Integrity Capital Income Fund, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Integrity Capital Income Fund, Inc.	ex32x2.htm
EX-32.1 - EXHIBIT 32.1 - Integrity Capital Income Fund, Inc.	ex32x1.htm
EX-31.2 - EXHIBIT 31.2 - Integrity Capital Income Fund, Inc.	ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - Integrity Capital Income Fund, Inc.	ex31x1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT

Commission file number: 000-55277

INTEGRITY CAPITAL INCOME FUND, INC.

(Exact name of the registrant as specified in its charter)

Colorado	46-4285184
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

13540 Meadowgrass Drive, Suite 100

Colorado Springs, Colorado 80921

(Address of principal executive offices)

(719) 955-4801

Telephone number, including

Area code

(Former name or former address if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 T 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 T No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer T Smaller reporting Company ☐

There were 2,415,553 shares of the issuer's common stock, par value $0.0001, outstanding as of September 14, 2016.

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation:

an economic downturn could impair our portfolio companies' abilities to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

the risks, uncertainties and other factors we identify in the sections entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended October 31, 2015 filed with the SEC on February 1, 2016 and elsewhere in this report and in our filings with the SEC.

Although management believes that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report should not be regarded as a representation by management that its plans and objectives will be achieved. Do not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Management does not undertake any obligation to update or revise any forward-looking statements.

INTEGRITY CAPITAL INCOME FUND, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED July 31, 2016

CONTENTS

PART I – Financial Information	2

Item 1. Financial Statements	2

Statements of Assets, Liabilities and Net Assets as of July 31, 2016 (unaudited) and October 31, 2015	2

Schedules of Investments as of July 31, 2016 (unaudited) and October 31, 2015	3

Statements of Operations for the three and nine months ended July 31, 2016 (unaudited) and for the three and nine months ended July 31, 2015 (unaudited)	7

Statements of Changes in Net Assets for the nine months ended July 31, 2016 (unaudited) and for the nine months ended July 31, 2015 (unaudited)	8

Statements of Cash Flows for the nine months ended July 31, 2016 (unaudited) and for the nine months ended July 31, 2015 (unaudited)	9

Notes to Financial Statements (unaudited)	10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	31

Item 4. Controls and Procedures	31

PART II – Other Information	32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6. Exhibits	33

Signatures	34

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Integrity Capital Income Fund, Inc.

STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS



	As of
	July 31, 2016			October 31, 2015
	(unaudited)
ASSETS:
Investments at fair value
Non-controlled/non-affiliate company investments	$	18,157,632		$	15,699,391
Controlled affiliate company investments		902,312			902,312
Total Investments at fair value (cost $18,313,146 and $16,126,912)		19,059,944			16,601,703
Cash and cash equivalents		5,209,448			3,764,999
Interest receivable		777,030			245,706
Prepaid insurance		4,667			14,854
Other assets		20,000			53,500
Total assets	$	25,071,089		$	20,680,762

LIABILITIES:
Due to Adviser	$	210,207		$	119,157
Line of credit payable		1,000,000			1,701,008
Deferred loan origination fees income		-			35,649
Total liabilities	$	1,210,207		$	1,855,814

Commitments and contingencies (Note 6)		-			-

NET ASSETS	$	23,860,882		$	18,824,948

NET ASSETS REPRESENTED BY SHAREHOLDERS' EQUITY:
Common stock, par value $0.0001 per share, 200,000,000 shares authorized; 2,379,922 and 1,849,246 common shares issued and outstanding	$	238		$	185
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; Zero shares issued and outstanding		-			-
Paid-in capital in excess of par value		23,714,846			18,288,938
Accumulated over-distributed net investment income		(830,348	)		4,802
Net unrealized appreciation (depreciation) on investments		803,030			531,023
Net realized gain on investments		173,116			-

TOTAL NET ASSETS REPRESENTED BY SHAREHOLDERS' EQUITY	$	23,860,882		$	18,824,948

Net asset value per share	$	10.03		$	10.18

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.


SCHEDULE OF INVESTMENTS
AS OF JULY 31, 2016
(unaudited)


Company	Portfolio Company Industry	Investment	Interest Rate		Senior/ Secondary	Cost		Fair Value		Unrealized Appreciation/ (Depreciation) on Investments			% of Net Assets

Debt Securities (United States) (1)
5500 South Quebec Holdings, LLC	Real Estate	Promissory note ($4,175,000 par due 12/2019)		0% Cash / 8% PIK	Senior Secured	$	4,149,265	$	4,242,797	$	93,532			17.9	%

Aequitas Commercial Finance, LLC (5)	Financial Services	Promissory note ($500,000 par due 5/2016)		14.50%	Senior Secured		500,000		325,000		(175,000	)		1.4	%

