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, 1998
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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
(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
(Address of principal executive offices) (Zip Code)
(319) 365-2506
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 24, 1998
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BERTHEL GROWTH & INCOME TRUST I
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Consolidated financial statements (unaudited):
Consolidated statements of assets and liabilities -
June 30, 1998 and December 31, 1997 3
Consolidated statements of operations -
three months ended June 30, 1998 and June 30, 1997 4
Consolidated statements of operations -
six months ended June 30, 1998 and June 30, 1997 5
Consolidated statements of changes in net assets -
six months ended June 30, 1998 and June 30, 1997 6
Consolidated statements of cash flows -
six months ended June 30, 1998 and June 30, 1997 7
Notes to the consolidated financial statements 8
Item 2. Management's discussion and analysis of financial condition and
results of operations. 10
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
June 30, 1998
SIGNATURES
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 1998 December 31, 1997
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ASSETS
Investments in securities (Note B) $ 3,400,000 $ 2,800,000
Cash 63,551 15,047
Temporary investment in money
market securities 3,763,451 4,587,598
Interest receivable 30,657 5,833
Other assets 55,753 53,475
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Total Assets 7,313,412 7,461,953
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LIABILITIES
Accounts payable and other accrued expenses 24,406 36,509
Distributions payable to shareholders 967,187 818,689
Due to affiliate 45,517 15,797
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Total Liabilities 1,037,110 870,995
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COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $595.42 per share
in 1998 and $625.27 per share in 1997) $ 6,276,302 $ 6,590,958
=========== ===========
Net assets consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 shares issued
and outstanding in 1998 and 1997) $ 6,899,893 $ 7,318,066
Undistributed net investment loss (623,591) (727,108)
----------- -----------
$ 6,276,302 $ 6,590,958
=========== ===========
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, 1998 June 30, 1997
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REVENUES:
Interest income $143,304 $131,019
Commitment fee 2,666 -0-
Closing fees -0- 20,000
-------- --------
145,970 151,019
-------- --------
EXPENSES:
Management fees 45,517 46,554
Administrative services 9,753 9,753
Trustee fees 10,000 6,000
Data processing 1,800 1,800
Auditing and accounting fees 9,571 12,005
Legal expense 23,161 22,273
Other general and administrative
expenses 10,605 5,669
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Total expenses 110,407 104,054
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NET INVESTMENT INCOME AND
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 35,563 $ 46,965
======== ========
NET INVESTMENT INCOME PER
BENEFICIAL SHARE $ 3.37 $ 4.74
WEIGHTED AVERAGE SHARES 10,541 9,909
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, 1998 June 30, 1997
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REVENUES:
Interest income $286,451 $235,712
Commitment fee 5,166 -0-
Closing fees -0- 20,000
Other Income -0- 500
-------- --------
291,617 256,212
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EXPENSES:
Management fees 91,297 88,027
Administrative services 19,507 19,507
Trustee fees 18,000 12,000
Data processing 3,600 3,600
Auditing and accounting fees 14,488 16,230
Legal expense 27,489 37,113
Other general and administrative
expenses 13,719 7,312
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Total expenses 188,100 183,789
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NET INVESTMENT INCOME AND
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $103,517 $ 72,423
======== ========
NET INVESTMENT INCOME PER
BENEFICIAL SHARE $ 9.82 $ 7.64
WEIGHTED AVERAGE SHARES 10,541 9,476
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, 1998 JUNE 30, 1997
-------------------- -----------------
Shares of Shares of
Beneficial Beneficial
Interest Amount Interest Amount
----------- ----------- ----------- -----------
Net investment income -- $ 103,517 -- $ 72,423
----------- -----------
Net increase in assets
resulting from operations 103,517 -- 72,423
Proceeds from sales of Shares of
beneficial interest -- -0- 1,655 1,655,000
Syndication costs incurred -- -0- -- (232,982)
Shares of beneficial interest redeemed -- -0- (5) (5,000)
Shares subscribed for but not issued -- -0- (18) (18,000)
Distributions payable to shareholders -- (418,173) -- (456,612)
Net assets at beginning of period 10,541 6,590,958 8,891 5,887,979
----------- ----------- ----------- -----------
Net assets at end of period 10,541 $ 6,276,302 10,523 $ 6,902,808
=========== =========== =========== ===========
See notes to consolidated financial statements.
