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, 2009
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
incorporation or organization) (I.R.S. Employer Identification No.)
One Castle Street
St. Helier, Jersey JE2 3RT
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 whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes [ ]
No [X]
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 [ ]
Smaller reporting company [X] (Do not check if a smaller
reporting company)
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,
2009 as reported on the London Stock Exchange (using an exchange rate of
(pound)1.00 = $1.65) was $2,086,326. 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, 2010, 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 30, 2010, 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.................................................................................. 3
Item 1B. Unresolved Staff Comments..................................................................... 3
Item 2. Properties.................................................................................... 4
Item 3. Legal Proceedings............................................................................. 4
Item 4. RESERVED...................................................................................... 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....................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................... 13
Item 8. Financial Statements and Supplementary Data................................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 39
Item 9A(T). Controls and Procedures....................................................................... 39
Item 9B. Other Information............................................................................. 40
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 40
Item 11. Executive Compensation........................................................................ 40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters......................................................................... 40
Item 13. Certain Relationships and Related Transactions................................................ 41
Item 14. Principal Accountant Fees and Services........................................................ 41
PART IV
Item 15. Exhibits and Financial Statement Schedules ................................................... 41
Signatures ................................................................................................. 50
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" and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" 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 an international venture capital consulting company incorporated
under the laws of Jersey, Channel Islands, with an office in San Francisco,
California. Our typical client is a Silicon Valley technology company or a large
international telecommunications company. Our objective is to use consulting
revenues to finance the development of large European and Asian
telecommunications company relationships with Silicon Valley technology
companies. These relationships have led to several equity investments by one
client, and new opportunities generated through others. By definition, venture
capital consulting operates in a highly volatile environment, even more so than
the economy as a whole. This industry faces significant challenges in this
adverse environment, especially related to the raising of new funds. Operating
in this segment creates the potential for tremendous growth, but is also subject
to a high level of risk. Our Company is therefore challenged, not only by the
severe downturn in the economy, but also by the particular complications facing
those companies operating in the venture capital markets. From these challenges
come opportunities that may reward patience and discipline. In addressing these
challenges, we are taking significant steps to curtail and contain our
expenditures while aggressively pursuing new business opportunities. We have
reduced staffing levels significantly and focused operations on our core
expertise. As much smaller and cost efficient, we expect to more easily
capitalize on positive revenue events with our current and future clients.
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." As part of our cost reduction measures, the offering of ADRs was
terminated on January 20, 2010. Our Deposit Agreement with The Bank of New York
Mellon will terminate on April 20, 2010. We entered into an amendment to our
Deposit Agreement on January 20, 2010, to decrease from one year to thirty (30)
days the amount of time that must pass after termination of the Deposit
Agreement before The Bank of New York Mellon may sell any ADRs that have not
been surrendered. The Bank of New York Mellon notified our ADR holders, by
letter dated January 20, 2010, of their right to surrender their ADRs for our
Ordinary Shares on or before May 20, 2010. If any of the ADR holders do not
surrender their ADRs for our Ordinary Shares by May 20, 2010, The Bank of New
York Mellon will use reasonable efforts to sell such ADRs and such ADR holders
will receive the net proceeds of sale upon any subsequent surrender of such
ADRs.
1
BUSINESS SEGMENTS
We currently have one business segment that we operate through our
subsidiaries: venture capital consulting and investments. Our principal
operating subsidiaries, by location, are set forth below:
Principal Subsidiaries Business Segment Location
- ------------------------------------------ ---------------- -------------------------
Berkeley International Capital Corporation Venture capital San Francisco, California
Berkeley VC LLC Venture capital San Francisco, California
See Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations by Business Segment" and Note
14 to the Consolidated Financial Statements in Item 8 of this Form 10-K for a
summary of our financial information by geographical location.
Venture Capital Consulting
Our consulting business is managed by Berkeley VC LLC ("BVC") and
Berkeley International Capital Corporation ("BICC"). Over the past 29 years, we
arranged over $2.1 billion of placements primarily in U.S. high technology
companies. Placements were typically arranged in later stage technology
companies, which needed to scale up their engineering, marketing and sales
infrastructure. Within this strategy, we were able to identify and introduce to
various investors 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 our 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.
We continue to identify opportunities for clients seeking to invest in
Silicon Valley. We also assist private technology companies in growing their
businesses in Europe and Asia. In 2009, we established additional equity
positions in existing investments through direct investment and through equity
rights received as part of our consulting activities. The level of consulting
fees is expected to be volatile depending on the nature and extent of our work
at any point in time. At our reduced level of operations, any single investment
success could produce significant rewards for our Company,
Typically, we seek a monthly or quarterly consulting retainer from our
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 our work in consulting, we were engaged by a North
American technology company to develop a business strategy for penetration in
European and Asian telecommunications markets. This engagement involved detailed
market and prospect research and meetings with potential clients that may lead
to substantial business for the client company. An example of our venture
capital consulting services has been an engagement to introduce a Japanese
telecommunications company to various private U.S. companies for possible
strategic business relationships.
With our long history and extensive experience in both the U.S.
technology industry and the overseas investment and business markets, we are
well positioned to benefit from the globalization forces that are at work in the
industry and that are challenging so many young technology companies. We also
provide overseas investors and businesses with the access they desire to U.S.
businesses, technologies and potential sources of funding.
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Our revenues are dependent on a few major clients. 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 and the global economy. We
are actively seeking new clients and business opportunities in a cost efficient
manner.
Competition
Our consulting in venture capital 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, London
Pacific Assurance Limited ("LPAL") was principally 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. We determined to focus on our venture capital operations, and as
part of this decision, we closed down our Jersey insurance operations. The
effect of this closure is intended to reduce expenses for regulatory compliance,
director's fees, actuary fees, administrative fees and other related
expenditures incident to this insurance business. On September 30, 2009, LPAL
ceased business and filed its Cessation of Business Plan ("COBP") with the
Jersey Financial Services Commission (the "JFSC"). On January 14, 2010, the JFSC
confirmed that our COBP was completed and LPAL's insurance business permit was
cancelled.
REGULATION
Group
Our executive management 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 may vary from jurisdiction to jurisdiction, the
applicable laws and regulations often are complex and generally grant broad
discretion to supervisory authorities in adopting regulations and supervising
regulated activities. With the closure of LPAL, our regulatory responsibilities,
risks, and expenses will be reduced. 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, 2009, we had 5 employees. In January 2010, we further
reduced staffing to 4 employees. Since January 1, 2008, we have reduced our
staff by nearly half as part of our cost reduction measures. In one case, with
our then U.K. based Chief Financial Officer, contractually obligated payments
have been fully paid, with no future obligations, pursuant to an Employment
Agreement and a Compromise Agreement, and are fully reflected in the 2008 and
2009 results of operations.
Item 1A. RISK FACTORS
Not required.
Item 1B. UNRESOLVED STAFF COMMENTS
3
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 2010. We renewed this lease in
October 2009 at a substantially reduced rent.
We are obligated under a lease until September 2010 for office space
consisting of approximately 3,000 square feet in Jersey, Channel Islands, which
is sub-leased for the remaining term of our lease for the entire office space.
After September 2010, we will have no further obligations with respect to this
property.
See Note 8 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. RESERVED
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.
American Depositor Shares ("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 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, 2009, there were 64,439,073 Ordinary Shares outstanding of
which 11,835,430, or 18.4%, were represented by 1,183,543 ADSs. ADS holders
could exercise their voting rights through the ADR Depositary. As part of our
cost reduction measures, the offering of ADRs was terminated on January 20,
2010. Our Deposit Agreement with The Bank of New York Mellon will terminate on
April 20, 2010. We entered into an amendment to our Deposit Agreement on January
20, 2010, to decrease from one year to thirty (30) days the amount of time that
must pass after termination of the Deposit Agreement before The Bank of New York
Mellon may sell any ADRs that have not been surrendered. The Bank of New York
Mellon notified our ADR holders, by letter dated January 20, 2010, of their
right to surrender their ADRs for our Ordinary Shares on or before May 20, 2010.
If any of the ADR holders do not surrender their ADRs for our Ordinary Shares by
May 20, 2010, The Bank of New York Mellon will use reasonable efforts to sell
such ADRs and such ADR holders will receive the net proceeds of sale upon any
subsequent surrender of such ADRs.
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.