Aequitas Peer-To-Peer Funding, LLC (5)	Financial Services	Promissory note ($110,000 par due 5/2016)		14.50%	Senior Secured		110,000		71,500		(38,500	)		0.3	%

Aequitas Peer-To-Peer Funding, LLC (5)	Financial Services	Promissory note ($16,500 par due 10/2016)		14.50%	Senior Secured		16,500		10,725		(5,775	)		0.0	%

Ajubeo, LLC	Technology	Promissory note ($375,000 par due 12/2017)		0% Cash / 8% PIK	Secondary Secured		375,000		362,354		(12,646	)		1.5	%

All Pro Funding II, LLC	Real Estate	Promissory note ($1,000,000 par due 12/2020)		11.00%	Senior Secured		1,000,000		1,000,000		-			4.2	%

BK NNN Properties, LLC	Real Estate	Promissory note ($200,000 par due 10/2016)		12.00%	Senior Secured		193,750		200,000		6,250			0.8	%

Burnham & Sullivan Holdings, LLC	Real Estate	Promissory note ($299,000 par due 7/2018)		10.50%	Secondary Secured		299,000		299,000		-			1.3	%

Care Payment Holdings, LLC (5)	Healthcare	Promissory note ($1,000,000 par due 9/2018)		12.00%	Senior Secured		1,000,000		932,505		(67,495	)		3.9	%

eCOS, LLC	Real Estate	Promissory note ($1,160,723 par due 5/2018)		12.00%	Secondary Secured		1,164,382		1,125,236		(39,146	)		4.7	%

Northstar Portfolio, LLC	Real Estate	Promissory note ($3,750,000 par due 9/2020)		0% Cash / 6% PIK	Secondary Secured		3,750,000		3,881,731		131,731			16.3	%

Subsentio, LLC	Technology	Promissory note ($1,200,000 par due 7/2020)		9.00%	Secondary Secured		1,195,937		1,200,000		4,063			5.0	%

PCM Tax Lien Fund, LP (2) (4)	Real Estate	Promissory note ($902,312 par due 11/2017)		7.00%	Secondary Secured		902,312		902,312		-			3.8	%

TVO Capital Management, LLC - Westport on the River	Real Estate	Promissory note ($987,000 par due at Final Close)		8.00%	Secondary Secured		987,000		987,000		-			4.1	%

TVO North America, LLC (6)	Real Estate	Promissory note ($500,000 par due at 1/2016)		12.00%	Secondary Secured		500,000		500,000		-			2.1	%

TVO North America, LLC	Real Estate	Promissory note ($820,000 par due 9/2016)		12.00%	Secondary Secured		820,000		820,000		-			3.4	%

Total debt securities						$	16,963,146	$	16,860,160	$	(102,986	)		70.7	%

Equity Securities (United States) (1) (3)			Contracts
5500 South Quebec Holdings, LLC	Real Estate	Warrants (expiration date 7/2025)		49		$	-	$	-	$	-			0.0	%

Ajubeo, LLC	Technology	Warrants (expiration date 12/2019)		73,424			-		333,712		333,712			1.4	%

Subsentio, LLC	Technology	Warrants (expiration date 5/2025)		136,459			-		307,306		307,306			1.2	%

Subsentio, LLC	Technology	Warrants (expiration date 7/2026)		66,666			-		132,532		132,532			0.6	%

Total equity securities						$	-	$	773,550	$	773,550			3.2	%


Investments in Partnership interests (United States) (1)				Non-Voting Preferred Ownership %
BAL Riverchase Capital Partners, LLC	Real Estate	Member Interest		14%	$	850,000	$	908,629	$	58,629	3.8	%

Total partnership interests					$	850,000	$	908,629	$	58,629	3.8	%

Investment in other investment companies (United States) (1)			Shares/Units
Landmark Dividend Growth Fund - G LLC (2)	Infrastructure	Member Interest		505,000	$	500,000	$	517,605	$	17,605	2.2	%

Total other investment companies					$	500,000	$	517,605	$	17,605	2.2	%

Total investments					$	18,313,146	$	19,059,944	$	746,798	79.9	%


(1) Illiquid investment. At July 31, 2016 100% of investments held by the Company were illiquid.

(2) The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. Total non-qualifying assets made up 6.0% of net assets at July 31, 2016.

(3) Non-income producing securities.

(4) As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" and "Control" to this portfolio company because it owns more than 25% of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the nine months ended July 31, 2016 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

Company		Purchases				Redemptions (cost)				Sales (cost)				Interest income				Other income				Net realized gains (losses)				Net unrealized gains (losses)
PCM Tax Lien Fund, LP		$	-			$	-			$	-			$	45,182			$	-			$	-			$	-


(5) Non-income producing. Investment was on non-accrual status as of April 30, 2016, meaning the Company has ceased recognizing interest income on the investment.

