UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-21874
Berkeley Technology Limited
(Exact name of registrant as specified in its charter)
______________________
Jersey, Channel Islands Not applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Castle Street
St. Helier, Jersey JE2 3RT
Channel Islands
(Address of principal executive offices)
(Zip Code)
011 44 (1534) 607700
(Registrant's telephone number, including area code)
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 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 Exchange Act). Yes [ ] No [X]
As of May 12, 2010, the registrant had outstanding 64,439,073 Ordinary
Shares, par value $0.05 per share.
2
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2010 and
December 31, 2009............................................................................ 4
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2010 and 2009................................................................ 5
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2010 and 2009................................................................ 6
Consolidated Statement of Changes in Shareholders' Equity for the three months
ended March 31, 2010......................................................................... 7
Notes to Condensed Consolidated Financial Statements............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 22
Item 4. Controls and Procedures.......................................................................... 22
PART II
OTHER INFORMATION
Item 1A. Risk Factors..................................................................................... 23
Item 5. Other Information................................................................................ 23
Item 6. Exhibits......................................................................................... 23
Signature ................................................................................................. 24
3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
March 31, December 31,
2010 2009
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 10,949 $ 11,480(1)
Accounts receivable, less allowances of $0 as of March 31, 2010
and December 31, 2009...................................................... 104 141
Prepaid expenses and deposits.................................................. 62 68
------------ ------------
Total current assets.............................................................. 11,115 11,689
Private equity investments (at lower of cost or estimated fair value)............. 1,469 1,469(1)
Property and equipment, net of accumulated depreciation of $181
as of March 31, 2010 and December 31, 2009..................................... 4 6
------------ ------------
Total assets...................................................................... $ 12,588 $ 13,164
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................................... $ 423 $ 417
------------ ------------
Total current liabilities......................................................... 423 417
------------ ------------
...............................................................................
Commitments and contingencies (Note 7)
Shareholders' equity:
Ordinary shares, $0.05 par value per share: 86,400,000 shares authorized;
64,439,073 shares issued and outstanding as of March 31, 2010
and December 31, 2009.......................................................... 3,222 3,222
Additional paid-in capital........................................................ 67,917 67,915
Retained earnings................................................................. 3,624 4,607
Employee benefit trusts, at cost (13,522,381 shares as of
March 31, 2010 and December 31, 2009).......................................... (62,598) (62,598)
Accumulated other comprehensive loss.............................................. - (399)
------------ ------------
Total shareholders' equity........................................................ 12,165 12,747
------------ ------------
Total liabilities and shareholders' equity........................................ $ 12,588 $ 13,164
------------ ------------
------------ ------------
<FN>
(1) As of December 31, 2009, the Company's subsidiary, London Pacific
Limited ("LPL"), 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 LPL, and not to fund the parent company or any of the
other subsidiaries. As of December 31, 2009, LPL needed to obtain the
permission of the Jersey Financial Services Commission ("JFSC") if LPL
funds were to be used to fund operations or commitments outside of the
LPL entity. As of January 14, 2010, the JFSC approved LPL's Cessation
Of Business Plan ("COBP") and canceled LPL'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
Condensed Consolidated Financial Statements.
4
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share and ADS amounts)
Three Months Ended
March 31,
---------------------
2010 2009
-------- ---------
Revenues:
Consulting fees................................................... $ 116 $ 97
--------- ---------
Total revenues.................................................... 116 97
--------- ---------
Operating expenses:
Cost of services.................................................. 139 204
Selling, general and administrative expenses ..................... 566 664
--------- ---------
Total operating expenses.......................................... 705 868
--------- ---------
Operating loss.................................................... (589) (771)
Interest income................................................... 7 7
Net realized investment loss...................................... - (200)
Net realized foreign currency translation loss.................... (399) -
--------- ---------
Loss before income tax expense.................................... (981) (964)
Income tax expense................................................ 2 2
--------- ---------
Net loss.......................................................... $ (983) $ (966)
--------- ---------
--------- ---------
Basic and diluted loss per share $ (0.02) $ (0.02)
--------- ---------
--------- ---------
Basic and diluted loss per ADS $ (0.19) $ (0.19)
--------- ---------
--------- ---------
See accompanying Notes which are an integral part of these
Condensed Consolidated Financial Statements.
