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 September 30, 1997
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
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BERTHEL GROWTH & INCOME TRUST I
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(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.)
100 Second Street SE, Cedar Rapids, Iowa 52401
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(Address of principal executive offices) (Zip Code)
(319) 365-2506
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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 October 31, 1997
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BERTHEL GROWTH & INCOME TRUST I
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial statements (unaudited):
Statements of assets and liabilities - September 30, 1997 and
December 31, 1996
Statements of operations - three months ended September 30,
1997 and September 30, 1996
Statements of operations - nine months ended September 30,
1997 and September 30, 1996
Statements of changes in net assets - nine months ended
September 30, 1997 and September 30, 1996
Statements of cash flows - nine months ended September 30,
1997 and September 30, 1996
Notes to the financial statements
Item 2. Management's discussion and analysis of financial condition
and results of operations.
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal proceedings - none
Item 2. Changes in securities - none
Item 3. Defaults upon senior securities - none
Item 4. Submission of matters to a vote of shareholders - none
Item 5. Other information - none
Item 6. Exhibits and reports on Form 8-K
a. Exhibits - none
b. No report on Form 8-K was filed for the quarter ended
September 30, 1997
SIGNATURES
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BERTHEL GROWTH & INCOME TRUST I
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
September 30, 1997 December 31, 1996
------------------ -----------------
ASSETS
Investments in securities (Note B) $2,000,000 $1,405,000
Cash 22,188 97,025
Temporary investment in money
market securities 5,478,495 4,993,174
Interest receivable 3 40,186
Other assets 72,411 7,690
---------- ----------
Total Assets 7,573,097 6,543,075
---------- ----------
LIABILITIES
Accounts payable and other accrued expenses 13,877 23,594
Distributions payable to shareholders 759,748 584,480
Due to affiliate 47,598 47,022
---------- ----------
Total Liabilities 821,223 655,096
---------- ----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $640.53 per share
in 1997 and $662.24 per share in 1996) $6,751,874 $5,887,979
========== ==========
Net assets consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 and 8,891 shares issued
and outstanding in 1997 and 1996, respectively $7,530,118 $6,782,316
Undistributed net investment loss (778,244) (894,337)
---------- ----------
$6,751,874 $5,887,979
========== ==========
See notes to financial statements.
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BERTHEL GROWTH & INCOME TRUST I
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
REVENUES:
Interest income $ 153,512 $ 126,373
Other income 100 -0-
------------ ------------
153,612 126,373
------------ ------------
EXPENSES:
Management fees 47,598 42,681
Administrative services 10,755 9,912
Trustee fees 8,000 6,000
Data processing 1,800 1,800
Auditing and accounting fees 7,825 3,375
Legal expense 28,522 18,891
Other general and administrative
expenses 5,442 2,439
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Total expenses 109,942 85,098
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Net investment income 43,670 41,275
Unrealized loss on investments -0- (1,000,000)
------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 43,670 $ (958,725)
============ ============
Net investment income
per beneficial share $ 4.14 $ 5.13
Unrealized loss on investments per share -0- (124.18)
------------ ------------
$ 4.14 $ (119.05)
============ ============
Weighted average shares 10,541 8,053
See notes to financial statements.
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BERTHEL GROWTH & INCOME TRUST I
STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended
September 30, 1997 September 30, 1996
---------------------------------------------
REVENUES:
Interest income $ 389,224 $ 288,877
Commitment fee -0- 63,600
Closing fees 20,000 -0-
Other income 600 -0-
----------- ------------
409,824 352,477
----------- ------------
EXPENSES:
Management fees 135,625 108,825
Administrative services 30,262 29,736
Trustee fees 20,000 30,000
Data processing 5,400 6,000
Auditing and accounting fees 24,055 23,625
Legal expense 65,635 18,891
Other general and administrative
expenses 12,754 4,644
----------- ------------
Total expenses 293,731 221,721
----------- ------------
Net investment income 116,093 130,756
Unrealized loss on investments -0- (1,000,000)
----------- ------------
Net increase (decrease) in net assets
resulting from operations $ 116,093 $ (869,244)
=========== ============
Net investment income
per beneficial share $ 11.80 $ 19.41
Unrealized loss on investments per share -0- (148.41)
----------- ------------
$ 11.80 $ (129.00)
=========== ============
Weighted average shares 9,835 6,738
See notes to financial statements.
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BERTHEL GROWTH & INCOME TRUST I
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------- ----------------------------
Shares of Shares of
Beneficial Beneficial
Interest Amount Interest Amount
----------- ----------- ----------- -----------
Net investment income --- $ 116,093 --- $ 130,756
Unrealized loss on investments --- -0- --- (1,000,000)
----------- -----------
Net increase (decrease) in assets
resulting from operations --- 116,093 --- (869,244)
Proceeds from sales of Shares of
beneficial interest 1,655 1,655,000 3,272 3,272,000
Syndication costs incurred --- (233,033) --- (461,748)
Shares of beneficial interest redeemed (5) (5,000) --- -0-
Shares subscribed for but not issued --- -0- --- -0-
Distributions --- (493,897) --- (250,000)
Distributions payable to shareholders --- (175,268) --- (239,586)
Net assets at beginning of period 8,891 5,887,979 5,128 4,242,814
----------- ----------- ----------- -----------
Net assets at end of period 10,541 $ 6,751,874 8,400 $ 5,694,236
=========== =========== =========== ===========
See notes to financial statements.
