<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 March 31, 1999
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)
<TABLE>
<S> <C>
DELAWARE 52-1915821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 April 30, 1999
<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
<TABLE>
<CAPTION>
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial statements (unaudited):
Consolidated Statements of assets and liabilities -
March 31, 1999 and December 31, 1998 3
Consolidated Statements of operations -
three months ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of changes in net assets -
three months ended March 31, 1999 and March 31, 1998 5
Consolidated Statements of cash flows -
three months ended March 31, 1999 and March 31, 1998 6
Notes to the consolidated financial statements 7
Item 2 Management's discussion and analysis of financial
condition and results of operations 11
Item 3 Quantitative and qualitative disclosure about market risk 13
PART II OTHER INFORMATION
- ------------------------------
Item 1 Legal proceedings 14
Item 2 Changes in securities - none 14
Item 3 Defaults upon senior securities - none 14
Item 4 Submission of matters to a vote of shareholders - none 14
Item 5 Other information - none 14
Item 6 Exhibits and reports on Form 8-K
a Exhibits - none 14
b Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- -----------------
ASSETS
<S> <C> <C>
Investments in securities (Note B) $ 9,860,728 $ 9,060,728
Cash 59,198 31,663
Temporary investment in money
market securities 2,378,236 3,187,453
Interest receivable 41,781 35,382
SBA leverage fee (Note A) 49,091 -0-
Other assets 33,726 66,216
----------- -----------
Total Assets 12,422,760 12,381,442
----------- -----------
LIABILITIES
Accounts payable and other accrued expenses 64,126 25,232
Distributions payable to shareholders 1,116,652 1,092,940
Note payable to investment advisors 226,000 -0-
Due to affiliate 84,842 71,560
----------- -----------
Total Liabilities 1,491,620 1,189,732
----------- -----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $1,037.01 per share
in 1999 and $1,061.73 per share in 1998) $10,931,140 $11,191,710
=========== ===========
Net assets consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 shares issued
and outstanding $ 6,266,854 $ 6,474,786
Undistributed net investment gain 4,664,286 4,716,924
----------- -----------
$10,931,140 $11,191,710
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
REVENUES:
<S> <C> <C>
Interest income $ 142,121 $ 143,147
Other income 15,010 2,500
----------- -----------
Total revenues 157,131 145,647
----------- -----------
EXPENSES:
Management and administrative fees 84,842 55,534
Trustee fees 9,000 8,000
Auditing and accounting fees 5,700 4,917
Legal expense 38,187 4,328
Amortization of SBA financing fee 909 -0-
Other general and administrative
expenses 37,314 4,914
----------- -----------
Total expenses 175,952 77,693
----------- -----------
NET INVESTMENT INCOME (LOSS) AND
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (18,821) 67,954
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE (NOTE A) (33,817) -0-
NET INCREASE (DECREASE) IN NET ASSETS $ (52,638) $ 67,954
=========== ===========
PER BENEFICIAL SHARE AMOUNTS:
Net investment income (loss) from operations $ (1.78) $ 6.45
Cumulative effect of a change
in accounting principle (3.21) -0-
----------- -----------
NET INVESTMENT INCOME (LOSS) $ (4.99) $ 6.45
=========== ===========
WEIGHTED AVERAGE SHARES 10,541 10,541
=========== ===========
PRO FORMA AMOUNTS APPLYING THE METHODOLOGY
OF ORGANIZATION COSTS RETROACTIVELY:
Net increase (decrease) in net assets $ (18,821) $ 67,954
Net increase (decrease) in net assets
per beneficial share $ (1.78) $ 6.45
</TABLE>
See notes to financial statements
4
<PAGE> 5
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
Shares of Shares of
Beneficial Beneficial
Interest Amount Interest Amount
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Net investment income (loss) and
net increase (decrease) in assets
resulting from operations -- $ (18,821) -- $ 67,954
Distributions payable to shareholders -- (207,932) -- (207,931)
Cumulative effect of a change
in accounting principle -- (33,817) -- -0-
Net assets at beginning of period 10,541 11,191,710 10,541 6,590,958
------------ ------------ ------------ ------------
Net assets at end of period 10,541 $ 10,931,140 10,541 $ 6,450,981
============ ============ ============ ============
</TABLE>
See notes to financial statements.
