[August 12, 2011] KEATING CAPITAL INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations. Tweet (Edgar Glimpses Via Acquire Media NewsEdge) FORWARD-LOOKING STATEMENTS Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to: ? Our future operating results; ? Our business prospects and the prospects of our portfolio companies; ? The impact of the investments that we expect to make; ? The ability of our portfolio companies to achieve their objectives; ? Our expected financings and investments; ? The adequacy of our cash resources and working capital; and ? The timing of cash flows, if any, from the operations of our portfolio companies. In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" in our annual report on Form 10-K filed with the SEC on February 28, 2011 and elsewhere in this quarterly report on Form 10-Q or incorporated by reference herein. We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us at the time we filed this quarterly report on Form 10-Q with the SEC, and we assume no obligation to update any such forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 23-------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and schedules thereto. Overview We were incorporated on May 9, 2008 under the laws of the State of Maryland, and we filed an election to be regulated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act") on November 20, 2008. Keating Investments, LLC ("Keating Investments") serves as our investment adviser and also provides us with the administrative services necessary for us to operate. Congress created business development companies in 1980 in an effort to help public capital reach smaller and growing private and public companies. We are designed to do precisely that. We seek to make minority, non-controlling equity investments in private businesses that are seeking growth capital and that we believe are committed to, and capable of, becoming public, which we refer to as "public ready" or "primed to become public." We seek to invest principally in equity securities, including convertible preferred securities, and other debt securities convertible into equity securities, of primarily non-public U.S.-based companies. Our investment objective is to maximize our portfolio's capital appreciation while generating current income from our portfolio investments. In accordance with our investment objective, we seek to provide capital principally to U.S.-based, private companies with an equity value of less than $250 million, which we refer to as "micro-cap companies," and U.S.-based, private companies with an equity value of between $250 million and $1 billion, which we refer to as "small-cap companies." Our primary emphasis is to attempt to generate capital gains through our equity investments in micro-cap and small-cap companies, including through the conversion of the convertible preferred or convertible debt securities we may acquire in such companies. While a portion of our investments may, at any given time, include a component of interest or dividends, we do not expect to generate significant current yield on our portfolio company investments. To date, none of our portfolio company investments have generated, nor are they expected to generate, interest or dividend income. We may also make investments on an opportunistic basis in U.S.-based publicly-traded companies with market capitalizations of less than $250 million, as well as foreign companies that otherwise meet our investment criteria, subject to certain limitations imposed under the 1940 Act. Our investments will generally take the form of either "sponsored deals" or "financing participation deals." In a sponsored deal, we are generally the lead or primary investor, and are principally responsible for setting the terms and conditions of the investment, establishing the going public process, milestones and timing, generally assisting the portfolio company in raising any additional capital from co-investors and providing going public assistance and guidance. While we may in certain circumstances make an initial seed investment in prospective portfolio companies in sponsored deals, we typically attempt to avoid the risk associated with an initial seed investment where the potential portfolio company may abandon the going public process due to its inability or unwillingness to undertake and complete the audit, governance and other requirements to become public. We also believe it is important for a potential portfolio company to demonstrate its commitment to the going public process by funding any upfront legal and audit costs. In a financing participation deal, typically we participate in a current private offering round being self-underwritten by the potential portfolio company or distributed by placement agents. Typically, the terms of a financing participation deal, which are generally already established consistent with a financing intended to be the last financing round prior to a traditional initial public offering, or pre-IPO financing, have already been established by the issuer and/or the placement agent. In these types of deals, we generally are dealing with existing management and principal investors with a greater level of public company experience or knowledge and an expectation to go public within our targeted time frame. Financing participation deals arise when we have the opportunity to participate in current pre-IPO financing rounds of later stage, venture capital-backed private companies that otherwise meet our investment criteria. In these transactions, we are able to focus our investment process on a single investment, eliminating the need for an initial investment to fund certain upfront going public costs in a prospective portfolio company. 24 -------------------------------------------------------------------------------- In financing participation deals, we believe we are generally able to avoid the risk associated with an initial seed investment where the potential portfolio company may abandon the going public process due to its inability or unwillingness to undertake and complete the audit, governance and other requirements to become public. We also believe it is important for a potential portfolio company to demonstrate its commitment to the going public process by funding any upfront legal and audit costs. Our belief is that potential portfolio companies which meet our investment criteria will generally be able and willing to fund these upfront going public costs or will have already substantially completed certain audit and governance requirements. Financing participation deals, which typically do not require us to seek co-investors, are also attractive to us while our investment size is limited as we attempt to increase our capital base. In a financing participation deal, we will typically make a single investment, principally consisting of convertible debt, convertible preferred stock or other equity, after we are satisfied that a potential portfolio company is committed to and capable of becoming public and obtaining a senior exchange listing (as defined below) within our desired timeframes and has substantially completed certain audit and governance requirements to our satisfaction prior to the closing of our investment. While we have specifically identified sponsored deals and financing participation deals, we believe there may be other types of investment opportunities which may not have the specific characteristics of a sponsored deal or financing participation deal, but which may still meet our general investment criteria and which are still relevant to our focus on micro-cap and small-cap companies capable of and committed to becoming public. For example, more recently, we have investigated the purchase of common stock directly from stockholders of companies that meet our investment criteria. We may make such common stock investments or other investments in such portfolio companies on an opportunistic basis. In all cases, we expect our portfolio companies will generally be able to file a registration statement with the SEC within three to twelve months after our investment and will generally be able to obtain an exchange listing within 12 to 18 months after our investment. ? For a Sponsored Deal: (i) If we believe that the portfolio company is able to complete a traditional IPO based primarily on its current or anticipated revenue and profitability levels measured against recent comparable IPO transactions, which we refer to herein as "IPO qualified" or an "IPO qualified company," we expect that the portfolio company will file a registration statement under the Securities Act within approximately nine months after closing and complete the IPO and obtain a senior exchange listing within approximately 15 months after closing. If the portfolio company fails to complete an IPO within the 15-month time frame, the portfolio company is expected to file a registration statement under the Exchange Act and become a reporting company within 18 months after closing. The final terms of a sponsored deal will be subject to negotiation, and there is no assurance that we will be able to include terms in our sponsored deals which will require the portfolio company to undertake all or any of these actions within these time periods. (ii) If we believe that the portfolio company is not IPO qualified at the time of our investment, we expect that the portfolio company will file a registration statement under the Exchange Act within three to six months after closing and obtain a junior or senior exchange listing within 15 months after closing. ? For a Financing Participation Deal: We expect that the portfolio company, which will typically be IPO qualified, will file a registration statement under the Securities Act within 12 months after closing and complete an IPO and obtain a senior exchange listing within 18 months after closing. Following the closing of our investment, we will provide managerial assistance to the portfolio company in their completion of the going public process, as requested. As an integral part of our investment, we intend to partner with our portfolio companies to become public companies that meet the governance and eligibility requirements for a listing on the New York Stock Exchange, Nasdaq (Global Select, Global or Capital Market) or NYSE Amex Equities, formerly known as the American Stock Exchange (collectively, "U.S. Senior Exchanges"). We will also consider listings by foreign portfolio companies on the Toronto Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, Hong Kong Stock Exchange and other foreign exchanges that we may determine as acceptable venues (collectively, "Foreign Senior Exchanges"). As a business development company, however, we cannot invest more than 30% of our assets in foreign investments. We refer to the U.S. Senior Exchanges and the Foreign Senior Exchanges herein collectively as the "senior exchanges" or individually as a "senior exchange." We intend for our portfolio companies to go public either through the filing of a registration statement under the Securities Act or the Exchange Act. For portfolio companies that we believe are IPO qualified, we expect these companies to go public by filing a registration statement under the Securities Act and completing an IPO. For portfolio companies that are either not IPO qualified at the time of our investment or fail to complete an IPO under the Securities Act in a timely manner, we expect these companies to go public by filing a registration statement under the Exchange Act, which makes them a non-listed publicly reporting company initially. 