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, 2002
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 33-89506
BERTHEL GROWTH & INCOME TRUST I
(Exact name of Registrant as specified in its charter)
DELAWARE 52-1915821
---------- ---------------
(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
---------------------------------------------------
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 15, 2002
BERTHEL GROWTH & INCOME TRUST I
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (unaudited)
Consolidated Statements of Assets and Liabilities -
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations -
three months ended June 30, 2002 and June 30, 2001 4
Consolidated Statements of Operations -
six months ended June 30, 2002 and June 30, 2001 5
Consolidated Statements of Changes in Net Assets -
six months ended June 30, 2002 and June 30, 2001 6
Consolidated Statements of Cash Flows -
six months ended June 30, 2002 and June 30, 2001 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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Signatures 16
Certification of Chief Executive Officer 17
Certification of Chief Financial Officer 18
2
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 2002 December 31, 2001
------------- -----------------
ASSETS
Loans and investments (Note B) $ 9,549,733 $ 9,483,692
Cash and cash equivalents 1,352,642 1,631,387
Interest and dividends receivable 70,520 122,653
Deferred financing costs 217,206 239,426
Other receivables 872 1,631
Other assets 13,396 -0-
------------ ------------
TOTAL ASSETS 11,204,369 11,478,789
------------ ------------
LIABILITIES
Accrued interest payable 267,328 267,328
Accounts payable and other accrued expenses 25,620 52,456
Due to affiliate 3,200 3,200
Deferred income 17,481 21,536
Distributions payable to shareholders 3,556,714 3,138,539
Debentures (Note C) 9,500,000 9,500,000
------------ ------------
TOTAL LIABILITIES 13,370,343 12,983,059
------------ ------------
COMMITMENTS AND CONTINGENCIES
NET LIABILITIES (equivalent to ($205.48) per share
at June 30, 2002 and ($142.71) per share
at December 31, 2001) $ (2,165,974) $ (1,504,270)
============ ============
Net liabilities consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 shares issued
and outstanding) $ 2,813,687 $ 3,492,983
Accumulated net realized losses (2,810,283) (2,416,372)
Accumulated net unrealized losses (2,169,378) (2,580,881)
------------ ------------
$ (2,165,974) $ (1,504,270)
============ ============
See notes to consolidated financial statements.
3
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
June 30, 2002 June 30, 2001
------------- -------------
REVENUES:
Interest income $ 136,005 $ 230,630
Dividend income 4,166 18,000
Application, closing, and other fees 3,293 2,028
--------- ---------
Total revenues 143,464 250,658
--------- ---------
EXPENSES:
Management fees 67,037 82,503
Administrative services 9,600 9,600
Trustee fees 8,000 8,000
Professional fees 13,851 14,286
Interest expense 199,400 200,766
Other general and administrative expenses 21,983 18,032
--------- ---------
Total expenses 319,871 333,187
--------- ---------
Net investment loss (176,407) (82,529)
Unrealized gain (loss) on investments 486,167 (555,483)
Realized loss on investments (393,911) -0-
--------- ---------
Net decrease in net assets $ (84,151) $(638,012)
========= =========
Per beneficial share amounts:
Net decrease in net assets $ (7.98) $ (60.53)
========= =========
Weighted average shares 10,541 10,541
========= =========
See notes to consolidated financial statements.
4
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended
June 30, 2002 June 30, 2001
------------- -------------
REVENUES:
Interest income $ 273,024 $ 461,407
Dividend income 107,356 52,667
Application, closing, and other fees 5,321 4,805
--------- ---------
Total revenues 385,701 518,879
--------- ---------
EXPENSES:
Management fees 136,453 164,955
Administrative services 19,200 19,200
Trustee fees 16,000 16,000
Professional fees 39,273 32,466
Interest expense 396,610 402,184
Other general and administrative expenses 39,286 35,173
--------- ---------
Total expenses 646,822 669,978
--------- ---------
Net investment loss (261,121) (151,099)
Unrealized gain (loss) on investments 411,503 (378,821)
Realized loss on investments (393,911) -0-
--------- ---------
Net decrease in net assets $(243,529) $(529,920)
========= =========
Per beneficial share amounts:
Net decrease in net assets $ (23.10) $ (50.27)
========= =========
Weighted average shares 10,541 10,541
========= =========
See notes to consolidated financial statements.
