
   Basic                                                    0.21                   0.19                   0.80
                                                     ===========            ===========            ===========

   Diluted                                                  0.21                   0.19                   0.73
                                                     ===========            ===========            ===========


                                     See notes to these consolidated financial statements


                                                               F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                 Bonso Electronics International Inc. and Subsidiaries
                              Consolidated Statements of Changes in Shareholders' Equity
                                              (Expressed in United States Dollars)

                                                               Promissory
                                Common stock                      note      
                         ----------------------- Additional    receivable       Common                   Cumulative       Total
                            Shares    Amount       paid-in        from           stock       Retained    translation   shareholders'
                         outstanding outstanding   capital     shareholder    subscribed     earnings    adjustment      equity
                         ----------- -----------   -------     -----------    ----------     --------    ----------    -------------
<S>                      <C>          <C>         <C>          <C>             <C>           <C>         <C>            <C>
                                  $         $             $              $              $             $          $              $ 
Balance, March 31,
  1995                    2,825,949     8,477     8,705,917           --             --       2,083,433    (33,661)    10,764,166

Net income                     --        --            --             --             --         607,537       --          607,537

Cumulative translation
  adjustment                   --        --            --             --             --            --       61,090         61,090
                          ---------   -------   -----------    -----------    -----------   -----------   --------    -----------
Balance, March 31
  1996                    2,825,949     8,477     8,705,917           --             --       2,690,970     27,429     11,432,793

Net income                     --        --            --             --             --         546,589       --          546,589

Cumulative translation
  adjustment                   --        --            --             --             --            --       57,746         57,746

Reversal upon liquidation
  of a joint venture
  company                      --        --            --             --             --            --      105,224        105,224
                          ---------   -------   -----------    -----------    -----------   -----------   --------    -----------
Balance, March 31,
  1997                    2,825,949     8,477     8,705,917           --             --       3,237,559    190,399     12,142,352

Common stock issued
  upon exercise of
  warrants (Note 15)          2,613         8        18,586           --             --            --         --           18,594

Net income                     --        --            --             --             --       2,274,645       --        2,274,645

Cumulative translation
  adjustment                   --        --            --             --             --            --       45,779         45,779

Common stock subscribed
  (Note 9(b))                  --        --            --       (1,350,000)     1,350,000          --         --             --   

Reversal upon liquidation
  of a subsidiary              --        --            --             --             --            --       (2,650)        (2,650)
                          ---------   -------   -----------    -----------    -----------   -----------   --------    -----------

Balance, March 31,
  1998                    2,828,562     8,485     8,724,503     (1,350,000)     1,350,000     5,512,204    233,528     14,478,720
                          =========   =======   ===========    ===========    ===========   ===========   ========    ===========







                                       See notes to these consolidated financial statements

                                                               F-5
</TABLE>




<PAGE>
<TABLE>
<CAPTION>

                                    Bonso Electronics International Inc. and Subsidiaries
                                            Consolidated Statements of Cash Flows
                                             (Expressed in United States Dollars)

                                                                               Year ended March 31
                                                                --------------------------------------------------
                                                                   1996                 1997               1998
                                                                ----------           ---------           ---------
                                                                         $                   $                   $
 Cash flows from operating activities
<S>                                                                <C>                 <C>               <C>      
   Net income                                                      607,537             546,589           2,274,645
   Adjustments to reconcile net income
     to net cash provided by operating activities:
     Depreciation                                                  675,452             681,730             942,894
     Amortization                                                  117,157             279,201             482,214
     Other                                                          69,910             (71,716)            113,794
   Changes in assets and liabilities,
     net of disposed subsidiary:
   Trade receivables                                                73,324             394,234              45,929
   Other receivables, deposits and prepayments                     722,645             773,636             (57,577)
   Notes receivable                                                157,656            (535,685)            427,015
   Inventories                                                  (2,265,288)            275,537              53,994
   Accounts payable, accrued charges and deposits                  416,252           1,237,089          (1,084,467)
   Other                                                           (43,702)            (56,309)             63,818
                                                                ----------          ----------          ----------


   Net cash provided by operating activities                       530,943           3,524,306           3,262,259
                                                                ----------          ----------          ----------

Cash flows from investing activities

   Restricted cash deposits                                      1,115,527             664,820             (65,947)
   Deposit for properties                                             --                  --               (64,215)
   Proceeds from disposal of property,
     plant and equipment                                            91,231             212,494              83,418
   Acquisition of property, plant and equipment                 (3,215,030)         (2,844,115)         (1,557,269)
                                                                ----------          ----------          ----------

   Net cash used in investing activities                        (2,008,272)         (1,966,801)         (1,604,013)
                                                                ----------          ----------          ----------

 Cash flows from financing activities

   Proceeds from issuance of long-term debt                      1,025,640                --                  --
   Principal payments under long-term debt                            --              (307,692)           (410,256)
   Capital lease payments                                         (130,305)           (169,569)           (355,750)
   Net borrowings/(repayment)under
     banking facilities                                            531,717          (1,180,565)           (528,414)
                                                                ----------          ----------          ----------


   Net cash provided by/(used in) financing activities           1,427,052          (1,657,826)         (1,294,420)
                                                                ----------          ----------          ----------


 Effect of foreign exchange rate changes on cash                    61,090              23,457              (4,519)
                                                                ----------          ----------          ----------

   Net increase/(decrease) in cash                                  10,813             (76,864)            359,307
 Cash and cash equivalents, beginning of year                      155,198             166,011              89,147
                                                                ----------          ----------          ----------

 Cash and cash equivalents, end of year                            166,011              89,147             448,454



 Supplemental disclosure of cash flow information

 Cash paid during the year for:
   Interest paid, net of amounts capitalized                       548,573             470,655             457,838
   Income tax paid, net of refund                                    1,469              50,383             (33,818)


                                         See notes to these consolidated financial statements

                                                                 F-6
</TABLE>




<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

1  Description of business and significant accounting policies

Bonso  Electronics  International  Inc. ("the Company") and its subsidiaries are
engaged in the designing,  manufacturing and selling of a comprehensive  line of
electronic  scales and  weighing  instruments,  electronic  consumer  and health
products.

The  consolidated  financial  statements  have been  prepared  in United  States
dollars and in accordance with generally accepted  accounting  principles in the
United States of America.  The preparation of consolidated  financial statements
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities  at the  dates  of the  consolidated  financial  statements  and the
reported  amounts  of  revenues  and  expenses  during  the  reporting  periods.
Significant  estimates  made  by  management  include  provisions  made  against
inventories  and trade  receivables.  Actual  results  could  differ  from those
estimates.

The significant accounting policies are as follows:

(a)  Principles of consolidation

The consolidated  financial  statements  include the accounts of the Company and
its foreign subsidiaries  (hereinafter collectively referred to as the "Group").
All significant intercompany accounts and transactions are eliminated.

(b)  Cash and cash equivalents

Cash and  cash  equivalents  are  short-term,  highly  liquid  investments  with
original  maturities  of three months or less.  Cash  equivalents  are stated at
cost, which  approximates fair value because of the short term maturity of these
instruments.

