UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-21874
Berkeley Technology Limited
(Exact name of registrant as specified in its charter)
______________________
Jersey, Channel Islands Not applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Wests Centre, Bath Street
St. Helier, Jersey JE2 4ST
Channel Islands
(Address of principal executive offices, including zip code)
011 44 (1534) 607700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
American Depositary Shares, each representing ten Ordinary Shares of $0.05 par
value per share Ordinary Shares of $0.05 par value per share *
*Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the Securities and Exchange
Commission.
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
If this report is an annual report or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer (Do not
check if a smaller reporting company) [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sale price of the Ordinary Shares on June 30,
2007 as reported on the London Stock Exchange (using an exchange rate
of (pound)1.00 = $2.01) was $3,653,395. Ordinary Shares held by each current
executive officer and director and by each person who is known by the registrant
to own 10% or more of the outstanding Ordinary Shares have been excluded from
this computation in that such persons may be deemed to be affiliates of the
registrant. This determination is not necessarily conclusive that these persons
are affiliates of the registrant.
As of March 31, 2008, the registrant had outstanding 64,439,073 Ordinary
Shares, $0.05 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its Annual General Meeting
of Shareholders to be held on July 31, 2008, is incorporated by reference in
Part III of this Form 10-K.
TABLE OF CONTENTS
PART I Page
Item 1. Business...................................................................................... 1
Item 1A. Risk Factors.................................................................................. 4
Item 1B. Unresolved Staff Comments..................................................................... 4
Item 2. Properties.................................................................................... 4
Item 3. Legal Proceedings............................................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders........................................... 4
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.............................................................. 4
Item 6. Selected Financial Data....................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................... 15
Item 8. Financial Statements and Supplementary Data................................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 48
Item 9A.(T) Controls and Procedures....................................................................... 48
Item 9B. Other Information............................................................................. 48
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 49
Item 11. Executive Compensation........................................................................ 49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters......................................................................... 49
Item 13. Certain Relationships and Related Transactions................................................ 50
Item 14. Principal Accountant Fees and Services........................................................ 50
PART IV
Item 15. Exhibits and Financial Statement Schedules ................................................... 51
Signatures ................................................................................................. 61
Exhibit Index............................................................................................... 62
As used herein, the terms "registrant," "Company," "we," "us" and "our"
refer to Berkeley Technology Limited. Except as the context otherwise requires,
the term "Group" refers collectively to the registrant and its subsidiaries.
Forward-Looking Statements and Factors That May Affect Future Results
Statements contained in this Annual Report on Form 10-K that are not
historical facts, including, but not limited to, statements found in Item 1
"Business," Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Item 7A "Quantitative and Qualitative Disclosures
About Market Risk," are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Such forward-looking statements are based on current expectations, estimates,
forecasts and projections about the industries in which we operate, management's
current beliefs and assumptions made by management. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," "goals,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to predict. Future outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. We undertake
no obligation to update any forward-looking statements, whether as a result of
new information, future developments or otherwise.
PART I
Item 1. BUSINESS
OVERVIEW
We are a financial services company based in Jersey, Channel Islands,
with an office in San Francisco, specializing in venture capital and consulting.
A typical client is a Silicon Valley technology company or a large international
telecommunications company. Our objective has been to use consulting revenues to
finance the development of large telecommunications company relationships in
Europe and Asia, which has led to several equity investments by a client with
additional fees for work performed by the Group.
In addition to our venture capital and consulting business, we continue
to service the policyholders of London Pacific Assurance Limited ("LPAL") in
Jersey. Policyholder liabilities continued to decline during 2007 due to policy
maturities. New policies are not being sold at this time to preserve our
capital. Future gains on LPAL's investment portfolio would give us more
flexibility to rebuild our insurance operations should we choose to do so,
although we have no current plans to sell new policies. One new investment was
made by LPAL in a private equity security during 2007.
The Company was incorporated in 1985 in Jersey, Channel Islands and is
listed on the London Stock Exchange ("LSE"). Our Ordinary Shares currently trade
under the symbol "BEK.L." American Depositary Receipts ("ADRs") representing our
Ordinary Shares began trading in the U.S. market in 1992. Our ADRs currently
trade on the Over-the-Counter ("OTC") Bulletin Board under the symbol
"BKLYY.PK."
BUSINESS SEGMENTS
We currently have two business segments that we operate through our
subsidiaries: venture capital and consulting; and life insurance and annuities.
Our principal operating subsidiaries, by business segment and location, are set
forth below:
Principal Subsidiaries Business Segment Location
- ------------------------ ---------------- ---------
Berkeley International Capital Corporation Venture capital and consulting San Francisco, California
London Pacific Assurance Limited Life insurance and annuities Jersey, Channel Islands
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See Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations by Business Segment" and Note
16 to the Consolidated Financial Statements in Item 8 of this Form 10-K for a
summary of our financial information by business segment and geographical
location.
Venture Capital and Consulting
Our venture capital and consulting business is managed by Berkeley
International Capital Corporation ("BICC"). Over the years, our venture capital
and consulting business has focused primarily on U.S. high technology companies,
with investments as high as $25 million. One new private equity investment for
$1.0 million was made during 2007 by LPAL. Our current venture capital strategy
is focused on identifying opportunities where we can assist private technology
companies to grow their business and to support clients seeking to invest in
Silicon Valley. We back entrepreneurs directly with our own capital, by
coinvesting with clients, or, in certain cases, we may benefit from investments
made by clients if their investments are successful. In 2007, we established
several new equity positions, through direct investment by LPAL and through
equity rights received as part of our consulting activities. We use our
consulting relationships in part to generate fees that cover operating expenses.
The level of consulting fees is expected to be volatile depending on the nature
and extent of our work at any point in time.
Typically, BICC seeks a monthly retainer from its clients. Additional
fees may be earned depending on the intensity of the work such as due diligence
fees on transactions and success fees. The consulting work may involve
assistance with the identification of customers and/or investor prospects;
strategy development; introductory meetings with prospective customers or
investors; and assistance in the implementation of the chosen strategy or
transaction.
As an example of its work, BICC was engaged by a North American
telecommunications equipment company to develop a business strategy for
penetration of the European and Japanese markets. This engagement involved
detailed market and prospect research and meetings with potential clients that
may lead to substantial business for the client company. Another example of
BICC's consulting services has been an engagement advising a European
telecommunications company on making investments in U.S. technology companies.
BICC has a long history and experience in both the U.S. technology
industry and the overseas investment and business markets. It is well positioned
to benefit from the globalization forces that are at work in the industry and
that are challenging so many young technology companies. It can also provide
overseas investors and businesses with the access they desire to U.S.
businesses, technologies and potential sources of funding.
Over the past 27 years, BICC arranged over $1.9 billion of placements in
the private capital markets. Placements were typically arranged in later stage
technology companies, which were near alpha test of their product and needed to
scale up their engineering, marketing and sales infrastructure. Within this
strategy, BICC has been able to identify many promising young technology
companies that have grown in prominence in their fields and gone on to
successful public offerings or acquisition transactions. Many of the companies
are headquartered in close proximity to BICC's offices which allows for easier
access to the companies' management. Most of these companies specialize in
telecommunications (both central office and customer premises), data
communications, software, semiconductors and knowledge learning. These
placements included investments in 3Com, Acuson, Adaptec, Altera, America
Online, Atmel, Cadence Design Systems, Cirrus Logic, Cypress Semiconductor,
Flextronics, IDT, Linear Technology, LSI Logic, Nellcor, Oracle, PMC Sierra and
Packeteer, Inc.
Of the private technology investments arranged by BICC, two investments,
Alacritech, Inc. and Xtera Communications, Inc., are currently held by LPAL.
During 2007, 51% of consulting fee revenues were generated from one
client. The level of consulting fees is expected to be volatile in future
periods depending on the nature and extent of our work at any point in time. We
seek returns from technology companies in Silicon Valley by backing
entrepreneurs directly with our
2
own capital, by coinvesting with clients, or, in certain cases, we may benefit
from investments made by clients if their investments are successful.
Competition
Our venture capital and consulting business faces competition primarily
from commercial banks, investment banks, venture capital firms, insurance
companies, hedge funds and consulting firms, many of which have substantially
greater financial resources. The marketplace for venture capital and consulting
is highly competitive, and demand for services is also influenced by economic
and stock market conditions.
Life Insurance and Annuities
Formed in 1999, our Jersey, Channel Islands insurance subsidiary, LPAL,
has principally been engaged in marketing and servicing investment oriented
insurance products. LPAL sold Sterling, U.S. dollar and Euro guaranteed return
bonds in its home market of Jersey, Channel Islands, and in the U.K., Guernsey,
Isle of Man and other permitted jurisdictions. The products guarantee both
capital and yield for the duration of the investment period, which are typically
three or five years. In recent years, LPAL has not sold any new policies due to
the high capital requirements. The number of policyholders has declined
significantly to three at the end of 2007. We have no current plans to sell new
policies, but we monitor the markets for opportunities. LPAL's strategy for its
investment portfolio has been to at least match the level of policyholder
liabilities with corporate bonds and cash. As of December 31, 2007, LPAL's
policyholder liabilities, including death claims pending payout, totaled
$141,000, and LPAL's cash totaled $10.3 million. LPAL held no corporate bonds at
the end of 2007. LPAL's investment portfolio included two private equity
securities valued at $1.8 million as of December 31, 2007.
REGULATION
London Pacific Assurance Limited
LPAL is regulated by the Jersey Financial Services Commission ("JFSC").
Under Article 6 of the Insurance Business (Jersey) Law 1996, LPAL is permitted
to conduct long-term insurance business. LPAL is required to submit annual
audited financial statements (prepared under United States generally accepted
accounting principles as permitted by regulation), and an audited annual filing
to the JFSC in the format consistent with that required by the Financial
Services Authority in the United Kingdom. The annual filing submitted by LPAL
must be accompanied by a Certificate from the Appointed Actuary that based on
sufficiently prudent assumptions, assets are sufficient to cover all
liabilities. The annual filing contains a report from the Appointed Actuary on
the matching of investments to liabilities.
The JFSC sets out the conditions with which LPAL must comply and
determines the reporting requirements and the frequency of reporting. These
conditions require that: (i) LPAL must hold, at all times, approved assets at
least equal to the long-term insurance fund plus the required minimum solvency
margin, (ii) the margin of solvency must be the greater of (pound)50,000 or 2.5%
of the value of the long-term business fund, and (iii) assets equal to not less
than 90% of liabilities must be placed with approved independent custodians. As
of December 31, 2007, LPAL met all of these conditions.
LPAL is also required under the insurance laws to appoint an actuary. The
actuary must be qualified as defined under the laws and is required to supervise
the long-term insurance fund. No transfers, except in satisfaction of long-term
insurance business liabilities, are permitted from LPAL's long-term insurance
fund without the consent of LPAL's directors and actuary. Dividends require the
approval of the JFSC.
Group
Our Chief Financial Officer and in-house attorney are responsible for
managing our subsidiaries' compliance with applicable regulatory requirements.
Although the scope of regulation and form of supervision to which our
subsidiaries are subject, as described above, may vary from jurisdiction to
jurisdiction, the applicable laws and regulations often are complex and
generally grant broad discretion to supervisory
3
authorities in adopting regulations and supervising regulated activities. Our
continuing ability to engage in businesses in the jurisdictions in which our
subsidiaries currently operate is dependent upon compliance with the rules and
regulations promulgated from time to time by the appropriate authorities in each
of these jurisdictions. The burden of such regulation weighs equally upon all
companies carrying on activities similar to those of our subsidiaries, and we do
not consider such regulations to adversely affect the competitive position of
our subsidiaries.
EMPLOYEES
As of December 31, 2007, we had 7 full-time employees.
Item 1A. RISK FACTORS
Not required.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We currently operate from an office located in San Francisco, California,
consisting of approximately 3,800 square feet. We occupy this office under a
lease which will expire at the end of October 2008. We are currently in
negotiations to renew this lease.
We are obligated under a lease until September 2010 for office space
consisting of approximately 3,000 square feet in Jersey, Channel Islands. In
June 2006, we entered into a sublease agreement for the remaining term of our
lease for the entire office space.
See Note 10 to the Consolidated Financial Statements in Item 8 of this
Form 10-K for further information regarding our leases.
Item 3. LEGAL PROCEEDINGS
There are no legal proceedings pending against the Group.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our shareholders during the quarter ended
December 31, 2007.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The principal trading market for our Ordinary Shares is the LSE, under
the symbol "BEK.L," on which such shares have been listed since February 1985.
ADSs, each representing ten Ordinary Shares, are evidenced by ADRs for which The
Bank of New York Mellon is the Depositary. Our ADSs have traded in the
4
United States from September 1992 through August 1993 on the OTC Bulletin Board,
from September 1993 through November 1999 on The Nasdaq Stock MarketSM under the
symbol "LPGL," from November 1999 through July 3, 2002 on the New York Stock
Exchange ("NYSE") under the symbol "LDP," from July 12, 2002 through June 15,
2003 on the OTC Bulletin Board under the symbol "LDPGY.PK" and since June 16,
2003 on the OTC Bulletin Board under the symbol "BKLYY.PK." As of December 31,
2007, there were 64,439,073 Ordinary Shares outstanding of which 12,515,810, or
19.4%, were represented by 1,251,581 ADSs. ADS holders may exercise their voting
rights through the ADR Depositary.
In June 2002, we completed a one-for-ten reverse split of our ADSs. On
June 24, 2002, every ten of our ADSs issued and outstanding were converted and
reclassified into one post-split ADS. Consequently, effective from the opening
of business on June 24, 2002, each ADS is equal to ten Ordinary Shares.
Fractional new ADSs were sold by the Depositary Bank and paid in cash to the ADR
holders. This ADS split did not affect our Ordinary Shares listed on the LSE.
On July 9, 2002, trading of our ADRs was suspended and the securities
were withdrawn from listing and registration on the NYSE due to a fall in price
below the minimum permitted by the NYSE. As a result of the delisting, the
liquidity of our common stock and its price were adversely affected. These
actions may limit our ability to raise additional capital in the future, and
there is no assurance that a significant trading market for the ADRs will
develop. If an active trading market does not develop, ADR holders may be unable
to sell their ADRs.
Subsequent to the delisting, the ability of ADR holders to buy and sell
is limited to trading on the OTC Bulletin Board. Shares traded on the OTC market
generally experience lower trading volume than those traded on the organized
exchanges. The trading volume of the ADRs has decreased substantially since the
NYSE delisting and the transfer of the ADRs to the OTC Bulletin Board.
The following table shows, for the quarters indicated, the reported
highest and lowest middle market quotations (which represent an average of bid
and asked prices) for our Ordinary Shares on the LSE, based on its Daily
Official List, and the high and low trade price information of the ADSs as
obtained from the OTC Bulletin Board:
LSE OTC Bulletin Board
Pounds Sterling Per U.S. Dollars
Ordinary Share Per ADS
----------------------- ----------------------
High Low High Low
--------- --------- --------- ---------
2007:
First quarter................................................. 0.10 0.03 1.08 0.56
Second quarter................................................ 0.07 0.05 1.05 0.80
Third quarter................................................. 0.07 0.04 0.99 0.65
Fourth quarter................................................ 0.07 0.05 1.00 0.65
2006:
First quarter................................................. 0.07 0.06 1.10 0.70
Second quarter................................................ 0.07 0.06 1.20 0.85
Third quarter................................................. 0.07 0.06 1.06 0.90
Fourth quarter................................................ 0.07 0.04 1.14 0.55
Holders
As of February 29, 2008, we had approximately 1,323 Ordinary shareholders
of record and 70 ADS holders of record. Because many Ordinary Shares and ADSs
are held by brokers and various institutions on behalf of other holders, we are
unable to estimate the total number of beneficial holders represented by these
holders of record.
5
Dividends
Until 2002, we paid dividends on our Ordinary Shares in every year since
we became listed on the LSE in 1985. Dividends on our Ordinary Shares were paid
twice a year. In view of our requirement to conserve cash in order to meet the
operating needs and growth opportunities of the business, we did not pay an
interim or final dividend for 2006 or an interim dividend for 2007. Our Board of
Directors will not be recommending a final dividend for the year 2007.
Holders of ADSs are entitled to receive dividends paid, if any, on our
Ordinary Shares through the ADR Depositary.
Under current practice, holders of ADSs who are residents of the United
States for tax purposes receive the net dividend (the gross dividend less the
associated Jersey income tax). See "Taxation - Taxation of Dividends" below.