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BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 103,517 $ 72,423
Adjustments to reconcile net investment income
to net cash flows from operating activities:
Amortization of organizational costs 880 500
Gain on redemption of unit -0- (500)
Changes in operating assets and liabilities:
Temporary investment in money market securities 824,147 230,591
Other assets (3,157) (47,275)
Interest receivable (24,824) (1,847)
Due to affiliate 29,720 (469)
Accounts payable and accrued expenses (12,103) 18,252
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Net cash flows from operating activities 918,180 271,675
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CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of note receivable -0- 275,304
Investment in:
Kinseth Hospitality -0- (2,000,000)
VisionComm, Inc. (200,000) -0-
Hicklin Engineering (400,000) -0-
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Net cash flows from investing activities (600,000) (1,724,696)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution payments to shareholders (269,676) -0-
Proceeds from sales of shares of beneficial interest -0- 1,637,000
Redemption of shares of beneficial interest -0- (4,500)
Syndication costs incurred -0- (231,352)
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Net cash flows from financing activities (269,676) 1,401,148
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NET INCREASE (DECREASE) IN CASH 48,504 (51,873)
CASH AT BEGINNING OF PERIOD 15,047 97,025
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CASH AT END OF PERIOD $ 63,551 $ 45,152
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Distributions payable to shareholders 418,173 $ 456,612
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 consolidated 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,
1997. 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, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
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
COST VALUATION
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VisionComm, Inc.:
Note receivable $ 500,000 $ 500,000
Warrants for 125,000 shares at $5/share -0- -0-
Warrants for 17,590 shares at $5/share -0- -0-
Note receivable 200,000 200,000
Warrant for 7,036 shares at $5/share -0- -0-
Soil Recovery Services, Inc.:
Convertible subordinated debenture 1,000,000 -0-
Kinseth Hospitality Company, Inc.:
Note receivable 2,000,000 2,000,000
Warrants for approximately 25% of the
outstanding common stock at $0.01 per share -0- -0-
LIVEware5, Inc.:
300,000 shares of common stock,
no par value and warrants for
600,000 shares at $0.01 per share 300,000 300,000
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NOTE B -- INVESTMENTS - (Continued)
COST VALUATION
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Hicklin Engineering, L.C.
Subordinated note 400,000 400,000
Warrants for 6,867 Units of Membership
Interest at a nominal price -0- -0-
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$4,400,000 $3,400,000
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On April 30, 1996, the Trust made a commitment to invest up to $2,180,000 in
VisionComm, Inc. ("VisionComm"), which is primarily engaged in the
telecommunications and private cable television business. This investment was in
the form of a 14%; five-year secured note with a seven year warrant for 125,000
shares of common stock exercisable until April 20, 2007 at an exercise price of
$5 per share. VisionComm repaid 100% of the outstanding balance during 1997.
On December 1, 1997, the Trust provided $500,000 in financing to VisionComm in
the form of a 14%; 12-month secured note with warrants. On May 14, 1998, the
Trust provided an additional $200,000 in financing to VisionComm in the form of
a 14%; 12-month secured note with warrants. The notes are secured by all the
private cable assets of VisionComm. The warrants received have terms equivalent
to those received in conjunction with the Trust's previous investment in
VisionComm with the exception that all warrants now owned by the Trust provide
for the option of a cashless exercise. The warrants received with this financing
are for 17,590 and 7,036 shares of common stock respectively, exercisable until
April 30, 2003 and September 30, 2003 respectively, at an exercise price of $5
per share. The Trust now has the right to purchase approximately 23.4% of the
equity ownership of VisionComm.
On May 31, 1996, the Trust invested $1,000,000 in a convertible subordinated
debenture issued by Soil Recovery Services, Inc. ("SRS"). The debenture is for a
seven year term with an annual interest rate of 15% with no prepayment penalty.
Interest only is due the first two years with equal principal payments due at
the end of years three through seven. The debenture can be converted at any time
at a conversion rate that will provide the Trust with approximately 21.5% of
common stock of SRS.
The Trust served a Notice of Default and a Notice of Recession on SRS and
commenced litigation against key parties. The last interest payment received by
the Trust was in July 1996. SRS filed for Chapter 11 bankruptcy protection on
December 12, 1996. The Trust is continuing its avenues of recovery through the
bankruptcy court and litigation but for the year ended December 31, 1996, the
Trust recognized an unrealized loss of $1,000,000.
On May 14, 1997, the Trust invested in a senior secured note issued by Kinseth
Hospitality Company, Inc. ("Kinseth"), which is primarily engaged in the
hospitality industry. The six year note carries a 14% interest rate with
interest only payments with a balloon payment due May 16, 2003. The Trust
received a warrant to purchase 25% of Kinseth's common stock for $11.80. The
warrant expires at the end of 2001. The warrant shares can be "put" to Kinseth
beginning in 2002 at a designated multiple or based on independent valuations.
Beginning in 2004, the warrant shares may be called by Kinseth at a designated
multiple or based on independent valuations.
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NOTE B -- INVESTMENTS - (Continued)
On December 11, 1997, the Trust invested $300,000 in LIVEware5, Inc.