(6) This investment matured in January 2016 and remains outstanding but is considered collectible. Partial payments of accrued interest were made on April 19, 2016 and June 16, 2016. As such, the note has not been placed on non-accrual status.

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.


SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 2015

Company	Portfolio Company Industry	Investment	Interest Rate		Senior/ Secondary	Cost		Fair Value		Unrealized Appreciation/ (Depreciation) on Investments			% of Net Assets

Debt Securities (United States) (1)
5500 South Quebec Holdings, LLC	Real Estate	Promissory note ($2,500,000 par due 7/2017)	0% Cash / 8% PIK		Senior Secured	$	2,500,000	$	2,502,845	$	2,845			13.2	%

Aequitas Commercial Finance, LLC	Financial Services	Promissory note ($500,000 par due 5/2016)		14.50%	Senior Secured		500,000		500,000		-			2.7	%

Aequitas Peer-To-Peer Funding, LLC	Financial Services	Promissory note ($500,000 par due 5/2016)		14.50%	Senior Secured		500,000		500,000		-			2.7	%

Aequitas Peer-To-Peer Funding, LLC	Financial Services	Promissory note ($75,000 par due 10/2016)		14.50%	Senior Secured		75,000		75,000		-			0.4	%

Ajubeo, LLC	Technology	Promissory note ($375,000 par due 12/2017)	0% Cash / 8% PIK		Secondary Secured		375,000		350,489		(24,511	)		1.9	%

All Pro Funding II, LLC	Real Estate	Promissory note ($500,000 par due 12/2020)		11.00%	Senior Secured		500,000		500,000		-			2.7	%

Care Payment Holdings, LLC	Healthcare	Promissory note ($1,000,000 par due 9/2018)		12.00%	Senior Secured		1,000,000		1,000,000		-			5.3	%

eCOS, LLC	Real Estate	Promissory note ($879,800 par due 5/2018)		12.00%	Secondary Secured		879,800		879,800		-			4.7	%

Northstar Portfolio, LLC	Real Estate	Promissory note ($3,750,000 par due 9/2020)	0% Cash / 6% PIK		Secondary Secured		3,750,000		3,750,000		-			19.8	%

Subsentio, LLC	Technology	Promissory note ($800,000 par due 5/2019)		10.00%	Secondary Secured		800,000		800,000		-			4.2	%

PCM Tax Lien Fund, LP (2) (4)	Real Estate	Promissory note ($902,312 par due 5/2018)		7.00%	Secondary Secured		902,312		902,312		-			4.8	%

TVO Capital Management, LLC - Westport on the River	Real Estate	Promissory note ($987,000 par due at Final Close)		8.00%	Secondary Secured		987,000		987,000		-			5.2	%

TVO North America, LLC	Real Estate	Promissory note ($500,000 par due at 9/2016)		12.00%	Secondary Secured		500,000		500,000		-			2.7	%

TVO North America, LLC	Real Estate	Promissory note ($820,000 par due 9/2016)		12.00%	Secondary Secured		820,000		820,000		-			4.4	%

Total debt securities						$	14,089,112	$	14,067,446	$	(21,666	)		74.7	%

Equity Securities (United States) (1) (3)			Contracts
5500 South Quebec Holdings, LLC	Real Estate	Warrants (expiration date 7/2025)		49		$	-	$	-	$	-			0.0	%

Ajubeo, LLC	Technology	Warrants (expiration date 12/2019)		73,424			-		181,137		181,137			1.0	%

Subsentio, LLC	Technology	Warrants (expiration date 5/2025)		136,459			-		119,947		119,947			0.6	%

Total equity securities						$	-	$	301,084	$	301,084			1.6	%


Investments in Partnership interests (United States) (1)			Non-Voting Preferred Ownership %
BAL Riverchase Capital Partners, LLC	Real Estate	Member Interest	14%	$	850,000	$	850,000	$	-	4.5	%

NCP 2014, LLC (2)	Real Estate	Member Interest	40%		400,000		498,983		98,983	2.7	%

NCPGM Georgia, LLC (2)	Real Estate	Member Interest	40%		287,800		357,250		69,450	1.9	%

Total partnership interests				$	1,537,800	$	1,706,233	$	168,433	9.1	%

Investment in other investment companies (United States) (1)			Shares/Units
Landmark Dividend Growth Fund - G LLC (2)	Infrastructure	Member Interest	505,000	$	500,000	$	526,940	$	26,940	2.8	%

Total other investment companies				$	500,000	$	526,940	$	26,940	2.8	%

Total investments				$	16,126,912	$	16,601,703	$	474,791	88.2	%

(1)	Illiquid investment. At October 31, 2015, 100% of investments held by the Company were illiquid.

(2)

The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. Total non-qualifying assets made up 12.2% of net assets at October 31, 2015.

(3)	Non-income producing securities.