5
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
------------------------------
2010 2009
------------ ------------
Cash flows from operating activities:
Net loss.......................................................................... $ (983) $ (966)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization..................................................... 2 1
Amounts credited on insurance policyholder accounts............................... - 1
Net realized investment losses ................................................... - 200
Share based compensation.......................................................... 2 19
Net realized foreign currency translation loss.................................... 399 -
Net changes in operating assets and liabilities:
Accrued investment income ..................................................... - (1)
Other assets................................................................... 43 128
Accounts payable, accruals and other liabilities............................... 7 2
------------ ------------
Net cash used in operating activities............................................. (530) (616)
------------ ------------
Cash flows from financing activities:
Insurance policyholder benefits paid.............................................. - (63)
------------ ------------
Net cash used in financing activities............................................. - (63)
------------ ------------
Effect of exchange rate changes on cash........................................... (1) (1)
------------ ------------
Net decrease in cash and cash equivalents......................................... (531) (680)
Cash and cash equivalents at beginning of period.................................. 11,480 13,681
------------ ------------
Cash and cash equivalents at end of period ....................................... $ 10,949 $13,001
------------ ------------
------------ ------------
Supplemental disclosure of non-cash operating activities:
Realization of accumulated foreign currency translation adjustments............... $ 399 $ -
See accompanying Notes which are an integral part of these
Condensed Consolidated Financial Statements.
6
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Accumulated
Other
Ordinary Shares Additional Employee Compre- Total
-------------------- Paid-in Retained Benefit hensive Shareholders'
Number Amount Capital Earnings Trusts Loss(1) Equity
-------------------- ---------- ---------- ---------- ----------- -----------
Balance as of
December 31, 2009............ 64,439 $ 3,222 $ 67,915 $ 4,607 $ (62,598) $ (399) $ 12,747
Net loss........................ - - - (983) - - (983)
Realization of accumulated
foreign currency
translation adjustments...... - - - - - 399 399
Share based compensation,
including income tax
effect of $0................. - - 2 - - - 2
--------- -------- ---------- ---------- ---------- ----------- -----------
Balance as of
March 31, 2010............... 64,439 $ 3,222 $ 67,917 $ 3,624 $ (62,598) $ - $ 12,165
--------- -------- ---------- ---------- ---------- ----------- -----------
--------- -------- ---------- ---------- ---------- ----------- -----------
<FN>
(1) On January 14, 2010, the JFSC approved LPL's COBP and cancelled its
insurance permit. As of March 31, 2010, LPL was substantially liquidated and
thereby realized the non-recurring accumulated other comprehensive loss (foreign
currency translation adjustment net loss) in the Group's consolidated statement
of operations. Please see "Foreign Currencies" in Note 1 below.
</FN>
See accompanying Notes which are an integral part of these
Condensed Consolidated Financial Statements.
7
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2010
As used herein, the terms "registrant," "Company," "we," "us" and "our"
refer to Berkeley Technology Limited ("BTL"). Except as the context otherwise
requires, the term "Group" refers collectively to the registrant and its
subsidiaries.
Note 1. Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by the Company in conformity with United States
generally accepted accounting principles ("U.S. GAAP"). These unaudited
condensed consolidated financial statements include the accounts of the Company,
its subsidiaries, the Employee Share Option Trust ("ESOT") and the Agent Loyalty
Opportunity Trust ("ALOT"). All intercompany transactions and balances have been
eliminated in consolidation.
Certain information and note disclosures normally included in the
Company's annual consolidated financial statements have been condensed or
omitted. In the opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) which are necessary for a fair statement of the results for the
interim periods presented.
These unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements and related notes for
the year ended December 31, 2009, which are contained in the Company's Annual
Report on Form 10-K and Form 10-K/A, filed with the U.S. Securities and Exchange
Commission ("SEC") on March 31, 2010 and April 30, 2010, respectively. The
December 31, 2009 condensed balance sheet data was derived from audited
financial statements but does not include all disclosures required by U.S. GAAP.
As the level of consulting fees earned by the Company is expected to
fluctuate depending on the nature and extent of consulting work at any point in
time, the results for the three month period ended March 31, 2010 may not be
indicative of the results to be expected for the full fiscal year or future
years.
On January 14, 2010, the JFSC approved LPL's COBP and cancelled its
insurance permit. As of March 31, 2010, LPL was substantially liquidated,
thereby requiring the non-recurring accumulated foreign currency translation
adjustment net loss held by LPL to be realized.
Prior to the cessation of its insurance business during the third quarter
of 2009, the Company reported its results of operations using an insurance
company format and in two operating segments: the consulting in venture capital
segment, and the life insurance and annuities segment. Beginning with the third
quarter of 2009, the Company changed its reporting of results to a commercial
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 loss or shareholders' equity for the prior periods.