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:
4
LSE OTC Bulletin Board
Pounds Sterling Per U.S. Dollars
Ordinary Share Per ADS
----------------------- ----------------------
High Low High Low
--------- --------- --------- ---------
2009:
First quarter................................................. 0.07 0.02 0.25 0.08
Second quarter................................................ 0.04 0.03 0.32 0.26
Third quarter................................................. 0.06 0.02 0.75 0.28
Fourth quarter................................................ 0.05 0.03 0.75 0.25
2008:
First quarter................................................. 0.07 0.03 0.90 0.50
Second quarter................................................ 0.07 0.04 0.95 0.38
Third quarter................................................. 0.06 0.02 0.75 0.20
Fourth quarter................................................ 0.05 0.02 0.22 0.09
Holders
As of February 28, 2010, we had approximately 1,275 Ordinary shareholders
of record and 75 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.
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 2008 or an interim dividend for 2009. Our Board of
Directors will not be recommending a final dividend for the year 2009. Holders
of ADSs were 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 31,
2010, 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 and holders of ADSs who
exchange for Ordinary Shares should consult their own tax advisors as to the tax
consequences of such ownership or exchange.
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
5
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. Through 2009, dividends
paid by the Company, if any, were treated as having suffered Jersey income tax
at the standard rate (20%) on the gross amount thereof.
As part of a fundamental review of its tax system, the States of Jersey
in the Channel Islands introduced a tax rate of zero percent for most companies
in 2009. The resultant reduction in the overall corporate tax revenues in Jersey
is being filled by an increase in direct personal taxation for individuals and
by the introduction in May 2008 of a goods and services tax of 3%. The Company
anticipates it will have a zero percent tax rate on its Jersey profits, and as
such, no tax credit will be available for Jersey residents in the event
dividends are paid in the future by the Company. It is likely that from the
beginning of 2009, an individual resident in Jersey who owns more than 2% of the
Ordinary Share capital of the Company, equivalent to 1,288,781 shares, may be
liable for tax on their proportionate share of the Company's annual profits that
have not been distributed. Shareholders who are unsure of their tax position
should consult their tax advisor.
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,
either alone or together with one or more associated corporations, controls,
directly or indirectly, 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.
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 U.S. dollar amount realized and the
U.S. holder's tax basis determined in U.S. dollars 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.
6
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 Note
7 to the Consolidated Financial Statements in Item 8 of this Form 10-K.
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 expired, unexercised, on 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.
7
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.
Results of Operations by Business Segment
Prior to the third quarter of 2009, the Company's reportable operating
segments were classified according to its businesses of consulting in venture
capital, and life insurance and annuities. As the Company ceased its insurance
business during the third quarter of 2009, only one operating business remains:
consulting in venture capital. Beginning with the third quarter of 2009, the
Company changed its reporting of results to a consulting company format with
only one operating business segment (consulting in venture capital). Certain
reclassifications were made to prior period amounts to conform with the current
period's presentation. These reclassifications had no effect on the net income
or shareholders' equity for the prior periods.
2009 compared to 2008
Consulting fee revenues remained relatively consistent even though
there were changes in our client base. A contract was entered into with a client
in early 2008 that generated $0.4 million in consulting fees during 2008;
however, that contract ran only through the end of 2008. Contracts were entered
into with a new client during 2009 that generated $0.3 million in consulting
fees in 2009. The latest contract for this client expires at the end of March
2010 however, a new arrangement has been agreed in principal for slightly
reduced services and fees.
Under a consulting arrangement with a client we had in 2007, we are
entitled to earn additional compensation in the future depending upon the
performance of certain venture capital investments made with our assistance by
that client during 2007. 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. To date, no
such compensation has been realized, however we expect that one or more
realizations is likely to occur.
Cost of services decreased by $65,000 in 2009 compared to 2008, primarily
due to reductions in staff costs.
Selling, general and administrative expenses decreased significantly by
$0.6 million to $2.1 million in 2009, compared to $2.7 million in 2008. This
decrease was due to $0.5 million lower staff costs, net of
8
contractually required employment obligations to our then U.K. based Chief
Financial Officer. These costs were fully paid by June 30, 2009. Also for 2009,
there were substantial additional staff cost savings related to an employee who
left the company in the fourth quarter of 2008. In 2009, there was no additional
expense related to the $0.1 million in web development costs paid to a third
party vendor subsequent to our decision not to go forward with a web based
project in 2008.
As discussed in previous Form 10-Q and 10-K filings with the SEC, on
August 12, 2008, the Company gave notice to Mr. Ian K. Whitehead, then the
Company's Chief Financial Officer, that his employment agreement would end on
June 30, 2009. Reference is made to Exhibit 10.3.1 to the Company's Form 10-K
for the year ended December 31, 2000 for a copy of Mr. Whitehead's employment
agreement and to the Company's Proxy Statement dated April 29, 2008 for a
description of his salary waiver of May 2003.
In 2009, our operating loss was $2.4 million (which includes $0.4 million
of non-recurring compensation related to Mr. Whitehead, whose employment
terminated on June 30, 2009), compared to an operating loss of $3.0 million in
2008. This decrease in loss was attributable to a $0.6 million decrease in
operating expenses due to cost reduction measures as discussed above.
Interest Income
2009 compared to 2008
Interest income decreased by $273,000 to $41,000 for 2009 compared to
$314,000 in 2008, due to declining cash balances, as well as to lower interest
rates. As of December 31, 2009, our cash and cash equivalents amounted to $11.5
million, a decrease of $2.2 million from December 31, 2008. This decrease
resulted primarily from the use of cash in operating activities. We are
continuing to implement, and realize, a wide array of cost reduction measures in
order to preserve cash, while seeking higher yields on cash balances.
Realized Investment Gains and Losses
2009 compared to 2008
Net realized investment gains for 2009 were $64,000, compared to $1.1
million for 2008.
In February 2008, the Group received a final WorldCom distribution of
$0.27 million. LPAL held certain WorldCom, Inc. publicly traded bonds which it
sold at a loss in 2002. This payment recovers part of the realized loss
recognized by LPAL in 2002. Our total recovery from WorldCom totaled $1.5
million during 2007 and 2008.
In December 2008, the Group received a partial distribution of $1.37
million from the Enron Corporation securities litigation. In December 2009, the
Group received an additional distribution of $264,000. LPAL held certain Enron
Corporation publicly traded bonds which it sold at a loss in 2002. These two
payments totaling almost $1.64 million recover part of the realized loss
recognized by LPAL in 2002. The timing and amount of future Enron distributions
is currently uncertain.
The WorldCom and Enron 2008 payments received were offset by
other-than-temporary impairment write-downs totaling $0.5 million on one of
LPAL's private equity investments. The Enron 2009 payment received was offset by
other-than-temporary impairment write-down of $0.2 million in the same private
equity investment.
Cost Containment and Cash Preservation Measures
We have implemented and are realizing significant cost savings due to a
wide range of expense reduction measures. Staffing levels were reduced in 2008,
and again in 2009, and all contractual employment obligations were fully paid by
June 30, 2009. Our San Francisco office lease was successfully negotiated at a
significantly reduced rent. We were able to obtain insurance coverage at
substantially reduced rates. We have reduced our legal and other professional
expenses.
9
We have focused our resources and have decided to close our Jersey
insurance business. This insurance business was regulated which required audit
fees and expenses, actuary fees, independent director fees, administrative
expenses and other related costs. We are also closing several dormant
subsidiaries, all which will reduce our auditing and administrative costs.
We are also reducing costs by eliminating our ADR program. These costs
include additional auditing fees and expenses, staffing costs (reduction of an
additional employee), other professional and administrative fees and related
costs.
These cost containment measures are expected to significantly reduce the
use of cash for operating activities.
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.
Through 2008, we were subject to income tax in Jersey at a rate of 20%. For
2009, under a new tax system in Jersey, Channel Islands, our tax rate is zero.
(See discussion of the new tax system in Jersey in Part II, Item 5, "Taxation.")
In the United States, we are subject to both federal and California taxes at
rates up to 34% and 8.84%, respectively.
2009 compared to 2008
In 2009, we received a $13,000 payment from London Pacific Life & Annuity
Company ("LCL") for the use of our federal net operating losses to reduce LCL's
alternative minimum tax expense as a result of the consolidation of LCL in our
U.S. tax group's consolidated returns, which offset $2,000 minimum California
taxes, resulting in an $11,000 tax benefit to the Group for 2009. For more
information, see Note 6 "Income Taxes" to our consolidated financial statements
included in Item 8 of this Form 10K. Other than these taxes and benefits, no
other tax expense or benefits were applicable to our Group for 2009. A loss
before income taxes of $1.4 million was contributed by our Jersey operations,
and a loss before income taxes of $0.9 million was contributed by our U.S.
operations; however, we did not recognize any tax benefits due to the 100%
valuation allowances that we have provided for all deferred tax assets. In 2008,
our tax expense was $4,000, comprised of $2,000 in minimum California taxes and
$2,000 in federal alternative minimum taxes, caused by the consolidation of LCL
in our U.S. tax group's consolidated returns.