5
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (LIABILITIES)
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2002 June 30, 2001
------------------------- --------------------------
Shares of Shares of
Beneficial Beneficial
Interest Amount Interest Amount
---------- ----------- -------------- ----------
Net investment loss -- $ (261,121) -- $ (151,099)
Unrealized gain (loss) on investments -- 411,503 -- (378,821)
Realized loss on investments -- (393,911) -- -0-
Distributions payable to shareholders -- (418,175) -- (418,174)
Net assets (liabilities) at
beginning of period 10,541 (1,504,270) 10,541 1,465,862
----------- ----------- ----------- -----------
Net assets (liabilities) at end of period 10,541 $(2,165,974) 10,541 $ 517,768
=========== =========== =========== ===========
See notes to consolidated financial statements.
6
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, 2002 June 30, 2001
--------------- ---------------
OPERATING ACTIVITIES:
Net decrease in net assets $ (243,529) $ (529,920)
Adjustments to reconcile net increase in net assets
to net cash flows from operating activities:
Amortization 22,220 22,052
Accretion of discount on debt securities (20,796) (45,313)
Unrealized (gain) loss on investments (411,503) 378,821
Realized loss on investments 393,911 -0-
Provision for possible losses -0- 922
Changes in operating assets and liabilities
Loans and investments (27,653) 17,076
Interest and dividends receivable 52,133 (5,355)
Deferred financing costs -0- (2,755)
Other receivables 759 4,785
Other assets (13,396) -0-
Accrued interest payable -0- 3,416
Accounts payable and other accrued expenses (26,836) 14,822
Due to affiliate -0- (66,324)
Deferred income (4,055) (4,055)
--------------- ----------------
Net cash flows from operating activities (278,745) (211,828)
--------------- ----------------
NET DECREASE IN CASH (278,745) (211,828)
CASH AT BEGINNING OF PERIOD 1,631,387 684,244
--------------- ----------------
CASH AT END OF PERIOD $ 1,352,642 $ 472,416
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 396,610 $ 398,768
Noncash financing activities:
Distributions payable to shareholders 418,175 418,174
See notes to consolidated financial statements.
7
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, 2001. 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, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002.
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.
Berthel SBIC, LLC ("SBIC"), a wholly owned subsidiary of the Trust, is in
violation of the maximum capital impairment percentage permitted by the SBA. The
SBIC received notice of default from the SBA advising that the SBIC must cure
its default on the outstanding debentures. The remedies available to the SBA, in
the event that the default is not cured, include prohibiting the SBIC from
making any additional investments other than investments under existing legally
binding commitments, prohibiting distributions to investors, reviewing and
redetermining management expenses, declaring the SBA debentures immediately due
and payable, and assuming control of the SBIC and liquidate the investment
portfolio. On August 5, 2002, the SBIC received a telephone call from the
Liquidation Division of the SBA. The purpose of the call was to notify the SBIC
of the SBA's decision to move the SBIC from the Investment Division to the
Liquidation Division. The actions taken by the SBA may impact the SBIC's ability
to continue as a going concern. The assets and liabilities of the SBIC as of
June 30, 2002 are $11,022,857 and $9,795,512, respectively.
In its efforts to address these capital impairment issues, the Trust is
attempting to raise capital through various institutional investors. The SBA has
been supportive thus far with management in its capital-raising efforts and has
given consideration of a reorganization of the SBIC if certain conditions are
met, primarily the raising of $10,000,000 in new capital. No assurance can be
given that management's capital-raising efforts will be successful.
8
NOTE B -LOANS AND INVESTMENTS
JUNE 30, 2002 DECEMBER 31, 2001
----------------------- -------------------------
COST VALUATION COST VALUATION
---------- ---------- ---------- - ----------
COMMUNICATIONS AND SOFTWARE:
MCLEODUSA, INC.