Currently, Jersey does not have exchange control restrictions on the
payment of dividends on the Ordinary Shares or on the conduct of the Group's
operations. See Note 7 to the Consolidated Financial Statements in Item 8 of
this Form 10-K for details regarding regulatory restrictions on dividends.
TAXATION
The following summary of certain Jersey and U.S. tax consequences
regarding share ownership is based on law and published practice as of March 13,
2008, and is subject to any changes in Jersey and U.S. law or published practice
or in the establishment of any double taxation convention between Jersey and the
U.S. occurring after that date. The summary is not a complete analysis or
listing of all the possible tax consequences and does not address the tax
implications for special classes of holders, such as banks, insurance companies
and dealers in securities. The summary also does not address U.S. state income
tax consequences. Owners of Ordinary Shares and ADSs should consult their own
tax advisors as to the tax consequences of such ownership.
There is no double tax treaty or similar convention between the U.S. and
Jersey. For the purposes of the U.S. Internal Revenue Code of 1986, as amended,
it is assumed that beneficial owners of ADSs, in accordance with the terms of
the Deposit Agreement, will be treated as the owners of the underlying Ordinary
Shares represented by the ADSs.
Taxation of Dividends
Dividends are declared gross in U.S. dollars. Dividends paid by the
Company are treated as having suffered Jersey income tax at the standard rate
(currently 20%) on the gross amount thereof.
Charities, superannuation funds and certain assurance companies in the
U.K., together with individual investors who are not resident in Jersey, may be
entitled to a full or partial repayment of the Jersey income tax credit suffered
on distributions, on submission of a claim to the Jersey Comptroller of Income
Tax. Shareholders who are unsure of their tax position should consult their tax
advisor.
Generally, the net dividend paid to a holder or owner who is a U.S.
citizen, a U.S. resident, a U.S. domestic corporation or a trust or estate whose
income is subject to U.S. federal income taxation regardless of source (a "U.S.
holder") will be included in gross income and treated as foreign source dividend
income for U.S. federal income tax purposes to the extent payment is made out of
the Company's current or accumulated earnings and profits as determined under
U.S. federal income tax principles. Such dividends generally will not be
eligible for the "dividends received" deduction permitted to be taken by U.S.
corporations.
However, special rules apply for purposes of determining the dividend
income and potential foreign tax credits available to a U.S. corporation that
controls 10% or more of the Company's voting stock. Any such shareholder should
consult its tax advisor with respect to the U.S. interest in the Company.
6
Taxation of Capital Gains
Currently, there are no Jersey taxes levied on realized gains on certain
investments. A U.S. holder that sells or exchanges an ADR or Ordinary Share will
generally recognize a gain or loss for U.S. federal income tax purposes, in an
amount equal to the difference between the amount realized and the holder's tax
basis in either the ADS represented by the ADR or the Ordinary Share. Such a
gain or loss will generally be a capital gain or loss if the ADR or the Ordinary
Share was a capital asset in the hands of the U.S. holder and will generally be
a long-term capital gain or loss if the ADR or Ordinary Share was held for more
than one year (including, in the case of an ADR, the period during which the
Ordinary Shares surrendered in exchange therefore were held). In general, the
long-term capital gain of a non-corporate U.S. holder is subject to a maximum
tax rate of 15% for taxable years beginning before January 1, 2011.
Backup Withholding Tax
A U.S. holder may be subject to U.S. backup withholding tax (currently at
a rate of 30%) with respect to dividends received or gross proceeds from the
sale of ADRs or Ordinary Shares unless the holder provides a taxpayer
identification number and certain certifications or otherwise establishes an
exemption from backup withholding. Certain classes of persons, such as
corporations, are exempt from backup withholding. Backup withholding is not an
additional tax; the amount withheld may be credited against the holder's U.S.
federal income tax liability, and a refund of any excess may be obtained from
the U.S. Internal Revenue Service.
Estate and Gift Tax
No death, estate, gift, inheritance or capital transfer taxes are levied
in Jersey. Probate duty is payable in Jersey if an individual dies holding an
interest in the shares of a Jersey company where the total assets of the
deceased located in Jersey for legal purposes are valued at more than
(pound)10,000. The amount of probate duty payable increases depending on the
value of Jersey assets held at death but the maximum probate duty is 0.75%.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty should be payable on any transfer of an Ordinary
Share, or of an ADS, provided it is executed and retained outside the U.K.
Therefore, a transfer of an ADS in the United States would not ordinarily give
rise to a U.K. stamp duty charge.
An instrument transferring Ordinary Shares, or an ADS, could be subject
to U.K. stamp duty if its execution relates to anything done or to be done in
the U.K. For example, a U.K. stamp duty charge may apply if such instrument is
executed in the U.K. or is brought into the U.K. after execution. If the
transfer is on a sale, then the rate of stamp duty will be 0.5% of the
consideration given. If this charge is no more than (pound)5, then the transfer
is exempt. Gifts and other transfers which are neither sales, nor made in
contemplation of a sale, are not subject to this charge.
A transfer of Ordinary Shares from the Depositary directly to a purchaser
on behalf of an ADS holder may be subject to a stamp duty at a rate of 0.5% of
the consideration (if the stamp duty charge is no more than (pound)5, then the
transfer is exempt) if execution of the instrument of transfer relates to
anything done or to be done in the U.K.; for example, if such transfer is
executed in the U.K. or is to be brought into the U.K. after execution.
U.K. stamp duty reserve tax may not be payable on an agreement to
transfer the Ordinary Shares or ADSs.
EQUITY COMPENSATION PLANS
Information regarding our equity compensation plans is presented in Item
12 of this Form 10-K.
7
WARRANTS
On November 11, 2002, we agreed to grant 1,933,172 warrants to subscribe
for our Ordinary Shares to Bank of Scotland in connection with the extension of
our credit facility (which was fully repaid and terminated in June 2003). The
warrants were granted on February 14, 2003 and have an exercise price of
(pound)0.1143 (based on the average of the closing prices of the Ordinary Shares
over the trading days from November 1, 2002 through November 11, 2002), which
was higher than the market price of (pound)0.09 on November 11, 2002. These
warrants are exercisable at any time prior to February 14, 2010.
Item 6. SELECTED FINANCIAL DATA
Not required.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the audited
consolidated financial statements, and the notes thereto, presented in Item 8
"Financial Statements and Supplementary Data" of this Form 10-K. The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. This item should also be
read in conjunction with the "Forward-Looking Statements and Factors That May
Affect Future Results" which are set forth below and in our other filings with
the SEC.
Forward-Looking Statements and Factors That May Affect Future Results
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Form 10-K contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements are based on
current expectations, estimates, forecasts and projections about the industries
in which we operate, management's current beliefs and assumptions made by
management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," "goals," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Future outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
developments or otherwise.
Factors that could cause or contribute to deviations from the
forward-looking statements include those discussed in this section, elsewhere in
this Form 10-K and in our other filings with the SEC. The factors include, but
are not limited to, (i) variations in demand for our products and services, (ii)
the success of our new products and services, (iii) significant changes in net
cash flows in or out of our businesses, (iv) fluctuations in the performance of
debt and equity markets worldwide, (v) the enactment of adverse state, federal
or foreign regulation or changes in government policy or regulation (including
accounting standards) affecting our operations, (vi) the effect of economic
conditions and interest rates in the U.S., the U.K. or internationally, (vii)
the ability of our subsidiaries to compete in their respective businesses,
(viii) our ability to attract and retain key personnel, and (ix) actions by
governmental authorities that regulate our businesses, including insurance
commissions.
8
Results of Operations by Business Segment
Income before income taxes for our reportable operating segments, based
on management's internal reporting structure, is as follows:
Years Ended December 31,
--------------------------
2007 2006
----------- -----------
(In thousands)
Income (loss) from continuing operations before income tax expense by operating
segment:
Venture capital and consulting ........................................................ $ 317 $ (403)
Life insurance and annuities .......................................................... 1,228 (221)
----------- -----------
1,545 (624)
Reconciliation of segment amounts to consolidated amounts:
Interest and other fee income.......................................................... 226 283
Corporate expenses..................................................................... (1,392) (2,336)
Interest expense....................................................................... (1) (1)
----------- -----------
Consolidated income (loss) from continuing operations before
income tax expense................................................................... $ 378 $ (2,678)
----------- -----------
----------- -----------
Business segment data contained in Note 16 to the Consolidated Financial
Statements in Item 8 of this Form 10-K should be read in conjunction with this
discussion. A detailed discussion of the results for each reportable segment
follows.
Venture Capital and Consulting
Certain information regarding our venture capital and consulting
segment's results of operations is as follows:
Years Ended December 31,
--------------------------
2007 2006
----------- -----------
(In thousands)
Revenues and net investment gains:
Consulting fees........................................................................ $ 1,718 $ 705
Change in net unrealized investment gains and losses on
trading securities.................................................................. - 18
----------- -----------
Total revenues and net investment gains................................................ 1,718 723
Operating expenses..................................................................... 1,401 1,126
----------- -----------
Income (loss) from continuing operations before income tax expense..................... $ 317 $ (403)
----------- ------------
----------- ------------
2007 compared to 2006
In 2007, our venture capital and consulting segment contributed income
before income taxes of $0.3 million to our overall income from continuing
operations before income taxes, compared to a loss before income taxes of $0.4
million in 2006. The improved results for this segment were attributable to a
$1.0 million increase in consulting fee revenues.
9
Consulting fee revenues increased from $0.7 million in 2006 to $1.7
million in 2007, due to a contract that was signed with a new client in early
2007 that generated $0.9 million in consulting fees. That contract ran through
the end of 2007. A new contract has been signed with this client in 2008. The
scope of our work under this new contract has been reduced and, accordingly,
consulting revenues from this client during 2008 are expected to be
significantly lower than in 2007.
Under the 2007 contract referenced above, we are entitled to earn
additional compensation in the future depending upon the performance of certain
venture capital investments made by the client with our assistance. Any such
compensation would be paid to us as a proportion of any capital gain realized by
the client, after deducting certain costs, upon a defined realization of the
investment by the client.
Some of the consulting agreements that we have had, provided that we
receive promissory notes that were convertible into preferred stock, or common
stock options, as part of our compensation. During 2007, we received preferred
stock in a consulting client valued at $140,000. We also hold common stock
options in two technology companies that are now fully vested, though we believe
that currently these have no value.
Operating expenses in this segment increased by $0.3 million to $1.4
million in 2007 primarily due to higher staff costs allocated to this segment.
During 2006, some employees who are normally dedicated to the venture capital
and consulting segment spent part of their time on certain corporate matters.
During 2007, these employees were able to focus more fully on venture capital
and consulting activities.
Life Insurance and Annuities
Certain information regarding our life insurance and annuities segment's
results of operations is as follows:
Years Ended December 31,
--------------------------
2007 2006
----------- -----------
(In thousands)
Revenues and net investment gains (losses):
Investment income...................................................................... $ 578 $ 937
Insurance policy charges............................................................... 2 2
Net realized investment gains (losses)................................................. 1,198 (2)
----------- -----------
Total revenues and net investment gains (losses)....................................... 1,778 937
Expenses:
Amounts credited on insurance policyholder accounts.................................... 44 468
General and administrative expenses.................................................... 506 690
----------- -----------
Total expenses......................................................................... 550 1,158
----------- -----------
Income (loss) from continuing operations before income tax expense..................... $ 1,228 $ (221)
----------- -----------
----------- -----------
LPAL's policyholder liabilities fell during 2007 by $3.5 million to $0.1
million primarily due to maturing policies. LPAL now has three policies
remaining which are scheduled to mature in 2009. There are no plans currently to
write new policies.
2007 compared to 2006
In 2007, LPAL contributed income before income taxes of $1.2 million to
our overall income from continuing operations before income taxes, compared to a
loss before income taxes of $0.2 million in 2006. This improved result in 2007
is attributable to the receipt of a $1.2 million partial distribution from the
WorldCom, Inc. securities litigation and a $0.2 million decrease in operating
expenses.
10
Interest income on cash and investments declined by $0.3 million in 2007
to $0.6 million, primarily due to the decline in the level of LPAL's corporate
bond investments and cash, which was consistent with the decline in policyholder
liabilities during 2007. The level of LPAL's corporate bonds and cash at the end
of 2007 was $10.3 million, compared with $13.4 million at the end of 2006.
Interest credited on policyholder accounts decreased by $0.4 million in 2007 to
$44,000, compared to $0.5 million in 2006. This decrease was due primarily to
policy maturities since December 31, 2006. The average rate credited to
policyholders was 4.8% in 2007, compared with 5.1% in 2006.
Total assets decreased to $12.2 million as of December 31, 2007, compared
to $14.5 million as of December 31, 2006, primarily due to policyholder benefits
paid of $3.5 million during 2007.
Realized investment gains for 2007 were $1.2 million. This amount was
received in January 2007 and represents a partial distribution from the
WorldCom, Inc. securities litigation. LPAL held certain WorldCom, Inc. publicly
traded bonds which it sold at a loss in 2002. This $1.2 million payment reverses
part of the realized loss recorded in 2002. Since this payment is for LPAL's
account, it is not available to fund the operations or commitments of the
Company or its other subsidiaries.
Policyholder liabilities as of December 31, 2007 were $141,000. There
were three policies outstanding as of that date totaling $95,000 which are
scheduled to mature in 2009. The balance of $46,000 relates to two death claims
which are pending payment.
Included in general and administrative expenses for 2007 are $44,000 of
employee severance costs. Excluding these employee severance costs, general and
administrative expenses for 2007 were $0.5 million, compared with $0.7 million
for 2006. This $0.2 million decrease was primarily due to lower staff costs as
well as to lower facilities costs subsequent to the sublease of our Jersey
office in mid-2006. We no longer have staff or operations in Jersey, though LPAL
maintains a registered office in Jersey and is still regulated by the JFSC.
Subsequent Events
LPAL received a $0.3 million payment in February 2008, representing the
final distribution from the WorldCom, Inc. securities litigation, which will be
recognized in the Group's statement of operations for the first quarter of 2008.
Since this payment is for LPAL's account, it is not available to fund the
operations or commitments of the Company or its other subsidiaries.
In February 2008, LPAL submitted a claim in the Enron Securities class
action settlement, based on certain Enron bonds previously held by LPAL which
LPAL believes constitute "Category 1" securities eligible for the Enron
settlement proceeds. We do not expect any payment based on LPAL's claim until
2009 at the earliest. The amount of the recovery of LPAL's realized investment
losses recorded in 2002 is currently unknown.
Corporate and Other
2007 compared to 2006
Corporate expenses decreased by $0.9 million to $1.4 million in 2007,
compared to 2006. This decrease was due to losses associated with the sublease
of our Jersey office of $0.2 million recorded in 2006; the settlement of the
SunGard litigation matter during 2006 which resulted in lower legal fees of $0.4
million in 2007 and lower staff allocations to the corporate segment in 2007 of
$0.2 million; lower corporate insurance costs of $0.1 million; and lower staff
costs of $0.1 million due to the reduction in staff during the first half of
2007. We expect corporate expenses to decline in 2008 compared to 2007,
primarily due to the closure of our Jersey office in mid-2007. The Company
however continues to maintain a registered office in Jersey.
11
Consolidated Income (Loss) from Continuing Operations Before Income Tax Expense
2007 compared to 2006
Our consolidated income from continuing operations before income tax
expense was $0.4 million in 2007, compared to a loss before income taxes of $2.7
million in 2006. This $3.1 million improvement in results was due primarily to
an increase in consulting fee revenues of $1.0 million, a decrease in operating
expenses of $0.9 million (as explained above), and the $1.2 million realized
investment gain from the partial settlement proceeds from the WorldCom, Inc.
securities litigation.
We continue to pursue opportunities to grow the business in the future,
however, there is no guarantee that we will be successful in redeveloping our
venture capital and consulting operations.
Income Taxes
We are subject to taxation on our income in all countries in which we
operate based upon the taxable income arising in each country. However, realized
gains on certain investments are exempt from Jersey and Guernsey taxation. We
are subject to income tax in Jersey at a rate of 20%. In the United States, we
are subject to both federal and California taxes at rates up to 34% and 8.84%,
respectively.