The Company is incorporated under the laws of Jersey, Channel Islands.
Its Ordinary Shares are traded on the London Stock Exchange and until April 20,
2010, in the U.S. on the Over-the-Counter Bulletin Board in the form of American
Depositary Shares ("ADSs"), which were evidenced by American Depositary Receipts
("ADRs"). Each ADS represented ten Ordinary Shares. As part of the Company's
cost reduction measures, on January 20, 2010, the offering of ADRs was
terminated and the Company entered into an amendment to the Deposit Agreement 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 and such ADR holders will
receive the net proceeds of such sale. The Bank of New York Mellon notified the
ADR holders, by letter dated January 20, 2010, of their right to surrender their
ADRs for Ordinary Shares on or before May 20, 2010.
8
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the regulations of the SEC, the Company is considered a U.S.
domestic registrant and must file financial statements prepared under U.S. GAAP.
Subsequent Events
The Company's Deposit Agreement with The Bank of New York Mellon
terminated on April 20, 2010.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make certain 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 unaudited condensed 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 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.
Foreign Currencies
Prior to July 1, 2007, the Group used the British pound sterling
("sterling") as the functional currency of LPL and the U.S. dollar as the
functional currency of the Company and all other significant subsidiaries. Due
to significant changes in the operating environment of LPL, the functional
currency of LPL was changed to the U.S. dollar effective July 1, 2007. With this
change in functional currency, LPL's foreign exchange gains and losses resulting
from the remeasurement of foreign currency assets and liabilities into U.S.
dollars were included in operating expenses in the Group's consolidated
statement of operations, rather than included in a separate component of other
comprehensive income in shareholders' equity, effective July 1, 2007. The
$(399,000) balance as of June 30, 2007 in accumulated other comprehensive loss
in the Group's consolidated balance sheet remained until such time LPL was
substantially liquidated. On January 14, 2010, the JFSC approved LPL's COBP and
cancelled its insurance permit. As of March 31, 2010, LPL was substantially
liquidated and thereby realized the non-recurring accumulated foreign currency
translation adjustment net loss in the Group's consolidated statement of
operations.
Comprehensive Loss
The Company had no other comprehensive income or loss for the three month
period ended March 31, 2010. Therefore, the Company's comprehensive loss was
equal to the Company's consolidated net loss for the period.
Recently Issued Accounting Pronouncements
In April 2009, the FASB issued three related sets of accounting
guidance intended to enhance disclosures regarding fair value measurements and
impairments of securities. This guidance sets forth rules related to determining
the fair value of financial assets and financial liabilities when the activity
levels have significantly decreased in relation to the normal market, guidance
related to the determination of other-than temporary impairments to include
intent and ability of the holder as an indicator in the determination of whether
an other-than-temporary impairment exists and interim disclosure requirements
for the fair value of financial instruments. These sets of accounting guidance
became effective for interim and annual reporting periods ended after June 15,
2009. The adoption of this guidance did not have an impact on the Company's
condensed consolidated financial statements.
9
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
Company adopted this guidance as of the quarter ended June 30, 2009. The
adoption of this guidance did not have an impact on the Company's condensed
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 a material impact on the Company's condensed
consolidated financial statements.
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. The Company does not
expect the adoption of this guidance to have a material impact on its condensed
consolidated financial statements.
Note 2. 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
had previously issued Ordinary Share warrants to Bank of Scotland in connection
with the Company's bank facility (now terminated), which were also considered
potential common stock. However, the warrants expired, unexercised, 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."
For the three month period ended March 31, 2010 and 2009, there were no
"in-the-money" options or warrants, and therefore no potentially dilutive
securities. As a result, the diluted loss per share is the same as basic loss
per share.
Loss per ADS is equivalent to ten times loss per Ordinary Shares.
10
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the numerators and denominators for the basic and diluted
loss per share calculations is as follows:
Three Months Ended
March 31,
---------------------
2010 2009
--------- ---------
(In thousands, except per
share and ADS amounts)
Net loss.......................................................... $ (983) $ (966)
--------- ---------
--------- ---------
Basic and 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
--------- ---------
--------- ---------
Basic and diluted loss per share.................................. $ (0.02) $ (0.02)
--------- ---------
--------- ---------
Basic and diluted loss per ADS.................................... $ (0.19) $ (0.19)
--------- ---------
--------- ---------
Note 3. Investments
As of March 31, 2010 and December 31, 2009, the Group's only investments
were private equity securities.