25 -------------------------------------------------------------------------------- In general, we seek to invest in micro-cap and small-cap companies that we believe will be able to file a registration statement with the SEC within approximately three to twelve months after our investment. These registration statements may take the form of a registration statement under the Securities Act registering the primary sale of common stock of a portfolio company in an IPO, a registration statement registering the common stock of a portfolio company under the Exchange Act without a concurrent registered offering under the Securities Act, or a resale registration statement filed by a portfolio company under the Securities Act to register shares held by existing stockholders coupled with a concurrent registration of the portfolio company's common stock under the Exchange Act. We expect the common stock of our portfolio companies that are not IPO qualified at the time of our investment, or fail to complete an IPO in a timely manner, to typically be initially quoted on the over-the-counter markets or, in the case of foreign portfolio companies, the Toronto Stock Exchange Venture or other foreign exchanges that we may determine as an acceptable initial foreign listing venue (collectively, "Foreign Junior Exchange"), following the completion of the registration process, depending upon satisfaction of the applicable listing requirements. We refer to the over-the-counter markets and the Foreign Junior Exchanges herein collectively as the "junior exchanges" or individually as a "junior exchange." We can provide no assurance, however, that the micro-cap and small-cap companies in which we invest will be able to successfully complete the SEC registration process, or that they will be successful in obtaining a listing on either a junior or senior exchange within the expected timeframe, if at all. If, for any reason, a traditional IPO is unavailable due to either market conditions or an underwriter's minimum requirements, we believe that we can provide each of our portfolio companies with an alternative solution to becoming public and obtaining an exchange listing through our investment adviser's going public, aftermarket support and public markets expertise. We intend to maximize our potential for capital appreciation by taking advantage of the premium we believe is generally associated with having a more liquid asset, such as a publicly traded security. Specifically, we believe that a senior exchange listing, if obtained, will generally provide our portfolio companies with greater visibility, marketability and liquidity than they would otherwise be able to achieve without such a listing. Since we intend to be more patient investors, we believe that our portfolio companies may have an even greater potential for capital appreciation if they are able to demonstrate sustained earnings growth and are correspondingly rewarded by the public markets with a price-to-earnings (P/E) multiple appropriately linked to earnings performance. We can provide no assurance, however, that the micro-cap and small-cap companies in which we invest will be able to achieve such sustained earnings growth, or that the public markets will recognize such growth, if any, with an appropriate market premium. To the extent that we receive convertible debt instruments in connection with our investments, such instruments will likely be unsecured or subordinated debt securities. The convertible preferred stock we have received to date, and which we expect to receive in the future, in connection with our equity investments will typically be non-controlling investments, meaning we will not be in a position to control the management, operation and strategic decision-making of the companies in which we invest. During 2010, we satisfied the requirements to qualify as a regulated investment company ("RIC") and have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code (the "Code") effective for our 2010 taxable year. In order to maintain RIC status, the size of our individual portfolio company investments will be restricted in order to comply with specified asset diversification requirements on a quarterly basis. As a result, to comply with these diversification requirements, we expect that the average size of our individual portfolio company investments will represent approximately 5% of our total assets. Based on our total assets as of June 30, 2011 and taking into consideration the additional $14,897,855 of net proceeds received in the final closing of our continuous public offering on July 11, 2011, we anticipate that the average size of our future portfolio company investments will range from approximately $3 million to $5 million. However, we may invest more than this amount in certain opportunistic situations, provided we do not invest more than 25% of the value of our total assets in any portfolio company and the value of our portfolio company investments representing more than 5% of our total assets do not in the aggregate exceed 50% of our total assets. We expect that our capital will primarily be used by our portfolio companies to finance organic growth. To a lesser extent, our capital may be used to finance acquisitions and recapitalizations. Our investment adviser's investment decisions are based on an analysis of potential portfolio companies' management teams and business operations supported by industry and competitive research, an understanding of the quality of their revenues and cash flow, variability of costs and the inherent value of their assets, including proprietary intangible assets and intellectual property. Our investment adviser also assesses each potential portfolio company as to its appeal in the public markets, its suitability for achieving and maintaining public company status and its eligibility for a senior exchange listing. 26 -------------------------------------------------------------------------------- Our debt and equity investments in portfolio companies could be impaired to the extent such portfolio companies experience financial difficulties arising out of the current economic environment. Our inability to locate attractive investment opportunities, or the impairment of our portfolio investments as a result of economic conditions, could have a material adverse effect on our financial condition and results of operations. We are externally managed by Keating Investments, an investment adviser registered under the Advisers Act. As our investment adviser, Keating Investments is responsible for managing our day-to-day operations including, without limitation, identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Keating Investments also provides us with the administrative services necessary for us to operate. As a business development company, we are required to comply with certain regulatory requirements. For example, to the extent provided by the 1940 Act, we are required to invest at least 70% of our total assets in eligible portfolio companies. Operating and Regulatory Structure Our investment activities are managed by Keating Investments pursuant to an investment advisory and administrative services agreement (the "Investment Advisory and Administrative Services Agreement"). Keating Investments was founded in 1997 and is an investment adviser registered under the Advisers Act. The managing member and majority owner of Keating Investments is Timothy J. Keating. Our investment adviser's senior investment professionals are Timothy J. Keating, our President, Chief Executive Officer and Chairman of our Board of Directors, Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our Board of Directors, Frederic M. Schweiger, our Chief Operating Officer, Chief Compliance Officer and Secretary, and Kyle L. Rogers, our Chief Investment Officer. In addition, Keating Investments' other investment professionals consist of three portfolio company originators/transaction analysts, an investor relations director and a financial analyst. Under our Investment Advisory and Administrative Services Agreement with Keating Investments, we have agreed to pay Keating Investments, for its investment advisory services, an annual base management fee based on our gross assets as well as an incentive fee based on our performance. Investment Portfolio Composition and Activity During the year ended December 31, 2010, we made four portfolio company investments in an aggregate amount of $3,600,491. During the three and six months ended June 30, 2011, we made five additional portfolio company investments (one of which was a follow-on investment in an existing portfolio company) totaling $11,400,012 as follows: ? On February 22, 2011, we made an additional $900,000 investment in the convertible preferred stock of MBA Polymers, Inc. ? On March 1, 2011, we completed a $2,500,006 investment in the convertible preferred stock of BrightSource Energy, Inc. ? On March 9, 2011, we completed a $2,499,999 investment in the convertible preferred stock of Harvest Power, Inc. ? On March 31, 2011, we completed a $2,500,007 investment in the convertible preferred stock of Suniva, Inc. ? On June 14, 2011, we completed a $3,000,000 investment in the convertible preferred stock of Xtime, Inc. A summary of each of our portfolio company investments as of June 30, 2011 is set forth below: NeoPhotonics Corporation. On January 25, 2010, we completed a $1 million investment in the Series X convertible preferred stock of NeoPhotonics Corporation ("NeoPhotonics"). Our investment in NeoPhotonics was part of a $46 million Series X preferred stock offering. NeoPhotonics, headquartered in San Jose, California, is a developer and manufacturer of photonic integrated circuit based components, modules and subsystems for use in telecommunications networks. NeoPhotonics completed an initial public offering on February 2, 2011 selling 7,500,000 shares of common stock at a price of $11.00 per share. NeoPhotonics is listed on the New York Stock Exchange under the ticker symbol NPTN. Prior to the initial public offering, our NeoPhotonics Series X preferred stock converted into 160,000 shares of NeoPhotonics common stock. The shares of NeoPhotonics common stock we received upon conversion are subject to a six-month lock-up provision which expires in August 2011. At June 30, 2011, our common stock investment in NeoPhotonics was valued at $996,000, including $4,000 in unrealized depreciation based upon a fair value determination made in good faith by our Board of Directors. 