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
From January 1, 2008, our primary business for financial reporting
purposes is considered to be consulting in venture capital. As such, our private
equity investments are carried at cost less any other-than-temporary
impairments. Previously, we carried our private equity investments at fair value
in accordance with the accounting guidance related to insurance companies. With
respect to our private equity investments held at December 31, 2007, our best
estimate of their fair value was their cost basis. Therefore, the change from an
insurance company for financial reporting purposes to a consulting company as of
January 1, 2008 did not have an impact on the carrying values of our private
equity investments.
Our private equity investments for 2008 and 2009 are less than 20% in the
investee companies, and we do not have any significant influence on the investee
companies. Accordingly, all such investments are
10
accounted for with the cost method. We evaluate the Group's investments for any
events or changes in circumstances ("impairment indicators") that may have
significant adverse effects on our investments. If impairment indicators exist,
then the carrying amount of the investment is compared to its estimated fair
value. If any impairment is determined to be other-than-temporary, then a
realized investment loss would be recognized during the period for which we make
such determination.
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 companies doing business in various segments of
technology industries. These investments are normally held for a number of
years. 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 accounting guidance for fair value measurements defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). That accounting guidance has also established
a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels. Level 3 inputs apply to the
determination of fair value for our private equity investments. These are
unobservable inputs where 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. From January 1, 2008, only other-than-temporary impairments will be
recognized and the carrying value of a private equity investment cannot be
increased above its cost unless the investee company completes an initial public
offering or is acquired.
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.
In relation to our private equity securities that do not have a readily
determinable fair value, 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
11
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.
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.
Revenue Recognition
The timing of revenue recognition for consulting services requires a
degree of judgment. Under revenue accounting guidance, 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 the guidance are met. We do
not recognize performance based revenues under a consulting arrangement until
the payments are earned, the client has acknowledged the liability 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 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 decreased during 2009 by $2.2 million from
$13.7 million as of December 31, 2008 to $11.5 million as of December 31, 2009.
This decrease in cash and cash equivalents resulted from $2.2 million of cash
used in operating activities which includes contractually required employment
payments to our then U.K. based Chief Financial Officer as well as payments of
all three remaining insurance policies due to their maturities in the first half
of 2009. Our cost savings measures are expected to significantly reduce our use
of cash for operating activities. Cash provided by investing activities
primarily resulted from the $264,000 partial proceeds from the Enron securities
litigation settlement net of $117,000 cash used to purchase private equity
investments during 2009.
Shareholders' equity decreased during 2009 by $2.3 million from $15.0
million at December 31, 2008 to $12.7 million as of December 31, 2009, primarily
due to the net loss for the period of $2.3 million. As of December 31, 2009 and
2008, $62.6 million of our Ordinary Shares, at cost, held by the employee
benefit trusts have been netted against shareholders' equity.
12
As of December 31, 2009, 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, 2009, we had $11.5 million of cash and cash
equivalents of which $2.8 million was only available to fund the operations or
commitments of LPAL, a wholly owned subsidiary. LPAL needed to obtain the
permission of the Jersey Financial Services Commission if LPAL funds were to be
used to fund operations or commitments outside of the LPAL entity. We believe
that the remainder of our cash balance at December 31, 2009 of $8.7 million
alone is sufficient to fund our operations (consulting in venture capital and
corporate activities) over at least the next twelve months.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm..................................................... 14
Consolidated Balance Sheets as of December 31, 2009 and 2008................................................ 15
Consolidated Statements of Operations for the Years Ended
December 31, 2009 and 2008.................................................................................. 16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008.................................................................................. 17
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2009 and 2008.................................................................................. 18
Notes to Consolidated Financial Statements.................................................................. 19
13
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, 2009 and 2008 and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for each of the two years in the period ended December 31,
2009. In connection with our audits of the financial statements, we have also
audited Schedule I - Condensed Financial Information of Registrant as of and for
each of the years ended December 31, 2009 and 2008. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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, 2009 and 2008, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
Also, in our opinion, Schedule I - Condensed Financial Information of
Registrant, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
/s/ BDO Seidman, LLP
San Francisco, California
March 31, 2010
14
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
------------------------------
2009 2008
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 11,480(1) $ 13,681
Accounts receivable, less allowances of $0 December 31, 2009
and 2008................................................................... 141 222
Interest receivable............................................................ - 1
Prepaid expenses and deposits.................................................. 68 147
------------ ------------
Total current assets.............................................................. 11,689 14,051
Private equity investments (at lower of cost or estimated fair value)............. 1,469(1) 1,484
Property and equipment, net of accumulated depreciation of $181 and $177
as of December 31, 2009 and 2008, respectively................................. 6 9
------------ ------------
Total assets...................................................................... $ 13,164 $ 15,544
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................................... $ 417 $ 459
Policyholder liabilities (due in less than one year)........................... - 106
------------ ------------
Total current liabilities......................................................... 417 565
------------ ------------
Commitments and contingencies (See Note 8)
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, 2009
and 2008....................................................................... 3,222 3,222
Additional paid-in capital........................................................ 67,915 67,789
Retained earnings................................................................. 4,607 6,894
Employee benefit trusts, at cost (13,522,381 shares as of
December 31, 2009 and 2008).................................................... (62,598) (62,598)
Accumulated other comprehensive loss.............................................. (399) (399)
------------ ------------
Total shareholders' equity........................................................ 12,747 14,979
------------ ------------
Total liabilities and shareholders' equity........................................ $ 13,164 $ 15,544
------------ ------------
------------ ------------
<FN>
(1) As of December 31, 2009, the Company's subsidiary, London Pacific Assurance Limited ("LPAL"), held $2,816 of the Group's
$11,480 in cash and cash equivalents and $844 of the Group's $1,469 in private equity investments which were only available
to fund the operations or commitments of LPAL, and not to the parent company or any of the other subsidiaries. As of
December 31, 2009, LPAL needed to obtain the permission of the Jersey Financial Services Commission ("JFSC") if LPAL funds
were to be used to fund operations or commitments outside of the LPAL entity. As of January 14, 2010, the JFSC approved
LPAL's Cessation Of Business Plan and canceled LPAL's insurance permit. As of January 14, 2010, the foregoing restrictions
no longer apply.
