10-Q 1 mrc-10q-12-31-15.htm MACKENZIE REALTY CAPITAL, INC. FORM 10Q 12-31-15
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended December 31, 2015
   
 ☐
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   ☑     No ___
 
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  ☐ No ☐
 
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 ☐  Accelerated filer ☐   Non-accelerated filer  ☑ Smaller reporting company ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No  ☑  
The number of the shares of issuer's Common Stock outstanding as of February 12, 2016 was 3,219,012.47.
 
THIS IS JUST A TEST... TEST TEST TEST TEST


TABLE OF CONTENTS
   
Page
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (unaudited)
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
Item 2.
     
Item 3.
     
Item 4.
     
PART II.
OTHER INFORMATION
 
     
Item 1.
     
Item 1A.
     
Item 2.
     
Item 3.
     
Item 4.
     
Item 5.
     
Item 6.
     
 

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MacKenzie Realty Capital, Inc.
Statements of Assets and Liabilities




 
 
December 31, 2015
   
June 30, 2015
 
 
 
(Unaudited)
   
 
Assets
     
 
Investments, at fair value (cost of $21,804,717 and $16,528,720, respectively)
 
$
24,053,832
   
$
18,645,022
 
Cash and cash equivalents
   
4,536,800
     
4,297,086
 
Accounts receivable
   
2,057,375
     
87,689
 
Other assets
   
261,332
     
188,407
 
Total assets
 
$
30,909,339
   
$
23,218,204
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
56,678
   
$
18,045
 
Capital pending acceptance
   
802,392
     
588,250
 
Due to related entities
   
715,157
     
228,803
 
Deferred tax liability
   
46,278
     
44,667
 
Total liabilities
   
1,620,505
     
879,765
 
 
               
Commitments and contingencies (Note 9)
               
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 2,912,501.18 and 2,196,612.73 shares issued and outstanding, respectively
   
291
     
220
 
Capital in excess of par value
   
26,301,809
     
20,061,251
 
Accumulated undistributed net investment loss
   
(690,220
)
   
(1,002,901
)
Accumulated undistributed net realized gain
   
1,427,841
     
1,163,566
 
Accumulated undistributed net unrealized gain
   
2,249,113
     
2,116,303
 
Total net assets
   
29,288,834
     
22,338,439
 
 
               
Total liabilities and net assets
 
$
30,909,339
   
$
23,218,204
 
 
               
Net asset value per Share
 
$
10.06
   
$
10.17
 
























The accompanying Notes to Financial Statements are an integral part of these financial statements.
MacKenzie Realty Capital, Inc.
Schedule of Investments
December 31, 2015
(Unaudited)


Name
 
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
Ashford Hospitality Prime, Inc.
(3
)
Publicly Traded Company
   
54,027.00
   
$
795,610
   
$
783,391
     
2.67
 
Ashford Hospitality Trust, Inc.
(3
)
Publicly Traded Company
   
50,000.00
     
448,769
     
315,500
     
1.08
 
Bluerock Residential Growth REIT, Inc.
(3
)
Publicly Traded Company
   
95,429.00
     
1,111,505
     
1,130,834
     
3.86
 
CBL & Associates Properties, Inc.
(3
)
Publicly Traded Company
   
18,000.00
     
249,920
     
222,660
     
0.76
 
Equity Commonwealth
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
336,920
     
1.15
 
Independence Realty Trust, Inc.
(3
)
Publicly Traded Company
   
72,000.00
     
542,232
     
540,720
     
1.84
 
Liberty Property Trust
(3
)
Publicly Traded Company
   
14,000.00
     
474,607
     
434,700
     
1.48
 
New York REIT, Inc.
(3
)
Publicly Traded Company
   
72,000.00
     
789,642
     
828,000
     
2.83
 
One Liberty Properties, Inc.
(3
)
Publicly Traded Company
   
9,000.00
     
206,110
     
193,140
     
0.66
 
Sabra Health Care REIT, Inc.
(3
)
Publicly Traded Company
   
6,300.00
     
127,829
     
127,449
     
0.44
 
TIER REIT, Inc.
   
Publicly Traded Company
   
147,649.00
     
1,921,604
     
2,177,823
     
7.44
 
VEREIT Inc.
(3
)
Publicly Traded Company
   
126,800.00
     
1,104,741
     
1,004,256
     
3.43
 
Winthrop Realty Trust Shares of Beneficial Interest
(3
)(5)
Publicly Traded Company
   
38,500.00
     
556,094
     
499,345
     
1.70
 
Total Publicly Traded Company
   
 
           
8,639,777
     
8,594,738
     
29.34
 
 
   
 
                               
Bluerock Residential Growth REIT, Inc. Class B3
(4
)
Non Traded Company
   
1,429.61
     
15,781
     
16,941
     
0.06
 
FSP Energy Tower
(4
)(5)
Non Traded Company
   
7.00
     
294,350
     
294,000
     
1.00
 
FSP Grand Boulevard
(4
)
Non Traded Company
   
7.00
     
279,104
     
280,000
     
0.96
 
FSP 1441 Main Street
(4
)
Non Traded Company
   
9.00
     
307,156
     
315,000
     
1.08
 
FSP Satellite Place
(4
)
Non Traded Company
   
5.00
     
195,035
     
200,000
     
0.68
 
FSP South 10th Street Corp. Liquidating Trust
(4
)(5)
Non Traded Company
   
0.25
     
151
     
130
     
-
 
Hines Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
2,692.31
     
13,569
     
12,385
     
0.04
 
InvenTrust Properties Corp.
(4
)
Non Traded Company
   
882,563.75
     
2,189,425
     
2,285,840
     
7.80
 
KBS Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
558,534.83
     
875,002
     
1,725,873
     
5.89
 
Landmark Apartment Trust, Inc.
(4
)
Non Traded Company
   
200,839.56
     
862,315
     
1,640,859
     
5.60
 
Strategic Realty Trust, Inc.
(4
)
Non Traded Company
   
5,245.47
     
24,406
     
24,287
     
0.08
 
Total Non Traded Company (1)
   
 
           
5,056,294
     
6,795,315
     
23.19
 
 
   
 
                               
Britannia Preferred Members, LLC
(4
)(5)
LP Interest
   
150,000.00
     
1,500,000
     
1,500,000
     
5.12
 
DRV Holding Company, LLC
(4
)(5)
LP Interest
   
250.00
     
250,000
     
340,753
     
1.16
 
Inland Land Appreciation Fund II, L.P.
(4
)(5)
LP Interest
   
210.97
     
8,667
     
37,010
     
0.13
 
MPF Pacific Gateway - Class B
(2)
(4)(5)
LP Interest
   
23.20
     
6,287
     
6,613
     
0.02
 
National Property Investors 6
(4
)(5)
LP Interest
   
7.00
     
145
     
-
     
-
 
Rancon Realty Fund IV
(4
)(5)
LP Interest
   
1,016.00
     
184,474
     
255,575
     
0.87
 
Redwood Mortgage Investors VIII
(4
)
LP Interest
   
66,402.61
     
35,549
     
37,185
     
0.13
 
Resource Real Estate Investors 6, L.P.
(4
)
LP Interest
   
35,100.00
     
173,745
     
177,957
     
0.61
 
Satellite Investment Holdings, LLC - Class A
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
7.51
 
