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| RCG > SEC Filings for RCG > Form 10-Q on 13-Aug-2008 | All Recent SEC Filings |
13-Aug-2008
Quarterly Report
Material Changes in Portfolio Investments
The following material portfolio transactions occurred during the quarter ended June 30, 2008:
Adstar, Inc. (OTCBB:ADST): During the second quarter of 2008, the Fund sold 89,500 shares of common stock for $7,117, realizing a loss of $110,402.
BPO Management Services, Inc. (OTCBB:BPOM): In the quarter ended June 30, 2008, the Fund exercised warrants to purchase 52,083 shares of preferred stock for $500,000.
CaminoSoft Corporation (OTCBB:CMSF): In the quarter ended June 30, 2008, the Fund received 71,454 shares of common stock as payment in kind for interest on promissory notes held by the Fund. The shares had a cost basis of $4,363.
Dynamic Green Energy Limited (Private): In the quarter ended June 30, 2008, the Fund invested $1,000,000 in a 7% promissory note.
Medical Action Industries, Inc. (Nasdaq:MDCI): In the second quarter of 2008, the Fund sold 30,150 shares of common stock for $354,061, realizing a gain of $116,852.
PetroHunter Energy Corporation (OTCBB:PHUN): In the second quarter of 2008, the Fund received warrants to purchase 266,667 shares of common stock at $0.255 per share. The warrants were received as payment in kind for interest on a promissory note held by the Fund.
US Home Systems, Inc. (Nasdaq:USHS): During the second quarter of 2008, the Fund sold 55,000 shares of common stock for $252,501, realizing a loss of $23,874.
Vertical Branding, Inc. (OTCBB:VBDG): In the second quarter of 2008, the Fund received options to purchase 15,000 shares of common stock at $0.37 per share. The options were received in connection with Robert C. Pearson's compensation as a member of Vertical Branding's board of directors.
Results of Operations for the Three Months Ended June 30, 2008
For the three months ended June 30, 2008, the Fund experienced a net investment loss in the amount of $230,402 compared to a net investment loss in the amount of $322,584 for the same three month period in 2007. This change was due in part to a decrease in investment income from $154,647 for the three months ended June 30, 2007 to $140,156 for the comparable period of 2008. This decrease in investment income was primarily attributable to less dividend income being earned in 2008. Dividend income for the three month period ended June 30, 2008 was $7,461 versus $69,841 for the same period in 2007. Also, interest income increased from $79,333 for the three months ended June 30, 2007 to $129,289 for the same period of 2008, primarily due to interest earnings on additional investments during 2008.
During the second quarter of 2008, the Fund had interest expense of $29,863 on its margin balance carried by brokerage. There was no interest expense for the same period of 2007. Legal and professional fees decreased from $95,535 for the three months ended June 30, 2007 to $61,538 for the three months ended June 30, 2008 as a result of a decrease in legal and consulting services. Management fees decreased from $214,142 for the three months ended June 30, 2007, to $127,861 for the same period in 2008, due to a decline in net asset values in 2008.
Net realized losses on investments for the quarter ended June 30, 2008 were $15,501 compared to net realized gains on investments of $2,033,769 for the same period of 2007.
Results of Operations for the Six Months Ended June 30, 2008
For the six months ended June 30, 2008, the Fund experienced a net investment loss in the amount of $507,540 compared to a net investment loss in the amount of $437,587 for the same six-month period in 2007. This change was due in part to a decrease in investment income from $453,711 for the six months ended June 30, 2007 to $282,009 for the comparable period of 2008. This decrease in investment income was primarily attributable to less dividend income being earned in 2008. Dividend income for the six-month period ended June 30, 2008 was $25,860 versus $278,725 for the same period in 2007 as a result of dividends earned on portfolio investments and greater cash balances which earned dividends during the six-month period in 2007. Interest income increased from $158,637 for the six months ended June 30, 2007 to $241,436 for the same period of 2008, primarily due to interest earnings on additional investments during 2008.
During the six-month period ended June 30, 2008, the Fund had interest expense of $29,863 on its margin balance carried by brokerage. There was no interest expense for the same period of 2007. Legal and professional fees increased from $208,336 for the six months ended June 30, 2007 to $236,749 for the six months ended June 30, 2008 as a result of an increase in legal services during the six months ended June 30, 2008. Management fees decreased from $428,251 for the six months ended June 30, 2007, to $274,658 for the same period in 2008, due to a decline in net asset values in 2008.
The net change in unrealized depreciation on investments for the six months ended June 30, 2008 increased $8,979,114 compared to an increase of $1,230,989 for the six months ended June 30, 2007. This change in unrealized depreciation was due to the decline of market values and the realization of gains or losses upon the disposition of investments.
Net realized gains on investments for the six months ended June 30, 2008 were $1,271,582 compared to net realized gains of $2,033,769 for the same period of 2007.
Liquidity and Capital Resources
Net assets decreased $9,107,865 during the six-month period from $37,759,148 at December 31, 2007, to $28,651,283 at June 30, 2008. This decline is primarily attributable to the decline of market values of investments during 2008. Additionally, the Fund had net realized gains totaling $1,271,582 offset by a net investment loss of $507,540 during the six-months ended June 30, 2008. Finally, the Fund declared cash dividends totally $892,793 during the same period.
At the end of the second quarter of 2008, the Fund had cash and cash equivalents of $9,901,388 compared to $3,679,949 at December 31, 2007. This increase is primarily attributable to U.S. Treasury Bills purchased with a short-term liability totalling $8,913,937, which was repaid within a few days following the quarter ended June 30, 2008.
The majority of the Fund's investments in portfolio companies are individually negotiated, are initially not registered for public trading, and are subject to legal and contractual investment restrictions. Accordingly, many of the portfolio investments are considered non-liquid. This lack of liquidity primarily affects the Fund's ability to make new investments.
From time to time, funds or securities are deposited in margin accounts and invested in government securities. Government securities used as cash equivalents typically consist of U.S. Treasury securities or other U.S. Government and agency obligations having slightly higher yields and maturity dates of three months or less when purchased. These investments qualify for investment as permitted in Paragraphs 55(a)(1) through (7) of the 1940 Act. These securities are generally valued at market price as market prices are generally available for these securities.
Contractual Obligations
The Fund has one contract for the purchase of services under which it will have future commitments: the Investment Advisory Agreement, pursuant to which RENN Group has agreed to serve as the Fund's Investment Adviser. Such agreement has contractual obligations with fees which are based on values of the portfolio investments which the Fund owns. For further information regarding the Fund's obligations under the Investment Advisory Agreement, see Note 4 of the Financial Statements.
Because the Fund does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations, or purchase obligations that would otherwise be reflected on the Fund's Statement of Assets and Liabilities, a table of contractual obligations has not been presented.
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