(4)

As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" and "Control" this portfolio company because it owns more than 25% of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio copany (including through a management agreement). Transactions during the period for the year ended October 31, 2015 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

Company		Purchases				Redemptions (cost)				Sales (cost)				Interest income				Other				Net realized gains (losses)				Net unrealized gains (losses)
PCM Tax Lien Fund, LP		$	902,312			$	-			$	-			$	7,901			$	-			$	-			$	-

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.

STATEMENTS OF OPERATIONS

	Three months ended						Nine months ended
	July 31, 2016			July 31, 2015			July 31, 2016			July 31, 2015
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

INVESTMENT INCOME:
From non-controlled/non-affiliate company investments:
Interest on investments, net	$	312,493		$	242,661		$	924,877		$	705,325
Dividend and interest income		11,684			8,888			27,714			22,383
Total investment income from non-controlled/non-affiliate company investments		324,177			251,549			952,591			727,708
From controlled affiliate company investments:
Interest on investments		13,251			-			45,182			-
Total investment income from controlled affiliate company investments		13,251			-			45,182			-
Total investment income		337,428			251,549			997,773			727,708

EXPENSES:
Base management fees		92,854			49,771			274,046			122,309
Professional fees		40,760			50,061			232,036			203,222
Amortization of deferred offering costs		-			7,899			-			23,695
Marketing expenses		2,680			4,020			10,720			12,060
Custody fees		9,286			2,232			27,405			10,938
Insurance expense		3,938			3,875			11,688			11,625
Director fees		5,049			1,500			9,549			6,000
Interest expense		-			-			5,554			-
Other expenses/(reimbursements)		-			(6,282	)		1,468			(5,857	)

Total expenses		154,567			113,076			572,466			383,992

Operating expenses refunded/(reimbursed) (Note 4)		26,178			(15,643	)		(49,379	)		(143,422	)

Net expenses		180,745			97,433			523,087			240,570

NET INVESTMENT INCOME		156,683			154,116			474,686			487,138

REALIZED AND UNREALIZED GAIN/(LOSS):
Net realized gain on investments:
Non-controlled/non-affiliate company investments		-			-			173,116			-
Net change in unrealized appreciation on investments:
Non-controlled/non-affiliate company investments		(35,409	)		56,321			272,007			260,865

Net realized and unrealized gain/(loss) on investments:		(35,409	)		56,321			445,123			260,865

NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	121,274		$	210,437		$	919,809		$	748,003

Per Common Share data:

Net investment income per common share - basic and diluted	$	0.07		$	0.12		$	0.20		$	0.45
Earnings per common share - basic and diluted	$	0.05		$	0.16		$	0.39		$	0.68
Weighted average shares of common stock outstanding - basic and diluted		2,405,554			1,302,662			2,319,636			1,092,250
Distributions declared per common share	$	0.19		$	0.19		$	0.56		$	0.56

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.

STATEMENTS OF CHANGES IN NET ASSETS


	Common Stock						Paid-in Capital in Excess of				Accumulated over-distributed net investment		Net Unrealized Appreciation (Depreciation) on		Net Realized Gain on		Total Net
	Shares			Amount			Par Value			income			Investments		investments		Assets

For the nine months ended July 31, 2015 (unaudited)
BALANCE -- October 31, 2014		714,377		$	71		$	7,143,699		$	(97,074	)	$	-	$	-	$	7,046,696

Issuance of common stock		862,402			87			8,702,113			-			-		-		8,702,200
Net increase in net assets resulting from operations		-			-			-			487,138			260,865		-		748,003
Distributions ($0.56 per share)		-			-			-			(629,849	)		-		-		(629,849	)

BALANCE — July 31, 2015		1,576,779		$	158		$	15,845,812		$	(239,785	)	$	260,865	$	-	$	15,867,050

For the nine months ended July 31, 2016 (unaudited)
BALANCE -- October 31, 2015		1,849,246		$	185		$	18,612,085		$	(262,113	)	$	474,791	$	-	$	18,824,948

Issuance of common stock		634,879			63			6,483,937			-			-		-		6,484,000
Redemption of common stock		(104,203	)		(10	)		(1,058,029	)		-			-		-		(1,058,039	)
Net increase in net assets resulting from operations		-			-			-			474,686			272,007		173,116		919,809
Distributions ($0.56 per share)		-			-			-			(1,309,836	)		-		-		(1,309,836	)

BALANCE — July 31, 2016		2,379,922		$	238		$	24,037,993		$	(1,097,263	)	$	746,798	$	173,116	$	23,860,882

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.


