<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, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
Transition Period From to
---------------------- -----------------------
Commission File Number 33-89506
BERTHEL GROWTH & INCOME TRUST I
-------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 52-1915821
---------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
-----------------------------------
(Address of principal executive offices) (Zip Code)
(319) 447-5700
--------------
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Shares of Beneficial Interest - 10,541 shares as of October 27, 2000
<PAGE> 2
BERTHEL GROWTH & INCOME TRUST I
INDEX
PART I. FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1. Financial Statements (unaudited)
Consolidated Statements of Assets and Liabilities -
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
three months ended September 30, 2000 and September 30, 1999 4
Consolidated Statements of Operations -
nine months ended September 30, 2000 and September 30, 1999 5
Consolidated Statements of Changes in Net Assets -
nine months ended September 30, 2000 and September 30, 1999 6
Consolidated Statements of Cash Flows -
nine months ended September 30, 2000 and September 30, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings 15
SIGNATURES 16
2
<PAGE> 3
BERTHEL GROWTH & INCOME TRUST I
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Loans and investments (Note B) $ 16,394,778 $ 11,774,502
Cash 414,050 1,123,840
Temporary investment in money
market securities -0- 13,695
Interest and dividends receivable, net of
reserve of $28,506 at September 30, 2000 121,358 168,348
Deferred financing costs 285,939 226,042
Due from affiliates 926 -0-
Other receivables 7,907 10,368
Other assets 4,327 -0-
---------------- ----------------
Total Assets 17,229,285 13,316,795
---------------- ----------------
LIABILITIES
Accrued interest payable 56,067 73,273
Accounts payable and other accrued expenses 36,820 59,332
Due to affiliate 87,936 88,121
Deferred income 31,675 11,667
Distributions payable to shareholders 2,082,706 1,449,669
Debentures (Note C) 9,150,000 5,550,000
---------------- ----------------
Total Liabilities 11,445,204 7,232,062
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
NET ASSETS (equivalent to $548.72 per share
at September 30, 2000 and $577.24 per share
at December 31, 1999) $ 5,784,081 $ 6,084,733
================ ================
Net assets consist of:
Shares of beneficial interest (25,000 shares
authorized; 10,541 shares issued
and outstanding $ 5,139,677 $ 5,954,103
Accumulated net realized losses (1,930,000) (1,930,000)
Accumulated net unrealized gains 2,574,404 2,060,630
---------------- ----------------
$ 5,784,081 $ 6,084,733
================ ================
</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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUES:
Interest income $ 196,836 $ 135,465
Dividend income 47,302 25,206
Application, closing & other fees 3,861 -0-
------------------ ------------------
Total revenues 247,999 160,671
------------------ ------------------
EXPENSES:
Management fees 130,438 82,250
Administrative services 9,600 9,600
Trustee fees 10,000 8,000
Professional fees 18,923 19,759
Interest expense 181,340 20,546
Other general and administrative expenses 50,209 2,399
------------------ ------------------
Total expenses 400,510 142,554
------------------ ------------------
Net investment income (loss) (152,511) 18,117
Unrealized loss on investments (5,084,939) (1,105,000)
------------------ ------------------
Net decrease in net assets
resulting from operations (5,237,450) (1,086,883)
Cumulative effect of a change
in accounting principal (Note A) -0- -0-
------------------ ------------------
Net decrease in net assets $ (5,237,450) $ (1,086,883)
================== ==================
Per beneficial share amounts:
Net decrease in net assets
resulting from operations $ (496.86) $ (103.11)
Cumulative effect of a change
in accounting principle -0- -0-
------------------ ------------------
Net decrease in net assets $ (496.86) $ (103.11)
================== ==================
Weighted average shares 10,541 10,541
================== ==================
Pro forma amounts applying the methodology of
organization costs retroactively:
Net decrease in net assets $ (5,237,450) $ (1,086,883)
Net decrease in net assets
per beneficial share $ (496.86) $ (103.11)
</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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUES:
Interest income $ 585,977 $ 398,019
Dividend income 200,014 47,123
Application, closing & other fees 10,576 15,677
---------------- ----------------
Total revenues 796,567 460,819
---------------- ----------------
EXPENSES:
Management fees 299,973 233,436
Administrative services 28,800 28,800