Secured Income, LP
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
768,840
     
2.63
 
The Weatherly, LTD
(4
)(5)
LP Interest
   
60.00
     
672,000
     
716,186
     
2.45
 
The Weatherly Building, LLC
(4
)(5)
LP Interest
   
17.50
     
392,000
     
417,776
     
1.43
 
Uniprop Manufactured Housing Income Fund II, LP
(4
)
LP Interest
   
96,616.00
     
447,205
     
485,978
     
1.66
 
VWC Savannah, LLC
(4
)(5)
LP Interest
   
8.25
     
825,000
     
825,532
     
2.82
 
Total LP Interest
   
 
           
7,255,475
     
7,769,405
     
26.54
 
 
   
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
(2)
(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
99,802
     
0.34
 
Coastal Realty Business Trust, Series H2- A
(2
)(4)
Investment Trust
   
47,284.16
     
184,881
     
124,357
     
0.42
 
Total Investment Trust
   
 
           
258,436
     
224,159
     
0.76
 
 
   
 
                               
BR Cabrillo LLC Promissory Note
(4
)(5)
Note
   
 
     
384,987
     
443,806
     
1.52
 
BR Cabrillo LLC Promissory Note 2
(4
)(5)
Note
   
 
     
166,612
     
183,273
     
0.63
 
BR Cabrillo LLC Promissory Note 3
(4
)(5)
Note
   
 
     
43,136
     
43,136
     
0.15
 
Total Note
   
 
           
594,735
     
670,215
     
2.30
 
 
   
 
                               
Total Investments
   
 
         
$
21,804,717
   
$
24,053,832
     
82.13
 
 
(1) Investments primarily in non traded public REITs or their successors.
(2) Investment in related party. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of December 31, 2015, the total percentage of non-qualifying assets is 20.76%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.
(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of December 31, 2015, 50.01% of the Fund's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of December 31, 2015, 21.90% of the Fund's total assets are in non-income producing securities.




The accompanying Notes to Financial Statements are an integral part of these financial statements.
MacKenzie Realty Capital, Inc.
Schedule of Investments
June 30, 2015


Name
 
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
American Realty Capital Properties, Inc.
(3
)(5)
Publicly Traded Company
   
54,800.00
   
$
514,633
   
$
445,524
     
1.99
 
Ashford Hospitality Prime, Inc.
(3
)
Publicly Traded Company
   
15,800.00
     
274,131
     
237,316
     
1.06
 
Ashford Hospitality Trust, Inc.
(3
)
Publicly Traded Company
   
30,000.00
     
299,917
     
253,800
     
1.14
 
CBL & Associates Properties, Inc.
(3
)
Publicly Traded Company
   
18,300.00
     
348,730
     
296,460
     
1.33
 
Equity Commonwealth
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
311,890
     
1.39
 
Lexington Realty Trust
(3
)
Publicly Traded Company
   
49,300.00
     
528,497
     
418,064
     
1.87
 
Liberty Property Trust
(3
)
Publicly Traded Company
   
5,500.00
     
195,750
     
177,210
     
0.79
 
One Liberty Properties, Inc.
(3
)
Publicly Traded Company
   
9,000.00
     
206,110
     
191,520
     
0.86
 
Rouse Properties Inc
(3
)
Publicly Traded Company
   
20,700.00
     
377,231
     
338,445
     
1.52
 
Senior Housing Properties Trust
(3
)
Publicly Traded Company
   
9,000.00
     
201,135
     
157,950
     
0.71
 
Winthrop Realty Trust Shares of Beneficial Interest
(3
)(5)
Publicly Traded Company
   
38,500.00
     
594,594
     
583,275
     
2.61
 
Total Publicly Traded Company
   
 
           
3,851,842
     
3,411,454
     
15.27
 
 
   
 
                               
Bluerock Residential Growth REIT, Inc. Class B2
(4
)
Non Traded Company
   
1,429.61
     
17,211
     
18,099
     
0.08
 
Bluerock Residential Growth REIT, Inc. Class B3
(4
)
Non Traded Company
   
1,429.61
     
15,781
     
18,099
     
0.08
 
FSP South 10th Street Corp. Liquidating Trust
(4
)(5)
Non Traded Company
   
0.25
     
152
     
130
     
-
 
Hines Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
2,692.31
     
13,569
     
12,949
     
0.06
 
InvenTrust Properties Corp.
(4
)
Non Traded Company
   
853,577.92
     
2,128,695
     
2,424,161
     
10.85
 
KBS Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
205,831.73
     
322,025
     
642,195
     
2.87
 
Landmark Apartment Trust, Inc.
(4
)
Non Traded Company
   
179,421.12
     
770,227
     
893,517
     
4.00
 
SmartStop Self Storage, Inc.
(4
)
Non Traded Company
   
124,588.73
     
1,094,503
     
1,639,588
     
7.34
 
TIER REIT, Inc.
(4
)
Non Traded Company
   
186,508.00
     
2,401,668
     
3,189,287
     
14.28
 
Total Non Traded Company (1)
   
 
           
6,763,831
     
8,838,025
     
39.56
 
 
   
 
                               
Del Taco Income Properties IV
(4
)
LP Interest
   
2,296.00
     
59,696
     
65,275
     
0.29
 
Del Taco Restaurant Properties I
(4
)
LP Interest
   
591.00
     
443,823
     
492,172
     
2.20
 
Del Taco Restaurant Properties II
(4
)
LP Interest
   
892.00
     
179,815
     
200,878
     
0.90
 
DRV Holding Company, LLC
(4
)(5)
LP Interest
   
500.00
     
500,000
     
552,785
     
2.47
 
El Conquistador Limited Partnership
(4
)
LP Interest
   
2.00
     
80,976
     
47,107
     
0.21
 
Hotel Durant, LLC
(4
)
LP Interest
   
7.10
     
577,299
     
366,106
     
1.64
 
Inland Land Appreciation Fund II, L.P.
(4
)(5)
LP Interest
   
210.97
     
8,667
     
30,956
     
0.14
 
MPF Pacific Gateway - Class B
(2)
(4)(5)
LP Interest
   
23.20
     
6,287
     
6,613
     
0.03
 
National Property Investors 6
(4
)(5)
LP Interest
   
7.00
     
145
     
151
     
-
 
Post Street Renaissance Partners Class A
(4
)(5)
LP Interest
   
9.10
     
16,981
     
20,336
     
0.09
 
Post Street Renaissance Partners Class D
(4
)(5)
LP Interest
   
21.60
     
105,623
     
130,036
     
0.58
 
Rancon Realty Fund IV
(4
)(5)
LP Interest
   
1,016.00
     
185,651
     
406,400
     
1.82
 
Rancon Realty Fund V
(4
)(5)
LP Interest
   
1,156.00
     
213,661
     
233,455
     
1.05
 
Resource Real Estate Investors 6, L.P.
(4
)
LP Interest
   
35,100.00
     
180,990
     
175,501
     
0.79
 
Secured Income, LP
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
748,946
     
3.35
 
The Weatherly, LTD
(4
)(5)
LP Interest
   
60.00
     
672,000
     
672,000
     
3.01
 
The Weatherly Building, LLC
(4
)(5)
LP Interest
   
17.50
     
392,000
     
392,000
     
1.75
 
Uniprop Manufactured Housing Income Fund II, LP
(4
)
LP Interest
   
53,202.00
     
237,401
     
276,118
     
1.24
 
VWC Savannah, LLC
(4
)(5)
LP Interest
   
8.25
     
825,000
     
825,532
     
3.70
 
Total LP Interest
   
 
           
5,246,418
     
5,642,367
     
25.26
 
 
   
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
(2)
(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
96,909
     
0.44
 
Coastal Realty Business Trust, Series H2- A
(2
)(4)
Investment Trust
   
47,284.16
     
246,351
     
188,191
     
0.84
 
Total Investment Trust
   
 
           
319,906
     
285,100
     
1.28
 
 
   
 
                               
BR Cabrillo LLC Promissory Note
(4
)(5)
Note
   
 
     
346,723
     
468,076
     
2.10
 
Total Note
   
 
           
346,723
     
468,076
     
2.10
 
 
   
 
                               
Total Investments
   
 
         
$
16,528,720
   
$
18,645,022
     
83.47
 
 

(1) Investments primarily in non traded public REITs or their successors.
(2) Investment in related party. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2015, the total percentage of non-qualifying assets is 14.69%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.
(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2015, the Fund has 65.61% of its assets in illiquid securities.
(5) Investments in non-income producing securities. As of June 30, 2015, the Fund has 25.52% of its assets in non-income producing securities.