5
<PAGE> 6
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net increase (decrease) in net assets $ (52,638) $ 67,954
Adjustments to reconcile net investment loss
to net cash flows from operating activities:
Amortization of organizational costs and SBA leverage fees 1,159 250
Changes in operating assets and liabilities:
Temporary investment in money market securities 809,217 93,851
Other assets excluding organizational costs 32,240 (3,077)
Interest receivable (6,399) (23,334)
Due to affiliate 13,282 29,983
Accounts payable and accrued expenses 38,894 (20,025)
--------- ---------
Net cash flows from operating activities 835,755 145,602
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in LIVEware5 (100,000) -0-
Investment in Easy Systems (700,000) -0-
--------- ---------
Net cash flows from investing activities (800,000) -0-
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
SBA financing fee (50,000) -0-
Note payable to investment advisor 226,000 -0-
Distribution payments to Shareholders (184,220) (144,737)
--------- ---------
Net cash flows from financing activities (8,220) (144,737)
--------- ---------
NET INCREASE (DECREASE) IN CASH 27,535 865
CASH AT BEGINNING OF PERIOD 31,663 15,047
--------- ---------
CASH AT END OF PERIOD $ 59,198 $ 15,912
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Distributions payable to shareholders $ 207,932 $ 207,931
</TABLE>
See notes to financial statements.
6
<PAGE> 7
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 Trust's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1998. 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 three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999.
The preparation of the Trust'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.
The Trust is amortizing nonrefundable Leverage fees paid to the U.S. Small
Business Administration ("SBA") over the term of the SBA's commitment to provide
financing to Berthel SBIC, LLC, a wholly owned subsidiary of the Trust. Fees
paid in March 1999 amounted to $50,000 in exchange for the SBA's commitment to
purchase up to $5,000,000 of debentures issued by Berthel SBIC, LLC. The
commitment term expires September 30, 2003. An additional $100,000 of Leverage
fees will be deducted, pro rata from the proceeds of debentures purchased by the
SBA. Accumulated amortization as of March 31, 1999 amounted to $909.
Prior to January 1, 1999, the Company capitalized SBIC organization costs and
amortized these costs over the life of the SBIC. The American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-up Activities". SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. SOP 98-5
requires the costs of start-up activities and organization costs to be expensed
as incurred. This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. Effective January 1, 1999, the Company
adopted this SOP and has written off SBIC organization costs of $33,817 and
reported this as a cumulative effect of a change in accounting principle for the
period ended March 31, 1999.
7
<PAGE> 8
<TABLE>
<CAPTION>
NOTE B -- INVESTMENTS: March 31, 1999
Cost Valuation
---------- ------------
<S> <C> <C>
VisionComm, Inc.:
Notes receivable $ 700,000 $ 700,000
Warrants to purchase 889,153 shares
of common stock at $.8414 per share -0- 2,808,478
Kinseth Hospitality Company, Inc.:
Note receivable 2,000,000 2,000,000
Warrants for 25% of the outstanding
common stock at $0.01 per share -0- 2,750,000
LIVEware5, Inc.:
13,633,333 shares of common stock, no par value and
warrants for 600,000 shares at $0.01 per share 400,000 102,250
Hicklin Engineering, L.C.:
Subordinated note 400,000 400,000
Object Space, Inc.:
108,108 shares of Series B convertible preferred stock 404,800 400,000
Easy Systems, Inc.:
Subordinated debenture and warrants to purchase
290,060 shares of stock at $2.95 per share 700,000 700,000
---------- ----------
$4,604,800 $9,860,728
========== ==========
</TABLE>
VISIONCOMM, INC. VisionComm, Inc. ("VisionComm") is primarily engaged in the
telecommunications and private cable television business. On December 1, 1997
and May 14, 1998, the Trust provided $500,000 and $200,000, respectively, in
financing to VisionComm in the form of a 14% 12-month secured note with
warrants. Effective December 1, 1998, the terms of the $500,000 note receivable
were extended due to VisionComm's negotiations for long-term financing
arrangements. VisionComm repaid the notes in April, 1999 with interest.