(c)   Inventories

Inventories  are stated at the lower of cost or net  realizable  value with cost
determined on a first-in,  first-out basis. Net realizable value is the price at
which  inventories  can be sold in the normal course of business  after allowing
for the costs of completion and disposal.

(d)  Revenue recognition

Revenue is recognized when the products are shipped to customers.

(e)  Property, plant and equipment

(i)  Property,  plant  and  equipment  are  stated at cost.  Leasehold  land and
     buildings  are  amortized  on a  straight-line  basis  over 15 to 50 years,
     representing the shorter of the remaining term of the lease or the expected
     useful life to the Group.

(ii) Construction-in-progress  represents  factories and office  buildings under
     construction and is stated at cost. Cost includes the costs of construction
     and interest  charges  arising from borrowings used to finance these assets
     during  the  period  of  construction.   Construction-in-progress   is  not
     depreciated during the period of construction.


                                      F-7

<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

1    Description of business and significant accounting policies (cont'd)

(e)  Property, plant and equipment (cont'd)

(iii)Other  fixed  assets  are  carried  at  cost  and  depreciated   using  the
     straight-line  method over their  expected  useful lives to the Group.  The
     principal annual rates used for this purpose are:

             Plant and machinery                    -    14%  to 33.3%
             Molds                                  -    20% 
             Furniture, fixtures and equipment      -    20%
             Motor vehicles                         -    20%

(iv) The cost of major improvements and betterments is capitalized,  whereas the
     cost of maintenance and repairs is expensed in the year incurred.

(v)  Any gain or loss on disposal is included in the Consolidated  Statements of
     Income.

(f)  Research and development costs

Research and development costs are charged to expense as incurred.

(g)  Advertising

Advertising  costs are  expensed as incurred  and are  included  within  selling
expenses.

Total  advertising  costs incurred for the years ended March 31, 1996,  1997 and
1998 amounted to $32,961, $22,315 and $9,078, respectively.

(h)   Deferred income taxes

Amounts in the  consolidated  financial  statements  related to income taxes are
calculated using the principles of Statement of Financial  Accounting  Standards
("SFAS")  No.  109,  "Accounting  for  Income  Taxes".  SFAS  No.  109  requires
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences  of events that have been included in the  financial  statements or
tax  returns.  Under  this  method,  deferred  tax assets  and  liabilities  are
determined based on the temporary  differences  between the financial  reporting
basis and tax basis of assets and liabilities  using enacted tax rates in effect
for the year in which the  differences  are  expected  to  reverse.  Future  tax
benefits,  such as net  operating  loss carry  forwards,  are  recognized to the
extent that realization of such benefits is more likely than not to occur.

(i)   Capitalization of interest costs

Interest  attributable  to  borrowings  used  to  finance  the  construction  of
factories  and office  buildings is  capitalized  as an  additional  cost of the
related  assets.  Interest is  capitalized  by  applying  the  weighted  average
interest rate on borrowings  outstanding  during the year or, where  applicable,
the interest rate related to specific  borrowings,  to the average amount of the
accumulated  expenditures  for the assets during the period.  Capitalization  of
interest ceases when the property is ready for its intended use.

                                      F-8

<PAGE>


              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

1    Description of business and significant accounting policies (cont'd) 

(j)  Foreign currency translations

(i)  The  functional   currency  of  the  Company  and  one  of  its  Hong  Kong
     subsidiaries is the United States dollar and the functional currency of the
     other  Hong Kong  subsidiaries  is the Hong  Kong  dollar.  The  functional
     currency of the  Company's  subsidiaries  in the PRC is the  Renminbi,  the
     national  currency of the PRC.  The  functional  currency of the  Company's
     subsidiary in Canada, which was liquidated during the year, is the Canadian
     dollar.

(ii) The financial  statements of foreign  subsidiaries where the U.S. dollar is
     the functional currency and which have certain transactions  denominated in
     non-U.S.  dollar  currencies are  remeasured as if the functional  currency
     were the U.S.  dollar.  The  remeasurement  of local  currencies  into U.S.
     dollars creates translation adjustments which are included in net income.

(iii)The financial statements of foreign subsidiaries,  where the local currency
     is the functional currency, are translated into U.S. dollars using exchange
     rates in  effect at period  end for  assets  and  liabilities  and  average
     exchange  rates  during  each  reporting  period for  statement  of income.
     Adjustments   resulting  from  translation  of  financial   statements  are
     reflected as a separate component of shareholders' equity.

(k)  Adoption of new accounting standards for calculation of Earnings Per Share

The Group  adopted the  provisions  of SFAS No.128  "Earnings  per Share".  This
statement establishes guidelines for computing and presenting earnings per share
("EPS") and applies to entities  with  publicly  held common  stock or potential
common stock.  This replaces the presentation of primary EPS with a presentation
of basic EPS. It also  requires dual  presentation  of basic and diluted EPS for
all entities with complex  capital  structures.  The Group adopted this standard
from December 15, 1997. The comparative basic and diluted EPS have been restated
in the Consolidated Statements of Income.

(l)  Recent accounting pronouncements

The Financial Accounting Standards Board has issued certain pronouncements which
are not effective with respect to the fiscal years presented in the consolidated
financial statements.

SFAS No. 130,  "Reporting  Comprehensive  Income", is effective for fiscal years
beginning after December 15, 1997.  Reclassification of financial statements for
earlier periods  provided for comparative  purposes is required.  This statement
establishes guidelines for the reporting and display of comprehensive income and
its  components  (revenues,  expenses,  gains  and  losses)  in a  full  set  of
general-purpose  financial  statements.  It  requires  that all  items  that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements; it does not address issues of
recognition  or  measurement.   The  primary  element  of  comprehensive  income
applicable  to  the  Group  is  the  foreign  currency  cumulative   translation
adjustment.  The  adoption  of SFAS No.  130 will have no impact on the  Group's
consolidated results of operations, financial position or cash flows.

SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information"  is effective for fiscal years  beginning  after December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.  This statement establishes guidelines for the
way that public business enterprises report information about operating segments
in financial statements.  This statement also establishes guidelines for related
disclosures about products and services,  geographic areas, and major customers.
The Group has evaluated the disclosure requirements of SFAS No. 131 and believes
the  adoption  will  not  have  a  material  impact  on  its  future  disclosure
requirements.

                                      F-9

<PAGE>

             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

1   Description of business and significant accounting policies (cont'd)

(l)  Recent accounting pronouncements (cont'd)

SFAS No. 132,  "Employers'  Disclosures about Pensions and Other  Postretirement
benefits"  is  effective  for fiscal years  beginning  after  December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required.  This statement  revises  employers'  disclosures about pension and
other  postretirement  benefit  plans.  It does not  change the  measurement  or
recognition of those plans.  It  standardizes  the disclosure  requirements  for
pensions and other postretirement  benefits to the extent practicable,  requires
additional  information on changes in the benefit obligations and fair values of
plan assets that will  facilitate  financial  analysis,  and eliminates  certain
disclosures that are no longer useful.  The statement  suggests combined formats
for presentation of pension and other postretirement  benefit  disclosures.  The
Group has evaluated the disclosure requirements of SFAS No. 132 and believes the
adoption will not have a material impact on its future disclosure requirements.