The accompanying Notes to Financial Statements are an integral part of these financial statements.
MacKenzie Realty Capital, Inc.
Statements of Operations
(Unaudited)
 


 
 
For The Three Months Ended
December 31,
   
For The Six Months Ended
December 31,
 
 
 
2015
   
2014
   
2015
   
2014
 
Investment income
 
   
   
   
 
Dividend and distribution income
 
$
754,281
   
$
100,705
   
$
1,380,447
   
$
160,222
 
Interest and other income
   
23,739
     
12,606
     
76,141
     
24,754
 
Total investment income
   
778,020
     
113,311
     
1,456,588
     
184,976
 
 
                               
Operating expenses
                               
Base management fee
   
195,625
     
109,980
     
374,512
     
199,700
 
Subordinated incentive fee
   
550,415
     
-
     
550,415
     
-
 
Administrative cost reimbursements
   
30,000
     
30,000
     
60,000
     
60,000
 
Amortization of deferred offering costs
   
-
     
-
     
-
     
35,402
 
Professional fees
   
18,056
     
38,027
     
90,784
     
113,390
 
Other general and administrative
   
39,174
     
32,606
     
69,608
     
64,253
 
Total operating expenses
   
833,270
     
210,613
     
1,145,319
     
472,745
 
 
                               
Net investment income (loss)
   
(55,250
)
   
(97,302
)
   
311,269
     
(287,769
)
 
                               
Realized and unrealized gain on investments
                               
Net realized gain
   
1,079,176
     
189,256
     
1,407,975
     
321,754
 
Net unrealized gain (loss)
   
(420,803
)
   
176,927
     
132,811
     
784,421
 
Total net realized and unrealized gain on investments
   
658,373
     
366,183
     
1,540,786
     
1,106,175
 
 
                               
Income tax benefit (note 2)
   
-
     
402,101
     
1,412
     
188,949
 
 
                               
Net increase in net assets resulting from operations
 
$
603,123
   
$
670,982
   
$
1,853,467
   
$
1,007,355
 
 
                               
Net increase in net assets resulting from operations per Share
 
$
0.22
   
$
0.50
   
$
0.71
   
$
0.84
 
 
                               
Weighted average common Shares outstanding
   
2,778,183
     
1,334,447
     
2,627,348
     
1,200,270
 
















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 Six
Months Ended
   
For The Year
Ended
 
 
 
December 31, 2015
   
June 30, 2015
 
 
 
(Unaudited)
   
 
Operations
 
   
 
Net investment income (loss)
 
$
311,269
   
$
(363,162
)
Net realized gain
   
1,407,975
     
1,578,081
 
Net unrealized gain
   
132,811
     
1,803,714
 
Income tax benefit
   
1,412
     
188,949
 
Net increase in net assets resulting from operations
   
1,853,467
     
3,207,582
 
 
               
Dividends
               
Dividends to stockholders from net realized gain
   
(1,143,700
)
   
(972,586
)
 
               
Capital share transactions
               
Issuance of common stock
   
6,766,768
     
12,925,611
 
Issuance of common stock through reinvestment of dividends
   
346,040
     
78,373
 
Selling commissions and fees
   
(872,180
)
   
(1,665,330
)
Net increase in net assets resulting from capital share transactions
   
6,240,628
     
11,338,654
 
 
               
Total increase in net assets
   
6,950,395
     
13,573,650
 
 
               
Net assets at beginning of period
   
22,338,439
     
8,764,789
 
 
               
Net assets at end of period
 
$
29,288,834
   
$
22,338,439
 






















The accompanying Notes to Financial Statements are an integral part of these financial statements.
MacKenzie Realty Capital, Inc.
Statements of Cash Flows
 (Unaudited)
 

 
 
 
For The Six Months Ended
December 31,
 
 
 
2015
   
2014
 
 
 
   
 
Cash flows from operating activities:
     
 
Net increase in net assets resulting from operations
 
$
1,853,467
   
$
1,007,355
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
7,833,638
     
2,102,153
 
Return of capital
   
121,446
     
85,573
 
Purchase of investments
   
(11,823,108
)
   
(6,361,387
)
Net realized gain
   
(1,407,975
)
   
(321,754
)
Net unrealized gain
   
(132,811
)
   
(784,421
)
Amortization of deferred offering costs
   
-
     
35,402
 
Changes in assets and liabilities:
               
Accounts receivable
   
(1,969,686
)
   
(176,408
)
Other assets
   
(72,379
)
   
(187,903
)
Accounts payable and accrued liabilities
   
27,191
     
(2,502
)
Income tax payable
   
-
     
(83,447
)
Due to related entities
   
486,354
     
23,517
 
Deferred tax liability
   
1,611
     
(106,002
)
Net cash from operating activities
   
(5,082,252
)
   
(4,769,824
)
 
               
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
6,766,768
     
5,725,916
 
Dividends to stockholders
   
(797,660
)
   
(442,254
)
Payment of selling commissions and fees
   
(861,284
)
   
(743,464
)
Change in capital pending acceptance
   
214,142
     
144,802
 
       Net cash from financing activities
   
5,321,966
     
4,685,000
 
 
               
Net increase (decrease) in cash and cash equivalents
   
239,714
     
(84,824
)
 
               
Cash and cash equivalents at beginning of the period
   
4,297,086
     
3,522,751
 
 
               
Cash and cash equivalents at end of the period
 
$
4,536,800
   
$
3,437,927
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
346,040
   
$
6,956
 









The accompanying Notes to Financial Statements are an integral part of these financial statements.

MacKenzie Realty Capital, Inc.
Notes to Financial Statements
December 31, 2015
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the "Fund") 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 Fund 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 Fund filed its initial registration statement on June 1, 2012, with the Securities and Exchange Commission ("SEC") to register the initial public offering of 5,000,000 shares of the Fund's common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Fund has filed various post-effective amendments since the SEC granted the initial effectiveness for the purpose of updating the Registration Statement. The most recent post-effective amendment was filed on November 4, 2015, which the SEC declared effective on the same day. The Fund commenced its operations on February 28, 2013, and its fiscal year-end is June 30.


The Fund was formed with the intention of qualifying to be taxed as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund qualified to be treated as a REIT for income tax purposes beginning with the tax year ended December 31, 2014, and made its REIT election in its 2014 tax return, which was filed on September 15, 2015.