Trustee fees 26,000 25,000
Professional fees 47,632 140,180
Interest expense 480,761 24,934
Other general and administrative expenses 94,790 64,080
---------------- ----------------
Total expenses 977,956 516,430
---------------- ----------------
Net investment loss (181,389) (55,611)
Unrealized gain (loss) on investments 513,774 (1,105,000)
---------------- ----------------
Net increase (decrease) in net assets
resulting from operations 332,385 (1,160,611)
Cumulative effect of a change
in accounting principal (Note A) -0- (33,817)
---------------- ----------------
Net increase (decrease) in net assets $ 332,385 $ (1,194,428)
================ ================
Per beneficial share amounts:
Net increase (decrease) in net assets
resulting from operations $ 31.53 $ (110.10)
Cumulative effect of a change
in accounting principle -0- (3.21)
---------------- ----------------
Net increase (decrease) in net assets $ 31.53 $ (113.31)
================ ================
Weighted average shares 10,541 10,541
================ ================
Pro forma amounts applying the methodology of
organization costs retroactively:
Net increase (decrease) in net assets $ 332,385 $ (1,160,611)
Net increase (decrease) in net assets
per beneficial share $ 31.53 $ (110.10)
</TABLE>
5
See notes to consolidated financial statements.
<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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
SHARES OF SHARES OF
BENEFICIAL BENEFICIAL
INTEREST AMOUNT INTEREST AMOUNT
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Net investment loss --- $ (181,389) --- $ (55,611)
Unrealized gain (loss) on investments --- 513,774 --- (1,105,000)
Distributions payable to shareholders --- (633,037) --- (630,727)
Cumulative effect of a change
in accounting principle --- --- --- (33,817)
Net assets at beginning of period 10,541 6,084,733 10,541 11,191,710
------ --------------- ------ -----------------
Net assets at end of period 10,541 $ 5,784,081 10,541 $ 9,366,555
====== =============== ====== =================
</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
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net increase (decrease) in net assets $ 332,385 $ (1,194,428)
Adjustments to reconcile net increase (decrease) in net
assets to net cash flows from operating activities:
Amortization of organizational costs and
deferred financing costs 30,103 6,980
Unrealized (gain) loss on investments (513,774) 1,105,000
Provision for possible losses 28,506 -0-
Changes in operating assets and liabilities
Loans and investments (4,106,502) (4,276,000)
Temporary investment in money market securities 13,695 2,483,620
Interest and dividends receivable 18,484 (99,213)
Due from affiliate (926) -0-
Other receivables 2,461 -0-
Other assets (4,327) 58,162
Accrued interest payable (17,206) -0-
Accounts payable and other accrued expenses (22,512) 1,962
Due to affiliate (185) 13,890
Deferred income 20,008 -0-
--------------- ----------------
Net cash flows from operating activities (4,219,790) (1,900,027)
--------------- ----------------
FINANCING ACTIVITIES:
Distribution payments to shareholders -0- (436,551)
Deferred financing costs incurred (90,000) (112,500)
Proceeds from issuance of debentures 3,600,000 2,500,000
--------------- ----------------
Net cash flows from financing activities 3,510,000 1,950,949
--------------- ----------------
NET INCREASE (DECREASE) IN CASH (709,790) 50,922
CASH AT BEGINNING OF PERIOD 1,123,840 31,633
--------------- ----------------
CASH AT END OF PERIOD $ 414,050 $ 82,585
=============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 497,967 $ -0-
Noncash financing activities:
Distributions payable to shareholders 633,037 630,727
</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 financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Trust's Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1999. 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, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
The preparation of the Trust's financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Deferred financing costs consist of a 1% Small Business Administration ("SBA")
commitment fee, which is amortized over the commitment period using the
straight-line method, and a 2.5% SBA leverage and underwriting fee, which is
amortized over the life of the loan using the straight-line method. The
straight-line method approximates the interest method and the relating
amortization is reported as amortization expense.
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.
8
<PAGE> 9
NOTE B -LOANS AND INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------ -------------------------
COST VALUATION COST VALUATION
---- --------- ---- ---------
<S> <C> <C> <C> <C>
COMMUNICATIONS AND SOFTWARE:
VISIONCOMM INC.