(m)   Reclassifications

Reclassifications  of certain  prior period  balances  have been made to conform
with the current method of presentation.

2    Allowance for doubtful accounts

Changes in the allowance for doubtful accounts consist of:

                                               1996       1997       1998
                                              ------     ------     ------
                                                   $          $           $

Balance, April 1                                --       52,919      99,856
Additions charged to expense                  52,919     46,937        --
Write-off                                       --         --       (26,126)
Provision written back                          --         --       (40,397)
                                              ------     ------      ------
 Balance, March 31                            52,919     99,856      33,333   
                                              ======     ======      ======   

 3    Inventories

(a)   The components of inventories are as follows:

                                                          March 31
                                                  -------------------------
                                                    1997             1998
                                                  ---------        --------
                                                          $                $
Raw materials                                     3,603,760        4,288,182
Work in progress                                    791,265          849,343
Finished goods                                    1,893,293        1,096,799 
                                                  ---------        ---------  
                                                  6,288,318        6,234,324
Inventories reserves                               (146,530)        (267,624)
                                                  ---------        --------- 
                                                  6,141,788        5,966,700
                                                  =========        =========

                                      F-10
<PAGE>


             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

3   Inventories (cont'd) 

(b) Changes in the inventories reserves consist of the following:

                                             1996          1997           1998
                                           --------      --------       --------
                                                  $             $              $

Balance, April 1                             34,000        49,014        146,530
Additions charged to expense                 15,014       131,516        121,094
Write-off                                      --         (34,000)          --
                                           --------      --------       --------
Balance, March 31                            49,014       146,530        267,624
                                           ========      ========       ========

4   Equity investment in an affiliate

As of March 31, 1997, the Company had a 75% interest in Beijing Cobell and Bonso
Electronics Company Limited ("BCBE"), an equity joint venture established in the
People's  Republic of China  excluding Hong Kong ("PRC").  The Company made cash
contributions  to BCBE totalling  $787,500 and is entitled to 75% of the results
of BCBE. As of March 31,1995, BCBE ceased business and a provision for permanent
diminution in value of BCBE amounting to $223,596 and  representing the carrying
value of the  venture in full was  considered  necessary  and made at that time.
During the year ended March 31,  1998,  the  investment  in the venture has been
completely written off as BCBE is in the process of liquidation.

5    Long-term debt

Long-term debt denominated in Hong Kong dollars consists of the following:

                                                                March 31
                                                           -------------------
                                                            1997        1998
                                                          --------     -------
                                                                 $           $
Loan payable to a bank at HIBOR plus 2.25
%(8.5% as of March 31, 1998) payable in
equal quarterly installments of $102,564
plus interest, maturing in October 1998                    717,948     307,692

Less: current portion                                      410,256     307,692
                                                           -------     -------
Long-term  debt,  less current  maturities                 307,692        -- 
                                                           =======     =======

All the long-term debt matures during the year ending March 31, 1999.

6   Taxation

(a)  The companies are subject to tax on an entity basis on income arising in or
     derived  from Hong Kong and the PRC.  The current  rates of taxation of the
     subsidiaries  operating  in Hong Kong and Shenzhen in the PRC are 16.5% and
     15%, respectively.  The Group is not subject to income taxes in the British
     Virgin Islands.

(b)  Pursuant  to the  relevant  income tax laws in the PRC,  Bonso  Electronics
     (Shenzhen)  Co., Ltd., a wholly owned  subsidiary of the Company,  is fully
     exempt  from PRC state  income  tax for two years  starting  from the first
     profit-making  year  followed by a 50%  reduction  over the  ensuing  three
     years. Bonso Electronics (Shenzhen) Co., Ltd. was loss-making for the years
     ended March 31, 1996, 1997 and 1998.

                                      F-11
<PAGE>


              Bonso Electronics International Inc. and Subsidiaries
                    Notes to Consolidated Financial Statement
                      (Expressed in United States Dollars)

 6    Taxation (cont'd)

(c)  The components of the income tax benefit are as follows:

                                                     Year ended March 31
                                                -------------------------------
                                                 1996        1997        1998
                                                -------     -------     -------
                                                      $           $           $

Deferred income tax benefit                      54,211      65,438      57,117
Current income tax benefit/(expense)             42,233       5,926     (30,000)
                                                -------     -------     -------

Total income tax benefit                         96,444      71,364      27,117
                                                =======     =======     =======


(d)  Deferred tax assets are comprised of the following:
                                                                March 31 
                                                        ----------------------- 
                                                          1997           1998
                                                        --------        -------
                                                               $              $
Deferred tax liabilities
  Accelerated depreciation                               (43,795)       (34,387)
Deferred tax assets
  Tax loss carry forwards                                191,710        133,993
    Valuation allowance                                 (147,716)       (61,176)
                                                        --------       --------
                                                          43,994         72,817
  Other                                                   16,204         35,088
                                                        --------       --------
                                                          60,198        107,905
                                                        --------       --------
                                                          16,403         73,518
Less: current portion                                     16,204         35,088
                                                        --------       --------

Deferred tax assets, non current portion                     199         38,430
                                                        ========       ========


As of March 31, 1998, the Group had accumulated tax losses amounting to $837,459
(the tax effect thereon is $133,993) which may be carried forward and applied to
reduce  future  taxable  income  which is earned in or  derived  from Hong Kong.
Realization  of deferred tax assets  associated  with tax loss carry forwards is
dependent upon generating sufficient taxable income prior to their expiration. A
valuation  allowance  is  established  against  such tax losses when  management
believes  it is more  likely  than not that a portion may be disputed by the tax
authorities.

As of March 31, 1998, the Group's accumulated tax losses have no definite period
of expiration.