The Fund is externally 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 Fund's affairs except for providing investment advice. The Fund 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 and renewed on October 23, 2014, and again on October 23, 2015.  The Fund pursues 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 Fund acquired, under an exchange agreement (the "Contribution Agreement"), a portfolio of investments and cash (the "Legacy Portfolio") from eight private funds collectively referred to as the "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 $0.5 million in cash) as of February 28, 2013. As consideration for the Fund's acquisition of the Legacy Portfolio, the Fund issued 692,217 shares of the Fund'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 Fund's common stock at $10 per share in order to provide the Fund with funds to complete this exchange and prepare its initial public offering.

As of December 31, 2015, cumulative contributions of approximately $29.1 million (inclusive of the $6.9 million initial Legacy Funds capital investment), representing 2,912,501.18 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 Articles 6 and 10 of Regulation S-X contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Fund's assets and liabilities as of December 31, 2015, and the results of its operations for the three and six months periods ended December 31, 2015, and 2014, which results are not necessarily indicative of results on an annualized basis. The statement of assets and liabilities as of June 30, 2015, has been derived from audited financial statements. The Fund follows the GAAP financial reporting standards for investment companies.  Accordingly, the Fund'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 Fund's statement of operations.

These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2015, included in the Fund's annual report on Form 10-K filed with the SEC.

There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2015, other than those expanded upon and described below.

Cash and Cash Equivalents

The Fund 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 Fund may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of December 31, 2015 and June 30, 2015.
 
Accounts Receivable

Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions.  The Fund monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted.  Substantially all of the accounts receivable balance outstanding as of December 31, 2015, has been collected as of the issuance date of this financial statements.

Capital Pending Acceptance

The Fund admits new stockholders monthly and subscriptions are effective only upon the Fund'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 December 31, 2015, and June 30, 2015, capital pending acceptances were $802,392 and $588,250, respectively.

Income Taxes and Deferred Tax Liability

Under ASC 740-10-25, the Fund 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 Fund 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.

The Fund was formed with the intention of qualifying to be taxed as a REIT and as a REIT, the Fund will not be subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that the Fund satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it will either be subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Fund is also subject to tax on built-in gains it realizes during the first ten years following REIT election.

The Fund qualified to be taxed as a REIT beginning with the tax year ended December 31, 2014, and made the REIT election in its 2014 tax return. The REIT qualifications, however, were not met until the quarter ended December, 2014. Thus, the Fund had recorded income tax provisions during the period from January 1 through September 30, 2014, at corporate federal and state income tax rates. After the REIT qualifications were met, the Fund recorded an income tax benefit of $402,101 during the quarter ended December 31, 2014, in order to reverse the income tax provisions recorded for the period of January 1, 2014, through September 30, 2014.

For the tax year ended December 31, 2015, the Fund believes that distributions made to shareholders exceeded its REIT taxable income. Accordingly, the Fund does not expect to incur income tax and did not record any tax provision for the period from January 1, 2015, through December 31,2015.

Prior to the effective date of REIT election, the Fund had net unrealized built-in gain of $239,595, for which the Fund recorded an estimated tax liability of $95,431 as of December 31, 2013. Accordingly, in each subsequent tax years, the Fund only records the difference between the actual and estimated tax on the built-in gains it realizes during each tax year as income tax expense or benefit. In the quarter ended September 30, 2015, the Fund recorded an income tax benefit of $1,412 resulting from the adjustment to actual of the estimated built-in gains tax incurred for the tax year ended December 31, 2014. The Fund does not expect to incur tax on built-in gains realized during the tax year ended December 31, 2015.

The following table shows the cumulative temporary differences resulting from the net unrealized built-in gains, which are subject to tax, as of December 31,:
 
   
2015
   
2014
 
Unrealized gain on investments, net
 
$
116,189
   
$
46,487
 
 
The effective tax rates as of December 31, 2015 and 2014, were 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. This effective tax rate was applicable to the 2014 and 2015 realized built-in gains that were not exempt from tax. Amortization of deferred offering costs are not considered deductible for income tax purposes, resulting in the effective tax rate on reported financial statement income to be larger than would otherwise be expected.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Fund's investments at cost and fair value as of December 31, 2015, and June 30, 2015:
 
 
 
December 31, 2015
   
June 30, 2015
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
8,639,777
   
$
8,594,738
   
$
3,851,842
   
$
3,411,454
 
Non Traded Company
   
5,056,294
     
6,795,315
     
6,763,831
     
8,838,025
 
LP Interest
   
7,255,475
     
7,769,405
     
5,246,418
     
5,642,367
 
Investment Trust
   
258,436
     
224,159
     
319,906
     
285,100
 
Note
   
594,735
     
670,215
     
346,723
     
468,076
 
Total
 
$
21,804,717
   
$
24,053,832
   
$
16,528,720
   
$
18,645,022
 
 
The following table presents fair value measurements of the Fund's investments measured at fair value on a recurring basis as of December 31, 2015, according to the fair value hierarchy:
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
8,594,738
   
$
8,594,738
   
$
-
   
$
-
 
Non Traded Company
   
6,795,315
     
-
     
16,941
     
6,778,374
 
LP Interest
   
7,769,405
     
-
     
-
     
7,769,405
 
Investment Trust
   
224,159
     
-
     
-
     
224,159
 
Note
   
670,215
     
-
     
-
     
670,215
 
Total
 
$
24,053,832
   
$
8,594,738
   
$
16,941
   
$
15,442,153
 
The following table presents fair value measurements of the Fund's investments measured at fair value on a recurring basis as of June 30, 2015, according to the fair value hierarchy:
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
3,411,454
   
$
3,411,454
   
$
-
   
$
-
 
Non Traded Company
   
8,838,025
     
-
     
36,198
     
8,801,827
 
LP Interest
   
5,642,367
     
-
     
-
     
5,642,367
 
Investment Trust
   
285,100
     
-
     
-
     
285,100
 
Note
   
468,076
     
-
     
-
     
468,076
 
Total
 
$
18,645,022
   
$
3,411,454
   
$
36,198
   
$
15,197,370
 
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 six month period ended December 31, 2015:
Balance at July 1, 2015
 
$
15,197,370
 
Purchases of investments
   
7,074,312
 
Transfers to Level I
   
(3,189,287
)
Proceeds from sales, net
   
(5,477,542
)
Return of capital
   
(82,947
)
Net realized gain
   
1,393,119
 
Net unrealized gain
   
527,128
 
Ending balance at December 31, 2015
 
$
15,442,153
 
 
For the six months ended December 31, 2015, changes in unrealized gain included in earnings relating to Level III investments still held at December 31, 2015, was $949,703.

The transfers of $3,189,287 from Level III to Level I category during the six months ended December 31, 2015, relates to changes in tradability of the securities in an active market due to one of the Fund's investments converting from a non traded REIT shares to a publicly traded REIT shares.

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 six months ended December 31, 2014:

Balance at July 1, 2014
 
$
4,207,480
 
Purchases of investments
   
3,597,452
 
Proceeds from sales, net
   
(1,076,634
)
Return of capital
   
(20,781
)
Net realized gain
   
200,671
 
Net unrealized gain
   
801,906
 
Ending balance at December 31, 2014
 
$
7,710,094
 
 
For the six months ended December 31, 2014, changes in unrealized gain included in earnings relating to Level III investments still held at December 31, 2014 was $852,804.