Warrants to purchase 889,153 shares of common stock at $.8414 per share $ --- $ 100,000 $ --- $ 1,450,000
LIVEWARE5, INC.
2,726,667 shares of common stock, no par value and warrants for
920,000 shares at $.005 to $0.05 per share --- --- 400,000 102,250
12% debenture due September, 2004 --- --- 200,000 200,000
MCLEODUSA, INC. (FORMERLY INVESTMENT IN LIVEWARE5, INC.)
38,877 shares of common stock, received in exchange for original
investment in LIVEware5, Inc. 610,000 478,916 --- ---
OBJECT SPACE, INC.
108,108 shares of Series B convertible preferred stock 404,800 400,000 404,800 400,000
EDMIN.COM, INC.
200,000 shares of 9%, Series A cumulative convertible preferred stock and
warrants to purchase 20,000 shares of common stock at $4.00 per share 728,000 728,000 728,000 728,000
WEBCASTS.COM, INC.
58,628 shares of 8% Series A preferred stock --- --- 500,000 500,000
10% unsecured note and warrants --- --- 484,860 484,860
Warrants to purchase 1,354,297 common shares for $1,155 --- --- --- 913,180
IBEAM BROADCASTING CORPORATION (FORMERLY INVESTMENT IN WEBCASTS.COM, INC.)
545,442 shares of common stock 486,373 3,068,111 --- ---
---------- -----------
iBEAM securities were received as a result of the merger of Webcasts.com, Inc.
with iBEAM Broadcasting Corporation.
TOTAL COMMUNICATIONS AND SOFTWARE (29.1% and 40.6% of total loans and
investments as of September 30, 2000 and December 31,1999, respectively) 4,775,027 4,778,290
---------- -----------
OFFICE EQUIPMENT AND BUSINESS SERVICES:
BRISTOL RETAIL SOLUTIONS
500,000 shares of 12% cumulative convertible preferred stock 820,083 820,083 --- ---
Warrants to purchase 425,000 shares of common stock at $.01 per share 179,917 208,466 --- ---
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------ -------------------------
COST VALUATION COST VALUATION
---- --------- ---- ---------
<S> <C> <C> <C> <C>
CADAPULT GRAPHIC SYSTEMS, INC.
100,000 Shares of 11.5%, Series A convertible preferred stock and warrants
to purchase 333,000 shares of common stock at $3.125 to $4.50 per share 930,000 930,000 930,000 930,000
SERVECORE BUSINESS SOLUTIONS, INC.
3,663 shares and 2,661 shares of common stock at September 30, 2000 and
December 31, 1999 respectively 990,000 990,000 700,000 700,000
---------- -----------
TOTAL OFFICE EQUIPMENT AND BUSINESS SERVICES (18.0% and 13.8% of total
loans and investments as of September 30, 2000 and December 31,1999,
respectively) 2,948,549 1,630,000
---------- -----------
HEALTHCARE PRODUCTS AND SERVICES:
PHYSICIANS TOTAL CARE, INC.
10% promissory note due September, 2004 and warrants to purchase
350,000 shares of common stock for at $.035-5.00 per share 807,795 807,795 500,000 500,000
700 shares of common stock 4,000 4,000 --- ---
INTER-MED, INC.
1,743.248 shares and 1,340.96 shares of common stock at
September 30, 2000 and December 31, 1999, respectively 650,000 650,000 500,000 500,000
12% promissory note due July, 2005 133,895 133,895 --- ---
Warrants to purchase 561.0413 shares of common stock at $.01 per share 16,953 16,953 --- ---
FUTUREMED INTERVENTIONAL, INC.
13.5% promissory note due February, 2005 909,335 909,335 --- ---
Warrants to purchase 383,111 shares of common stock at $.01 per share 102,640 102,640 --- ---
---------- -----------
TOTAL HEALTHCARE PRODUCTS AND SERVICES (16.0% and 8.5% of total loans and
investments as of September 30, 2000 and December 31,1999, respectively) 2,624,618 1,000,000
---------- -----------
MANUFACTURING:
EASY SYSTEMS, INC.