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BERTHEL GROWTH & INCOME TRUST I
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income (loss) $ 116,093 $ (869,244)
Adjustments to reconcile net investment income (loss)
to net cash flows from operating activities:
Unrealized loss on investments -0- 1,000,000
Amortization of organizational costs 750 750
Gain on redemption of unit (500) -0-
Changes in operating assets and liabilities:
Temporary investment in money market securities (485,321) 406,827
Other assets (65,471) (9,758)
Interest receivable 40,183 (7,603)
Due to affiliate 576 15,467
Accounts payable and accrued expenses (9,717) 14,545
------------ -----------
Net cash flows from operating activities (403,407) 550,984
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of note receivable 1,405,000 -0-
Investment in:
Kinseth Hospitality (2,000,000) -0-
VisionComm, Inc. -0- -0- (2,180,000)
Soil Recovery Systems, Inc. -0- (1,000,000)
------------ -----------
Net cash flows from investing activities ( 595,000) (3,180,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (493,897) (250,000)
Proceeds from sales of shares of beneficial interest 1,655,000 3,272,000
Redemption of shares of beneficial interest (4,500) -0-
Syndication costs incurred (233,033) (461,748)
----------- -----------
Net cash flows from financing activities 923,570 2,560,252
----------- -----------
NET DECREASE IN CASH (74,837) (68,764)
CASH AT BEGINNING OF PERIOD 97,025 102,269
------------ -----------
CASH AT END OF PERIOD $ 22,188 $ 33,505
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Distributions payable to shareholders $ 175,268 $ 22,431
See notes to financial statements.
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BERTHEL GROWTH & INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles 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 Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1996. 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 nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles 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.
NOTE B -- INVESTMENTS
VISIONCOMM, INC. Original Cost Cost Valuation
-----------------------------------------------------
September 30, 1997
-----------------------
14% five year secured
note receivable $2,180,000 $ -0- $ -0-
Warrants for 125,000 shares
at $5 per share -0- -0- -0-
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Total $2,180,000 $ -0- $ -0-
========== ============= =============
The original investment in VisionComm was $2,180,000 at 14% in April 1996. The
Trust received principal repayments of $775,000 in December 1996 and $275,304
in January 1997, and the remaining $1,129,696 in August 1997. The Trust
continues to hold warrants to purchase approximately 21.5% of the company.
KINSETH HOSPITALITY COMPANY, INC. Cost Valuation
-------------------------- -------------------------
Trust SBIC Trust SBIC
-------------------------- -------------------------
14% six year note receivable $1,000,000 $1,000,000 $1,000,000 $1,000,000
Warrants for 12.5% of the
outstanding common stock
of Kinseth at $.01 per share -0- -0- -0- -0-
-------------------------- -------------------------
Total $1,000,000 $1,000,000 $1,000,000 $1,000,000
========================== =========================
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
On April 16, 1997 the Trust - together with its subsidiary, Berthel SBIC, LLC -
invested $2,000,000 in Kinseth Hospitality Company, Inc. ("Kinseth"). Kinseth
is an owner and operator of hotels and restaurants. In exchange for this
investment, Kinseth has issued to each the Trust and the SBIC a Promissory
Note in the amount of $1,000,000 bearing interest at a rate of 14% per annum,
paying current interest and no principal during the term, and to be repaid in
full in six years; and a Warrant to purchase, for nominal consideration,
approximately 12.5% of the outstanding common stock of Kinseth. Repayment of
each Promissory Note is guaranteed by Kinseth Hotel Corporation, an affiliate
of Kinseth. The Trust has also obtained from Kinseth the right to "put" the
shares obtained by exercise of the Warrant to Kinseth after 6 years, and
certain registration rights.