STATEMENTS OF CASH FLOWS

	For the nine months ended			For the nine months ended
	July 31, 2016			July 31, 2015
	(unaudited)			(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations	$	919,809		$	748,003
Adjustments to reconcile net increase in net assets resulting from
operations to net cash used in operating activities:
Purchase of investments		(4,434,479	)		(8,464,800	)
Proceeds from principal payments and sales of investments		2,452,293			3,528,795
Net realized gain on investments		(173,116	)		-
Net change in unrealized appreciation on investments		(272,007	)		(260,865	)
Accretion of loan origination fees		(30,932	)		(63,375	)
Amortization of deferred offering costs		-			23,695
PIK interest		(430,314	)		-
Defaulted interest on debt security		(23,756	)		-
Change in assets and liabilities:
Prepaid insurance		10,187			11,625
Accounts receivable		-			(5,913	)
Interest receivable		(77,254	)		(90,925	)
Due to Adviser		91,050			17,297
Taxes payable		-			(44,275	)
Other Assets		33,500			-
Deferred loan origination fees		(35,649	)		79,250

Net cash used in operating activities		(1,970,668	)		(4,521,488	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock		6,484,000			8,702,200
Redemptions of common stock		(1,058,039	)		-
Distributions of income paid		(1,309,836	)		(629,849	)
Repayments on line of credit, net		(701,008	)		-

Net cash provided by financing activities		3,415,117			8,072,351

NET CHANGE IN CASH AND CASH EQUIVALENTS		1,444,449			3,550,863

CASH AND CASH EQUIVALENTS — Beginning of period		3,764,999			900,185

CASH AND CASH EQUIVALENTS — End of period	$	5,209,448		$	4,451,048


Interest Paid during the period	$	5,554		$	-
Taxes paid during the period	$	-		$	(44,231	)
Distributions declared and paid during the period	$	(1,309,836	)	$	(629,849	)

Supplemental non-cash activity:
Interest receivable converted to investment	$	6,444		$	-

See Notes to Financial Statements

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

ORGANIZATION

Integrity Capital Income Fund, Inc. (the "Company"), an externally managed investment company was organized as a Colorado corporation on December 10, 2013 (Inception) and was initially funded on January 21, 2014 (commencement of operations). The Company has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, for U.S. federal income tax purposes, the Company has elected to be treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").

The Company invests principally in debt, equity securities, including convertible preferred securities, limited liability companies, partnerships and other debt securities convertible into equity securities, of primarily non-public U.S.-based companies. The investment objective is to maximize income and capital appreciation. In accordance with the investment objective, the Company intends to provide capital principally to U.S.-based, private companies with an equity value of less than $250 million, which the Company refers to as "micro-cap companies." The Company's primary emphasis is to identify companies with experienced management and positive cash flow from operations by (1) accessing established relationship channels of Integrity Trust Company, LLC, a Colorado limited liability company (the "Adviser"), (2) selecting investments within our core markets, (3) partnering with experienced private equity, real estate and investment firms, (4) implementing the disciplined underwriting standards of the Adviser and (5) drawing upon the combined experience and resources of the Adviser and its affiliates.

The Company generally invests in securities that have not been rated by independent rating agencies or that would be rated below investment grade if they were rated. These securities have predominately speculative characteristics with respect to the issuer's capacity to pay interest and repay principal.

On December 1, 2015, the adviser role was transferred from Integrity Bank & Trust, an affiliated entity, to the Adviser. The Company notes that this was just a change in legal structure and did not change the Adviser employees or physical address.

SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying financial statements of the Company and related financial information have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946—Financial Services—Investment Companies ("ASC Topic 946"). In the opinion of management, the financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Use of Estimates

Financial statements prepared on a GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Investment valuation represents a significant estimate within these financial statements.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. In the first quarter of fiscal 2016, the Company concluded it was appropriate to capitalize loan origination fees charged on promissory notes as a reduction to the initial cost of the investment and accrete such amounts over the estimated life of the investment as interest income. Previously, such fees were deferred and amortized over the estimated life of the investment. Accordingly, the Company had revised the classification to report these amounts as interest income on investments. Corresponding reclassifications have also been made to the statements of cash flows for the first nine months of fiscal year 2015. This change in classification does not materially affect previously reported cash flows from operations or from financing activities in the statements of Cash Flows, and had no effect on the previously reported Statements of Operations for any period.

Cash and Cash Equivalents

The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits; however, management does not believe it is exposed to any significant credit risk.

Fair Value of Investments

The Company's fair value accounting policies adhere to the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures ("Topic ASC 820"). Topic ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

Leve 1 -

Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

Leve 2 -

Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Leve 3 -

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.

Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined by the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. See further description of fair value methodology in Note 5.

Deferred Offering Costs

Offering costs are expenses such as legal fees pertaining to the Company's shares offered for sale. The Company has accounted for offering costs in the current period as a deferred charge, Deferred Offering Costs on the Statements of Assets, Liabilities and Net Assets. The deferred offering costs are being amortized to expense over 12 months on a straight-line basis beginning with the period after the Company's registration under the Securities and Exchange Act of 1934 (the "Exchange Act") was effective (November 1, 2014). As of October 31, 2015, the deferred offering costs incurred by the Company had been fully amortized.