11% subordinated debenture due March, 2004 and warrants to purchase 291,393
shares of stock at $2.10 per share with deferred interest
capitalized to the investment balance as of September 30, 2000 777,422 777,422 700,000 700,000
142,857 shares of Series B preferred stock and warrants to purchase
240,000 shares and 194,570 shares of common stock at September 30,
2000 and December 31, 1999, respectively, at $2.10 per share 300,000 300,000 243,212 243,212
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------- -------------------------
COST VALUATION COST VALUATION
---- --------- ---- ---------
<S> <C> <C> <C> <C>
HICKLIN ENGINEERING, L.C.
10% subordinated note due June, 2003 400,000 400,000 400,000 400,000
Warrant for 6,857 membership interests at $.01 per share --- --- --- ---
12% subordinated note due January, 2001 through December, 2004 13,800 13,800 23,000 23,000
CHILDS & ALBERT
12.5% promissory note due October, 2005 727,935 727,935 --- ---
Warrants to purchase 833,334 shares of common stock at $10 per share 72,065 72,065 --- ---
THE SCHEBLER COMPANY, PREVIOUSLY KNOWN AS G.M.K.S. ACQUISITION CORP.
13% promissory note due March, 2005 156,805 156,805 --- ---
Warrants to purchase 1.66% of common stock at $.01 per share 11,504 11,504 --- ---
166,666 shares of 10% convertible cumulative preferred stock 166,667 166,667 --- ---
166,666 shares of common stock 166,667 166,667 --- ---
----------- -----------
TOTAL MANUFACTURING (17.0% and 11.6% of total loans and investments
as of September 30, 2000 and December 31,1999, respectively) 2,792,865 1,366,212
----------- -----------
OTHER SERVICE INDUSTRIES:
KINSETH HOSPITALITY COMPANY, INC.
14% note due May, 2003 2,000,000 2,000,000 2,000,000 2,000,000
Warrants for 25% of the outstanding common stock at $0.01 per share --- --- --- ---
INTERNATIONAL PACIFIC SEAFOODS, INC.
12% subordinated note due June 2003 through June 2005 and warrants
to purchase 1,501 shares of common stock for $.76 per share 1,000,000 1,000,000 1,000,000 1,000,000
PICKERMAN'S DEVELOPMENT COMPANY
12% promissory note due April, 2005 216,522 216,522 --- ---
Warrants to purchase 656,000 shares of common stock at $0.01 per share 37,197 37,197 --- ---
----------- -----------
TOTAL OTHER SERVICE INDUSTRIES (19.9% and 25.5% of total loans and investments
as of September 30, 2000 and December 31,1999, respectively) 3,253,719 3,000,000
----------- -----------
TOTAL LOANS AND INVESTMENTS $16,394,778 $11,774,502
=========== ===========
SUBSEQUENT INVESTMENTS:
The Trust is committed to invest $150,000 in 12% promissory notes due in five
years to be issued by Pickerman's Development Company and additional warrants to
acquire approximately 6.4% of the company for $.01 per share.
</TABLE>
11
<PAGE> 12
NOTE C - DEBENTURES
The Trust issued debentures payable to the SBA totalling $3,600,000 during the
nine months ending September 30, 2000. The debentures require the semiannual
payment of interest at annual interest rates ranging from 7.00% to 7.64%. In
addition to interest payments, the Trust is required to pay an annual 1% SBA
loan fee on the outstanding debentures balance. The debentures contain certain
pre-payment penalties and are subject to all of the regulations promulgated
under the Small Business Investment Act of 1958, as amended. Debentures
totalling $1,000,000, $6,575,000, $725,000, and $850,000 are to be paid in full
on September, 2009, March, 2010, September, 2010, and March, 2011, respectively.