2007 compared to 2006 (continuing operations)
The $2,000 tax expense for 2007 is comprised of our minimum California
taxes. Other than these taxes, no other tax expense or benefits were applicable
to our Group for this period. Income before income taxes of $0.3 million was
contributed by our Jersey and Guernsey operations, however this includes the
$1.2 million of investment gain related to the partial WorldCom, Inc. litigation
settlement which is treated as a capital gain for tax purposes. Realized gains
on certain investments are not taxed in Jersey. Our U.S subsidiaries contributed
income before income taxes of $0.1 million during 2007. Due to net operating
loss carryforwards to 2007, our U.S. subsidiaries have no tax liability for
2007. In 2006, our only tax expense was $5,000 of minimum California taxes.
Discontinued Operations
The $1.0 million loss on discontinued operations recorded in 2006
resulted from the write-off of the $1.0 million of cash held in escrow which was
part of the proceeds from the sale of London Pacific Advisors in June 2003 held
back to cover any of the Group's indemnity obligations. For further information
see Note 2 "Discontinued Operations" to the Consolidated Financial Statements in
Item 8 of this Form 10-K.
While the $1.0 million loss on discontinued operations in 2006 was
attributable to one of our U.S subsidiaries, we did not recognize any U.S. tax
benefits due to the 100% valuation allowances that we have provided for all
deferred tax assets.
CRITICAL ACCOUNTING POLICIES
Management has identified those accounting policies that are most
important to the accurate portrayal of our financial condition and results of
operations and that require management's most complex or subjective judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. These most critical accounting policies pertain to our
investments, life insurance policy liabilities, revenue recognition, and
assumptions used to value share options granted. These critical accounting
policies are described below.
Accounting for Investments
As the majority of the Group's assets are in its life insurance and
annuities business, the Group considers itself an insurance company for
financial reporting purposes. As such, we comply with the provisions of
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain
12
Investments in Debt and Equity Securities," for all of our debt and equity
investments. In accordance with paragraph 127(b) of SFAS 115, insurance
companies are required to report equity securities at fair value even if they do
not meet the scope criteria in paragraph 3 of SFAS 115. Thus, all of our
investments must be reported at fair value, and temporary changes in fair value
are recognized as unrealized gains and losses and reported, net of applicable
income taxes, in a separate component of shareholders' equity.
Determination of Fair Values of Investments
When a quoted market price is available for a security, we use this price
in the determination of fair value. If a quoted market price is not available
for a security, management estimates the security's fair value based on
valuation methodologies as described below.
We hold investments in privately held equity securities, primarily
convertible preferred stock in venture capital companies doing business in
various segments of technology industries. Venture capital investing entails
making investments in companies that are developing products or services for
large emerging markets with the belief that these investments will yield
superior returns if these companies are successful. These investments are
normally held for a number of years. When we make these investments, most of the
companies are still developing the products they intend to bring to market or
are in the early stages of product sales. Venture capital financed companies are
net consumers of cash and often dependent upon additional financing to execute
their business plans. These investments involve substantial risk and the
companies generally lack meaningful historical financial results used in
traditional valuation models. The process of pricing these securities ranges
from fierce competitive bidding between financial institutions to existing
investors negotiating prices with the company without outside investor
validation. Investments in convertible preferred stock come with rights that
vary dramatically both from company to company and between rounds of financing
within the same company. These rights, such as anti-dilution, redemption,
liquidation preferences and participation, bear directly on the price an
investor is willing to pay for a security. The returns on these investments are
generally realized through an initial public offering of the company's shares
or, more commonly, through the company's acquisition by a public company.
One of the factors affecting fair value is the amount of time before a
company requires additional financing to support its operations. Management
believes that companies that are financed to the estimated point of operational
profitability or for a period greater than one year will most likely return
value to the investor through an acquisition between a willing buyer and seller,
as the company does not need to seek financing from an opportunistic investor or
insider in an adverse investment environment. If a particular company needs
capital in the near term, management considers a range of factors in its fair
value analysis, including our ability to recover our investment through
surviving liquidation preferences. Management's valuation methodologies also
include fundamental analysis that evaluates the investee company's progress in
developing products, building intellectual property portfolios and securing
customer relationships, as well as overall industry conditions, conditions in
and prospects for the investee's geographic region, and overall equity market
conditions. This is combined with analysis of comparable acquisition
transactions and values to determine if the security's liquidation preferences
will ensure full recovery of our investment in a likely acquisition outcome. In
its valuation analysis, management also considers the most recent transaction in
a company's shares.
The determination of fair values of investments requires the application
of significant judgment. It is possible that the factors evaluated by management
and fair values will change in subsequent periods, especially with respect to
our privately held equity securities in technology companies, resulting in
material impairment charges in future periods. Historistically, we have
determined that our best estimate of the fair value of our private equity
investments has equaled our cost basis, unless there has been a temporary or
other-than-temporary impairment of the investment.
Other-than-temporary Impairments of Investments
Management performs an ongoing review of all investments in the portfolio
to determine if there are any declines in fair value that are
other-than-temporary.
13
In relation to our equity securities that do not have a readily
determinable fair value and are classified as available-for-sale, factors
considered in impairment reviews include: (i) the length of time and extent to
which estimated fair values have been below cost and the reasons for the
decline, (ii) the investee's recent financial performance and condition,
earnings trends and future prospects, (iii) the market condition of either the
investee's geographic area or industry as a whole, and (iv) concerns regarding
the investee's ability to continue as a going concern (such as the inability to
obtain additional financing). If the evidence supports that a decline in fair
value is other-than-temporary, then the investment is reduced to its estimated
fair value, which becomes its new cost basis, and a realized loss is reflected
in earnings.
We determine that a fixed maturity security is impaired when it is
probable that we will not be able to collect amounts due (principal and
interest) according to the security's contractual terms. We make this
determination by considering all available facts and circumstances, including
our intent and ability to continue to hold the investment to maturity. The
factors we consider include: (i) the length of time and extent to which the
market values have been below amortized cost and the reasons for the decline,
(ii) the issuer's recent financial performance and condition, earnings trends
and future prospects in the near to mid-term, (iii) changes in the issuer's debt
rating and/or regulatory actions or other events that may effect the issuer's
operations, (iv) the market condition of either the issuer's geographic area or
industry as a whole, and (v) factors that raise doubt about the issuer's ability
to continue as a going concern. If the evidence supports that a decline in fair
value is other-than-temporary, then the fixed maturity security is written down
to its quoted market value, if such a value is available. If a readily
determinable fair value does not exist, then the fixed maturity security is
written down to management's estimate of its fair value, which is based on the
valuation methodologies described above. Write-downs are recorded as realized
losses and included in earnings.
The evaluations for other-than-temporary impairments require the
application of significant judgment. It is possible that the impairment factors
evaluated by management and fair values will change in subsequent periods,
especially with respect to privately held equity securities in technology
companies, resulting in material impairment charges in future periods.
Life Insurance Policy Liabilities
We account for life insurance policy liabilities in accordance with
Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments." We account for life insurance policy
liabilities for deferred annuities as investment-type insurance products and we
record these liabilities at accumulated value (premiums received, plus accrued
interest to the balance sheet date, less withdrawals and assessed fees).
Revenue Recognition
The timing of revenue recognition for consulting services requires a
degree of judgment. Under SEC Staff Accounting Bulletin No. 104 ("SAB 104"),
revenue is realized or realizable and earned when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
seller's price to the buyer is fixed and determinable and collectibility is
reasonably assured. We recognize consulting fee revenues in our consolidated
statement of operations as the services are performed, if all the conditions of
SAB 104 are met. We do not recognize performance based revenues under a
consulting arrangement until the payments are earned, the client has
acknowledged the liability in writing and collectibility is reasonably assured.
Valuation of Share Options Granted
We calculate the fair value of share option grants to employees using the
Black-Scholes option pricing model, even though this model was developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which differ significantly from the Company's share
options. The Black-Scholes model also requires subjective assumptions, including
future share price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate is
14
based on the U.S. Treasury rates in effect during the corresponding period of
grant. The expected volatility is based on the historical volatility of the
Company's share price. These factors could change in the future, which would
affect the share based compensation expense in future periods, if the Company,
through the ESOT, should grant additional share options. It should be noted,
however, that share based compensation expense in the Company's consolidated
statement of operations has no negative impact on total shareholders' equity
because there is an offsetting entry to additional paid-in capital in the
Company's consolidated balance sheet.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements in Item 8 of this
Form 10-K for a summary of recently issued accounting pronouncements.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents increased during 2007 by $7.9 million from
$6.7 million as of December 31, 2006 to $14.6 million as of December 31, 2007.
This increase in cash and cash equivalents primarily resulted from $12.2 million
of cash provided by investing activities, partially offset by $3.6 million and
$0.8 million of cash used in financing activities and operating activities,
respectively. Cash provided by investing activities primarily related to the
maturity of fixed maturity securities in LPAL and the Group, partially offset by
the purchase of an available-for-sale private equity security by LPAL. Cash used
in financing activities related to insurance policyholder benefits paid by LPAL.
Cash used in operating activities primarily resulted from the $0.4 million in
operating income for 2007, less the $1.2 million partial proceeds from the
WorldCom, Inc. securities litigation settlement which is included in cash flows
from investing activities. As of December 31, 2007, our cash and cash
equivalents, excluding the amount held by LPAL, amounted to $4.3 million, an
increase of $1.9 million from December 31, 2006. We received $3.0 million in
proceeds from the maturity of corporate bonds during 2007, which were partially
offset by cash used in operating activities.
The $10.3 million of cash and cash equivalents held by LPAL, as well as
the $1.8 million of investments held by LPAL, are not currently available to
fund the operations or commitments of the Company or its other subsidiaries.
However, a dividend could be paid from LPAL to the Company upon approval from
the JFSC, although currently the Company does not have plans to request such a
dividend.
Shareholders' equity increased during 2007 by $0.6 million from $15.9
million at December 31, 2006 to $16.5 million as of December 31, 2007, primarily
due to net income for the period of $0.4 million. As of December 31, 2007 and
2006, $62.6 million of our Ordinary Shares, at cost, held by the employee
benefit trusts have been netted against shareholders' equity.
During 2007, LPAL continued to service its existing policyholders. During
this period, policy surrenders totaled $0.1 million and policy maturities and
death claims totaled $3.5 million. Policyholder liabilities were $0.1 million as
of December 31, 2007, compared to $3.6 million as of December 31, 2006. We do
not expect any surrender activity during 2008. The policies remaining at
December 31, 2007 are scheduled to mature in 2009. LPAL has sufficient liquid
resources to fund these maturities. As of December 31, 2007, LPAL had cash of
$10.3 million.
As of December 31, 2007, we had no bank borrowings, guarantee
obligations, material commitments outstanding for capital expenditures or
additional funding for private equity portfolio companies.
As of December 31, 2007, we had $4.3 million of cash and cash
equivalents, excluding cash held by our life insurance and annuities segment. We
believe that this cash balance is sufficient to fund our operations (venture
capital and consulting and corporate activities) over at least the next 12
months.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm..................................................... 17
Consolidated Balance Sheets as of December 31, 2007 and 2006................................................ 18
Consolidated Statements of Operations for the Years Ended
December 31, 2007 and 2006.............................................................................. 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006.............................................................................. 20
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2007 and 2006.............................................................................. 22
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2007 and 2006.............................................................................. 23
Notes to Consolidated Financial Statements.................................................................. 24
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
Berkeley Technology Limited
Jersey, Channel Islands
We have audited the accompanying consolidated balance sheets of Berkeley
Technology Limited (the "Company") as of December 31, 2007 and 2006 and the
related consolidated statements of operations, cash flows, changes in
shareholders' equity and comprehensive income for each of the two years in the
period ended December 31, 2007. In connection with our audits of the financial
statements, we have also audited the financial schedules on pages 55 to 60 in
Item 15 (the "Schedules"). These financial statements and the Schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the Schedules based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, 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 Berkeley
Technology Limited at December 31, 2007 and 2006, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment."
Also, in our opinion, the Schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
San Francisco, California
March 28, 2008
17
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
--------------------------
2007 2006
----------- -----------
ASSETS
Investments (principally of life insurance subsidiary):
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $0 and $9,021
as of December 31, 2007 and 2006, respectively)............................ $ - $ 9,007
Held-to-maturity, at amortized cost (fair value: $0 and $3,004 as of
December 31, 2007 and 2006, respectively).................................. - 3,009
Equity securities:
Available-for-sale, at estimated fair value................................ 1,984 844
----------- -----------
Total investments................................................................. 1,984(1) 12,860
Cash and cash equivalents......................................................... 14,568(1) 6,707
Accrued investment income......................................................... 15 304
Property and equipment, net....................................................... 14 17
Other assets...................................................................... 586 349
----------- -----------
Total assets...................................................................... $ 17,167 $ 20,237
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Life insurance policy liabilities................................................. $ 141 $ 3,640
Accounts payable and accruals..................................................... 547 674
----------- -----------
Total liabilities................................................................. 688 4,314
----------- -----------
Commitments and contingencies (See Note 10)
Shareholders' equity:
Ordinary shares, $0.05 par value per share: 86,400,000 shares authorized;
64,439,073 shares issued and outstanding as of December 31, 2007
and 2006....................................................................... 3,222 3,222
Additional paid-in capital........................................................ 67,789 67,718
Retained earnings................................................................. 8,465 7,999
Employee benefit trusts, at cost (13,522,381 shares as of
December 31, 2007 and 2006).................................................... (62,598) (62,598)
Accumulated other comprehensive loss.............................................. (399) (418)
----------- -----------
Total shareholders' equity........................................................ 16,479 15,923
----------- -----------
Total liabilities and shareholders' equity........................................ $ 17,167 $ 20,237
----------- -----------
----------- -----------
<FN>
(1) Includes $1,844 of investments and $10,315 of cash and cash equivalents in the Company's insurance subsidiary
(London Pacific Assurance Limited ("LPAL")) which are not currently available to fund the operations or
commitments of the Company or its other subsidiaries.
</FN>
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
18
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and ADS amounts)
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
Continuing operations:
Revenues:
Investment income.................................................................... $ 804 $ 1,203
Insurance policy charges............................................................. 2 2
Consulting and other fee income...................................................... 1,718 722
Net realized investment gains (losses)............................................... 1,198 (2)
Change in net unrealized investment gains and losses on trading
securities........................................................................ - 18
------------ ------------
3,722 1,943
Expenses:
Amounts credited on insurance policyholder accounts.................................. 44 468
Operating expenses................................................................... 3,299 4,152
Interest expense..................................................................... 1 1
------------ ------------
3,344 4,621
------------ ------------
Income (loss) from continuing operations before income tax expense................... 378 (2,678)
Income tax expense .................................................................. 2 5
------------ ------------
Income (loss) from continuing operations............................................. 376 (2,683)
Discontinued operations:
Loss on disposal of discontinued operations, net of income
tax expense of $0................................................................. - (1,000)
------------ ------------
Loss on discontinued operations...................................................... - (1,000)
------------ ------------
Net income (loss).................................................................... $ 376 $ (3,683)
------------ ------------
------------ ------------
Basic and diluted earnings (loss) per share and ADS:
Basic and diluted earnings (loss) per share:
Continuing operations................................................................ $ 0.01 $ (0.05)
Discontinued operations.............................................................. - (0.02)
------------ ------------
$ 0.01 $ (0.07)
------------ ------------
------------ ------------
Basic and diluted earnings (loss) per ADS:
Continuing operations................................................................ $ 0.07 $ (0.53)
Discontinued operations.............................................................. - (0.20)
------------ ------------
$ 0.07 $ (0.73)
------------ ------------
------------ ------------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
19
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
Net income (loss).................................................................... $ 376 $ (3,683)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization........................................................ 5 32
Non-cash consulting fees............................................................. (140) -
Amounts credited on insurance policyholder accounts.................................. 44 468
Net realized investment losses (gains)............................................... (1,198) 2
Loss on forfeiture of escrow......................................................... - 1,000
Change in net unrealized investment gains and losses
on trading securities............................................................. - (18)
Net amortization of investment premiums and discounts................................ 30 185
Share based compensation............................................................. 71 58
Net changes in operating assets and liabilities:
Trading equity securities......................................................... - 108
Accrued investment income ........................................................ 289 305
Other assets...................................................................... (237) (37)
Life insurance policy liabilities................................................. (2) (2)
Accounts payable, accruals and other liabilities.................................. (27) 168
Other operating cash flows........................................................... 2 25
------------ ------------
Net cash used in operating activities................................................ (787) (1,389)
------------ ------------
Cash flows from investing activities:
Purchases of held-to-maturity fixed maturity securities.............................. - (3,036)
Purchases of available-for-sale fixed maturity securities............................ - (9,082)
Purchases of available-for-sale equity securities.................................... (1,000) -
Proceeds from maturity of held-to-maturity fixed maturity securities................. 3,000 7,000
Proceeds from sale and maturity of available-for-sale fixed
maturity securities............................................................... 9,000 14,364
Partial proceeds from WorldCom, Inc. securities litigation settlement ............... 1,198 -
Capital expenditures................................................................. (4) (7)
------------ ------------
Net cash provided by investing activities ........................................... 12,194 9,239
------------ ------------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
20
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
Cash flows from financing activities:
Insurance policyholder benefits paid................................................. (3,560) (11,625)
------------ ------------
Net cash used in financing activities................................................ (3,560) (11,625)
------------ ------------
Effect of exchange rate changes on cash.............................................. 14 443
------------ ------------
Net increase (decrease) in cash and cash equivalents................................. 7,861 (3,332)
Cash and cash equivalents at beginning of year....................................... 6,707 10,039
------------ ------------
Cash and cash equivalents at end of year (1)......................................... $ 14,568 $ 6,707
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes (net of amounts recovered).............................................. $ 2 $ 5
<FN>
(1) The amount for December 31, 2007 includes $10,315 in the Company's insurance subsidiary (LPAL) which is
not currently available to fund the operations or commitments of the Company or its other subsidiaries.