</FN>
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
15
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and ADS amounts)
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
Revenues:
Consulting fee income............................................................. $ 547 $ 564
------------ ------------
Total revenues.................................................................... 547 564
Operating expenses:
Cost of services.................................................................. 804 869
Selling, general and administrative expenses...................................... 2,146 2,719
------------ ------------
Total operating expenses.......................................................... 2,950 3,588
------------ ------------
Operating loss.................................................................... (2,403) (3,024)
Interest income................................................................... 41 314
Distributions from securities litigation settlements.............................. 264 1,643
Other-than-temporary impairment on investments.................................... (200) (500)
------------ ------------
Loss before income tax expense.................................................... (2,298) (1,567)
Income tax expense (benefit)...................................................... (11) 4
------------ ------------
Net loss.......................................................................... $ (2,287) $ (1,571)
------------ ------------
------------ ------------
Basic and diluted loss per share.................................................. $ (0.04) $ (0.03)
------------ ------------
------------ ------------
Basic and diluted loss per ADS.................................................... $ (0.45) $ (0.31)
------------ ------------
------------ ------------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
16
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
Net loss.......................................................................... $ (2,287) $ (1,571)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization..................................................... 5 6
Amounts credited on insurance policyholder accounts............................... 1 6
Net realized investment gains and other-than-temporaru impairment on investment... (64) (1,143)
Share based compensation.......................................................... 55 71
Net changes in operating assets and liabilities:
Accrued investment income ..................................................... 1 13
Other assets................................................................... 92 218
Accounts payable, accruals and other liabilities............................... (43) (74)
------------ ------------
Net cash used in operating activities............................................. (2,240) (2,474)
------------ ------------
Cash flows from investing activities:
Purchases of private equity investments........................................... (117) -
Proceeds from WorldCom, Inc. and Enron securities litigation settlements ......... 264 1,643
Capital expenditures.............................................................. (2) (2)
------------ ------------
Net cash provided by investing activities ........................................ 145 1,641
------------ ------------
Cash flows from financing activities:
Insurance policyholder benefits................................................... (111) -
------------ ------------
Net cash used in financing activities ............................................ (111) -
------------ ------------
Effect of exchange rate changes on cash........................................... (5) (54)
------------ ------------
Net decrease in cash and cash equivalents......................................... (2,201) (887)
Cash and cash equivalents at beginning of year.................................... 13,681 14,568
------------ ------------
Cash and cash equivalents at end of year ......................................... $ 11,480 $ 13,681
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes (net of amounts recovered)........................................... $ (11) $ 2
Non-cash investing activities:
Exchange of receivable from former consulting client for additional private
equity investment in former consulting client................................... $ 68 $ -
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
17
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, 2008 64,439 $ 3,222 $ 67,789 $ 8,465 $ (62,598) $ (399) $ 16,479
Net loss........................ - - - (1,571) - - (1,571)
Share based compensation,
including income tax
effect of $0 ................ - - 71 - - - 71
--------- --------- ---------- --------- ---------- ----------- -----------
Balance as of
December 31, 2008............ 64,439 $ 3,222 $ 67,860 $ 6,894 $ (62,598) $ (399) $ 14,979
--------- --------- ---------- --------- ---------- ----------- -----------
--------- --------- ---------- --------- ---------- ----------- -----------
Net loss........................ - $ - $ - $ (2,287) $ - $ - $ (2,287)
Share based compensation,
including income tax
effect of $0................. - - 55 - - - 55
--------- --------- ---------- --------- ---------- ----------- -----------
Balance as of
December 31, 2009............ 64,439 $ 3,222 $ 67,915 $ 4,607 $ (62,598) $ (399) $ 12,747
--------- --------- ---------- --------- ---------- ----------- -----------
--------- --------- ---------- --------- ---------- ----------- -----------
See accompanying Notes which are an integral part of these
Consolidated Financial Statements.
18
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
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 operations of the Group and discussed in this
document include Berkeley International Capital Corporation ("BICC"), Berkeley
VC LLC ("BVC"), and London Pacific Assurance Limited ("LPAL"). All intercompany
transactions and balances have been eliminated in consolidation.
From January 1, 2008, the consolidated balance sheets are presented in a
classified format as is appropriate for a consulting company rather than in an
unclassified format as is appropriate for a life insurance and annuities
company. This change had no impact on the Company's shareholders' equity at
January 1, 2008. The Group's primary business is now consulting in venture
capital. See Note 2 "Investments" below for a discussion of the impact of this
change on the Company's accounting policy for its private equity investments.
For 2009, all consolidated financial statements are presented in a consulting
company format.
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. As part of our cost reduction measures, the offering of ADRs
was terminated on January 20, 2010. Our Deposit Agreement with The Bank of New
York Mellon will terminate on April 20, 2010. We entered into an amendment to
our Deposit Agreement on January 20, 2010, to decrease from one year to thirty
(30) days the amount of time that must pass after termination of the Deposit
Agreement before The Bank of New York Mellon may sell any ADRs that have not
been surrendered. The Bank of New York Mellon notified our ADR holders, by
letter dated January 20, 2010, of their right to surrender their ADRs for our
Ordinary Shares on or before May 20, 2010. If any of the ADR holders do not
surrender their ADRs for our Ordinary Shares by May 20, 2010, The Bank of New
York Mellon will use reasonable efforts to sell such ADRs and such ADR holders
will receive the net proceeds of sale upon any subsequent surrender of such
ADRs.
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.
Reclassifications
Certain prior year information has been reclassified to conform to
current year presentation. The reclassifications had no effect on net loss or
loss per share.
Cash and Cash Equivalents
The Group considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
19
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments
As discussed above, from January 1, 2008, the Group's primary business
for financial reporting purposes is now considered to be consulting in venture
capital rather than life insurance and annuities. As such, the Group's private
equity investments are now carried at cost less any other-than-temporary
impairment, if any. Previously, the Group carried its private equity investments
at fair value in accordance with the accounting guidance relating to insurance
companies. With respect to the Group's private equity investments held at
December 31, 2007, the Group's best estimate of their fair value was their cost
basis. Therefore, the change from an insurance company for financial reporting
purposes to a consulting company as of January 1, 2008 did not have an impact on
the carrying values of the Group's private equity investments. Marketable debt
and equity securities will be carried at fair value should the Group make such
investments in the future.
As of December 31, 2009 and 2008, the Group's only investments were
private equity securities.
As all of the Group's private equity investments for 2009 and 2008 are
less than 20% in the investee companies, and the Group does not have any
significant influence on the investee companies, all such investments are
accounted for in accordance with the cost method. The Group's management
evaluates the Group's investments for any events or changes in circumstances
("impairment indicators") that may have significant adverse effects on the
Group's investments. If impairment indicators exist, then the carrying amount of
the investment is compared to its estimated fair value. If any impairment is
determined to be other-than-temporary, then a realized investment loss would be
recognized during the period in which such determination is made by the Group's
management.
The accounting guidance for fair value measurements defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). That accounting guidance has also established
a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels. See Note 9 "Fair Value
Measurements and Disclosures" below for the three levels of the fair value
hierarchy. Level 3 inputs apply to the determination of fair value for the
Group's private equity investments. These are unobservable inputs where the
determination of fair values of investments requires the application of
significant judgment. From January 1, 2008, only other-than-temporary
impairments will be recognized and the carrying value of a private equity
investment cannot be increased above its cost unless the investee company
completes an initial public offering or is acquired. During 2009, the Group
determined that impairment indicators existed for one of its private equity
investments, and then determined that the impairment was other-than-temporary.
The Group recognized a realized investment loss in its consolidated statement of
operations totaling $200,000 on this investment during the first quarter of
2009. It is possible that the factors evaluated by management and fair values
will change in subsequent periods, resulting in material impairment charges in
future periods.
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.
20
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 the Group's investments, below the cost or amortized cost basis,
are recognized as realized investment 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
were accounted for in accordance with accounting guidance for insurance
enterprises as follows:
i) Life insurance policy liabilities for deferred annuities were
accounted for as investment-type insurance products and were 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 consisted of charges
assessed against policy account values for surrenders; and
iii) Benefits for investment-type insurance products were charged to
expense when incurred and reflect the claim amounts in excess of the policy
account balance. Expenses for investment-type products included the interest
credited to the policy account balance.
Revenue Recognition
Consulting fees are recognized in income on an accrual basis, based upon
when services are performed and in accordance with accounting revenue guidance.
Under the guidance, 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.
Investment income comprises interest on fixed maturity securities and
cash balances and is accounted for on an accrual basis. Dividends are accounted
for when declared.
21
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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. Until August 2008, options were generally granted with an
exercise price equal to the fair market value of the underlying shares at the
date of grant. On August 19, 2008, the exercise price of 4,450,000 options
granted on March 27, 2007 to employees and directors was modified from $0.10 to
$0.31, the net book value of the shares as of December 31, 2006. Until further
notice, new option grants will have an exercise price equal to the net book
value of the shares as of the end of the previous quarter.
Share based compensation expense
The accounting guidance for share based payments 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. A public entity is required 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. Companies
are required 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, 2009 and 2008 includes
compensation expense for share options granted prior to, but not yet vested as
of December 31, 2005, as well as compensation expense for 4,500,000 share
options granted to employees and directors on March 27, 2007, and 3,450,000
share options granted to employees and directors on August 20, 2008. No share
options were granted during 2006 or 2009. The accounting guidance for share
based payment 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 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 first six months of 2008 and for the full year 2009 was based
upon the fact that all unvested options related to longstanding employees and
directors. However, in September 2008, an employee gave notice of his
resignation effective at the end of October 2008. As such, 2,900,000 unvested
options were forfeited on October 31, 2008. As these forfeitures were expected
as of September 30, 2008, share based compensation expense was reduced in the
third quarter of 2008 by $18,000. This represents the reversal of share based
compensation expense amortization through the third quarter of 2008 related to
the 2,900,000 unvested and forfeited options. In August 2008, the Company gave
notice to its then Chief Financial Officer that his current employment agreement
would end on June 30, 2009. As a result, this employee forfeited 500,000 options
that were unvested as of June 30, 2009. The Company's net share based
compensation expense for 2009 reflects the forfeiture of the 500,000 options. A
further 2,700,000 vested options were forfeited by the ex-Chief Financial
Officer on July 31, 2009 as they expired, unexercised. Despite the departure of
these two employees, the Group's management continues to believe that a zero
percent forfeiture rate for future periods is appropriate.
