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EX-21 - BERKELEY TECHNOLOGY LTDex21.txt
EX-4 - BERKELEY TECHNOLOGY LTDex441.txt
EX-32 - BERKELEY TECHNOLOGY LTDexh321.txt
EX-32 - BERKELEY TECHNOLOGY LTDexh322.txt
EX-31 - BERKELEY TECHNOLOGY LTDexh311.txt
EX-31 - BERKELEY TECHNOLOGY LTDexh312.txt



                                  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. 2
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 ------------ ------------ ------------ ------------ (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. 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 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- (1) 834,000 shares are held in ADR form. 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 -------------- ------------- ----------- ------------ --------------- ------------ -------------- ------------- ----------- ------------ --------------- ------------ (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. 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 --------------- -------- --------------- -------- (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. 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) ------------ ------------ ------------ ------------ (1) Eliminated on consolidation. 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 5