For 2009 and the first three months of 2010, because all of the Group's
private equity investments 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 4, "Fair Value of
Financial Instruments" 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.
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 the
first quarter of 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 of $200,000 on this investment
as of the end of March 2009. During the first quarter of 2010, the Group
determined that no impairment indicators existed for its private equity
investments. 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.
11
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
Investment Concentration and Risk
As of March 31, 2010, the Group's investments consisted of three private
equity securities with individual carrying values of less than 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 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 March 31, 2010 and
December 31, 2009.
Note 4. Fair Value of Financial Instruments
The Company has adopted the accounting guidance for fair value
measurements. The accounting guidance for fair value measurements provides a
framework for measuring fair value and expands related disclosures. Fair value
is defined as the price that would be received for 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 established a
hierarchy which requires an entity to maximize the use of observable inputs,
when available. The accounting guidance requires that fair value measurements be
classified and disclosed in one of the following three categories:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that are accessible by the Company. As of March
31, 2010, the Company's Level 1 assets included money market accounts which are
included in cash and cash equivalents in the condensed 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. As of March 31, 2010, the Company's Level 2 assets
included money market mutual funds which are included in cash and cash
equivalents in the condensed consolidated balance sheets.
Level 3 - Unobservable inputs for the asset or liability including
significant assumptions of the Company and other market participants. As of
March 31, 2010 and December 31, 2009, the Group held $1,469,000 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.
12
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED 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 March 31, 2010:
Money market mutual funds...................................... $ - $ 1 $ - $ 1
As of December 31, 2009:
Money market mutual funds...................................... $ - $ 4,008 $ - $ 4,008
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). See Note 3 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 March 31, 2010:
Private equity investments..................................... - - $ 1,469 $ 1,469
As of December 31, 2009:
Private equity investments..................................... - - $ 1,469 $ 1,469
Cash and cash equivalents, accounts receivable, prepaid expenses and
deposits, accounts payable and accrued expenses are reflected in the condensed
consolidated balance sheets at carrying values which approximate fair values due
to the short-term nature of these instruments.
Note 5. 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. 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.
13
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share Based Compensation Expense
The accounting guidance for share based payment 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 quarters ended March 31, 2010 and 2009 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 have been granted since August 20, 2008. 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 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 three months of 2010 and 2009 was based upon the fact that all
unvested options related to longstanding employees and directors. One employee
who held share options left the company during the first quarter of 2010 and
that employee's 650,000 unvested share options were forfeited. Despite the
departure of this employee, the Group's management continues to believe that a
zero percent forfeiture rate for future periods is appropriate.
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 the first
three months of 2010, the Company had no related tax benefits during those
periods.
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.
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 three months ended March 31, 2010 and 2009,
compensation expense related to share options totaled $2,000 and $19,000,
respectively, and is included in operating expenses in the accompanying
statement of operations.
14
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For additional information relating to the Group's share options, see
Note 10 to the Company's consolidated financial statements included in Form 10-K
for the year ended December 31, 2009.
Note 6. 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 unrecognized tax benefits from January 1, 2007 through March
31, 2010. In general, the Company's tax returns remain subject to examination by
taxing authorities for the tax years 2006 through 2009, and for 2010 once the
returns are filed in 2011.
During the third quarter of 2008, the Internal Revenue Service
("IRS") 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. 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. Similarly, 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 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 2008, 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
$43 million of net operating loss carryforwards and approximately $60 million of
capital loss carryforwards. 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 standalone basis would be the responsibility of LCL, not of the Group, and
accordingly, any such liability has not been included in the condensed
consolidated financial statements of the Company.
Note 7. Commitments and Contingencies
Guarantees
Under its Memorandum and Articles of Association, the Company has agreed
to indemnify its officers and directors for certain events or occurrences
arising as a result of the officer or director serving in such capacity. The
maximum potential amount of future payments the Company could be required to
make under these indemnification agreements is unlimited. However, the Company
maintains directors' and officers' liability insurance that limits the Company's
exposure and enables it to recover a portion of any future amounts paid. As a
result of its insurance coverage, the Company believes the estimated fair value
of these
15
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
indemnification agreements is minimal and has no liabilities recorded for these
agreements as of March 31, 2010.
