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| RCG > SEC Filings for RCG > Form 10-Q on 12-Nov-2008 | All Recent SEC Filings |
12-Nov-2008
Quarterly Report
Material Changes in Portfolio Investments
The following material portfolio transactions occurred during the quarter ended September 30, 2008:
Adstar, Inc. (OTCBB:ADST): During the third quarter of 2008, the Fund sold 164,000 shares of common stock for $3,350, realizing a loss of $209,849. The Fund is no longer invested in Adstar, Inc.
Business Process Outsourcing (Private): In the quarter ended September 30, 2008, the Fund exercised warrants to purchase 18,349 shares of common stock for $20,000.
CaminoSoft Corporation (OTCBB:CMSF): In the quarter ended September 30, 2008, the Fund received 60,117 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.
iLinc Communications, Inc. (AMEX:ILC): In the quarter ended September 30, 2008, the Fund sold 23,266 shares of common stock for $4,127, realizing a loss of $9,781.
Integrated Security Systems, Inc. (OTCBB:IZZI): In the third quarter of 2008, the Fund received 3,626,508 shares of common stock as payment in kind for interest on promissory notes held by the Fund. The shares had a cost basis of $129,200. During the third quarter of 2008, the Fund received an additional 110,755 shares of common stock. The shares were received in connection with Russell Cleveland's compensation as a member of Integrated Security Systems' board of directors. The shares had a cost basis of $4,242. The Fund also received 215,000 shares of common stock as compensation for extending the maturity date of certain promissory notes held by the Fund. The shares had a cost basis of $21,500.
Murdoch Security and Investigations, Inc. (Private): In the third quarter of 2008, the Fund received 37,500 shares of common stock as compensation for the company not going public by a specified date.
PetroHunter Energy Corporation (OTCBB:PHUN): In the third quarter of 2008, the Fund received warrants to purchase 133,333 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.
Simtek Corporation (Nasdaq:SMTK): During the third quarter of 2008, the Fund tendered its 1,050,047 shares for $2,730,122, realizing a gain of $30,509. This was done in connection with Cypress Semiconductor Corporation's acquisition of Simtek. The Fund is no longer invested in Simtek Corporation.
Vertical Branding, Inc. (OTCBB:VBDG): In the third quarter of 2008, the Fund received 20,058 shares of common stock, options to purchase 15,000 shares of common stock at $0.37 per share and options to purchase 15,087 shares of common stock at $0.49 per share. These securities were received in connection with Robert C. Pearson's compensation as a member of Vertical Branding's board of directors. The securities had an aggregate cost basis of $17,506.
Results of Operations for the Three Months Ended September 30, 2008
For the three months ended September 30, 2008, the Fund had a net investment loss in the amount of $91,006 compared to a net investment loss in the amount of $161,653 for the same three month period in 2007. This change was due in part to a decrease in investment income from $192,188 for the third quarter of 2007 to $167,404 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 September 30, 2008 was $3,429 compared to $106,209 for the same period in 2007. Also, interest income increased from $85,979 for the third quarter of 2007 to $112,640 for the same period of 2008, primarily due to interest earnings on additional investments during 2008. Other income for the three months ended September 30, 2008 was $51,335 versus $0 for the same period of 2007. The other income for the quarter was comprised of investment income earned from the extension of debentures and from compensation for service as board members of portfolio companies.
The net change in unrealized depreciation on investments for the quarter ended September 30, 2008 increased by $5,756,759 compared to an increase of $6,259,982 for the quarter ended September 30, 2007. This increase 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 losses on investments for the quarter ended September 30, 2008 were $188,802 compared to net realized gains on investments of $2,386,440 for the same period of 2007.
Results of Operations for the Nine Months Ended September 30, 2008
The Fund had a decrease in investment income from $645,899 for the nine months ended September 30, 2007 to $449,413 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 nine-month period ended September 30, 2008 was $29,289 versus $386,696 for the same period in 2007 as a result of dividends earned on portfolio investments and greater cash balances which earned dividends during the nine-month period in 2007. Interest income increased from $244,616 for the nine months ended September 30, 2007 to $354,076 for the same period of 2008, primarily due to interest earnings on additional investments during 2008.
During the nine-month period ended September 30, 2008, the Fund incurred interest expense of $40,841 on its margin balance carried by brokerage. There was no interest expense for the same period of 2007. Legal and professional fees increased from $274,685 for the nine months ended September 30, 2007 to $302,562 for the nine months ended September 30, 2008 as a result of an increase in legal services provided for portfolio company matters and SEC filings during the nine months ended September 30, 2008. Management fees decreased from $624,662 for the nine months ended September 30, 2007, to $374,032 for the same period in 2008, due to a decline in net asset values.
The net change in unrealized depreciation on investments for the nine months ended September 30, 2008 increased $14,735,873 compared to an increase of $7,490,972 for the nine months ended September 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 nine months ended September 30, 2008 were $1,082,780 compared to net realized gains of $4,420,209 for the same period of 2007.
Liquidity and Capital Resources
Net assets decreased from $37,759,148 at December 31, 2007 to $22,168,319 at September 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 $1,082,780 offset by a net investment loss of $598,546 during the nine months ended September 30, 2008. Finally, the Fund declared cash dividends totaling $1,339,190 during the same period.
At the end of the third quarter of 2008, the Fund had cash and cash equivalents of $3,050,161 versus $3,679,949 at December 31, 2007.
Accounts payable decreased from $57,726 at December 31, 2007 to $15,662 at September 30, 2008. Accounts payable to affiliate decreased from $374,734 at December 31, 2007 to $94,648 at September 30, 2008, reflecting the decrease and payment of management fees and expenses for 2007 and the first two quarters of 2008, offset by accrued management fees for the three month period ended September 30, 2008.
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 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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