1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
Commission file number 33-98346C
BERTHEL FISHER & COMPANY LEASING, INC.
--------------------------------------
(Exact name of small business issuer as specified in its charter)
Iowa 42-1312639
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
701 Tama Street Marion, IA 52302
--------------------------------------
(Address of principal executive offices)
(319) 447-5700
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 453,154 shares of Class A common
stock as of August 1, 2001
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
2
BERTHEL FISHER & COMPANY LEASING, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet - June 30, 2001 3
Statements of Operations and Comprehensive Loss -
three months ended June 30, 2001 and 2000 4
Statements of Operations and Comprehensive Loss -
six months ended June 30, 2001 and 2000 5
Statements of Cash Flows - six months ended
June 30, 2001 and 2000 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
3
BERTHEL FISHER & COMPANY LEASING, INC.
BALANCE SHEET (UNAUDITED)
JUNE 30, 2001
ASSETS:
Cash and cash equivalents $ 10,771
Notes receivable 275,963
Net investment in direct financing leases (Note 2) 256,600
Allowance for possible loan and lease losses (Note 3) (46,706)
-------------
Notes receivable and direct financing leases, net 485,857
Due from affiliates 370,980
Receivable from parent under tax allocation agreement 898,999
Investments in:
Limited partnerships 24,204
Not readily marketable equity securities, at cost 68,523
Available-for-sale equity securities, at fair value 101,768
Furniture and equipment, less accumulated depreciation of $149,508 25,881
Deferred costs, less accumulated amortization of $565,796 2,590
Other receivables 39,577
Other assets 5,108
-------------
TOTAL $ 2,034,258
=============
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Trade accounts payable $ 78,260
Due to affiliates 64,778
Accrued expenses 47,945
Dividends payable 69,425
Lease security deposits 13,428
Notes payable (Note 4) 8,030
Subordinated notes payable (Note 4) 2,979,209
Subordinated debenture payable to parent (Note 4) 2,000,000
-------------
Total liabilities 5,261,075
-------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (NOTE 6) 155,000
-------------
STOCKHOLDERS' DEFICIT:
Series A preferred stock, no par value-authorized 125,000 shares, issued and
outstanding 125,000 shares ($1,750,000 liquidation
value, convertible into 109,375 shares of Class A common stock) (Note 7) 1,621,422
Class A common stock, no par value-authorized 1,000,000 shares,
issued and outstanding 453,154 shares 878,703
Common stock warrants 6,002
Accumulated deficit (5,791,346)
Unrealized loss on available-for-sale securities, net of tax effect (96,598)
-------------
Total stockholders' deficit (3,381,817)
-------------
TOTAL $ 2,034,258
=============
See accompanying notes.
3
4
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30
2001 2000
--------- ---------
Revenues and gains (losses):
Income from direct financing leases $ 8,918 $ 17,374
Interest income 40,759 179,448
Management, administrative, and acquisition
fees from affiliates 93,870 126,612
Other 28,977 53,339
Gain (loss) on early terminations (34,635) (689)
--------- ---------
Total revenues and gains (losses) 137,889 376,084
--------- ---------
Expenses:
Employee compensation and benefits 92,490 70,953
Management fees to affiliates 66,000 66,000
Interest expense 132,491 126,717
Provision for possible loan and lease losses (15,585) 15,151
Other expenses 88,091 136,040
--------- ---------
Total expenses 363,487 414,861
--------- ---------
Loss before income taxes (225,598) (38,777)
Income tax (expense) benefit (55) 14,794
--------- ---------
Net loss (225,653) (23,983)
Comprehensive income (loss):
Unrealized gain (loss) on available-for-
sale securities, net of tax 3,461 (87,218)
--------- ---------
Comprehensive loss $(222,192) $(111,201)
========= =========
LOSS PER COMMON SHARE CALCULATION:
Net loss $(225,653) $ (23,983)
Dividends on convertible preferred stock (Note 7) (34,904) (34,904)
--------- ---------
Net loss attributable to Class A stock $(260,557) $ (58,887)
========= =========
Basic $ (.57) $ (.13)
========= =========
Fully Diluted $ (.57) $ (.13)
========= =========
Weighted average common shares outstanding 453,154 453,154
========= =========
See accompanying notes.