Revenue Recognition

Investments and related investment income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments. For the three and nine months ended July 31, 2016, the Company earned interest income of $332,337 and $979,327 (including $13,251 and $45,182 interest on investments from affiliate company), respectively. During the nine months ended July 31, 2016, the Company wrote-off $6,243, $7,180, and $10,333 in interest income and interest receivable related to its debt securities with Aequitas Commercial Finance, LLC, Aequitas Peer-to-Peer Funding, LLC, and Care Payment Holdings, LLC, respectively, as the amounts were determined to be uncollectible. For the three and nine months ended July 31, 2015, the Company earned interest income of $242,661 and $705,325 (including no interest on investments from affiliate company). As of July 31, 2016 and October 31, 2015, the Company had interest receivable of $777,030 and $245,706, respectively.

Fee income such as loan origination, closing, commitment, structuring and other upfront fees is capitalized, and the Company accretes or amortizes such amounts over the life of the loan as interest income. For the three and nine months ended July 31, 2016, interest income included $12,539 and $30,932, respectively, of accretion of loan origination fees. There was no accretion of loan origination fees for the three and nine months ended July 31, 2015. For the three and nine months ended July 31, 2016, the Company received loan origination fees of $27,354 and $30,171 respectively. For the three and nine months ended July 31, 2015, the Company received loan origination fees of $43,250 and $79,250, respectively.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the Statements of Operations.

For investments with contractual payment-in-kind ("PIK") interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, the Company will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. As of July 31, 2016, the Company held three investments, Ajubeo, Inc., Northstar Portfolio, LLC and 5500 South Quebec Holdings, LLC with contractual PIK interest. As of July 31, 2016 the balance of accrued PIK interest related to these investments was $50,778, $192,329, and $294,207, respectively. For the year ended October 31, 2015, the Company held three investments, Ajubeo, Inc. Northstar Portfolio, LLC and 5500 South Quebec Holdings, LLC with contractual PIK interest. As of October 31, 2015, the balance of PIK interest related to these investments was $26,583, $23,750, and $56,667, respectively. All PIK interest amounts are recorded within the interest receivable balances as of July 31, 2016 and Octover 31, 2015. The Company notes that investments held with PIK interest do not have cash interest rates.

Dividend income from investments in other investment companies is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the investment company and are expected to be collected. Each distribution received from limited liability company ("LLC") and limited partnership ("LP") investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three and nine months ended July 31, 2016, the Company recorded dividend income of $5,091 and $18,446. For the three and nine months ended July 31, 2015, the Company recorded dividend income of $8,888 and $22,383, respectively.

Non-accrual loans: A loan may be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current. There were three non-accrual loans held as of July 31, 2016 (Aequitas Commercial Finance, LLC, Aequitas Peer-to-Peer Funding, LLC, and Care Payment Holdings, LLC) with a fair value of $1,339,730 and cost of $1,626,500. There weren't any non-accrual loans held as of October 31, 2015. During the three months ended July 31, 2016, the Company reduced fair value by $286,770 for these non-accrual loans.

Partial loan sales: The Company follows the guidance in FASB ASC Topic 860 when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a "participating interest", as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company's Statements of Assets, Liabilities and Net Assets and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value. For the three months ended July 31, 2016 and July 31, 2015, there were no partial loan sales. For the nine months ended July 31, 2016, there were partial loan sales which met the definition of a participating interest to a related party of $40,000 of the Company's interest in its Promissory Note in eCOS, LLC. For the nine months ended July 31, 2015 there were partial loan sales which met the definition of a participating interest to an unrelated third party of $800,000 of the Company's interest in its $3,257,500 Promissory Note in Camel Parkwood, LLC. There was no gain or loss resulting from this partial loan sale.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act. The Company elected to be treated as a RIC under the Internal Revenue Code beginning with the tax year ended October 31, 2015. Such election was made upon the filing of the Company's first federal tax return for RIC purposes. In order to continue to qualify as a RIC, among other things, the Company must meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which generally relieves the Company from U.S. federal income taxes with respect to all income distributed to its stockholders. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as distributions of income. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company's stockholders and will not be reflected in the financial statements of the Company.

As a RIC, the Company is subject to a 4% nondeductible federal excise tax on certain undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (i) 98.0% of ordinary income for each calendar year, (ii) 98.2% of capital gain net income for the one-year period ending October 31 in that calendar year, and (iii) any income realized, but not distributed, in the preceding year. The Company will not be subject to excise taxes on amounts on which the Company is required to pay corporate income tax (such as retained net capital gains). The Company currently intends to make sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement. For the three and nine months ended July 31, 2016 there was no amount recorded for U.S. federal excise tax.