27-------------------------------------------------------------------------------- Livescribe, Inc. On July 1, 2010, we completed a $500,500 investment in the Series C convertible preferred stock and warrants of Livescribe Inc. ("Livescribe"). Our investment in Livescribe was part of a $39 million Series C preferred stock offering. Livescribe, a private company headquartered in Oakland, California, is a developer and marketer of a mobile, paper-based computing platform consisting of smartpens, dot paper, smartpen applications, accessories, desktop software, an online community and development tools. Livescribe's smartpens are currently available from consumer electronics retailers in the U.S. and in several international markets. In the event of a qualifying initial public offering, the Series C convertible preferred stock would be automatically converted into shares of Livescribe's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that Livescribe will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. For financial reporting purposes, our investment in Livescribe's Series C convertible preferred stock was assigned a cost of $471,295 and the warrants were assigned a cost of $29,205 based on the fair value of the warrants as of the initial investment date calculated using the Black-Scholes option pricing model. At June 30, 2011, our Series C convertible preferred stock investment in Livescribe was valued at $485,000, including $13,705 in unrealized appreciation based upon a fair value determination made in good faith by our Board of Directors. At June 30, 2011, our Series C convertible preferred stock warrants in Livescribe were valued at $24,205, including $5,000 in unrealized depreciation based upon a fair value determination made in good faith by our Board of Directors. On July 8, 2011, we made a $27,480 investment in the Series C-1 convertible preferred stock and warrants of Livescribe. We has also committed to make an additional investment of $22,900 in the Series C-1 convertible preferred stock and warrants of Livescribe as part of a second closing that will occur no later than April 30, 2012. Solazyme, Inc. On July 16, 2010, we completed a $999,991 investment in the Series D convertible preferred stock of Solazyme, Inc. ("Solazyme"). Our investment in Solazyme was part of a $60 million Series D preferred stock offering. Solazyme is a renewable oils and green bioproducts company based in South San Francisco, California. Founded in 2003, Solazyme is considered a leader in the development and commercialization of algal oil and bioproducts for the fuels and chemicals, nutrition, and skin and personal care markets. Solazyme's unique, proprietary technology allows algae, when fed sugars and plant byproducts, to produce oil and biomaterials in industrial fermentation facilities. Solazyme completed an initial public offering on May 27, 2011 selling 10,975,000 shares of common stock at a price of $18.00 per share. Solazyme is listed on the Nasdaq Global Market under the ticker symbol SZYM. Prior to the initial public offering, our Solazyme Series D preferred stock converted into 112,927 shares of Solazyme common stock. The shares of Solazyme common stock we received upon conversion are subject to a six-month lock-up provision which expires in November 2011. At June 30, 2011, our common stock investment in Solazyme was valued at $2,335,000, including $1,335,009 in unrealized appreciation based upon a fair value determination made in good faith by our Board of Directors. MBA Polymers, Inc. On October 15, 2010, we completed a $1,100,000 investment in the Series G convertible preferred stock of MBA Polymers, Inc. ("MBA Polymers"). Our investment in MBA Polymers was part of a $25 million Series G convertible preferred stock offering. On February 22, 2011, we made an additional investment of $900,000 in MBA Polymers' Series G convertible preferred stock. Our additional investment was part of an aggregate additional Series G preferred stock offering of approximately $14.6 million. MBA Polymers, a private company headquartered in Richmond, California, is a global manufacturer of recycled plastics sourced from end of life durable goods, such as computers, electronics, appliances and automobiles. MBA Polymers' patented recycling technology allows it to sort, clean, purify and process reusable plastic materials. These recycled plastics are then sold as "drop-in" green replacements for virgin plastic to original equipment manufacturers and other customers who desire a cost-competitive and/or greener alternative to virgin plastics. In the event of a qualifying initial public offering, the Series G convertible preferred stock would be automatically converted into shares of MBA Polymer's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that MBA Polymers will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. At June 30, 2011, our Series G convertible preferred stock investment in MBA Polymers was valued at $2,000,000, our original cost, based upon a fair value determination made in good faith by our Board of Directors. 28-------------------------------------------------------------------------------- BrightSource Energy, Inc. On March 1, 2011, we completed a $2,500,006 investment in the Series E convertible preferred stock of BrightSource Energy, Inc. ("BrightSource"), which BrightSource included as part of its February 28, 2011 closing. Our investment in BrightSource was part of a $200 million Series E preferred stock offering. BrightSource, headquartered in Oakland, California, is a developer of utility scale solar thermal plants which generate solar energy for utility and industrial companies using its proprietary solar thermal tower technology. This technology allows BrightSource to employ a low-impact environmental design that mounts mirrors on individual poles placed directly into the ground, so that the solar field can be built around the natural contours of the land and avoid areas of sensitive vegetation. Competing solar technologies generally require extensive land grading and concrete pads. BrightSource's technology also uses an air-cooling system to convert steam back into water in a closed-loop cycle and, in the process, conserve desert water. On April 22, 2011, BrightSource filed a registration statement on Form S-1 to go public through a $250 million initial public offering of its common stock. In the event of a qualifying initial public offering, the Series E convertible preferred stock would be automatically converted into shares of BrightSource's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that BrightSource will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. At June 30, 2011, our Series E convertible preferred stock investment in BrightSource was valued at $2,500,006, our original cost, based upon a fair value determination made in good faith by our Board of Directors. Harvest Power, Inc. On March 9, 2011, we completed a $2,499,999 investment in Series B convertible preferred stock of Harvest Power, Inc. ("Harvest Power"). Our investment in Harvest Power was part of a $66 million Series B preferred stock offering. Founded in 2008 and headquartered in Waltham, Massachusetts, Harvest Power acquires, owns and operates organic waste facilities that convert organic waste, such as food scraps and yard debris, into compost, mulch and renewable energy. Harvest Power's recycling operations reduce the amount of organic waste that needs to be landfilled or incinerated. Its existing operating facilities are located in California, Pennsylvania, and British Columbia, Canada. Harvest Power enters into multi-year contracts with municipalities and waste haulers who pay a tipping fee to Harvest Power to accept organic waste at its facilities. In the event of a qualifying initial public offering, the Series B convertible preferred stock would be automatically converted into shares of Harvest Power's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that Harvest Power will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. At June 30, 2011, our Series B convertible preferred stock investment in Harvest Power was valued at $2,499,999, our original cost, based upon a fair value determination made in good faith by our Board of Directors. Suniva, Inc. On March 31, 2011, we completed a $2,500,007 investment in the Series D convertible preferred stock of Suniva, Inc. ("Suniva"). Our investment in Suniva was part of a $106 million Series D preferred stock offering. Founded in 2007 and headquartered in Norcross, Georgia, Suniva is a manufacturer of high-efficiency solar photovoltaic cells and modules focused on delivering high-power solar energy products. At its headquarters in Norcross, Georgia, Suniva has 170 megawatts of solar cell production capacity and a state-of-the-art research and development facility. In the event of a qualifying initial public offering, the Series D convertible preferred stock would be automatically converted into shares of Suniva's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that Suniva will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. At June 30, 2011, our Series D convertible preferred stock investment in Suniva was valued at $2,500,007, our original cost, based upon a fair value determination made in good faith by our Board of Directors. Xtime, Inc. On June 14, 2011, we completed a $3,000,000 investment in the Series F convertible preferred stock of Xtime, Inc. ("Xtime"). Our investment in Xtime was part of a $5 million Series F preferred stock offering in which we were the lead investor. Founded in 1999 and headquartered in Redwood Shores, California, Xtime is a software as a service provider of Web scheduling and CRM solutions for automotive service departments. Xtime has enrolled over 3,000 dealerships since the launch of its ServiceCRM™ platform, which automates and integrates all Xtime products into a unified solution for fixed operations (consisting of service, parts, and body shop). In the event of a qualifying initial public offering, the Series F convertible preferred stock would be automatically converted into shares of Xtime's common stock. Upon conversion, the common stock we would be issued would be subject to a six-month lock-up period following the completion of the initial public offering. We can give no assurances that Xtime will ever complete an initial public offering, and even if completed, when it may be completed and at what price and under what terms. At June 30, 2011, our Series F convertible preferred stock investment in Xtime was valued at $3,000,000, our original cost, based upon a fair value determination made in good faith by our Board of Directors. 