The Level II investments as of December 31, 2015, and June 30, 2015, with total fair value of $16,941 and $36,198, respectively, included investments in a non traded REIT, which were valued using quoted prices for similar a security in an active market.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at December 31, 2015:
 
Asset Type
 Fair Value
Primary Valuation Techniques
Unobservable Inputs Used
Range
Wt. Average
 
 
 
 
 
 
Non Traded Company
 $   6,753,958
Market Activity
Acquisition cost
   
     
Expected company merger payout
   
     
Secondary market industry publication
   
Non Traded Company
           24,416
Net Asset Value (1)
Capitalization rate
7.3%
 
   
 
Liquidity discount
28.0%
 
   
 
Sponsor provided value
   
           
LP Interest
      4,222,989
Market Activity
Acquisition cost
 
 
 
 
 
Secondary market industry publication
 
 
LP Interest
      3,546,416
Net Asset Value (1)
Capitalization rate
6.5% - 6.8%
6.5%
 
 
 
Comparable sales report
 
 
 
 
 
Discount rate
40.0%
 
 
 
 
Liquidity discount
15.0% - 38.0%
25.6%
 
 
 
Sponsor provided value
 
 
 
 
 
Underlying asset appraised value
 
 
 
 
 
 
 
 
Investment Trust
         124,357
Market Activity
Secondary market industry publication
 
 
Investment Trust
           99,802
Net Asset Value (1)
Capitalization rate
6.5%
 
 
 
 
Liquidity discount
22.0%
 
 
 
 
 
 
 
Note
         670,215
Net Asset Value (1)
Liquidity discount
15.0%
 
 
 
 
Sponsor provided value
 
 
 
 $          15,442,153
       

Valuation Technique Terms:
 (1) The Fund calculated issuer's net asset value.
 

 
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2015:
 
 
Asset Type
 Fair Value
Primary Valuation Techniques
Unobservable Inputs Used
Range
Wt. Average
 
 
 
 
 
 
Non Traded Company
 $   8,801,827
Market Activity
Acquisition Cost
 
 
 
 
 
Secondary market industry publication
 
 
 
 
 
 
 
 
LP Interest
      2,879,480
Market Activity
Acquisition Cost
 
 
 
 
 
Secondary market industry publication
 
 
LP Interest
      2,762,887
Net Asset Value (1)
Capitalization rate
6.5% - 7.5%
6.7%
 
 
 
Comparable sales report
 
 
 
 
 
Contracted sale of property
 
 
 
 
 
Liquidity discount
10.0% - 40.0%
30.8%
 
 
 
Sponsor provided value
 
 
 
 
 
 
 
 
Investment Trust
         188,191
Market Activity
Secondary market industry publication
 
 
Investment Trust
           96,909
Net Asset Value (1)
Capitalization rate
6.6%
 
 
 
 
Liquidity discount
28.0%
 
 
 
 
 
 
 
Note
         468,076
Net Asset Value (1)
Liquidity discount
15.0%
 
 
 
 
Sponsor provided value
 
 
 
 $ 15,197,370
 
 
 
 

Valuation Technique Terms:
 (1) The Fund calculated issuer's net asset value.
 

NOTE 4—MARGIN LOANS
The Fund has a brokerage account through which it buys and sells publicly-traded securities. The provisions of the account allow the Fund 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 December 31, 2015, the Fund had $5,611,387 of margin credit available for cash withdrawal or the ability to purchase up to $11,222,774 in additional shares. As of June 30, 2015, the Fund had $3,001,900 of margin credit available for cash withdrawal or the ability to purchase up to $6,003,976 in additional shares. As of December 31, 2015, and June 30, 2015, the Fund 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 Fund 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 Fund's assets and equals 3.0% of the gross proceeds from the sale of the Fund's shares.

The base management fee is calculated at an annual rate as a percentage of our Managed Funds (the number of Shares issued multiplied by the price at which such Shares are issued in the Offering ($10), plus any borrowed funds). The base management fee will be 3.0% of the first $20 million of our Managed Funds, 2.0% of the next $80 million of our Managed Funds, and 1.5% of our Managed Funds in excess of $100 million.

The subordinated incentive fee has three parts—income, capital gains, and liquidation. The income component is (i) 100% of the Fund'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 Fund'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 Fund's preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Fund's "contributed capital."  The capital gains component is (i) 100% of the Fund's realized capital gains annually generated by its investments above 7% and up to 8.75% of the Fund's "contributed capital," and (ii) 20% of the Fund's realized capital gains above 8.75% of the Fund'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 Fund'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 Fund's realized capital gains as of the date of liquidation.

The portfolio structuring fees for the three and six months ended December 31, 2015 were $91,314 and $203,003, respectively. The portfolio structuring fees for the three and six months ended December 31, 2014 were $80,878 and $174,010, respectively.

As of December 31, 2015, Managed Funds were $29,125,012. Thus, the base management fee for the three months ended December 31, 2015, was 3% of $20,000,000 plus 2% of the remaining $9,125,012, for a total of $195,625. As of September 30, 2015, Managed Funds were $25,777,367. Thus, the base management fee for the three months ended September 30, 2015, was 3% of $20,000,000 plus 2% of the remaining $5,777,367, for a total of $178,887. The base management fee for the six months ended December 31, 2015, was $374,512.

As of December 31, 2014, Managed Funds were $14,663,986. Thus, base management fee for the three months ended December 31, 2014, was 3% of $14,663,986 for a total of $109,980. As of September 30, 2014, Managed Funds were $11,962,664. Thus, the base management fee for the three months ended September 30, 2014, was 3% of $11,962,664, for a total of $89,720. The base management fee for the six months ended December 31, 2014, was $199,700.

The estimated subordinated incentive fee accrued for the three and six months ended December 31, 2015, was $550,415, which was based on the net investment income for the three months ended December 31, 2015, and the cumulative net realized gains and unrealized losses since inception through December 31, 2015. This estimated fee is subject to change since the fee is computed and paid annually at the end of each fiscal year. There were no subordinated incentive fees for the three and six months ended December 31, 2014.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Fund in excess of $550,000 will be reimbursed by the Adviser. As of December 31, 2015, and June 30, 2015, the Fund had incurred $1,057,149 and $963,726 of organization and offering costs, respectively. Thus, according to the agreement, $507,149 and $413,726 of the amount were reimbursable from the Adviser as of December 31, 2015, and June 30, 2015, respectively. As of December 31, 2015, the Adviser has reimbursed the Fund $468,678 and the remaining reimbursable amount of $38,471 was settled through an offset against the amount payable to the Adviser as of December 31, 2015.

Administration Agreement:
Under the Administration Agreement, the Fund reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Fund with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Fund with other administrative services, subject to the Independent Directors' approval. In addition, the Fund reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Fund's Chief Financial Officer, Chief Compliance Officer, Financial Reporting Manager, and any administrative support staff.

The administrative cost reimbursements for the three and six months ended December 31, 2015, were $30,000 and $60,000, respectively. The administrative cost reimbursements for the three and six months ended December 31, 2014, were $30,000 and $60,000, respectively.

The table below outlines the related party expenses incurred for the six months ended December 31, 2015 and 2014 and unpaid as of December 31, 2015, and June 30, 2015.
   
For The Six Months Ended
   
Unpaid as of
     
Types and Recipient
 
December 31, 2015
   
December 31, 2014
   
December 31, 2015
   
June 30, 2015
 
                 
Portfolio Structuring fee- the Adviser
 
$
203,003
   
$
174,010
   
$
1,500
   
$
-
 
Base Management fees- the Adviser
   
374,512
     
199,700
     
195,625
     
159,710
 
Subordinated incentive fee-the Adviser
   
550,415
     
-
     
553,395
     
46,748
 
Administrative Cost Reimbursements- MacKenzie
   
60,000
     
60,000
     
-
     
30,000
 
Others expenses (1) -MacKenzie
                   
3,108
     
638
 
Organization & Offering Cost Reimbursement by the Adviser
                   
(38,471
)
   
(8,293
)
Due to related entities
                 
$
715,157
   
$
228,803
 
 (1) Expenses paid by MacKenzie on behalf of the Fund to be reimbursed to MacKenzie.