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes ("ASC Topic 740"). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company's policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through July 31, 2016. All tax years since inception remain subject to examination by U.S. federal and most state tax authorities.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Distributions

Distributions to common stockholders are recorded on the record date. The amount to be paid out as a distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. During the nine months ended July 31, 2016, there were total distributions of $1,309,836. During the nine months ended July 31, 2015, there were total distributions of $629,849.

Recently adopted accounting pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest — Imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for annual and interim periods beginning after December 15, 2015. The Company notes that the adoption of this accounting standard did not have a material impact on its financial statements.

In May 2015, FASB issued ASU 2015-07 "Fair Value Measurement (Topic 820) – Disclosures for Investments in Certain Entities that Calculate Net Asset Value ("NAV") per Share (or Its Equivalent)." This new guidance no longer requires investments for which NAV is determined based on practical expedient reliance to be reported utilizing the fair value hierarchy. This guidance is effective for annual and interim periods beginning after December 15, 2015, however, early adoption is permitted. The Company elected to early adopt ASU 2015-07 as of October 31, 2015. The adoption did not have a material impact on the Company's financial statements, other than enhancing the disclosures.

BORROWINGS

Revolving Credit Facility

On October 21, 2015, the Company entered into a senior secured revolving credit facility up to $3,200,000. The line of credit expires on October 21, 2016, unless extended. Borrowings under the line of credit bear interest at a fixed rate of 4.85%. All borrowings are collateralized by all assets of the Company. The outstanding balance on the line of credit was $1,000,000 at July 31, 2016 and $1,701,008 at October 31, 2015. Borrowings under the line of credit are subject to certain financial covenants and restrictions on indebtedness, distribution of income payments, financial guarantees, business combinations, and other related items. As of July 31, 2016, the Company is in compliance with all covenants.

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, calculated pursuant to the 1940 Act, is at least 200% after such borrowing. As of July 31, 2016 and October 31, 2015, the Company's asset coverage was 2,486% and 1,207%.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

RELATED PARTY TRANSACTIONS AND AGREEMENTS

Investment Advisory and Management Agreement

The Company pays the Adviser a fee for its investment advisory services under the Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee. The cost of both the base management fee and any incentive fees earned by the Adviser is ultimately borne by the common shareholders.

The base management fee (the "Base Fee") is calculated at an annual rate of 1.5% of gross assets, which includes the use of leverage, if any. The Base Fee is payable quarterly in arrears, and is calculated based on the value of gross assets at the end of the most recently completed fiscal quarter, and appropriately adjusted for any equity capital raises or repurchases during the current fiscal quarter. The Base Fee for any partial month or quarter will be appropriately prorated.

The Incentive Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing with the calendar year beginning November 1, 2014, and equals 20% of "Net Investment Income" above 7.5% for the year. "Net Investment Income" is defined as all income accrued during the year minus operating expenses, Base Management Fee and expenses paid under the Investment Advisory Agreement. Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments with payable-in-kind interest and zero coupon securities) accrued income not yet received in cash. Net Investment Income does include any realized capital gains, realized capital losses, or unrealized capital depreciation. It does not include unrealized capital appreciation.

For the three and nine months ended July 31, 2016, the Adviser earned $92,854 and $274,046, respectively, in base management fees. For the three and nine months ended July 31, 2015, the Adviser earned $49,771 and $122,309, respectively, in base management fees. There was no Incentive Fee for the three and nine months ended July 31, 2016 and July 31, 2015.

Custody Agreement

As compensation for the Adviser's services related to the Custody Agreement the Company has agreed to pay an annual fee of 0.15% of the Custodial Property defined as all investments and cash equivalents held by the Adviser through October 31, 2015. Effective November 1, 2015, Custodial Property was amended to be defined as gross assets at the end of the most recently completed fiscal quarter, appropriately adjusted for any equity capital raises or repurchases during the current fiscal quarter. The Adviser invoices the Company quarterly in arrears for the pro-rata portion of the annual amount. For the three and nine months ended July 31, 2016, the Adviser earned $9,286 and $27,405, respectively, in custody fees. For the three and nine months ended July 31, 2015, the Adviser earned $2,232 and $10,938, respectively, in custody fees.

Administration Agreement

Pursuant to the Investment Advisory Agreement, the Adviser furnishes the Company with equipment and clerical, bookkeeping and record-keeping services, as well as certain administrative services, which include being responsible for the financial records which the Company is required to maintain and preparing reports to shareholders and reports filed with the SEC. In addition, the Adviser assists the Company in monitoring portfolio accounting and bookkeeping, managing portfolio collections and reporting, performing internal audit services, determining and publishing the net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to shareholders, providing support for risk management efforts and generally overseeing the payment of expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimburses the Adviser for the allocable portion of overhead and other expenses incurred in performing its administrative obligations under the Advisory Agreement. The Adviser prepares and delivers statements documenting its expenses which are subject to reimbursement.