Warrants to purchase shares of VisionComm common stock were received in
connection with the aforementioned note investments and a previous note
investment that was repaid in 1996 and 1997. Warrants to purchase VisionComm
common stock at $.8414 per share are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Expiration Date
---------------- ---------------
<S> <C>
104,529 April 30, 2003
41,811 September 30, 2003
742,813 April 20, 2007
-------
889,153
</TABLE>
8
<PAGE> 9
All warrants provide for a cashless exercise. The Trust has the right to
purchase approximately 19% of the equity ownership of VisionComm. The Trust,
upon the occurrence of certain conditions, may "put" the warrant shares to
VisionComm, beginning after May 15, 2003. VisionComm warrants are valued at
$3.1586 per share, based on a recent preferred stock market transaction as
adjusted to reflect the differences between preferred and common stock. The
shares of VisionComm common stock referred to in the table have been restated to
reflect a 5.9425 to 1 stock split which was effective July 17, 1998.
KINSETH HOSPITALITY COMPANY, INC. On April 16, 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 during 2002. Beginning in 2004, the
common shares may be called by Kinseth at a designated multiple or based on
independent valuations. The Trust can "put" the common shares to Kinseth
beginning May 1, 2003 if the common stock is not listed on a national exchange
or NASDAQ, or prior to May 1, 2003, if other certain conditions are met, at a
price based on fair market value less certain specified provisions. The
valuation of Kinseth warrants reflects improved operating results and expanded
operations.
LIVEWARE5, INC. LIVEware5, Inc. ("LIVEware") is a provider of distance based
corporate education via advanced teleconferencing technologies. On December 31,
1997, the Trust acquired 300,000 shares of LIVEware common stock and warrants to
purchase 600,000 shares of LIVEware common stock at a cost of $300,000. The
exercise price of the warrants is $.01 per share of common stock. During
February 1999 the Trust acquired an additional 13,333,333 shares of common stock
and increased its ownership of outstanding shares from approximately 12% to 33%.
In connection with the February 1999 investment, the investment agreement was
amended to allow certain employees and other stockholders of LIVEware to acquire
additional shares. On a fully diluted basis, the Trust's ownership share could
range from approximately 14% to 18%.
The warrants will cancel upon LIVEware achieving certain levels of revenues and
pretax profits beginning in fiscal year 2000. Subject to certain restrictions,
the Trust can "put" the common stock and warrants to LIVEware beginning December
11, 2003 at the greater of a designated multiple or fair market value. The
valuation reflects the cost of the most recent transaction.
HICKLIN ENGINEERING, L.C. Hicklin Engineering, L.C. ("Hicklin") specializes in
manufacturing drive train component test equipment and dynometer systems.
Hicklin designs equipment and integrated test systems used to test vehicular
drive train components. On June 30, 1998, the Trust invested $400,000 in a
Hicklin secured 10% subordinated note due June 30, 2003, and a warrant to
purchase 6,857 units of membership interest at an exercise price of $.01. The
note is collateralized by substantially all the assets of Hicklin. The warrant
expires on May 1, 2006. The exercise of these warrants would give the Trust a
6.86% membership interest in Hicklin. The Trust can "put" the warrant shares to
Hicklin beginning June 30, 2003 at a designated multiple or based on independent
valuations.