The Trust Advisor is pursuing several other investment opportunities. The
Trust Advisor's present intent is to locate several potential investments for
the Trust and/or the SBIC during the remainder of 1997. There is no assurance
that the Trust Advisor will be successful in finding suitable investment
candidates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS:
Three Months Ended Nine Months Ended
September 30 September 30
DESCRIPTION: 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
Interest income $153,512 $126,373 $389,224 $288,877
Commitment fee income -0- -0- -0- 63,600
Management fees 47,598 42,681 135,625 108,825
Trustee fees 8,000 6,000 20,000 30,000
Legal 28,522 18,891 65,635 18,891
Closing fees 100 -0- 20,000 -0-
The Trust underwriting period was completed on June 21, 1997. A total of
$10,541,000 was raised. All undistributed cash revenues of the Trust during
the underwriting period was paid to Shareholders on July 30, 1997. As of
September 30, 1997 10,541 shares were issued and outstanding.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED):
INTEREST INCOME: On April 30, 1996, $2,180,000 of short term money market
investments were liquidated to acquire a 14% senior secured note with
VisionComm, Inc. ("VCI"). On May 31, 1996, $1,000,000 of money market funds
were liquidated to acquire a 15% convertible subordinated debenture issued by
Soil Recovery Systems, Inc. ("SRS"). As discussed in prior 10-Q and 10-K
Reports, the Trust believes SRS is insolvent and will be unable to make
payments pursuant to the debenture. On April 16, 1997, the Trust, together
with it's newly formed subsidiary, Berthel SBIC, LLC (the "SBIC"), liquidated
$2,000,000 of money market funds to invest in Kinseth. The formation of the
SBIC is discussed in greater detail below. In exchange for its investment, the
Trust and the SBIC were each issued by Kinseth, a Promissory Note in the amount
of $1,000,000 bearing interest at the rate of 14% per annum and paying current
interest and no principal during the term. See Investments for a further
discussion of this investment.
Three Months Ended Nine Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
-------------------------- -------------------------
Money Market $ 60,664 $ 37,975 $186,712 $135,863
VisionComm 22,845 76,299 103,655 128,014
Soil Recovery Systems -0- 12,099 -0- 25,000
Kinseth 70,003 -0- 98,857 -0-
-------- -------- -------- --------
Total Interest Income $153,512 $126,373 $389,224 $288,877
======== ======== ======== ========
COMMITMENT FEE INCOME: The Trust received a 2% commitment fee from VCI and SRS
in 1996. This amounted to $43,600 from VCI and $20,000 from SRS.
MANAGEMENT FEES: The Trust accrues an annual management fee equal to 2.5% of
the total assets of the Trust paid quarterly. The increases over 1996 are
attributed to the increase in the assets of the Trust and the SBIC.
TRUSTEE FEES: As compensation for services rendered to the Trust, each
independent Trustee is paid $1,000 per month plus $1,000 per Board Meeting
attended up to a maximum of $24,000 in meeting fees per year.
LEGAL: The legal expenses incurred are associated with the structuring and
monitoring of Trust activities and Trust investments. Additional legal charges
were incurred in connection with the SRS bankruptcy and the formation of the
SBIC.
CLOSING FEES: The Trust and the SBIC each received $10,000 of fees relating to
the Kinseth investment.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED):
FORMATION OF AN SBIC:
The SBIC, a newly formed entity wholly-owned by the Trust within the meaning of
Section 2(a)(43) of the Investment Company Act of 1940, has applied to the
Small Business Administration (the "SBA") for a license to operate as a Small
Business Investment Company. The Trust has funded the SBIC with a capital
contribution of $5,000,000, the minimum amount eligible to be contributed in
order to receive leverage under the SBA Small Business Investment Company
program. The Trust Advisor and Independent Trustees will have the same
responsibilities in the management of the SBIC as they currently do for the
Trust. Since the application was filed, the Kinseth investment has been
completed. Other investments by the SBIC may be completed while the
application is pending. If an investment has been completed prior to SBIC
approval and is subsequently not approved by the SBIC, the Trust will be
required to provide additional funds to the SBIC to maintain $5,000,000 of
"contributed capital" in order to remain eligible to receive SBA leverage.
The SBIC will attempt to obtain SBA pre-approval for all future investments in
order for the capital to qualify for leverage. The Kinseth investment has not
been pre-approved and there is a likelihood that additional investments may not
be pre-approved by the SBA.
There is no assurance that the Trust will have the additional funds needed if
the SBA does not approve the Kinseth investment or other investments.
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
- ------------------------------------------------------------------------------------------------------
Major Cash Sources:
Proceeds from issuance of beneficial shares $1,655,000 $3,272,000
Repayment of note receivable 1,405,000 -0-
Liquidation of money market securities -0- 406,827
Major Cash Uses:
Distributions $ 493,897 $ 250,000
Payments for syndication costs 233,033 461,748
Investments 2,000,000 3,180,000
Purchase of money market securities 485,321 -0-
- ------------------------------------------------------------------------------------------------------
Pending investment in portfolio companies, the Trust has invested $5,478,495 in
a bank money market fund at September 30, 1997.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED):
Distributions payable of $759,748 have been accrued as of September 30, 1997.
The Trust accrued distributions based on 10% simple annual interest computed on
a daily basis from the initial closing (August 30, 1995) until June 21, 1997,
the Final Closing. Shareholders were paid $493,897 in July 1997 leaving
$526,402 remaining to be paid on the 10% underwriting return. Since Final
Closing, $233,346 representing a priority return of 8% simple annual interest
computed on a daily basis has been accrued.
The Trust Advisor is not aware of any regulatory issues that may have a
material impact on the portfolio companies.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
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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
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(Registrant)
Date November 11, 1997 Ronald O. Brendengen/s/
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date November 11, 1997 Daniel P. Wegmann/s/
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Daniel P. Wegmann, Controller