</FN>
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
21
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Ordinary Shares Additional Employee Compre- Total
-------------------- Paid-in Retained Benefit hensive Shareholders'
Number Amount Capital Earnings Trusts Loss Equity
---------------------------------------------------------------------------------------
Balance as of January 1, 2006 64,439 $ 3,222 $ 67,660 $ 11,682 $ (62,598) $ (363) $ 19,603
Net loss........................ - - - (3,683) - - (3,683)
Change in net unrealized
gains and losses on
available-for-sale securities - - - - - (34) (34)
Foreign currency translation
adjustment................... - - - - - (21) (21)
Share based compensation,
including income tax
effect of $0 ................ - - 58 - - - 58
--------- --------- ---------- ---------- --------- ----------- -----------
Balance as of
December 31, 2006............ 64,439 $ 3,222 $ 67,718 $ 7,999 $ (62,598) $ (418) $ 15,923
--------- --------- ---------- ---------- --------- ----------- -----------
--------- --------- ---------- ---------- --------- ----------- -----------
Net income...................... - $ - $ - $ 376 $ - $ - $ 376
Change in net unrealized
gains and losses on
available-for-sale securities - - - - - 14 14
Foreign currency translation
adjustment................... - - - - - 5 5
Unclaimed dividends............. - - - 90 - - 90
Share based compensation,
including income tax
effect of $0................. - - 71 - - - 71
--------- --------- ---------- ---------- --------- ----------- -----------
Balance as of
December 31, 2007............ 64,439 $ 3,222 $ 67,789 $ 8,465 $ (62,598) $ (399) $ 16,479
--------- --------- ---------- ---------- --------- ----------- -----------
--------- --------- ---------- ---------- --------- ----------- -----------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
22
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
Net income (loss).................................................................... $ 376 $ (3,683)
Other comprehensive income (loss), net of deferred income taxes:
Foreign currency translation adjustments, net of income taxes of $0.................. 5 (21)
Change in net unrealized gains and losses:
Unrealized holding gains and losses on available-for-sale securities.............. 14 (14)
Reclassification adjustment for gains and losses included in
net income (loss)............................................................... - (20)
------------ ------------
Other comprehensive income (loss).................................................... 19 (55)
------------ ------------
Comprehensive income (loss).......................................................... $ 395 $ (3,738)
------------ ------------
------------ ------------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
23
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
As used herein, the terms "registrant" and "Company" refer to Berkeley
Technology Limited. Except as the context otherwise requires, the term "Group"
refers collectively to the registrant and its subsidiaries.
Note 1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared by
the Company in conformity with United States generally accepted accounting
principles ("U.S. GAAP"). These consolidated financial statements include the
accounts of the Company, its subsidiaries, the Employee Share Option Trust
("ESOT") and the Agent Loyalty Opportunity Trust ("ALOT"). Significant
subsidiaries included in the continuing operations of the Group and discussed in
this document include London Pacific Assurance Limited ("LPAL") and Berkeley
International Capital Corporation ("BICC"). All intercompany transactions and
balances have been eliminated in consolidation.
The consolidated balance sheets are presented in an unclassified format
as the majority of the Group's assets relate to its life insurance and annuities
business. The Group's other business is venture capital and consulting.
The Company is incorporated under the laws of Jersey, Channel Islands.
Its Ordinary Shares are traded on the London Stock Exchange and in the U.S. on
the OTC Bulletin Board in the form of American Depositary Shares ("ADSs"), which
are evidenced by American Depositary Receipts ("ADRs"). Each ADS represents ten
Ordinary Shares. Pursuant to the regulations of the U.S. Securities and Exchange
Commission ("SEC"), the Company is considered a U.S. domestic registrant and
must file financial statements prepared under U.S. GAAP. As the Company is a
"Smaller Reporting Company" as defined by SEC rules that became effective on
February 4, 2008, only two years of financial statements are included herein.
Cash and Cash Equivalents
The Group considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Investments
As the majority of the Group's assets are in its life insurance and
annuities business, the Group considers itself an insurance company for
financial reporting purposes. As such, the Group complies with the provisions of
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity Securities," for all of its debt and
equity investments. In accordance with paragraph 127(b) of SFAS 115, insurance
companies are required to report equity securities at fair value even if they do
not meet the scope criteria in paragraph 3 of SFAS 115. Thus, all of the Group's
investments are reported at fair value, and temporary changes in fair value are
recognized as unrealized gains and losses and reported, net of applicable income
taxes, in a separate component of shareholders' equity.
The Group's investments consist of fixed maturity and equity securities.
Fixed maturity securities are classified as either available-for-sale or
held-to-maturity, and equity securities are classified as either trading or
available-for-sale. The investments are accounted for as follows:
i) Available-for-sale securities are recorded at fair value, with
changes in unrealized gains and losses excluded from net income, but reported
net of applicable income taxes as a separate component of accumulated other
comprehensive income;
24
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ii) Held-to-maturity securities are recorded at amortized cost unless
these securities become other than temporarily impaired; and
iii) Trading securities are recorded at fair value with changes in
unrealized gains and losses included in net income.
When a quoted market price is available for a security, the Group uses
this price to determine fair value. If a quoted market price is not available
for a security, management estimates the security's fair value based on
appropriate valuation methodologies. Management's valuation methodologies
include fundamental analysis that evaluates the investee company's progress in
developing products, building intellectual property portfolios and securing
customer relationships, as well as overall industry conditions, conditions in
and prospects for the investee's geographic region, overall equity market
conditions, and the level of financing already secured and available. This is
combined with analysis of comparable acquisition transactions and values to
determine if the security's liquidation preferences will ensure full recovery of
the Group's investment in a likely acquisition outcome. In its valuation
analysis, management also considers the most recent transaction in a company's
shares.
Amortization of premiums and accretion of discounts on fixed maturity
securities are reflected in earnings over the contractual terms of the
investments in a manner that produces a constant effective yield. Realized gains
and losses on securities are included in net income using the specific
identification method. Any other-than-temporary declines in the fair value of
available-for-sale or held-to-maturity securities, below the cost or amortized
cost basis, are recognized as realized losses in the consolidated statements of
operations. The cost basis of such securities is adjusted to reflect the
write-down recorded.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost less
accumulated depreciation. Depreciation is calculated on a straight-line basis at
rates sufficient to write-off such assets over their estimated useful lives on
the following basis:
Furniture and equipment - five years
Computer equipment, including software - three to five years
Leasehold improvements - life of lease
Assets held under capital leases are included in property, equipment and
leasehold improvements and are depreciated over their estimated useful lives.
The future obligations under these leases are included in accounts payable and
accruals. Interest paid on capital leases is charged to the statement of
operations over the periods of the leases.
Life Insurance Policy Liabilities, Revenues and Expenses
Life insurance policy liabilities, premium revenues and related expenses
are accounted for in accordance with Statement of Financial Accounting Standards
No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," as follows:
i) Life insurance policy liabilities for deferred annuities are accounted
for as investment-type insurance products and are recorded at accumulated value
(premiums received, plus accrued interest to the balance sheet date, less
withdrawals and assessed fees);
ii) Revenues for investment-type insurance products consist of charges
assessed against policy account values for surrenders; and
25
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
iii) Benefits for investment-type insurance products are charged to
expense when incurred and reflect the claim amounts in excess of the policy
account balance. Expenses for investment-type products include the interest
credited to the policy account balance.
Revenue Recognition
Interest income is accounted for on an accrual basis. Dividends are
accounted for when declared.
Consulting fees are recognized in income on an accrual basis, based upon
when services are performed and in accordance with SEC Staff Accounting Bulletin
No. 104 ("SAB 104"). Under SAB 104, revenue is realized or realizable and earned
when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the seller's price to the buyer is fixed and
determinable and collectibility is reasonably assured. Performance based
revenues under a consulting arrangement are not recorded until the payments are
earned, the client has acknowledged the liability in writing and collectibility
is reasonably assured.
Share Based Compensation
Equity compensation plan
The London Pacific Group 1990 Employee Share Option Trust ("ESOT"), which
was approved by shareholders in 1990, provides for the granting of share options
to employees and directors. Options are generally granted with an exercise price
equal to the fair market value of the underlying shares at the date of grant.
Such grants to employees and directors are generally exercisable in four equal
annual installments beginning one year from the date of grant, subject to
employment continuation, and expire seven to ten years from the date of grant.
Share based compensation expense
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004) ("SFAS 123R"), "Share-Based
Payment," which establishes standards for the accounting of transactions in
which an entity exchanges its equity instruments for goods or services,
primarily focusing on accounting for transactions where an entity obtains
employee services in share based payment transactions. SFAS 123R requires a
public entity to measure the cost of employee services received in exchange for
an award of equity instruments, including share options, based on the fair value
of the award on the grant date, and to recognize it as compensation expense over
the period the employee is required to provide service in exchange for the
award, usually the vesting period. SFAS 123R supersedes the Company's previous
accounting under Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees," and related interpretations, for
periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 ("SAB 107") relating to SFAS 123R. The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123R.
The Company adopted SFAS 123R using the modified prospective transition
method as permitted under SFAS 123R. Accordingly, prior period amounts have not
been restated. Under this application, the Company is required to record
compensation expense for all awards granted after the date of adoption and for
the unvested portion of previously granted awards that remain outstanding at the
date of adoption. Prior to the adoption of SFAS 123R, the Company used the
intrinsic value method as prescribed by APB 25 and thus recognized no
compensation expense for options granted with exercise prices equal to the fair
market value of the Company's ordinary shares on the date of grant.
26
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 2005, the Financial Accounting Standards Board ("FASB")
issued Staff Position No. FAS 123(R)-3 ("FSP 123R-3"), "Transition Election
Related to Accounting for the Tax Effects of Share-Based Payments." The Company
has elected to adopt the alternative transition method provided in FSP 123R-3
for calculating the tax effects of share based compensation under SFAS 123R. The
alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool ("APIC pool") related
to the tax effects of share based compensation, and for determining the
subsequent impact on the APIC pool and consolidated statements of cash flows of
the tax effects of share based compensation awards that are outstanding upon
adoption of SFAS 123R.
SFAS 123R requires companies to estimate the fair value of share based
payment awards on the date of grant using an option pricing model. The value of
the portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's consolidated
statement of operations.
Share based compensation expense recognized in the Company's consolidated
statement of operations for the year ended December 31, 2006 includes
compensation expense for share options granted prior to, but not yet vested as
of December 31, 2005, based on the fair value estimated as of the date of grant
in accordance with the provisions of SFAS 123R. No share options were granted
during 2006. Share based compensation expense for 2007 includes compensation
expense for share options granted prior to, but not yet vested as of December
31, 2006, as well as compensation expense for 4.5 million share options granted
to employees and directors on March 27, 2007. SFAS 123R requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Share based
compensation expense calculated in accordance with SFAS 123R is to be based on
awards ultimately expected to vest, and therefore the expense should be reduced
for estimated forfeitures. The Company's estimated forfeiture rate of zero
percent for the years ended December 31, 2007 and 2006 is based upon the fact
that all unvested options relate to longstanding employees and directors. One
employee who held share options left the Company during the third quarter of
2007 and his 50,000 unvested share options were forfeited. However, this fact
does not change the Group's management estimate of zero percent forfeitures for
future periods.
SFAS 123R requires the cash flows resulting from the tax benefits
resulting from tax deductions in excess of the compensation cost recognized for
those options to be classified as financing cash flows. As there were no share
option exercises during 2007 or 2006, the Company had no related tax benefits
during those years. Prior to the adoption of SFAS 123R, those tax benefits would
have been reported as operating cash flows had the Company received any tax
benefits related to share option exercises.
The fair value of share option grants to employees is calculated using
the Black-Scholes option pricing model, even though this model was developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which differ significantly from the Company's share
options. The Black-Scholes model also requires subjective assumptions, including
future share price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate is based on the U.S. Treasury rates in
effect during the corresponding period of grant. The expected volatility is
based on the historical volatility of the Company's share price. These factors
could change in the future, which would affect the share based compensation
expense in future periods, if the Company, through the ESOT, should grant
additional share options.
27
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, the Group recognizes taxes payable or refundable for the
current year, and deferred tax assets and liabilities due to temporary
differences in the basis of assets and liabilities between amounts recorded for
financial statement and tax purposes.
The Group provides a valuation allowance for deferred income tax assets
if it is more likely than not that some portion of the deferred income tax asset
will not be realized. The Group includes in income any increase or decrease in a
valuation allowance that results from a change in circumstances that causes a
change in judgment about the realization of the related deferred income tax
asset.
The Group includes in additional paid-in capital the tax benefit on share
options exercised during the period to the extent that such exercises result in
a permanent difference between financial statement and tax basis compensation
expense.
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on de-recognition of tax benefits, classification on
the balance sheet, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted FIN 48 effective on January 1,
2007. The adoption of the FIN 48 did not have any impact on the Company's
consolidated financial statements.
Earnings Per Share and ADS
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." This
statement requires the presentation of basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income or loss by the
weighted-average number of Ordinary Shares outstanding during the applicable
period, excluding shares held by the ESOT and the ALOT which are regarded as
treasury stock for the purposes of this calculation. The Company has issued
employee share options, which are considered potential common stock under SFAS
128. The Company has also issued Ordinary Share warrants to the Bank of Scotland
in connection with the Company's bank facility (now terminated), which are also
considered potential common stock under SFAS 128. Diluted earnings per share is
calculated by dividing net income by the weighted-average number of Ordinary
Shares outstanding during the applicable period as adjusted for these
potentially dilutive options and warrants which are determined based on the
"Treasury Stock Method."
Earnings (loss) per ADS is equivalent to ten times earnings (loss) per
Ordinary Share.
Foreign Currencies
Prior to July 1, 2007, the Group used the British pound sterling
("sterling") as the functional currency of LPAL and the U.S. dollar as the
functional currency of the Company and all other significant subsidiaries. Due
to significant changes in the operating environment of LPAL, the functional
currency of LPAL was changed to the U.S. dollar effective July 1, 2007. By the
end of the second quarter of 2007, almost all policies had been redeemed, and
LPAL's sterling assets were a small portion of its total assets. In addition,
LPAL's sterling operating expenses have been significantly reduced. With this
change in functional currency, LPAL's foreign exchange gains and losses
resulting from the remeasurement of foreign currency assets and liabilities into
28
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. dollars are included in operating expenses in the Group's consolidated
statement of operations, rather than included in a separate component of other
comprehensive income in shareholders' equity, effective July 1, 2007. This
change did not have a material impact on the Group's consolidated statement of
operations. The $(399,000) balance as of June 30, 2007 in accumulated other
comprehensive income (loss) in the Group's consolidated balance sheet will
remain until such time LPAL is sold or liquidated.