22
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The accounting guidance for share based payment 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 2009 or 2008, the
Company had no related tax benefits during those years.
The fair value of share option grants to employees and directors 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.
Income Taxes
The Group accounts for income taxes under the asset and liability method.
Under this method 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.
Earnings Per Share and ADS
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. The Company
has also issued Ordinary Share warrants to the Bank of Scotland in connection
with the Company's bank facility (now terminated), which were also considered
potential common stock. However, these warrants expired, unexercised, subsequent
to year-end 2009 on February 14, 2010. 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."
Loss per ADS is equivalent to ten times loss per Ordinary Share.
Comprehensive Income
The Company had no other comprehensive income or loss for 2009 or 2008.
Therefore, the Company's comprehensive loss was equal to the Company's
consolidated net loss for these periods.
23
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recently Issued Accounting Pronouncements
In December 2007, the Financial Account Standards Board ("FASB") issued
new accounting guidance relating to non-controlling interests in consolidated
financial statements. This guidance establishes accounting and reporting
standards to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its financial statements. This
guidance became effective for fiscal years beginning on or after December 15,
2008. The adoption of this guidance did not have an impact on the Company's
consolidated financial statements.
In February 2008, the FASB issued new accounting guidance which delayed
the effective date to fiscal years ending after November 15, 2008 for fair value
accounting for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. The adoption of this guidance as of January 1, 2009 did not have an
impact on the Company's consolidated financial statements.
In April 2009, the FASB issued additional guidance on estimating fair
value when the volume and level of activity for an asset or liability have
significantly decreased and is effective for interim and annual reporting
periods ended after June 15, 2009. The Company's adoption of this standard did
not have an impact on the Company's consolidated financial statements.
In May 2009, the FASB issued new accounting guidance related to the
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or available to be issued. The
guidance sets forth (1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (2)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This statement is effective for interim
or annual periods ending after June 15, 2009. The Company adopted this guidance
in the second quarter of 2009. The adoption of this guidance did not have an
impact on the Company's consolidated financial statements.
In June 2009, the FASB issued the FASB Accounting Standards Codification
("ASC"). The ASC has become the authoritative source of generally accepted
accounting principles in the United States. Rules and interpretive releases of
the SEC under federal securities laws are also sources of authoritative GAAP for
SEC registrants. ASC became effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The adoption did not
have an impact on the financial results of the Company.
In January 2010, the FASB issued new guidance related to fair value
disclosures. This amended guidance requiring disclosures about inputs and
valuation techniques is used to measure fair value as well as disclosure about
significant transfers, beginning in the first quarter of 2010. Additionally,
these amended standards require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), beginning in the first quarter of 2011. We do not expect the
adoption of this guidance to have a material 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. The
Group's management's estimates are based on historical experience, input from
sources outside of the Company, and other relevant facts and circumstances.
Actual results could differ materially from those estimates. Accounting policies
that include
24
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
particularly significant estimates include the assessment of recoverability and
measuring impairment of private equity investments, investment and impairment
valuations, measurement of deferred tax assets and the corresponding valuation
allowances, fair value estimates for the expense of employee share options,
valuation of accounts receivable, and estimates related to commitments and
contingencies.
Note 2. Investments
See Note 1 "Summary of Significant Accounting Policies" above for a
discussion of the Group's accounting policies with respect to its investments.
As of December 31, 2009 and 2008, the Group's only investments were private
equity securities. As of December 31, 2008, the carrying value of these
investments totaled $1,484,000, which represented their estimated fair value and
which was also their cost basis. Early in 2009, the Group recognized an
other-than-temporary impairment loss totaling $200,000 on one of its private
equity investments. Later in 2009, the Group participated at its pro-rata share,
$57,000, in an $11.1 million bridge financing in order to protect its existing
investment in this company by offsetting a receivable for $57,000, which was
later converted into preferred stock and warrants for preferred stock. Near the
end of 2009, after the company reported a tripling of sales and a profit for the
quarter ending June 30, 2009, the Group purchased $128,000 ($117,000 in cash and
conversion of the remaining $11,000 receivable) of preferred stock as part of a
$12.5 million new financing in this company at a substantially lower valuation.
Despite these improvements, having reported in the first quarter 2009 an
other-than-temporary impairment loss, accounting rules do not permit us to
recognize any gain until an event of liquidity. Aggregate carrying value of all
the Group's investments was $1,469,000 as of December 31, 2009.
Investment Concentration and Risk
As of December 31, 2009, the Group's investments consisted of three
private equity securities with individual carrying values of less then 10% of
the Group's shareholders' equity. One of these investments, with a carrying
value of $485,000, is in preferred stock and warrants of a technology company
(the company referenced above) that was a consulting client of BICC. Another
investment, with a carrying value of $140,000, is in preferred stock of another
technology company that was a consulting client of BICC in prior years. The
third investment has a carrying value of $844,000 and is in preferred stock of a
technology company.
The Group held no fixed maturity securities as of December 31, 2009 and
2008.
Distributions from Securities Litigation Settlements
In February 2008, the Group received a $270,000 payment representing the
final distribution from the WorldCom, Inc. securities litigation. LPAL held
certain WorldCom, Inc. publicly traded bonds which it sold at a loss in 2002.
This payment recovers part of LPAL's realized loss on the WorldCom bonds
recognized in 2002.
In December 2008, the Group received a $1.37 million partial distribution
from the Enron Corporation securities litigation. LPAL held certain Enron
Corporation publicly traded bonds which it sold at a loss in 2002. In December
2009, the Group received an additional $264,000 payment from the Enron
Corporation securities litigation. These two payments totaling almost $1.64
million recover part of LPAL's realized loss on the Enron Corporation bonds
recognized in 2002. The timing and amount of future Enron distributions is
currently uncertain.
25
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Property and Equipment
Property and equipment are carried at cost and consisted of the
following:
December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Property, equipment and leasehold improvements.................................... $ 187 $ 186
Accumulated depreciation.......................................................... (181) (177)
------------ ------------
Property and equipment, net....................................................... $ 6 $ 9
------------ ------------
------------ ------------
Note 4. Life Insurance Policy Liabilities
An analysis of life insurance policy liabilities is as follows:
December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Deferred annuities - policyholder contract deposits............................... $ - $ 72
Other policy claims and benefits.................................................. - 34
------------ ------------
$ - $ 106
------------ ------------
------------ ------------
Note 5. Statutory Financial Information and Restrictions
LPAL was previously regulated by the JFSC, and under Article 6 of the
Insurance Business (Jersey) Law 1996, was permitted to conduct long-term
insurance business. The JFSC required 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
was accompanied, as required, by a Certificate from the Appointed Actuary which
stated that, based on sufficiently prudent assumptions, assets were sufficient
to cover all liabilities. The annual filing contained a report from the
Appointed Actuary on the matching of investments to liabilities.
The JFSC set out the conditions under which LPAL complied and determined
the reporting requirements and frequency of reporting. These conditions required
that: (i) LPAL 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, 2009, LPAL met all of these conditions.
LPAL was also required under the insurance laws to appoint an actuary.
The actuary needed to be qualified as defined under Jersey law and was required
to supervise the long-term insurance fund. No transfers, except in satisfaction
of long-term insurance business liabilities, were permitted from LPAL's
long-term insurance fund without the consent of LPAL's directors and actuary.
Dividends required the approval of the JFSC. In April 2008, the Company obtained
approval from the JFSC for LPAL to make dividend payments up to a total of $5.0
million to the Company in the future. As a condition of the JFSC's approval, the
Company agreed to provide financial support to LPAL in the unlikely event LPAL's
funds were insufficient to pay off its policy liabilities totaling $106,000 as
of December 31, 2008, as well as the operational costs of LPAL. LPAL
26
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ceased business on September 30, 2009, and on January 14, 2010, the JFSC
approved LPAL's Cessation Of Business Plan ("COBP") and cancelled its insurance
permit. As of December 31, 2009, the JFSC had not yet approved LPAL's COBP, and
accordingly, as of December 31, 2009, the cash balances of $2.8 million and
private equity investments of $844,000 held by LPAL were restricted as disclosed
in the footnote to the balance sheet.
Note 6. Income Taxes
The Company has adopted the FASB guidance on accounting for uncertainty
in income taxes. 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, and there has
been no change to the $0 of unrecognized tax benefits in 2008 and 2009. The
Company's tax returns remain subject to examination by taxing authorities for
the tax years 2005 through 2008 and for 2009 once the returns are filed in 2010.
