1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended June 30, 2000
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From to
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Commission File Number 33-89506
BERTHEL GROWTH & INCOME TRUST I
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(Exact name of Registrant as specified in its charter)
DELAWARE 52-1915821
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
-----------------------------------
(Address of principal executive offices) (Zip Code)
(319) 447-5700
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Registrant's telephone number, including area code:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Shares of Beneficial Interest - 10,541 shares as of July 11, 2000
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BERTHEL GROWTH & INCOME TRUST I
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited)
Consolidated Statements of Assets and Liabilities -
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
three months ended June 30, 2000 and June 30, 1999 4
Consolidated Statements of Operations -
six months ended June 30, 2000 and June 30, 1999 5
Consolidated Statements of Changes in Net Assets -
six months ended June 30, 2000 and June 30, 1999 6
Consolidated Statements of Cash Flows -
six months ended June 30, 2000 and June 30, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
SIGNATURES 16
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3
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2000 DECEMBER 31, 1999
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ASSETS
Loans and investments (Note B) $ 20,821,656 $ 11,774,502
Cash 2,244 1,123,840
Temporary investment in money
market securities 48,369 13,695
Interest and dividends receivable 216,486 168,348
Deferred financing costs 266,349 226,042
Due from affiliates 1,898 -0-
Other receivables 4,197 10,368
Other assets 7,573 -0-
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Total Assets 21,368,772 13,316,795
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LIABILITIES
Accrued interest payable 181,513 73,273
Accounts payable and other accrued expenses 41,942 59,332
Due to affiliate 57,377 88,121
Deferred income 33,703 11,667
Distributions payable to shareholders 1,870,154 1,449,669
Debentures (Note C) 7,950,000 5,550,000
------------ ------------
Total Liabilities 10,134,689 7,232,062
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COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $1,065.75 per share
at June 30, 2000 and $577.24 per share
at December 31, 1999) $ 11,234,083 $ 6,084,733
============ ============
Net assets consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 shares issued
and outstanding $ 5,504,740 $ 5,954,103
Accumulated net realized losses (1,930,000) (1,930,000)
Accumulated net unrealized gains 7,659,343 2,060,630
------------ ------------
$ 11,234,083 $ 6,084,733
============ ============
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
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REVENUES:
Interest income $ 212,792 $ 120,433
Dividend income 76,356 21,917
Application, closing & other fees 5,028 667
----------- -----------
Total revenues 294,176 143,017
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EXPENSES:
Management fees 95,860 75,944
Administrative services 9,600 9,600
Trustee fees 8,000 8,000
Professional fees 10,729 76,534
Interest expense 169,711 2,931
Other general and administrative expenses 23,622 24,915
----------- -----------
Total expenses 317,522 197,924
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Net investment loss (23,346) (54,907)
Unrealized gain on investments 5,300,963 -0-
----------- -----------
Net increase (decrease) in net assets
resulting from operations 5,277,617 (54,907)
Cumulative effect of a change
in accounting principal (Note A) -0- -0-
----------- -----------
Net increase (decrease) in net assets $ 5,277,617 $ (54,907)
=========== ===========
Per beneficial share amounts:
Net increase (decrease) in net assets
resulting from operations $ 500.68 $ (5.21)
Cumulative effect of a change
in accounting principle -0- -0-
----------- -----------
Net increase (decrease) in net assets $ 500.68 $ (5.21)
=========== ===========
Weighted average shares 10,541 10,541
=========== ===========
Pro forma amounts applying the methodology
of organization costs retroactively:
Net increase (decrease) in net assets $ 5,277,617 $ (54,907)
Net increase (decrease) in net assets
per beneficial share $ 500.68 $ (5.21)
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
REVENUES:
Interest income $ 389,141 $ 262,554
Dividend income 152,712 21,917
Application, closing & other fees 6,715 15,677
----------- -----------
Total revenues 548,568 300,148
----------- -----------
EXPENSES:
Management fees 169,535 151,186
Administrative services 19,200 19,200
Trustee fees 16,000 17,000
Professional fees 28,709 120,421
Interest expense 299,421 4,388
Other general and administrative expenses 44,581 61,681
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Total expenses 577,446 373,876
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Net investment loss (28,878) (73,728)