4
5
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
Six Months Ended June 30
2001 2000
----------- -----------
Revenues and gains (losses):
Income from direct financing leases $ 19,709 $ 37,300
Interest income 102,470 273,317
Management, administrative, and acquisition
fees from affiliates 195,010 334,152
Other 39,959 88,856
Gain (loss) on early terminations (23,919) 4,034
Realized loss on equity securities (572,478) -0-
----------- -----------
Total revenues and gains (losses) (239,249) 737,659
----------- -----------
Expenses:
Employee compensation and benefits 195,457 178,495
Management fees to affiliates 132,000 132,000
Interest expense 264,373 256,240
Provision for possible loan and lease losses 794,437 24,556
Other expenses 199,166 273,391
----------- -----------
Total expenses 1,585,433 864,682
----------- -----------
Loss before income taxes (1,824,682) (127,023)
Income tax expense (839) (45,652)
----------- -----------
Net loss (1,825,521) (81,371)
Comprehensive income (loss):
Unrealized gain (loss) on available-for-
sale securities, net of tax 349 (156,904)
----------- -----------
Comprehensive loss $(1,825,172) $ (238,275)
=========== ===========
LOSS PER COMMON SHARE CALCULATION:
Net loss $(1,825,521) $ (81,371)
Dividends on convertible preferred stock (Note 7) (69,425) (69,808)
----------- -----------
Net loss attributable to Class A stock $(1,894,946) $ (151,179)
=========== ===========
Basic $ (4.18) $ (.33)
=========== ===========
Fully Diluted $ (4.18) $ (.33)
=========== ===========
Weighted average common shares outstanding 453,154 453,154
=========== ===========
See accompanying notes.
5
6
BERTHEL FISHER & COMPANY LEASING, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net loss $(1,825,521) $ (81,371)
Adjustments to reconcile to net cash from operating activities:
Loss (gain) on early termination of leases and notes 23,919 (4,034)
Realized loss on equity securities 572,478 -0-
Dividend income received in form of common stock -0- (660)
Depreciation 12,205 37,750
Amortization 58,455 63,389
Provision for possible loan and lease losses 794,437 24,556
Changes in operating assets and liabilities:
Due from affiliates 14,943 181,764
Receivable from parent under tax allocation agreement -0- (34,019)
Other receivables 54,156 18,997
Other assets 701 (4,615)
Trade accounts payable (4,910) (44,471)
Due to affiliates (3,228) (5,073)
Accrued expenses (38,225) (118,144)
----------- -----------
Net cash from operating activities (340,590) 34,069
----------- -----------
INVESTING ACTIVITIES
Purchases of equipment for direct financing leases -0- (28,991)
Repayments of direct financing leases 98,944 283,061
Proceeds from sale or early termination of direct financing leases
and notes receivable 118,047 30,301
Repayments of notes receivable 115,030 240,971
Net lease security deposits paid (30,723) (12,362)
Purchases of furniture and equipment (769) (2,000)
----------- -----------
Net cash from investing activities 300,529 510,980
----------- -----------
FINANCING ACTIVITIES
Repayment of demand note payable to parent -0- (175,000)
Repayments of other borrowings (2,069) (3,537)
Redemption of Class B stock -0- (85,000)
Redemption of subordinated notes payable (16,000) -0-
Dividends paid on Series A preferred stock (35,288) (70,192)
----------- -----------
Net cash from financing activities (53,357) (333,729)
----------- -----------
Net increase (decrease) in cash and cash equivalents (93,418) 211,320
Cash and cash equivalents at beginning of period 104,189 241,235
----------- -----------
Cash and cash equivalents at end of period $ 10,771 $ 452,555
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 264,158 $ 260,619
Amortization of Class B nonvoting convertible stock issuance costs -0- 4,012
Change in unrealized loss on securities, net of tax effect 349 (156,904)
Non-cash note conversion -0- 1,117,789
See accompanying notes
6
7
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. 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. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. These financial statements should be read in
conjunction with the Company's annual report on Form 10-KSB filed with the
Securities and Exchange Commission for the year ended December 31, 2000.