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 tax benefit which may not recur has reduced the tax charge in
2009 and 2008.
The Group is subject to income tax in Jersey at a rate of 20% through
2008 and 0% for 2009. 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 loss before income taxes by tax
jurisdiction follows:
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Income (loss) before income taxes:
Jersey, Guernsey and United Kingdom............................................... $ (1,433) (476)
United States..................................................................... (865) (1,091)
------------ ------------
Total income (loss) before income taxes........................................... $ (2,298) $ (1,567)
------------ ------------
------------ ------------
27
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 0% for 2009
and 20% for 2008 to the losses before income taxes. The sources and tax effects
of the difference are as follows:
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Income tax expense (benefit) computed at Jersey statutory income tax
rate of 0% for 2009 and 20% for 2008........................................... $ - $ (313)
Realized and unrealized investment gains not subject to taxation
in Jersey...................................................................... - (229)
Other losses not deductible in Jersey............................................. - 289
Income not taxable in Guernsey.................................................... - -
Tax expense (benefit) on losses at higher than 0% and 20% statutory Jersey rate:
Losses in the U.S.............................................................. (370) (249)
Increase (decrease) in valuation allowance........................................ 369 (359)
Utilization of net operating loss carryforwards by a federal consolidated
tax group affiliate (1)........................................................ 1,830 -
Decrease in valuation allowance related to utilization of net operating loss
carryforwards by a federal consolidated tax group affiliate (1)................ (1,830) -
Expiration of net operating loss carryforwards of U.S. entities................... 173 -
Decrease in valuation allowance related to expiration of net operating loss
carryforwards.................................................................. (173) -
Other............................................................................ (10) 147
------------ ------------
Actual tax expense (benefit) ..................................................... $ (11) $ 4
------------ ------------
------------ ------------
(1) See discussion below regarding the inclusion of non-consolidated federal tax
group affiliate.
The components of the actual tax expense (benefit) were as follows:
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Jersey, Guernsey and United Kingdom:
Current tax expense............................................................ $ - $ -
Deferred tax expense........................................................... - -
United States:
Current tax expense (benefit) ................................................. (11) 4
Deferred tax expense........................................................... - -
------------ ------------
Total actual tax expense ......................................................... $ (11) $ 4
------------ ------------
------------ ------------
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 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
28
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2009 and December 31, 2008, 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,
------------------------------
2009 2008
------------ ------------
(In thousands)
U.S. subsidiaries:
Deferred income tax assets:
Net operating loss carryforwards.................................................. $ 4,231 $ 5,868
Deferred compensation............................................................. 3 3
Other assets...................................................................... 5 2
Valuation allowance............................................................... (4,239) (5,873)
------------ ------------
Net deferred income tax assets - U.S. subsidiaries................................ $ - $ -
------------ ------------
------------ ------------
As of December 31, 2009, the Group's U.S. subsidiaries have pre-tax
federal net operating loss carryforwards of approximately $9.1 million expiring
as follows: approximately $0.8 million in 2011, and approximately $8.3 million
from 2020 to 2029. These subsidiaries have California net operating loss
carryforwards of approximately $12.8 million expiring from 2014 to 2029. The
Group has recorded a full valuation allowance for the deferred tax assets
arising from these carryforward amounts as of December 31, 2009 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 $19.5 million as of December 31, 2009;
however, no deferred tax assets, and no corresponding valuation reserves, have
been recorded for these net operating loss carryforwards due to the introduction
of a new tax system in Jersey in 2009 when the tax rate for certain Jersey
corporations became zero. The Company's tax rate for its Jersey entities is
zero.
During the third quarter of 2008, the Internal Revenue Service issued a
private letter ruling that the Group's U.S. holding company, Berkeley (USA)
Holdings Limited ("BUSA"), should include London Pacific Life & Annuity Company
in Liquidation ("LCL") in its federal consolidated tax returns for tax years
commencing with 2005. LCL is not considered a variable interest entity within
the scope of FASB guidance for the consolidation of variable interest entities.
BUSA holds the common stock of LCL but BUSA does not have any voting or
management control over LCL. The financial statements of LCL have not been
included in the Company's consolidated financial statements and they will not be
included in the future.
BUSA and LCL have signed a tax allocation and sharing agreement dated
March 18, 2009. Under this agreement, any benefit to BUSA of utilizing the tax
losses of LCL to offset BUSA's separate taxable income in BUSA's federal
consolidated tax returns should BUSA not have any of its own carryforward losses
will be paid by BUSA to LCL, and any benefit to LCL of utilizing the tax losses
of BUSA to offset LCL's separate taxable income in BUSA's federal consolidated
tax returns should LCL not have any of its own carryforward losses will be paid
by LCL to BUSA. Any tax liabilities, including alternative minimum taxes,
created by the inclusion of LCL in the federal consolidated tax returns of BUSA
will be paid by LCL either directly to the IRS or reimbursed to BUSA by LCL if
payment is made to the IRS by BUSA. For purposes of computing allocable federal
income
29
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
tax liability, BUSA will allocate taxable income brackets and exemptions on a
pro-rated basis among members of the affiliated tax group.
In September 2009, the Group filed amended federal consolidated tax
returns for 2005 through 2007, and the inclusion of LCL in the federal
consolidated tax returns of BUSA for 2005 through 2008 did not result in any tax
liabilities for the Group, except for a $1,585 payment due to the IRS related to
alternative minimum taxes for 2007. As of the end of 2009, LCL has approximately
$42.7 million of net operating loss carryforwards (unaudited) and approximately
$59.6 million capital loss carryforwards (unaudited). The Group's management
believes that these loss carryforwards should be sufficient to offset any
taxable income of LCL in the foreseeable future. However, LCL could have
liabilities for alternative minimum taxes ("AMT") in future periods due to the
utilization of net operating losses to offset current taxable income. Any AMT
liability attributable to LCL computed on a stand alone basis would be the
responsibility of LCL, not the Group, and accordingly, any such liability has
not been included in the consolidated financial statements of the Company.
Note 7. Shareholders' Equity
The Company has authorized 86,400,000 Ordinary Shares with a par value of
$0.05 per share. As of December 31, 2009 and 2008, there were 64,439,073
Ordinary Shares issued and outstanding.
No dividends were declared or paid in 2009 or 2008.
As of December 31, 2009, the Company has a liability on its consolidated
balance sheet of $124,000, representing the amount of dividend checks issued by
the Company's share registrar to shareholders that have 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.
Accumulated other comprehensive loss consists of one component, foreign
currency translation adjustments. Accumulated foreign currency translation
adjustments were $(399,000) as of both December 31, 2009 and 2008.
The Group has two share incentive plans as described in Note 10 "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.
30
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
Year Ended December 31,
--------------------------------------------------
2009 2008
--------------------------------------------------
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 had
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 were 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. These warrants expired, unexercised, on
February 14, 2010.
Note 8. Commitments and Contingencies
Lease Commitments
The Group leases office space under operating leases. Total rents under
these operating leases were $235,000 (net of sublease income of $68,000) and
$223,000 (net of sublease income of $78,000), for the years ended December 31,
2009 and 2008, respectively. Our Jersey and San Francisco office space leases
expire in September 2010 and October 2010, respectively. The Group had no
capital leases as of December 31, 2009 or 2008.
There are no future minimum lease payments required under non-cancelable
operating leases with terms of one year or more, as of December 31, 2009.
Guarantees
Under our 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 our 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, 2009.
31
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company enters into indemnification provisions under our agreements
with other companies in our ordinary course of business, typically with business
partners, clients, banks 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, 2009.
Note 9. Fair Value of Financial Instruments
The Company adopted the accounting guidance for fair value measurements
as of January 1, 2008. The accounting guidance for fair value measurements
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date (an exit price). The accounting guidance also outlines a
valuation framework and creates a fair value hierarchy in order to increase the
consistency and comparability of fair value measurements and the related
disclosures. Under U.S. GAAP, certain assets and liabilities must be measured at
fair value, and the accounting guidance details the disclosures that are
required for items measured at fair value. Financial assets and liabilities are
measured using inputs from three levels of hierarchy. The three levels are as
follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that are accessible by the Company. During the
twelve months ended December 31, 2009, the Company's Level 1 assets included
money market mutual funds which are included in cash and cash equivalents in the
consolidated balance sheets.