9
<PAGE> 10
OBJECTSPACE, INC. ObjectSpace, Inc. provides information technology services to
Fortune 500 companies, assisting its clients in realizing the full potential of
Java for enterprise-level systems. On December 30, 1998, the Trust invested
$404,800 in 108,108 shares of ObjectSpace Series B Convertible Preferred Stock
("Preferred Stock"). The Preferred Stock is subordinated to the claims of other
secured creditors and may be converted into common shares at any time at a price
equal to $3.70 divided by the conversion rate in effect on the date of
conversion. The initial conversion rate was $3.70 per share. Subject to other
investor rights, the Trust can "put" the Preferred Stock to ObjectSpace
beginning January 1, 2003 at a price equal to the greater of fair market value
or the per share sales price, payable over three years earning interest at prime
interest rate.
EASY SYSTEMS, INC. Easy Systems, Inc. ("Easy Systems") is a manufacturer of
mixing and measuring equipment used in agricultural and industrial processes.
During February 1999, the Trust invested $700,000 in 11% unsecured subordinated
debentures due March 1, 2004, of Easy Systems. Interest payments are not
scheduled to begin until March 2000. In addition, the Trust received a warrant
to purchase 290,060 shares of Easy Systems' common stock at an exercise price of
$2.95 per share. The warrant expires on the earlier of February 2009, or upon
the occurrence of a certain specified event. The Trust also received the right
to "put" the shares to Easy Systems upon the occurrence of certain conditions
beginning February, 2004, at the greater of fair market value or a designated
multiple. The right to "put" the shares expires upon the earlier of a specified
event or February, 2009.
SUBSEQUENT INVESTMENTS:
SUNSTAR HEALTHCARE, INC. During April 1999, the Trust invested $940,000 in
SunStar Healthcare, Inc. ("SunStar"), an HMO serving the major population
centers of Florida. The Trust appointed Berthel Fisher & Company Financial
Services, Inc. ("BFCFS") as a broker of record and achieved a 6% discount from
the offering price while BFCFS retained 2%. The Trust's investment advisor and
BFCFS are subsidiaries of Berthel Fisher & Company and are therefore related
parties. The Trust purchased 100,000 capital units consisting of one share of
10% Series A Preferred Stock that is convertible into Common Stock and one
warrant to purchase a share of Common Stock. The Preferred Stock is convertible
into common at $3.75 per common share for one year, and at 75% of the 90 day
average bid price for the next three years. The minimum conversion price is
$2.75 per common share. SunStar may, at its option, redeem all or any portion of
the Preferred Stock at $15.00 per share, plus all accrued and unpaid dividends.
The warrants provide for the purchase of one share of common stock at $5.00 per
share for five years. BFCFS also allowed the Trust to receive the broker's
portion of warrants which allow purchase of up to 20,000 shares of SunStar
Common Stock at $4.00 per common share for five years.
INTER-MED, INC. On May 3, 1999, the Trust invested $500,000 in Inter-Med, Inc.
("Inter-Med"), a manufacturer and importer of products for the U.S. dental
market. The Trust's acquisition of 1,340.96 shares of common stock amounted to
approximately 19.2% of Inter-Med's outstanding common stock. Beginning May,
2006, the Trust may "put" the shares of common stock to Inter-Med at the greater
of fair market value or a designated multiple. Beginning May, 2007, Inter-Med
may elect to purchase ("call") all of the Inter-Med common stock owned by the
Trust at the greater of fair market value or a designated multiple. The "put"
and "call" rights expire upon the occurrence of a specified event.
The Trust expects to close another $500,000 investment on or near the date of
filing this report.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS: Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Interest income $ 142,121 $ 143,147
Other income 15,010 2,500
Management and administrative fees 84,842 55,534
Trustee fees 9,000 8,000
Legal 38,187 4,328
Other general and administration 37,314 4,914
</TABLE>
INTEREST INCOME: Below is a summary of interest income earned by the Trust
for three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Money Market $ 30,782 $ 55,647
VisionComm 24,500 17,500
Hicklin 10,000 -0-
Kinseth 70,000 70,000
Easy Systems 6,839 -0-
--------- --------
Total Interest Income $142,121 $143,147
======== ========
</TABLE>
OTHER INCOME: The increase in other income is a result of processing fees
($14,000) that were collected in connection with an investment.