Basic net loss per common share is based on the weighted average number of
shares of Class A common stock outstanding. Diluted net loss per common share is
the same as basic net loss per share due to the antidilutive effect on net loss
per share of any convertible securities.
The Company has had recurring operating losses and has approximately $2,200,000
of notes payable and redeemable Class B stock maturing in 2001 and may not have
adequate liquidity to repay such amounts. These factors, among others, indicate
that the Company may be unable to continue as a going concern for a reasonable
period of time. Management's plans to sustain operations are discussed below.
On June 26, 2001, the Company notified those investors who purchased the Series
A subordinated 5-year notes, with a June, 2001 maturity date, that funds were
not available to repay the principal amounts due. These investors were also
informed of ongoing efforts by the Company's parent to obtain a financing plan
which will enable the Company to repay the notes at a future date. Interest
payments are currently being made on this debt while the Company's parent is
exploring financing plans. A total of $2,035,000 Series A subordinated notes
remain outstanding and are due at various times in the remainder of 2001. As of
June 30, 2001, $665,000 of the Series A subordinated notes are in default. A
total of $155,000 of Class B convertible stock remains outstanding at June 30,
2001. On June 25, 2001, the Company notified the holders of the Class B stock of
its inability to redeem their shares. As of June 30, 2001, $150,000 of the Class
B convertible stock was past due in accordance with its redemption terms. This
group of investors was informed of the Company's search for financing and, if
funds are available for redemption of their shares in the future, they will be
redeemed in the order as provided for by the Articles of Incorporation.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuance as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing and
refinancing as may be required, and ultimately to attain profitable operations.
Management's plans to accomplish these objectives include, but are not limited
to the following:
- - Management is continuing its efforts to achieve a revenue base that can
support its operations.
- - Management is attempting to negotiate an extension for its debt with its
current lenders and to arrange additional debt or equity from other
sources.
- - Management is attempting to negotiate financing from its parent.
7
8
- - Management is attempting to sell certain assets to increase liquidity.
No assurance can be provided that the Company will be successful in its efforts.
The business of the Company is dependent upon being able to continue originating
leases, both for its own portfolio and for the portfolios of third party
entities, such as TIF XI. If the Company cannot continue to originate leases,
the Company will not be able to grow, either through the expansion of its
portfolio of leases or by deriving revenue from originating and managing leases
for other entities. The successful completion of the Company's business plan is
dependent upon having sufficient funds available to enable the Company to
continue to originate leases. Sources for obtaining capital include the sale of
existing assets owned by the Company, obtaining new capital from the Company's
parent, and obtaining a line of credit agreement. The Company is currently
exploring various means of refinancing the debt structure of its balance sheet.
Alternatives may include, but are not limited to, conversion of the Company's
subordinated debt to its parent to equity, or the possibility of the parent
becoming a public company with the intent of raising additional capital and
contributing a portion of the funds raised to the Company. If the parent is
successful in raising additional capital, the Company would likely reduce debt
from the proceeds received. No assurance can be provided that the Company, or
its parent, will be successful in their attempts to raise additional funds or
reduce debt. Such alternative capital may not be available depending upon a
variety of factors, including without limitation the possibility that purchasers
of assets cannot be found, interest rates increase, the Company's parent has no
funds available to it, the Company is unable to secure a line of credit, or the
Company fails to operate effectively.
2. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in direct financing leases at June 30, 2001
consists of:
Minimum lease payments receivable $ 258,349
Estimated unguaranteed residual values 21,179
Unamortized initial direct costs 1,671
Unearned income (24,599)
-------------
Net investment in direct financing leases $ 256,600
=============
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The change in the allowance for possible loan and lease losses for the six
months ended June 30, 2001 is as follows:
Balance at December 31, 2000 $ 262,572
Provision 794,437
Recoveries 118,733
Charge-offs (1,129,036)
-------------
Balance at June 30, 2001 $ 46,706
=============
The Company had a realized on loss on equity securities of $572,478 in the first
quarter of 2001. On April 11, 2001, Actel Integrated Communications Inc.