Related Party Investments:
 
Name of issuer and title of issue
 
Number of shares
   
Amount of equity in net profit and loss
   
Amount of dividends/interest
   
Fair Value at
 
                 
Controlled Investments:
               
                 
December 31, 2015
     
For The Six Months Ended December 31, 2015
   
December 31, 2015
 
                 
Coastal Realty Business Trust, REEP, Inc. - A
   
72,320.00
   
$
-
   
$
-
   
$
99,802
 
Coastal Realty Business Trust, Series H2- A
   
47,284.16
   
$
66,198
   
$
66,198
   
$
124,357
 
                                 
June 30, 2015
         
For The Year Ended June 30, 2015
   
June 30, 2015
 
                                 
Coastal Realty Business Trust, REEP, Inc. - A
   
72,320.00
   
$
2,170
   
$
2,170
   
$
96,909
 
Coastal Realty Business Trust, Series H2- A
   
47,284.16
   
$
14,776
   
$
14,776
   
$
188,191
 
                                 
Non-Controlled/Affiliate Investment:
                               
           
For The Six Months Ended December 31, 2015
   
December 31, 2015
 
December 31, 2015
                               
                                 
MPF Pacific Gateway - Class B
   
23.20
   
$
-
   
$
-
   
$
6,613
 
                                 
June 30, 2015
         
For The Year Ended June 30, 2015
   
June 30, 2015
 
                                 
MPF Pacific Gateway - Class B
   
23.20
   
$
-
   
$
-
   
$
6,613
 


Coastal Realty Business Trust ("CRBT"):

CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Fund owns two series of CRBT and is the only beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants.
The Fund is the sole beneficiary of the following series as of December 31, 2015, and June 30, 2015:
·
CRBT, REEP, Inc.-A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.

·
CRBT, Series H2-A, which invests in shares of a REIT that owns a real estate portfolio totaling 105 properties within asset classes of ski and mountain lifestyle, senior housing, attractions, marinas and other lifestyle properties located in the United States and Canada.

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 December 31, 2015, and June 30, 2015, the Fund 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 Fund for the six months ended December 31, 2015, and the year ended June 30, 2015.

  
 
 
For The Six months ended
   
For The Year Ended
 
 
 
December 31, 2015
   
June 30, 2015
 
Per Share Data:
 
   
 
 
 
   
 
Beginning net asset value
 
$
10.17
   
$
9.81
 
 
               
Net investment income (loss) (1)
   
0.12
     
(0.24
)
Net realized gain (1)
   
0.54
     
1.03
 
Net unrealized gain (1)
   
0.05
     
1.17
 
Income tax benefit (1)
   
-
     
0.12
 
Net increase in net assets resulting from operations
   
0.71
     
2.08
 
 
               
Issuance of common stock below net asset value (1) (4)
   
(0.38
)
   
(1.09
)
Dividends to stockholders from net realized gains (1) (6)
   
(0.44
)
   
(0.63
)
Ending net asset value
 
$
10.06
   
$
10.17
 
 
               
Weighted average common Shares outstanding
   
2,627,348
     
1,541,525
 
Shares outstanding at the end of period
   
2,912,501
     
2,196,613
 
Net assets at the end of period
 
$
29,288,834
   
$
22,338,439
 
Average net assets (2)
 
$
25,813,637
   
$
15,551,614
 
 
               
Ratios to average net assets
               
Total expenses (5)
   
4.44
%
   
6.21
%
Net investment income (loss) (5)
   
1.21
%
   
(2.34
)%
Total rate of return (2) (3) (5)
   
7.18
%
   
20.63
%

(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 stockholder's return may vary from this return based on the time of capital transactions.
(4)       Net of sales commissions and dealer manager fees of $1.30 per share.
(5)       Not annualized for the six months ended December 31, 2015.
(6)       Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.
 

NOTE 7 – SHARE OFFERINGS AND FEES
During the six months ended December 31, 2015, the Fund issued 626,677.54 shares at $10 per share with gross proceeds of $6,266,775, 50,762 shares at volume discount prices between $9.80 and $9.90 with gross proceeds of $499,993 and 38,448.91 shares under the Fund's dividend reinvestment plan ("DRIP") at $9 per share with gross proceeds of $346,040. For the six months ended December 31, 2015, the Fund incurred selling commissions and upfront fees of $872,180, of which $203,003 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

During the six months ended December 31, 2014, the Fund issued 571,896 shares at $10 per share with gross proceeds of $5,718,960 and issued 772.80 shares under the DRIP at $9 per share with gross proceeds of $6,956. For the six months ended December 31, 2014, the Fund paid selling commissions and upfront fees of $743,464, of which $174,010 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

On December 7, 2015, the Fund, pursuant to its Share Repurchase Program, offered to purchase 50,000 shares of its issued and outstanding stock at $9 per Share. The purchase offer expired on January 7, 2016 and as of the offer expiration date the Fund received and accepted a total of 74,285.563 Shares. As the number of Shares accepted was greater than the 50,000 the Fund had offered to purchase, the Fund increased the Offer to accept all such tendered shares. On January 11, 2016, the Fund made cash payments of $668,570 to purchase the Shares accepted pursuant to the Offer.

NOTE 8 –STOCKHOLDER DIVIDENDS AND INCOME TAXES

The following table reflects the cash dividend per share that the Fund paid on its common stock during the six months ended December 31, 2015:
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2015
 
$
0.300
   
$
623,394
 
Three months ended December 31, 2015
   
0.210
     
520,306
 
 
 
$
0.510
   
$
1,143,700
 
 
Of the total dividend paid during the six months ended December 31, 2015, $346,040 was reinvested under the DRIP.

The following table reflects the cash dividend per share that the Fund paid on its common stock during the six months ended December 31, 2014:
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2014
 
$
0.300
   
$
255,442
 
Three months ended December 31, 2014
   
0.175
     
186,812
 
 
 
$
0.475
   
$
442,254
 
 
Of the total dividend paid during the six months ended December 31, 2014, $6,956 was reinvested under the DRIP.

On December 31, 2015, the Fund's Board of Directors approved a quarterly dividend of $0.25 per share to the holders of record on December 31, 2015, which was paid on January 25, 2016.

 

Income Taxes
While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified.
 
For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders during the tax year ended December 31, 2014 (the most recent tax year end completed and filed), were as follows:

Ordinary income - earnings and profits from pre REIT qualification
 
$
103,874
 
Capital gain
   
469,230
 
Total dividends
 
$
573,104
 
 
For the tax year ending December 31, 2015, the tax character of dividends paid to stockholders through December 31, 2015, is expected to be ordinary income and capital gains. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending December 31, 2015.