MANAGEMENT AND ADMINISTRATIVE FEES: The Trust accrues an annual management fee
equal to 2.5% of the total assets of the Trust paid quarterly. The management
fee increased $29,462 as a result of increased asset valuations.
OTHER GENERAL AND ADMINISTRATION: Other general and administration expenses
increased reflecting the purchase of liability insurance for the Trustees and
Trust Advisor ($12,240), travel and meeting expenses of non-control employees of
the Trust Advisor to find new investment opportunities ($14,292), and
association dues for the SBIC ($1,560).
LEGAL: Legal expenses incurred are associated with the structuring and
monitoring of Trust activities and investments. Additional legal charges were
incurred in the first quarter of 1999 in connection with the SRS bankruptcy in
the amount of $30,739.
11
<PAGE> 12
FORMATION OF AN SBIC: On May 4, 1998, Berthel SBIC, LLC (the "SBIC"), a wholly
owned subsidiary of the Trust within the meaning of Section 2(a)(43) of the
Investment Company Act of 1940, received a license to operate as a Small
Business Investment Company from the Small Business Administration ("SBA"). The
SBIC was formed in 1997. 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.
During March 1999, the SBIC received approval for SBA leverage ("Leverage")
reserved in the form of debentures equal to $5,000,000 to be issued on or prior
to September 30, 2003. In exchange for the approved Leverage, the SBIC paid the
SBA a nonrefundable fee of $50,000 during March, 1999 and the remaining portion
of the Leverage fee in the amount of $100,000 will be deducted pro rata as
proceeds are drawn. Each issuance of Leverage is conditional upon the SBIC's
credit worthiness and compliance with specified regulations, as determined by
the SBA. The SBA may also limit the amounts that may be drawn each year.
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. The Trust has determined that the software
it uses in its operations is compatible with the Year 2000. The cost of making
software compatible with the Year 2000 has been included in the costs of
software billed to the Trust Advisor and is not believed to be material. There
are no non-information technology processes that the Trust has identified which
would affect the Trust's operations. An assessment of the readiness of external
entities which it interfaces with, such as vendors, counterparties, customers,
and others, is ongoing. At the present the Trust Advisor does not contemplate
any specific charges will be incurred for this assessment, but if separate
charges are identified they will be billed to the Trust as incurred. The amount
of such expenditures is not expected to be significant. The Trust does not
expect the Year 2000 impact of external relationships will have a material
adverse impact on the Trust. But, in a worst case scenario, the Trust expects a
Year 2000 related event might delay the processing of cash flows by up to 90
days, but that recovery from the event would not be beyond the Trust's normal
capabilities.
At the present time the Trust is not aware of any investment valuation that is
impaired as a result of the Year 2000 issue. No investee company is
contractually obligated to become Year 2000 compliant. All investee companies
have been contacted regarding their readiness for the Year 2000. The trust was
informed that Vision Comm expects to be fully compliant by June 1999 and has
implemented an assessment and remedial process that encompasses external
relationships. The Trust has been informed that other investee companies are in
the process or beginning the evaluation of the Year 2000 impact, if any, at this
time. The Trust expects that by the end of the third quarter of 1999, that all
investee companies will have evaluated their Year 2000 issues. The Trust will
then be able to determine what actions, if any, that it may take including, but
not limited to, a decrease in the valuation of securities issued. In a worst
case scenario any investee company could experience significant disruptions to
cash flows and business processes that would lead to a decrease in the valuation
of securities issued.
OTHER POTENTIAL PORTFOLIO COMPANIES AND TRUST ACTIVITIES: The Trust is working
closely with several companies with the intention of completing investments with
them in the very near future. There can be no assurance that these deals may be
completed.