("Actel") filed for Chapter 11 bankruptcy. The realized loss is to write-off the
Company's carrying value of its 145,569 shares of preferred stock. In the first
six months of 2001, the Company also had a provision for possible loan and lease
losses of $794,437, primarily due to the write-off of its carrying value of
notes receivable of Murdock Communications Corporation ("Murdock"). Murdock's
primary asset was the preferred stock of Actel. In August, 2001, a recovery of
$350,000 was received and credited to the provision.
8
9
4. CREDIT ARRANGEMENTS
Notes payable at June 30, 2001 consists of:
Installment loan with a bank, 10.5%, maturing in 2003 $ 8,030
============
Subordinated debt at June 30, 2001 consists of the following:
Uncollateralized subordinated debenture payable to
Parent, floating interest rate, maturing in 2006 $ 2,000,000
Uncollateralized subordinated notes payable, 9.5%
to 10%, maturing in 2001 and 2004 2,979,209
------------
Total subordinated debt $ 4,979,209
============
5. COMMITMENTS AND CONTINGENCIES
The Company is the general partner in three limited partnerships,
Telecommunications Income Fund IX, L.P. ("TIF IX"), Telecommunications Income
Fund X, L.P. ("TIF X"), and Telecommunications Income Fund XI, L.P. ("TIF XI")
collectively referred to as the "TIFS". The Company is contingently liable for
all debts of TIF IX, X and XI as the general partner.
The Company guarantees amounts outstanding under a line-of-credit agreement with
a bank of TIF XI. The line-of-credit allows TIF XI to borrow the lesser of
$4,400,000 or 32% of its qualified accounts, as defined in the agreement. TIF
XI's balance outstanding was $1,314,690 at June 30, 2001. The agreement matures
on June 30, 2002, is cancelable by the lender after giving a 90-day notice and
is collateralized by substantially all assets of TIF XI. The Company's Parent
and a principal stockholder of the Company's Parent also guarantee the note.
The Company is also a guarantor for a line-of-credit agreement with a bank of
the Company's Parent. The line-of-credit is for $1,000,000, bears interest at
1.5% above the prime rate, and expires June 30, 2001. The balance on this
line-of-credit was $550,000 at June 30, 2001.
Telcom Management Systems filed a suit against the Company, TIF IX and others in
Federal Court in Dallas, Texas during February 1998. The plaintiffs purchased
equipment from TIF IX out of a bankruptcy for approximately $450,000. They
alleged that when they attempted to sell the equipment at a later date TIF IX
had not provided good title. The General Partner filed a Motion for Summary
Judgment, which was denied. After filing the suit, the plaintiff transferred
assets in lieu of bankruptcy. The bankruptcy trustee has ruled the litigation
will proceed. No loss, if any, has been recorded in the financial statements
with respect to this matter.
6. REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Redeemable Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before taxes each
year, up to a maximum of $1.20 per share. The Class B stock is convertible on a
one-for-one basis up to a maximum of 20% of the Class A common stock of the
Company after conversion. The stock is redeemable at $10 per share for a 30-day
period after the tenth anniversary of the issuance date (April, 1990 to
September, 1991) at the option of the holder. Shares which are not redeemed
during that time are automatically converted to Class A common stock on a
one-for-one basis. Class B nonvoting convertible stock at June 30, 2001 is
summarized as follows:
Class B nonvoting convertible stock (no par value-authorized 100,000
shares, issued and outstanding 15,500 shares) at
redemption or liquidation value $ 155,000
===========
9
10
7. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative annual
dividends of 8% payable, if as and when declared by the Board of Directors,
quarterly. Unpaid dividends will accumulate and be payable prior to the payment
of dividends on the Company's Class A common stock. The preferred stock is
redeemable at any time at the option of the Company, on not less than 30 days
written notice to registered holders. The redemption price shall be $14.14 per
share if redeemed in 2001 and $14.00 per share if redeemed thereafter, plus, in
each case, accumulated unpaid dividends. Unless previously redeemed by the
Company, the preferred stock holders are entitled at any time to convert each
share into .875 shares of Class A common stock. The preferred stock is not
entitled to vote on any matter except where the Iowa Corporation Act requires
voting as a class, in which case each share of stock shall be entitled to one
vote per share on those matters where the preferred stock is voting as a class.