Unrealized gain on investments 5,598,713 -0-
----------- -----------
Net increase (decrease) in net assets
resulting from operations 5,569,835 (73,728)
Cumulative effect of a change
in accounting principal (Note A) -0- (33,817)
----------- -----------
Net increase (decrease) in net assets $ 5,569,835 $ (107,545)
=========== ===========
Per beneficial share amounts:
Net increase (decrease) in net assets
resulting from operations $ 528.40 $ (6.99)
Cumulative effect of a change
in accounting principle -0- (3.21)
----------- -----------
Net increase (decrease) in net assets $ 528.40 $ (10.20)
=========== ===========
Weighted average shares 10,541 10,541
=========== ===========
Pro forma amounts applying the methodology
of organization costs retroactively:
Net increase (decrease) in net assets $ 5,569,835 $ (73,728)
Net increase (decrease) in net assets
per beneficial share $ 528.40 $ (6.99)
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
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SHARES OF SHARES OF
BENEFICIAL BENEFICIAL
INTEREST AMOUNT INTEREST AMOUNT
-------- ------ -------- ------
Net investment loss --- $ (28,878) --- $ (73,728)
Unrealized gain on investments --- 5,598,713 --- ---
Distributions payable to shareholders --- (420,485) --- (418,173)
Cumulative effect of a change
in accounting principle --- --- --- (33,817)
Net assets at beginning of period 10,541 6,084,733 10,541 11,191,710
------ --------------- ------ -----------------
Net assets at end of period 10,541 $ 11,234,083 10,541 $ 10,665,992
====== =============== ====== =================
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
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OPERATING ACTIVITIES:
Net increase (decrease) in net assets $ 5,569,835 $ (107,545)
Adjustments to reconcile net increase (decrease) in net
assets to net cash flows from operating activities:
Amortization of organizational costs and
deferred financing costs 19,693 3,636
Unrealized gain on investments (5,598,713) -0-
Changes in operating assets and liabilities
Loans and investments (3,448,442) (2,940,000)
Temporary investment in money market securities (34,674) 2,637,419
Interest and dividends receivable (48,138) (48,401)
Due from affiliate (1,898) -0-
Other receivables 6,171 -0-
Other assets (7,573) 64,332
Accrued interest payable 108,240 -0-
Accounts payable and other accrued expenses (17,390) (3,085)
Due to affiliate (30,744) 7,584
Deferred income 22,037 -0-
--------------- ----------------
Net cash flows from operating activities (3,461,596) (386,060)
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FINANCING ACTIVITIES:
Note payable to investment advisor -0- -0-
Distribution payments to shareholders -0- (334,510)
Deferred financing costs incurred (60,000) (75,000)
Proceeds from issuance of debentures 2,400,000 1,000,000
--------------- ----------------
Net cash flows from financing activities 2,340,000 590,490
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NET INCREASE (DECREASE) IN CASH (1,121,596) 204,430
CASH AT BEGINNING OF PERIOD 1,123,840 31,663
--------------- ----------------
CASH AT END OF PERIOD $ 2,244 $ 236,093
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 191,181 $ -0-
Noncash financing activities:
Distributions payable to shareholders 420,485 418,173
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Trust's Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1999. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair representation have
been included. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The preparation of the Trust's financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Deferred financing costs consist of a 1% Small Business Administration ("SBA")
commitment fee, which is amortized over the commitment period using the
straight-line method, and a 2.5% SBA leverage and underwriting fee, which is
amortized over the life of the loan using the straight-line method. The
straight-line method approximates the interest method and the relating
amortization is reported as amortization expense.
Prior to January 1, 1999, the Company capitalized SBIC organization costs and
amortized these costs over the life of the SBIC. The American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-up Activities". SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. SOP 98-5
requires the costs of start-up activities and organization costs to be expensed
as incurred. This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. Effective January 1, 1999, the Company
adopted this SOP and has written off SBIC organization costs of $33,817 and
reported this as a cumulative effect of a change in accounting principle for the
period ended March 31, 1999.
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NOTE B -LOANS AND INVESTMENTS
JUNE 30, 2000 DECEMBER 31, 1999
------------------------- -----------------------
COST VALUATION COST VALUATION
---- --------- ---- ---------
COMMUNICATIONS AND SOFTWARE:
VISIONCOMM INC.
Warrants to purchase 889,153 shares of common stock at $.8414 per share $ --- $ 100,000 $ --- $ 1,450,000
LIVEWARE5, INC.