29 --------------------------------------------------------------------------------The following table summarizes the composition of our investment portfolio, excluding short-term investments in certificates of deposit, at cost and fair value as of June 30, 2011 and December 31, 2010. June 30, 2011 December 31, 2010 Percentage Percentage Investment Type Cost Fair Value of Portfolio Cost Fair Value of Portfolio Private Portfolio Companies: Livescribe, Inc. $ 500,500 $ 509,205 3.12 % $ 500,500 $ 527,616 12.63 % NeoPhotonics Corporation (1) - - 0.00 % 1,000,000 1,550,000 37.10 % Solazyme, Inc. (2) - - 0.00 % 999,991 999,991 23.94 % MBA Polymers, Inc. 2,000,000 2,000,000 12.24 % 1,100,000 1,100,000 26.33 %BrightSource Energy, Inc. 2,500,006 2,500,006 15.30 % - - - Harvest Power, Inc. 2,499,999 2,499,999 15.30 % - - - Suniva, Inc. 2,500,007 2,500,007 15.30 % - - - Xtime, Inc. 3,000,000 3,000,000 18.36 % - - - Publicly-Traded Portfolio Companies: NeoPhotonics Corporation (1) 1,000,000 996,000 6.09 % - - 0.00 % Solazyme, Inc. (2) 999,991 2,335,000 14.29 % - - 0.00 % Total $ 15,000,503 $ 16,340,217 100.00 % $ 3,600,491 $ 4,177,607 100.00 % (1) On February 2, 2011, NeoPhotonics completed an initial public offering of its common stock and is currently listed on the New York Stock Exchange under the ticker symbol NPTN. Prior to the initial public offering, the Company held convertible preferred stock in NeoPhotonics, which converted into 160,000 shares of common stock prior to the initial public offering, which common shares are subject to a six-month lock-up provision expiring in August 2011. (2) On May 27, 2011, Solazyme completed an initial public offering of its common stock and is currently listed on the Nasdaq Global Market under the ticker symbol SZYM. Prior to the initial public offering, the Company held convertible preferred stock in Solazyme, which converted into 112,927 shares of common stock prior to the initial public offering, which common shares are subject to a six-month lock-up provision expiring in November 2011. The following table summarizes the composition of our investment portfolio, excluding short-term investments in certificates of deposit, at cost and fair value by industry classification as of June 30, 2011 and December 31, 2010. June 30, 2011 December 31, 2010 Percentage Percentage Industry Classification Cost Fair Value of Portfolio Cost Fair Value of Portfolio Cleantech $ 10,500,003 $ 11,835,012 72.43 % $ 2,099,991 $ 2,099,991 50.27 % Internet & Software 3,000,000 3,000,000 18.36 % - - 0.00 % Technology 1,000,000 996,000 6.09 % 1,000,000 1,550,000 37.10 % Consumer Products 500,500 509,205 3.12 % 500,500 527,616 12.63 % Total $ 15,000,503 $ 16,340,217 100.00 % $ 3,600,491 $ 4,177,607 100.00 % The following table summarizes the composition of our investment portfolio, excluding short-term investments in certificates of deposit, at cost and fair value by geographic region of the United States as of June 30, 2011 and December 31, 2010. The geographic composition is determined by the location of the corporate headquarters of the portfolio company. June 30, 2011 December 31, 2010 Percentage Percentage Geographic Location Cost Fair Value of Portfolio Cost Fair Value of Portfolio West $ 10,000,497 $ 11,340,211 69.40 % $ 3,600,491 $ 4,177,607 100.00 % Northeast 2,499,999 2,499,999 15.30 % - - - Southeast 2,500,007 2,500,007 15.30 % - - - Total $ 15,000,503 $ 16,340,217 100.00 % $ 3,600,491 $ 4,177,607 100.00 % 30-------------------------------------------------------------------------------- We currently anticipate completing five to ten investments per year until all of the proceeds of our continuous public offering have been invested. The consummation of each investment will depend upon satisfactory completion of our due diligence investigation of the prospective portfolio company, our confirmation and acceptance of the investment terms, structure and financial covenants, the execution and delivery of final binding agreements in form mutually satisfactory to the parties, the absence of any material adverse change and the receipt of any necessary consents. We can provide no assurance that we will be able to meet our anticipated pace of investment. We anticipate that it may take up to an additional 12 to 24 months to invest substantially all of the proceeds from our continuous public offering in our targeted investments. Until we are able to invest such proceeds in suitable investments, we will invest in temporary investments, such as cash, cash equivalents including money market funds, U.S. government securities and other high-quality debt investments that mature in one year or less, which we expect will earn only nominal yields. Since we do not expect to generate significant interest or dividend income on our portfolio company investments, our ability to make distributions will be based on our ability to invest our capital in suitable portfolio companies in a timely manner and to sell our interests in these portfolio companies at a gain after they become public. Results of Operations The principal measure of our financial performance is the net increase (decrease) in our net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments. Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses. Net realized gain (loss), if any, is the difference between the net proceeds of sales of portfolio company securities and their stated cost. Net unrealized appreciation (depreciation) from investments is the net change in the fair value of our investment portfolio. Set forth below are the results of operations for the three and six months ended June 30, 2011 and 2010. Investment Income. We have generated, and expect to continue to generate, limited investment income from our temporary investments in high-quality debt investments that mature in one year or less. For the three months ended June 30, 2011 and 2010, we earned interest income from certificates of deposit and money market investments of $19,187 and $7,894, respectively. For the six months ended June 30, 2011 and 2010, we earned interest income from certificates of deposit and money market investments of $43,278 and $13,619, respectively. We seek to invest principally in equity securities, including convertible preferred securities, and other debt securities convertible into equity securities, of primarily non-public U.S.-based micro-cap and small-cap companies. Our convertible debt investments, which we expect will usually be associated with our sponsored deals, will be primarily unsecured and subordinated loans that provide for a fixed interest rate that will typically provide us with current interest income. However, it is possible that interest on these debt investments will be deferred until maturity or conversion or may be paid in shares of the issuer's common stock. We intend to set interest rates based on prevailing market rates at the time of our investment for comparable types of investments. Typically, these loans will have maturities not to exceed 18 months, which coincides with the maximum period we believe is required to complete the process to go public and obtain an exchange listing. To date, we have not made any convertible debt investments in portfolio companies. Our convertible preferred equity investments may pay fixed or adjustable rate dividends to us and will generally have a "preference" over common equity in the payment of dividends and the liquidation of a portfolio company's assets. This preference means that a portfolio company must pay dividends on preferred equity before paying any dividends on its common equity. However, in order to be payable, dividends on such preferred equity must be declared by the portfolio company's board of directors. In the event dividends on our preferred stock investments are non-cumulative, which is typically the case, if the board of directors of our portfolio companies does not declare a preferred dividend for a specific period, we will not be entitled to a preferred dividend for such period. We do not expect the board of directors of our portfolio companies to declare preferred dividends since these companies typically prefer to retain profits, if any, in their business. Accordingly, we do not expect to generate dividend income on our preferred stock investments. Cumulative dividend payments on preferred equity means dividends will accumulate even if not declared by the board of directors or otherwise made payable. In such a case, all accumulated dividends must typically be paid before any dividend on the common equity can be paid. However, there is no assurance that any dividends will be paid by a portfolio company even in the case of cumulative preferred dividends and, in most cases, the payment of any accumulated preferred dividends is likely to be deferred until conversion and, if paid, may be paid in shares of the issuer's preferred or common stock. 31-------------------------------------------------------------------------------- Non-cumulative dividends from preferred equity investments in portfolio companies are recorded when such dividends are declared or at the point an obligation exists for a portfolio company to make a distribution. Cumulative dividends are recorded when such dividends are declared by the portfolio company's board of directors, or when a specified event occurs triggering an obligation to pay such dividends. When recorded, cumulative dividends are added to the balance of the preferred equity investment and are recorded as dividend income in the statement of operations. No non-cumulative or cumulative dividend income from portfolio company investments was recorded during the three and six months ended June 30, 2011 and 2010. Our primary source of investment income will be generated from net capital gains realized on the disposition of our portfolio company investments, which typically will occur after the portfolio company completes an IPO and any contractual lock-up period has expired. From time to time, we may also generate other investment income comprised of fees for due diligence, structuring, transaction services, consulting services and management services rendered to portfolio companies and prospective portfolio companies, which services are separately identifiable from our investments. For the three months ended June 30, 2011 and 2010, no other investment income was recorded. For the six months ended June 30, 2011 and 2010, $0 and $10,000, respectively, of other investment income was recorded. The $10,000 of other income recorded during the six months ended June 30, 2010 represents a non-refundable due diligence fee received from a prospective portfolio company in December 2009, which was initially recorded as deferred income and was subsequently recognized as income when the proposed investment transaction failed to close in February 2010. Expenses. Our primary operating expenses include the payment of: (i) investment advisory fees to our investment adviser, Keating Investments, (ii) our allocable portion of overhead and other expenses incurred by Keating Investments, as our administrator, in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, and (iii) other operating expenses as detailed below. Our investment advisory fee compensates our investment adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. See "Business - Investment Advisory and Administrative Services Agreement." We bear all other expenses of our operations and transactions, including, without limitation: ? Costs of calculating our net asset value, including the cost of any third-party valuation services; ? Costs of effecting sales and repurchases of shares of our common stock and other securities; ? Fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments; ? Costs related to organization and offerings; ? Transfer agent and custodial fees; ? Fees and expenses associated with marketing efforts; ? Federal and state registration fees; ? Any stock exchange listing fees; ? Applicable federal, state and local taxes; ? Independent directors' fees and expenses; ? Brokerage commissions; ? Costs of proxy statements, stockholders' reports and notices; ? Fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums; ? Direct costs such as printing, mailing, and long distance telephone; ? Fees and expenses associated with independent audits and outside legal costs; 32-------------------------------------------------------------------------------- ? Costs associated with our reporting and compliance obligations under the 1940 Act, Sarbanes-Oxley Act, and applicable federal and state securities laws; and ? All other expenses incurred by either Keating Investments or us in connection with administering our business, including payments under the Investment Advisory and Administrative Services Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Keating Investments in performing its obligations under the Investment Advisory and Administrative Services Agreement, including our allocable portion of the compensation of our Chief Financial Officer and Chief Compliance Officer, and their respective staff. Operating expenses for the three months ended June 30, 2011 and 