(e)  Changes in the valuation allowance consist  of:

                                                   1996       1997       1998
                                                  -------   --------   --------
                                                        $          $          $
Balance, April 1                                   23,458     89,112    147,716
Additions charged to income tax expense            65,654     58,604     55,082
Release of valuation allowance upon:
  - liquidation  of  subsidiary                      --         --      (62,089)
  - approval of losses by tax authorities            --         --      (77,621)
Effect of change in tax rate                         --         --       (1,912)
                                                 --------   --------   --------
Balance, March 31                                  89,112    147,716     61,176
                                                 ========   ========   ========

                                      F-12

<PAGE>


             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

 6   Taxation (cont'd)

(f)  The actual income tax benefit  attributable to earnings for the years ended
     March  31,  1996,  1997 and 1998  differed  from the  amounts  computed  by
     applying the Hong Kong  statutory tax rate in accordance  with the relevant
     income tax law as a result of the following: 
<TABLE>
<CAPTION>
                                                      Year ended March 31
                                               ---------------------------------
                                                 1996         1997         1998
                                               --------    --------     ---------
                                                     $            $            $
<S>                                               <C>          <C>          <C>  
Hong Kong statutory tax rate                      16.5%        16.5%        16.5%
Income tax expense at the Hong Kong
  statutory tax rate                           (86,029)     (78,412)    (370,842)
Expenses not deductible for
  income tax purposes                             --        (14,124)     (14,345)
Effect of income
  tax rate differential between
  Hong Kong and other jurisdictions             11,597        5,236          119
Gain on liquidation of a
  joint venture company not liable
  to income tax                                   --         29,933         --
Gain on disposal of non-taxable  property,
  plant and equipment                           17,587         --            773
Provision for permanent diminution in value
  of investment in a joint venture company
  not deductible for income tax purposes       (25,159)        --           --
Offshore profit not subject to income tax      162,125      181,409      381,167
Valuation allowance on tax loss                (65,654)     (58,604)      22,539
Overprovision for Hong Kong tax
  in prior years                                81,977        5,926       10,246
Write-off of deferred tax benefit upon
  liquidation of subsidiary                       --           --        (62,089)
Release of valuation allowance
  upon liquidation of subsidiary                  --           --         62,089
Effect of change in tax rate                      --           --         (2,767)
Other                                             --           --            227
                                              --------     --------     --------

Total income tax benefit                        96,444       71,364       27,117
                                              ========     ========     ========
</TABLE>

7    Leases 

(a)  Capital leases

Motor  vehicles  and plant and  machinery  include  the  following  amounts  for
capitalized leases:
                                     Motor vehicles       Plant and machinery 
                                  --------------------   --------------------- 
                                        March 31               March 31
                                  --------------------   ---------------------
                                    1997       1998        1997        1998
                                 ---------   ---------   --------    ---------
                                         $           $           $           $
Cost                               104,231      45,835   1,341,691   1,397,129
Less: accumulated amortization      42,506       7,639     112,914     344,684
                                 ---------   ---------   ---------   ---------
                                    61,725      38,196   1,228,777   1,052,445
                                 =========   =========   =========   =========

During the years ended March 31,  1996,  1997 and 1998,  the Group  entered into
additional  capital  lease  obligations  amounting  to  $71,795,   $880,261  and
$143,471, respectively.

                                      F-13

<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

7   Leases (cont'd)

(a)  Capital leases (cont'd)

Future minimum  payments for capital leases as of March 31, 1998 with an initial
term of more than one year are as follows:

                                                                 $
                  1999                                     405,500 
                  2000                                     274,821
                  2001                                       9,962            
                                                           -------
                  Total minimum lease payments             690,283
                  Less: amount representing interest       103,045
                                                           -------
                  Present value of net minimum lease
                  payments (including current portion
                  of $344,349, as of March 31, 1998)       587,238
                                                           ======= 
(b)  Operating leases

As  of  March  31,  1998,   future  minimum  lease  commitments  in  respect  of
noncancellable  operating  leases for office premises and staff quarters in Hong
Kong and the PRC are as follows:

                                                                $   
                  1999                                     25,641  
                  2000                                     38,462
                                                           ------
                                                           64,103         
                                                           ======         
           

Rent  expense for all  operating  leases  amounted  to  $266,097,  $279,311  and
$196,622 for the years ended March 31, 1996, 1997 and 1998, respectively.

8   Banking facilities

As of March  31,  1998,  the  Group  had  general  banking  facilities  for bank
overdrafts,  notes payable,  short-term loans and long-term debt. The facilities
are   interchangeable   with  total  amounts   available  of  $6,948,717  (1997:
$7,564,102),  including facilities in respect of letters of credit of $1,282,051
(1997:  $897,436).  All  general  banking  facilities  granted  to the Group are
denominated in Hong Kong dollars.


                                      F-14


<PAGE>
<TABLE>
<CAPTION>

                            Bonso Electronics International Inc. and Subsidiaries
                                    Notes to Consolidated Financial Statements
                                       (Expressed in United States Dollars)

8    Banking facilities (cont'd)

The Group's general banking facilities,  expressed in United States Dollars, are
further analyzed as follows:

                     Amount available        Amount utilized              Terms of banking facilities
                       March 31                  March 31                     as of March 31, 1998
                  --------------------    ---------------------    -----------------------------------------
                       1997        1998        1997        1998                    Interest        Repayment
                           $          $           $           $                        rate            terms
                  ----------  ---------   ---------   ---------    ------------------------     ------------
<S>                 <C>         <C>         <C>         <C>          <C>                        <C>       
Bank overdrafts     641,026     897,436     780,976     600,721       Prime rate plus 0.25%     Repayable on
                                                                    to Prime rate plus 0.5%           demand  
  
Notes payable     3,206,486   3,635,726   1,993,533   2,260,384       Prime rate minus 0.5%     Repayable in
                                                                   to  Prime rate plus 0.5%      full within 
                                                                                                 four months

Short-term loans  1,793,514     723,248     953,642     338,632       Prime rate minus 0.5%     Repayable in
                                                                    to Prime rate plus 0.5%      full within 
                                                                                                three months

Long-term debt,   1,025,640     410,256     717,948     307,692            HIBOR plus 2.25%     Repayable in
including  current                                                                           equal quarterly
maturities (Note 5)                                                                          installments of 
                                                                                               $102,564 plus  
                                                                                          interest, maturing
                                                                                            in October, 1998

Letters of credit    897,436   1,282,051    370,469     502,270                         Nil              Nil    
                     -------   ---------    -------     -------                                                 

                   7,564,102   6,948,717  4,816,568   4,009,699  
                   =========   =========  =========   =========  
</TABLE>
  
                                                                       
The Prime rate and HIBOR rate were 10.00% and 6.25%,  respectively,  as of March
31, 1998. The Prime rate is determined by the Hong Kong Bankers  Association and
is  subject  to  revision  from  time  to  time.  

The banking facilities are collateralized by the following:

(a)  a legal  charge over a leasehold  property of the Group with net book value
     of $1,269,917 (1997: $1,298,033); and

(b)  a bank guarantee of $150,000 (1997:  $150,000) and restricted cash deposits
     of $952,267  (1997:  $886,320).  The restricted cash deposits have original
     maturities of less than three months.

