<PAGE> 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, 1998
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.)
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 October 31, 1998
<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----------------------
<S> <C> <C>
Item 1. Consolidated financial statements (unaudited):
Consolidated statements of assets and liabilities -
September 30, 1998 and December 31, 1997 3
Consolidated statements of operations -
three months ended September 30, 1998 and
September 30, 1997 4
Consolidated statements of operations -
nine months ended September 30, 1998 and
September 30, 1997 5
Consolidated statements of changes in net assets -
nine months ended September 30, 1998 and
September 30, 1997 6
Consolidated statements of cash flows -
nine months ended September 30, 1998 and
September 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 September 30, 1998
SIGNATURES
</TABLE>
2
<PAGE> 3
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS
<S> <C> <C>
Investments in securities (Note B) $5,319,325 $2,800,000
Cash 39,031 15,047
Temporary investment in money
market securities 3,692,826 4,587,598
Interest receivable 34,944 5,833
Other assets 56,563 53,475
---------- ----------
Total Assets 9,142,689 7,461,953
LIABILITIES
Accounts payable and other
accrued expenses 27,500 36,509
Distributions payable to
shareholders 1,035,261 818,689
Due to affiliate 45,507 15,797
---------- ----------
Total Liabilities 1,108,268 870,995
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to
$762.21 per share in 1998 and
$625.27 per share in 1997) $8,034,421 $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, respectively) $6,687,340 $7,318,066
Undistributed net investment gain (loss) 1,347,081 (727,108)
---------- -----------
$8,034,421 $6,590,958
========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES:
Interest income $ 151,494 $ 153,512
Other income 7,669 100
Unrealized gain on
investments 1,919,325 -0-
----------- -----------
Total revenues 2,078,488 153,612
----------- -----------
EXPENSES:
Management fees 45,507 47,598
Administrative services 9,754 10,755
Trustee fees 8,000 8,000
Data processing 1,800 1,800
Auditing and accounting fees 8,900 7,825
Legal expense 17,263 28,522
Other general and
administrative expenses 16,592 5,442
---------- -----------
Total expenses 107,816 109,942
---------- -----------
Net investment income and
net increase in net assets
resulting from operations $1,970,672 $ 43,670
========== ===========
Net investment income per
beneficial share $ 186.95 $ 4.14
========== ===========
Weighted average shares 10,541 10,541
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
REVENUES:
<S> <C> <C>
Interest income $ 437,945 $ 389,224
Commitment fee 12,835 -0-
Closing fee -0- 20,000
Other Income -0- 600
Unrealized gain on investments 1,919,325 -0-
------------ -----------
Total revenues 2,370,105 409,824
------------ -----------
EXPENSES:
Management fees 136,804 135,625
Administrative services 29,261 30,262
Trustee fees 26,000 20,000
Data processing 5,400 5,400
Auditing and accounting fees 23,388 24,055
Legal expense 44,752 65,635
Other general and administrative
expenses 30,311 12,754
------------ -----------
Total expenses 295,916 293,731
------------ -----------
Net investment income and
net increase in net assets
resulting from operations $ 2,074,189 $ 116,093
============ ===========
Net investment income per
beneficial share $ 196.77 $ 11.80
============ ===========
Weighted average shares 10,541 9,835
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Shares of Shares of
Beneficial Beneficial
Interest Amount Interest Amount
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Net increase in assets
resulting from operations $2,074,189 --- $ 116,093
Proceeds from sales of Shares of
beneficial interest --- -0- 1,655 1,655,000
Syndication costs incurred --- -0- --- (233,033)
Shares of beneficial interest
redeemed --- -0- (5) (5,000)
Distributions --- (414,154) --- (493,897)
Distributions payable to
shareholders --- (216,572) --- (175,268)
Net assets at beginning
of period 10,541 6,590,958 8,891 5,887,979
--------- ---------- --------- ----------
Net assets at end of period 10,541 $8,034,421 10,541 $6,751,874
========= ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 2,074,189 $ 116,093
Adjustments to reconcile net investment income (loss)
to net cash flows from operating activities:
Unrealized gain on investments (1,919,325) -0-
Amortization of organizational costs 750 750
Gain on redemption of unit -0- (500)
Changes in operating assets and liabilities:
Temporary investment in money market securities 894,772 (485,321)
Other assets (3,838) (65,471)
Interest receivable (29,111) 40,183
Due to affiliate 29,710 576
Accounts payable and accrued expenses (9,009) (9,717)
------------ -----------
Net cash flows from operating activities 1,038,138 (403,407)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of note receivable -0- 1,405,000
Investment in:
Kinseth Hospitality -0- (2,000,000)
VisionComm, Inc. (200,000) -0-
Hicklin Engineering (400,000) -0-
------------ ------------
Net cash flows from investing activities (600,000) (595,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution payments to shareholders (414,154) (493,897)
Proceeds from sales of shares of beneficial interest -0- 1,655,000
Redemption of shares of beneficial interest -0- (4,500)
Syndication costs incurred -0- (233,033)
------------ -----------
Net cash flows from financing activities (414,154) 923,570
------------ -----------
NET INCREASE (DECREASE) IN CASH 23,984 (74,837)
CASH AT BEGINNING OF PERIOD 15,047 97,025
------------ -----------
CASH AT END OF PERIOD $ 39,031 $ 22,188
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Distributions payable to shareholders $ 216,572 $ 175,268
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
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 nine months ended September 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
<TABLE>
<CAPTION>
COST VALUATION
---- ---------
<S> <C> <C>
VisionComm, Inc.:
Note receivable $ 500,000 $ 500,000
Warrants for 742,813 shares at $.8414/share -0- 1,603,436
Warrants for 104,529 shares at $.8414/share -0- 225,636
Note receivable 200,000 200,000
Warrant for 41,811 shares at $.8414/share -0- 90,253
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
</TABLE>
8
<PAGE> 9
NOTE B -- INVESTMENTS - (Continued)
<TABLE>
<CAPTION>
COST VALUATION
---- ---------
<S> <C> <C>
Hicklin Engineering, L.C.