As of December 31, 2014, the components of undistributed earnings on a tax basis were as follows:
Undistributed long term capital gain
 
$
6,372
 
Unrealized fair value appreciation
   
1,120,925
 
   
$
1,127,297
 
 
The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of:
 
   
December 31, 2015
   
June 30, 2015
 
         
Aggregate gross unrealized appreciation
 
$
2,701,378
   
$
2,909,892
 
Aggregate gross unrealized depreciation
   
(432,378
)
   
(825,283
)
Net unrealized appreciation (depreciation)
 
$
2,269,000
   
$
2,084,609
 
                 
Aggregate cost (tax basis)
 
$
21,784,830
   
$
16,560,414
 
 
NOTE 9 – COMMITMENTS AND CONTINGENCIES

As of June 30, 2015, the Fund committed  to loan an additional $172,000 to BR Cabrillo, LLC. The loan is disbursed upon borrower's request and accrues interest at the rate of 15% per annum. As of  December 31, 2015, the Fund has disbursed $166,612 of the total commitment with the remaining commitment of $5,388. The Fund has concluded that no accounting recognition or reporting for the estimated fair value of the undisbursed commitment is necessary as of December 31, 2015, because the loan terms continue to be equivalent to the market terms for such commitments, and the borrower's credit condition has not changed significantly. As of December 31, 2015, the Fund has sufficient unencumbered liquid assets to cover the amount of currently unfunded commitments.
As of December 17, 2015, the Fund committed to loan an additional $260,000 to BR Cabrillo, LLC. The loan is disbursed upon borrower's request and accrues interest at the rate of 15% per annum. As of December 31, 2015, the Fund has disbursed $43,136 of the total commitment with the remaining commitment of $216,864. The Fund has concluded that no accounting recognition or reporting for the estimated fair value of the undisbursed commitment is necessary as of December 31, 2015, because the loan terms continue to be equivalent to the market terms for such commitments, and the borrower's credit condition has not changed significantly. As of December 31, 2015, the Fund has sufficient unencumbered liquid assets to cover the amount of currently unfunded commitments.

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 are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. Our objective is to generate both current income and capital appreciation through real estate-related investments. We qualified to be taxed as a REIT beginning with the tax year ended December 31, 2014, and we made our REIT election in our 2014 tax return. As a REIT, we are not 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 distributes less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. We are also subject to tax on built-in gains we realize during the first ten years following REIT election.

We were formed to continue and expand the business of the Legacy Portfolio. The Legacy 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. As consideration for our acquisition of that portfolio, 692,217 Shares were issued to the Legacy Funds.

We are managed by the Adviser, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate.
Investments

Our investments are generally expected to range in size from $10,000 to $3 million. However, we may make smaller or larger investments from time to time on an opportunistic basis. We focus primarily on real estate-related securities. We 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 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.

We generally seek to invest in interests of real estate-related limited partnerships and REITs. Under normal market conditions, we invest at least 80.0% of our total assets in common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities. For purposes of the REIT rules, a real estate company is one that (i) derives at least 50.0% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50.0% of its assets invested in such real estate. We do not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities that we may invest in may in turn hold interests in general partnerships, joint ventures, or other non-limited liability entities. We generally consider purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate-related investments.

We may also acquire (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii) securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20.0% of our available capital, securities of issuers that own assets other than real estate.

Revenues

We generate revenue 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.
Expenses

Our primary operating expenses include the payment of: (i) investment advisory fees (which include the Portfolio Structuring Fee) to our Adviser; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie Capital Management in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments, including our initial portfolio from the Legacy Funds. Our expenses must be billed to and paid by us, except that a MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We will bear all other expenses of our operations and transactions, including:
·
the cost of calculating our NAV, including the cost of any third-party valuation services;
·
the cost of effecting sales and repurchases of our Shares and other securities;
·
interest payable on debt, if any, to finance our investments;
·
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 and third-party advisory fees;
·
transfer agent and safekeeping fees;
·
fees and expenses associated with marketing efforts;
·
federal and state registration fees, any stock exchange listing fees in the future;
·
federal, state and local taxes;
·
Independent Directors' fees and expenses;
·
brokerage commissions;
·
fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;
·
direct costs and expenses of administration and sub-administration, including printing, mailing, long distance telephone and staff;
·
fees and expenses associated with independent audits and outside legal costs;
·
costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act and applicable federal and state securities laws; and
·
all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff.
In addition, we have already born $550,000 of Organization and Offering Expenses. Any additional amounts will be paid by our Adviser.
Portfolio Investment Composition
The following table summarizes the composition of our investments at cost and fair value as of December 31, 2015, and June 30, 2015:

   
December 31, 2015
       
June 30, 2015
     
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
8,639,777
   
$
8,594,738
   
$
3,851,842
   
$
3,411,454
 
Non Traded Company
   
5,056,294
     
6,795,315
     
6,763,831
     
8,838,025
 
LP Interest
   
7,255,475
     
7,769,405
     
5,246,418
     
5,642,367
 
Investment Trust
   
258,436
     
224,159
     
319,906
     
285,100
 
Note
   
594,735
     
670,215
     
346,723
     
468,076
 
Total
 
$
21,804,717
   
$
24,053,832
   
$
16,528,720
   
$
18,645,022
 
Net Asset Value

Our net asset value ("NAV") as of December 31, 2015, was $10.06 per Share, compared to $10.17 per Share at June 30, 2015, a $0.11 per Share decrease of approximately 1.10%. The net decrease during the six months was due to decreases resulting from (i) issuance of Shares (net of selling commissions and dealer manager fees) below NAV per Share resulting in decrease of a $0.38 per Share and (ii) a dividend to stockholders of $0.44 per Share. The decreases were offset by increases resulting from (i) net realized gain on sale of investments of $0.54 per Share (ii) net unrealized gains on investments of $0.05 per Share and (iii) net investment income of $0.12 per Share.

Results of Operations

Three Months Ended December 31, 2015 and 2014:

Investment Income: Investment income was primarily made up of dividend, distribution, interest and other investment income. Total investment income for the three months ended December 31, 2015 and 2014, were $778,020 and $113,311, respectively. The increase of $664,709, or 587%, was primarily due to the Fund receiving large non-recurring distributions and dividends of $302,759 from Uniprop Manufactured Housing Income Fund II, LP, $108,094 from Resource Real Estate Investors 6, LP, and $139,634 from KBS Real Estate Investment Trust, Inc. during the three months ended December 31, 2015. To a lesser extent, the increase was due to an increase in our investment portfolio size by approximately $11.72 million in cost basis since December 31, 2014. The cost basis of our investment portfolio was $21.8 million as of December 31, 2015, compared to $10.1 million as of December 31, 2014.

Operating Expenses: Total operating expenses for the three months ended December 31, 2015 and 2014, were $833,270 and $210,613, respectively. This net increase of $622,657, or 296%, was primarily attributed to increases in the subordinated incentive fee of $550,415 and the base management fee of $85,645.

The Fund did not incur any subordinated incentive fee for the three months ended December 31, 2014, compared to $550,415 for the three months ended December 31, 2015. During the three months ended December 31, 2015, the Fund's accumulated net realized gains since inception-to-date offset by unrealized losses exceeded the 7% annualized return on the outstanding capital resulting in subordinated capital gain fees to the Adviser during the three months ended December 31, 2015. The estimated fee is accrued as of December 31, 2015, and subject to change since the fee is computed and paid annually at the end of each fiscal year.

The increase in the three months ended base management fee was due to increase in the managed capital since December 31, 2014. As of December 31, 2015, managed capital was $29,054,863 compared to $14,663,986 as of December 31, 2014, which is an increase of $14,390,877.

Net realized gain on investments: Total net realized gain on sale of investments for the three months ended December 31, 2015, and 2014, were $1,079,176 and $189,256, respectively. This increase of $889,920 or 470%, was primarily due to the Fund realizing a gain of $1.03 million from the merger of SmartStop Self Storage, Inc. during the quarter ended December 31, 2015. There were no such large gains realized during the three months ended December 31, 2014.