- ---------------
38,877 shares of common stock $ 610,000 $ -- $ 610,000 $ --
OBJECT SPACE, INC
- -----------------
108,108 shares of Series B convertible preferred stock -- -- 404,800 --
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 1,295,000 728,000 1,295,000
CHEQUEMATE INTERNATIONAL, INC
- -----------------------------
1,778,734 and 1,903,734 shares of common stock at June 30, 2002 and
December 31, 2001, respectively -- 71,149 -- 411,206
CADAPULT GRAPHIC SYSTEMS, INC
- -----------------------------
100,000 shares of 11.5%, Series A convertible preferred stock, options to
purchase 20,000 shares of common stock at $2.00 to 3.13 per share, and
warrants to purchase 323,000 shares of common stock at $3.75 to $4.50
per share 930,000 930,000 930,000 930,000
52,273 shares of common stock 52,273 40,843 -- --
---------- ----------
TOTAL COMMUNICATIONS AND SOFTWARE (24.5% and 27.8% of total loans and
investments as of June 30, 2002 and December 31,2001, respectively) 2,336,992 2,636,206
---------- ----------
HEALTHCARE PRODUCTS AND SERVICES:
PHYSICIANS TOTAL CARE, INC
- --------------------------
10% promissory note due September, 2004 and warrants to purchase
350,000 shares of common stock for at $.035-5.00 per share 807,795 -- 807,795 --
700 shares of common stock 4,000 -- 4,000 --
Options to purchase 5,000 shares of common stock at $4.00 per share -- -- -- --
INTER-MED, INC
- --------------
1,743.248 shares of common stock 650,000 650,000 650,000 650,000
12% promissory note due July, 2005-June, 2006 185,645 185,645 183,416 183,416
Warrants to purchase 748.0551 shares of common stock at $.01 per share 22,271 22,271 22,271 22,271
9
JUNE 30, 2002 DECEMBER 31, 2001
---------------------- -------------------
COST VALUATION COST VALUATION
-------- ---------- ------- ---------
FUTUREMED INTERVENTIONAL, INC.
- ------------------------------
13.5% promissory note due February, 2005 945,259 945,259 934,995 934,995
Warrants to purchase 884,617 shares of common stock at $.01 per share 102,640 765,306 102,640 765,306
IMED DEVICES, INC.
- ------------------
400,000 shares of common stock -- 100,000 -- --
---------- ----------
TOTAL HEALTHCARE PRODUCTS AND SERVICES (27.9% and 27.0% of total loans and
investments as of June 30, 2002 and December 31,2001, respectively) 2,668,481 2,555,988
---------- ---------
MANUFACTURING:
CHILDS & ALBERT
- ---------------
12.5% promissory note due October, 2005 753,161 753,161 745,955 745,955
Warrants to purchase 833.334 shares of common stock at $10 per share 72,065 72,065 72,065 72,065
FEED MANAGEMENT SYSTEMS, INC. (FORMERLY EASY SYSTEMS, INC.)
- -----------------------------------------------------------
11% subordinated debenture due March, 2004 and warrants to purchase
291,393 shares of stock at $2.10 per share -- -- 777,422 100,000
142,857 shares of Series B preferred stock and warrants to purchase
240,000 shares of common stock at $2.10 per share -- -- 300,000 --
435,590 shares of common stock 1,077,422 304,913 -- --
HICKLIN ENGINEERING, L.C.
- -------------------------
10% subordinated note due June, 2003 400,000 400,000 400,000 400,000
Warrant for 68,570 membership interests at $.01 per share -- -- -- --
68,570 units of membership interests 69 69 -- --
12% subordinated note due January, 2001 through December, 2004 -- -- 13,800 13,800
THE SCHEBLER COMPANY
- --------------------
13% promissory note due March, 2005 160,640 160,640 159,544 159,544
Warrants to purchase 1.66% of common stock at $.01 per share 11,504 11,504 11,504 11,504
166,666 shares of 10% convertible cumulative preferred stock 166,667 166,667 166,667 166,667
166,666 shares of common stock 166,667 166,667 166,667 166,667
--------- ---------
TOTAL MANUFACTURING (21.3% and 19.4% of total loans and investments
as of June 30, 2002 and December 31, 2001, respectively) 2,035,686 1,836,202
--------- ---------
10
JUNE 30, 2002 DECEMBER 31, 2001
---------------------- -------------------
COST VALUATION COST VALUATION
-------- ---------- ------- ---------
OTHER SERVICE INDUSTRIES:
VOICEFLASH NETWORKS, INC.
- -------------------------
500,000 shares of 12% cumulative convertible preferred stock 820,083 187,524 820,083 134,246
Warrants to purchase 306,236 shares of common stock at $.01 per share 179,917 81,050 179,917 81,050
Options to purchase 32,500 shares of common stock at $.61 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
KINSETH HOSPITALITY COMPANY, INC.
- ---------------------------------
14% note due May, 2003 250,000 250,000 250,000 250,000
PICKERMAN'S DEVELOPMENT COMPANY
- -------------------------------
12% promissory notes due April, 2005 through March, 2006 547,663 -- 547,663 --
12% promissory note due on demand 12,520 -- 12,520 --
Warrants to purchase 2,406,250 shares of common stock at $0.01 per share 72,849 -- 72,849 --
SERVECORE BUSINESS SOLUTIONS, INC.