2,726,667 shares of common stock, no par value and warrants for
920,000 shares at $.005 to $0.05 per share --- --- 400,000 102,250
12% debenture due September, 2004 --- --- 200,000 200,000
MCLEODUSA, INC. (FORMERLY INVESTMENT IN LIVEWARE5, INC.)
38,877 shares of common stock, received in exchange for original
investment in LIVEware5, Inc. 610,000 705,618 --- ---
OBJECT SPACE, INC.
108,108 shares of Series B convertible preferred stock 404,800 400,000 404,800 400,000
EDMIN.COM, INC.
200,000 shares of 9%, Series A cumulative convertible preferred stock and
warrants to purchase 20,000 shares of common stock at $4.00 per share 728,000 728,000 728,000 728,000
CADAPULT GRAPHIC SYSTEMS, INC.
100,000 Shares of 11.5%, Series A convertible preferred stock and warrants
to purchase 333,000 shares of common stock at $3.125 to $4.50 per share 930,000 930,000 930,000 930,000
WEBCASTS.COM, INC.
58,628 shares of 8% Series A preferred stock --- --- 500,000 500,000
10% unsecured note and warrants --- --- 484,860 484,860
Warrants to purchase 1,354,297 common shares for $1,155 --- --- --- 913,180
IBEAM BROADCASTING CORPORATION (FORMERLY INVESTMENT IN WEBCASTS.COM, INC.)
545,442 shares of common stock 486,373 7,890,728 --- ---
10% unsecured note due September, 2000 499,920 499,920 --- ---
iBEAM securities were received as a result of the merger of Webcasts.com, Inc.
with iBEAM Broadcasting Corporation.
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JUNE 30, 2000 DECEMBER 31, 1999
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COST VALUATION COST VALUATION
---- --------- ---- ---------
BRISTOL RETAIL SOLUTIONS
500,000 shares of 12% cumulative convertible preferred stock 820,083 820,083 --- ---
Warrants to purchase 425,000 shares of common stock at $.01 per share 179,917 244,086 --- ---
------------- -------------
TOTAL COMMUNICATIONS AND SOFTWARE (59.2% and 48.5% of total loans and
investments as of June 30, 2000 and December 31,1999, respectively) 12,318,435 5,708,290
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HEALTHCARE PRODUCTS AND SERVICES:
PHYSICIANS TOTAL CARE
10% promissory note due September, 2004 and warrants to purchase
350,000 shares of common stock for at $.035-5.00 per share 600,000 600,000 500,000 500,000
600 shares of common stock 3,000 3,000 --- ---
INTER-MED, INC.
1,743.248 shares and 1,340.96 shares of common stock at
June 30, 2000 and December 31, 1999, respectively 650,000 650,000 500,000 500,000
FUTUREMED INTERVENTIONAL, INC.
13.5% promissory note due February, 2005 904,203 904,203 --- ---
Warrants to purchase 383,111 shares of common stock at $.01 per share 102,640 102,640 --- ---
------------- -------------
TOTAL HEALTHCARE PRODUCTS AND SERVICES (10.8% and 8.5% of total loans and
investments as of June 30, 2000 and December 31,1999, respectively) 2,259,843 1,000,000
------------- -------------
MANUFACTURING:
HICKLIN ENGINEERING, L.C.
10% subordinated note due June, 2003 400,000 400,000 400,000 400,000
Warrant for 6,857 membership interests at $.01 per share --- --- --- ---
12% subordinated note due January, 2001 through December, 2004 23,000 23,000 23,000 23,000
EASY SYSTEMS, INC.
11% subordinated debenture due March, 2004 and warrants to purchase 291,393
shares of stock at $2.10 per share with deferred interest
capitalized to the investment balance as of June 30, 2000 777,422 777,422 700,000 700,000
142,857 shares of Series B preferred stock and warrants to purchase
240,000 shares and 194,570 shares of common stock at June 30,
2000 and December 31, 1999, respectively, at $2.10 per share 300,000 300,000 243,212 243,212
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JUNE 30, 2000 DECEMBER 31, 1999
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COST VALUATION COST VALUATION
---- --------- ---- ---------
THE SCHEBLER COMPANY, PREVIOUSLY KNOWN AS G.M.K.S. ACQUISITION CORP.