2010 were $1,142,942 and $511,753, respectively, an increase of $631,189 compared to the prior period. For the six months ended June 30, 2011 and 2010, operating expenses were $2,026,311 and $837,010, respectively, an increase of $1,189,301 compared to the prior period. During the six months ended June 30, 2011, we incurred additional postage and shipping, printing and fulfillment, travel and entertainment, and other marketing related expenses associated with our continuous public offering, which concluded on June 30, 2011. However, with the conclusion of the continuous public offering, we expect these expenses to decline. We are also focused on continuing to build and enhance our stockholder communications, investor relations and brand marketing programs as we prepare for the expected listing of our shares on the Nasdaq Capital Market by the end of 2011. We believe it is important to develop these programs now as they will be the foundation of our aftermarket support initiatives once our shares become eligible for trading. While some of these expenses may be one-time in nature, the majority of these expenses will continue, and may increase over time, as we attempt to develop interest in the Company and an active trading market for our shares. A summary of the items comprising the increase in operating expenses of $631,189 for the three months ended June 30, 2011, compared to the three months ended June 30, 2010, is set forth below: Three Months Ended June 30, June 30, Increase / 2011 2010 (Decrease) Operating Expenses Base management fees $ 232,731 $ 41,988 $ 190,743 Incentive fees 136,937 - 136,937 Administrative expenses allocated from Investment Adviser 113,773 97,370 16,403 Legal and professional fees 108,630 108,626 4 Directors' fees 33,750 31,250 2,500 Stock transfer agent fees 66,155 47,967 18,188 Printing and fulfillment expenses 79,619 14,236 65,383 Postage and delivery expenses 82,272 16,383 65,889 Stock issuance expenses 58,298 104,145 (45,847 ) General and administrative expenses 230,777 49,788 180,989 Total Operating Expenses $ 1,142,942 $ 511,753 $ 631,189 ? The increase of $190,743 in base management fees for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was the result of an increase in total assets on which the base management fee is calculated. The increase in our total assets was primarily the result of additional net proceeds received from the sale of common stock in our continuous public offering. ? The increase of $136,937 in incentive fees for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was the result of recording an incentive fee on the $684,683 of net unrealized appreciation on our portfolio company investments that was recorded during the three months ended June 30, 2011, while we did not record any net unrealized appreciation on our portfolio company investments during the three months ended June 30, 2010. ? The increase of $16,403 in administrative expenses allocated from our investment adviser for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily the result of the allocation to us of additional expenses associated with the management, coordination and administration of outreach activities associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. 33--------------------------------------------------------------------------------? The increase of $65,383 in printing and fulfillment expenses for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily the result of: (i) an increase in the printing and production volume of periodic reports to our increasing stockholder base as required by state securities laws, (ii) an increase in the printing and production volume of other marketing and informational materials used in our investment origination activities, and (iii) an increase in fulfillment expenses related to inventory management and assembly of investor and broker-dealer kits and other marketing materials associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. ? The increase of $65,889 in postage and delivery expenses for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily the result of an increase in the volume of kits and other marketing materials mailed to investors and broker-dealers in conjunction with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. ? The decrease of $45,847 in stock issuance expenses for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily the result of timing differences in when legal fees associated with the annual review and filing of the post- effective amendment to our registration statement were incurred. ? The increase of $180,989 in general and administrative expenses for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 was primarily the result of an increase in travel and travel-related expenses associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. A summary of the items comprising the increase in operating expenses of $1,189,301 for the six months ended June 30, 2011, compared to the six months ended June 30, 2010, is set forth below: Six Months Ended June 30, June 30, Increase / 2011 2010 (Decrease) Operating Expenses Base management fees $ 375,368 $ 68,536 $ 306,832 Incentive fees 152,520 - 152,520 Administrative expenses allocated from Investment Adviser 233,506 171,840 61,666 Legal and professional fees 267,798 199,517 68,281 Directors' fees 59,000 57,500 1,500 Stock transfer agent fees 122,660 94,280 28,380 Printing and fulfillment expenses 129,139 22,181 106,958 Postage and delivery expenses 129,495 24,317 105,178 Stock issuance expenses 112,763 107,193 5,570 General and administrative expenses 444,062 91,646 352,416 Total Operating Expenses $ 2,026,311 $ 837,010 $ 1,189,301 ? The increase of $306,832 in base management fees for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was the result of an increase in total assets on which the base management fee is calculated. The increase in our total assets was primarily the result of additional net proceeds received from the sale of common stock in our continuous public offering. ? The increase of $152,520 in incentive fees for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was the result of recording an incentive fee on the $762,598 of net unrealized appreciation on our portfolio company investments that was recorded during the six months ended June 30, 2011, while we did not record an incentive fee on the $550,000 of net unrealized appreciation on our portfolio company investments during the six months ended June 30, 2010 based on an interpretation of accounting rules then in effect. ? The increase of $61,666 in administrative expenses allocated from our investment adviser for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily the result of the allocation to us of additional expenses associated with the management, coordination and administration of outreach activities associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. 34--------------------------------------------------------------------------------? The increase of $68,281 in legal and professional fees for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily the result of: (i) an increase in audit and audit related expenses associated with the audit of our December 31, 2010 financial statements in comparison to the audit of our December 31, 2009 financial statements, and (ii) an increase in fees paid to a third-party valuation firm engaged to review preliminary portfolio company investment valuations prepared by the senior investment professionals of our investment adviser. ? The increase of $106,958 in printing and fulfillment expenses for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily the result of: (i) an increase in the printing and production volume of periodic reports to our increasing stockholder base as required by state securities laws, (ii) an increase in the printing and production volume of other marketing and informational materials used in our investment origination activities, and (iii) an increase in fulfillment expenses related to inventory management and assembly of investor and broker-dealer kits and other marketing materials associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. ? The increase of $105,178 in postage and delivery expenses for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily the result of an increase in the volume of kits and other marketing materials mailed to investors and broker-dealers in conjunction with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. ? The increase of $352,416 in general and administrative expenses for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily the result of an increase in travel and travel-related expenses associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. Net Investment Loss. For the three months ended June 30, 2011 and 2010, our net investment loss totaled $1,123,755 and $503,859, respectively. The increase of $619,896 in net investment loss for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 is primarily attributable to an increase in operating expenses resulting from: (i) an increase in base management fees, incentive fees, and administrative expenses allocated from our investment adviser, (ii) an increase in printing and fulfillment expenses and postage and delivery expenses, all of which are primarily associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering, and (iii) an increase in travel-related expenses associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. For the six months ended June 30, 2011 and 2010, our net investment loss totaled $1,983,033 and $813,391, respectively. The increase of $1,169,642 in net investment loss for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 is primarily attributable to an increase in operating expenses resulting from: (i) an increase in base management fees, incentive fees, and administrative expenses allocated from our investment adviser, (ii) an increase in professional fees including audit fees and fees paid to a third-party valuation firm, (iii) an increase in printing and fulfillment expenses and postage and delivery expenses, all of which are primarily associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering, and (iv) an increase in travel-related expenses associated with our continuous public offering, which expenses are expected to decline with the conclusion of our continuous public offering. Net Change in Unrealized Appreciation on Investments. For the three months ended June 30, 2011 and 2010, the net change in unrealized appreciation on investments totaled $684,683 and $0, respectively. The net change in unrealized appreciation on investments for the three months ended June 30, 2011 was the result of: (i) $632,640 in unrealized depreciation on our common stock investment in NeoPhotonics, (ii) $1,335,009 in unrealized appreciation on our common stock investment in Solazyme, (iii) $15,000 in unrealized depreciation on our preferred stock investment in Livescribe, and (iv) $2,686 in unrealized depreciation on our preferred stock warrant investment in Livescribe. The primary factor driving the net change in unrealized appreciation on our portfolio company investments during the three months ended June 30, 2011 was a change in market prices for our publicly traded portfolio companies. For the six months ended June 30, 2011 and 2010, the net change in unrealized appreciation on investments totaled $762,598 and $550,000, respectively. 