- ----------------------------------
3,663 shares of common stock 990,000 990,000 990,000 990,000
---------- ----------
TOTAL OTHER SERVICE INDUSTRIES (26.3% and 25.8% of total loans and investments
as of June 30, 2002 and December 31, 2001, respectively) 2,508,574 2,455,296
---------- ----------
TOTAL LOANS AND INVESTMENTS $9,549,733 $9,483,692
========== ==========
11
NOTE C - DEBENTURES
The Trust has debentures payable to the SBA totalling $9,500,000 as of June 30,
2002 (See Note A). The debentures require the semiannual payment of interest at
annual interest rates ranging from 6.353% 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, $725,000, and $1,200,000 are to be paid in full on September, 2009,
March, 2010, September, 2010, and March, 2011, respectively.
As of June 30, 2002, the SBIC has unused leverage commitments totalling $500,000
and will be required to pay a 2.5% leverage and underwriting fee totalling
$12,500 that will be deducted pro rata as proceeds are drawn. However, this is
not available to draw upon at this time due to the capital impairment ratios of
the SBIC. Each issuance of debentures is conditioned upon the SBIC's credit
worthiness and compliance with specified regulations, as determined by the SBA.
The SBA commitment expires September 30, 2004.
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
2002 2001 2002 2001
----------- ----------- ----------- -----------
-- -- -- --
Portfolio investments $ 129,498 $ 228,305 $ 258,883 $ 453,757
Money market 6,507 2,325 14,141 7,650
----------- ----------- ----------- -----------
Interest income $ 136,005 $ 230,630 $ 273,024 $ 461,407
=========== =========== =========== ===========
Dividend income $ 4,166 $ 18,000 $ 107,356 $ 52,667
=========== =========== =========== ===========
Changes in interest and dividends earned on portfolio investments reflect the
level of investment in interest and dividend earning securities. The decrease is
primarily due to a partial Kinseth payoff during 2001 and various portfolio
companies on non-accrual status. Money market interest reflects cash resources
that are invested in highly liquid money market savings funds. The increase in
dividend income for the first six months of 2002 is primarily due to Cadapult,
which in the first quarter of 2002 paid dividends from the first and second
quarters of 2001 in the form of common stock, and also paid their regular
quarterly dividend.
Management fees, calculated as 2.5% of the combined temporary investment in
money market securities and loans and investments balances, were $136,453 for
the first six months of 2002 and $164,955 the same period a year ago. The
decrease in management fees is due to a decreased portfolio of loans and
investments.
Interest expense is on debentures payable to the SBA through its wholly owned
subsidiary, Berthel SBIC, LLC. The Trust has issued debentures totalling
$9,500,000. The debentures require the semiannual payment of interest at annual
interest rates ranging from 6.353% 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.
12
Prepayment penalties are not applicable within five years of maturity. The SBIC
is in violation of the maximum capital impairment percentage permitted by the
SBA, as described in Note A to the financial statements and in the Liquidity and
Capital Resources section below. Debentures totalling $1,000,000, $6,575,000,
$725,000, and $1,200,000 are to be paid in full on September, 2009, March, 2010,
September, 2010, and March, 2011, respectively.
Professional fees include legal and accounting expenses, with the increase from
2001 to 2002 due to an increase in legal fees relating to the possibility of
restructuring the Trust resulting from the SBIC being in violation of the
maximum capital impairment percentage permitted by the SBA.
The change in unrealized and realized gains and losses recognized is summarized
in the following table:
<Table>
<Caption>
Three Months Ending June 30 Six Months Ending June 30
2002 2001 2002 2001
-------- --------- --------- ---------
Bristol Retail Solutions $ -0- $(137,179) $ -0- $ 28,644
VoiceFlash Networks, Inc. (88,762) (115,905) 53,278 (115,905)
Chequemate International (126,839) (2,975) (340,058) (36,439)
Edmin.com, Inc. -0- -0- -0- 567,000
iBEAM Broadcasting
Corporation -0- (180,912) -0- (344,537)
Feed Management Systems 204,913 -0- 204,913 -0-
McLeodUSA, Inc. -0- (118,512) -0- (277,584)
Cadapult Graphic Systems (7,945) -0- (11,430) -0-
IMED Devices, Inc. 100,000 -0- 100,000 -0-
Object Space, Inc. 404,800 -0- 404,800 (200,000)
--------- --------- --------- ----------
Unrealized gain (loss) $ 486,167 $(555,483) $ 411,503 $(378,821)
========= ========= ========= =========
</Table>
<Table>
<Caption>
Three Months Ending June 30 Six Months Ending June 30
2002 2001 2002 2001
------------- ------------- ------------- -------------
Chequemate International $ 10,889 $ -0- $ 10,889 $ -0-
Object Space, Inc. (404,800) -0- (404,800) -0-
------------- ------------- ------------- -------------
Realized loss $ (393,911) $ -0- $ (393,911) $ -0-
============= ============= ============= =============
</Table>
VoiceFlash Networks, Inc., Chequemate International, Inc., and Cadapult Graphic
Systems are all publicly traded companies. Valuation of these investments as of
June 30, 2002 is based upon actual market value less appropriate reserves to
reflect restrictions on sales. During the second quarter of 2002, 125,000 shares
of Chequemate were sold, resulting in a realized gain of $10,889. The increase
in Feed Management Systems and IMED Devices reflects management's increased
estimated valuation of these privately held companies. 400,000 shares of IMED
Devices were received during 2002 in conjunction with the investment in
Futuremed, with management estimating the value at $.25 per share. ObjectSpace
is a reclassification from an unrealized loss to a realized loss.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents amounted to $1,352,642 at June 30, 2002 and $1,631,387
at December 31, 2001. Net cash from operating activities was a net use of cash
of $278,745 for the six months ending June 30, 2002, and a net use of cash of
$211,828 for the same period in 2001.