Comprehensive Income
Comprehensive income consists of net income; changes in unrealized gains
and losses on available-for-sale securities, net of income taxes; and foreign
currency translation gains or losses arising on the translation of the Group's
non-U.S. dollar based subsidiaries.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 ("SFAS 157"), "Fair Value Measurements," which defines fair
value, establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. SFAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for financial assets and
financial liabilities within its scope for fiscal years beginning after November
15, 2007 and for interim periods within those fiscal years. The Company will
adopt SFAS 157 for financial assets and financial liabilities within its scope
during the first quarter of 2008 and does not anticipate the adoption to have a
material impact on its financial statements. In February 2008, the FASB issued
FASB Staff Position No. FAS 157-2 ("FSP FAS 157-2"), "Effective Date of FASB
Statement No. 157," which defers the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities for fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years for items
within the scope of FSP FAS 157-2. The Company does not expect that the adoption
of this standard for non-financial assets and non-financial liabilities will
have a material impact on its consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and
Financial Liabilities - Including an amendment of FASB Statement No 115." SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value that currently are not required to be measured at fair
value. SFAS 159 is effective no later than fiscal years beginning after November
15, 2007. The Company has the option of adopting this standard for the first
quarter of 2008. The Company does not expect the adoption of SFAS 159 to have a
material impact on its financial statements because the Company does not expect
to apply the provisions of SFAS 159 to any existing financial instruments.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141R ("SFAS 141R"), "Business Combinations." SFAS 141R requires
the acquiring entity in a business combination to recognize all of the assets
acquired and liabilities assumed in the transaction at fair value as of the
acquisition date. SFAS 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company is currently
evaluating the effect that the adoption of SFAS 141R will have on its
consolidated financial statements. However, the adoption of SFAS 141R is not
expected to have an impact on the Company's consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 ("SFAS 160"), Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51." SFAS 160 amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary,
29
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
which is sometimes referred to as a minority interest, is an ownership interest
in the consolidated entity that should be reported in the equity section of the
balance sheet. Among other requirements, the statement requires that the
consolidated net income attributable to the parent and the noncontrolling
interest be clearly identified and presented on the face of the consolidated
income statement. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 and earlier adoption is not permitted. The Company is
currently evaluating the effect that the adoption of SFAS 160 will have on its
consolidated financial statements. However, the adoption of SFAS 160 is not
expected to have an impact on the Company's consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and
Hedging Activities, and amendment of FASB Statement No. 133." This statement
requires enhanced disclosures about how derivative and hedging activities affect
an entity's financial position, financial performance and cash flows. SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. As the Company currently does not
engage in derivative and hedging activities, the adoption of SFAS 161 is not
expected to have an impact on the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of these consolidated financial statements as well as
the reported amount of revenues and expenses during this reporting period.
Actual results could differ from these estimates. Certain estimates such as fair
value and actuarial assumptions have a significant impact on the gains and
losses recorded on investments and balance of life insurance policy liabilities.
Note 2. Discontinued Operations
The $1.0 million loss on discontinued operations recorded in 2006
resulted from the write-off of the $1.0 million of cash held in escrow which was
part of the proceeds from the sale of London Pacific Advisors ("LPA") in June
2003 held back to cover any of the Group's indemnity obligations. As disclosed
in the Company's 2005 Annual Report on Form 10-K and in its 2006 Quarterly
Reports on Form 10-Q, in February 2005, SunGard filed a lawsuit against the
Company and certain of its subsidiaries alleging breaches of representations and
warranties contained in the sale and purchase agreement. Subsequently, in April
2005, the Company filed a lawsuit against SunGard and certain of its affiliates
accusing SunGard of wrongful conduct. In August 2006, the Company and SunGard
entered into a settlement agreement covering the above actions. All lawsuits
against each other were dismissed and the Company agreed to forego the $1.0
million escrow account, including accrued interest on the account. Accordingly,
the $1.0 million of cash held in escrow (and $56,000 of interest earned on the
escrow account) was written off as of June 30, 2006. The write-off of the $1.0
million original escrow amount has been shown as a loss on discontinued
operations, and the write-off of the $56,000 of interest earned has been netted
against investment income, in the Company's consolidated statement of operations
for 2006.
30
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Investments
Summary Cost and Fair Value Information
Fixed Maturity Securities
The Group's fixed maturity securities as of December 31, 2006 were
comprised of U.S. and non-U.S. corporate debt securities for which quoted market
prices were available. During 2007, all of these fixed maturity securities
matured.
An analysis of fixed maturity securities is as follows:
December 31,
----------------------------------------------------------------------------------------
2007 2006
------------------------------------------ ------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- --------- --------- --------- --------- --------- --------- ---------
(In thousands)
Available-for-Sale:
Non-U.S. corporate
debt securities......... $ - $ - $ - $ - $ 4,017 $ - $ (6) $ 4,011
Corporate debt securities.. - - - - 5,004 - (8) 4,996
--------- --------- --------- --------- --------- --------- --------- ---------
- - - - 9,021 - (14) 9,007
--------- --------- --------- --------- --------- --------- --------- ---------
Held-to-Maturity:
Corporate debt securities.. - - - - 3,009 - (5) 3,004
--------- --------- --------- --------- --------- --------- --------- ---------
- - - - 3,009 - (5) 3,004
--------- --------- --------- --------- --------- --------- --------- ---------
Total fixed maturity securities $ - $ - $ - $ - $ 12,030 $ - $ (19) $ 12,011
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
As of December 31, 2006, there were no non-income producing fixed
maturity securities for the twelve months preceding that date.
Equity Securities
Equity securities are comprised of available-for-sale securities. An
analysis of equity securities is as follows:
December 31,
----------------------------------------------------------------------------------------
2007 2006
------------------------------------------ ------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Unrealized Unrealized Fair Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- --------- --------- --------- --------- --------- --------- ---------
(In thousands)
Private corporate equity
securities.............. $ 1,984 $ - $ - $ 1,984 $ 844 $ - $ - $ 844
--------- --------- --------- --------- --------- --------- --------- ---------
Total available-for-sale
equity securities....... $ 1,984 $ - $ - $ 1,984 $ 844 $ - $ - $ 844
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
31
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment Concentration and Risk
As of December 31, 2007, the Group's investments consisted of three
private corporate equity securities with individual book values of less then 10%
of the Group's shareholders' equity. One of these investments, with a book value
of $1.0 million, is in preferred stock of a technology company that is a
consulting client of BICC. Another investment, with a book value of $140,000, is
in preferred stock of another technology company that is also a consulting
client of BICC. The third investment has a book value of $844,000 and is in
preferred stock of a technology company.
As of December 31, 2007, the Company's Jersey based life insurance
subsidiary, LPAL, owned 93% of the Group's $2.0 million in available-for-sale
private equity securities. LPAL is a regulated insurance company, and as such it
must meet stringent capital adequacy requirements and no transfers, except in
satisfaction of long-term business liabilities, are permitted from its long-term
insurance fund without the consent of LPAL's directors and actuary. Dividends
require the approval of the Jersey Financial Services Commission ("JFSC").
LPAL's investments are therefore not currently available to fund the operations
or commitments of the Company or its other subsidiaries.
The Group held no fixed maturity securities considered less than
investment grade as of December 31, 2006. The Group held no fixed maturity
securities as of December 31, 2007.
Net Unrealized Gains (Losses) on Available-for-Sale Securities
Net unrealized losses on fixed maturity securities classified as
available-for-sale as of December 31, 2006 totaled $14,000. There were no
related income taxes. The Group held no fixed maturity securities as of December
31, 2007.
There were no net unrealized losses on equity securities classified as
available-for-sale as of December 31, 2007 or 2006.
Changes in net unrealized gains and losses on available-for-sale
securities included in other comprehensive income for the years ended December
31, 2007 and 2006 were as follows:
Net Unrealized Gains (Losses)
-------------------------------
Fixed
Maturity Equity
Securities Securities Total
---------- ----------- ----------
(In thousands)
Net unrealized gains on available-for-sale securities as of December 31, 2005 $ 20 $ - $ 20
Changes during the year ended December 31, 2006:
Unrealized holding gains and losses on available-for-sale securities..... (14) - (14)
Reclassification adjustment for gains and losses included in net loss.... (20) - (20)
--------- --------- ---------
Net unrealized losses on available-for-sale securities as of December 31, 2006 $ (14) $ - $ (14)
--------- --------- ---------
--------- --------- ---------
Changes during the year ended December 31, 2007:
Unrealized holding gains and losses on available-for-sale securities...... 14 - 14
Reclassification adjustment for gains and losses included in net income... - - -
--------- --------- ---------
Net unrealized losses on available-for-sale securities as of December 31, 2007 $ - $ - $ -
--------- --------- ---------
--------- --------- ---------
32
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Investment Income
The details of investment income, net of investment expenses, are as
follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Interest on fixed maturity securities................................................ $ 208 $ 881
Interest on cash and cash equivalents................................................ 596 324
------------ ------------
Gross investment income.............................................................. 804 1,205
Investment expenses.................................................................. - (2)
------------ ------------
804 1,203
Amounts credited on insurance policyholder accounts.................................. (44) (468)
------------ ------------
Net investment income................................................................ $ 760 $ 735
------------ ------------
------------ ------------
Realized Gains and Losses
Information about gross and net realized gains and losses on securities
transactions is as follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Realized gains (losses) on securities transactions:
Fixed maturities, available-for-sale:
Gross gains....................................................................... $ 1,198 $ -
Gross losses ..................................................................... - (2)
------------ ------------
Net realized gains (losses) on fixed maturities, available-for-sale.................. 1,198 (2)
------------ ------------
Equity securities, trading:
Gross gains....................................................................... - 6
------------ ------------
Net realized gains on equity securities, trading..................................... - 6
------------ ------------
Equity securities, available-for-sale:
Gross losses...................................................................... - (6)
------------ ------------
Net realized losses on equity securities, available-for-sale......................... - (6)
------------ ------------
Net realized investment gains (losses) on securities transactions.................... $ 1,198 $ (2)
------------ ------------
------------ ------------
The net realized gain of $1.2 million in 2007 represents a partial
distribution received from the WorldCom, Inc. securities litigation. LPAL held
certain WorldCom, Inc. publicly traded bonds which it sold at a loss in 2002.
This $1.2 million payment reverses part of LPAL's realized loss recorded in
2002. Since this payment is for LPAL's account, it is not available to fund the
operations or commitments of the Company or its other subsidiaries.
33
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subsequent Events
LPAL received an additional $0.3 million payment in February 2008,
representing the final distribution from the WorldCom, Inc. securities
litigation, which will be recognized in the Group's statement of operations for
the first quarter of 2008. Since this payment is for LPAL's account, it is not
available to fund the operations or commitments of the Company or its other
subsidiaries.
In February 2008, LPAL submitted a claim in the Enron Securities class
action settlement, based on certain Enron bonds previously held by LPAL which
LPAL believes constitute "Category 1" securities eligible for the Enron
settlement proceeds. The Group does not expect any payment based on LPAL's claim
until 2009 at the earliest. The amount of the recovery of LPAL's realized
investment losses recorded in 2002 is currently unknown.
Note 4. Property and Equipment
Property and equipment are carried at cost and consisted of the
following:
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Property, equipment and leasehold improvements.................................... $ 189 $ 729
Accumulated depreciation.......................................................... (175) (712)
------------ ------------
Property and equipment, net....................................................... $ 14 $ 17
------------ ------------
------------ ------------
Note 5. Other Assets
An analysis of other assets is as follows:
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Prepayments....................................................................... $ 164 $ 195
Receivables:
Due from broker................................................................ - 1
Fee income receivable.......................................................... 411 169
Other receivables.............................................................. 45 18
Allowance for doubtful accounts................................................ (34) (34)
------------ ------------
Total other assets................................................................ $ 586 $ 349
------------ ------------
------------ ------------
34
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. Life Insurance Policy Liabilities
An analysis of life insurance policy liabilities is as follows:
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Deferred annuities - policyholder contract deposits............................... $ 95 $ 3,360
Other policy claims and benefits.................................................. 46 280
------------ ------------
$ 141 $ 3,640
------------ ------------
------------ ------------
The liability for future policy benefits and policyholder contract
deposits was determined based on the following assumptions:
Mortality Assumptions
Assumed mortality rates were based on standard tables commonly used in
the U.K. life insurance industry, namely the AM80 table for male lives and the
AF80 table for female lives.
Withdrawal Assumptions
Withdrawal charges on deferred annuities generally ranged from 1% to 7%,
grading to zero over a period of up to 7 years.
Note 7. Statutory Financial Information and Restrictions
LPAL is regulated by the JFSC and under Article 6 of the Insurance
Business (Jersey) Law 1996 is permitted to conduct long-term insurance business.
The JFSC requires LPAL to submit annual audited financial statements (prepared
under U.S. GAAP which is permitted), and an audited annual filing in the format
consistent with that required by the Financial Services Authority in the United
Kingdom. The annual filing submitted by LPAL to the JFSC must be accompanied by
a Certificate from the Appointed Actuary that based on sufficiently prudent
assumptions, assets are sufficient to cover all liabilities. The annual filing
contains a report from the Appointed Actuary on the matching of investments to
liabilities.
The JFSC sets out the conditions with which LPAL must comply and
determines the reporting requirements and the frequency of reporting. These
conditions require that: (i) LPAL must hold, at all times, approved assets at
least equal to the long-term insurance fund plus the required minimum solvency
margin, (ii) the margin of solvency must be the greater of (pound)50,000 or 2.5%
of the value of the long-term business fund, and (iii) assets equal to not less
than 90% of liabilities must be placed with approved independent custodians. As
of December 31, 2007, LPAL met all of these conditions.
LPAL is also required under the insurance laws to appoint an actuary. The
actuary must be qualified as defined under Jersey law and is required to
supervise the long-term insurance fund. No transfers, except in satisfaction of
long-term insurance business liabilities, are permitted from LPAL's long-term
insurance fund without the consent of LPAL's directors and actuary. Dividends
require the approval of the JFSC.
35
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8. Income Taxes
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on de-recognition of tax benefits, classification on
the balance sheet, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted FIN 48 effective on January 1,
2007.
The Company's management believes that its income tax positions would be
sustained upon examination by appropriate taxing authorities based on the
technical merits of such positions, and therefore the Company has not provided
for any unrecognized tax benefits at the adoption date. In general, the
Company's tax returns remain subject to examination by taxing authorities for
the tax years 2003 through 2006.
The Group is subject to taxation on its income in all countries in which
it operates based upon the taxable income arising in each country. However,
realized gains on certain investments are exempt from Jersey and Guernsey
taxation. This and other tax benefits which may not recur have reduced the tax
charge in 2007 and 2006.
The Group is subject to income tax in Jersey at a rate of 20%. In the
United States, the Group is subject to both federal and California taxes at
rates up to 34% and 8.84%, respectively.
A breakdown of the Group's book income (loss) before income taxes by tax
jurisdiction follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Income (loss) before income taxes:
Jersey, Guernsey and United Kingdom.................................................. $ 270 $ (1,410)
United States.......................................................................... 108 (2,268)
------------ ------------
Total income (loss) before income taxes.............................................. $ 378 $ (3,678)
------------ ------------
------------ ------------
36
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for income taxes differs from the amount computed by
applying the Jersey, Channel Islands statutory income tax rate of 20% to the
income (loss) before income taxes. The sources and tax effects of the difference
are as follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Income tax expense (benefit) computed at Jersey statutory income tax
rate of 20%....................................................................... $ 76 $ (736)
Realized and unrealized investment gains not subject to taxation
in Jersey......................................................................... (240) -
Other losses not deductible in Jersey................................................ 158 268
Income not taxable in Guernsey....................................................... (10) (20)
Tax expense (benefit) on losses at higher than 20% statutory Jersey rate:
Income (losses) in the U.S........................................................ 24 (518)
Increase (decrease) in valuation allowance........................................... (48) 972
Expiration of capital loss carryforwards of U.S. entities............................ 67,245 -
Decrease in valuation allowance related to expiration of capital loss
carryforwards..................................................................... (67,245) -
Forfeiture of U.S. net operating loss carryforwards related to dissolved
U.S. entities (1)................................................................. - 5,070
Decrease in valuation allowance related to dissolved U.S. entities (1)............... - (5,070)
Other................................................................................ 42 39
------------ ------------
Actual tax expense .................................................................. $ 2 $ 5
------------ ------------
------------ ------------
<FN>
(1) Related to two of the Group's inactive U.S. subsidiaries which were dissolved in December 2006.
These entities were owned by a non-U.S. subsidiary of the registrant and as a result of their dissolution,
$4.4 million of federal net operating loss carryforward benefits and $0.7 million of state net operating loss
carryforward benefits were forfeited.