The Company enters into indemnification provisions under its agreements
with other companies in its ordinary course of business, typically with business
partners, service providers, clients and landlords. Under these provisions, the
Company generally indemnifies and holds harmless the indemnified party for
losses suffered or incurred by the indemnified party as a result of the
Company's activities. These indemnification provisions sometime 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 as historically, no payments have been made by the Company
under these indemnification obligations. Accordingly, the Company has no
liabilities recorded for these agreements as of March 31, 2010.
Note 8. 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 commercial company format with only one operating business segment
(consulting in venture capital). Certain reclassifications were made to prior
period amounts to conform to 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 investment gain (loss) information
by geographic segment, based on the domicile of the Group company generating
those revenues, is as follows:
16
BERKELEY TECHNOLOGY LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended
March 31,
------------------------
2010 2009
---------- -----------
(In thousands)
Jersey............................................................ $ - $ (195)
United States..................................................... 123 99
---------- -----------
Consolidated revenues, interest income and investment
gains (losses)................................................. $ 123 $ (96)
---------- -----------
---------- -----------
Total consolidated assets by geographic segment were as follows:
March 31, December 31,
2010 2009
------------ ------------
(In thousands)
Jersey............................................................................ $ 4,567 $ 4,953
United States..................................................................... 8,021 8,211
------------ ------------
Consolidated total assets......................................................... $ 12,588 $ 13,164
------------ ------------
------------ ------------
Note 9. Client Concentration
The Group's consulting revenues are from a few major clients. In the
first three months of 2010, the Group's largest consulting client accounted for
77% of its consulting revenues, and another client accounted for 23% of its
consulting revenues while in the first three months of 2009, the Group's largest
consulting client accounted for 78% and another client accounted for 18% of its
consulting revenues.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited condensed
consolidated financial statements, and the notes thereto, included in this
quarterly report, and the December 31, 2009 audited consolidated financial
statements, and the notes thereto, included in our Annual Report on Form 10-K
filed and Form 10-K/A with the SEC on March 31, 2010 and April 30, 2010,
respectively. The unaudited condensed consolidated financial statements are
prepared in accordance with U.S. GAAP. This item should also be read in
conjunction with the "Forward-Looking Statements and Factors That May Affect
Future Results" which are set forth below and in our other filings with the SEC.
Forward-Looking Statements and Factors That May Affect Future Results
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report contain forward-looking
statements within the meaning of Section 21E of the Securities
17
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 report 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
Revenues
First quarter of 2010 compared to first quarter of 2009
Consulting fee income was 20% higher at $116,000 for the first quarter of
2010, compared to the first quarter of 2009.
Our typical client is a Silicon Valley technology company or a large
international telecommunications company. Our objective has been to use
consulting revenues to finance the development of large telecommunications
company relationships in Europe and Asia, which has led to several equity
investments by a client and new opportunities generated through others. Given
the challenges we face in the current economic environment, 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. We are
actively seeking new clients and business opportunities in a cost efficient
manner. We entered into a new consulting agreement with one client on April 1,
2010 following the expiration of the prior consulting agreement with that client
on March 30, 2010. This new consulting agreement was 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.
Operating Expenses
First quarter of 2010 compared to first quarter of 2009
Total operating expenses fell by $163,000 to $705,000 for the first
quarter of 2010, compared to the first quarter of 2009 due primarily to lower
staff costs with fewer employees, including the departure of our former Chief
Financial Officer in 2009. In addition, significant savings were achieved
through reductions in office rent and other insurance costs.
18
Interest Income
First quarter of 2010 compared to first quarter of 2009
Interest income earned on bank deposits and money market mutual funds
remained consistent at $7,000 for the first quarter of 2010, compared to the
first quarter of 2009.
Realized Investment Gains and Losses
First quarter of 2010 compared to first quarter of 2009
There were no realized investment gains or losses in the first quarter of
2010. The results for the first quarter of 2009 included an other-than-temporary
impairment loss of $200,000 taken on one of the Group's private equity
investments.
Consolidated Loss Before Income Tax Expense
First quarter of 2010 compared to first quarter of 2009
Our consolidated loss before income tax expense was $981,000 in the first
quarter of 2010, compared to a consolidated loss of $964,000 in the first
quarter of 2009. This higher loss of $17,000 was due to the realization of the
non-recurring accumulated foreign currency translation adjustments of $399,000
offset by a decrease in operating expenses. The decrease in operating expenses
was attributable primarily to lower staff costs.
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 2009,
and again in 2010.