The Trust intends to make quarterly distributions of all cash revenues to the
extent it has cash available for such distributions. The Trustees have declared
no distributions during 2002. 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
13
distribute income to the parent unless it has "earnings available for
distribution" as defined by the SBA. At June 30, 2002, the SBIC had a deficit of
"earnings available for distribution" in the amount of $6,096,842. 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. Distributions
payable of $3,556,714 have been accrued as of June 30, 2002.
Berthel SBIC, LLC ("SBIC"), a wholly owned subsidiary of the Trust, is in
violation of the maximum capital impairment percentage permitted by the SBA. The
SBIC received notice of default from the SBA advising that the SBIC must cure
its default on the outstanding debentures. The remedies available to the SBA, in
the event that the default is not cured, include prohibiting the SBIC from
making any additional investments other than investments under existing legally
binding commitments, prohibiting distributions to investors, reviewing and
redetermining management expenses, declaring the SBA debentures immediately due
and payable, and assuming control of the SBIC and liquidate the investment
portfolio. On August 5, 2002, the SBIC received a telephone call from the
Liquidation Division of the SBA. The purpose of the call was to notify the SBIC
of the SBA's decision to move the SBIC from the Investment Division to the
Liquidation Division. The actions taken by the SBA may impact the SBIC's ability
to continue as a going concern. The assets and liabilities of the SBIC as of
June 30, 2002 are $11,022,857 and $9,795,512, respectively.
In its efforts to address these capital impairment issues, the Trust is
attempting to raise capital through various institutional investors. The SBA has
been supportive thus far with management in its capital-raising efforts and has
given consideration of a reorganization of the SBIC if certain conditions are
met, primarily the raising of $10,000,000 in new capital. No assurance can be
given that management's capital-raising efforts will be successful.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
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. Investments 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, 2002, the portfolio is valued at fair value, as determined by the
Independent Trustees ("Trustees"). In determining fair value, 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
14
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, 2002, the amount at risk was $9,549,733 and consisted
of the following:
Cost Valuation
----------- -----------
Debt securities and loans $ 5,062,683 $ 3,694,705
Preferred stocks 2,644,750 2,579,191
Common stocks 3,550,432 2,323,641
Warrants and options to purchase common stock 461,246 952,196
----------- -----------
Total loans and investments $11,719,111 $ 9,549,733
=========== ===========
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
15
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: August 9, 2002 /s/ Ronald O. Brendengen
-------------- ----------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: August 9, 2002 /s/ Daniel P. Wegmann
-------------- ----------------------------------------------
Daniel P. Wegmann, Controller
Date: August 9, 2002 /s/ Henry Royer
-------------- ----------------------------------------------
Henry Royer, Executive Vice President
16
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Berthel Growth & Income Trust I (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
J. Berthel, Chief Executive Officer of Berthel Fisher & Company Planning, Inc.,
The Trust Advisor of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
August 9, 2002 /s/ Thomas J. Berthel
----------------------------------------
Thomas J. Berthel
President and Chief Executive Officer
Berthel Fisher & Company Planning, Inc.
Trust Advisor
Berthel Growth & Income Trust I
17
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Berthel Growth & Income Trust I (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald
O. Brendengen, Chief Financial Officer of Berthel Fisher & Company Planning,
Inc., The Trust Advisor of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbaines-Oxley Act of 2002,
that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
August 9, 2002 /s/ Ronald O. Brendengen
---------------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company Planning, Inc.
Trust Advisor
Berthel Growth & Income Trust I
18