</FN>
The components of the actual tax expense were as follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Jersey, Guernsey and United Kingdom:
Current tax expense............................................................... $ - $ -
Deferred tax expense.............................................................. - -
United States:
Current tax expense .............................................................. 2 5
Deferred tax expense.............................................................. - -
------------ ------------
Total actual tax expense ............................................................ $ 2 $ 5
------------ ------------
------------ ------------
The Group recognizes assets and liabilities for the deferred tax
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of
37
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assets and liabilities are recovered or settled. The deferred income tax assets
are reviewed periodically for recoverability and valuation allowances are
provided as necessary. Deferred income tax assets and liabilities are disclosed
net in the consolidated financial statements when they arise within the same tax
jurisdiction and tax return.
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below. As of both December 31, 2007 and December 31, 2006, full
valuation allowances were provided on the net deferred tax assets of the U.S.
tax group due to the uncertainty of generating future taxable income or capital
gains to benefit from the deferred tax assets.
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
U.S. subsidiaries:
Deferred income tax assets:
Net operating loss carryforwards.................................................. $ 5,497 $ 5,543
Capital loss carryforwards........................................................ - 67,245
Deferred compensation............................................................. 3 4
Bad debts......................................................................... 14 14
Other assets...................................................................... 1 2
Valuation allowance............................................................... (5,514) (72,807)
------------ ------------
Deferred income tax assets, net of valuation allowance............................ 1 1
Deferred income tax liabilities:
Depreciation, amortization and other.............................................. (1) (1)
------------ ------------
(1) (1)
------------ ------------
Net deferred income tax assets - U.S. subsidiaries................................ $ - $ -
------------ ------------
------------ ------------
As of December 31, 2007, the Group's U.S. subsidiaries have pre-tax
federal net operating loss carryforwards of approximately $13.3 million expiring
as follows: approximately $1.3 million in 2011, and approximately $12.0 million
from 2020 to 2026. These subsidiaries have California net operating loss
carryforwards of approximately $10.8 million expiring from 2012 to 2016. The
Group has recorded a full valuation allowance for the deferred tax assets
arising from these carryforward amounts as of December 31, 2007 due to the
uncertainty of generating future taxable income to benefit from the deferred tax
assets.
The Company's Jersey, Channel Islands subsidiaries have net operating
loss carryforwards of approximately $12.7 million as of December 31, 2007;
however, these loss carryforward positions will be lost due to the introduction
of a new tax system in Jersey in 2009 when the expected tax rate for certain
Jersey corporations will be zero. The Company expects that its tax rate for its
Jersey entities will be zero. As such, no deferred tax assets, and no
corresponding valuation reserves, have been recorded for these net operating
loss carryforwards.
38
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9. Shareholders' Equity
The Company has authorized 86,400,000 Ordinary Shares with a par value of
$0.05 per share. As of December 31, 2007 and 2006, there were 64,439,073
Ordinary Shares issued and outstanding.
No dividends were declared and paid in 2007 or 2006.
Prior to December 31, 2007, the Company had a liability on its
consolidated balance sheet of $215,000, representing the amount of dividend
checks issued by the Company's share registrar to shareholders that had not been
cashed. As the Company had previously remitted the full amount of the dividends
to its registrar, after a period of time, the registrar would return the funds
to the Company in the amount of the uncashed dividend checks. Pursuant to the
Company's Memorandum and Articles, any unclaimed dividend after twelve or more
years after the date of its declaration shall be forfeited and shall revert back
to the Company. As such, at the end of 2007, the Company wrote-off $90,000 of
unclaimed dividends that were more than 12 years old, directly as a credit to
retained earnings in the Company's consolidated balance sheet.
Accumulated other comprehensive loss consists of two components, foreign
currency translation adjustments and net unrealized gains and losses on
available-for-sale securities. Accumulated foreign currency translation
adjustments were $(399,000) and $(404,000) as of December 31, 2007 and 2006,
respectively. The net unrealized gains (losses) on available-for-sale securities
after deferred income taxes were $0 and $(14,000) as of December 31, 2007 and
2006, respectively.
The Group has two share incentive plans as described in Note 12 "Share
Incentive Plans" below. Under the terms of these plans, shares of the Company
may be purchased in the open market and held in trust. These shares are owned by
the employee benefit trusts, which are subsidiaries of the Company for financial
reporting purposes.
Changes in the number of shares held by The London Pacific Group 1990
Employee Share Option Trust ("ESOT") and the Agent Loyalty Opportunity Trust
("ALOT") were as follows:
Years Ended December 31,
------------------------------------------
2007 2006
-------------------- --------------------
ESOT ALOT ESOT ALOT
--------- --------- --------- ---------
(In thousands)
Shares held as of January 1.................................... 13,084 438 13,084 438
Purchased...................................................... - - - -
Exercised...................................................... - - - -
--------- --------- --------- ---------
Shares held as of December 31.................................. 13,084(1) 438 13,084(1) 438
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
(1) 834,000 shares are held in ADR form.
</FN>
Warrants
On November 11, 2002, the Company agreed to grant 1,933,172 warrants to
subscribe for the Company's Ordinary Shares to Bank of Scotland in connection
with the extension of the Group's credit facility (which was fully repaid and
terminated in June 2003). The warrants were granted on February 14, 2003 and
have an exercise price of (pound)0.1143 (based on the average of the closing
prices of the Ordinary Shares over the trading days from November 1, 2002
through November 11, 2002), which was higher than the market price of
39
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(pound)0.09 on November 11, 2002. These warrants are exercisable at any time
prior to February 14, 2010 and their fair value was determined to be $251,125,
based on a risk-free rate of 2.80%, volatility of 179% and a dividend yield of
zero. The Company recognized $30,625 of expense relating to these warrants in
2002. The balance of $220,500 was recognized as an expense in 2003, with the
corresponding entries to additional paid-in capital.
Note 10. Commitments and Contingencies
Lease Commitments
The Group leases office space under operating leases. Total rents under
these operating leases were $201,000 (net of sublease income of $86,000) and
$207,000 (net of sublease income of $46,000), for the years ended December 31,
2007 and 2006, respectively. The Group had no capital leases as of December 31,
2007.
Future minimum lease payments required under non-cancellable operating
leases with terms of one year or more, as of December 31, 2007, were as follows:
Operating
Leases(1)
------------
(In thousands)
2008............................................................................................... 273
2009............................................................................................... 133
2010............................................................................................... 67
------------
Total.............................................................................................. $ 473
------------
------------
<FN>
(1) Includes commitments related to the Group's Jersey office lease which expires in September 2010. The Group
entered into a sublease of its Jersey office during 2006. Expected future sublease income from 2007 through 2010
is $215,000. A liability of $118,000 remains recorded on the Company's consolidated balance sheet as of December
31, 2007, representing the loss on the sublease from 2008 through 2010.
</FN>
Approximately 64% of the Jersey office lease commitments are covered by a
sublease to a third party.
Guarantees
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34." The
following is a summary of the Company's agreements that the Company has
determined are within the scope of FIN 45.
Under its Memorandum and Articles of Association, the Company has agreed
to indemnify its officers and directors for certain events or occurrences
arising as a result of the officer or director serving in such capacity. The
maximum potential amount of future payments the Company could be required to
make under these indemnification agreements is unlimited. However, the Company
maintains directors and officers liability insurance that limits the Company's
exposure and enables it to recover a portion of any future amounts paid. As a
result of its insurance coverage, the Company believes the estimated fair value
of these indemnification agreements is minimal and has no liabilities recorded
for these agreements as of December 31, 2007.
40
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company enters into indemnification provisions under its agreements
with other companies in its ordinary course of business, typically with business
partners, clients and landlords. Under these provisions, the Company generally
indemnifies and holds harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of the Company's activities. These
indemnification provisions sometimes include indemnifications relating to
representations made by the Company with regard to intellectual property rights.
These indemnification provisions generally survive termination of the underlying
agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company believes the estimated fair value of these agreements is minimal.
Accordingly, the Company has no liabilities recorded for these agreements as of
December 31, 2007.
Note 11. Fair Value of Financial Instruments
All financial instruments used in the Group's trading and investing
activities are carried at fair value or amounts that approximate fair value.
Fair value is based generally on listed market prices or broker-dealer price
quotations. To the extent that prices are not readily available, estimated fair
value is based on valuation methodologies performed by management, which
evaluate company, industry, geographical and overall equity market factors that
would influence the security's fair value.
With the exception of the fixed maturity securities classified as
held-to-maturity, which are held at amortized cost, the carrying values of the
Group's financial assets are equal to estimated fair value.
Considerable judgment is required in interpreting market data used to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions or estimation
methodologies may have a material effect on the estimated fair value amounts.
The carrying values and estimated fair values of the Group's financial
instruments were as follows:
December 31,
--------------------------------------------------
2007 2006
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
(In thousands)
Financial assets:
Cash and cash equivalents........................ $ 14,568 $ 14,568 $ 6,707 $ 6,707
Investments:
Fixed maturities:
Available-for-sale........................ - - 9,007 9,007
Held-to-maturity.......................... - - 3,009 3,004
Equity securities:
Available-for-sale........................ 1,984 1,984 844 844
Financial liabilities:
Life insurance policy liabilities................ 141 139 3,640 3,603
The following methods and assumptions were used by the Group in
estimating the fair value of the financial instruments presented:
Cash, Cash Equivalents and Cash Held in Escrow: The carrying amounts reported in
the consolidated balance sheet for these instruments approximated fair value.
41
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed Maturity Securities: Fair values for actively traded fixed maturity
securities classified as available-for-sale and held-to-maturity were generally
based upon quoted market prices. Fair values for private corporate debt
securities were based on the results of valuation methodologies performed by
management.
Available-for-Sale Equity Securities: Fair values for equity securities
classified as available-for-sale were based upon the results of management's
valuation methodologies, including analysis of company, industry, geographical
and overall equity market factors which influence fair value.
Life Insurance Policy Liabilities: The balance sheet caption "life insurance
policy liabilities" includes investment-type insurance contracts (i.e., deferred
annuities). The estimated fair values of deferred annuity policies were based on
their account values after deduction of surrender charges.
Note 12. Share Incentive Plans
The Group has two share incentive plans for employees, agents and
directors of Berkeley Technology Limited and its subsidiaries that provide for
the issuance of share options and stock appreciation rights.
Employee Share Option Trust
The London Pacific Group 1990 Employee Share Option Trust ("ESOT"), which
was approved by shareholders in 1990, provides for the granting of share options
to employees and directors. The objectives of this plan include retaining the
best personnel and providing for additional performance incentives. Options are
generally granted with an exercise price equal to the fair market value of the
underlying shares at the date of grant. Such grants to employees and directors
are generally exercisable in four equal annual installments beginning one year
from the date of grant, subject to employment continuation, and expire seven or
ten years from the date of grant.
The ESOT may purchase shares of the Company in the open market, funded
each year by a loan from the Company or its subsidiaries. While the loan is
limited up to an annual maximum of 5% of the consolidated net assets of the
Group, the ESOT is not limited as to the number of options that may be granted,
as long as it holds the shares underlying the total outstanding options. The
loan is secured by the shares held in the trust, is interest free, and is
eliminated in the consolidated financial statements. The ESOT has waived its
entitlement to dividends on any shares held. See Note 9 "Shareholders' Equity"
for a summary of the share activity within the ESOT.
Share option activity for the years ended December 31, 2007 and 2006 was
as follows:
2007 2006
------------------------ ------------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
(Options in thousands) Options Price Options Price
----------- ----------- ----------- -----------
Outstanding as of January 1...................... 5,225 $ 2.59 6,285 $ 2.77
Granted.......................................... 4,500 0.10 - -
Forfeited........................................ (100) 0.20 - -
Expired.......................................... - - (1,060) 3.66
----------- ----------- ----------- -----------
Outstanding as of December 31.................... 9,625 $ 1.45 5,225 $ 2.59
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Options exercisable as of December 31............ 4,675 $ 2.88 4,475 $ 3.00
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
42
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
See Note 1 "Summary of Significant Accounting Policies" for information
regarding the Group's accounting for share based compensation.
Summary information about the Group's share options outstanding as of
December 31, 2007 is as follows:
Options Outstanding (1) Options Exercisable (1)
----------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------ ------------- ----------- ------------ --------------- ------------
(In thousands) (Years) (In thousands)
$0.10 $0.50 7,315 7.79 $0.17 2,365 $0.29
0.51 - 5.00 220 3.18 2.46 220 2.46
5.01 - 10.00 2,030 3.38 5.41 2,030 5.41
10.01 - 21.00 60 2.68 21.00 60 21.00
- --------------- ------------- ----------- ------------ --------------- ------------
$ 0.10 -$21.00 9,625 6.72 $1.45 4,675 $2.88
- --------------- ------------- ----------- ------------ --------------- ------------
- --------------- ------------- ----------- ------------ --------------- ------------
<FN>
(1) The intrinsic value of all options outstanding as of December 31, 2007 was zero, as the market value of the
underlying shares was $0.10 as of that date.
</FN>
Valuation and expense information under SFAS 123R
The estimated fair value of share option compensation awards to employees
and directors, as calculated using the Black-Scholes option pricing model as of
the date of grant, is amortized using the straight-line method over the vesting
period of the options. For the years ended December 31, 2007 and 2006,
compensation expense related to employee share options under SFAS 123R totaled
$71,000 and $58,000, respectively, and is included in operating expenses in the
accompanying statements of operations.
During the first quarter of 2007, 4,500,000 options were granted to
employees and directors at an exercise price equal to the fair market value of
the underlying shares on the grant date which was $0.10. These options were
valued using the Black-Scholes option pricing model using the following
assumptions: expected share price volatility of 66%, risk-free interest rate of
4.52%, weighted average expected life of 6.25 years and expected dividend yield
of zero percent. The fair value of the 4,500,000 options was $292,000. During
2007, 250,000 options became vested, 100,000 options were forfeited and no
options were exercised. At December 31, 2007, there were 9,625,000 options
outstanding with a weighted average exercise price of $1.45. Of these options,
4,675,000 were exercisable at December 31, 2007, and these have a weighted
average exercise price of $2.88. The remaining 4,950,000 options were unvested
at December 31, 2007. These unvested options have a weighted average exercise
price of $0.11. As of December 31, 2007, total unrecognized compensation expense
related to unvested share options was $254,000, which is expected to be
recognized as follows: $88,000 in 2008, $77,000 in 2009, $72,000 in 2010 and
$17,000 in 2011.
Agent Loyalty Opportunity Trust
The Agent Loyalty Opportunity Trust ("ALOT") was established in 1997
(without shareholders' approval) to provide for the granting of stock
appreciation rights ("SARs") on the Company's Ordinary Shares to agents of the
Company's former U.S. life insurance subsidiary. Each award unit entitled the
holder to cash compensation equal to the difference between the Company's
prevailing share price and the exercise price. The award units were exercisable
in four equal annual installments commencing on the first anniversary of the
43
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
date of grant and were forfeited upon termination of the agency contract.
Vesting of the award in any given year was also contingent on the holder of the
award surpassing a predetermined benchmark tied to sales and persistency. The
SARs expired seven years from the date of grant. The 79,000 awards outstanding
at December 31, 2005 expired in April 2006.
The ALOT may purchase Ordinary Shares in the open market, funded by a
loan from a Group subsidiary. The loan is secured by the shares held in the
trust and bears interest based upon the trust's net income before interest for
each financial period. The trust receives dividends on all Ordinary Shares held.
The loan, interest income and dividend income are eliminated in the consolidated
financial statements. See Note 9 "Shareholders' Equity" for a summary of the
share activity within the ALOT.
SAR activity for the years ended December 31, 2007 and 2006 was as
follows:
2007 2006
------------------------ ------------------------
Weighted- Weighted-
Number Average Number Average
of Award Exercise of Award Exercise
(Award units in thousands) Units Price Units Price
----------- ----------- ----------- -----------
Outstanding as of January 1...................... - - 79 $ 5.19
Granted.......................................... - - - -
Exercised........................................ - - - -
Forfeited........................................ - - - -
Expired.......................................... - - (79) 5.19
----------- ----------- ----------- -----------
Outstanding as of December 31.................... - - - -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Award units exercisable as of December 31........ - - - -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Note 13. Pension Plan
The Group provides a defined contribution plan for its U.K. employees.
There is currently one participant in the plan. The Group has no ongoing
liabilities associated with the plan. Contributions of $175,000 and $161,000
were made by the Group to the plan in 2007 and 2006, respectively. Of the 2007
and 2006 contributions, $121,000 and $111,000, respectively, were offset by a
salary waiver.
Note 14. Earnings Per Share and ADS
Earnings (loss) per ADS are equivalent to ten times earnings (loss) per
Ordinary Share.