13% promissory note due March, 2005 156,258 156,258 --- ---
Warrants to purchase 1.66% of common stock at $.01 per share 11,504 11,504 --- ---
166,666 shares of 10% convertible cumulative preferred stock 166,667 166,667 --- ---
166,666 shares of common stock 166,667 166,667 --- ---
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TOTAL MANUFACTURING (9.6% and 11.6% of total loans and investments
as of June 30, 2000 and December 31,1999, respectively) 2,001,518 1,366,212
------------- -------------
OTHER SERVICE INDUSTRIES:
KINSETH HOSPITALITY COMPANY, INC.
14% note due May, 2003 2,000,000 2,000,000 2,000,000 2,000,000
Warrants for 25% of the outstanding common stock at $0.01 per share --- --- --- ---
INTERNATIONAL PACIFIC SEAFOODS, INC.
12% subordinated note due June 2003 through June 2005 and warrants
to purchase 1,501 shares of common stock for $.76 per share 1,000,000 1,000,000 1,000,000 1,000,000
SERVECORE BUSINESS SOLUTIONS, INC.
3,663 shares and 2,661 shares of common stock at June 30, 2000 and
December 31, 1999 respectively 990,000 990,000 700,000 700,000
PICKERMAN'S DEVELOPMENT COMPANY
12% promissory note due April, 2005 214,663 214,663 --- ---
Warrants to purchase 656,000 shares of common stock at $0.01 per share 37,197 37,197 --- ---
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TOTAL OTHER SERVICE INDUSTRIES (20.4% and 31.4% of total loans and investments
as of June 30, 2000 and December 31,1999, respectively) 4,241,860 3,700,000
------------- -------------
TOTAL LOANS AND INVESTMENTS $ 20,821,656 $ 11,774,502
============= =============
SUBSEQUENT INVESTMENTS:
During July, 2000 the Trust invested $150,000 in a 10% promissory note issued by
Physicians Total Care, Inc. with a due date of October, 2004. The Trust also
invested $150,000 in exchange for a 12% promissory note issued by Inter-Med,
Inc. with a due date of July, 2005 and warrants to acquire 561.0413 shares of
Inter-Med, Inc. common stock for $.01 per share. iBEAM Broadcasting Corporation
repaid its 10% unsecured note amounting to $499,920 plus interest during July,
2000.
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NOTE C - DEBENTURES
The Trust issued debentures payable to the SBA totalling $2,400,000 during the
six months ending June 30, 2000. The debentures require the semiannual payment
of interest at annual interest rates ranging from 7.00% to 7.64%. In addition to
interest payments, the Trust is required to pay an annual 1% SBA loan fee on the
outstanding debentures balance. The debentures contain certain pre-payment
penalties and are subject to all of the regulations promulgated under the Small
Business Investment Act of 1958, as amended. Debentures totalling $1,000,000,
$6,575,000, and $375,000 are to be paid in full on September, 2009, March, 2010,
and September, 2010, respectively.
As of June 30, 2000, the SBIC has unused leverage commitments totalling
$2,050,000 and will be required to pay a 2.5% leverage and underwriting fee
totalling $51,250 that will be deducted pro rata as proceeds are drawn. Each
issuance of debentures is conditioned upon the SBIC's credit worthiness and
compliance with specified regulations, as determined by the SBA. The SBA may
also limit the amount that may be drawn each year. The SBA commitment expires
September 30, 2004.
During July, 2000 the SBIC issued debentures totalling $350,000 that will mature
during September, 2010.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS Net investment income (loss) reflects the
Trust's revenues and expenses excluding realized and unrealized gains and losses
on portfolio investments. Interest income consists of the following:
Three Months Ending June 30 Six Months Ending June 30
2000 1999 2000 1999
---- ---- ---- ----
Portfolio investments $ 211,511 $ 109,611 $ 382,792 $ 220,950
Money market 1,281 10,822 6,349 41,604
----------- ----------- ----------- -----------
Interest income $ 212,792 $ 120,433 $ 389,141 $ 262,554
=========== =========== =========== ===========
Changes in interest earned on portfolio investments reflect the level of
investment in interest earning debt securities and loans. Money market interest
reflects cash resources that are invested in highly liquid money market savings
funds. Money market interest declined in 2000, reflecting uses of cash to
purchase new investments and finance operations.