35 -------------------------------------------------------------------------------- The net change in unrealized appreciation on investments for the six months ended June 30, 2011 was the result of: (i) $554,000 in unrealized depreciation on our common stock investment in NeoPhotonics, (ii) $1,335,009 in unrealized appreciation on our common stock investment in Solazyme, (iii) $15,000 in unrealized depreciation on our preferred stock investment in Livescribe, and (iv) $3,411 in unrealized depreciation on our preferred stock warrant investment in Livescribe. The primary factor driving the net change in unrealized appreciation on our portfolio company investments during the six months ended June 30, 2011 was a change in market prices for our publicly traded portfolio companies. The net change in unrealized appreciation on investments for the six months ended June 30, 2010 was the result of $550,000 in unrealized appreciation on our preferred stock investment (which was converted into common stock in February 2011) in NeoPhotonics. Upon sale of any of our portfolio company investments, the value that is ultimately realized could be different from the aggregate fair value currently reflected in our financial statements, and this difference could be material. Net Decrease in Net Assets Resulting From Operations. For the three months ended June 30, 2011, the net decrease in our net assets resulting from operations was $439,072, or $0.08 per weighted average outstanding common share, which includes $684,683 in net unrealized appreciation on investments recorded during such period. For the three months ended June 30, 2010, the net decrease in our net assets resulting from operations was $503,859, or $0.48 per weighted average outstanding common share, which includes $0 in net unrealized appreciation on investments recorded during such period. For the six months ended June 30, 2011, the net decrease in our net assets resulting from operations was $1,220,435, or $0.26 per weighted average outstanding common share, which includes $762,598 in net unrealized appreciation on investments recorded during such period. For the six months ended June 30, 2010, the net decrease in our net assets resulting from operations was $263,391, or $0.29 per weighted average outstanding common share, which includes $550,000 in net unrealized appreciation on investments recorded during such period. Financial Condition, Liquidity and Capital Resources On June 11, 2009, we commenced our continuous public offering pursuant to which we intended to sell from time-to-time up to 10 million shares of our common stock at an initial offering price of $10.00 per share, adjusted for volume discounts and commission waivers. Our continuous public offering concluded on June 30, 2011, and we expect to list our shares on the Nasdaq Capital Market under the ticker symbol KIPO, which we have reserved, by the end of 2011. Though we currently satisfy the requirements to obtain a listing of our shares on the Nasdaq Capital Market, we can provide no assurance that we will be successful in obtaining such a listing by the end of 2011. During the year ended December 31, 2010, we sold 2,290,399 shares of common stock in our continuous public offering at an average price of approximately $9.96 per share, resulting in gross proceeds of $22,809,653 and net proceeds of $20,613,587, after payment of $2,196,066 in dealer manager fees and commissions. During the six months ended June 30, 2011, we sold 4,767,943 shares of common stock at an average price of $9.96 per share, resulting in gross proceeds of $47,501,179 and net proceeds of $42,911,492, after payment of $4,589,687 in dealer manager fees and commissions. On July 11, 2011, the final closing of escrowed funds received from subscribing investors occurred, with an additional 1,655,317 shares of common stock being issued at an average price of $9.96 per share, resulting in additional gross proceeds of $16,489,168 and net proceeds of $14,897,855, after payment of $1,591,313 in dealer manager fees and commissions. Included in this final closing were 564 shares of common stock issued to our Investment Adviser at a price of $10.00 per share and for total gross proceeds of $5,640. Since inception of the continuous public offering and through the final closing on July 11, 2011, we sold 8,713,659 shares of common stock at an average offering price of approximately $9.96 per share, resulting in gross proceeds of $86,800,000 and net proceeds of $78,422,934, after payment of $8,377,066 of dealer manager fees and commissions. We plan to invest the net proceeds from our continuous public offering in portfolio companies in accordance with our investment objective and strategy. We anticipate that it may take up to an additional 12 to 24 months to invest substantially all of the proceeds from the continuous public offering in accordance with our investment objective and strategy and depending on the availability of appropriate investment opportunities. We cannot assure you we will achieve our targeted investment pace. We anticipate making five to ten investments per year depending upon the amount of capital we have available for investment and on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. 36-------------------------------------------------------------------------------- Prior to investing in debt and equity securities of portfolio companies, we will continue to invest the net proceeds from our continuous public offering primarily in cash, cash equivalents including money market funds, U.S. government securities and other high-quality investments that mature in one year or less from the date of investment, which we expect will earn only nominal yields. Since we do not expect to generate significant interest or dividend income on our portfolio company investments, our ability to make distributions will be based on our ability to invest our capital in suitable portfolio companies in a timely manner and to sell our interests in these portfolio companies at a gain after they become public. With the conclusion of our continuous public offering on June 30, we will primarily generate cash from the sale of our portfolio company investments, and our primary use of funds will continue to be investments in portfolio companies, cash distributions to holders of our common stock, and the payment of operating expenses. We do not expect that our interest and dividend income from portfolio company investments will be significant and, as a result, we do not expect to generate net ordinary income. To date, none of our portfolio company investments have generated, nor are they expected to generate, interest or dividend income. Our primary source of investment income and possible distributions will be from net capital gains realized from the sale of our portfolio company investments. As of June 30, 2011, we had cash resources of $47,528,728 and no indebtedness, other than accounts payable and accrued expenses incurred in the ordinary course of business, of $136,977, management fees, administrative expenses and reimbursable expenses payable to Keating Investments of $271,548, and accrued incentives fees of $267,943 payable to Keating Investments based on the unrealized appreciation of our portfolio company investments. As of December 31, 2010, we had cash resources of $18,253,299 (including short-term investments in certificates of deposit) and no indebtedness, other than accounts payable and accrued expenses incurred in the ordinary course of business, of $149,843, management fees, administrative expenses and reimbursable expenses payable to Keating Investments of $135,047, and incentives fees of $115,423 payable to Keating Investments based on the unrealized appreciation of our portfolio company investments. As of June 30, 2011, our cash resources included $47,367,929 invested in a money market fund that invests primarily in U.S. Treasury securities, U.S. Government agency securities, and repurchase agreements fully-collateralized by such securities. Our money market fund investment has been classified as a component of Cash and Cash Equivalents in the Statement of Assets and Liabilities as of June 30, 2011. The remainder of our cash resources of $160,799 as of June 30, 2011 was held in depository accounts at Steele Street Bank & Trust, who serves as our custodian. As of December 31, 2010, our cash resources included $13,500,000 of certificates of deposit with original maturities of four weeks (maturing on January 6, 2011), which were classified as Short-term Investments in the Statement of Assets and Liabilities and valued at amortized cost as of December 31, 2010. The remainder of our cash resources of $4,753,299 as of December 31, 2010 was held in depository accounts at Steele Street Bank & Trust, who serves as our custodian. Distribution Policy All distributions will be paid at the discretion of our Board of Directors and will depend on our net ordinary income and realized net capital gains, our financial condition, maintenance of our RIC status, compliance with applicable business development company regulations and such other factors as our Board of Directors may deem relevant from time to time. Distributions may also be paid during the year that exceed our net ordinary income and realized net capital gains and thus would constitute a return of capital; however, we will not make any distributions representing a return of capital which would result in a total return of capital in excess of 10% of our total offering proceeds (i.e., the total gross proceeds received from the sale of our common stock). We cannot assure that we will pay distributions to our stockholders in the future. Distributions to stockholders will be payable only when and as declared by our Board of Directors and will be paid out of assets legally available for distribution. On February 11, 2011, our Board of Directors declared a special cash distribution of $0.13 cents per share. The distribution was paid on February 17, 2011 to our stockholders of record as of February 15, 2011. As of the record date, there were 3,437,212 shares of common stock outstanding resulting in a cash distribution totaling $446,837. This special cash distribution was based on the unrealized appreciation we had previously recorded on our NeoPhotonics investment and, as such, will be initially treated as a return of capital to our stockholders. However, in the event we are able to sell all or a portion of our NeoPhotonics common shares, or any of our other portfolio company investments with a holding period of at least one year at the time of sale, at a gain during 2011 after the expiration of our six-month lock-up period, all or a portion of this special distribution may be reclassified at year end as a capital gain distribution to our stockholders. We provide no assurance that we will be able to sell all or any portion of our NeoPhotonics common shares during 2011 and, even if such shares are sold, there is no assurance that we will be able to realize a gain on such sale. 37 -------------------------------------------------------------------------------- While we paid a $0.13 per share cash distribution to our stockholders on February 17, 2011 based on the unrealized appreciation we had recorded on our NeoPhotonics investment, we may not be able to pay any future distributions unless we are able to generate net capital gains realized from the sale of our portfolio company investments. We cannot assure you that we will achieve investment results that will allow us to pay any dividends or distributions or to make a targeted level of cash distributions or year-to-year increases in cash distributions. We may use amounts from our net ordinary income, our realized net capital gains from the sale of our assets, and our offering proceeds to fund distribution payments to stockholders. Offering proceeds means the total gross proceeds received from the sale of our common stock (which includes the cost portion of the proceeds we receive from the sale of our assets). We do not anticipate generating net ordinary income and, as such, we do not expect that distribution payments will be paid from net ordinary income. Distribution payments will likely be paid from our realized net capital gains (if any) from the sale of our assets or, in the event we have not realized any net capital gains, from our offering proceeds. Any distributions paid from our offering proceeds will represent a return of capital to our stockholders. Our distributions may exceed our net ordinary income and realized net capital gains and thus represent a return of capital, particularly during the period before we have substantially invested the net proceeds from this offering or realized any net capital gains from the disposition of our portfolio company investments. We can give no assurance as to when we will begin to realize any net capital gains from the sale of our assets, if ever. Distributions that represent a return of capital may lower our stockholders' tax basis in our shares, or may be treated as a gain from the sale of such shares to the extent that such distributions exceed the basis in such shares, and reduce the amount of funds we have for investment in targeted assets. Distributions representing a return of capital will not reduce the number of shares of common stock that our stockholders own in us. Distributions in excess of our net ordinary income and realized net capital gains would be treated first as a return of capital to the extent of the stockholder's tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions will be made annually as of the end of our fiscal year based upon our net ordinary income and realized net capital gains for the full year and distributions paid for the full year. Therefore, a quarterly determination of the tax attributes of distributions made during the year may not be representative of the tax attributes of our distributions for a full year. Each year, a statement on Form 1099-DIV identifying the sources of our distributions will be mailed to our stockholders. If we had determined the tax attributes of our $446,837 of distributions year-to-date as of June 30, 2011, the entire amount of such distributions would be considered a return of capital since we did not generate any net ordinary income or realized net capital gains during the six months ended June 30, 2011. However, actual determinations of the tax attributes of our distributions, including determinations of return of capital, are made annually as of the end of our fiscal year, based upon our net ordinary income and realized net capital gains for the full year. Our primary emphasis is to attempt to generate capital gains from the sale of our investments in micro-cap and small-cap companies. While a portion of our investments may, at any given time, include a component of interest or dividends, we do not expect to generate significant current yield on our portfolio company investments. To date, none of our portfolio company investments have generated, nor are they expected to generate, interest or dividend income. Additionally, any investment income we may receive in the form of interest and dividends from our portfolio company investments prior to conversion is not likely to exceed our operating expenses, in which case we do not expect to generate net ordinary income which would be available for distribution to our stockholders. We do not expect that our interest and dividend income from portfolio company investments would be sufficient to generate net ordinary income. However, if we are able to generate net ordinary income, we intend to distribute such net ordinary income to stockholders. Because we do not expect to generate net ordinary income, we expect that our primary source of distributions will be from net capital gains realized from the sale of our portfolio company investments. Distributions from realized net capital gains (i.e., net realized long-term capital gains in excess of net realized short-term capital losses) will typically be declared and paid at least annually. The timing of any capital gains generated from the appreciation and sale of portfolio companies cannot be predicted, and we do not expect to generate capital gains on a level or uniform basis from quarter to quarter. Distributions from realized net capital gains will typically be declared and paid at least annually. However, we may declare and pay periodic distributions which, in the aggregate, would be an estimate of the total net capital gains expected to be realized throughout the year. We may have substantial fluctuations in our distribution payments to stockholders, since we expect to have an average holding period for our portfolio company investments of one to three years. Our ability to pay distributions will be based on our ability to invest our capital in suitable portfolio companies in a timely manner, and we can give no assurance as to when we will begin to realize any gains from the sale of our portfolio company investments, if ever. 38 -------------------------------------------------------------------------------- We have satisfied the requirements to qualify as a RIC and have elected to be treated as a RIC under Subchapter M of the Code effective for our 2010 taxable year. We also intend to qualify annually thereafter as a RIC. To maintain our qualification for RIC tax treatment, we must, among other things, distribute at least 90% of our investment company taxable income. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years. In the event we have realized net capital gains, all or a portion of such net realized capital gains, after reduction for any incentive fees payable to our investment adviser or any other retained amounts, are expected to be distributed to our stockholders at least annually. However, we may in the future decide to retain some or all of our realized net capital gains. In the event we retain some or all of our realized net capital gains, including amounts retained to pay incentive fees to our investment adviser, we will likely designate the retained amount as a deemed distribution to stockholders. In such case, among other consequences, we will pay corporate-level tax on the retained amount, each U.S. stockholder will be required to include its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit or refund equal to its allocable share of the corporate-level tax we pay on the retained realized net capital gain. See "Material U.S. Federal Income Tax Considerations." We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors authorizes, and we declare, a cash distribution, then our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. However, until our shares are listed on the Nasdaq Capital Market, our Board of Directors may determine that any distribution we may declare will not be available for reinvestment under the dividend reinvestment plan. Once our common stock becomes listed on the Nasdaq Capital Market, which we expect will occur by the end of 2011, all stockholders participating in the dividend reinvestment plan will have any cash distributions that may be paid in the future automatically reinvested in our common shares. Contractual Obligations We have entered into a contract under which we have material future commitments, the Investment Advisory and Administrative Services Agreement, pursuant to which Keating Investments has agreed to serve as our investment adviser and to furnish us with certain administrative services necessary to conduct our day-to-day operations. This agreement is terminable by either party upon proper notice. We pay Keating Investments a fee for its investment advisory services under the Investment Advisory and Administrative Services Agreement consisting of two components; (i) a base management fee, and (ii) an incentive fee. We also reimburse Keating Investments for our allocable portion of overhead and other administrative expenses incurred by it in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, including an allocable portion of the compensation of our Chief Financial Officer and Chief Compliance Officer, and their respective staff. If the Investment Advisory and Administrative Services Agreement is terminated, our costs under a new agreement that we may enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Advisory and Administrative Services Agreement. Any new Investment Advisory and Administrative Services Agreement would also be subject to approval by our stockholders. The Investment Advisory and Administrative Services Agreement was initially approved by our Board of Directors and our sole stockholder on July 28, 2008. An amended and restated version of the Investment Advisory and Administrative Services Agreement, which is presently in effect, was approved by our Board of Directors on April 17, 2009, and by our stockholders on May 14, 2009. Unless earlier terminated as described below, our current Investment Advisory and Administrative Services Agreement will remain in effect for a period of two years from the date it was approved by our Board of Directors and will remain in effect from year to year thereafter if approved annually by (i) the vote of our Board of Directors, or by the vote of a majority of our outstanding voting securities, and (ii) the vote of a majority of our directors who are not interested persons. An affirmative vote of the holders of a majority of our outstanding voting securities is also necessary in order to make material amendments to the Investment Advisory and Administrative Services Agreement. Our Board of Directors (including the independent directors) approved the renewal of the Investment Advisory and Administrative Services Agreement for an additional year at its meeting held on April 12, 2011. 39 --------------------------------------------------------------------------------Off-Balance Sheet Arrangements As of June 30, 2011, we have no off-balance sheet arrangements. Related Parties We have a number of business relationships with affiliated or related parties. We have entered into the Investment Advisory and Administrative Services Agreement with Keating Investments. Timothy J. Keating, our President, Chief Executive Officer and Chairman of the Board of Directors, is the managing member and majority owner of Keating Investments. Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our Board of Directors, is also an executive officer of Keating Investments. Frederic M. Schweiger our Chief Operating Officer, Chief Compliance Officer and Secretary, is also an executive officer and member of Keating Investments. Kyle L. Rogers, our Chief Investment Officer, is also an executive officer and member of Keating Investments. We have also entered into a license agreement with Keating Investments, pursuant to which Keating Investments has granted us a non-exclusive license to use the name "Keating." In addition, pursuant to the terms of the Investment Advisory and Administrative Services Agreement, Keating Investments provides us with certain administrative services necessary to conduct our day-to-day operations. Our investment adviser's senior investment professionals, Messrs. Keating, Mankekar, Schweiger and Rogers, and the additional administrative personnel currently retained by Keating Investments, are expected to devote a majority of their business time to our operations. Currently, these senior investment professionals do not serve as principals of other investment funds affiliated with Keating Investments; however, they may do so in the future. If they do, persons and entities may in the future manage investment funds with investment objectives similar to ours. In addition, our current executive officers and directors, serve or may serve as officers, directors or principals of entities that operate in the same or related line of business as we do, including investment funds managed by our affiliates. Accordingly, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with Keating Investments. In the event that Keating Investments or its affiliates provide investment advisory services to other entities, we expect that our management and our independent directors will attempt to resolve any conflicts in a fair and equitable manner taking into account factors that would include the investment objective, amount of assets under management and available for investment in new portfolio companies, portfolio composition and return expectations of us and any other entity, and other factors deemed appropriate. However, in the event such conflicts do arise in the future, Keating Investments intends to allocate investment opportunities in a fair and equitable manner consistent with our investment objective and strategies so that we are not disadvantaged in relation to any other affiliate or client of Keating Investments. We rely on Keating Investments to manage our day-to-day activities and to implement our investment strategy. Keating Investments may in the future provide similar investment advisory services to other entities in addition to us. As a result of these activities, Keating Investments, its employees and certain of its affiliates will have conflicts of interest in allocating their management time, services, and functions among us and any other business ventures in which they or any of their key personnel, as applicable, may become involved. In such case, Keating Investments and its employees may devote only as much of their time to our business as Keating Investments and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time. This could result in actions that are more favorable to other affiliated entities than to us. In the event that Keating Investments provides investment advisory services to other entities, we intend to have our independent directors review our investment adviser's performance periodically, but not less than annually, to assure that Keating Investments is fulfilling its obligations to us under the Investment Advisory and Administrative Services Agreement, that any conflicts are handled in a fair and equitable manner and that Keating Investments has sufficient personnel to discharge fully its responsibilities to all activities in which they are involved. As a business development company, we may be limited in our ability to invest in any portfolio company in which any fund or other client managed by Keating Investments, or any of its affiliates has an investment. We may also be limited in our ability to co-invest in a portfolio company with Keating Investments or one or more of its affiliates. Subject to obtaining exemptive relief from the SEC, we intend to co-invest with any such investment entity to the extent permitted by the 1940 Act, or the rules and regulations thereunder. In addition, we have adopted a formal Code of Ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the fiduciary obligations imposed by both the 1940 Act and applicable state corporate law. Finally, we pay Keating Investments our allocable portion of overhead and other expenses incurred by Keating Investments in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, which creates conflicts of interest that our Board of Directors must monitor. Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q. 40--------------------------------------------------------------------------------Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Valuation of portfolio investments. The most significant estimate inherent in the preparation of our financial statements is the valuation of our portfolio investments and the related amounts of unrealized appreciation and depreciation. As of June 30, 2011 and December 31, 2010, 25.85% and 18.60%, respectively, of our net assets represented investments in portfolio companies valued at fair value. Value, as defined in Section 2(a)(41) of the 1940 Act, is: (i) the market price for those securities for which a market quotation is readily available, and (ii) for all other securities and assets, fair value is as determined in good faith by our Board of Directors. Accounting Standards Codification Topic 820, "Fair Value Measurement and Disclosures," ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In accordance with ASC 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: ? Level 1: Observable inputs such as unadjusted quoted prices in active markets; ? Level 2: Includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and ? Level 3: Unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of June 30, 2011, all of our investments in portfolio companies were deemed to be Level 3 assets. Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We are required to specifically value each individual investment on a quarterly basis. The fair value of our equity investments for which market quotations are not readily available is determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company's debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company's equity securities, or other liquidity events. The determined equity values are generally discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors. Equity investments for which market quotations are readily available are generally valued at the most recently available closing market price. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we analyze its historical and projected financial results and also use industry valuation benchmarks and public market comparables. We also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. In addition, the trends of the portfolio company's basic financial metrics from the time of the original investment until the measurement date are analyzed; material improvement of these metrics may indicate an increase in enterprise value, while material deterioration of these metrics may indicate a reduction in enterprise value. The following is a description of the steps we take each quarter to determine the value of our portfolio investments. Investments for which market quotations are readily available are recorded in our financial statements at such market quotations. With respect to investments for which market quotations are not readily available, our Board of Directors undertakes a multi-step valuation process each quarter, as described below: ? Our quarterly valuation process begins with each portfolio company or investment being initially valued by Keating Investments' senior investment professionals responsible for the portfolio investment; 41--------------------------------------------------------------------------------? A nationally recognized third-party valuation firm engaged by our Board of Directors reviews these preliminary valuations at such times as determined by the Company's Board of Directors, provided, however, that a review will be conducted by the third-party valuation firm for each new portfolio company investment made during a calendar quarter, at such time as the valuation for a specific portfolio company is increased, and at least once every twelve months; ? Our Valuation Committee reviews the preliminary valuations, and our investment adviser and the nationally recognized third-party valuation firm respond and supplement the preliminary valuation to reflect any comments provided by the Valuation Committee; and ? Our Board of Directors discusses the valuations and determines, in good faith, the fair value of each investment in our portfolio for which market quotations are not readily available based on the input of our investment adviser, the nationally recognized third-party valuation firm, and our Valuation Committee. Determination of fair values involves subjective judgments and estimates. Accordingly, this critical accounting policy expresses the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements. Federal Income Taxes. We have satisfied the requirements to qualify as a RIC and have elected to be treated as a RIC under Subchapter M of the Code effective for our 2010 tax year. In future years, if we do not meet the criteria to qualify as a RIC, we will be taxed as a regular corporation under Subchapter C of the Code. We intend to operate so as to continue to qualify to be taxed as a RIC and, as such, to not be subject to federal income tax on the portion of our net ordinary income and realized net capital gains distributed to stockholders. To qualify for RIC tax treatment, we are required to annually distribute at least 90% of our investment company taxable income. Because federal income tax regulations differ from accounting principles generally accepted in the United States of America, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. Recent Developments On July 6, 2011, we were the lead investor in an $8 million private purchase of common stock and warrants from certain founders and management employees of Corsair Components, Inc., a designer and supplier of high-performance components to the personal computer, or PC, gaming hardware market. We acquired $4 million of common stock and warrants in the transaction. On July 8, 2011, we made a $27,480 investment in the Series C-1 convertible preferred stock and warrants of Livescribe, a portfolio company in which we had previously invested $500,500 in July of 2010. We have also committed to make an additional investment of $22,900 in the Series C-1 convertible preferred stock and warrants of Livescribe as part of a second closing that will occur no later than April 30, 2012. On July 11, 2011, the final closing of escrowed funds received from subscribing investors in our continuous public offering occurred, with an additional 1,655,317 shares of common stock being issued at an average price of $9.96 per share, resulting in additional gross proceeds of $16,489,168 and net proceeds of $14,897,855, after payment of $1,591,313 in dealer manager fees and commissions. Included in this final closing were 564 shares of common stock issued to our Investment Adviser at a price of $10.00 per share and for total gross proceeds of $5,640. Since inception of the continuous public offering and through the final closing on July 11, 2011, we sold 8,713,659 shares of common stock at an average offering price of approximately $9.96 per share, resulting in gross proceeds of $86,800,000 and net proceeds of $78,422,934, after payment of $8,377,066 of dealer manager fees and commissions. On July 22, 2011, we funded, pending closing, a $1,387,201 investment in a private company focused on Internet-based social gaming. 42-------------------------------------------------------------------------------- [ Back To TMCnet.com's Homepage ]