As of September 30, 2000, the SBIC has unused leverage commitments totalling
$850,000 and will be required to pay a 2.5% leverage and underwriting fee
totalling $21,250 that will be deducted pro rata as proceeds are drawn. Each
issuance of debentures is conditioned upon the SBIC's credit worthiness and
compliance with specified regulations, as determined by the SBA. The SBA may
also limit the amount that may be drawn each year. The SBA commitment expires
September 30, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS Net investment income (loss) reflects the
Trust's revenues and expenses excluding realized and unrealized gains and losses
on portfolio investments. Interest income consists of the following:
<TABLE>
<CAPTION>
Three Months Ending September 30 Nine Months Ending September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C>
Portfolio investments $ 191,459 $ 127,524 $ 574,251 $ 348,474
Money market 5,377 7,941 11,726 49,545
----------- ----------- ----------- -----------
Interest income $ 196,836 $ 135,465 $ 585,977 $ 398,019
=========== =========== =========== ===========
</TABLE>
Changes in interest earned on portfolio investments reflect the level of
investment in interest earning debt securities and loans. Money market interest
reflects cash resources that are invested in highly liquid money market savings
funds. Money market interest declined in 2000, reflecting uses of cash to
purchase new investments and finance operations.
Dividend income is earned on preferred stock investments and totalled $47,302
and $200,014 for the three and nine months ending September 30, 2000,
respectively. Dividend income was $25,206 and $47,123 for the three and nine
month periods ending September 30, 1999, respectively. Prior to 1999 the Trust
held no investments in dividend-paying equity securities.
Management fees, calculated as 2.5% of the combined temporary investment in
money market securities and loans and investments balances, were $130,438 for
the third quarter of 2000 and $82,250 the same period a year ago. For the nine
months ending September 30, management fees increased from $233,436 in 1999 to
$299,973 in 2000. The increases in management fees are due to an increased
portfolio of loans and investments. Management fees are paid quarterly to the
Trust Advisor, in accordance with the management agreement.
Professional fees were $18,923 for the third quarter of 2000 and $19,759 for the
third quarter of
12
<PAGE> 13
1999, and include legal and accounting expenses. For the first nine months,
professional fees were $47,632 in 2000 and $140,180 in 1999. The decrease is due
to amounts paid in 1999 to pursue recovery of the Trust's investment in Soil
Recovery Services ("SRS"). The attempts at recovery of the SRS loss terminated
in 1999.
Interest expense was first incurred by the Trust in 1999 when it issued
debentures payable to the SBA through its wholly owned subsidiary, Berthel SBIC,
LLC. The Trust has issued debentures totalling $9,150,000. The debentures
require the semiannual payment of interest at annual interest rates ranging from
7.00% to 7.64%. In addition to interest payments, the Trust is required to pay
an annual 1% SBA loan fee on the outstanding debentures balance. The debentures
contain certain pre-payment penalties and are subject to all of the regulations
promulgated under the Small Business Investment Act of 1958, as amended.
Prepayment penalties are not applicable within five years of maturity.
Debentures totalling $1,000,000, $6,575,000, $725,000, and $850,000 are to be
paid in full on September, 2009, March, 2010, September, 2010, and March, 2011,
respectively.
The change in unrealized gains and losses recognized is summarized in the
following table:
<TABLE>
<CAPTION>
Three Months Ending September 30 Nine Months Ending September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Kinseth Hospitality Co. $ -0- $ (1,250,000) $ -0- $ (1,250,000)
SunStar Healthcare -0- 145,000 -0- 145,000
LIVEware5, Inc. -0- -0- 297,750 -0-
McLeodUSA, Inc. (226,702) -0- (131,084) -0-
VisionComm, Inc. -0- -0- (1,350,000) -0-
Webcasts.com, Inc. -0- -0- (913,180) -0-
iBEAM Broadcasting
Corporation (4,822,617) -0- 2,581,739 -0-
Bristol Retail Solutions (35,620) -0- 28,549 -0-
------------- ------------- ------------- -------------
Unrealized gain (loss) $ (5,084,939) $ (1,105,000) $ 513,774 $ (1,105,000)
============= ============= ============= =============
</TABLE>
LIVEware5, Inc. was acquired by McLeod USA, Inc. ("McLeod"). The Trust received
38,877 shares of McLeod in exchange for the investments in LIVEware5, Inc. stock
and debentures in early April, 2000 (adjusted for the April 25, 2000
three-for-one stock split). The Trust's shares of McLeod are subject to a
twelve-month restriction on sales. McLeod common stock is publicly traded.
Valuation of McLeod stock will be based upon actual market value less
appropriate reserves to reflect restrictions on sales.