Dividend income is earned on preferred stock investments and totalled $76,356
and $152,712 for the three and six months ending June 30, 2000, respectively.
Dividend income was $21,917 for both the three and six month period ending June
30, 1999. Prior to 1999 the Trust held no investments in dividend-paying equity
securities.
Management fees, calculated as 2.5% of the combined temporary investment in
money market securities and loans and investments balances, and were $95,860 for
the second quarter of 2000 and $75,944 for the same period a year ago. For the
six months ending June 30, management fees increased from $151,186 in 1999 to
$169,535 in 2000. The increases in management fees are due to an increased
portfolio of loans and investments. Management fees are paid quarterly to the
Trust Advisor, in accordance with the management agreement.
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Professional fees were $10,729 for the second quarter of 2000 and $76,534 for
the second quarter of 1999, and include legal and accounting expenses. For the
first six months, professional fees were $28,709 in 2000 and $120,421 in 1999.
The decrease is due to amounts paid in 1999 to pursue recovery of the Trust's
investment in Soil Recovery Services ("SRS"). The attempts at recovery of the
SRS loss terminated in 1999.
Interest expense was first incurred by the Trust in 1999 when it issued
debentures payable to the SBA through its wholly owned subsidiary, Berthel SBIC,
LLC. The Trust has issued debentures totalling $7,950,000. The debentures
require the semiannual payment of interest at annual interest rates ranging from
7.00% to 7.64%. In addition to interest payments, the Trust is required to pay
an annual 1% SBA loan fee on the outstanding debentures balance. The debentures
contain certain pre-payment penalties and are subject to all of the regulations
promulgated under the Small Business Investment Act of 1958, as amended.
Prepayment penalties are not applicable within five years of maturity.
Debentures totalling $1,000,000, $6,575,000, and $375,000 are to be paid in full
on September, 2009, March, 2010, and September, 2010, respectively.
The change in unrealized gains and losses recognized is summarized in the
following table:
Three Months Ending June 30 Six Months Ending June 30
2000 1999 2000 1999
---- ---- ---- ----
LIVEware5, Inc. $ -0- $ -0- $ 297,750 $ -0-
McLeodUSA, Inc. 95,618 -0- 95,618 -0-
VisionComm, Inc. (1,350,000) -0- (1,350,000) -0-
Webcasts.com, Inc. (913,180) -0- (913,180) -0-
iBEAM Broadcasting
Corporation 7,404,356 -0- 7,404,356 -0-
Bristol Retail Solutions 64,169 -0- 64,169 -0-
----------- ----------- ----------- -----------
Unrealized gain $ 5,300,963 $ -0- $ 5,598,713 $ -0-
=========== =========== =========== ===========
LIVEware5, Inc. was acquired by McLeod USA, Inc. ("McLeod"). The Trust received
38,877 shares of McLeod in exchange for the investments in LIVEware5, Inc. stock
and debentures in early April, 2000 (adjusted for the April 25, 2000
three-for-one stock split). The Trust's shares of McLeod are subject to a
twelve-month restriction on sales. McLeod common stock is publicly traded.
Valuation of McLeod stock will be based upon actual market value less
appropriate reserves to reflect restrictions on sales.
Webcasts.com, Inc. merged with iBEAM Broadcasting Corporation ("iBEAM") on April
30, 2000. The Trust received 545,442 shares of iBEAM common stock and a 10%
unsecured note due September 30, 2000. The iBEAM common stock is subject to
restrictions on trading for up to one year. iBEAM common stock is publicly
traded. The iBEAM common stock will be valued based upon public market prices
less appropriate reserves to reflect restrictions on trading.
The valuation of VisionComm, Inc. warrants was reduced reflecting their
prospects for new equity financing and lack of growth. The unrealized gain on
Bristol Retail Solutions reflects the market value of their common stock in
excess of the exercise price of the Trust's warrants.
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YEAR 2000 ISSUE
The Trust has encountered no problems relating to the year 2000 issue. The Trust
is not aware of any Y2K problems or situations encountered by its investee
companies, vendors, affiliates, or others.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ending June 30
-------------------------
2000 1999
---- ----
Major Cash Sources (Uses):
Issuance of debentures $ 2,400,000 $ 1,000,000
Deferred financing costs incurred (60,000) (75,000)
Distributions --- (334,510)
Changes in loans and investments (3,448,442) (2,940,000)
Cash and temporary cash investments amounted to $50,613 at June 30, 2000 and
$1,137,535 at December 31, 1999. Net cash from operating activities was a net
use of cash of $3,461,596 for the six months ending June 30, 2000, and a net use
of cash of $386,060 for the same period in 1999. This decrease in cash flow is
primarily due to the net change in loans and investments in the first six months
of 2000 of $3,448,442.