Level 2 - Inputs include quoted prices in markets that are not active or
financial instruments for which all significant inputs are observable, either
directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability including
significant assumptions of the Company and other market participants. As of
December 31, 2009 and December 31, 2008, the Group held $1,469,000 and
$1,484,000, respectively, of private equity investments which are carried at
cost, as adjusted for other-than-temporary impairments. In order to determine if
any other-than-temporary impairments exist, the Group must first determine the
fair values of its private equity investments using Level 3 unobservable inputs,
including the analysis of various financial, performance and market factors.
During the twelve months ended December 31, 2009, the Group recognized
other-than-temporary impairment losses totaling $200,000 on one of its private
equity investments. The Group's management considered the investee company's
declining cash position, less favorable business environment and likely
acquisition value in determining the fair value estimates of this investment.
32
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the Company's fair value measurements that
are measured at the estimated fair value, on a recurring basis, categorized in
accordance with the fair value hierarchy:
Quoted Prices
In Active Significant
Markets For Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
---------- ---------- ---------- -----------
(In thousands)
As of December 31, 2009:
Money market funds............................................. $ - $ 4,008 $ - $ 4,008
As of December 31, 2008:
Money market funds............................................. $ - $ 328 $ - $ 328
Certain assets are measured at fair value on a nonrecurring basis; that
is, the instruments are not measured at fair value on an ongoing basis but are
subject to fair value adjustment only in certain circumstances (for example,
when there is evidence of impairment). During 2009 and 2008 the Company recorded
an impairment charge of $200,000 and $500,000 respectively relating to the
private equity investments. See Note 2 for discussion of the investments. The
Company classifies these measurements as Level 3.
Quoted Prices
In Active Significant
Markets For Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
---------- ---------- ---------- -----------
(In thousands)
As of December 31, 2009:
Private equity investments..................................... - - 1,469 1,469
As of December 31, 2008:
Private equity investments..................................... - - 1,484 1,484
Cash and cash equivalents, accounts receivable, interest receivable,
prepaid expenses and deposits, accounts payable and accrued expenses, and
insurance policyholder liabilities are reflected in the consolidated balance
sheets at carrying values which approximate fair values due to the short-term
nature of these instruments.
Note 10. 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. 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. Until August
2008, options were generally granted with an exercise price equal to the fair
market value of the
33
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
underlying shares at the date of grant. On August 19, 2008, the exercise price
of 4,450,000 options granted on March 27, 2007 to employees and directors was
modified from $0.10 to $0.31 cents, the net book value of the shares as of
December 31, 2006. Until further notice, new option grants will have an exercise
price equal to the net book value of the shares as of the end of the previous
quarter.
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 7 "Shareholders' Equity"
for a summary of the share activity within the ESOT.
Share option activity for the years ended December 31, 2009 and 2008 was
as follows:
2009 2008
----------------------- ------------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
(Options in thousands) Options Price Options Price
----------------------- ------------------------
Outstanding as of January 1................................... 9,675 $ 1.54 9,625 $ 1.45
Granted ...................................................... - - 3,450 0.30
Forfeited..................................................... (3,200) 0.43 (3,400) 0.31
Exercised..................................................... - - - -
Expired....................................................... - - - -
---------- ---------- ---------- -----------
Outstanding as of December 31................................. 6,475 $ 2.09 9,675 $ 1.54
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Options exercisable as of December 31......................... 4,213 $ 3.05 5,538 $ 2.47
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
See Note 1 "Summary of Significant Accounting Policies" for information
regarding the Group's accounting for share based compensation.
34
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary information about the Group's share options outstanding as of
December 31, 2009 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)
$0.11 - $0.50 4,365 7.00 $ 0.29 2,103 $ 0.27
0.51 - 5.00 20 0.71 2.50 20 2.50
5.01 - 10.00 2,030 1.37 5.41 2,030 5.41
10.01 - 21.00 60 0.67 21.00 60 21.00
- -------------- ------------- ----------- ------------ --------------- ------------
$0.11 - $21.00 6,475 5.16 $ 2.09 4,213 $ 3.05
- -------------- ------------- ----------- ------------ --------------- ------------
- -------------- ------------- ----------- ------------ --------------- ------------
<FN>
(1) The intrinsic value of all options outstanding as of December 31, 2009 was
zero, as the market value of the underlying shares was $0.07 as of that date.
</FN>
Option valuation and expense information
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, 2009 and 2008,
compensation expense related to employee share options totaled $55,000 and
$71,000, respectively, and is included in operating expenses in the accompanying
statements of operations.
On March 27 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, 50,000 of
these options were forfeited. As discussed above, on August 19, 2008, the
exercise price of the remaining 4,450,000 options was modified from $0.10 to
$0.31, the net book value per share as of December 31, 2006. The fair value of
the modified options was determined to be $160,000, calculated using the
Black-Scholes option pricing model using the following assumptions: expected
share price volatility of 99%, risk-free interest rate of 3.04%, weighted
average expected life of 4.85 years and expected dividend yield of zero percent.
Using these same assumptions, the fair value of the original 4.45 million
options immediately prior to the exercise price modification was calculated to
be $216,000. As the fair value of the modified options is less than the fair
value of the original options immediately before the exercise price
modification, there is no incremental cost resulting from the modification and
therefore the original grant date fair value will continue to be amortized over
the remaining vesting schedule to March 27, 2011, less the value of any actual
or expected forfeitures of unvested options.
On August 20, 2008, 3,450,000 options were granted to employees and
directors with an exercise price of $0.30, the net book value of the shares as
of June 30, 2008. These options were valued using the Black-Scholes option
pricing model using the following assumptions: expected share price volatility
of 99%, risk-free interest rate of 3.27%, weighted average expected life of 6.25
years and expected dividend yield of zero percent. The fair value of the
3,450,000 options was $151,000.
35
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2009, 875,000 options became vested, no options were granted,
3,200,000 were forfeited and no options were exercised. At December 31, 2009,
there were 6,475,000 options outstanding with a weighted average exercise price
of $2.09. There were no in-the-money options outstanding at that date. Of the
outstanding options, 4,212,500 were exercisable at December 31, 2009, and these
have a weighted average exercise price of $3.05. The remaining 2,262,500 options
were unvested at December 31, 2009. These unvested options have a weighted
average exercise price of $0.30. As of December 31, 2009, total unrecognized
compensation expense related to unvested share options was $88,000, which is
expected to be recognized as follows: $46,000 in 2010, $28,000 in 2011 and
$14,000 in 2012.
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
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. No awards have been outstanding
under this plan since 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 7 "Shareholders' Equity" for a summary of the
share activity within the ALOT.
Note 11. Pension Plan
The Group provided a defined contribution plan for its former U.K.
employees. There are currently no participants in the plan. The Group has no
ongoing liabilities associated with the plan. Contributions of $186,000 and
$303,000 were made by the Group to the plan in 2009 and 2008, respectively. Of
the 2009 and 2008 contributions, $159,000 and $245,000, respectively, were
offset by a salary waiver.
36
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12. Loss Per Share and ADS
Loss per ADS is equivalent to ten times loss per Ordinary Share.
A reconciliation of the numerators and denominators for the basic and
diluted loss per share calculations is as follows:
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands, except per
share and ADS amounts)
Net loss.......................................................................... $ (2,287) $ (1,571)
------------ ------------
------------ ------------
Basic loss per share and ADS:
Weighted-average number of Ordinary Shares outstanding,
excluding shares held by the employee benefit trusts........................... 50,917 50,917
------------ ------------
------------ ------------
Basic loss per share.............................................................. $ (0.04) $ (0.03)
------------ ------------
------------ ------------
Basic loss per ADS................................................................ $ (0.45) $ (0.31)
------------ ------------
------------ ------------
Diluted loss per share and ADS:
Weighted-average number of Ordinary Shares outstanding,
excluding shares held by the employee benefit trusts........................... 50,917 50,917
Effect of dilutive securities (warrants and employee share options) .............. - -
------------ ------------
Weighted-average number of Ordinary Shares used in diluted
loss per share calculations.................................................... 50,917 50,917
------------ ------------
------------ ------------
Diluted loss per share............................................................ $ (0.04) $ (0.03)
------------ ------------
------------ ------------
Diluted loss per ADS.............................................................. $ (0.45) $ (0.31)
------------ ------------
------------ ------------
For the year ended December 31, 2009, there were no "in-the-money"
options or warrants, and therefore no potentially dilutive securities. As a
result, if the Company had reported net income for the year ended December 31,
2009, diluted earnings per share would be the same as basic earnings per share.
