CROSSROADS LIQUIDATING TRUST - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - CROSSROADS LIQUIDATING TRUST	a6094757ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - CROSSROADS LIQUIDATING TRUST	a6094757ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - CROSSROADS LIQUIDATING TRUST	a6094757ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - CROSSROADS LIQUIDATING TRUST	a6094757ex32_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2009.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-53504

KEATING CAPITAL, INC.

(Exact name of registrant as specified in its charter)


Maryland		26-2582882
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5251 DTC Parkway, Suite 1000

Greenwood Village, CO 80111

(Address of principal executive office)

(720) 889-0139

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 x 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 of 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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer ¨		Accelerated filer ¨
	Non-accelerated filer x		Smaller reporting company ¨
	(Do not check if a 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 x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of November 10, 2009 was 569,900.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Statements of Assets and Liabilities as of September 30, 2009 and December 31, 2008	1
	Statements of Operations for the three and nine months ended September 30, 2009, for the three months ended
	September 30, 2008, and for the period from May 9, 2008 (Inception) to September 30, 2008	2
	Statements of Changes in Net Assets for the nine months ended September 30, 2009 and for the period from
	May 9, 2008 (Inception) to September 30, 2008	3
	Statements of Cash Flows for the nine months ended September 30, 2009 and for the period from
	May 9, 2008 (Inception) to September 30, 2008	4
	Schedules of Investments as of September 30, 2009 and December 31, 2008	5
	Financial Highlights for the nine months ended September 30, 2009 and for the period from
	May 9, 2008 (Inception) to December 31, 2008	6
	Notes to Unaudited Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
SIGNATURES		31

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Keating Capital, Inc.
Statements of Assets and Liabilities
(Unaudited)

	September 30,			December 31,
	2009			2008

Assets
Investments in certificates of deposit	$	3,500,000		$	-
Investments in money market funds		-			4,411,127
Cash and cash equivalents		185,036			367,588
Prepaid expenses and other assets		58,787			31,448
Deferred offering costs		433,139			-

Total Assets		4,176,962			4,810,163

Liabilities
Base management fees payable to Investment Adviser		25,339			11,990
Administrative fees payable to Investment Adviser		67,408			28,041
Reimbursable expenses payable to Investment Adviser		9,110			13,875
Accounts payable		69,963			35,783
Accrued expenses		35,230			5,000

Total Liabilities		207,050			94,689

Net Assets	$	3,969,912		$	4,715,474

Components of Net Assets:
Common stock, $0.001 par value; 200,000,000 shares authorized;
569,900 shares issued and outstanding	$	570		$	570
Additional paid-in capital		5,243,864			5,243,864
Accumulated net investment loss		(1,274,522	)		(528,960	)

Net Assets	$	3,969,912		$	4,715,474

Common Shares Outstanding		569,900			569,900

Net Asset Value Per Outstanding Common Share	$	6.96		$	8.27

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.
Statements of Operations
(Unaudited)

										Period from
	Three Months			Three Months			Nine Months			May 9, 2008
	Ended			Ended			Ended			(Inception) to
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008

Investment Income
Interest and dividend income	$	3,723		$	6,011		$	5,240		$	6,011

Total Investment Income		3,723			6,011			5,240			6,011

Operating Expenses
Base management fees		22,342			-			70,019			-
Administrative fees		67,408			-			202,248			-
Legal and professional fees		84,944			158,092			303,179			276,036
Directors' fees		20,250			25,250			75,750			25,250
General and administrative expenses		43,125			41,998			99,606			54,697

Total Operating Expenses		238,069			225,340			750,802			355,983

Net Investment Loss		(234,346	)		(219,329	)		(745,562	)		(349,972	)

Net Decrease in Net Assets
Resulting from Operations	$	(234,346	)	$	(219,329	)	$	(745,562	)	$	(349,972	)

Net Decrease in Net Assets
Resulting from Operations
Per Common Share	$	(0.41	)	$	(1.13	)	$	(1.31	)	$	(2.84	)

Weighted Average Number of
Common Shares Outstanding:
Basic and Diluted		569,900			194,448			569,900			123,407

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.
Statements of Changes in Net Assets
(Unaudited)

				Period from
	Nine Months			May 9, 2008
	Ended			(Inception) to
	September 30,			September 30,
	2009			2008

Changes in Net Assets from Operations
Net investment loss	$	(745,562	)	$	(349,972	)

Net Decrease in Net Assets Resulting from Operations		(745,562	)		(349,972	)

Changes in Net Assets from Capital Stock Transactions
Issuance of common stock in private offering at $10 per share		-			5,151,000
Offering expenses associated with the issuance of common stock		-			(403,898	)

Increase in Net Assets Resulting From
Capital Stock Transactions		-			4,747,102

Net (Decrease) Increase in Net Assets		(745,562	)		4,397,130

Net assets at beginning of period		4,715,474			-

Net Assets at End of Period	$	3,969,912		$	4,397,130

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.
Statements of Cash Flows
(Unaudited)

	Nine Months Ended September 30,			Period from May 9, 2008 (Inception) to September 30,
	2009			2008

Cash Flows From Operating Activities
Net decrease in net assets resulting from operations	$	(745,562	)	$	(349,972	)
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other assets		(27,339	)		(38,071	)
Increase in base management fees payable to Investment Adviser		13,349			-
Increase in administrative fees payable to Investment Adviser		39,367			-
Increase (decrease) in reimbursable expenses
payable to Investment Adviser		(4,765	)		8,545
Increase in accounts payable		34,180			20,098
Increase in accrued expenses		30,230			70,448

Net cash used in operating activities		(660,540	)		(288,952	)

Cash Flows From Investing Activities
Purchases of short-term investments		(7,203,814	)		(4,405,474	)
Proceeds from sales and maturities of short-term investments		8,114,941			-

Net cash provided by (used in) investing activities		911,127			(4,405,474	)

Cash Flows From Financing Activities
Proceeds from issuance of common stock		-			5,151,000
Offering costs from issuance of common stock		-			(403,898	)
Deferred stock offering costs		(433,139	)		-

Net cash (used in) provided by financing activities		(433,139	)		4,747,102

Net (decrease) increase in cash and cash equivalents		(182,552	)		52,676

Cash and cash equivalents, beginning of period		367,588			-

Cash and cash equivalents, end of period	$	185,036		$	52,676

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.
Schedules of Investments
(Unaudited)

September 30, 2009

							% of
	Shares		Cost		Fair Value		Net Assets

Certificates of Deposit
Certificates of Deposit (1)
Maturing on October 15, 2009
Annual Percentage Yield of 0.85%		-	$	3,500,000	$	3,500,000		88.16	%

Total Investments			$	3,500,000	$	3,500,000		88.16	%

(1) Fair value reflects amortized cost as of September 30, 2009.

December 31, 2008

							% of
	Shares		Cost		Fair Value		Net Assets

Money Market Funds
Goldman Sachs Financial Square
Treasury Instruments Fund (2)		4,411,127	$	4,411,127	$	4,411,127		93.55	%

Total Investments			$	4,411,127	$	4,411,127		93.55	%

(2) Fair value reflects redemption value as of December 31, 2008.

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.
Financial Highlights
(Unaudited)
				Period from
	Nine Months			May 9, 2008
	Ended			(Inception) to
	September 30,			December 31,
	2009			2008

Per Common Share Data (1)
Net asset value, beginning of period	$	8.27		$	-

Loss from investment operations:
Net investment loss		(1.31	)		(0.93	)

Total decrease from investment operations		(1.31	)		(0.93	)

Capital stock transactions:
Issuance of common stock in private offering		-			10.00
Offering expenses associated with the issuance of common stock		-			(0.80	)

Total increase from capital stock transactions		-			9.20

Net asset value, end of period	$	6.96		$	8.27

Common shares outstanding, end of period		569,900			569,900

Supplemental Data and Ratios
Net assets, beginning of period	$	4,715,474		$	-
Net assets, end of period	$	3,969,912		$	4,715,474
Average net assets during period	$	4,342,693		$	2,357,737
Annualized ratio of operating expenses to average net assets		23.05	%		35.62	%
Annualized ratio of net investment loss to average net assets		22.89	%		34.70	%

(1) Financial highlights are based on total shares outstanding at end of period.