Subordinated note 400,000 400,000
Warrants for 6,867 Units of Membership
Interest at a nominal price -0- -0-
---------- ----------
$4,400,000 $5,319,325
========== ==========
</TABLE>
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. Shares of VisionComm
stock mentioned in the following paragraphs have been restated to reflect a
5.9425 to 1 stock split which was effective on July 17, 1998. This investment
was in the form of a 14%; five-year secured note with a seven year warrant for
742,813 shares of common stock exercisable until April 20, 2007 at an exercise
price of $.8414 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 104,529 and 41,811 shares of common stock respectively, exercisable
until April 30, 2003 and September 30, 2003 respectively, at an exercise price
of $.8414 per share. The Trust now has the right to purchase approximately
18.97% of the equity ownership of VisionComm.
As of September 30, 1998, the Trust assigned a value of $2.1586 per warrant held
by the Trust as a result of a preferred stock transaction between VisionComm and
a third party. This reflects the Trust's recent estimate of value of VisionComm
common stock at $3.00 per share less the exercise price. The Trust's valuation
reflects discounts for liquidity and dividend preferences between preferred and
common stock.
On May 31, 1996, the Trust invested $1,000,000 in a convertible subordinated
debenture issued by Soil Recovery Services, Inc. ("SRS"). SRS filed for
bankruptcy during the fourth quarter of 1996. The Trust recognized an unrealized
loss of $1,000,000 during the fourth quarter of 1996. As of this date, the Trust
is continuing its avenues of recovery through litigation against third parties.
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
9
<PAGE> 10
NOTE B -- INVESTMENTS - (Continued)
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.
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.
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 151,494 $ 153,512 $ 437,945 $ 389,224
Unrealized gain on investments 1,919,325 -0- 1,919,325 -0-
Commitment fee income -0- -0- 12,835 -0-
Closing fee income -0- -0- -0- 20,000
Management fees 45,507 47,598 136,804 135,625
Trustee fees 8,000 8,000 26,000 20,000
Legal 17,263 28,522 44,752 65,635
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED):
INTEREST INCOME: Below is a summary of interest income earned by the Trust.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
09/30/98 09/30/97 09/30/98 09/30/97
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Money Market $ 46,042 $ 60,664 $154,602 $186,712
VisionComm 25,452 22,845 63,233 103,655
Hicklin 10,000 -0- 10,110 -0-
Kinseth 70,000 70,003 210,000 98,857
-------- -------- -------- ---------
Total Interest Income $151,494 $153,512 $437,945 $389,224
======== ======== ======== ========
</TABLE>
UNREALIZED GAIN ON INVESTMENTS: As of September 30, 1998, the Trust assigned a
value of $2.1586 per warrant held by the Trust as a result of a preferred stock
transaction between VisionComm and a third party. This reflects the Trust's
recent estimate of value of VisionComm common stock at $3.00 per share less the
exercise price. The Trust's valuation reflects discounts for liquidity and
dividend preferences between preferred and common stock.
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 $28,753 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"), a
license to operate as a Small Business Investment Company. The Trust 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.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED):
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.
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
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Major Cash Source:
Proceeds from issuance of
beneficial shares $ -0- $ 1,655,000
Repayment of note receivable -0- 1,405,000
Liquidation of money
market securities 894,772 -0-
Major Cash Use:
Payments for syndication costs $ -0- $ 233,033
Investments 600,000 2,000,000
Distribution payments 414,154 493,897
Purchase of money market securities -0- 485,321
- -----------------------------------------------------------------------------
</TABLE>
Pending investment in portfolio companies, the Trust has invested $3,692,826 in
bank money markets at September 30, 1998.
Distributions payable of $1,035,261 have been accrued as of September 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.
12
<PAGE> 13
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 November 10, 1998 Ronald O. Brendengen/s/
----------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date November 10, 1998 Daniel P. Wegmann/s/
----------------------------------------------
Daniel P. Wegmann, Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEETS OF BERTHEL GROWTH & INCOME TRUST I AS OF SEPTEMBER 30,
1998, AND THE UNAUDITED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 39,031
<SECURITIES> 9,012,151
<RECEIVABLES> 34,944
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,086,126
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,142,689
<CURRENT-LIABILITIES> 1,108,268
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,034,421
<TOTAL-LIABILITY-AND-EQUITY> 8,034,421
<SALES> 0
<TOTAL-REVENUES> 2,370,105
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 295,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,074,189
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,074,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,074,189
<EPS-PRIMARY> 196.77
<EPS-DILUTED> 196.77
</TABLE>