Note 13. Transactions with Related Parties
The Group paid legal fees of approximately $45,000 during 2008 to a law
firm of which one of its directors, Victor A. Hebert, was a member until October
2008.
37
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14. Business Segment and Geographical Information
Prior to the third quarter of 2009, the Company's reportable operating
segments were classified according to its businesses of consulting in venture
capital, and life insurance and annuities.
As the Company ceased its insurance business during the third quarter of
2009, only one operating business remains: consulting in venture capital.
Beginning with the third quarter of 2009, the Company changed its reporting of
results to a consulting company format with only one operating business segment
(consulting in venture capital). Certain reclassifications were made to prior
period amounts to conform with the current period's presentation. These
reclassifications had no effect on the net income or shareholders' equity for
the prior periods.
Summary revenue, interest income and net investment gain and loss
information by geographic segment, based on the domicile of the Group company
generating those revenues, is as follows:
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Jersey............................................................................ $ 75 $ 1,409
Guernsey.......................................................................... - -
United States..................................................................... 577 612
------------ ------------
Consolidated revenues and net investment gains and losses......................... $ 652 $ 2,021
------------ ------------
------------ ------------
Total assets by geographic segment were as follows:
December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Jersey............................................................................ $ 4,952 $ 13,643
Guernsey.......................................................................... 1 1
United States..................................................................... 8,211 1,900
------------ ------------
Consolidated total assets ........................................................ $ 13,164 $ 15,544
------------ ------------
------------ ------------
Note 15. Client Concentration
The Group's consulting revenues are from a few major clients. During
2009, the Group's two largest consulting clients accounted for 63% and 34% of
its consulting revenues while in 2008 the Group's two largest consulting clients
accounted for 71% and 21% of its consulting revenues. No other consulting client
accounted for more than 10% of consulting revenues in 2009 and 2008.
Note 16. Subsequent Events
The offering of ADRs was terminated on January 20, 2010. The Company's
Deposit Agreement with The Bank of New York Mellon will terminate on April 20,
2010. The Company entered into an amendment to the Deposit Agreement on January
20, 2010, to decrease from one year to thirty (30) days the amount of time that
must pass after termination of the Deposit Agreement before The Bank of New York
Mellon may sell any
38
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADRs that have not been surrendered. The Bank of New York Mellon notified the
ADR holders, by letter dated January 20, 2010, of their right to surrender their
ADRs for our Ordinary Shares on or before May 20, 2010. If any of the ADR
holders do not surrender their ADRs for our Ordinary Shares by May 20, 2010, The
Bank of New York Mellon will use reasonable efforts to sell such ADRs and such
ADR holders will receive the net proceeds of sale upon any subsequent surrender
of such ADRs.
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
and Principal 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 and
Principal Financial Officer has 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 and Principal
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Our management, including our Chief Executive and Principal 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, 2009. 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, 2009, 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 fourth quarter of 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
39
Item 9B. OTHER INFORMATION
None.
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 30, 2010 (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 and Principal Financial Officer:
Mr. Trueger, age 61, 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.
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.
40
The following table is a summary of selected information for our equity
compensation plans as of December 31, 2009.
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............. 6,475,000 (1) $2.09 (1)
Equity compensation plans not
approved by shareholders............. - -
--------------- --------
Total................................... 6,475,000 $2.09
--------------- --------
--------------- --------
<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 10 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.
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...................................... 14
Consolidated Balance Sheets as of December 31, 2009 and 2008................................. 15
Consolidated Statements of Operations for the Years Ended
December 31, 2009 and 2008............................................................... 16
41
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008............................................................... 17
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2009 and 2008............................................................... 18
Notes to the Consolidated Financial Statements............................................... 19
2. Financial Statement Schedules:
The following financial statement schedule of Berkeley Technology
Limited and subsidiaries is 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 - Condensed Financial Information of Registrant
Condensed Balance Sheets as of December 31, 2009 and 2008................................ 46
Condensed Statements of Operations for the Years Ended
December 31, 2009 and 2008............................................................ 47
Condensed Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008............................................................ 48
Note to Condensed Financial Statements................................................... 49
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.
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).
42
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).
4.4.1 Form of Amendment Agreement to Deposit Agreement entered into
January 20, 2010 and effective February 19, 2010.
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).
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).
43
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).
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, 2009.
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.
44
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)(2) above.
45
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BERKELEY TECHNOLOGY LIMITED
CONDENSED BALANCE SHEETS
December 31,
------------------------------
2009 2008
------------ ------------
(In thousands, except share amounts)
ASSETS
Cash and cash equivalents......................................................... $ 1,080 $ 1,483
Investment in subsidiaries........................................................ (68,100) (65,208)
Intercompany balances............................................................. 80,339 80,269
Private equity investments (at lower of cost or estimated fair value) ............ 486 -
Other assets...................................................................... 46 4
------------ ------------
Total assets...................................................................... $ 13,851 $ 16,548
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accruals..................................................... $ 287 $ 334
Intercompany balances............................................................. 817 1,235
------------ ------------
Total liabilities................................................................. 1,104 1,569
------------ ------------
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, 2009
and 2008....................................................................... 3,222 3,222
Additional paid-in capital........................................................ 67,915 67,860
Retained earnings................................................................. 4,607 6,894
Employee benefit trusts, at cost (13,522,381 shares as of
December 31, 2009 and 2008).................................................... (62,598) (62,598)
Accumulated other comprehensive loss.............................................. (399) (399)
------------ ------------
Total shareholders' equity........................................................ 12,747 14,979
------------ ------------
Total liabilities and shareholders' equity........................................ $ 13,851 $ 16,548
------------ ------------
------------ ------------
See accompanying Note to Condensed Financial Statements.
46
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
BERKELEY TECHNOLOGY LIMITED
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Revenues:
Investment income................................................................. $ 2 $ 44
------------ ------------
2 44
Expenses:
Staff costs....................................................................... 697 828
Other operating expenses.......................................................... 548 548
------------ ------------
1,245 1,376
------------ ------------
Loss before income tax benefit and equity in
undistributed net loss of subsidiaries......................................... (1,243) (1,332)
Income tax benefit................................................................ - -
------------ ------------
Loss before equity in undistributed net loss of
subsidiaries................................................................... (1,243) (1,332)
Equity in undistributed net loss of subsidiaries (1).............................. (1,044) (239)
------------ ------------
Net loss.......................................................................... $ (2,287) $ (1,571)
------------ ------------
------------ ------------
<FN>
(1) Eliminated on consolidation.
</FN>
See accompanying Note to Condensed Financial Statements.
47
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
BERKELEY TECHNOLOGY LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------
2009 2008
------------ ------------
(In thousands)
Cash flows from operating activities:
Net loss.......................................................................... $ (2,287) $ (1,571)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Equity in undistributed net loss of subsidiaries.................................. 1,044 239
Other operating cash flows........................................................ (41) 46
------------ ------------
Net cash provided by (used in) operating activities .............................. 1,003 (1,286)
------------ ------------
Cash flows from investing activities:
Net advances (to) from subsidiaries............................................... (974) 504
------------ ------------
Net cash (used in) provided by investing activities............................... (974) 504
------------ ------------
Cash flows from financing activities:
Investments in subsidiaries....................................................... (7,150) -
Repayments from subsidiaries...................................................... 9,000 -
------------ ------------
Net cash provided by financing activities ........................................ 1,850 -
------------ ------------
Effect of exchange rate changes on cash .......................................... 5 (12)
------------ ------------
Net increase in cash and cash equivalents......................................... (403) (794)
Cash and cash equivalents at beginning of year.................................... 1,483 2,277
------------ ------------
Cash and cash equivalents at end of year.......................................... $ 1,080 $ 1,483
------------ ------------
------------ ------------
See accompanying Note to Condensed Financial Statements.
48
SCHEDULE I - 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, 2009.
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,
2009.
49
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, 2010 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, 2010 Arthur I. Trueger
Executive Chairman
(Principal Executive Officer)
/s/ Arthur I. Trueger
Date: March 31, 2010 Arthur I. Trueger
Principal Financial Officer
(Principal Financial and Accounting Officer)
/s/ Victor A. Hebert
Date: March 31, 2010 Victor A. Hebert
Non-Executive Director
/s/ Harold E. Hughes
Date: March 31, 2010 Harold E. Hughes
Non-Executive Director
/s/ The Viscount Trenchard
Date: March 31, 2010 The Viscount Trenchard
Non-Executive Director
50