Net unrealized gain/loss on investments: For the three months ended December 31, 2015, the Fund recorded a net unrealized loss of $420,803 compared to a net unrealized gain of $176,927 for the three months ended December 31, 2014. This decrease of $597,730 or 338% was due to a higher amount of unrealized gain realized during the three months ended December 31, 2015, compared to December 31, 2014. During the three months ended December 31, 2015, we recorded net unrealized gain of $658,373 and realized $1,079,176, which were reclassified out of the net unrealized gains, resulting in net unrealized loss of $420,803 for the three months ended December 31, 2015. During the three months ended December 31, 2014, we recorded net unrealized gain of $366,183 and realized $189,256, which were reclassified out of the net unrealized gains, resulting in net unrealized gain of $176,927 for the three months ended December 31, 2014. Therefore, the net unrealized gains excluding the reclassified realized gains for the three months ended December 31, 2015 increased by $292,190. This increase was due to the increase in our investment portfolio by $11.72 million in cost basis since December 31, 2014.

Income tax provision (benefit): For the three months ended December 31, 2015, we did not record any income tax provision as we believe that dividends we paid to our shareholders during tax year ended December 31, 2015, exceeded our REIT taxable income.

For the three months ended December 31, 2014, we recorded income tax benefit of $402,101 in order to reverse the tax provisions we had recorded as a corporation for federal and state income tax purposes during the period of January 1 through September 30, 2014 after we met the REIT qualifications for the tax year ended December 31, 2014, during the three months ended December 31, 2014.

Six Months Ended December 31, 2015 and 2014:

Investment Income: Investment income was primarily made up of dividend, distribution, interest and other investment income. Total investment income for the six months ended December 31, 2015 and 2014, were $1,456,588 and $184,976, respectively. The increase of $1,271,612, or 687%, was primarily due to the Fund receiving large non-recurring distributions and dividends of $382,048 from Rancon Realty Fund IV, LP, $302,759 from Uniprop Manufactured Housing Income Fund II, LP, $108,094 from Resource Real Estate Investors 6, LP, and $139,634 from KBS Real Estate Investment Trust, Inc. during the six months ended December 31, 2015. To a lesser extent, the increase was due to an increase in our investment portfolio size by approximately $11.72 million in cost basis since December 31, 2014. The cost basis of our investment portfolio was $21.8 million as of December 31, 2015, compared to $10.1 million as of December 31, 2014.

Operating Expenses: Total operating expenses for the six months ended December 31, 2015, and 2014, were $1,145,320 and $472,745, respectively. This net increase of $672,575, or 142%, was primarily attributed to increases in the subordinated incentive fee of $550,415 and the base management fee of $174,812 offset by a decrease in amortization of deferred offering costs of $35,402. The reason for the increase in the subordinated incentive is the same as discussed under the three months ended operating expenses.

The increase in the six months ended base management fee was due to increase in the managed capital since December 31, 2014. As of December 31, 2015, managed capital was $29,054,863 compared to $14,663,986 as of December 31, 2014, which is an increase of $14,390,877.

The decrease in amortization of deferred offering cost was due to the deferred offering cost being fully amortized as of September 30, 2014.

Net realized gain on investments: Total realized gains on the sale of investments for the six months ended December 31, 2015 was $1,407,975, compared to $321,754 for the six months ended December 31, 2014. This increase of $1,086,221 or 338%, was primarily due to the Fund realizing a gain of $1.03 million from the redemption of SmartStop Self storage, Inc. shares during the quarter ended December 31, 2015. There were no such large gains realized during the three months ended December 31, 2014.

Net unrealized gain/loss on investments: Total unrealized gain on investments for the six months ended December 31, 2015 was $132,811, compared to $784,421 for the six months ended December 31, 2014.  This decrease of $651,610 or 83% was due to a higher amount of unrealized gain realized during the six months ended December 31, 2015, compared to December 31, 2014. During the six months ended December 31, 2015, we recorded net unrealized gain of $1,540,786 and realized $1,407,975, which was reclassified out of the net unrealized gains, resulting in net unrealized gain of $132,811 for the six months ended December 31, 2015. During the six months ended December 31, 2014, we recorded net unrealized gain of $1,106,175 and realized $321,754, which are reclassified out of the net unrealized gains, resulting in net unrealized gain of $784,421 for the six months ended December 31, 2014. Therefore, the net unrealized gains excluding the reclassified realized gains for the six months ended December 31, 2015 increased by $434,611 or 39%. This increase was due to the increase in our investment portfolio by $11.72 million in cost basis since December 31, 2014.

Income tax provision (benefit): For the six months ended December 31, 2015, we did not record any income tax provision as we believe that dividends we paid to our shareholders exceeded our REIT taxable income for the tax year ended December 31, 2015. During the six months ended December 31, 2015, we did, however, record an income tax benefit of $1,412, which is an adjustment for the difference between the actual and estimated tax on the built-in gains realized during tax year 2014.

During the six months ended December 31, 2014, we recorded net income tax benefit of $188,949, which comprises of $213,152 of income tax provision recorded during the three months ended September 30, 2014 and $402,101 income tax benefit recorded during the three months ended December 31, 2014. The three months ended September 30, 2014 tax provision was recorded for the operating results of the same period as a corporation for federal and state income tax purposes as we had not qualified as a REIT for tax purposes as of September 30, 2014. During the three months ended December, 2014, we met the qualification to be treated as a REIT for tax purposes beginning with tax year ended December 31, 2014; thus, we reversed the tax provisions recorded during the period of January 1, through September 30, 2014 as a corporation.

Liquidity and Capital Resources

Capital Resources

We filed a Registration Statement with the Securities and Exchange Commission ("SEC") to register the sale of 5,000,000 Shares, under which we seek to raise up to $50,000,000 in our initial public offering ("IPO"). As of December 31, 2015, we have sold 2,009,819.54 Shares at $10 per Share with gross proceeds of $20,098,195, 127,296 shares at volume discount prices between $9.70 and $9.90 with gross proceeds of $1,249,974, and issued 47,168.64 Shares under our DRIP at an average price of $9 per Share with gross proceeds of $424,524. 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, use of our margin credit, and issuance 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. Our stockholders have most recently approved our ability to sell shares below NAV on November 12, 2015.

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 uses of funds are investing in portfolio companies, paying cash dividends to holders of our common stock (primarily from investment income and realized capital gains), making payments to any lenders or senior security holders, and the payment of operating expenses.  If we sell all of the shares registered under the Registration Statement in the IPO, we expect to have cash resources of approximately $43.5 million.
Cash Flows:

For the six months ended December 31, 2015, we experienced a net increase in cash of $239,714. During this period, we generated $5,321,966 of cash from our financing activities and used $5,082,252 of cash in operating activities. Net cash outflow from operating activities was primarily due to purchases of investments of $11,823,108, offset by cash inflow of $6,039,174 from sales of investments and cash inflow of $701,682 from investment income, net of operating expenses. Cash inflow from financing activities resulted from the sale of 677,439 Shares with gross receipts of $6,766,768, offset by the payment of selling commissions and fees of $861,283, stockholder dividends of $797,660 and an increase in capital pending acceptance of $214,142.


Contractual Obligations
We have entered into two contracts under which we have material future commitments: (i) the Advisory Agreement, under which the Adviser serves as our investment adviser, and (ii) 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