The weighted average  interest rate of short-term  borrowings of the Group is as
follows:
     
                                                    Year ended March 31
                                                  --------------------------
                                                   1997                 1998
                                                   ----                 ----
                   Bank overdrafts                 8.9%                 9.5%
                   Notes payable                   8.7%                 9.4%
                   Short-term loans                8.7%                 9.4%

                                      F-15

<PAGE>

             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)


9   Related  party transactions

(a) The Group paid  emoluments,  commissions  and/or  consultancy  fees to their
directors as follows:

Year ended   Mr. So Hung        Mr. So            Mr. Ray           Mr. Chung
March 31    Gun, Anthony       Cham Some           Mehra             Kim Wah
--------    ------------       ---------           -----             -------
  1996        $ 50,000          $310,000          $28,000         $  88,462(ii)
  1997        $443,590          $ 66,410          $21,986         $ 115,226(ii)
  1998        $500,560          $ 66,410          $11,000         $ 140,175(ii)


              Mr. Luk            Mr. Fok         Mr. George         Mr. Pang Kit
              Kam Sun           Woo Ping           O'Leary          Teng, Cathy
              -------           --------           -------          -----------
 
  1996        $ 83,333          $ 12,000              NIL                NIL 
  1997        $100,564          $ 12,000         $ 52,605(i)             NIL    
  1998        $106,923               NIL         $354,835(i)          $ 24,029

(i)  This represented commissions paid to Mr. George O'Leary,

(ii) Included in the emoluments is a housing  allowance for $38,462 payable to a
     company in which Mr.  Chung Kim Wah has a  beneficial  interest for each of
     the three years in the period ended March 31, 1998.

(b)  Promissory note receivable from shareholder

On March 27, 1998,  Advantage List & Marketing  Corporation  ("ALMC") subscribed
200,000  shares of  common  stock of the  Company  at a price of $6.75 per share
which represented the fair market value at the date of subscription, in exchange
for  ALMC's  promissory  note.  On the same  date,  ALMC  entered  into a pledge
agreement  simultaneously  under which ALMC agreed to pledge the common stock to
the Company as security for the payment of the  promissory  note. The promissory
note is with full  recourse,  interest  free and shall be fully  repayable on or
before September 27, 1999.

10   Provident fund plan

(a)  With effect from January 1, 1988,  Bonso  Electronics  Limited  ("BEL"),  a
     wholly-owned  foreign  subsidiary of the Company,  started a provident fund
     plan (the "Plan") with a major  international  assurance company to provide
     life  insurance and retirement  benefits for its  employees.  All permanent
     full time employees,  excluding  factory workers,  are eligible to join the
     provident fund plan.

(b)  Members of the Plan are required to contribute 5% of their monthly  salary.
     The contribution by BEL is as follows:

      Years of service            % of salary as BEL's contribution
      ----------------            ----------------------------------
      
      Less than 5 years                         5.0%  
      5 to 10 years                             7.5%
      More than 10 years                       10.0%

                                      F-16


<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

10   Provident fund plan (cont'd)

(c)  At normal retirement age, death or ill health, the member shall be entitled
     to receive  from the Plan a lump sum equal to the total of the member's and
     BEL's contributions plus a return on their investment. On resignation prior
     to normal  retirement  age, a member  shall be entitled to receive from the
     Plan a lump sum equal to the member's  contributions  plus a percentage  of
     the employer's  balance  determined in accordance with a predetermined  set
     scale.

(d)  BEL's  contributions  to the Plan for the years ended March 31, 1996,  1997
     and 1998 amounted to $41,414, $54,924 and $45,227, respectively.

11   Commitments and contingencies

(a)  As of March 31, 1998,  the Group had  contingent  liabilities  to banks for
     outstanding  letters of credit and shipping  guarantees of $502,270  (1997:
     $370,469) and NIL (1997: $34,899), respectively.

(b)  As of March 31,  1998,  the  Group  had  commitments  to  acquire  land and
     buildings  from third  parties for an aggregate  consideration  of $703,415
     (1997:  $1,029,370)  of which  $447,735  (1997:  $461,554) had been paid as
     deposits.

(c)  As of March 31, 1998, the Group had commitments of $1,133,367  (1997:  NIL)
     for the  construction  of an office  building  and staff  quarters of which
     $766,718 (1997: NIL) had been paid as progress payments.

12   Earnings per share

                                                     Year ended March 31
                                           -------------------------------------
                                             1996          1997          1998
                                             ----          ----          ----
                                                   $             $             $
Income available to common shareholders:     607,537       546,589     2,274,645
Weighted average shares outstanding        2,825,949     2,825,949     2,829,448

Incremental shares from assumed exercise of:  
Warrants                                        --           --           25,562
Stock  options                                  --          20,095       279,362
Dilutive potential common shares                --          20,095       304,924
                                           ----------    ---------     ---------
Diluted weighted average shares             2,825,949    2,846,044     3,134,372
                                            =========    =========     =========
                        
Basic earnings per  share                        0.21         0.19         0.80
Diluted earnings per share                       0.21         0.19         0.73

Earnings per share are computed  based on the weighted  average number of common
shares and, as appropriate,  dilutive common stock  equivalents  outstanding for
the period and the related income amount.

Warrants to purchase  110,000  shares of common  stock at $9.1875 per share were
outstanding during the fiscal years ended March 31, 1996, 1997 and 1998 but were
not  included  in the  calculation  of diluted  earnings  per share  because the
warrants'  exercise  price was greater  than the market  price of the  Company's
common  stock.  The  warrants,  which expire on December  14,  1999,  were still
outstanding as of March 31, 1998.

                                      F-17

<PAGE>


              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

12   Earnings per share (cont'd)

Warrants to purchase  2,200,000  shares of common  stock at $7.35 per share were
outstanding during the fiscal years ended March 31, 1996, 1997 and 1998 but were
not included in the  calculation of diluted  earnings per share during the years
ended March 31, 1996 and 1997 because the warrants'  exercise  price was greater
than the market price of the Company's common stock. The warrants,  which expire
on December 14, 1999, were still outstanding as of March 31, 1998.

Warrants  to  purchase  16,667  shares of common  stock at $6.00 per share  were
outstanding  for the fiscal  years  ended  March 31,  1996 and 1997 but were not
included in the calculation of earnings per share because the warrants' exercise
price was greater  than the market  price of the  Company's  common  stock.  The
warrants were exercised during the year ended March 31, 1998.

13   Minority interests

In April 1993, the Group,  together with a Chinese partner,  formed and invested
in a joint  venture  company  in the PRC,  Shenzhen  Bonso  Electronics  Limited
("SBEL"), owned as to 60% by the Group and 40% by the Chinese partner. According
to the  joint  venture  agreement,  the  registered  share  capital  of SBEL was
$3,205,128  (HK$25  million);  the Group and the Chinese  partner  could appoint
three  and  two  directors,  respectively,  to the  board  of  SBEL.  The  Group
effectively  controlled all major  financial and operating  policy  decisions of
SBEL. Accordingly, this joint venture company was consolidated.

In accordance with an agreement between the Group and the Chinese partner,  SBEL
was  liquidated  on  October  31,  1996.  The  land  and  buildings   originally
contributed to the joint venture by the Chinese partner reverted to same and all
other assets and liabilities  including the plant and machinery were taken up by
the Group.  During the year ended March 31, 1996, the directors estimated that a
provision  for permanent  diminution in value of SBEL  amounting to $152,480 was
necessary and  accordingly a provision for this amount was recorded.  During the
year ended March 31, 1997,  upon the liquidation of SBEL, a gain of $159,654 was
recognized  by the  Group of  which  $152,480  represents  the  reversal  of the
provision for permanent diminution in value.