The accompanying notes are an integral part of these financial statements.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

1.	Organization

Keating Capital, Inc. (“Keating Capital” or the “Company”) was incorporated on May 9, 2008 under the laws of the State of Maryland and is an externally managed, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) as of November 20, 2008. As a BDC, the Company intends to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code beginning with its 2010 taxable year (see Federal and State Income Taxes subheading under Note 2). Prior to electing to be treated as RIC, the Company will be taxable as a regular corporation under Subchapter C of the Internal Revenue Code.

The Company intends to invest principally in equity securities and, to a lesser extent, debt securities of primarily non-public U.S. based micro-cap companies. The Company utilizes a three-step investment process focused on 1) an initial investment consisting of convertible debt or convertible preferred stock, 2) a going-public preparation process, and 3) a subsequent follow-on investment consisting of convertible preferred stock or other equity that will be contingent upon a portfolio company satisfying pre-established milestones towards the filing of a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Keating Investments, LLC (“Keating Investments” or the “Investment Adviser”) serves as the Company’s external investment adviser and also provides the Company with administrative services necessary for it to operate. In this capacity, Keating Investments is primarily responsible for the selection, evaluation, structure, valuation, and administration of the Company’s investment portfolio, subject to the supervision of the Company’s Board of Directors. Keating Investments is a registered investment adviser under the Investment Advisers Act of 1940, as amended.

2.	Significant Accounting Policies

Basis of Presentation

The interim financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, all of which were of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period have been included. The results of operations for the current period are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2009. The interim unaudited financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Consolidation

Under the 1940 Act rules and the regulations pursuant to Article 6 of Regulation S-X, the Company is precluded from consolidating any entity other than another investment company or an operating company that provides substantially all of its services and benefits to the Company. The Company’s September 30, 2009 financial statements include only the accounts of Keating Capital, Inc. as the Company currently has no subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the portfolio companies the Company chooses to invest in and any other parameters used in determining these estimates could cause actual results to differ. The Company considers its significant estimates to include the fair value of investments in certificates of deposit.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

Valuation of Investments

The 1940 Act requires periodic valuation of each investment in the Company’s portfolio to determine its net asset value. Under the 1940 Act, unrestricted securities with readily available market quotations are to be valued at the current market value; all other assets must be valued at fair value as determined in good faith by or under the direction of the Board of Directors.

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. ASC 820 specifically defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table presents the financial instruments carried at fair value as of September 30, 2009, by caption on the Statement of Assets and Liabilities.

							Total Fair Value
	Quoted Prices In		Significant Other		Significant		Reported In
	Active Markets		Observable Inputs		Unobservable Inputs		Statement of
	(Level 1)		(Level 2)		(Level 3)		Assets and Liabilities

As of September 30, 2009
Certificates of Deposit (1)
(Maturing on October 15, 2009)	$	-	$	3,500,000	$	-	$	3,500,000

Total Investments at Fair Value	$	-	$	3,500,000	$	-	$	3,500,000

(1) Fair value reflects amortized cost as of September 30, 2009.

Short-Term Investments

Short-term investments that mature in 90 days or less are valued at amortized cost, which approximates fair value. The amortized cost method involves recording a security at its cost (i.e., principal amount plus any premium and less any discount) on the date of purchase and thereafter amortizing/accreting that difference between the principal amount due at maturity and cost assuming a constant yield to maturity as determined at the time of purchase.

Investments in money market mutual funds are classified as short-term investments separate from cash and cash equivalents and are valued at their net asset value or redemption value as of the close of business on the day of valuation.

Investments in certificates of deposit are classified as short-term investments separate from cash and cash equivalents and are valued at amortized cost, which approximates fair value, and are classified as Level 2 in the fair value hierarchy.

Debt Investments

The Company will determine the fair value of debt investments by reference to the market in which it sources and executes such debt investments. Market participants generally have a strategic premise for these investments, and anticipate the sale of the company, recapitalization or initial public offering as the realization/liquidity event. The fair value, or exit price, for a debt instrument would be the hypothetical price that a market participant would pay for the instrument, using a set of assumptions that are aligned with the criteria that the Company would use in originating a debt investment in such a market, including credit quality, interest rate, maturity date, conversion ratio and overall yield, and considering the prevailing returns available in such a market.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

In general, the Company considers enterprise value an important element in the determination of fair value, because it represents a metric that may support the recorded value, or which, conversely, would indicate if a credit-related markdown is appropriate. The Company also considers the specific covenants and provisions of each investment that may enable the Company to preserve or improve the value of the investment. In addition, the trends of the portfolio company’s basic financial metrics from the time of the original investment until the measurement date are analyzed; material deterioration of these metrics may indicate that a discount should be applied to the debt investment, or a premium may be warranted in the event that metrics improve substantially and the return is higher than anticipated for such a profile under current market conditions.

Equity Investments

Equity investments for which market quotations are readily available will generally be valued at the most recently available closing market prices.

The fair value of the Company’s equity investments for which market quotations are not readily available will be determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company’s debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company’s equity securities, or other liquidity events. The determined equity values are generally discounted when the Company has a minority position, when there are restrictions on resale, when there are specific concerns about the receptiveness of the capital markets to a specific company at a certain time, or other factors.

Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which the Company derives a single estimate of enterprise value. To determine the enterprise value of a portfolio company, the Company will analyze the portfolio company’s historical and projected financial results, as well as the nature and value of collateral, if any. The Company will also use industry valuation benchmarks and public market comparables. The Company will also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. The Company will generally require portfolio companies to provide annual audited and quarterly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

The following is a description of the steps the Company will take each quarter to determine the value of the Company’s portfolio investments. Investments for which market quotations are readily available will be recorded in the Company’s financial statements at such market quotations. With respect to investments for which market quotations are not readily available, the Company’s Board of Directors will undertake a multi-step valuation process each quarter, as described below:

•

The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by Keating Investments’ senior investment professionals responsible for the portfolio investment;

•

A nationally recognized third-party valuation firm engaged by the Company’s Board of Directors will review these preliminary valuations;

•

The Company’s Valuation Committee will review the preliminary valuations and the Company’s investment adviser and nationally recognized third-party valuation firm will respond and supplement the preliminary valuation to reflect any comments provided by the Valuation Committee; and

•

The Company’s Board of Directors will discuss valuations and will determine, in good faith, the fair value of each investment in the Company’s portfolio for which market quotations are not readily available based on the input of the Company’s investment adviser, a nationally recognized third-party valuation firm, and the Company’s Valuation Committee.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

As the Company has made no debt or equity portfolio company investments since its inception, the debt and equity investment valuation policies summarized above will be applied prospectively.

Portfolio Investment Classification

The Company will classify its portfolio investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities. Under the 1940 Act, “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments.

Cash and Cash Equivalents

Cash and cash equivalents include all highly-liquid instruments with an original maturity of 90 days or less at the date of purchase. Investments in money market mutual funds and certificates of deposit, which may have original maturities of 90 days or less, are separately classified as short-term investments.

Deferred Offering Costs

Deferred offering costs are comprised of expenses directly related to a continuous public offering of the Company’s common stock that initially have been deferred and will subsequently be charged against the gross proceeds of the offering (see Note 4).

Concentration of Credit Risk

The Company may place its cash and cash equivalents with various financial institutions and, at times, cash held in depository accounts at such institutions may exceed the Federal Deposit Insurance Corporation insured limit.

Securities Transactions

Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date).

Interest, Dividend and Other Income

Interest income from debt investments in portfolio companies, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent such amounts are expected to be collected.

Origination, closing and/or commitment fees associated with debt investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, the Company records any prepayment penalties and unamortized loan origination, closing and commitment fees as part of interest income.

Debt investments are placed on non-accrual status when principal or interest payments are past due 60 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Non-accrual debt investments are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Dividend income from equity investments in portfolio companies is recorded on the ex-dividend date.

Fee income includes fees, if any, for due diligence, structuring, transaction services, consulting services and management services rendered to portfolio companies and other third parties. Due diligence, structuring, transaction service, consulting and management service fees generally are recognized as other income when services are rendered.

As the Company has made no debt or equity investments in any portfolio companies since inception, no interest, dividend or other income from portfolio company investments was recorded for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, or for the period from May 9, 2008 (Inception) to September 30, 2008.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

Federal and State Income Taxes

The Company is currently taxable as a C corporation and uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Beginning with its 2010 taxable year, the Company intends to elect to be treated for U.S. federal income tax purposes, and intends to qualify annually thereafter, as a RIC under Subchapter M of the Internal Revenue Code. If the Company does not meet the criteria to qualify as a RIC for its 2010 taxable year, it will continue to be taxed as a regular corporation under Subchapter C of the Internal Revenue Code (a “C corporation”). As a RIC, the Company generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that the Company distributes to its stockholders from its tax earnings and profits. To obtain and maintain its RIC tax treatment, the Company must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of its ordinary income and realized net capital gains in excess of realized net capital losses, if any. In order to avoid certain excise taxes imposed on RICs, the Company currently intends to distribute during each calendar year an amount at least equal to the sum of: (i) 98% of its ordinary income for the calendar year, (ii) 98% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years.