("LIVEware"). LIVEware is a provider of distance based corporate education via
advanced teleconferencing technologies. In exchange for this investment,
LIVEware has issued 300,000 shares of common stock, no par value and warrants to
purchase 600,000 shares of common stock at $.01 per share. The warrants will
cancel upon LIVEware achieving certain levels of revenues and pretax profit
beginning in fiscal year 2000. If the warrants do not cancel, the Trust may own
up to 900,000 shares of LIVEware, which would represent approximately 17.1% of
LIVEware.
The Trust has determined to record the carrying value of its investment in
LIVEware at cost as of June 30, 1998. As a part of the Trust's ongoing
monitoring of its investments, the Trust has decided to perform a more extensive
portfolio valuation of it's LIVEware investment. This valuation should be
completed within 30 days and if an adjustment is deemed necessary, it will be
recorded at that time.
On June 30, 1998, the Trust invested $400,000 in a five year subordinated
debenture issued by Hicklin Engineering, L.C. ("Hicklin"). The debenture carries
a 10% interest rate with interest only for five years with the principal due at
the end of the fifth year. Attached to the note are warrants to purchase 6,867
Units of Membership Interest in Hicklin at a nominal price, exercisable until
May 1, 2006. The exercise of these warrants would give the Trust a 6.86%
interest in Hicklin.
Hicklin specializes in drive train component test equipment and dynometer
systems. Hicklin designs equipment and integrated test systems used to test
vehicular drive train components.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended Six Months Ended
DESCRIPTION: June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------------------------ ------------------------------
Interest income $143,304 $131,019 $286,451 $235,712
Commitment fee income 2,666 -0- 5,166 -0-
Management fees 45,517 46,554 91,297 88,027
Trustee fees 10,000 6,000 18,000 12,000
Legal 23,161 22,273 27,489 37,113
Closing fees -0- 20,000 -0- 20,000
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INTEREST INCOME: Below is a summary of interest income earned by the Trust.
Three Months Ended Six Months Ended
06/30/98 06/30/97 06/30/98 06/30/97
------------------------ ------------------------
Money Market $ 52,913 $ 62,625 $108,560 $126,048
VisionComm 20,281 39,540 37,781 80,810
Hicklin 110 -0- 110 -0-
Kinseth 70,000 28,854 140,000 28,854
-------- -------- -------- --------
Total Interest Income $143,304 $131,019 $286,451 $235,712
======== ======== ======== ========
MANAGEMENT FEES: The Trust accrues an annual management fee equal to 2.5% of
the assets being managed by the Trust paid quarterly.
LEGAL: Legal expenses are associated with the structuring and monitoring of
Trust activities and Trust investments. Additional legal charges were incurred
in 1997 in connection with the SRS bankruptcy and the formation of the Berthel
SBIC as discussed below. During 1998, the Trust has incurred $13,198 of legal
expense associated with the SRS default.
FORMATION OF AN SBIC: Berthel SBIC, LLC (the "SBIC"), an entity wholly-owned by
the Trust within the meaning of Section 2(a)(43) of the Investment Company Act
of 1940, has received, from 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 have the
same responsibilities in the management of the SBIC as they do for the Trust.
The SBIC will attempt to obtain SBA pre-approval for all investments. There is
no guarantee that investments will be approved by the SBA. If an investment has
been completed prior to SBIC approval and is subsequently not approved by the
SBA, 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 for SBA
leverage. There is no assurance that the Trust will have the additional funds
needed if the SBA does not approve investments.
YEAR 2000 ISSUE: The Trust recognizes that the arrival of the Year 2000 poses a
unique challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed its
computer applications and business procedures to provide for their continued
functionality. An assessment of the readiness of external entities which it
interfaces with, such as vendors, counterparties, payment systems, and others,
is ongoing. Initial contact with these external entities is expected to be
completed by the fourth quarter of 1998. The Trust does not expect the cost to
address the Year 2000 will be material.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED):
The Trust has determined that the software it utilizes in its operations is
compatible with the Year 2000. The Trust has not yet fully determined whether
the Year 2000 issue has been addressed by all of the portfolio companies in
which it has investments. The Trust is in the process of contacting its
portfolio companies regarding this issue.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------
Major Cash Source:
Proceeds from issuance of beneficial shares $ -0- $1,637,000
Repayment of note receivable -0- 275,304
Liquidation of money market securities 824,147 230,591
Major Cash Use:
Payments for syndication costs $ -0- $ 231,352
Investments 600,000 2,000,000
Distribution payments 269,676 -0-
- --------------------------------------------------------------------------------------------
Pending investment in portfolio companies, the Trust has invested $3,763,451 in
bank money markets at June 30, 1998.
Distributions payable of $967,187 have been accrued as of June 30, 1998. 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. Since Final Closing, 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
(Registrant)
Date August 10, 1998 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date August 10, 1998 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller