10-Q 1 form10q.htm MACKENZIE REALTY CAPITAL, INC 10-Q 9-30-2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark one)
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number 000-55006

MacKenzie Realty Capital, Inc.
(Exact name of registrant as specified in its charter)

Maryland
45-4355424
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

1640 School Street, Moraga, California 94556
(Address of principal executive offices)

(925) 631-9100
(Registrant’s telephone number, including area code)
      
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 or Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
The number of the shares of issuer’s Common Stock outstanding as of November 13, 2014 was 1,245,134.5.



TABLE OF CONTENTS

 
Page
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (unaudited)
 
     
 
1
 
2
 
3
 
4
 
5
 
6
 
7-18
     
Item 2.
19-23
     
Item 3.
24
     
Item 4.
24
     
PART II.
OTHER INFORMATION
 
     
Item 1.
24
     
Item 1A.
24
     
Item 2.
24
     
Item 3.
24
     
Item 4.
24
     
Item 5.
24
     
Item 6.
25
     
26

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MacKenzie Realty Capital, Inc.
Statements of Assets and Liabilities
September 30, 2014 and June 30, 2014
 
   
September 30, 2014
   
June 30, 2014
 
   
(Unaudited)
     
Assets
       
Investments, at fair value (cost of $8,070,767 and $5,593,407, respectively)
 
$
8,990,848
   
$
5,905,995
 
Cash and cash equivalents
   
3,273,445
     
3,522,751
 
Accounts receivable
   
19,329
     
12,869
 
Other assets
   
87,663
     
69,145
 
Deferred offering costs (net of accumulated amortization of $424,825 and $389,423, respectively)
   
-
     
35,402
 
Total assets
 
$
12,371,285
   
$
9,546,162
 
                 
Liabilities
               
Accounts payable and accrued liabilities
 
$
113,178
   
$
58,378
 
Income tax payable
   
131,523
     
160,362
 
Capital pending acceptance
   
250,000
     
380,200
 
Due to related entities
   
32,755
     
57,915
 
Deferred tax liability
   
366,509
     
124,518
 
Total liabilities
   
893,965
     
781,373
 
                 
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 1,196,284.50 and 893,807.67 shares issued and outstanding respectively
   
120
     
89
 
Capital in excess of par value
   
10,968,007
     
8,591,878
 
Retained earnings
   
509,193
     
172,822
 
Total net assets
 
$
11,477,320
   
$
8,764,789
 
                 
Net asset value per share of common stock (note 6)
 
$
9.59
   
$
9.81
 

The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
MacKenzie Realty Capital, Inc.
Schedule of Investments
September 30, 2014
(Unaudited)
 
Name
    
 
Asset Type
 
Shares/Units
 
Cost Basis
   
Total Fair Value
 
% of
Net Assets
 
Agree Realty Corporation
 
Publicly Traded Company
   
4,200.00
 
$
117,893
   
$
114,996
   
1.01
 
Apartment Investment and Management Company
 
Publicly Traded Company
   
3,888.00
   
115,163
     
123,716
   
1.08
 
Ashford Hospitality Prime, Inc.
 
Publicly Traded Company
   
12,800.00
   
224,201
     
194,944
   
1.70
 
Associated Estates Realty Corporation
 
Publicly Traded Company
   
4,000.00
   
69,920
     
70,040
   
0.61
 
CBL & Associates Properties Inc.
 
Publicly Traded Company
   
12,800.00
   
244,660
     
229,120
   
2.00
 
Equity Commonwealth
 
Publicly Traded Company
   
8,450.00
   
213,363
     
217,249
   
1.89
 
Empire State Realty OP, L.P.
 
Publicly Traded Company
   
19,176.00
   
255,281
     
291,475
   
2.54
 
Empire State Realty OP, L.P. - Series 250
 
Publicly Traded Company
   
1,757.00
   
24,728
     
26,952
   
0.23
 
Empire State Realty OP, L.P. - Series 60
 
Publicly Traded Company
   
4,974.00
   
64,081
     
75,655
   
0.66
 
Empire State Realty Trust, Inc. Class A
 
Publicly Traded Company
   
4,832.00
   
64,217
     
72,577
   
0.63
 
FelCor Lodging Trust Incorporated
 
Publicly Traded Company
   
6,300.00
   
51,604
     
58,968
   
0.51
 
Lexington Realty Trust
 
Publicly Traded Company
   
19,800.00
   
221,815
     
193,842
   
1.69
 
Liberty Property Trust
 
Publicly Traded Company
   
5,500.00
   
195,750
     
182,930
   
1.59
 
Rouse Properties Inc
 
Publicly Traded Company
   
9,500.00
   
176,525
     
153,615
   
1.34
 
Total Public Traded Company
             
2,039,201
     
2,006,079
   
17.48
 
                                 
Apple Hospitality REIT, Inc.
 
Non Traded Company
   
24,209.57
   
136,018
     
220,306
   
1.92
 
BellaVista Capital, Inc.
 
Non Traded Company
   
123,987.00
   
49,595
     
74,392
   
0.65
 
Bluerock Residential Growth REIT, Inc. Class B1
 
Non Traded Company
   
1,395.74
   
18,278
     
15,353
   
0.13
 
Bluerock Residential Growth REIT, Inc. Class B2
 
Non Traded Company
   
1,395.74
   
16,882
     
13,957
   
0.12
 
Bluerock Residential Growth REIT, Inc. Class B3
 
Non Traded Company
   
1,395.74
   
15,486
     
12,562
   
0.11
 
FSP South 10th Street Corp. Liquidating Trust
 
Non Traded Company
   
0.25
   
225
     
250
   
0.02
 
Hines Real Estate Investment Trust, Inc.
 
Non Traded Company
   
2,692.31
   
13,569
     
13,058
   
0.11
 
Landmark Apartment Trust of America
 
Non Traded Company
   
66,647.70
   
272,170
     
374,560
   
3.26
 
TIER REIT, Inc.
 
Non Traded Company
   
814,630.97
   
1,658,742
     
2,036,577
   
17.74
 
Total Non Traded Company (1)
             
2,180,965
     
2,761,015
   
24.06
 
                                 
Brown Palace Hotel Associates, LP
 
LP Interest
   
0.25
   
1,913
     
2,091
   
0.02
 
Del Taco Income Properties IV
 
LP Interest
   
2,296.00
   
59,696
     
64,472
   
0.56
 
Del Taco Restaurant Properties I
 
LP Interest
   
417.00
   
306,918
     
356,710
   
3.11
 
Del Taco Restaurant Properties II
 
LP Interest
   
632.00
   
120,803
     
151,680
   
1.32
 
DRV Holding Company, LLC
 
LP Interest
   
500.00
   
500,000
     
536,160
   
4.67
 
El Conquistador Limited Partnership
 
LP Interest
   
2.00
   
80,976
     
91,368
   
0.80
 
Hotel Durant, LLC
 
LP Interest
   
7.10
   
577,299
     
367,461
   
3.20
 
Inland Land Appreciation Fund II, L.P.
 
LP Interest
   
210.97
   
8,667
     
21,097
   
0.18
 
Inland Land Appreciation Fund, L.P.
 
LP Interest
   
149.37
   
18,166
     
29,582
   
0.26
 
MPF Pacific Gateway - Class B
(2
)
LP Interest
   
23.20
   
6,287
     
6,265
   
0.05
 
National Property Investors 6
   
LP Interest
   
7.00
   
145
     
150
   
-
 
Post Street Renaissance Partners Class A
   
LP Interest
   
9.10
   
16,981
     
18,251
   
0.16
 
Post Street Renaissance Partners Class D
   
LP Interest
   
11.60
   
56,729
     
62,679
   
0.55
 
Rancon Realty Fund IV
   
LP Interest
   
1,002.00
   
180,501
     
314,227
   
2.74
 
Rancon Realty Fund V
   
LP Interest
   
1,154.00
   
213,281
     
246,483
   
2.15
 
Secured Income, LP
   
LP Interest
   
26,600.00
   
232,732
     
290,738
   
2.53
 
Uniprop Manufactured Housing Income Fund II, LP
   
LP Interest
   
50,255.00
   
226,116
     
264,341
   
2.30
 
Total LP Interest
               
2,607,210
     
2,823,755
   
24.60
 
                                   
Coastal Realty Business Trust, REEP, Inc.
(2
)
Investment Trust
   
72,320.00
   
73,555
     
91,123
   
0.79
 
Coastal Realty Business Trust, Secured Income
(2
)
Investment Trust
   
37,577.00
   
327,671
     
410,717
   
3.58
 
Coastal Realty Business Trust, Series H2
(2
)
Investment Trust
   
47,284.16
   
246,351
     
256,753
   
2.24
 
Coastal Realty Business Trust, Series L2
(2
)
Investment Trust
   
7,950.00
   
18,444
     
19,478
   
0.17
 
Coastal Realty Business Trust, Series Q
(2
)
Investment Trust
   
10.00
   
48,894
     
54,022
   
0.47
 
Total Investment Trust
               
714,915
     
832,093
   
7.25
 
                                   
BR Cabrillo LLC Promissory Note
   
 Note
   
288,479.83
   
288,480
     
340,406
   
2.97
 
TTLC  Note
   
 Note
   
 
   
239,996
     
227,500
   
1.98
 
Total Note
               
528,476
     
567,906
   
4.95
 
                                   
Total Investments
             
$
8,070,767
   
$
8,990,848
   
78.34
 
 
(1)
Investments primarily in non traded public REITs or their successor.
(2)
Investment in related party
 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
 

MacKenzie Realty Capital, Inc.
Schedule of Investments
June 30, 2014

Name
   
 
Asset Type
 
Shares/Units
 
Cost Basis
   
Total Fair Value
 
% of
Net Assets
 
Agree Realty Corporation
 
Publicly Traded Company
   
4,200.00
 
$
117,893
   
$
126,966
   
1.45
 
Apartment Investment and Management Company
 
Publicly Traded Company
   
3,888.00
   
115,163
     
125,466
   
1.43
 
Ashford Hospitality Prime, Inc.
 
Publicly Traded Company
   
12,800.00
   
224,201
     
219,648
   
2.51
 
Associated Estates Realty Corporation
 
Publicly Traded Company
   
4,000.00
   
69,920
     
72,080
   
0.82
 
CBL & Associates Properties Inc.
 
Publicly Traded Company
   
5,000.00
   
95,057
     
95,000
   
1.08
 
CommonWealth REIT
 
Publicly Traded Company
   
8,450.00
   
213,363
     
222,404
   
2.54
 
Empire State Realty OP, L.P.
 
Publicly Traded Company
   
19,176.00
   
255,281
     
303,940
   
3.47
 
Empire State Realty OP, L.P. - Series 250
 
Publicly Traded Company
   
1,757.00
   
24,728
     
27,426
   
0.31
 
Empire State Realty OP, L.P. - Series 60
 
Publicly Traded Company
   
4,974.00
   
64,081
     
78,191
   
0.89
 
Empire State Realty Trust, Inc. Class A
 
Publicly Traded Company
   
4,832.00
   
64,217
     
79,728
   
0.91
 
FelCor Lodging Trust Incorporated
 
Publicly Traded Company
   
6,300.00
   
51,604
     
66,213
   
0.76
 
Lexington Realty Trust
 
Publicly Traded Company
   
10,800.00
   
123,452
     
118,908
   
1.36
 
Rouse Properties Inc
 
Publicly Traded Company
   
9,500.00
   
176,525
     
162,545
   
1.85
 
Total Public Traded Company
             
1,595,485
     
1,698,515
   
19.38
 
                                 
Apple Hospitality REIT, Inc.
 
Non Traded Company
   
21,539.39
   
116,937
     
194,931
   
2.22
 
BellaVista Capital, Inc.
 
Non Traded Company
   
123,987.00
   
49,595
     
49,595
   
0.57
 
Hines Real Estate Investment Trust, Inc.
 
Non Traded Company
   
2,692.31
   
13,569
     
13,058
   
0.15
 
Total Non Traded Company (1)
             
180,101
     
257,584
   
2.94
 
                                 
Brown Palace Hotel Associates, LP
 
LP Interest
   
0.25
   
1,913
     
1,932
   
0.03
 
Del Taco Income Properties IV
 
LP Interest
   
2,296.00
   
59,696
     
64,472
   
0.74
 
Del Taco Restaurant Properties I
 
LP Interest
   
417.00
   
306,918
     
330,798
   
3.77
 
Del Taco Restaurant Properties II
 
LP Interest
   
632.00
   
120,803
     
152,129
   
1.74
 
DRV Holding Company, LLC
 
LP Interest
   
500.00
   
500,000
     
500,000
   
5.70
 
El Conquistador Limited Partnership
 
LP Interest
   
2.00
   
80,976
     
94,754
   
1.08
 
Hotel Durant, LLC
 
LP Interest
   
7.10
   
577,299
     
367,461
   
4.19
 
Inland Land Appreciation Fund II, L.P.
 
LP Interest
   
210.97
   
8,667
     
26,234
   
0.30
 
Inland Land Appreciation Fund, L.P.
 
LP Interest
   
149.37
   
18,166
     
19,418
   
0.22
 
MPF Pacific Gateway - Class B
(2
)
LP Interest
   
23.20
   
6,287
     
6,264
   
0.07
 
National Property Investors 6
   
LP Interest
   
7.00
   
145
     
95
   
-
 
Post Street Renaissance Partners Class A
   
LP Interest
   
9.10
   
16,981
     
16,981
   
0.19
 
Post Street Renaissance Partners Class D
   
LP Interest
   
11.60
   
56,729
     
58,319
   
0.67
 
Rancon Realty Fund IV
   
LP Interest
   
997.00
   
179,266
     
312,659
   
3.57
 
Rancon Realty Fund V
   
LP Interest
   
1,150.00
   
212,541
     
245,629
   
2.80
 
Secured Income, LP
   
LP Interest
   
26,600.00
   
232,732
     
249,242
   
2.84
 
Uniprop Manufactured Housing Income Fund II, LP
   
LP Interest
   
47,304.00
   
207,996
     
234,155
   
2.67
 
Total LP Interest
               
2,587,115
     
2,680,542
   
30.58
 
                                   
Coastal Realty Business Trust, REEP, Inc.
(2
)
Investment Trust
   
72,320.00
   
73,555
     
90,400
   
1.03
 
Coastal Realty Business Trust, Secured Income
(2
)
Investment Trust
   
37,577.00
   
327,671
     
352,096
   
4.02
 
Coastal Realty Business Trust, Series H2
(2
)
Investment Trust
   
47,284.16
   
246,351
     
254,389
   
2.90
 
Coastal Realty Business Trust, Series L2
(2
)
Investment Trust
   
7,950.00
   
18,444
     
17,411
   
0.20
 
Coastal Realty Business Trust, Series Q
(2
)
Investment Trust
   
10.00
   
48,894
     
50,264
   
0.57
 
Total Investment Trust
               
714,915
     
764,560
   
8.72
 
                                   
BR Cabrillo LLC Promissory Note
   
 Note
         
275,795
     
275,794
   
3.15
 
TTLC  Note
   
 Note
         
239,996
     
229,000
   
2.61
 
Total Note
               
515,791
     
504,794
   
5.76
 
                                   
Total Investments
             
$
5,593,407
   
$
5,905,995
   
67.38
 
 
(1)
Investments primarily in non traded public REITs or their successor.
(2)
Investment in related party

The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
MacKenzie Realty Capital, Inc.
Statements of Operations
For The Three Months Ended September 30, 2014 and 2013
(Unaudited)

   
For The Three Months Ended September 30,
 
   
2014
   
2013
 
Investment income
       
Dividend and distribution income
 
$
59,520
   
$
49,473
 
Interest and other income
   
12,148
     
5,004
 
Total investment income
   
71,668
     
54,477
 
                 
Operating expenses
               
Investment advisory fees
   
89,720
     
54,616
 
Administrative cost reimbursements
   
30,000
     
24,000
 
Amortization of deferred offering costs
   
35,402
     
70,804
 
Professional fees
   
75,362
     
73,366
 
Other general and administrative
   
31,653
     
9,591
 
Total operating expenses
   
262,137
     
232,377
 
                 
Net investment loss
   
(190,469
)
   
(177,900
)
                 
Net realized gain (loss) on sale of investments
   
132,498
     
(852
)
Net unrealized gain on investments
   
607,494
     
84,075
 
Total net realized and unrealized gain on investments
   
739,992
     
83,223
 
                 
Income tax provision
   
(213,152
)
   
-
 
                 
Net increase (decrease) in net assets resulting from operations
 
$
336,371
   
$
(94,677
)
                 
Net increase (decrease) in net assets resulting from operations per share
 
$
0.32
   
$
(0.13
)
                 
Weighted average common shares outstanding
   
1,066,094
     
728,217
 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
MacKenzie Realty Capital, Inc.
Statements of Changes in Net Assets
For The Three Months Ended September 30, 2014 and The Year Ended June 30, 2014

   
For The Three
Months Ended
   
For The Year Ended
 
   
September 30, 2014
   
June 30, 2014
 
   
(Unaudited)
     
Operations
       
Net investment loss
 
$
(190,469
)
 
$
(290,587
)
Net realized gain on sale of investments
   
132,498
     
632,703
 
Net unrealized gain on investments
   
607,494
     
192,524
 
Income tax provision
   
(213,152
)
   
(373,580
)
Net increase in net assets resulting from operations
   
336,371
     
161,060
 
                 
Capital share transactions
               
Issuance of common stock
   
3,024,594
     
1,655,901
 
Dividend to stockholders
   
(255,442
)
   
(130,850
)
Selling commissions and fees
   
(392,992
)
   
(215,254
)
Net increase in net assets resulting from capital share transactions
   
2,376,160
     
1,309,797
 
                 
Total increase in net assets
   
2,712,531
     
1,470,857
 
                 
Net assets at beginning of period
   
8,764,789
     
7,293,932
 
                 
Net assets at end of period
 
$
11,477,320
   
$
8,764,789
 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
MacKenzie Realty Capital, Inc.
Statements of Cash Flows
For The Three Months Ended September 30, 2014, and 2013
(Unaudited)

   
For The Three Months Ended September 30,
 
   
2014
   
2013
 
         
Cash flows from operating activities:
       
Net increase (decrease) in net assets resulting from operations
 
$
336,371
   
$
(94,677
)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
               
Proceeds from sale of investments, net
   
790,480
     
10,580
 
Return of capital
   
20,781
     
11,189
 
Purchase of investments
   
(3,156,122
)
   
(5,325
)
Net realized gain on sale of investments
   
(132,498
)
   
852
 
Net unrealized gain on investments
   
(607,494
)
   
(84,075
)
Amortization of deferred offering costs
   
35,402
     
70,804
 
Changes in assets and liabilities:
               
Accounts receivable
   
(6,460
)
   
1,509
 
Due from related entities
   
-
     
(48,952
)
Other assets
   
(18,518
)
   
(23,632
)
Accounts payable and accrued liabilities
   
54,800
     
82,844
 
Income tax payable
   
(28,839
)
   
-
 
Due to related entities
   
(25,160
)
   
(35,393
)
Deferred tax liability
   
241,991
     
-
 
Net cash from operating activities
   
(2,495,266
)
   
(114,276
)
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
3,024,594
     
-
 
Dividend to Stockholders
   
(255,442
)
   
-
 
Payment of selling commissions and fees
   
(392,992
)
   
-
 
Change in capital pending acceptance
   
(130,200
)
   
-
 
Net cash from financing activities
   
2,245,960
     
-
 
                 
Net decrease in cash and cash equivalents
   
(249,306
)
   
(114,276
)
                 
Cash and cash equivalents at beginning of the period
   
3,522,751
     
262,806
 
                 
Cash and cash equivalents at end of the period
 
$
3,273,445
   
$
148,530
 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
 

MacKenzie Realty Capital, Inc.
Notes to Financial Statements
September 30, 2014
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on January 25, 2012, and has been active in matters relating to its operation as a non-diversified, closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share.

The Company filed a registration statement on June 1, 2012 and several pre- and post-effective amendments with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of the Company’s common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Company filed post-effective amendments No. 3 and 4 on May 14, 2014 and August 6, 2014, respectively, for purpose of updating the initial registration statement. The Company commenced its operations on February 28, 2013.  The Company intends to operate so as to qualify to be taxed as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). The Company’s fiscal year-end is June 30.

The Company is managed by MacKenzie Capital Management, LP (“MacKenzie”) under the administration agreement dated and effective as of February 28, 2013 (the “Administration Agreement”).  MacKenzie manages all of the Company’s affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the “Adviser”) under the advisory agreement dated and effective as of February 28, 2013 (the “Investment Advisory Agreement”). The Investment Advisory Agreement was subsequently amended on August 6, 2014.  The Company intends to pursue a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate.  These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, limited liability companies, and tenancies-in-common.

On February 28, 2013, the Company acquired, under an exchange agreement (the “Contribution Agreement”), a portfolio of investments and cash (the “Legacy Portfolio”) from eight private funds which are collectively referred to as “Legacy Funds,” which are managed by MacKenzie. The assets acquired from the Legacy Funds had a collective fair value of approximately $6.9 million ($6.4 million in investments and $500 thousand in cash) as of February 28, 2013. As consideration for the Company’s acquisition of the Legacy Portfolio, the Company issued 692,217 shares of the Company’s common stock to the Legacy Funds. In addition, in 2012 prior to the acquisition of the Legacy Portfolio, each of the Legacy Funds and MP Value Fund 8, LLC, a private investment fund managed by MacKenzie,  purchased 4,000 shares of the Company’s common stock at $10 per share in order to provide the Company with funds to complete this exchange and prepare its initial public offering.

As of September 30, 2014, cumulative contributions of approximately $12.0 million (inclusive of the $6.9 million initial Legacy Funds capital investment), representing 1,196,284.50 shares, have been received.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s assets and liabilities as of September 30, 2014 and the results of its operations for the three months periods ended September 30, 2014 and 2013, which results are not necessarily indicative of results on an annualized basis.  The statement of assets and liabilities as of June 30, 2014 has been derived from audited financial statements. The Company follows the GAAP financial reporting standards for investment companies.  Accordingly, the Company’s investments are recorded at estimated fair value in the statements of assets and liabilities with changes in unrealized gains (losses) in the fair value of such investments included within the Company’s statement of operations.
These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2014 included in the Company’s annual report on Form10-K filed with the SEC.

Use of Estimates: The preparation of financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates.

Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits.

Organization and Deferred Offering Costs:  Organization costs include, among other things, the cost of legal services pertaining to the organization and incorporation of the business, incorporation fees and audit fees relating to the initial registration statement and the initial statement of assets and liabilities. These costs are expensed as incurred. Deferred offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. These offering costs have been deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC).

As provided in the Investment Advisory Agreement, the organization and offering costs incurred and paid by the Company in excess of $550,000 are reimbursed by the Adviser. Accordingly, the Company incurred and paid the non-reimbursable organization costs of $125,175 and offering costs of $424,825 totaling $550,000 during the period from January 25, 2012 (inception) through June 30, 2013. All organization and offering costs incurred by the Company subsequent to June 30, 2013 are reimbursed by the Adviser as disclosed in Note 5. The non-reimbursable organization costs of $125,175 were expensed as incurred during the period from January 25, 2012 (inception) through June 30, 2013. The non-reimbursable offering costs of $424,825 were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC). Amortization of the deferred offering cost for the three months ended September 30, 2014 and 2013, were $35,402 and $70,804, respectively. As of September 30, 2014, the deferred offering costs have been fully amortized.

Income Taxes and Deferred Tax Liability:  Under ASC 740-10-25, the Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment.

For the year three months ended September 30, 2014, the Company recorded a total tax provision of $249,055, which was reduced by $35,903 from a tax refund the Company received during the three months ended September 30, 2014 relating to the tax year ended December 31, 2013. As of September 30, 2014, the Company had recognized a deferred tax liability of $366,509 resulting from the accumulated unrealized gain on investment of $920,081, which becomes taxable in the future periods when realized. The Company did not calculate the impact of an income tax provision for the three months ended September 30, 2013, as the Company expected to be tax exempt by qualifying as a REIT for tax year ending December 31, 2013. Upon realization that the Company would not meet the REIT requirements for the 2013 tax year, the Company calculated the impact of income taxes and recorded a tax provision during the quarter ended December 31, 2013.
The provision for income taxes included in the financial statements includes both a current portion and a deferred portion. The following table shows the breakdown between the current and deferred income taxes for the multiple periods presented:

 
 
For The Three Months Ended
September 30,
 
   
2014
   
2013
 
   
   
 
Current tax provision (benefit)
 
   
 
Federal
 
$
(17,208
)
 
$
-
 
State
   
(11,631
)
   
-
 
Total Current
   
(28,839
)
       
                 
Deferred tax provision
               
Federal
   
206,548
     
-
 
State
   
35,443
     
-
 
Total deferred
   
241,991
     
-
 
                 
Total tax provision
 
$
213,152
   
$
-
 
                 
The following table shows the tax effect of the cumulative temporary differences as of June 30, 2014
 
                 
Unrealized gain on investments
 
$
366,509
   
$
-
 

The effective tax rate as of September 30, 2014 was 39.8%; 34.0% U.S. statutory federal income tax rate and 5.8% California state tax, net of U.S. federal income tax benefit. Offering costs amortizing into the statement of operations are not considered deductible for income tax purposes and result in the effective tax rate on reported financial statement income to be larger than would otherwise be expected.

Per Share Information:  Net increase or decrease in net assets resulting from operations per common share is calculated using the weighted average number of common shares outstanding for the periods presented.

Subsequent Events:  Subsequent events are events or transactions that occur after the date of the statements of assets and liabilities but before the date the financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the statement of assets and liabilities are considered in the preparation of the financial statements presented herein. Subsequent events that occur after the date of the statement of assets and liabilities that do not provide evidence about the conditions that existed as of the date of the statement of net assets are considered for disclosure based upon their significance in relation to the Company’s financial statements taken as a whole.

Fair Value of Financial Instruments: Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash, accounts receivable from affiliates, interest payable to affiliates and other accrued expenses and liabilities approximate the fair values of such items.

Revenue Recognition:  Realized gains or losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost of the investment. Investments are disposed of on a first-in, first-out basis.

Distributions received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date. Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.

Interest Income: Interest income is derived from the investments in notes and recorded on the accrual basis to the extent amounts are expected to be collected. Accrued interest is evaluated for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is sold or written off, it will be removed from non-accrual status. As of September 30, 2014 and June 30, 2014, the Company did not have any investments that were more than 90 days past due or on non-accrual status. Additionally, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.

Dividends and Distributions: Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a quarterly dividend or distribution is approved quarterly by the Board of Directors and is generally based upon management’s estimate of the Company’s earnings for the quarter.

Capital Pending Acceptance: The Company admits new stockholders monthly and subscriptions are effective only upon the Company’s acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the statements of assets and liabilities. As of September 30, 2014 and June 30, 2014, capital pending acceptance were $250,000 and $380,200, respectively.

Recent Accounting Pronouncements: In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on our financial statements.

Valuation of Investments: The Company’s financial statements include investments that are measured at their estimated fair values in accordance with GAAP. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. The Company develops fair values for investments based on available inputs which could include pricing that is observed in the marketplace.

Examples of market information that the Company attempts to obtain include the following:

Recently quoted trading prices for the same or similar securities;
Recent purchase prices paid for the same or similar securities;
Recent sale prices received for the same or similar securities;
Relevant reports issued by industry analysts and publications; and
Other relevant observable and unobservable inputs, including liquidity discounts.

After considering all available indications of the appropriate rate of return that market participants would require, the Company considers the reasonableness of the range indicated by the results to determine an estimate that, in its opinion, is most representative of fair value.

The real estate securities in which the Fund invests are, due to the absence of an efficient market, generally illiquid. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions. If either the volume and/or level of trading activity for an investment has significantly changed from normal market conditions, or price quotations or observable inputs are not associated with orderly transactions, the market inputs used might not be relevant. For example, recently quoted trading prices might not be relevant if a ready market does not exist for the quantity of investments that the Company may wish to sell.

In circumstances where relevant market inputs cannot be obtained, increased analysis and management judgment are required to estimate fair value. This generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Regardless of the valuation inputs used, the objective of fair value measurement is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price.
 
The Company is under no compulsion to dispose of its investments, and expects to hold them for a substantial period of time. Therefore, estimated values as determined above may not reflect amounts that could be realized upon actual sale at a future date.

Fair Value Measurements: GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value. Market price is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observables and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I – Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities. The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Level II – Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions.
  Level III – Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company’s investments at cost and fair value as of September 30, 2014 and June 30, 2014:
 
   
September 30, 2014
   
June 30, 2014
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
2,039,201
   
$
2,006,079
   
$
1,595,485
   
$
1,698,515
 
Non Traded Company
   
2,180,965
     
2,761,015
     
180,101
     
257,584
 
LP Interest
   
2,607,210
     
2,823,755
     
2,587,115
     
2,680,542
 
Investment Trust
   
714,915
     
832,093
     
714,915
     
764,560
 
Note
   
528,476
     
567,906
     
515,791
     
504,794
 
Total
 
$
8,070,767
   
$
8,990,848
   
$
5,593,407
   
$
5,905,995
 
 
The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of September 30, 2014 according to the fair value hierarchy:

Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
2,006,079
   
$
1,611,997
   
$
394,082
   
$
-
 
Non Traded Company
   
2,761,015
     
-
     
-
     
2,761,015
 
LP Interest
   
2,823,755
     
-
     
-
     
2,823,755
 
Investment Trust
   
832,093
     
-
     
-
     
832,093
 
Note
   
567,906
     
-
     
-
     
567,906
 
Total
 
$
8,990,848
   
$
1,611,997
   
$
394,082
   
$
6,984,769
 

The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of June 30, 2014 according to the fair value hierarchy:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
1,698,515
   
$
1,288,958
   
$
409,557
   
$
-
 
Non Traded Company
   
257,584
     
-
     
-
     
257,584
 
LP Interest
   
2,680,542
     
-
     
-
     
2,680,542
 
Investment Trust
   
764,560
     
-
     
-
     
764,560
 
Note
   
504,794
     
-
     
-
     
504,794
 
Total
 
$
5,905,995
   
$
1,288,958
   
$
409,557
   
$
4,207,480
 

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the three month period ended September 30, 2014:

Balance at July 1, 2014
 
$
4,207,480
 
Purchases of investments
   
2,712,405
 
Proceeds from sales, net
   
(790,480
)
Return of capital
   
(20,781
)
Net realized gain on sale of investments
   
132,498
 
Net unrealized gain
   
743,647
 
Ending balance at September 30, 2014
 
$
6,984,769
 

For the three months ended September 30, 2014, changes in unrealized gain included in earnings relating to Level III investments still held at September 30, 2014 was $743,647.

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the year ended June 30, 2014:

Balance at July 1, 2013
 
$
5,823,451
 
Purchases of investments
   
824,900
 
Transfer to Level I
   
(55,597
)
Proceeds from sales, net
   
(1,537,952
)
Return of capital
   
(1,304,778
)
Net realized gain on sale of investments
   
398,431
 
Net unrealized gain
   
59,025
 
Ending balance at June 30, 2014
 
$
4,207,480
 

For the year ended June 30, 2014, changes in unrealized gain included in earnings relating to level III investments still held at June 30, 2014 was $290,795.

The transfer of $55,597 from Level III to Level I during the year ended June 30, 2014 relates to changes in tradability of the securities in an active market due to one of the Company’s investments in an LP Interest converting to Public REIT shares during the year.
 
The Level II investments as of September 30, 2014 and June 30, 2014 with total fair value of $394,082 and $409,557, respectively, included investments in thinly-traded public REITs which were valued using the ten day average trading prices of their stock.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at September 30, 2014:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used (1)
 
Range
   
Wt. Average
 
                 
Non Traded Company
 
$
2,760,765
 
Market Activity
Acquisition cost
       
                
Contracted security sale
       
                
Secondary market industry publication
       
Non Traded Company
   
250
 
Net Asset Value
Sponsor provided value
       
                     
LP Interest
   
1,419,010
 
Market Activity
Secondary market industry publication
       
LP Interest
   
1,404,745
 
Net Asset Value
Capitalization rate
  6.0% - 9.5%
 
  7.4%
 
                
Comparable sales report
               
                
Liquidity discount
  8.0% - 40.0%
 
  33.4%
 
                
Sponsor provided value
               
                             
Investment Trust
   
276,231
 
Market Activity
Secondary market industry publication
               
Investment Trust
   
555,862
 
Net Asset Value
Capitalization rate
  6.0%
 
       
                
Liquidity discount
  10.0% - 31.5%
 
  29.4%
 
                             
Note
   
227,500
 
Discounted Cash Flow
Quoted market prices
               
                
Discount rate
  11.6%
 
       
                
Term (in years)
  4.0%          
Note
   
340,406
 
Net Asset Value
Liquidity discount
  23.0%
 
       
                
Sponsor provided value
               
   
$
6,984,769
                     
 
Valuation Technique Terms:
 (1)All investment valuations generally contain a liquidity discount of 31.5%, except as noted above.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2014:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used (1)
 
Range
   
Wt. Average
 
                 
Non Traded Company
 
$
257,584
 
Market Activity
Contracted security purchase price
       
             
Secondary market industry publication
       
                     
LP Interest
   
8,196
 
Discounted Cash Flow
Sponsor provided value
       
             
Liquidity discount
 
15 % - 31.5%
   
28%
 
LP Interest
   
2,134,737
 
Market Activity
Secondary market industry publication
             
             
Contracted security purchase price
             
LP Interest
   
537,609
 
Net Asset Value
Capitalization rate
 
6.5% - 9.5%
 
   
7%
 
             
Liquidity discount
 
10% - 35%
 
   
29%
 
                           
Investment Trust
   
623,896
 
Market Activity
Secondary market industry publication
             
Investment Trust
   
140,664
 
Net Asset Value
Capitalization rate
 
6.3%
 
       
             
Liquidity discount
 
10% - 31.5%
 
   
24%
 
                           
Note
   
504,794
 
Market Activity
Contracted security purchase price
             
         
Discounted Cash Flow
Term (in years)
 
4.0
         
             
Quoted market prices
             
             
Discount rate
 
11.6%
 
       
   
$
4,207,480
                   
 
Valuation Technique Terms:
 (1)All investment valuations generally contain a liquidity discount of 33%, except as noted above.

NOTE 4—MARGIN LOANS
 
The Company has a brokerage account in which it buys and sells publicly-traded securities. The provisions of the account allow the Company to borrow between 50% and 70% of the equity of certain securities held in the account. Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of September 30, 2014, the Company had $1,042,616 of margin credit available for cash withdrawal or the ability to purchase up to $2,131,030 in additional shares. As of June 30, 2014, the Company had $1,275,165 of margin credit available for cash withdrawal or the ability to purchase up to $2,550,330 in additional shares. As of September 30, 2014 and June 30, 2014, the Company had not drawn any amount or purchased any shares under this short-term credit line.

NOTE 5 –RELATED PARTY TRANSACTIONS

Investment Advisory Agreement:

Under the Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components — a portfolio structuring fee, a base management fee and a subordinated incentive fee.

The portfolio structuring fee is for the Adviser’s initial work performed in connection with the acquisition of all of the Company’s assets and equals 3.0% of the gross proceeds from the sale of the Company’s shares.

The base management fee is calculated based on the Company’s “managed funds,” which equal the price at which the Company’s shares are issued plus any borrowing for investment purposes.  The base management fees range from 1.5% to 3.0%, depending on the level of the “managed funds.”

The subordinated incentive fee has three parts—income, capital gains and liquidation. The income component is (i) 100% of the Company’s preliminary net investment income for any calendar quarter that exceeds 1.75% (7% annualized) but is less than 2.1875% (8.75% annualized) of the Company’s “contributed capital” (defined as the number of shares outstanding, multiplied by the price at which the shares are sold), and (ii) 20% of the Company’s preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Company’s “contributed capital.”  The capital gains component is (i) 100% of the Company’s realized capital gains annually generated by its investments above 7% and up to 8.75% of the Company’s “contributed capital,” and (ii) 20% of the Company’s realized capital gains above 8.75% of the Company’s “contributed capital,” all computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.  The capital gains component may not, in any event, exceed 20% of the Company’s realized capital gains, net of all realized capital losses and unrealized capital depreciation.  The liquidation component will be 20% of the amount by which all distributions to stockholders exceed the “contributed capital,” less all previously-paid capital gains fees, provided that the liquidation component may not exceed 20% of all of the Company’s realized capital gains as of the date of liquidation.

The portfolio structuring fees for the three months ended September 30, 2014 was $93,132. The Company did not commence its initial offering until January 2014 and therefore, the Company did not incur any portfolio structuring fees for the three months ended September 30, 2013.

The base management fees for the three months ended September 30, 2014 and 2013 were $89,720 and $54,616, respectively. The base management fees were recorded as investment advisory fees on the statements of operations and due to related entities in the statements of assets and liabilities.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Company in excess of $550,000 will be reimbursed by the Adviser. As of September 30, 2014 and June 30, 2014, the Company had incurred $870,067 and $806,672 of organization and offering costs, respectively. Thus, according to the agreement, $320,067 and $256,672 of the amount were reimbursable from the Adviser as of September 30, 2014 and June 30, 2014, respectively. As of September 30, 2014 the Adviser has reimbursed the Company in the amount of $234,174 and the remaining reimbursable amount of $88,413 was offset against the amount payable to the Adviser as of September 30, 2014.
 
Administration Agreement:
 
Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the Independent Directors’ approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company’s Chief Financial Officer, Chief Compliance Officer, Financial Reporting Manager, and any administrative support staff.

The administrative cost reimbursements for the three months ended of September 30, 2014 and 2013, were $30,000 and $24,000, respectively.

The table below outlines the related party expenses incurred for the three months ended September 30, 2014 and the year ended June 30, 2014 and unpaid as of September 30, 2014 and June 30, 2014.
 
 
 
Incurred
   
Unpaid as of
 
 
 
For The Three months ended
September 30,
   
   
 
Types and Recipient
 
2014
   
2013
   
September 30, 2014
   
June 30, 2014
 
   
   
   
   
 
Portfolio Structuring fee- the Adviser
 
$
93,132
   
$
-
   
$
-
   
$
441
 
Base Management fees- the Adviser
   
89,720
     
54,616
     
89,720
     
67,000
 
Incentive Fee on Income- the Adviser
   
-
     
-
     
-
     
-
 
Incentive fee on Capital Gains- the Adviser
   
-
     
-
     
-
     
-
 
Administrative Cost Reimbursements- MacKenzie
   
30,000
     
24,000
     
30,000
     
12,000
 
Others expenses (1) -MacKenzie
   
1,448
     
-
     
1,448
     
972
 
Organization & Offering Cost Reimbursement by the Adviser
                   
(88,413
)
   
(22,498
)
                                 
Due to related entities
                 
$
32,755
   
$
57,915
 
 
 (1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie

Investments:
 
Coastal Realty Business Trust (“CRBT”): CRBT is a Nevada business trust whose trustee is MacKenzie and whose beneficiaries are the Company and various private funds managed by MacKenzie. Its purpose is to own various investments on behalf of such funds.

Each CRBT Trust Series (“Series”) pools capital from several funds managed by MacKenzie and invests (generally) in shares of private REITs as provided for in the Trust Agreement. Each Series participant is limited by the terms of the agreement and, as such, an interest in a Series has no redemption rights.

The Company had investment in the following CRBT series as of September 30, 2014 and June 30, 2014:

The Company has an ownership interest in CRBT, REEP, Inc., which invests in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.
The Company has an ownership interest in CRBT, Secured Income, which invests in units of a limited partnership, which owns one multi-family property located in Frederick, Maryland.
The Company has an ownership interest in CRBT, Series H2, which invests in shares of a REIT that owns a real estate portfolio totaling 170 properties located in the United States and Canada. These properties include senior housing, hotels and resorts, golf courses, and marinas, among others.
The Company has an ownership interest in CRBT, Series L2, which invests in shares of a REIT that acquires and manages a diversified real estate portfolio, primarily comprised of retail, office, hotel, multi-family, and industrial properties.
The Company has an ownership interest in CRBT, Series Q, which invests in units of a limited partnership formed for the purpose of acquiring, refurbishing, and operating the Prescott Hotel and Postrio Restaurant located near Union Square in San Francisco, California. During the year ended June 30, 2014, the Company received a sales distribution of $520,489 from the Series after the limited partnership sold the property and made a sales distribution to the Series.
 
MPF Pacific Gateway: MPF Pacific Gateway, which is managed by MacKenzie, is a holding company that owns an investment in a REIT Liquidating Trust. As of September 30, 2014 and June 30, 2014, the Company had a 15.82% of ownership interest in MPF Pacific Gateway.
NOTE 6 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights of the Company for the three months ended September 30, 2014 and the year ended June 30, 2014.

   
For The Three
months ended
September 30, 2014
   
For The Year
Ended
June 30, 2014
 
Per Share Data:
       
         
Beginning net asset value
 
$
9.81
   
$
10.02
 
                 
Net investment loss (1)
   
(0.18
)
   
(0.38
)
Net realized gain on sale of investments (1)
   
0.12
     
0.83
 
Net unrealized gain on investments (1)
   
0.58
     
0.25
 
Income tax provision
   
(0.20
)
   
(0.49
)
Net increase (decrease) in net assets resulting from operations
   
0.32
     
0.21
 
                 
Issuance of common stock above (below) net asset value (4)
   
(0.30
)
   
(0.24
)
Dividends to stockholders
   
(0.24
)
   
(0.18
)
Ending net asset value
 
$
9.59
   
$
9.81
 
                 
Weighted average common shares outstanding
   
1,066,094
     
763,813
 
Shares outstanding at the end of period
   
1,196,284
     
893,808
 
Net assets at the end of period
 
$
11,477,320
   
$
8,764,789
 
Average net assets (2)
 
$
10,121,055
   
$
7,791,777
 
                 
Ratios to average net assets
               
Total expenses (5)
   
2.59
%
   
11.74
%
Net investment loss (5)
 
(1.88
)%
 
(3.73
)%
Total rate of return (2) (3)
   
3.32
%
   
2.07
%

(1) Based on weighted average number of shares of common stock outstanding for the period.
(2) Average net assets were derived from the beginning and ending period-end net assets.
(3) Total return is calculated based upon the change in value of the net assets. An individual shareholder’s return may vary from this return based on the time of capital transactions.
(4) $0.13 per share is attributed to sales commissions and dealer manager fees.
(5) Not annualized for the three months ended September 30, 2014.

NOTE 7 – SHARE OFFERINGS AND FEES
 
During the three months ended September 30, 2014, the Company issued 302,302 shares at $10 per share with gross proceeds of $3,023,020 and issued 174.83 shares under the Company’s dividend reinvestment plan (“DRIP”) at $9 per share with gross proceeds of $1,573.50. For the three months ended September 30, 2014, the Company paid selling commissions and fees of $392,992, of which $93,132 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

During the three months ended September 30, 2013, the Company did not issue any shares and did not incur any offering fees.
 
NOTE 8 –STOCKHOLDER DIVIDENDS

During the three months ended September 30, 2014, the Company’s Board of Directors approved two dividends.  The first dividend, in the amount of $0.175 per share, was the Company’s regular quarterly dividend at the rate of 7% based upon the current public offering price of $10 per share.  The second dividend, in the amount of $0.125 per share, was a special dividend resulting primarily from distributions received from the Company’s investments in Post Street Renaissance Partners which distributed proceeds from the sale of its sole property.

The Company did not declare or distribute any dividends during the three months ended September 30, 2013.
 
On November 10, 2014, the Company's board of Directors approved a quarterly dividend of $0.175 per share to the holders of record on September 30, 2014 with the expected payment date in November, 2014. This dividend amount represents an annualized distribution yeld of 7.0% based on the Company's current public offering price of $10.00 per share, if it were maintainted for a twelve-month period.
 
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc. (the “Fund,” ”we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.”  These statements may relate to, among other things, future events or our future performance or financial condition.  In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” ”could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy.  For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” in our Registration Statement filed on Form N-2.

We may experience fluctuations in our operating results due to a number of factors, including the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions.  As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Overview

We have elected to be regulated as a business development company (“BDC”) and we are classified as a non-diversified closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”).   We also intend to elect to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”) as soon as we are able to so qualify, which we believe will be during the tax year ending December 31, 2014. After we have qualified to be a REIT, we will not be subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income. As of September 30, 2014, the REIT election has not yet been made; as such, our net increase in net assets resulting from operations is currently taxed at regular corporate tax rates for both federal and state income tax purposes.

We were formed to continue and expand the business of the portfolio of assets we acquired from eight private funds, which we refer to as our “Legacy Funds,” and which are managed by an affiliate of our investment adviser. The portfolio had a fair value, as determined by our Board of Directors, of approximately $6.92 million on February 28, 2013, including approximately $6.45 million of debt and equity investments issued by 47 portfolio companies (the “Legacy Portfolio”). As consideration for our acquisition of that portfolio, 692,217 shares of our common stock (“Shares”) were issued to the Legacy Funds.   We intend to invest primarily in debt and equity real estate-related securities with the receipt of proceeds from our initial public offering which we are continuing at this time (the “IPO”).
 
Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of September 30, 2014 and June 30, 2014:

   
September 30, 2014
   
June 30, 2014
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
2,039,201
   
$
2,006,079
   
$
1,595,485
   
$
1,698,515
 
Non Traded Company
   
2,180,965
     
2,761,015
     
180,101
     
257,584
 
LP Interest
   
2,607,210
     
2,823,755
     
2,587,115
     
2,680,542
 
Investment Trust
   
714,915
     
832,093
     
714,915
     
764,560
 
Note
   
528,476
     
567,906
     
515,791
     
504,794
 
Total
 
$
8,070,767
   
$
8,990,848
   
$
5,593,407
   
$
5,905,995
 

Net Asset Value

Our net asset value (“NAV”) as of September 30, 2014, was $9.59 per Share, compared to $9.81 per Share at June 30, 2014, a $0.22 per Share decrease of approximately 2.2%. The net decrease was primarily due to decreases resulting from (i) net investment loss of $0.18 per Share (which includes the amortization of deferred offering cost of $0.03 per Share), (ii) income tax provision of $0.20 per Share, (iii) dividend to stockholders of $0.24 per Share and (iv) issuance of Shares (net of selling commissions and dealer manager fees) below NAV per Share, resulting in decrease of $0.30 per Share. The decreases in NAV were offset by increases resulting from (i) net realized gain on sale of investments of $0.12 per Share and (ii) net unrealized gains on investments of $0.58 per Share.

Investment Plan

We commenced our operations on February 28, 2013 with the acquisition of the Legacy Portfolio.  Our investments are generally expected to range in size from $10 thousand to $3 million, similar to the investments in the Legacy Portfolio. However, we may make larger investments from time to time on an opportunistic basis. We intend to focus primarily on real estate-related securities.  We will purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers.  We will invest primarily in debt and equity securities issued by U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

Distributions from Investments

We intend to generate revenues in the form of capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold.  Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be generated in connection with our investments and recognized as earned.
 
Revenues
 
We plan to generate revenue primarily from dividends and/or capital gains from our investments. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be generated in connection with our investments and recognized as earned.
 
Results of Operations

Three Months Ended September 30, 2014 and 2013:

Investment Income: Total investment income for the three months ended September 30, 2014 and 2013 was $71,668 and $54,477, respectively.  Investment income was primarily made up of dividend, distribution and interest income. The increase of $17,191, or 32%, was primarily due to increase in investment portfolio size by approximately $1.4 million in cost basis since September 30, 2013. The cost basis of our investment portfolio was $8.1 million as of September 30, 2014 compared to $6.7 million as of September 30, 2013.
 
Operating Expenses:  Total operating expenses for the three months ended September 30, 2014 and 2013 were $262,137 and $232,377, respectively.  This net increase of $29,760, or 13%, was primarily attributed to increases in investment advisory fees of $35,104, administrative costs reimbursements of $6,000, and other general and administrative expenses of $22,062 offset by a decrease in amortization of deferred offering costs of $35,402. The increases in investment advisory fees, administrative cost reimbursements and other general and administrative expenses were primarily due to the increase in capital contributions and subsequent investment activity since September 30, 2013.  We have issued approximately 468,000 Shares ($4.7 million) since September 30, 2013.

Net realized gain on investments: We had total realized gains on the sale of investments of $132,498 for the three months ended September 30, 2014, as compared to a realized loss of $852 for the three months ended September 30, 2013. This is an increase of $133,350 or 15,651%, which was primarily due to the sale of TIER REIT, Inc. shares with a realized gain of $132,498 during the three months ended September 30, 2014. We had only one sale of investment during the three months ended September 30, 2013 with a realized loss of $852.

Net unrealized gain on investments: Total unrealized gain on investments for the three months ended September 30, 2014 and 2013, was $607,494 and $84,075, respectively. The increase of $523,419 or 623% in the three months ended September 30, 2014 was due to the increased appreciation in fair values of our investments during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. During the three months ended September 30, 2014, we had unrealized gains of $502,568 in our non-traded investments, $123,118 in limited partnership investments, $67,533 in our investment trust investments and $50,428 in promissory note investments and unrealized losses of $136,153 in our publicly-traded investments. During the three months ended September 30, 2013, we had unrealized gains of $92,082 in limited partnership investments and $175 in non-traded investments and unrealized losses of $8,182 in our publicly-traded investments.

Liquidity and Capital Resources

Capital Resources

We filed a Registration Statement on Form N-2 (“Registration Statement”) with the Securities and Exchange Commission (“SEC”) to register the sale of 5,000,000 Shares, which was declared effective by the SEC on August 2, 2013, under which we seek to raise up to $50,000,000 in our IPO. On May 14, 2014 and August 6, 2014 we filed post-effective amendments No. 3 and 4, respectively, for the purpose of updating the Registration Statement, which was declared effective by the SEC on August 7, 2014.  The initial sales of our common stock occurred in January 2014 and, for the three months ended September 30, 2014, we sold 302,302 Shares at $10 per Share with gross proceeds of $3,023,020, and issued 174.83 Shares under our dividend reinvestment plan (“DRIP”) at $9 per Share with gross proceeds of $1,573.50. We do not have any plans to issue any preferred equity. We plan to fund future investments with the net proceeds raised in the IPO and any future offerings of securities and cash flows from operations, including earnings on investments in the Legacy Portfolio and future investments, as well as interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities; however, we do not have any current plans to borrow money.  We are currently selling our Shares on a continuous basis at a price of $10 which may be below NAV per Share from time to time, as approved by our stockholders.

Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors, at least quarterly.  The maximum amount of such borrowing is limited by the 1940 Act.

Our primary use of funds is investing in portfolio companies, cash dividends to holders of our common stock (primarily from investment income and realized capital gains), payments to any lenders or senior security holders, and the payment of operating expenses.  If we sell all Shares registered in the IPO, we expect to have cash resources of approximately $43.5 million.

Cash Flows:

For the three months ended September 30, 2014, we experienced a net decrease in cash of $249,306. During this period, we generated $2,245,960 of cash from our financing activities and used $2,495,266 of cash in operating activities. Net cash outflow from operating activities was primarily due to investments of $3,156,122 offset by cash inflow of $790,480 and $20,781 from sales of investments and return of capital from our investments, respectively.  Cash inflow from financing activities resulted from the sale of 302,476.83 Shares with gross receipts of $3,024,594, offset by the payment of selling commissions and fees of $392,992, stockholder dividends of $255,442 and a decrease in capital pending acceptance of $130,200.
 
Contractual Obligations

We have entered into two contracts under which we have material future commitments, the Advisory Agreement, under which the Adviser serves as our investment adviser, and the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Advisory Agreement in future periods (after the up-front payment of the portfolio structuring fee during the IPO) will be (i) a percentage of the value of our Managed Funds; and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation).  Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie.  However if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Borrowings
 
We do not have any current plans to borrow money or issue preferred securities. In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates.

Critical Accounting Policies

The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions.  Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective judgments.

Valuation of Portfolio Investments

We determine the NAV of our investment portfolio each quarter (and as of each bi-monthly closing when our IPO continues) by subtracting our total liabilities from the fair value of our gross assets.  We conduct the valuation of our assets and determine our NAV consistent with GAAP and the 1940 Act, and report our NAV in our periodic reports filed with the SEC under the Securities Exchange Act of 1934 (“1934 Act”).
 
We report our investments at fair value and in order to determine the fair value of investments, we follow the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.
 
Securities for which market quotations are readily available on an exchange are valued at such price as of the closing price on the day closest to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. We may also use published secondary market trading information for securities that do not trade on a national exchange in order to value assets. When doing so, we determine whether the trading price obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we use the trading price obtained.
 
Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Adviser or our Board of Directors, does not represent fair value, which we expect will represent a substantial majority of the investments in our portfolio, will each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Adviser and, where appropriate and necessary, the respective third-party valuation firms.
 
The recommendation of fair value is generally based on the following factors, as relevant:
 
· the nature and realizable value of any collateral;
 
· the portfolio company’s ability to make payments;
 
· the portfolio company’s earnings and discounted cash flow;
 
· the markets in which the issuer does business; and
 
· comparisons to publicly traded securities.
 
Securities for which market data are not readily available or for which a pricing source is not sufficient may include the following:
 
· private placements and restricted securities that do not have an active trading market;
 
· securities whose trading has been suspended or for which market quotes are no longer available;
 
· debt securities that have recently gone into default and for which there is no current market;
 
· securities whose prices are stale;
 
· securities affected by significant events; and
 
· securities that the Adviser believes were priced incorrectly.
 
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Distributions to Stockholders

We began distributing dividends to our stockholders on May 9, 2014, for the first calendar quarter 2014, and to the extent that we have income from operations available, we intend to distribute quarterly dividends to our stockholders.  Our quarterly dividends, if any, will be determined by our Board of Directors after a quarterly review and distributed pro-rata to holders of our Shares. Any dividends to our stockholders will be declared out of assets legally available for distribution.  In no event are we permitted to borrow money to make distributions if the amount of such distribution would exceed our annual accrued and received revenues, less operating costs.
 
We are currently taxed at regular corporate tax rates for both federal and state income tax purposes; however, we expect to elect to be taxed as a REIT under the Code when we become eligible to make that election. If we elect to be treated as a REIT, we will be required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our REIT taxable income.  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.
 
Our current intention is to make any distributions in additional Shares under our DRIP to stockholders who have elected to participate in our DRIP unless participation in the DRIP is restricted by a state securities regulator.
 
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
Our portfolio, as well as our future investments, will primarily consist of equity and debt securities issued by smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments in these securities are considered speculative in nature. Our investments do and will often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, we are subject to risk of loss which may prevent our stockholders from achieving price appreciation, dividend distributions and a return of their capital.

At September 30, 2014, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented 73% of our total assets as of that date.  As discussed in Note 3 to our financials statement (“Investments”), these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment strategy represents a high degree of business and financial risk due to the fact that portfolio company investments are generally illiquid and in small and middle market companies. We may make short-term investments in cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less, pending investments in portfolio companies made according to our principal investment strategy.

Item 4. CONTROLS AND PROCEDURES
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act.  Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
There have been no changes in our internal control over financial reporting (identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the 1934 Act) during the fiscal quarter ended September 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II—OTHER INFORMATION
 
Item 1. LEGAL PROCEEDINGS
 
None.
 
Item 1A.    RISK FACTORS

In addition to the other information in this report, you should carefully consider the factors discussed in “Risk Factors” in our Registration Statement and annual report on Form 10-K for the fiscal year ended June 30, 2014, which could materially affect our business, financial condition or operating results.  The risks described in our Registration Statement are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

Item 3. DEFAULTS UPON SENIOR SECURITIES
 
None.

Item 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
Item 5. OTHER INFORMATION
 
None.
 

Item 6.  EXHIBITS
 
Exhibit
Description
   
31.1
Section 302 Certification of Robert Dixon (President and Chief Executive Officer)
   
31.2
Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)
   
32.1
Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)
   
32.2
Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)
 

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
MACKENZIE REALTY CAPITAL, INC.
       
Date: November 13, 2014
 
By:
/s/ Robert Dixon
       
Date: November 13, 2014
 
By:
/s/ Paul Koslosky
 
EXHIBIT INDEX

Exhibit
Description
   
Section 302 Certification of Robert Dixon (President and Chief Executive Officer)
   
Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)
   
Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)
   
Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)
 
 
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