Uncertain tax positions

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. As of September 30, 2009 and for the period then ended, the Company did not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. Net realized capital gains, if any, are distributed at least annually. No dividends or distributions were declared or paid to common stockholders for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, or for the period from May 9, 2008 (Inception) to September 30, 2008.

Per Share Information

Net changes in net assets resulting from operations per common share, or basic earnings per share, are calculated using the weighted average number of common shares outstanding for the period presented. Diluted earnings per share are not presented as there are no potentially dilutive securities outstanding.

Subsequent Events

The Company evaluated subsequent events through the time of filing its Quarterly Report on Form 10-Q on November 10, 2009. The Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of its Quarterly Report on Form 10-Q that would have a material impact on its financial statements.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements upon adoption.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

In September 2009, the FASB issued Accounting Standards Update No. 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2009-12”), which provides amendments to ASC Subtopic 820-10, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). ASU 2009-12 permits a reporting entity to measure the fair value of an investment that is within its scope on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of ASC 820. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009, and its adoption is not expected to impact Company’s financial condition, results of operations or cash flows.

3. Related Party Agreements and Transactions

Investment Advisory and Administrative Services Agreement

Subject to the overall supervision of its Board of Directors, Keating Investments, the Company’s external Investment Adviser, manages the Company’s day-to-day operations and provides the Company with investment advisory services. Under the terms of the Investment Advisory and Administrative Services Agreement, Keating Investments will:

·	Determine the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes;

·	Determine which securities the Company will purchase, retain or sell;

·	Identify, evaluate and negotiate the structure of the investments the Company makes, including performing due diligence on prospective portfolio companies; and

·	Close, monitor and service the investments the Company makes.

Keating Investments’ services under the Investment Advisory and Administrative Services Agreement are not exclusive and it is free to furnish similar services to other entities so long as its services to the Company are not impaired.

The Company pays Keating Investments a fee for its investment advisory services under the Investment Advisory and Administrative Services Agreement consisting of two components - a base management fee and an incentive fee.

Base Management Fee

The base management fee (the “Base Fee”) is calculated at an annual rate of 2% of the Company’s gross assets, which includes any borrowings for investment purposes. The Base Fee is payable quarterly in arrears, and is calculated based on the value of the Company’s gross assets at the end of the most recently completed calendar quarter, and appropriately adjusted for any equity capital raises or repurchases during the current calendar quarter. The Base Fee for any partial quarter is appropriately pro-rated.

In accordance with the Investment Advisory and Administrative Services Agreement, Base Fees payable to Keating Investments began accruing on November 13, 2008, though Keating Investments has agreed to delay the collection of a portion of the Base Fee equal to 0.5% of its gross assets until the Company has completed at least one investment in a micro-cap company consistent with its investment strategy. As a result, the Company began accruing the entire 2% Base Fee for accounting purposes on November 13, 2008, but only pays 75% of the accrued Base Fee to Keating Investments until such time as it begins making investments in micro-cap companies.

Total Base Fees incurred for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, and for the period from May 9, 2008 (Inception) through September 30, 2008 were $22,342, $70,019, $0, and $0, respectively.

At September 30, 2009, total Base Fees payable to Keating Investments were $37,258, including $11,919 of Accounts Payable in the accompanying Statement of Assets and Liabilities.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

Incentive Fee

The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Administrative Services Agreement, as of the termination date), and will equal 20% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees, with respect to each of the investments in the Company’s portfolio. Additionally, although the Company anticipates that a portion of its investments at any given time will include an interest or dividend component, Keating Investments is not entitled to an incentive fee on investment income generated from such interest or dividend payments.

No incentive fees were earned by or paid to Keating Investments for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, or for the period from May 9, 2008 (Inception) through September 30, 2008, as the Company generated no realized capital gains during these periods.

Administrative Services

Pursuant to the Investment Advisory and Administrative Services Agreement, Keating Investments furnishes the Company with office facilities, equipment, and clerical, bookkeeping and record-keeping services. Under the Investment Advisory and Administrative Services Agreement, Keating Investments also performs, or facilitates the performance of, certain administrative services, which includes being responsible for the financial records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the Securities and Exchange Commission (“SEC”). In addition, Keating Investments assists the Company in monitoring its portfolio accounting and bookkeeping, managing portfolio collections and reporting, performing internal audit services, determining and publishing its net asset value, overseeing the preparation and filing of its tax returns, printing and dissemination of reports to its stockholders, providing support for its risk management efforts and generally overseeing the payment of its expenses and performance of administrative and professional services rendered to the Company by others.

The Company reimburses Keating Investments for the allocable portion of overhead and other expenses incurred by Keating Investments in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, including the compensation of the Company’s Chief Financial Officer and Chief Compliance Officer, and their respective staff.

In accordance with the Investment Advisory and Administrative Services Agreement, the allocation of administrative expenses from Keating Investments commenced on November 13, 2008. For the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, and for the period from May 9, 2008 (Inception) to September 30, 2008, allocated administrative expenses totaled $67,408, $202,248, $0, and $0, respectively.

Reimbursable expenses payable to Keating Investments totaling $9,110 and $13,875 in the accompanying statement of assets and liabilities at September 30, 2009 and December 31, 2008, respectively, represent direct expenses of Keating Capital that were paid by Keating Investments on behalf of Keating Capital and are not comprised of allocable expenses under the Investment Advisory and Administrative Services Agreement.

Duration and Termination

The Investment Advisory and Administrative Services Agreement was initially approved by the Company’s Board of Directors and its sole stockholder on July 28, 2008. An amended and restated version of the Investment Advisory and Administrative Services Agreement, which is presently in effect, was approved by the Company’s Board of Directors on April 17, 2009, and by the Company’s stockholders at its Annual Meeting held on May 14, 2009.

Unless earlier terminated as described below, the Investment Advisory and Administrative Services Agreement will remain in effect for a period of two years from the date it was approved by the Board of Directors and will remain in effect from year to year thereafter if approved annually by (i) the vote of the Company’s Board of Directors, or by the vote of a majority of the Company’s outstanding voting securities, and (ii) the vote of a majority of the Company’s directors who are not interested persons. An affirmative vote of the holders of a majority of the Company’s outstanding voting securities is also necessary in order to make material amendments to the Investment Advisory and Administrative Services Agreement.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

The Investment Advisory and Administrative Services Agreement will automatically terminate in the event of its assignment. As required by the 1940 Act, the Investment Advisory and Administrative Services Agreement provides that the Company may terminate the agreement without penalty upon 60 days written notice to Keating Investments. If Keating Investments wishes to voluntarily terminate the Investment Advisory and Administrative Services Agreement, it must give stockholders a minimum of 120 days notice prior to termination and must pay all expenses associated with its termination. The Investment Advisory and Administrative Services Agreement may also be terminated, without penalty, upon the vote of a majority of the Company’s outstanding voting securities.

License Agreement

On July 28, 2008, the Company entered into a license agreement (“License Agreement”) with Keating Investments pursuant to which Keating Investments granted the Company a non-exclusive license to use the name “Keating.” Under the License Agreement, the Company has a right to use the Keating name and logo, for as long as Keating Investments or one of its affiliates remains the Company’s investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Keating” name or logo. The License Agreement will remain in effect for as long as the Investment Advisory and Administrative Services Agreement with Keating Investments is in effect.

4. Capital Stock

The Company’s authorized capital stock consists of 200,000,000 shares of stock, par value $0.001 per share, all of which has initially been designated as common stock.

During the three and nine months ended June 30, 2009, the Company did not issue any shares of common stock.

On May 14, 2008, the Company sold 100 shares of common stock to Keating Investments at $10.00 per share, resulting in gross proceeds of $1,000.

From August 27, 2008 through November 12, 2008, the Company sold 569,800 shares of common stock in a private offering to various qualified purchasers at $10.00 per share, resulting in gross proceeds of $5,698,000 (the “Private Offering”). After the payment of placement agent commissions and other offering costs of $454,566, the Company received net proceeds of $5,243,434 in connection with the Private Offering.