14   Stock option plan

(a)  In October 1996, the Board of Directors approved the 1996 Stock Option Plan
     and 1996  Non-Employee Directors'  Stock Option Plan.  Under the 1996 Stock
     Option  Plan,  the  Company  may grant  options of common  stock to certain
     employees and directors of the Company for a maximum of 400,000 shares. The
     1996 Stock  Option Plan is  administered  by a committee  appointed  by the
     Board of Directors which determines the terms of options granted, including
     the  exercise  price,  the  option  periods  and the number of shares to be
     subject to each option.  The exercise  price of options  granted  under the
     1996 Stock Option Plan may be less than the fair market value of the common
     shares on the date of grant.  The maximum term of options granted under the
     1996 Stock Option Plan is 10 years.  The right to acquire the common shares
     is not  assignable  except for certain  conditions  stipulated  in the 1996
     Stock Option Plan. In January 1997, the Board of Directors delegated to Mr.
     So Hung Gun,  Anthony,  the  authority to issue  options to  employees  and
     directors of the Company for an additional 25,000 shares.

     In January 1997, the Company granted options to three directors to purchase
     an  aggregate  of  375,000  shares of  common  stock of the  Company  at an
     exercise  price of $2.00 per share,  which was equal to the market value on
     the date of grant,  in  accordance  with the 1996 Stock  Option  Plan.  The
     options  shall  expire on January 31, 2007 and can be exercised at any time
     immediately after granting.

                                      F-18

<PAGE>


              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

14   Stock option plan (cont'd)

(a)  (cont'd)

     In January 1998, the Company  granted options to an employee to purchase an
     aggregate  of 25,000  shares of common  stock of the Company at an exercise
     price of $6.20 per share which is greater than the market value on the date
     of grant,  in accordance with the 1996 Stock Option Plan. The options shall
     expire on  January  1, 2008 and can be  exercised  at any time  immediately
     after granting.

     The stock options  outstanding  in respect of the 1996 Stock Option Plan as
     of March 31, 1998 is summarized as follows:

                                                      Average per share
                                              ----------------------------------
                                               Number     Exercise       Market
                                              of shares     price         price
                                              ---------   --------      --------
Balance, March 31, 1996                           --           --           --
Grant at exercise price equal to the market
  value of the common shares                   375,000     $   2.00     $   2.00
                                               -------     --------     --------

Balance, March 31, 1997                        375,000     $   2.00     $   2.00
Grant at exercise price greater
  than the market value of the
  common shares                                 25,000     $   6.20     $   6.13
                                               -------     --------     --------
Balance, March 31, 1998                        400,000     $   2.26     $   2.26
                                               =======     ========     ========
                            
No options have been exercised during the years ended March 31, 1997 and 1998.

Under the 1996  Non-Employee  Directors'  Stock  Option Plan,  the  non-employee
directors are  automatically  granted  stock  options on the third  business day
following the day of each annual  general  meeting of the Company to purchase an
aggregate of 100,000  shares of common stock.  The exercise price of all options
granted under the 1996  Non-Employee  Directors'  Stock Option Plan shall be one
hundred  percent of the fair market value per share of the common  shares on the
date of grant.  The maximum term of options granted under the 1996  Non-Employee
Directors'  Stock  Option  Plan is 10 years.  No stock  option may be  exercised
during the first six months of its term except for certain  conditions  provided
in the 1996 Non-Employee  Directors' Stock Option Plan. The right to acquire the
common shares is not assignable except for certain conditions  stipulated in the
1996 Non-Employee Directors' Stock Option Plan.

In October 1996, the Company issued options to three  non-employee  directors in
accordance with the 1996  Non-Employee  Directors' Stock Option Plan to purchase
an  aggregate  of 30,000  shares of common  stock of the  Company at an exercise
price of $2.25 per share and the options  shall expire  October 16, 2006 and can
be exercised at any time immediately after granting.

In September 1997, the Company issued options to four non-employee  directors in
accordance with the 1996  Non-Employee  Directors' Stock Option Plan to purchase
an  aggregate  of 40,000  shares of common  stock of the  Company at an exercise
price of $5.06 per share and the options  shall  expire on September 8, 2007 and
can be exercised at any time immediately after granting.


                                      F-19
<PAGE>


              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

14   Stock option plan (cont'd)

(a)  (cont'd)

The stock options activity in respect of the 1996 Non-Employee  Directors' Stock
Option  Plan as of March 31, 1998 is  summarized  as  follows: 

                                                     Average per share
                                                     -----------------
                                                Number    Exercise      Market 
                                               of shares    price       price
                                               ---------  --------     --------
Balance, March 31, 1996                           --          --           --
Grant at exercise price equal to the market
   value of the common shares                   30,000     $  2.25     $   2.25
                                                ------     -------     --------
                            
Balance, March 31,  1997                        30,000     $  2.25     $   2.25
Grant at exercise price equal to the market
   value of the common shares                   40,000     $  5.06     $   5.06
                                                ------     -------     --------

Balance, March 31, 1998                         70,000     $  3.86     $   3.86
                                                ======     =======     ========
                                                    
No options have been exercised during the years ended March 31, 1997 and 1998.

(b)  In  January  1997,  the  Company  granted  options  to  three  non-employee
     directors to purchase an aggregate of 100,000 shares of common stock of the
     Company.  The exercise  price is $2.00 per share,  which equaled the market
     value of the Company's common stock on the date of grant. The options shall
     expire on January 31,  2007 and can be  exercised  at any time  immediately
     after granting.  No options have been exercised during the year ended March
     31, 1997 and 1998. 

(c)  At  various  times in  January  1998,  the  Company  issued  options to the
     directors  and an  employee of the  Company to  purchase  an  aggregate  of
     195,000 shares of common stock of the Company at an exercise price of $6.20
     per share. The options shall expire in January 2008 and can be exercised at
     any time immediately  after granting.  The exercise prices of these options
     were equal to or greater  than the fair market  value at the time of grant.
     No options have been exercised during the year ended March 31, 1998.

(d)  The  following  table  summarizes  the  information   about  stock  options
     outstanding at March 31, 1998:
                          
                        Number outstanding   Average life   Exercisable shares
  Exercise  price        at March 31, 1998      (years)      at March 31, 1998
  ---------------       ------------------   ------------   ------------------

    $2.00                    475,000               8.8              475,000
    $2.25                     30,000               8.5               30,000 
    $5.06                     40,000               9.4               40,000 
    $6.20                    220,000               9.8              220,000
                             -------               ---              -------
    $2.00 to $6.20           765,000               9.1              765,000 
                             =======               ===              ======= 
     
(e)  Included in the options  outstanding as of March 31, 1998,  were 75,000 and
     63,000  options  held by Mr. Ray Mehra and Mr. So Cham Some,  respectively,
     both of whom have  resigned as  directors of the Company on January 2, 1998
     and April 30, 1998,  respectively.  They still hold the options after their
     resignation.

(f)  The Company  applies  Accounting  Principles  Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees" and related  interpretations  in
     accounting  for its  employee  stock  options.  Under APB  Opinion  No. 25,
     because the exercise  price of all the options issued by the Company equals
     or is higher than the market price of the  underlying  stock on the date of
     grant, no compensation expense is recognized.