A reconciliation of the numerators and denominators for the basic and
diluted earnings (loss) per share calculations in accordance with Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share," is as
follows:
44
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands, except share,
per share and ADS amounts)
Income (loss) from continuing operations............................................. $ 376 $ (2,683)
Loss on discontinued operations...................................................... - (1,000)
------------ ------------
Net income (loss).................................................................... $ 376 $ (3,683)
------------ ------------
------------ ------------
Basic earnings (loss) per share and ADS:
Weighted-average number of Ordinary Shares outstanding,
excluding shares held by the employee benefit trusts.............................. 50,916,692 50,916,692
------------ ------------
Basic earnings (loss) per share:
Continuing operations................................................................ $ 0.01 $ (0.05)
Discontinued operations.............................................................. - (0.02)
------------ ------------
$ 0.01 $ (0.07)
------------ ------------
------------ ------------
Basic earnings (loss) per ADS:
Continuing operations................................................................ $ 0.07 $ (0.53)
Discontinued operations.............................................................. - (0.20)
------------ ------------
$ 0.07 $ (0.73)
------------ ------------
------------ ------------
Diluted earnings (loss) per share and ADS:
Weighted-average number of Ordinary Shares outstanding,
excluding shares held by the employee benefit trusts.............................. 50,916,692 50,916,692
Effect of dilutive securities (warrants and employee share options) ................. 304,545 -
------------ ------------
Weighted-average number of Ordinary Shares used in diluted
earnings (loss) per share calculations............................................ 51,221,237 50,916,692
------------ ------------
------------ ------------
Diluted earnings (loss) per share:
Continuing operations................................................................ $ 0.01 $ (0.05)
Discontinued operations.............................................................. - (0.02)
------------ ------------
$ 0.01 $ (0.07)
------------ ------------
------------ ------------
Diluted earnings (loss) per ADS:
Continuing operations................................................................ $ 0.07 $ (0.53)
Discontinued operations.............................................................. - (0.20)
------------ ------------
$ 0.07 $ (0.73)
------------ ------------
------------ ------------
As the Company recorded a net loss for the year ended December 31, 2006,
the calculation of diluted loss per share for that year does not include
potentially dilutive employee share options and warrants issued to the Bank of
Scotland as they are anti-dilutive and, if included, would have resulted in a
reduction of the net loss per share. If the Company had reported net income for
the year ended December 31, 2006, there would have been an additional 8,125
shares, respectively, included in the calculation of diluted earnings per share
for that year.
45
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15. Transactions with Related Parties
The Group paid legal fees of approximately $5,000 and $1,000 during 2007
and 2006, respectively, to a law firm of which one of its directors, Victor A.
Hebert, is a member.
Note 16. Business Segment and Geographical Information
The Company's reportable operating segments are classified according to
its remaining businesses of life insurance and annuities, and venture capital
and consulting.
Intercompany transfers between reportable operating segments are
accounted for at prices which are designed to be representative of unaffiliated
third party transactions.
Summary revenue and investment gain (loss) information by geographic
segment, based on the domicile of the Group company generating those revenues,
is as follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Jersey............................................................................... $ 1,842 $ 968
Guernsey............................................................................. 52 103
United States........................................................................ 1,828 872
------------ ------------
Consolidated revenues and net investment gains (losses)
for continuing operations......................................................... $ 3,722 $ 1,943
------------ ------------
------------ ------------
Total assets by geographic segment were as follows:
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Jersey............................................................................. $ 14,135 $ 15,203
Guernsey........................................................................... 1 2,082
United States...................................................................... 3,031 2,952
------------ ------------
Consolidated total assets ......................................................... $ 17,167 $ 20,237
------------ ------------
------------ ------------
46
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenues and income (loss) before income taxes for the Company's
reportable operating segments included in continuing operations, based on
management's internal reporting structure, were as follows:
Years Ended December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Revenues:
Venture capital and consulting....................................................... $ 1,718 $ 723
Life insurance and annuities ........................................................ 1,778 937
------------ ------------
3,496 1,660
Reconciliation of segment amounts to consolidated amounts:
Interest and other fee income........................................................ 226 283
------------ ------------
Consolidated revenues and net investment gains and losses
for continuing operations......................................................... $ 3,722 $ 1,943
------------ ------------
------------ ------------
Income (loss) from continuing operations before income tax expense:
Venture capital and consulting....................................................... $ 317 $ (403)
Life insurance and annuities......................................................... 1,228 (221)
------------ ------------
1,545 (624)
Reconciliation of segment amounts to consolidated amounts:
Interest and other fee income........................................................ 226 283
Corporate expenses................................................................... (1,392) (2,336)
Interest expense..................................................................... (1) (1)
------------ ------------
Consolidated income (loss) from continuing operations
before income tax expense......................................................... $ 378 $ (2,678)
------------ ------------
------------ ------------
Assets attributable to each of the Company's reportable operating
segments, based on management's reporting structure, were as follows:
December 31,
----------------------------
2007 2006
------------ ------------
(In thousands)
Assets:
Venture capital and consulting..................................................... $ - $ -
Life insurance and annuities....................................................... 12,238 14,518
Corporate and other................................................................ 4,929 5,719
------------ ------------
Consolidated total assets.......................................................... $ 17,167 $ 20,237
------------ ------------
------------ ------------
Note 17. Client Concentration
During 2007, 51% of consulting fee revenues were generated from one
client. The level of consulting fees is expected to be volatile in future
periods depending on the nature and extent of the Group's work at any point in
time.
47
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A.(T) CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our company's management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act)
Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this
Report (the "Evaluation Date"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that as of the Evaluation
Date, our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act (i) is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms and (ii) is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.
Management's Report on Internal Control Over Financial Reporting
Our company's management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2007. In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Our management has concluded that, as of December
31, 2007, our internal control over financial reporting is effective based on
these criteria. This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting
that occurred during the quarter ended December 31, 2007 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. OTHER INFORMATION
None.
48
PART III
Certain information required by Part III is omitted from this Form 10-K
and is incorporated by reference to our definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on July 31, 2008 (the "Proxy
Statement"), which will be filed with the SEC not later than 120 days after the
end of the fiscal year covered by this Form 10-K.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are as follows:
Arthur I. Trueger, Executive Chairman: Mr. Trueger, age 59, is the
founder and a principal shareholder of Berkeley Technology Limited. He has
worked for us for more than 30 years and holds A.B., M.A. and J.D. degrees from
the University of California.
Ian K. Whitehead, Chief Financial Officer: Mr. Whitehead, age 53, has
held the position of Chief Financial Officer of Berkeley Technology Limited
since he joined us in 1990. Mr. Whitehead is a member of the Institute of
Chartered Accountants in England and Wales.
Information regarding our directors is incorporated by reference to the
sections entitled "Proposal 2 - Election of Director" and "Board of Directors
and Committees" in our Proxy Statement.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is incorporated by reference to the section
entitled "Other Information About Directors and Executive Officers" in our Proxy
Statement.
Information regarding our Code of Ethics, adopted on November 12, 2003
and amended and restated in December 2007, is incorporated by reference to the
section entitled "Code of Ethics" in our Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation" and "Directors' Compensation" in our
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information regarding security ownership of certain beneficial owners
and management is incorporated by reference to the section entitled "Information
Regarding Beneficial Ownership of Principal Shareholders, Directors and
Executive Officers" in our Proxy Statement.
49
The following table is a summary of selected information for our equity
compensation plans as of December 31, 2007.
Number of Shares
Number of Shares to Weighted-Average Remaining Available for
be Issued Upon Exercise Exercise Price of Future Issuance Under
of Outstanding Options, Outstanding Options, Equity Compensation
Warrants and Rights Warrants and Rights Plans
--------------------------------------------------------------------------------------------
Equity compensation plans
approved by shareholders............. 9,625,000 (1) $1.45 (1)
Equity compensation plans not
approved by shareholders............. - -
--------------- --------
Total................................... 9,625,000 $1.45
--------------- --------
--------------- --------
<FN>
(1) Our equity compensation plans do not contain a limit on the number of options that may be granted to employees.
However, the plans do not allow for the issuance of previously authorized and unissued shares to meet the obligations
of the plans upon an employee option exercise. When an option is granted, the trust that administers the plan borrows
funds from the Company or one of its subsidiaries and uses those funds to purchase the number of shares underlying
the option grant. The maximum loan allowed in any given year is equal to 5% of consolidated net assets as of the end of
the previous fiscal year.
</FN>
Information regarding the features of the equity compensation plan not
approved by shareholders is incorporated by reference to Note 12 to the
Consolidated Financial Statements in Item 8 of this Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Other Information About Directors and Executive Officers" in
our Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the
section entitled "Report of the Audit Committee of the Board of Directors" in
our Proxy Statement.
50
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements:
Page
The following consolidated financial statements of Berkeley Technology
Limited and subsidiaries are included in Item 8:
Report of Independent Registered Public Accounting Firm...................................... 17
Consolidated Balance Sheets as of December 31, 2007 and 2006................................. 18
Consolidated Statements of Operations for the Years Ended
December 31, 2007 and 2006............................................................... 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006............................................................... 20
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2007 and 2006............................................................... 22
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2007 and 2006............................................................... 23
Notes to the Consolidated Financial Statements............................................... 24
2. Financial Statement Schedules:
The following financial statement schedules of Berkeley Technology Limited and
subsidiaries are included in this Form 10-K immediately following Item 15 and
should be read in conjunction with the consolidated financial statements and
notes thereto included in Item 8:
Schedule I - Summary of Investments - Other Than Investments in Related
Parties.................................................................................. 55
Schedule II - Condensed Financial Information of Registrant
Condensed Balance Sheets as of December 31, 2007 and 2006................................ 56
Condensed Statements of Operations for the Years Ended
December 31, 2007 and 2006........................................................... 57
Condensed Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006........................................................... 58
Note to Condensed Financial Statements................................................... 59
Schedule III - Supplementary Insurance Information........................................... 60
All other financial statement schedules required by Regulation S-X have been
omitted because they are not applicable or the required information is included
in the applicable consolidated financial statements or notes thereto in Item 8
"Financial Statements and Supplementary Data" of this Form 10-K.
51
3. Exhibits:
The following exhibits of Berkeley Technology Limited and subsidiaries
are filed herewith or incorporated by reference as indicated below:
Exhibit
Number Description
- -------- -----------
3.(I).1 Memorandum and Articles of Association of Berkeley
Technology Limited, as amended and restated on April 18, 2000
(filed previously as Exhibit 3.(I) to our Form 10-Q for the
quarter ended June 30, 2000).
3.(I).2 Certificate of Incorporation on Change of Name dated June 12,
2003 (filed previously as Exhibit 3.(I).2 to our Form 10-K for
the year ended December 31, 2003).
4.1 Specimen Ordinary Share certificate (filed previously as
Exhibit 4.1 to our Form 10-K for the year ended December 31,
2000).
4.2 Form of Deposit Agreement dated September 25, 1992, as amended
and restated as of November 24, 1993, as further amended and
restated as of March 14, 2000, among us, The Bank of New York
as Depositary, and all Owners and Holders from time to time of
American Depositary Receipts issued thereunder (filed
previously as Exhibit A to our Registration Statement on Form
F-6 (Registration No. 333-11658) dated March 14, 2000).
4.3 Letter Agreement dated August 25, 1992 between The Bank of New
York and us covering the Basic Administration Charge relating
to the Deposit Agreement (shown above as Exhibit 4.2)
(filed previously as Exhibit 3.8 to our Post-Effective
Amendment No. 2 to our Registration Statement on Form 20-F/A
dated August 31, 1993).
4.4 Form of Deposit Agreement as amended and restated as of June
24, 2002, among us, The Bank of New York as Depositary, and
all Owners and Holders from time to time of American
Depositary Receipts issued thereunder (filed previously as
Exhibit 4.4 to our Form 10-Q for the quarter ended June 30,
2002).
4.5 Warrant Agreement dated February 14, 2003 between us and the
Governor and Company of the Bank of Scotland relating to the
Term Loan and Guarantee Facility dated December 20, 2002
(filed previously as Exhibit 4.5 to our Form 10-Q for the
quarter ended March 31, 2003).
4.6 Specimen Ordinary Share certificate, as amended on June 12,
2003 (filed previously as Exhibit 4.6 to our Form 10-K for the
year ended December 31, 2003).
10.1.1 Settlement dated February 16, 1990 among (1) us, (2) John
Gerald Patrick Wheeler and (3) Ian Walter Strang, constituting
The London Pacific Group 1990 Employee Share Option Trust
(filed previously as Exhibit 3.2 to our Post-Effective
Amendment No. 2 to Registration Statement on Form 20-F/A dated
August 31, 1993).
10.1.2 Executed Instrument dated March 18, 1994 among (1) John Gerald
Patrick Wheeler, (2) Ian Walter Strang and (3) Richard John
Pirouet, relating to The London Pacific Group 1990 Employee
Share Option Trust (filed previously as Exhibit 3.2.1 to our
Annual Report on Form 20-F dated June 10, 1994).
52
10.1.3 Executed Instrument dated September 27, 1994 among (1) Ian
Walter Strang, (2) Richard John Pirouet and (3) Clive Aubrey
Charles Chaplin, relating to The London Pacific Group 1990
Employee Share Option Trust (filed previously as Exhibit 3.2.2
to our Annual Report on Form 20-F dated June 29, 1995).
10.1.4 Executed Instrument dated March 3, 1995 among (1) Ian Walter
Strang, (2) Richard John Pirouet and (3) Clive Aubrey Charles
Chaplin, relating to The London Pacific Group 1990 Employee
Share Option Trust (filed previously as Exhibit 3.2.3 to our
Annual Report on Form 20-F dated June 29, 1995).
10.1.5 Executed Instrument dated August 22, 1996 among (1) Richard
John Pirouet, (2) Clive Aubrey Charles Chaplin and (3) Ronald
William Green, relating to The London Pacific Group 1990
Employee Share Option Trust (filed previously as Exhibit 3.2.4
to our Annual Report on Form 20-F dated June 30, 1997).
10.1.6 Executed Instrument dated August 29, 1998 among (1) Richard
John Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald
William Green and (4) Victor Aloysius Hebert, relating to The
London Pacific Group 1990 Employee Share Option Trust (filed
previously as Exhibit 3.2.5 to our Annual Report on Form 20-F
dated June 30, 1999).
10.1.7 Executed Instrument dated May 31, 2000 among (1) Richard John
Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald William
Green and (4) Victor Aloysius Hebert, relating to The London
Pacific Group 1990 Employee Share Option Trust (filed
previously as Exhibit 10.2.1 to our Form 10-Q for the quarter
ended September 30, 2000).
10.1.8 Executed Instrument dated May 31, 2000 among (1) Richard John
Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald William
Green, (4) Victor Aloysius Hebert and (5) Christopher Byrne,
relating to The London Pacific Group 1990 Employee Share
Option Trust (filed previously as Exhibit 10.2.2 to our Form
10-Q for the quarter ended September 30, 2000).
10.2.1 (1) Agreement dated July 1, 1990 between us and Ian Kenneth
Whitehead (filed previously as Exhibit 10.3.1 to our Form 10-K
for the year ended December 31, 2000).
10.2.2 (1) London Pacific Advisers Limited Retirement Scheme
confirmation dated December 5, 2000 for Ian Kenneth Whitehead
(filed previously as Exhibit 10.3.3 to our Form 10-K for the
year ended December 31, 2001).
10.3.1 Settlement dated May 23, 1997 among BG Services Limited and
A.L.O.T. Trustee Limited establishing Agent Loyalty
Opportunity Trust (filed previously as Exhibit 10.4.1 to our
Form 10-K for the year ended December 31, 2001).
10.3.2 Executed Deed dated July 16, 1997 by A.L.O.T. Trustee Limited
relating to Agent Loyalty Opportunity Trust (filed previously
as Exhibit 10.4.2 to our Form 10-K for the year ended December
31, 2001).
10.3.3 Executed Deed dated August 13, 1997 by A.L.O.T. Trustee
Limited relating to Agent Loyalty Opportunity Trust (filed
previously as Exhibit 10.4.3 to our Form 10-K for the year
ended December 31, 2001).
10.3.4 Executed Deed dated August 20, 1998 by A.L.O.T. Trustee
Limited relating to Agent Loyalty Opportunity Trust (filed
previously as Exhibit 10.4.4 to our Form 10-K for the year
ended December 31, 2001).
53
10.3.5 Executed Deed of Amendment and Appointment dated December 11,
2001 among Berkeley International Capital Limited and A.L.O.T.