In connection with the Private Offering, the Company paid Andrews Securities, LLC (“Andrews Securities”) an aggregate of $398,860 in commissions (7% of gross proceeds received) and $15,632 in expense reimbursements for acting as the Company’s exclusive placement agent under the Offering.

On June 11, 2009 the Company commenced a continuous public offering pursuant to which the Company intends to sell from time to time up to 10 million shares of its common stock, at an initial offering price of $10.00 per share, for a period of 12 months, subject to a 6-month extension at the Company’s sole discretion. There can be no assurance that the Company will be able to sell all of the shares it is presently offering and as of September 30, 2009, no shares of common stock had been sold and no proceeds had been received from the Company’s continuous public offering.

Prior to August 21, 2008, Andrews Securities was 100% owned by the Company’s investment adviser, Keating Investments. On August 21, 2008, a transaction was completed whereby Keating Investments sold 65% of Andrews Securities to Jeff L. Andrews and 15% of Andrews Securities to Michael J. Keating, the brother of Timothy J. Keating, the Company’s President and Chief Executive Officer. Following the completion of this transaction, Keating Investments continued to own 20% of Andrews Securities, but did not actively participate in the operations or management of Andrews Securities.

Keating Capital, Inc.

Notes to Financial Statements

(Unaudited)

On January 31, 2009, Keating Investments sold its remaining 20% interest in Andrews Securities to Jeff L. Andrews and upon completion of the sale transaction, was terminated as a member of Andrews Securities. Additionally, on January 31, 2009, Michael J. Keating transferred and assigned his 15% interest in Andrews Securities directly to Andrews Securities. Upon completion of this transaction, Michael J. Keating was removed as a member of Andrews Securities, with Jeff L. Andrews having a 100% ownership interest in Andrews Securities. As a result of Keating Investments’ previous ownership of Andrews Securities, Andrews Securities may have previously been deemed an affiliate of Keating Investments and, as a result of the Company’s relationship with Keating Investments and Timothy J. Keating, previously an affiliate of the Company’s.

5. Changes in Net Assets Per Share

The following table sets forth the computation of the basic and diluted per share net decrease in net assets resulting from operations for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, and for the period from May 9, 2008 (Inception) to September 30, 2008:

										Period from
	Three Months			Three Months			Nine Months			May 9, 2008
	Ended			Ended			Ended			(Inception) to
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008

Numerator for decrease in net assets per share	$	(234,346	)	$	(219,329	)	$	(745,562	)	$	(349,972	)

Denominator for basic and diluted
weighted average shares		569,900			194,448			569,900			123,407

Basic and diluted net decrease in net assets per share
resulting from operations	$	(.41	)	$	(1.13	)	$	(1.31	)	$	(2.84	)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:

•

Our future operating results;

•

Our business prospects and the prospects of our portfolio companies;

•

The impact of the investments that we expect to make;

•

The ability of our portfolio companies to achieve their objectives;

•

Our expected financings and investments;

•

The adequacy of our cash resources and working capital; and

•

The timing of cash flows, if any, from the operations of our portfolio companies.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in this quarterly report on Form 10-Q or incorporated by reference herein. Other factors that could cause actual results to differ materially include:

•

An economic downturn, such as the one we are currently experiencing, could likely impair the ability of any portfolio company that we may acquire an interest in to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

	•	An economic downturn, such as the one we are currently experiencing, could disproportionately impact the public ready growth companies which we intend to target for investment, potentially causing us to suffer losses in our portfolio and experience diminished demand for capital from these companies;

	•	An inability to access the equity markets could impair our investment activities.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us at the time we filed this quarterly report on Form 10-Q with the SEC, and we assume no obligation to update any such forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and schedules thereto.

Overview

We were incorporated on May 9, 2008 under the laws of the State of Maryland. We filed an election to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”) on November 20, 2008.

We intend to invest principally in equity securities, including convertible preferred securities and debt securities convertible into equity securities, of primarily non-public U.S.-based companies. Our investment objective is to maximize our portfolio’s capital appreciation while generating current income from our portfolio investments. In accordance with our investment objective, we intend to provide capital principally to U.S.-based, private companies with an equity value of less than $250 million, which we refer to as “micro-cap companies.” Our primary emphasis will be to attempt to generate capital gains through our equity investments in micro-cap companies, including through the conversion of the convertible debt or convertible preferred securities we will seek to acquire in such companies. However, we anticipate that a portion of our investments at any given time will include a component of interest or dividends, which we believe will provide us with current yield, in addition to the potential for capital appreciation.

We may also make investments on an opportunistic basis in U.S.-based publicly-traded companies with market capitalizations of less than $250 million, as well as foreign companies that otherwise meet our investment criteria, subject to certain limitations imposed under the 1940 Act. At the present time, we do not expect our investments in foreign companies to exceed more than 10% of our total investment portfolio on a cost basis, however.

We intend to utilize a three-step investment process focused on:

•

An initial investment consisting of convertible debt or convertible preferred stock;

•

A going public preparation process; and

•

A subsequent follow-on investment typically consisting of convertible preferred stock or other equity.

Any subsequent follow-on investment will be contingent upon a portfolio company satisfying pre-established milestones towards the filing of a registration statement under the Securities Act of 1933, as amended (“Securities Act”) or the Exchange Act. Where appropriate, we may also negotiate to receive warrants, either as part of our initial or follow-on investments in our portfolio companies.

As an integral part of our initial investment, we intend to partner with and help prepare our portfolio companies to become public and meet the governance and eligibility requirements for a Nasdaq Capital Market listing. Because we believe that the traditional underwritten initial public offering (“IPO”) market is virtually non-existent for micro-cap companies, we intend that our portfolio companies will go public through the filing of a registration statement under the Securities Act or the Exchange Act. We intend to invest in micro-cap companies that we believe will be able to file a registration statement with the U.S. Securities and Exchange Commission (“SEC”) within approximately three to twelve months after our initial investment. These registration statements will typically take the form of a resale registration statement filed by a portfolio company under the Securities Act coupled with a concurrent registration of the portfolio company’s common stock under the Exchange Act, or alternatively a stand-alone registration statement registering the common stock of a portfolio company under the Exchange Act without a concurrent registered offering under the Securities Act.

While we expect the common stock of our portfolio companies to typically be initially quoted on the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) following the completion of the registration process, we intend to target investments in portfolio companies that we believe will be able to qualify for a Nasdaq Capital Market listing within approximately twelve to eighteen months after completion of our follow-on investment. We can provide no assurance, however, that the micro-cap companies in which we invest will be able to successfully complete the SEC registration process, or that they will be successful in obtaining a listing on the OTC Bulletin Board or the Nasdaq Capital Market within the expected timeframe, if at all.

We intend to maximize our potential for capital appreciation by taking advantage of the premium we believe is generally associated with having a more liquid asset, such as a publicly traded security. Specifically, we believe that a Nasdaq Capital Market listing, if obtained, will generally provide our portfolio companies with greater visibility, marketability, and liquidity than they would otherwise be able to achieve without such a listing. Since we intend to be more patient investors, we believe that our portfolio companies may have an even greater potential for capital appreciation if they are able to demonstrate sustained earnings growth and are correspondingly rewarded by the public markets with a price-to-earnings (P/E) multiple appropriately linked to earnings performance. We can provide no assurance, however, that the micro-cap companies in which we may invest will be able to achieve such sustained earnings growth necessary, or that the public markets will recognize such growth, if any, with an appropriate market premium.

The convertible debt instruments we expect to receive in connection with our initial investments will likely be unsecured or subordinated debt securities. These convertible debt instruments will in nearly all cases not be rated by a national rating agency. If such debt securities were rated, however, we would expect them to fall below investment grade, which are sometimes referred to as “junk bonds,” meaning that they are more speculative in nature with respect to the issuer’s capacity to pay interest and repay principal, and are therefore subject to greater risk of default than other debt securities that qualify as investment grade. The equity investments we expect to receive in connection with our follow-on investments will typically be non-controlling investments, meaning we will not be in a position to control the management, operation and strategic decision-making of the companies in which we invest. In the near term, we expect that our total initial and follow-on investments in each portfolio company will typically range from $500,000 to $1,000,000, although we may invest more than this threshold in certain opportunistic situations. We expect the size of our individual investments to increase if and to the extent our capital base increases in the future.

We expect that our capital will primarily be used by our portfolio companies to finance organic growth. To a lesser extent, our capital may be used to finance acquisitions and recapitalizations. Our investment adviser’s investment decisions will be based on an analysis of potential portfolio companies’ management teams and business operations supported by industry and competitive research, an understanding of the quality of their revenues and cash flow, variability of costs and the inherent value of their assets, including proprietary intangible assets and intellectual property. Our investment adviser will also assess each potential portfolio company as to its appeal in the public markets and its suitability for achieving and maintaining public company status.

We are externally managed by Keating Investments, LLC (“Keating Investments”), an investment adviser registered under the Investment Advisers Act of 1940, as amended, or the “Advisers Act.” As our investment adviser, Keating Investments is responsible for managing our day-to-day operations including, without limitation, identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Keating Investments has a 13-year track record of investing in and working with micro-cap public companies and has assisted 20 companies in achieving public company status. Keating Investments also provides us with the administrative services necessary for us to operate.

As a business development company, we are required to comply with certain regulatory requirements. For example, to the extent provided by the 1940 Act, we are required to invest at least 70% of our total assets in eligible portfolio companies.

Alternative Equity Investments

Alternative equity investments are managed assets that are generally accessible only to wealthy investors and that typically have low correlations to traditional categories of investments, like stocks and bonds. Alternative equity investments are generally designed to either help investors diversify their portfolios and potentially manage risk exposure more effectively and/or to enhance return. We believe alternative equity investments such as venture capital and private equity are typically added to institutional portfolios to increase return.

We intend to create a unique pool of fundamental, patient capital dedicated to making pre-IPO investments. In the current environment, we believe that there is limited competition from banks, PIPE funds or hedge funds that might otherwise be providers of this type of transitional capital. Our goal is to be a “go to” source of capital for private companies seeking to obtain pre-IPO financing. As a business development company investing in private companies that have the potential for growth and that may be capable of becoming public, we may provide the potential to deliver above-average returns relative to traditional marketable securities.

Research shows that publically traded companies are potentially valued higher than comparable private company peers because market participants may pay a significant premium for liquidity. Investors willing to accept illiquidity in the form of a private, pre-IPO investment can attempt to capture this potential valuation differential once a company becomes publicly traded.

We intend to provide an opportunity to participate in the potential increase in value that can occur as portfolio companies transition from private to public status and potential accelerated earnings growth following an infusion of capital. We believe that we have a systematic, identifiable and quantifiable source of risk-adjusted excess return that has the potential to generate capital gains on each investment over an average 3-year anticipated holding period. We intend to distribute current income from our portfolio to investors in the form of quarterly dividends, to the extent available.

Current Economic Environment

The U.S. economy is currently in a recession. During the nine months ended September 30, 2009, consumer confidence continued to deteriorate and unemployment figures increased. However, in recent months, certain economic indicators have shown modest improvements. The generally depressed economic situation, together with the limited availability of debt and equity capital, including through bank financing, will likely have a disproportionate impact on the micro-cap companies we intend to target for investment. As a result, we may experience a reduction in attractive investment opportunities in prospective portfolio companies that fit our investment criteria. In addition, micro-cap companies in which we ultimately invest may be unable to pay us the interest or dividends on their convertible securities or repay their debt obligations to us, and the common stock which we may receive upon conversion of the convertible securities may have little or no value, resulting in the loss of all or substantially all of our investment in such micro-cap companies.

Operating and Regulatory Structure

Our investment activities are managed by Keating Investments pursuant to an investment advisory and administrative services agreement (the “Investment Advisory and Administrative Services Agreement”). Keating Investments was founded in 1997 and is an investment adviser registered under the Advisers Act. The managing member and majority owner of Keating Investments is Timothy J. Keating. Our investment adviser’s senior investment professionals are Timothy J. Keating, our President, Chief Executive Officer and Chairman of our Board of Directors, Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our Board of Directors, and Kyle L. Rogers, our Chief Operating Officer and Secretary. In addition, Keating Investments’ other investment professionals consist of two portfolio company originators, one analyst and a Chief Compliance Officer. Under our Investment Advisory and Administrative Services Agreement with Keating Investments, we have agreed to pay Keating Investments, for its investment advisory services, an annual base management fee based on our gross assets as well as an incentive fee based on our performance. In addition, Keating Investments has agreed to delay a portion of the base management fee payable equal to 0.5% of our gross assets until we have completed at least one investment in a micro-cap company consistent with our investment strategies. As a result, we will accrue the delayed portion of our base management fee for accounting purposes, but will not actually pay that amount to our investment adviser until we begin making investments in micro-cap companies.

Investment Portfolio and Activities

During the three and nine months ended September 30, 2009, our investment portfolio consisted solely of money market investments and short-term certificate of deposit investments. While our investment adviser continues to actively evaluate potential portfolio investments in micro-cap companies that meet our investment criteria, we have made no investments in portfolio companies as of September 30, 2009.

Our investment adviser, Keating Investments, employs a 7-stage system to track the progress of deals in its pipeline as set forth below:

Stage in Pipeline	Description of Stage
Stage One	Company information has been received and reviewed by a portfolio originator, and the target portfolio company meets our minimum investment criteria. The target portfolio company has expressed an interest in our “going public” process.
Stage Two	The portfolio originator and the target portfolio company have agreed, in principle, on the valuation metrics to be used in the transaction.
Stage Three	The portfolio originator has submitted an Investment Opportunity Report on the target portfolio company to the Investment Committee for consideration.
Stage Four	The Investment Committee has submitted a Management Questionnaire to the target portfolio company requesting detailed information.
Stage Five	The Investment Committee has submitted a Term Sheet to the target portfolio company outlining the terms and conditions of the proposed investment.
Stage Six	The target portfolio company has accepted the terms and conditions of the investment and the Term Sheet is executed.
Stage Seven	We have closed the investment transaction and made the initial investment in the target portfolio company.

Since the closing of our initial private placement in November 2008, our investment adviser has reviewed over one hundred companies that meet the Company’s investment criteria. Of those companies, seven are at various stages in the pipeline as of September 30, 2009, though we currently do not anticipate finalizing and funding any target portfolio investments during the remainder of 2009. Beginning in 2010, we anticipate making five to ten investments per year depending upon the amount of capital we have available for investment. The consummation of each investment will depend upon satisfactory completion of our due diligence investigation of the prospective portfolio company, our confirmation and acceptance of the investment terms, structure and financial covenants, the execution and delivery of final binding agreements in form mutually satisfactory to the parties, the absence of any material adverse change and the receipt of any necessary consents. We can provide no assurance that we will be able to meet our anticipated pace of investment.

Results of Operations

We were incorporated on May 9, 2008 and commenced operations in November 2008. Set forth below are the results of operations for the three and nine months ended September 30, 2009, for the three months ended September 30, 2008, and for the period from May 9, 2008 (Inception) to September 30, 2008.

Revenues. We currently have limited revenue from operations and in all likelihood will be required to make future expenditures in connection with our marketing efforts along with general and administrative expenses before we will earn any material revenue.

We previously raised a total of $5,698,000 in gross proceeds in our initial private placement which was completed on November 12, 2008. Management of Keating Investments contributed 16.7% of that total. Since inception, we have incurred operating cash outflows of approximately $1,125,000, stock offering costs of approximately $455,000, including placement agent commissions, associated with our initial private placement, and deferred stock offering costs of approximately $433,000 associated with our continuous public offering, resulting in approximately $3,685,000 of capital available as of September 30, 2009. We have generated and will continue to generate limited revenue from interest earned from the temporary investment of the net proceeds from our initial private placement offering in U.S. government securities and other high-quality debt investments that mature in one year or less. For the three and nine months ended September 30, 2009, we earned interest and dividend income from money market and certificate of deposit investments of approximately $3,700 and $5,240, respectively. For the three months ended September 30, 2008 and for the period from May 9, 2008 (inception) through September 30, 2008, we earned interest and dividend income from money market investments of approximately $6,011.

We intend to invest principally in equity securities, including convertible preferred securities, and debt securities convertible into common stock, of primarily non-public U.S.-based micro-cap companies. Specifically, we intend to invest principally in convertible debt securities for our initial investment and equity securities, principally preferred securities convertible into common stock, for our follow-on investments. We expect that the convertible debt securities will generally carry a market rate of interest, which interest will be payable monthly in cash. We may, in certain instances, also require that all or a portion of the interest on the convertible debt securities be paid in advance from the proceeds thereof. In the event that we do not receive advance payments of interest out of the proceeds of the convertible debt securities, there is no assurance that we will receive interest from our portfolio companies on a monthly basis.

We may also generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing significant managerial assistance and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned.

As we have made no debt or equity investments in any portfolio companies since inception, no interest, dividend or other income from portfolio company investments was recorded during the three and nine months ended September 30, 2009, during the three months ended September 30, 2008, or during the period from May 9, 2008 (Inception) through September 30, 2008.

Expenses. Our primary operating expenses include the payment of: (i) investment advisory fees to our investment adviser, Keating Investments; (ii) the allocable portion of overhead and other expenses incurred by Keating Investments, as our administrator, in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fee compensates our investment adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. We bear all other expenses of our operations and transactions, including, without limitation:

·	Costs of calculating our net asset value, including the cost of any third-party valuation services;

·	Costs of effecting sales and repurchases of shares of our common stock and other securities;

·	Fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

·	Costs related to organization and offerings;

·	Transfer agent and custodial fees;

·	Fees and expenses associated with marketing efforts;

·	Federal and state registration fees;

·	Any stock exchange listing fees;

·	Applicable federal, state and local taxes;

·	Independent directors’ fees and expenses;

·	Brokerage commissions;

·	Costs of proxy statements, stockholders’ reports and notices;

·	Fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

·	Direct costs such as printing, mailing, and long distance telephone;

·	Fees and expenses associated with independent audits and outside legal costs;

·	Costs associated with our reporting and compliance obligations under the 1940 Act, Sarbanes-Oxley Act, and applicable federal and state securities laws; and

All other expenses incurred by either Keating Investments or us in connection with administering our business, including payments under the Investment Advisory and Administrative Services Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Keating Investments in performing its obligations under the Investment Advisory and Administrative Services Agreement, including the compensation of our Chief Financial Officer and Chief Compliance Officer, and their respective staff.

For the three months ended September 30, 2009, we had operating expenses of $238,069, comprised of: (i) legal, accounting and other professional fees of $84,944; (ii) directors’ fees of $20,250; (iii) base management fees of $22,342; (iv) allocated administrative fees of $67,408; and (v) other general and administrative expenses of $43,125.

For the nine months ended September 30, 2009, we had operating expenses of $750,802, comprised of: (i) legal, accounting and other professional fees of $303,179; (ii) directors’ fees of $75,750; (iii) base management fees of $70,019; (iv) allocated administrative fees of $202,248; and (v) other general and administrative expenses of $99,606.

For the three months ended September 30, 2008, we had operating expenses of $225,340, comprised of: (i) legal, accounting and other professional fees of $158,092; (ii) directors’ fees of $25,250; and (iii) other general and administrative expenses of $41,998.

For the period from May 9, 2008 (inception) through September 30, 2008, we had operating expenses of $355,983, comprised of: (i) legal, accounting and other professional fees of $276,036; (ii) directors’ fees of $25,250; and (iii) other general and administrative expenses of $54,697.

Financial Condition, Liquidity and Capital Resources

We generated net cash proceeds of $5,243,434 from our initial private placement which was completed on November 12, 2008.

We plan to invest the net proceeds remaining from our initial private placement in portfolio companies in accordance with our investment objective and strategies described in this quarterly report. We currently do not anticipate finalizing and funding any portfolio company investments during the remainder of 2009. Beginning in 2010, we anticipate making five to ten investments per year depending upon the amount of capital we have available for investment and on the availability of appropriate investment opportunities consistent with our investment objective and market conditions.

On June 11, 2009, we commenced a continuous public offering pursuant to which we intend to sell from time to time up to 10 million shares of our common stock, at an initial offering price of $10 per share, for a period of 12 months, subject to a six month extension at our sole discretion. There can be no assurance that we will be able to sell all of the shares we are presently offering and as of September 30, 2009, no shares of common stock had been sold and no proceeds had been received from our continuous public offering. We plan to invest the net proceeds from our continuous public offering in portfolio companies in accordance with our investment objective and strategies described in this quarterly report. We anticipate that it will take us up to 12 to 24 months after conclusion of the continuous public offering to invest substantially all of the proceeds from the continuous public offering in accordance with our investment strategy and depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. We cannot assure you we will achieve our targeted investment pace.

Pending such investments, we will invest the net proceeds from our initial private placement and continuous public offering primarily in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of investment, which we expect will earn yields substantially lower than the interest, dividend or other income that we anticipate receiving from investments in debt and equity securities of our target portfolio companies. As a result, our ability to pay dividends in our initial years of operation will be based on our ability to invest our capital in suitable portfolio companies in a timely manner.

Our primary use of funds will be investments in portfolio companies, cash distributions to holders of our common stock, and the payment of operating expenses. As of September 30, 2009, we had made no investments in portfolio companies.

As of September 30, 2009, we had cash resources of approximately $3,685,000 and no indebtedness other than accounts payable and accrued expenses incurred in the ordinary course of business of approximately $182,000, and management fees payable to Keating Investments of approximately $25,000. As of December 31, 2008, we had cash resources of approximately $4,779,000 and no indebtedness other than accounts payable and accrued expenses incurred in the ordinary course of business of approximately $83,000, and management fees payable to Keating Investments of approximately $12,000.

As of September 30, 2009, our cash resources included approximately $3,500,000 invested in certificates of deposit with original maturities of four weeks (maturing on October 15, 2009) which have been valued by us at amortized cost as of September 30, 2009. The remainder of our cash resources of approximately $185,000 are held in depository accounts at Steele Street Bank & Trust, which serves as our custodian. We currently have no investments in debt or equity securities of private or public companies. As of December 31, 2008, our cash resources included approximately $4,411,000 invested in the Goldman Sachs Financial Square Treasury Instruments Fund, a money market mutual fund holding primarily short-term U.S. Treasury securities, and approximately $368,000 held in depository accounts at Steele Street Bank & Trust.

As of September 30, 2009, we had net assets of $3,969,912 and, based on 569,900 shares of common stock outstanding, a net asset value per common share of approximately $6.96. As of December 31, 2008, we had net assets of $4,715,474 and, based on 569,900 shares of common stock outstanding, a net asset value per common share of approximately $8.27.

Distribution Policy

We have not paid any dividends or distributions since our inception. Our Board of Directors will determine the payment of any distributions in the future. We intend to declare and pay distributions on a quarterly basis beginning no later than the first calendar quarter after the month in which we have raised at least $10 million from the sale of shares of our common stock to investors not affiliated with us or Keating Investments. We will pay these distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a targeted level of cash distributions or year-to-year increases in cash distributions. Any dividends to our stockholders will be declared out of assets legally available for distribution.

Although our primary emphasis will be to generate capital gains through the common stock we expect to receive upon conversion of the convertible debt and convertible preferred securities issued to us in the initial and follow-on investments in our portfolio companies, we also expect to generate current income from the interest and preferred dividends on the debt and convertible preferred securities, respectively, prior to their conversion.

The timing of any capital gains generated from the appreciation and sale of common stock we expect to receive in our portfolio companies upon conversion of the convertible debt and convertible preferred equity securities cannot be predicted. Although we expect to be able to pay dividends from the interest and preferred dividends we receive from our initial and follow-on investments prior to our conversion thereof, we do not expect to generate capital gains from the sale of our portfolio investments on a level or uniform basis from quarter to quarter. This may result in substantial fluctuations in our quarterly dividend payments to stockholders. In addition, since we expect to have an average holding period for our portfolio company investments of two to three years, it is unlikely we will generate any capital gains during our initial years of operations and thus we are likely to pay dividends in our initial years of operation principally from interest and preferred dividends we receive from our initial and follow-on investments prior to our conversion thereof. However, our ability to pay dividends in our initial years of operation will be based on our ability to invest our capital in suitable portfolio companies in a timely manner.

We are currently taxable as a C corporation. Beginning with our 2010 taxable year, we intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code. To obtain and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net capital gains in excess of realized net capital losses, if any. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years.

In addition, after the effective date of our election to be taxable as a RIC, we currently intend to distribute realized net capital gains, if any, at least annually; however, we may in the future decide to retain such capital gains for investment and elect to treat such gains as deemed distributions to our stockholders. If this happens, our stockholders will be treated as if they had received an actual distribution of the capital gains we retain and reinvested the net after-tax proceeds in us. In this situation, our stockholders would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors authorizes, and we declare, a cash distribution, then our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. To the extent we conduct an offering prior to the time our shares become publicly traded, we expect to coordinate dividend payment dates so that the same price that is used for the closing date immediately following such dividend payment date will be used to calculate the purchase price for purchasers under the dividend reinvestment plan until such offering concludes. In such cases, we expect that reinvested dividends will purchase shares at a price equal to 95% of the price that shares are sold in any such offering at the closing immediately following the distribution payment date.

After conclusion of any such offering and until our shares become publicly traded, the number of shares to be issued to a stockholder will be determined by dividing the total dollar amount of the distribution payable to such stockholder by the net asset value per share of our common stock as most recently determined by our Board of Directors on or prior to the valuation date for such distribution. If and when our shares become publicly traded, the number of shares to be issued to a stockholder will be determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of our common stock at the close of regular trading on the Nasdaq Capital Market, if our shares are listed thereon, or the OTC Bulletin Board on the valuation date for such distribution. Market price per share on that date will be the closing price for such shares on the Nasdaq Capital Market or the OTC Bulletin Board, as applicable, or, if no sale is reported for such day, at the average of their electronically-reported bid and asked prices.

No action will be required on the part of a registered stockholder to have his, her or its cash distribution reinvested in shares of our common stock. A registered stockholder will be able to elect to receive an entire distribution in cash by notifying the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive distributions in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share.

Those stockholders whose shares are held by a broker or other financial intermediary will be able to receive distributions in cash by notifying their broker or other financial intermediary of their election.

We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if 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.

All distributions will be paid at the discretion of our Board of Directors and will depend on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable business development company regulations and such other factors as our Board of Directors may deem relevant from time to time. We cannot assure that we will pay distributions to our stockholders in the future. In the event that we encounter delays in locating suitable investment opportunities, we may pay all or a substantial portion of our distributions from the proceeds of the sales of our common stock in anticipation of future cash flow, which may constitute a return of our stockholders’ capital. Distributions from the proceeds of the sales of our common stock also could reduce the amount of capital we ultimately invest in interests of portfolio companies. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from the sale of our common stock.

Contractual Obligations

We have entered into a contract under which we have material future commitments, the Investment Advisory and Administrative Services Agreement, pursuant to which Keating Investments agrees to serve as our investment adviser and to furnish us with certain administrative services necessary to conduct our day-to-day operations. This agreement is terminable by either party upon proper notice. We pay Keating Investments a fee for its investment advisory services under the Investment Advisory and Administrative Services Agreement consisting of two components - a base management fee and an incentive fee. Keating Investments has agreed to delay a portion of the base management fee payable equal to 0.5% of our gross assets until we have completed at least one investment in a micro-cap company consistent with our investment strategies. As a result, we will accrue the delayed portion of our base management fee for accounting purposes, but will not actually pay that amount to our investment adviser until we begin making investments in micro-cap companies. We also reimburse Keating Investments for the allocable portion of overhead and other expenses incurred by it in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, including the compensation of our Chief Financial Officer and Chief Compliance Officer, and their respective staff.

If our Investment Advisory and Administrative Services Agreement is terminated, our costs under a new agreement that we may enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Advisory and Administrative Services Agreement. Any new Investment Advisory and Administrative Services Agreement would also be subject to approval by our stockholders.

Off-Balance Sheet Arrangements

As of September 30, 2009, we have no off-balance sheet arrangements.

Related Parties

We have a number of business relationships with affiliated or related parties. We have entered into the Investment Advisory and Administrative Services Agreement with Keating Investments. Timothy J. Keating, our President, Chief Executive Officer and Chairman of the Board of Directors, is the managing member and majority owner of Keating Investments. Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our Board of Directors, is also an executive officer and member of Keating Investments. Kyle L. Rogers, our Chief Operating Officer and Secretary, is also an executive officer and member of Keating Investments. We have also entered into a license agreement with Keating Investments, pursuant to which Keating Investments has granted us a non-exclusive license to use the name “Keating.” In addition, pursuant to the terms of the Investment Advisory and Administrative Services Agreement, Keating Investments provides us with certain administrative services necessary to conduct our day-to-day operations.

Currently, our investment adviser’s senior investment professionals, Messrs. Keating, Mankekar and Rogers, and the additional administrative personnel currently retained by Keating Investments, do not serve as principals of other investment funds affiliated with Keating Investments; however, they may do so in the future. If they do, persons and entities may in the future manage investment funds with investment objective similar to ours. In addition, our current executive officers and directors, serve or may serve as officers, directors or principals of entities that operate in the same or related line of business as we do, including investment funds managed by our affiliates. Accordingly, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with Keating Investments. However, in the event such conflicts do arise in the future, Keating Investments intends to allocate investment opportunities in a fair and equitable manner consistent with our investment objective and strategies so that we are not disadvantaged in relation to any other affiliate or client of Keating Investments.

We rely on Keating Investments to manage our day-to-day activities and to implement our investment strategy. Keating Investments plans, in the future, to be involved with activities which are unrelated to us. As a result of these activities, Keating Investments, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and other activities in which it may become involved. Keating Investments and its employees will devote only as much of its time to our business as Keating Investments and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time. Therefore, Keating Investments, its personnel, and certain affiliates may experience conflicts of interest in allocating management time, services, and functions among us and any other business ventures in which they or any of their key personnel, as applicable, may become involved. This could result in actions that are more favorable to other affiliated entities than to us. However, Keating Investments believes that it has sufficient personnel to discharge fully their responsibilities to all activities in which they are involved.

As a business development company, we may be limited in our ability to invest in any portfolio company in which any fund or other client managed by Keating Investments, or any of its affiliates has an investment. We may also be limited in our ability to co-invest in a portfolio company with Keating Investments or one or more of its affiliates. Subject to obtaining exemptive relief from the SEC, we also intend to co-invest with any such investment entity to the extent permitted by the 1940 Act, or the rules and regulations thereunder.

In addition, we have adopted a formal Code of Ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the fiduciary obligations imposed by both the 1940 Act and applicable state corporate law. Finally, we pay Keating Investments our allocable portion of overhead and other expenses incurred by Keating Investments in performing its administrative obligations under the Investment Advisory and Administrative Services Agreement, which creates conflicts of interest that our Board of Directors must monitor.

Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

Valuation of Portfolio Investments. We will determine the net asset value per share of our common stock quarterly, or more frequently to the extent circumstances together with our obligations under the 1940 Act require us to do so. The net asset value per share is equal to the value of our total assets minus liabilities and any preferred stock outstanding divided by the total number of shares of common stock outstanding. At present, we do not have any preferred stock authorized or outstanding.

Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available, and (ii) for all other securities and assets, fair value is as determined in good faith by our Board of Directors.

Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We are required to specifically value each individual investment on a quarterly basis.

We will determine the fair value of our debt investments by reference to the market in which we source and execute these debt investments. Market participants generally have a strategic premise for these investments, and anticipate the sale of the company, recapitalization or initial public offering as the realization/liquidity event. The fair value, or exit price, for a debt instrument would be the hypothetical price that a market participant would pay for the instrument, using a set of assumptions that are aligned with the criteria that we would use in originating a debt investment in this market, including credit quality, interest rate, maturity date, conversion ratio and overall yield, and considering the prevailing returns available in this market. In general, we consider enterprise value an important element in the determination of fair value, because it represents a metric that may support the recorded value, or which, conversely, would indicate if a credit-related markdown is appropriate. We also consider the specific covenants and provisions of each investment which may enable us to preserve or improve the value of the investment. In addition, the trends of the portfolio company’s basic financial metrics from the time of the original investment until the measurement date are also analyzed; material deterioration of these metrics may indicate that a discount should be applied to the debt investment, or a premium may be warranted in the event that metrics improve substantially and the return is higher than required for such a profile under current market conditions.

The fair value of our equity investments for which market quotations are not readily available will be determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio company’s debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company’s equity securities, or other liquidity events. The determined equity values will generally be discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors. Equity investments for which market quotations are readily available will generally be valued at the most recently available closing market price.

Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we will analyze its historical and projected financial results, as well as the nature and value of collateral, if any. We will also use industry valuation benchmarks and public market comparables. We will also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. We will generally require portfolio companies to provide annual audited and quarterly unaudited financial statements, as well as annual projections for the upcoming fiscal year.