The preferred stock is entitled to a preference on liquidation equal to $14.00
per share, plus accumulated dividends. While the Company continues to accrue
dividends, it has suspended payment of dividends on the preferred stock.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues, excluding the realized loss on equity securities, decreased 55%
in the first six months of 2001 compared to the same period in 2000, from
$737,659 in 2000 to $333,229 in 2001. This decrease is primarily due to the
decrease in net investment of direct financing leases and notes receivable, and
the decrease in management, administrative, and acquisition fees from
affiliates.
The Company receives management, administrative, and acquisition fees from the
TIFS. This revenue totalled $195,010 for the first six months of 2001 compared
to $334,152 for the same period a year ago. The Company receives a monthly
administrative fee from each of the TIFS and for the first six months of 2001
was $6,000 for TIF IX, $45,000 for TIF X, and $78,000 for TIF XI. Currently, the
Company receives a management fee equal to 2% of rental and note payments for
TIF XI, which was $44,205 for the first six months of 2001 compared to $91,889
for the same period in 2000. TIF XI also pays the Company an equipment
acquisition fee equal to 5% of the equipment cost for new leases and notes
receivable, which amounted to $21,805 in the first six months of 2001, compared
to $113,263 for the same period a year ago. The decrease in acquisition fee
income is due to fewer leases originated in TIF XI.
The Company had a realized on loss on equity securities of $572,478 in the first
quarter of 2001. On April 11, 2001, Actel Integrated Communications Inc.
("Actel") filed for Chapter 11 bankruptcy. The realized loss is to write-off the
Company's carrying value of its 145,569 shares of preferred stock. In the first
six months of 2001, the Company also had a provision for possible loan and lease
losses of $794,437, primarily due to the write-off of its carrying value of
notes receivable of Murdock Communications Corporation ("Murdock"). Murdock's
primary asset was the preferred stock of Actel. In August, 2001, a recovery of
$350,000 was received and credited to the provision.
As of June 30, 2001 one customer was over 90 days past due. When payments are
past due more than 90 days, the Company discontinues recognizing income on those
customer contracts. The total net investment on this contract was $4,114 at June
30, 2001. Management will continue to monitor any past due contracts and take
the necessary steps to protect the Company's investment.
The Company's portfolio of leases and notes receivable are concentrated in home
water treatment equipment, computer equipment, and telecommunications equipment,
representing approximately 49%, 20%, and 10%, respectively, of the portfolio at
June 30, 2001. Three customers account for approximately 74% of the Company's
portfolio of net investment in direct financing leases at June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
This Section and other portions of this Quarterly Report on Form 10-QSB contain
statements relating to future results of the Company that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties. These risks and uncertainties include, but are not
limited to, changes in economic conditions, changes in interest rates,
availability of lease business to the Company, changes in personnel, regulation
of the telecommunications industry, and the success or failure of the Company's
customers as well as other risks and uncertainties. The Company does not
undertake, and specifically disclaims, any obligation to update any
forward-looking statements to reflect events or circumstances occurring after
the date of such statements.
11
12
The Company used cash in operating activities of $340,590 in the first six
months of 2001. The Company's principal source of cash has been from repayments
and sales of direct financing leases and notes receivable.
The Company has had recurring operating losses and has approximately $2,200,000
of notes payable and redeemable Class B stock maturing in 2001 and may not have
adequate liquidity to repay such amounts. These factors, among others, indicate
that the Company may be unable to continue as a going concern for a reasonable
period of time. Management's plans to sustain operations are discussed below.
On June 26, 2001, the Company notified those investors who purchased the Series
A subordinated 5-year notes, with a June, 2001 maturity date, that funds were
not available to repay the principal amounts due. These investors were also
informed of ongoing efforts by the Company's parent to obtain a financing plan
which will enable the Company to repay the notes at a future date. Interest
payments are currently being made on this debt while the Company's parent is
exploring financing plans. A total of $2,035,000 Series A subordinated notes
remain outstanding and are due at various times in the remainder of 2001. As of
June 30, 2001, $665,000 of the Series A subordinated notes are in default. A
total of $155,000 of Class B convertible stock remains outstanding at June 30,
2001. On June 25, 2001, the Company notified the holders of the Class B stock of
its inability to redeem their shares. As of June 30, 2001, $150,000 of the Class
B convertible stock was past due in accordance with its redemption terms. This
group of investors was informed of the Company's search for financing and, if
funds are available for redemption of their shares in the future, they will be
redeemed in the order as provided for by the Articles of Incorporation.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuance as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing and
refinancing as may be required, and ultimately to attain profitable operations.