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. The substantial liquidation of LPL caused us
to realize the non-recurring accumulated foreign currency translation loss which
did not impact our cash for the first quarter of 2010. 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
Under a new tax system in Jersey, Channel Islands, our tax rate is zero,
and realized gains on certain investments are exempt from Jersey taxation. In
the United States, we are subject to both federal and California taxes at rates
up to 34% and 8.84%, respectively.
First quarter of 2010 compared to first quarter of 2009
The tax expense for the first quarters of 2010 and 2009 is comprised of
our minimum California taxes. Other than these taxes, no other tax expense or
benefits were applicable to our Group for these periods. Our U.S. subsidiaries
contributed a loss before income taxes of $0.2 million during the first quarter
of 2010; however, we did not recognize any U.S. tax benefits due to the 100%
valuation allowances that we have provided for all deferred tax assets.
19
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, revenue recognition and assumptions used to value share options
granted. These critical accounting policies are described below.
Accounting for Investments
For 2009 and the first three months of 2010, because all of our private
equity investments are less than 20% in the investee companies, and we do not
have any significant influence on the investee companies, all such investments
are accounted for in accordance with the cost method. We evaluate our
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 in 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. 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.
20
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 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 in writing
and collectibility is reasonably assured.
Valuation of Share Options Granted
We calculate the fair value of share option grants to employees using the
Black-Scholes option pricing model, even though this model was developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which differ significantly from the Company's share
options. The Black-Scholes model also requires subjective assumptions, including
future share price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate is 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.
Liquidity and Capital Resources
Our cash and cash equivalents decreased during the first three months of
2010 by $0.5 million from $11.48 million as of December 31, 2009 to $10.95
million as of March 31, 2010. This decrease in cash and cash equivalents
resulted from cash used in operating activities. Cash used in operating
activities resulted from the excess of operating expenses over consulting fee
income and interest income for the first three months of 2010.
Shareholders' equity decreased during the first three months of 2010 by
$0.5 million from $12.7 million at December 31, 2009 to $12.2 million at March
31, 2010, due to the net loss for the period of $983,000 offset by the
realization of the non-recurring accumulated other comprehensive (foreign
currency translation adjustment) loss of $399,000. As of March 31, 2010 and
December 31, 2009, $62.6 million of our Ordinary Shares, at cost, held by the
employee benefit trusts have been netted against shareholders' equity.
21
On January 14, 2010, the JFSC approved LPL's COBP and cancelled its
insurance permit. As of March 31, 2010, LPL was substantially liquidated and
thereby realized the non-recurring accumulated foreign currency translation net
loss.
As of March 31, 2010, we had no bank borrowings, guarantee obligations,
material commitments outstanding for capital expenditures or additional funding
for private equity portfolio companies.
As of March 31, 2010, we had $10.9 million of cash and cash equivalents.
We believe that this cash balance is sufficient to fund our operations over at
least the next 12 months.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our company's management, with the participation of our Chief
Executive Officer, who is also our Principal Financial Officer (see "Changes in
Internal Control Over Financial Reporting" below), evaluated the effectiveness
of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered
by this Report (the "Evaluation Date"). Based upon that evaluation, the Chief
Executive Officer/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 Officer/Principal Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Our management, including our Chief Executive Officer/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.
Changes in Internal Control Over Financial Reporting
Subsequent to our former Chief Financial Officer's departure on June 30,
2009, the internal control procedures previously performed by him were
transferred to our Executive Chairman and to our Company Secretary. On August
12, 2009, Mr. Arthur I. Trueger, our Executive Chairman, was appointed by the
Company's board of directors as the Company's Principal Financial Officer. On
March 30, 2010, Ms. Diane Worthington was appointed Corporate Controller.
There were no changes in our internal controls over financial reporting
that occurred during the quarter ended March 31, 2010 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
22
PART II - OTHER INFORMATION
Item 1A. RISK FACTORS
Not required.
Item 5. OTHER INFORMATION
Subsequent to Mr. Whitehead's departure on June 30, 2009, the Company's
board of directors on August 12, 2009, appointed Mr. Arthur I. Trueger as the
Company's Principal Financial Officer. Background information on Mr. Trueger may
be found in the Company's Form 10-K/A Statement filed with the SEC on April 30,
2010. On March 30, 2010, Ms. Diane Worthington was appointed Corporate
Controller.
Item 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit
Number Description
- ------------ ----------------
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 Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Company's Executive Chairman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by the Company's Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
23
SIGNATURE
Pursuant to the requirements 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)
Date: May 12, 2010 By: /s/ Arthur I. Trueger
Arthur I. Trueger
Executive Chairman and
Principal Financial Officer
24