                                      F-20

<PAGE>
              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

 14   Stock option plan (cont'd)

(f)  (cont'd)

     Pro forma  information  regarding  net  income  and  earnings  per share is
     required by SFAS No. 123 "Accounting for Stock-Based Compensation", and has
     been  determined  as if the Company had  accounted  for its employee  stock
     options  under the fair value method of SFAS No. 123. The weighted  average
     fair value of options  granted  during the years  ended  March 31, 1997 and
     1998 were $1.09 and $2.80,  respectively.  The fair value for these options
     was estimated at the date of grant using a Black-Scholes  Option  Valuation
     model with the following  weighted-average  assumptions  for the year ended
     March 31, 1998:  risk-free  interest  rates of 5.31% to 6.33%;  no dividend
     yield;  volatility  factor of the expected  market  price of the  Company's
     common share of 65 %; and a weighted-average expected life of the option of
     two to four years.

     For  purposes  of pro forma  disclosure,  the  estimated  fair value of the
     options is amortized to expense over the options' vesting period. The Group
     pro forma information follows:

                                             1997                1998
                                            -------            ---------
                                                  $                    $  
     Net income
        As reported                         546,589            2,274,645
        Pro forma                            83,339            1,454,445

     Basic earnings per share
        As reported                            0.19                 0.80
        Pro forma                              0.03                 0.51

     Diluted earnings per share
        As reported                            0.19                 0.73
        Pro forma                              0.03                 0.46

Because  compensation  expense  associated  with an award is recognized over the
vesting  period,  the  initial  impact  on  pro  forma  net  income  may  not be
representative  of compensation  expense in future years, when the effect of the
amortization of multiple awards would be reflected in the income statement.

15   Warrants

In 1994, the Company issued 16,667 warrants under a loan agreement to the lender
to purchase common shares of the Company at $6.00 per share. The warrants expire
on June 29, 1999. No warrants have been  exercised  during the years ended March
31, 1996 and 1997. In December 1997, 2,613 shares of common stock were issued at
$7.11 per share,  which  represented the fair market value at the date of issue,
upon the exercise of all the warrants on a cashless basis.

As a result of the  Company's  second  public  offering  in December  1994,  the
Company issued 2,200,000  five-year  warrants to its public  shareholders.  Each
warrant entitles the holder thereof to purchase one share of common stock of the
Company at $7.35 per share.  The  warrants  expire on  December  14,  1999.  The
warrants are  redeemable  by the Company at $0.05 per warrant upon 30 to 45 days
notice  at any  time  after  December  14,  1995,  or such  earlier  date as the
representatives  of the  underwriters  may  determine,  if the closing price per
share of common stock of the Company for 20 consecutive  trading days within the
30-day  period  prior to the date of notice  of  redemption  is given  equals or
exceeds $8.575 per share. No warrants have been exercised or redeemed during the
years ended March 31, 1996, 1997 and 1998.

                                      F-21

<PAGE>

             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)


15  Warrants (cont'd)

In conjunction with the second public  offering,  the Company issued warrants to
the  representatives  of the underwriters (the  "Representatives'  Warrants") to
purchase  from the Company up to an  aggregate  of 110,000  units at an exercise
price of $9.1875 per unit;  each unit  consists of one share of common stock and
two  five-year  warrants  of the  Company.  The  Representatives'  Warrants  are
exercisable for a period of three years  commencing  December 15, 1996. Upon any
transfer  to a person  other than an  officer,  shareholder  or  director of the
representatives of the underwriters,  the transferred five-year warrants must be
exercised  immediately  or they will lapse.  No warrants  have been  transferred
during the years ended March 31, 1996, 1997 and 1998.

16   Business segment information

(a)  The Group's  operations have been classified into three business  segments:
     scales, health care products and other. Summarized financial information by
     business segment for 1996, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                      Indentifiable
                                                                         assets          Depreciation
                                                      Operating           as of               and             Capital
                                   Net sales           profit           March 31         amortization       expenditure
                                   ---------           ------           --------         ------------       -----------
                                            $                 $                  $                 $                 $
1998
<S>                                <C>                <C>               <C>                <C>               <C>      
Scales                             18,260,994         5,234,759         14,604,822         1,110,023         1,280,219
Health care products                3,083,025            73,197            204,218            15,521            17,901
Other                               2,371,557           534,778          1,492,015           113,399           130,786
                                   ----------        ----------         ----------        ----------        ----------
Total operating segments           23,715,576         5,842,734         16,301,055         1,238,943         1,428,906
Corporate                                --          (3,488,655)         4,345,508           186,165           271,834
                                   ----------        ----------         ----------        ----------        ----------
Group                              23,715,576         2,354,079         20,646,563         1,425,108         1,700,740
                                   ==========         =========         ==========         =========         =========

1997
Scales                             11,892,313         3,188,072         13,369,205           656,807         4,534,113
Health care products                2,718,243            66,246            277,802            13,648            94,216
Other                               2,378,463           720,500          3,021,421           148,438         1,024,703
                                   ----------        ----------         ----------        ----------        ----------
Total operating segments           16,989,019         3,974,818         16,668,428           818,893         5,653,032
Corporate                                --          (3,059,249)         3,847,183           142,038             8,100
                                   ----------        ----------         ----------        ----------        ----------
Group                              16,989,019           915,569         20,515,611           960,931         5,661,132
                                   ==========        ==========         ==========        ==========        ==========

1996
Scales                              9,688,800         3,149,327         11,656,143           498,601         1,979,389
Health care products                2,422,200            71,576            264,913            11,332            44,986
Other                               2,137,235           850,869          3,149,196           134,709           534,781
                                   ----------        ----------         ----------        ----------        ----------
Total operating segments           14,248,235         4,071,772         15,070,252           644,642         2,559,156
Corporate                                --          (3,080,610)         5,629,853           147,967           323,239
                                   ----------        ----------         ----------        ----------        ----------
Group                              14,248,235           991,162         20,700,105           792,609         2,882,395
                                   ==========        ==========         ==========        ==========        ==========

</TABLE>

     Operating  profit by segment equals total operating  revenues less expenses
     which  are  deemed  to be  related  to the  segment's  operating  revenues.
     Identifiable  assets  by  segment  are  those  assets  that are used in the
     operation of that segment. Corporate assets consist principally of cash and
     cash  equivalents,  income tax recoverable,  deferred income tax assets and
     other identifiable assets not related specifically to individual segments.

                                      F-22

<PAGE>

              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

16   Business segment information (cont'd)

(b)  The Group  primarily  operates in Hong Kong and the PRC. The manufacture of
     components and their assembly into finished  products is carried out in the
     PRC.  The Hong Kong office is mainly  responsible  for the  purchase of raw
     materials,  arrangement of shipments and research and  development.  As the
     operations are  integrated,  it is not practicable to distinguish the sales
     and net income  derived from the  activities in Hong Kong from those in the
     PRC.