Prior to 1999, the principal sources of liquidity and capital were the proceeds
of sales of beneficial shares of the Trust combined with the results of
investment operations. During 1999, the SBIC received commitments for SBA
Leverage in the form of debentures in the amount of $10,000,000. The Trust paid
a 1% commitment fee of $100,000 and pays leverage and underwriting fees
amounting to 2.5% of the debentures issued. As of June 30, 2000, unused SBA
leverage commitments amounted to $2,050,000. Each draw against SBA commitments
is conditional upon the SBIC's credit worthiness and compliance with specific
regulations, as determined by the SBA. The SBA may also limit the amounts that
may be drawn each year. The unused SBA commitment expires September 30, 2004.
The Board of Directors of the Trust Advisor has approved application for an
additional $5,000,000 of SBA Leverage commitments, which is subject to review by
the SBA.
The Trust intends to make quarterly distributions of all cash revenues to the
extent it has cash available for such distributions. The Trustees declared no
distribution for the quarter ended June 30, 2000. Distributions from the Trust's
wholly-owned subsidiary, Berthel SBIC, LLC, to the Trust are restricted under
SBA regulations. Under SBA regulations, the SBIC subsidiary is not able to
distribute income to the parent unless it has "earnings available for
distribution" as defined by the SBA. At June 30, 2000, the SBIC had a deficit of
"earnings available for distribution" in the amount of $670,905.
Regardless of the ability to make current distributions in cash, the Trust has
accrued an 8% priority return to beneficial owners of the Trust since June 1997.
A 10% underwriting return was accrued through the final closing of the offering
on June 21, 1997. Distributions payable of $1,870,154 have been accrued as of
June 30, 2000.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust's investment objective is to achieve capital appreciation in the value
of its net assets and to achieve current income principally by making
investments through private placements in securities of small and medium sized
privately and publicly owned companies. Securities consist of subordinated debt,
preferred stock, or common stock combined with equity participation in common
stock or rights to acquire common stock. Securities held for investment at June
30, 2000 are not held for trading purposes.
The primary risk of the portfolio is derived from the underlying ability of
investee companies to satisfy debt obligations and their ability to maintain or
improve common equity values. Levels of interest rates are not expected to
impact the Trust's valuations, but could impact the capability of investee
companies to repay debt or create and maintain shareholder value.
As of June 30, 2000, the portfolio is valued at fair value, as determined by the
Independent Trustees ("Trustees"). In determining fair value for securities and
warrants, investments are initially stated at cost until significant subsequent
events and operating trends require a change in valuation. Among the factors
considered by the Trustees in determining fair value of investments are the cost
of the investment, terms and liquidity of warrants, developments since the
acquisition of the investment, the sales price of recently issued securities,
the financial condition and operating results of the issuer, earnings trends and
consistency of operating cash flows, the long-term business potential of the
issuer, the quoted market price of securities with similar quality and yield
that are publicly traded, and other factors generally pertinent to the valuation
of investments. The Trustees relied on financial data of the portfolio companies
provided by the management of the portfolio companies.
The Trust Advisor maintains ongoing contact with management of the portfolio
companies including participation on their Boards of Directors and review of
financial information.
There is no assurance that any investment made by the Trust will be repaid or
re-marketed. Accordingly, there is a risk of total loss of any investment made
by the Trust. At June 30, 2000, the amount at risk was $20,821,656.
At June 30, 2000, the portfolio consisted of the following:
Cost Valuation
---- ---------
Notes and debentures $ 6,575,466 $ 6,575,466
Preferred stock convertible into
common stock 3,349,550 3,344,750
Common stock 2,906,040 10,406,013
Warrants to purchase common stock 331,258 495,427
--------------- ----------------
Total loans and investments $ 13,162,314 $ 20,821,656
=============== ================
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERTHEL GROWTH & INCOME TRUST I
(Registrant)
Date: July 28, 2000 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: July 28, 2000 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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