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| RCG > SEC Filings for RCG > Form 10-Q on 12-May-2009 | All Recent SEC Filings |
12-May-2009
Quarterly Report
Material Changes in Portfolio Investments
The following material portfolio transactions occurred during the quarter ended March 31, 2009:
CaminoSoft Corporation (OTCBB:CMSF): In the quarter ended March 31, 2009, the Fund received 153,986 shares of common stock as payment in kind for interest on promissory notes held by the Fund. The shares had a cost basis of $4,411. The Fund also purchased 5,373,916 shares of common stock for $53,739.
i2 Telecom International, Inc. (OTCBB:ITUI): In the quarter ended March 31, 2009, the Fund received 459,168 shares of common stock as payment in kind for dividend on preferred stock previously held by the Fund. The shares had a cost basis of $49,752.
Integrated Security Systems, Inc. (OTCBB:IZZI): In the first quarter of 2009, the Fund received 3,111,278 shares of common stock as payment in kind for interest on promissory notes held by the Fund. The shares had a cost basis of $48,899.
Murdoch Security and Investigations, Inc. (Private): In the first quarter of 2009, 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 first quarter of 2009, the Fund received warrants to purchase 133,333 shares of common stock at $0.255 per share. The warrants were received in connection with an extension of the interest payment due dates associated with a promissory note held by the Fund.
Results of Operations for the Three Months Ended March 31, 2009
For the three months ended March 31, 2009, the Fund experienced a net investment loss in the amount of $220,367, compared to a net investment loss in the amount of $277,138 for the same three-month period in 2008. This change was due in part to an increase in investment income from $141,853 for the three months ended March 31, 2008 to $153,026 for the comparable period of 2009, and a decrease in expenses from $418,991 for the first quarter of 2008 to $373,393 for the same quarter of 2009. The increase in investment income was primarily attributable to the receipt of a dividend from portfolio investments during the quarter ended March 31, 2009. Dividend income for the three-month period ended March 31, 2009 was $52,695 versus $18,399 for the same period in 2008. Interest income decreased from $112,147 for the three months ended March 31, 2008 to $99,224 for the same period of 2009, primarily due to the disposition of interest-bearing investments during 2008.
General and administrative expenses decreased from $96,984 in the three months ended March 31, 2008 to $71,990 for the same period in 2009, primarily due to lower expenses related to travel, printing, consulting fees, bank charges and stockholder relations expenses. Legal and professional fees increased from $175,210 for the three months ended March 31, 2008 to $223,005 for the three months ended March 31, 2009 as a result of an increase in legal and consulting services during the three months ended March 31, 2009. The increase in legal and consulting expenses relates primarily to the proposed de-election of the Fund's BDC status, a matter which has been submitted to a vote of the stockholders. Management fees decreased from $146,797 for the three months ended March 31, 2008, to $78,398 for the same period in 2009, due to a decline in net asset values in 2009.
The net change in unrealized depreciation on investments for the quarter ended March 31, 2009 increased $375,610 compared to an increase of $4,915,956 for the quarter ended March 31, 2008. This change in unrealized depreciation was due to the fluctuation of market values at each quarter end.
Net realized gains on investments for the quarter ended March 31, 2009 were $10,000 compared to $1,287,083 for the same period of 2008.
Liquidity and Capital Resources
Net assets decreased $585,977 during the three month period from $18,427,016 at December 31, 2008, to $17,841,039 at March 31, 2009. This change is attributable to the net realized gains being offset by the net unrealized losses on investments, and the net investment loss for the three-month period ended March 31, 2009.
At the end of the first quarter of 2009, the Fund had cash and cash equivalents of $2,193,252 compared to $2,558,630 at December 31, 2008. This decrease of $365,878 is primarily attributable to cash used for new investments and payments of operating expenses.
Accounts payable increased from $105,273 at December 31, 2008 to $116,287 at March 31, 2009 primarily due to an increase in legal and consulting services during 2009.
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 Section 55(a)(1) through (5) 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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