The following is a description of the steps we will take each quarter to determine the value of our portfolio investments. Investments for which market quotations are readily available will be recorded in our financial statements at such market quotations. With respect to investments for which market quotations are not readily available, our Board of Directors will undertake a multi-step valuation process each quarter, as described below:

	•	Our quarterly valuation process begins with each portfolio company or investment being initially valued by Keating Investments’ senior investment professionals responsible for the portfolio investment;

	•	A nationally recognized third-party valuation firm engaged by our Board of Directors will review these preliminary valuations;

•

Our Valuation Committee will review the preliminary valuations and our investment adviser and nationally recognized third-party valuation firm will respond and supplement the preliminary valuation to reflect any comments provided by the Valuation Committee; and

•

Our Board of Directors will discuss valuations and will determine, in good faith, the fair value of each investment in our portfolio for which market quotations are not readily available based on the input of our investment adviser, a nationally recognized third-party valuation firm, and our Valuation Committee.

Determination of fair values involves subjective judgments and estimates. Accordingly, this critical accounting policy expresses the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

Revenue Recognition. We calculate gains or losses on the sale of investments by using the specific identification method. We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis to the extent such amounts are expected to be collected.

Origination, closing and/or commitment fees associated with debt investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, we record any prepayment penalties and unamortized loan origination, closing and commitment fees part of interest income.

We place loans on non-accrual status when principal or interest payments are past due 60 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. We may recognize as income or apply to principal, interest payments received on non-accrual loans, depending upon management’s judgment. We restore non-accrual loans to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Other Income. Other income includes closing fees, or origination fees, associated with equity investments in portfolio companies. Such fees are normally paid at closing of our investments, are fully earned and non-refundable, and are generally non-recurring.

The 1940 Act requires that a business development company offer managerial assistance to its portfolio companies. We offer and provide managerial assistance to our portfolio companies in connection with our investments and may receive fees for our services. These fees are typically included in other income.

Federal Income Taxes. We are currently taxable as a C Corporation. Beginning with our 2010 taxable year, we intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code. If we do not meet the criteria to qualify as a RIC for our 2010 taxable year, we will continue to be taxed as a regular corporation under Subchapter C of the Code. We intend to operate so as to qualify to be taxed as a RIC under Subchapter M of the Code and, as such, to not be subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. To qualify for RIC tax treatment, we are required to annually distribute at least 90% of our investment company taxable income, as defined by the Code.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

To date, our efforts have been limited primarily to organizational activities and activities relating to our initial private placement, as well as our evaluation of prospective portfolio investments. As a significant portion of the proceeds from our initial private placement have been invested in short term investments, pending subsequent investment in suitable micro-cap companies in accordance with our investment objective, our only current market risk exposure relates to fluctuations in interest rates.

As of September 30, 2009, approximately $3,500,000 was invested in certificates of deposit with original maturities of four weeks (maturing on October 15, 2009) at an effective annualized interest rate of approximately 0.85%. Assuming no other changes to our holdings as of September 30, 2009, a 1% change in the underlying interest rate payable on our certificate of deposit investments as of September 30, 2009 would not have a material effect on the amount of interest income earned from our certificate of deposit investments for the following 90-day period.

We have not engaged in any hedging activities since our inception on May 9, 2008. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.

Item 4.

Controls and Procedures.

As of September 30, 2009 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including 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 in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s 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. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management has not identified any change in our internal control over financial reporting that occurred during the third quarter of 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A.

Risk Factors.

Except as described below, there have been no material changes during the nine months ended September 30, 2009 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008.

Current market conditions have adversely affected the capital markets and have reduced the availability of debt and equity capital for the market as a whole and financial firms in particular. These conditions make it more difficult for us to achieve our investment objective, particularly as they likely have an even greater impact on the micro-cap companies we intend to target. This may adversely affect the financial condition and operating results of certain micro-cap companies in which we may invest, as well as reduce the availability of attractive micro-cap targets for potential investment.

The U.S. economy is currently in a recession. During the nine months ended September 30, 2009, consumer confidence continued to deteriorate and unemployment figures increased. However, in recent months, certain economic indicators have shown modest improvements. Banks and others in the financial services industry previously reported significant write-downs in the fair value of their assets, which led to the failure of a number of banks and investment companies, a number of distressed mergers and acquisitions, the government take-over of the nation’s two largest government-sponsored mortgage companies, and the passage of the $700 billion Emergency Economic Stabilization of 2008 in early October 2008. In addition, the stock market declined significantly, with both the S&P 500 and the Nasdaq Composite declining by over 38% during 2008. These events have significantly constrained the availability of debt and equity capital for the market as a whole. Further, these and other events have also led to rising unemployment, deteriorating consumer confidence and a general reduction in spending by both consumers and businesses.

The generally distressed economic situation, together with the limited availability of debt and equity capital, including through bank financing, will likely have a disproportionate impact on the micro-cap companies we intend to target for investment. As a result, we will likely experience a reduction in attractive investment opportunities in prospective portfolio companies that fit our investment criteria. In addition, our debt and equity investments in portfolio companies could be impaired to the extent such portfolio companies experience financial difficulties arising out of the current economic environment. Our inability to locate attractive investment opportunities, or the impairment of our portfolio investments as a result of economic conditions, could have a material adverse effect on our financial condition and results of operations.

We are currently in a period of capital markets disruption and recession. These conditions are likely to have a more severe impact on micro-cap companies, which may adversely affect our portfolio companies and reduce the number of potential micro-cap company investments that meet our investment criteria.

The U.S. capital markets have been experiencing extreme volatility and disruption for an extended period of time and the U.S. economy is currently in a recession. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. We believe these conditions may continue for a prolonged period of time or worsen in the future. A prolonged period of market illiquidity may have an adverse effect on our business, financial condition and results of operations. Unfavorable economic conditions could also increase our portfolio companies’ funding costs, limit their access to the capital markets or result in a decision by lenders not to extend credit to them. These events could limit our investment originations, limit their ability to grow and negatively impact our operating results.

Although we do not currently intend to do so, if we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. Although we do not presently intend to do so, if we use leverage to partially finance our investments, through borrowing from banks and other lenders, potential investors and current shareholders will experience increased risks of investing in our common stock. If the value of our assets increases, leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distribution payments. Leverage is generally considered a speculative investment technique.

We will remain subject to corporate-level income tax if we are unable to qualify as a regulated investment company under Subchapter M of the Code.

Although we intend to elect to be treated as a RIC under Subchapter M of the Code beginning with our 2010 taxable year and succeeding years thereafter, no assurance can be given that we will be able to qualify for and maintain RIC status. To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.

The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In the event we use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.

The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in public companies whose securities may not trade actively in the secondary markets, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to qualify for RIC tax treatment for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions.

We have not identified any of the portfolio companies in which we will invest the net proceeds of our continuous public offering and, as a result, we may be deemed to be a "blind pool" investment company until such time as we begin making investments in portfolio companies.

Our investments will be selected by our investment adviser’s investment professionals, subject to the approval of its Investment Committee, and our stockholders will not have input into our investment decisions. Both of these factors will increase the uncertainty, and thus risk, of investing in our shares. In addition, until such time as we begin making investments in portfolio companies, we may be deemed to be a "blind pool" investment company.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

We did not engage in any unregistered sales of equity securities during the three months ended September 30, 2009.

Item 3.

Defaults upon Senior Securities.

Not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of stockholders during the three months ended September 30, 2009.

Item 5.

Other Information.

Not applicable.

Item 6.		Exhibits.

3.1		Amended and Restated Articles of Incorporation (Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-157217), filed on June 5, 2009)
3.2		Amended and Restated Bylaws (Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 0-53504), filed on April 23, 2009)
3.3		Dividend Reinvestment Plan (Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-157217), filed on June 5, 2009)
4.1		Form of Share Certificate (Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 0-53504), filed on March 9, 2009)
10.1		Form of Amended and Restated Investment Advisory and Administrative Services Agreement (Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form N-2 (File No. 333-157217), filed on May 1, 2009)
10.2		License Agreement between the Company and Keating Investments, LLC (Incorporated by reference to the Registrant’s Registration Statement on Form 10 (File No. 0-53504), filed on November 20, 2008)
10.3		Form of Indemnification Agreement for Directors (Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form N-2 (File No. 333-157217), filed on June 5, 2009)
10.4		Custody Agreement between the Company and Steele Street Bank & Trust (Incorporated by reference to the Registrant’s Registration Statement on Form 10 (File No. 0-53504), filed on November 20, 2008)
11		Computation of Per Share Earnings (included in the notes to the unaudited financial statements contained in this report)
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
*	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: November 10, 2009	KEATING CAPITAL, INC.

	By:	/s/ Timothy J. Keating
		President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Ranjit P. Mankekar
		Ranjit P. Mankekar Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)

Attached files

CROSSROADS LIQUIDATING TRUST Reports

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