12
<PAGE> 13
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
- -------------------------------------------------------------------------------------------------------------
Major Cash Source:
<S> <C> <C>
Liquidation of money market securities $ 809,217 $ 93,851
Notes payable to investment advisor 226,000 -0-
Major Cash Use:
Investments 800,000 -0-
Distribution payments 184,220 144,737
</TABLE>
Distributions payable of $1,116,652 have been accrued as of March 31, 1999. 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
substantial negative impact on the portfolio companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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. Securities held for investment at March
31, 1999 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 March 31, 1999 the portfolio is valued at fair value, as determined by the
Independent Trustees ("Trustees"). In determining fair value for securities and
warrants, 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 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.
13
<PAGE> 14
There is no assurance that any investment made by the Trust will be repaid or
re-marketed. Accordingly, at March 31, 1999, the entire portfolio value is at
risk in light of the underlying operations and financial health of investee
companies. At March 31, 1999, the amount at risk was $9,860,728; at December 31,
1998 the amount at risk was $9,060,728. The change is a result of new
investments made during first quarter of 1999. During the first quarter of 1999
the Trust did not change the valuation of any investments held at December 31,
1998.
At March 31, 1999, the portfolio consisted of the following:
<TABLE>
<CAPTION>
Cost Valuation
---- ---------
<S> <C> <C>
Notes and debentures $3,800,000 $3,800,000
Warrants to purchase common stock as a
result of note and debenture financings -0- 5,558,478
Preferred stock convertible into common stock 404,800 400,000
Common stock 400,000 102,250
------------ ------------
$4,604,800 $9,860,728
============ ============
</TABLE>
PART II
Item 1. Legal Proceedings
In 1996 Soil Recovery Services, Inc. ("SRS"), an investee of the
Trust, was forced into involuntary Chapter 7 bankruptcy by another creditor.
During 1997, there was a foreclosure sale of all real estate and certain
personal property in which the SBA had a first security interest. The Trust's
claim in the bankruptcy proceeding against SRS was discharged in September 1998.
The President of SRS filed Chapter 7 bankruptcy in the fall of 1998 and the
Trust's claim against him was discharged in March 1999. In the fourth quarter of
1996, the Trust filed a lawsuit against SRS, the President of SRS, Southwest
Merchants Group, the investment banking firm which brought SRS to the Trust and
the principles of that investment firm in the Northern District of Iowa. After
the claims against SRS and the President of SRS were discharged in the
respective bankruptcy proceedings, the Trust's remaining claims against
Southwest Merchant Group and its principals were tried to a jury and a verdict
was returned on April 19, 1999. The jury did not find in favor of the Trust.
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. Reports on Form 8-K
<TABLE>
<CAPTION>
Item Financial Statements Date of Report
---- -------------------- --------------
<S> <C> <C> <C>
5 None January 12, 1999
</TABLE>
14
<PAGE> 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: May 13, 1999 Ronald O. Brendengen/s/
------------ -----------------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: May 13, 1999 Daniel P. Wegmann/s/
------------ -----------------------------------------------------
Daniel P. Wegmann, Controller
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) AND THE STATEMENT OF OPERATIONS
(UNAUDITED) AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 FOR BERTHEL
GROWTH AND INCOME FUND I. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,437,434
<SECURITIES> 0
<RECEIVABLES> 41,781
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,422,760
<CURRENT-LIABILITIES> 374,968
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,931,140<F1>
<TOTAL-LIABILITY-AND-EQUITY> 12,422,760
<SALES> 0
<TOTAL-REVENUES> 157,131
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 175,952
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (33,817)
<NET-INCOME> (52,638)
<EPS-PRIMARY> (4.99)<F3>
<EPS-DILUTED> (4.99)<F3>
<FN>
<F1>NET ASSETS.
<F2>UNREALIZED LOSS (GAIN) ON INVESTMENTS.
<F3>NET INCOME PER BENEFICIAL SHARE BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING
WHICH WAS 10,541.
</FN>
</TABLE>