Trustee Limited relating to Agent Loyalty Opportunity Trust
(filed previously as Exhibit 10.4.5 to our Form 10-K for the
year ended December 31, 2001).
10.4 Asset Purchase Agreement dated March 7, 2003 between Berkeley
Capital Management ("BCM"), Berkeley (USA) Holdings Limited
and Berkeley Capital Management LLC relating to the sale of
substantially all of the assets and operations of BCM (filed
previously as Exhibit 10.5 to our Form 10-Q for the quarter
ended March 31, 2003).
10.5 Purchase Agreement, dated May 9, 2003, for the acquisition
of London Pacific Advisory Services, Inc. and London Pacific
Securities, Inc. by SunGard Business Systems Inc. (filed
previously as Exhibit 10.6 to our Form 10-Q for the quarter
ended June 30, 2003).
14.1 Code of Ethics as amended and restated as of December 2007.
21 Subsidiaries of the Company as of March 31, 2008.
31.1 Certification by the Company's Executive Chairman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Company's Executive Chairman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
__________
(1) Management contract or compensatory arrangement filed in response to
Item 15(a)(3) of the instructions to Form 10-K.
(b) Our exhibits are listed in Item 15(a)(3) above.
(c) Our financial statement schedules follow on pages 55 through 60.
54
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
As of December 31, 2007
Column A Column B Column C Column D
Amount at
Which Shown
in Consolidated
Fair Balance
Type of Investments Cost (1) Value Sheet (2)
- -------------------------------------------------------------- -------------- -------------- ---------------
(In thousands)
Fixed maturity securities:
Bonds:
United States government and government
agencies and authorities................................... $ - $ - $ -
States, municipalities and political subdivisions............ - - -
Foreign governments.......................................... - - -
Public utilities............................................. - - -
Convertibles and bonds with warrants attached................ - - -
All other corporate bonds.................................... - - -
Redeemable preferred stock...................................... - - -
-------------- -------------- ---------------
Total fixed maturity securities................................. - - -
-------------- -------------- ---------------
--------------
Equity securities:
Non-redeemable preferred stocks................................. 1,984 1,984 1,984
-------------- -------------- ---------------
Total equity securities......................................... 1,984 $ 1,984 1,984
-------------- -------------- ---------------
--------------
Total investments............................................... $ 1,984 $ 1,984
-------------- ---------------
-------------- ---------------
<FN>
(1) Cost of fixed maturity securities is original cost, reduced by other-than-temporary impairments,
repayments and adjusted for amortization of premiums and accretion of discounts. Cost of equity securities
is original cost, reduced by other-than-temporary impairments.
(2) Differences between amounts reflected in Column B or Column C and amounts at which shown in the consolidated
balance sheet reflected in Column D result from the application of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Fixed maturity securities are
classified as either available-for-sale or held-to-maturity. Available-for-sale securities are recorded at
fair value, with changes in unrealized gains and losses excluded from net income, but reported net of
applicable income taxes as a separate component of comprehensive income. Held-to-maturity securities
are recorded at amortized cost.
</FN>
55
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BERKELEY TECHNOLOGY LIMITED
CONDENSED BALANCE SHEETS
December 31,
--------------------------------
2007 2006
-------------- ---------------
(In thousands, except share amounts)
ASSETS
Cash and cash equivalents......................................................... $ 2,277 $ 677
Investment in subsidiaries........................................................ (64,866) (66,080)
Intercompany balances............................................................. 80,097 82,099
Other assets...................................................................... 13 7
-------------- --------------
Total assets...................................................................... $ 17,521 $ 16,703
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accruals..................................................... $ 381 $ 498
Intercompany balances............................................................. 661 282
-------------- --------------
Total liabilities................................................................. 1,042 780
-------------- --------------
Commitments and contingencies
Shareholders' equity:
Ordinary shares, $0.05 par value per share: 86,400,000 shares authorized;
64,439,073 shares issued and outstanding as of December 31, 2007
and 2006....................................................................... 3,222 3,222
Additional paid-in capital........................................................ 67,789 67,718
Retained earnings................................................................. 8,465 7,999
Employee benefit trusts, at cost (13,522,381 shares as of
December 31, 2007 and 2006, respectively)...................................... (62,598) (62,598)
Accumulated other comprehensive loss.............................................. (399) (418)
-------------- --------------
Total shareholders' equity........................................................ 16,479 15,923
-------------- --------------
Total liabilities and shareholders' equity........................................ $ 17,521 $ 16,703
-------------- --------------
-------------- --------------
See accompanying Note to Condensed Financial Statements.
56
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
BERKELEY TECHNOLOGY LIMITED
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------
2007 2006
-------------- --------------
(In thousands)
Revenues:
Investment income................................................................. $ 72 $ 31
-------------- --------------
72 31
Expenses:
Staff costs....................................................................... 393 407
Other operating expenses.......................................................... 497 733
-------------- --------------
890 1,140
-------------- --------------
Loss before income tax benefit and equity in
undistributed net income (loss) of subsidiaries................................ (818) (1,109)
Income tax benefit................................................................ - -
-------------- --------------
Loss before equity in undistributed net income (loss) of
subsidiaries................................................................... (818) (1,109)
Equity in undistributed net income (loss) of subsidiaries (1)..................... 1,194 (2,574)
-------------- --------------
Net income (loss)................................................................. $ 376 $ (3,683)
-------------- --------------
-------------- --------------
- -----------------------
<FN>
(1) Eliminated on consolidation.
</FN>
See accompanying Note to Condensed Financial Statements.
57
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
BERKELEY TECHNOLOGY LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------
2007 2006
-------------- --------------
(In thousands)
Cash flows from operating activities:
Net income (loss)................................................................. $ 376 $ (3,683)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Equity in undistributed net (income) loss of subsidiaries......................... (1,194) 2,574
Other operating cash flows........................................................ 37 256
-------------- --------------
Net cash used in operating activities ............................................ (781) (853)
-------------- --------------
Cash flows from investing activities:
Net advances from (to) subsidiaries............................................... 255 (181)
-------------- --------------
Net cash provided by (used in) investing activities............................... 255 (181)
-------------- --------------
Cash flows from financing activities:
Repayments from subsidiaries...................................................... 2,126 1,403
-------------- --------------
Net cash provided by financing activities ........................................ 2,126 1,403
-------------- --------------
Net increase in cash and cash equivalents......................................... 1,600 369
Cash and cash equivalents at beginning of year.................................... 677 308
-------------- --------------
Cash and cash equivalents at end of year.......................................... $ 2,277 $ 677
-------------- --------------
-------------- --------------
See accompanying Note to Condensed Financial Statements.
58
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
BERKELEY TECHNOLOGY LIMITED
NOTE TO CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying financial statements comprise a condensed presentation
of financial position, results of operations and cash flows of Berkeley
Technology Limited (the "Company") on a separate company basis. These condensed
financial statements do not include the accounts of the Company's subsidiaries,
but instead include the Company's investment in those subsidiaries, stated at
amounts which are equal to the Company's equity in the subsidiaries' net assets.
The consolidated financial statements of the Company and its subsidiaries are
included in Item 8 of this Form 10-K for the year ended December 31, 2007.
Additional information about the significant accounting policies applied
by the Company and its subsidiaries is included in Note 1 to the Consolidated
Financial Statements in Item 8 of this Form 10-K for the year ended December 31,
2007.
59
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
Life Insurance and Annuities Segment
Years Ended/As of December 31,
--------------------------------
2007 2006
-------------- --------------
(In thousands)
Deferred policy acquisition costs.................................................. $ - $ -
Future policy benefits, losses, claims and loss expenses (1) ...................... 141 3,640
Unearned premiums.................................................................. N/A N/A
Other policy claims and benefits payable (1)....................................... - -
Premium revenue (2)................................................................ 2 2
Net investment income (3).......................................................... 578 936
Benefits, claims, losses and settlement expenses................................... N/A N/A
Amortization of deferred policy acquisition costs.................................. - -
Other operating expenses........................................................... 506 689
Premiums written................................................................... N/A N/A
_______________
<FN>
(1) For additional disclosure regarding life insurance policy liabilities, see Note 6 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for the year ended December 31, 2007.
(2) Insurance policy charges.
(3) Expenses related to the management and administration of investments have been netted with investment income in
the determination of net investment income.
</FN>
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BERKELEY TECHNOLOGY LIMITED
(Registrant)
By /s/ Arthur I. Trueger
Date: March 31, 2008 Arthur I. Trueger
Executive Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur I. Trueger
Date: March 31, 2008 Arthur I. Trueger
Executive Chairman
(Principal Executive Officer)
/s/ Ian K. Whitehead
Date: March 31, 2008 Ian K. Whitehead
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Victor A. Hebert
Date: March 31, 2008 Victor A. Hebert
Deputy Chairman and Non-Executive Director
/s/ Harold E. Hughes, Jr.
Date: March 31, 2008 Harold E. Hughes, Jr.
Non-Executive Director
/s/ Trenchard
Date: March 31, 2008 The Viscount Trenchard
Non-Executive Director
61
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
EXHIBIT INDEX FOR THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
Exhibit
Number Description
- ------- -----------
3.(I).1 Memorandum and Articles of Association of Berkeley
Technology Limited, as amended and restated on April 18, 2000
(filed previously as Exhibit 3.(I) to our Form 10-Q for the
quarter ended June 30, 2000).
3.(I).2 Certificate of Incorporation on Change of Name dated June 12,
2003 (filed previously as Exhibit 3.(I).2 to our Form 10-K for
the year ended December 31, 2003).
4.1 Specimen Ordinary Share certificate (filed previously as
Exhibit 4.1 to our Form 10-K for the year ended December 31,
2000).
4.2 Form of Deposit Agreement dated September 25, 1992, as amended
and restated as of November 24, 1993, as further amended and
restated as of March 14, 2000, among us, The Bank of New York
as Depositary, and all Owners and Holders from time to time of
American Depositary Receipts issued thereunder (filed
previously as Exhibit A to our Registration Statement on Form
F-6 (Registration No. 333-11658) dated March 14, 2000).
4.3 Letter Agreement dated August 25, 1992 between The Bank of New
York and us covering the Basic Administration Charge relating
to the Deposit Agreement (shown above as Exhibit 4.2)
(filed previously as Exhibit 3.8 to our Post-Effective
Amendment No. 2 to our Registration Statement on Form 20-F/A
dated August 31, 1993).
4.4 Form of Deposit Agreement as amended and restated as of June
24, 2002, among us, The Bank of New York as Depositary, and
all Owners and Holders from time to time of American
Depositary Receipts issued thereunder (filed previously as
Exhibit 4.4 to our Form 10-Q for the quarter ended June 30,
2002).
4.5 Warrant Agreement dated February 14, 2003 between us and the
Governor and Company of the Bank of Scotland relating to the
Term Loan and Guarantee Facility dated December 20, 2002
(filed previously as Exhibit 4.5 to our Form 10-Q for the
quarter ended March 31, 2003).
4.6 Specimen Ordinary Share certificate, as amended on June 12,
2003 (filed previously as Exhibit 4.6 to our Form 10-K for the
year ended December 31, 2003).
10.1.1 Settlement dated February 16, 1990 among (1) us, (2) John
Gerald Patrick Wheeler and (3) Ian Walter Strang, constituting
The London Pacific Group 1990 Employee Share Option Trust
(filed previously as Exhibit 3.2 to our Post-Effective
Amendment No. 2 to Registration Statement on Form 20-F/A dated
August 31, 1993).
10.1.2 Executed Instrument dated March 18, 1994 among (1) John Gerald
Patrick Wheeler, (2) Ian Walter Strang and (3) Richard John
Pirouet, relating to The London Pacific Group 1990 Employee
Share Option Trust (filed previously as Exhibit 3.2.1 to our
Annual Report on Form 20-F dated June 10, 1994).
10.1.3 Executed Instrument dated September 27, 1994 among (1) Ian
Walter Strang, (2) Richard John Pirouet and (3) Clive Aubrey
Charles Chaplin, relating to The London Pacific Group 1990
Employee Share Option Trust (filed previously as Exhibit 3.2.2
to our Annual Report on Form 20-F dated June 29, 1995).
62
10.1.4 Executed Instrument dated March 3, 1995 among (1) Ian Walter
Strang, (2) Richard John Pirouet and (3) Clive Aubrey Charles
Chaplin, relating to The London Pacific Group 1990 Employee
Share Option Trust (filed previously as Exhibit 3.2.3 to our
Annual Report on Form 20-F dated June 29, 1995).
10.1.5 Executed Instrument dated August 22, 1996 among (1) Richard
John Pirouet, (2) Clive Aubrey Charles Chaplin and (3) Ronald
William Green, relating to The London Pacific Group 1990
Employee Share Option Trust (filed previously as Exhibit 3.2.4
to our Annual Report on Form 20-F dated June 30, 1997).
10.1.6 Executed Instrument dated August 29, 1998 among (1) Richard
John Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald
William Green and (4) Victor Aloysius Hebert, relating to The
London Pacific Group 1990 Employee Share Option Trust (filed
previously as Exhibit 3.2.5 to our Annual Report on Form 20-F
dated June 30, 1999).
10.1.7 Executed Instrument dated May 31, 2000 among (1) Richard John
Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald William
Green and (4) Victor Aloysius Hebert, relating to The London
Pacific Group 1990 Employee Share Option Trust (filed
previously as Exhibit 10.2.1 to our Form 10-Q for the quarter
ended September 30, 2000).
10.1.8 Executed Instrument dated May 31, 2000 among (1) Richard John
Pirouet, (2) Clive Aubrey Charles Chaplin, (3) Ronald William
Green, (4) Victor Aloysius Hebert and (5) Christopher Byrne,
relating to The London Pacific Group 1990 Employee Share
Option Trust (filed previously as Exhibit 10.2.2 to our Form
10-Q for the quarter ended September 30, 2000).
10.2.1 (1) Agreement dated July 1, 1990 between us and Ian Kenneth
Whitehead (filed previously as Exhibit 10.3.1 to our Form 10-K
for the year ended December 31, 2000).
10.2.2 (1) London Pacific Advisers Limited Retirement Scheme
confirmation dated December 5, 2000 for Ian Kenneth Whitehead
(filed previously as Exhibit 10.3.3 to our Form 10-K for the
year ended December 31, 2001).
10.3.1 Settlement dated May 23, 1997 among BG Services Limited and
A.L.O.T. Trustee Limited establishing Agent Loyalty
Opportunity Trust (filed previously as Exhibit 10.4.1 to our
Form 10-K for the year ended December 31, 2001).
10.3.2 Executed Deed dated July 16, 1997 by A.L.O.T. Trustee Limited
relating to Agent Loyalty Opportunity Trust (filed previously
as Exhibit 10.4.2 to our Form 10-K for the year ended December
31, 2001).
10.3.3 Executed Deed dated August 13, 1997 by A.L.O.T. Trustee
Limited relating to Agent Loyalty Opportunity Trust (filed
previously as Exhibit 10.4.3 to our Form 10-K for the year
ended December 31, 2001).
10.3.4 Executed Deed dated August 20, 1998 by A.L.O.T. Trustee
Limited relating to Agent Loyalty Opportunity Trust (filed
previously as Exhibit 10.4.4 to our Form 10-K for the year
ended December 31, 2001).
10.3.5 Executed Deed of Amendment and Appointment dated December 11,
2001 among Berkeley International Capital Limited and A.L.O.T.
Trustee Limited relating to Agent Loyalty Opportunity Trust
(filed previously as Exhibit 10.4.5 to our Form 10-K for the
year ended December 31, 2001).
63
10.4 Asset Purchase Agreement dated March 7, 2003 between Berkeley
Capital Management ("BCM"), Berkeley (USA) Holdings Limited
and Berkeley Capital Management LLC relating to the sale of
substantially all of the assets and operations of BCM (filed
previously as Exhibit 10.5 to our Form 10-Q for the quarter
ended March 31, 2003).
10.5 Purchase Agreement, dated May 9, 2003, for the acquisition
of London Pacific Advisory Services, Inc. and London Pacific
Securities, Inc. by SunGard Business Systems Inc. (filed
previously as Exhibit 10.6 to our Form 10-Q for the quarter
ended June 30, 2003).
14.1 Code of Ethics as amended and restated as of December 2007.
21 Subsidiaries of the Company as of March 31, 2008.
31.1 Certification by the Company's Executive Chairman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Company's Executive Chairman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
____________
(1) Management contract or compensatory arrangement filed in response to Item
15(a)(3) of the instructions to Form 10-K.
66