Webcasts.com, Inc. merged with iBEAM Broadcasting Corporation ("iBEAM") on April
30, 2000. The Trust received 545,442 shares of iBEAM common stock and a 10%
unsecured note due September 30, 2000, which was paid in full during the third
quarter. The iBEAM common stock is subject to a lockup period through November,
2000 and subject to Rule 144 of the Securities and Exchange Commission
thereafter. iBEAM common stock is publicly traded. The iBEAM common stock will
be valued based upon public market prices less appropriate reserves to reflect
restrictions on trading.
The valuation of VisionComm, Inc. warrants was reduced reflecting their
prospects for new equity financing and lack of growth. The unrealized gain on
Bristol Retail Solutions reflects the market
13
<PAGE> 14
value of their common stock in excess of the exercise price of the Trust's
warrants.
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ending September 30
-------------------------------
2000 1999
---- ----
Major Cash Sources (Uses):
Issuance of debentures $ 3,600,000 $ 2,500,000
Deferred financing costs incurred (90,000) (112,500)
Distributions --- (436,551)
Changes in loans and investments (4,106,502) (4,276,000)
Cash and temporary cash investments amounted to $414,050 at September 30, 2000
and $1,137,535 at December 31, 1999. Net cash from operating activities was a
net use of cash of $4,219,790 for the nine months ending September 30, 2000, and
a net use of cash of $1,900,027 for the same period in 1999. This decrease in
cash flow is primarily due to the change in temporary investment in money market
securities. For the nine months ended September 30, 1999, this change provided
cash flows from operating activities of $2,483,620, while it provided only
$13,695 for the same period in 2000.
Prior to 1999, the principal sources of liquidity and capital were the proceeds
of sales of beneficial shares of the Trust combined with the results of
investment operations. During 1999, the SBIC received commitments for SBA
Leverage in the form of debentures in the amount of $10,000,000. The Trust paid
a 1% commitment fee of $100,000 and pays leverage and underwriting fees
amounting to 2.5% of the debentures issued. As of September 30, 2000, unused SBA
leverage commitments amounted to $850,000. Each draw against SBA commitments is
conditional upon the SBIC's credit worthiness and compliance with specific
regulations, as determined by the SBA. The SBA may also limit the amounts that
may be drawn each year. The unused SBA commitment expires September 30, 2004.
The Trust intends to make quarterly distributions of all cash revenues to the
extent it has cash available for such distributions. The Trustees declared no
distribution for the quarter ended September 30, 2000. Distributions from the
Trust's wholly-owned subsidiary, Berthel SBIC, LLC, to the Trust are restricted
under SBA regulations. Under SBA regulations, the SBIC subsidiary is not able to
distribute income to the parent unless it has "earnings available for
distribution" as defined by the SBA. At September 30, 2000, the SBIC had a
deficit of "earnings available for distribution" in the amount of $937,925.
Regardless of the ability to make current distributions in cash, the Trust has
accrued an 8% priority return to beneficial owners of the Trust since June 1997.
A 10% underwriting return was accrued through the final closing of the offering
on June 21, 1997. Distributions payable of $2,082,706 have been accrued as of
September 30, 2000.
The effect of interest rate fluctuations and inflation on the current Trust
investments is negligible.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust's investment objective is to achieve capital appreciation in the value
of its net assets and to achieve current income principally by making
investments through private placements in securities of small and medium sized
privately and publicly owned companies. Securities consist of subordinated debt,
preferred stock, or common stock combined with equity participation in common
stock or rights to acquire common stock. Securities held for investment at
September 30, 2000 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 September 30, 2000, 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.
There is no assurance that any investment made by the Trust will be repaid or
re-marketed. Accordingly, there is a risk of total loss of any investment made
by the Trust. At September 30, 2000, the amount at risk was $16,394,778 and
consisted of the following:
Cost Valuation
Notes and debentures $ 7,143,509 $ 7,143,509
Preferred stock convertible into
common stock 3,349,550 3,344,750
Common stock 2,907,040 5,357,694
Warrants to purchase common stock 420,275 548,825
------------- --------------
Total loans and investments $ 13,820,374 $ 16,394,778
============= ==============
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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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: November 13, 2000 /s/ Ronald O. Brendengen
----------------- ----------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: November 13, 2000 /s/ Daniel P. Wegmann
----------------- ----------------------------------------------
Daniel P. Wegmann, Controller
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