     Identifiable assets by geographical areas are as follows:

                                                     March 31,
                                              -------------------------
                                                 1997          1998
                                                 ----          ----
                                                       $              $
             Hong Kong                         7,771,583      7,469,828
             The PRC                          12,675,502     13,176,735
             Canada                               68,526           --
                                              ----------     ----------
             Total assets                     20,515,611     20,646,563     
                                              ==========     ==========     


(c)  The following is a summary of net export sales to customers by geographical
     area for the years ended March 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>

                                                 Year ended March 31,
                            -----------------------------------------------------------
                                 1996      %          1997      %           1998      %
                                    $                    $                     $
<S>                         <C>           <C>    <C>           <C>    <C>            <C>
North America               5,356,398     38     7,537,401     44     12,598,672     53
Europe                      3,960,816     28     5,492,294     33      8,129,063     34
Asia                        4,140,088     29     3,454,505     20      2,117,914      9
Australia                     723,783      5       425,314      3        756,354      3
Africa                         67,150     --        79,505     --        113,573      1
                           ----------    ---    ----------    ---     ----------    ---

                           14,248,235    100    16,989,019    100     23,715,576    100
                           ==========    ===    ==========    ===     ==========    ===
</TABLE>
                                                             
(d)  The details of sales made to  customers  constituting  10% or more of total
     sales of the Group is as follows:

<TABLE>
<CAPTION>
                                                                     Year ended March 31,
                                             ----------------------------------------------------------
                                 Business         1996      %          1997      %          1998      %
                                 segment             $                    4                    $
                                 --------
<S>                             <C>           <C>          <C>    <C>          <C>     <C>          <C>
Pitney Bowes, Inc., (USA)         Scales          --       --     3,007,070     18     7,075,338     30
Globaltec Corporation
  (USA)                           Scales     3,043,764     21     2,252,184     13     3,721,060     15  
Werner Dorsch Gmbh & Co.
  (Germany)                       Scales     1,870,321     13     1,906,961     11     2,105,307      9  
Omron Healthcare Group            Health        
                                    care
                                products       772,461      6     1,888,335     11     1,841,427      8
                                               -------     --     ---------     --     ---------     --
                  
                                             5,686,546     40     9,054,550     53     14,743,132    62  
                                             =========     ==     =========     ==     ==========    ==  
</TABLE>


                                                           F-23

<PAGE>

                                                                  
              Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

17    Financial instruments

In  accordance  with SFAS No. 107  "Disclosures  about  Fair Value of  Financial
Instruments",  the  carrying  amounts and fair  values of the Group's  financial
instruments are as follows:
                                   Carrying amount         Fair value
                                       March 31,             March 31,
                                   ----------------      ----------------
                                   1997        1998      1997         1998
                                   ----        ----      ----         ----
                                       $           $          $           $

Cash and cash equivalents         89,147     448,454     89,147     448,454
Restricted cash  deposits        886,320     952,267    886,320     952,267
Deposits                         461,554     447,735    461,554     447,735
Bank overdrafts                  780,976     600,721    780,976     600,721
Notes payable                  1,993,533   2,260,384  1,993,533   2,260,384
Short-term loans                 953,642     338,632    953,642     338,632 
Long-term debt                   717,948     307,692    663,794     299,215
Promissory note receivable          --     1,350,000       --     1,350,000
Letters of credit                   --          --      370,469     502,270

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

(a)  Cash and cash equivalents, restricted cash deposits, bank overdrafts, notes
     payable and short-term loans - the carrying amount  approximates fair value
     because of the short maturity of these instruments.

(b)  Long term debt - interest  rates that are currently  available to the Group
     for issuance of debt with similar terms and remaining  maturities  are used
     to  estimate  the fair  value of debt  issues  that  are not  quoted  on an
     exchange.  Fair value  estimates  are made at a specific  point in time and
     based on relevant  market  information.  These  estimates are subjective in
     nature,  involve  uncertainties  and matters of  significant  judgement and
     therefore cannot be determined with precision. Changes in assumptions could
     significantly affect the estimates.

(c)  Deposits - the carrying  amount of refundable  deposits  approximates  fair
     value based on the terms of the related contracts.

(d)  Promissory  note  receivable - the fair value of promissory note receivable
     approximates  the carrying  value based on a comparison of interest rate to
     current market rate for instruments of similar nature.

(e)  Letters of credit - the contract  amount of the letters of credit  reflects
     fair value as a condition of their underlying purpose.

All other  financial  instruments  included among current assets and liabilities
are stated at cost which approximates their fair value.


                                      F-24

<PAGE>

             Bonso Electronics International Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                      (Expressed in United States Dollars)

18  Post balance sheet date event

    The following transactions took place subsequent to the balance sheet date:

(a)  In June 1998, a former director of the Company has exercised the following
stock options:

                                                Number of
                         Exercise price          options
                         --------------         ---------
                            $2.25                 10,000
                            $2.00                 55,000

(b)  On July 22, 1998 the Company  issued a notice to call for redemption all of
     the  outstanding   five-year  warrants  previously  issued  to  its  public
     shareholders  on  September  4,  1998 at a  redemption  price of $0.05  per
     warrant.  On September 2, 1998, the notice to redeem was rescinded.  35,597
     warrants were exercised prior to the rescission of the call for redemption.
     As a result of the rescission, the Company gave the warrant holders who had
     exercised  their warrants an opportunity to rescind their warrant  exercise
     on or before  September  30,  1998.  The  exercise of 10,000  warrants  was
     rescinded as of September 30, 1998.

(c)  On August 28, 1998, a lawsuit was filed in the United States District Court
     for the Central  District of California  against the Company  alleging that
     the Company had committed  securities fraud, common law fraud and breach of
     contract  arising out of the original  sale of the Public  Warrants and the
     issuance on July 22, 1998 of a notice to redeem the warrants  issued to its
     public  shareholders  on September 4, 1998 for a redemption  price of $0.05
     per warrant. The lawsuit was dismissed,  without prejudice, on September 2,
     1998 and the plaintiffs  have agreed not to refile the lawsuit for at least
     four months.  Management  does not believe the ultimate  resolution of this
     matter will have a material  effect on the  Company's  financial  position,
     cash flow or results.

(d)  The Company's year to date sales and net income have declined when compared
     to the comparable period in the prior year.  Management  believes that this
     decline is due to prevailing global economic  conditions and reduced orders
     from two of the Company's  major  customers.  Management  believes that the
     sales  volume for one of these  customers  will  increase in the future and
     intends to broaden its client base and  diversify  the product mix in order
     to  diminish  the  impact of major  customers  on the  Company's  financial
     performance.


                                      F-25

<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements of Section 12 of the Securities  Exchange Act
of 1934, the  registrant  certifies  that it meets all of the  requirements  for
filing on Form 20-F and has duly caused  this Annual  Report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                        BONSO ELECTRONICS INTERNATIONAL INC.



Date   October 13, 1998                 /s/ Anthony So
    ---------------------               ----------------------------------------
                                        Anthony So, President



                                       39