Management's plans to accomplish these objectives include, but are not limited
to the following:
- - Management is continuing its efforts to achieve a revenue base that can
support its operations.
- - Management is attempting to negotiate an extension for its debt with its
current lenders and to arrange additional debt or equity from other
sources.
- - Management is attempting to negotiate financing from its Parent.
- - Management is attempting to sell certain assets to increase liquidity.
No assurance can be provided that the Company will be successful in its efforts.
The business of the Company is dependent upon being able to continue originating
leases, both for its own portfolio and for the portfolios of third party
entities, such as TIF XI. If the Company cannot continue to originate leases,
the Company will not be able to grow, either through the expansion of its
portfolio of leases or by deriving revenue from originating and managing leases
for other entities. The successful completion of the Company's business plan is
dependent upon having sufficient funds available to enable the Company to
continue to originate leases. Sources for obtaining capital include the sale of
existing assets owned by the Company, obtaining new capital from the Company's
parent, and obtaining a line of credit agreement. The Company is currently
exploring various means of refinancing the debt structure of its balance sheet.
Alternatives may include, but are not limited to, conversion of the Company's
subordinated debt to its parent to equity, or the possibility of the parent
becoming a
12
13
public company with the intent of raising additional capital and contributing a
portion of the funds raised to the Company. If the parent is successful in
raising additional capital, the Company would likely reduce debt from the
proceeds received. No assurance can be provided that the Company, or its parent,
will be successful in their attempts to raise additional funds or reduce debt.
Such alternative capital may not be available depending upon a variety of
factors, including without limitation the possibility that purchasers of assets
cannot be found, interest rates increase, the Company's parent has no funds
available to it, the Company is unable to secure a line of credit, or the
Company fails to operate effectively.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Telcom Management Systems filed a suit against the Company, TIF IX, and others
in Federal Court in Dallas, Texas during February 1998. The plaintiffs purchased
equipment from TIF IX out of a bankruptcy for approximately $450,000. They
alleged that when they attempted to sell the equipment at a later date, TIF IX
had not provided good title. The Company filed a Motion for Summary Judgement.
After filing the suit, the plaintiff transferred assets in lieu of bankruptcy.
The bankruptcy trustee is now reviewing the transfer to determine if the
transfer was done in fraud of creditors. The bankruptcy court had granted
several extensions and the litigation was on hold until the trustee had made a
decision, however, in mid September, 2000 the extension expired and was not
renewed. The Motion for Summary Judgement filed by the Company has been denied.
No further action has been taken at this time by the plaintiff.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On June 26, 2001, the Company notified those investors who purchased
the Series A subordinated 5-year notes, with a June, 2001 maturity
date, that funds were not available to repay the principal amounts
due. These investors were also informed of ongoing efforts by the
Company's parent to obtain a financing plan which will enable the
Company to repay the notes at a future date. Interest payments are
currently being made on this debt while the Company's parent is
exploring financing plans. A total of $2,035,000 Series A subordinated
notes remain outstanding and are due at various times in the remainder
of 2001. As of June 30, 2001, $665,000 of the Series A subordinated
notes are in default.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. A report on Form 8-K was filed on April 24, 2001, indicating the
Company's asset impairments due to the Actel bankruptcy. These impairments are
described in detail in this 10-QSB filing.
13
14
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 FISHER & COMPANY LEASING, INC.
--------------------------------------
(Registrant)
Date: August 13, 2001 /s/ Ronald O. Brendengen
--------------- ----------------------------------------
Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: August 13, 2001 /s/ Daniel P. Wegmann
--------------- ----------------------------------------
Daniel P. Wegmann, Controller
14