The Adviser has entered into an Operating Expense Limitation Agreement ("OELA") with the Company effective January 2, 2014, to limit total operating expense to 2.34% of total operating expenses of the Company. Effective September 1, 2014, the OELA was amended to 2.95%, whereby any expenses in excess of the OELA will be reimbursed to the Company by the Adviser. However, the Adviser will be able to recoup from the Company these expenses reimbursed in excess of the limit over a period not to exceed three years. For the three months ended July 31, 2016, the total amount of operating expenses incurred by the Company was less than the limit by $26,178, and this amount will therefore be refunded by the Company to the Adviser. The total amount of operating expenses incurred by the Company which exceeded the limit and were reimbursed by the Adviser for the nine months ended July 31, 2016 was $49,379. The total amount of operating expenses incurred by the Company which exceeded the limit and were reimbursed by the Adviser for the three and nine months ended July 31, 2015 was $15,643 and $143,422, respectively. Such expenses paid by the Adviser each quarter will be subject to reimbursement to the Adviser over a period not to exceed three years, if the Company's expense ratio for such future period is less than the 2.95% limit or the 2.34% limit related to each respective period. The following table presents the amounts reimbursed by the Adviser and the expiration date for such future possible reimbursement by the Company.

Date Reimbursed	Waiver Amount		Operating Expenses Refunded		Remaining Waiver Amount		Expiration Date
June 30, 2014	$	121,939	$	-	$	121,939	June 30, 2017
October 31, 2014		55,091		28,816		26,275	October 31, 2017
January 31, 2015		77,836		-		77,836	January 31, 2018
April 30, 2015		49,943		-		49,943	April 30, 2018
July 31, 2015		15,643		-		15,643	July 31, 2018
October 31, 2015		16,920		-		16,920	October 31, 2018
January 31, 2016		78,196		-		78,196	January 31, 2019
	$	415,568	$	28,816	$	386,752

Through the normal course of business, the Adviser or an affiliate of the Adviser processes payments on behalf of the Company and then is reimbursed for expenses paid on behalf of the Company. As of July 31, 2016, $210,207 was due to the Adviser for such reimbursements, including the OELA refund of $26,178. As of October 31, 2015, $119,157 was due to the Adviser for such reimbursements, net of the OELA reimbursed of $16,920. The Due to Adviser balance is settled monthly in arrears. Amounts paid by the Adviser on behalf of the Company are non-interest bearing.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

FAIR VALUE OF INVESTMENTS

The Company invests in direct debt and equity securities that are not traded on a public market. These securities are recorded at fair value as determined by the Company using the framework of Topic ASC 820. In addition, the Company has adopted written guidelines for determining the fair value of its investments for reporting in the accompanying financial statements. Under these guidelines, investment valuations are reviewed on a quarterly basis and investments without readily available market values are valued at fair value as determined by the Company. In the absence of readily ascertainable market values, the Company uses valuation techniques consistent with the market, income and cost approaches, as prescribed by Topic ASC 820, in order to estimate the fair value of investments. In all cases, the Company evaluates whether the valuation techniques used and the resultant fair value estimate is representative of what the most likely buyers of the company would also pay upon exit, and therefore, whether the value is deemed to be the price expected in an orderly transaction between market participants at the measurement date.

Under Topic ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. Topic ASC 820 permits the Company, as a practical expedient, to estimate the fair value of investments in other investment companies based on the net asset value (NAV) per share, or its equivalent, if the NAV of such investments is calculated in a manner consistent with the measurement principles of Topic ASC 946. As such the Company's estimate of fair value for its investments in other investment companies is generally based on the NAV provided to the Company by each Investee Fund, supported by the independently audited financial statements of the Investee Fund, when available. The Company's investment in Landmark Dividend Growth Fund – G LLC is valued using NAV. As of July 31, 2016 and October 31, 2015, the fair value of Landmark Dividend Growth Fund – G LLC was $517,605 and $526,940, respectively.

The transaction price is typically the Company's best estimate of fair value at inception of the investment. When evidence supports a change to the carrying value from the transaction price, adjustments are made to reflect expected exit values. Ongoing reviews by the Company are based on an assessment of significant assumptions related to each underlying investment including incorporating valuations that consider the evaluation of financing and sale transactions with third parties, the financial condition and operating results of the portfolio company, achievement of technical milestones, and expected cash flows. All investments at July 31, 2016 and October 31, 2015 had no readily available market value and are included in Level 3 of the fair value hierarchy.

As part of the valuation process, management may take into account the following types of factors, if relevant, in determining the fair value of the Company's investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company's ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company's securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments would trade in their principal markets and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company's net income before net interest expense, income tax expense, depreciation, and amortization. The enterprise analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Company will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Company uses a market interest rate yield analysis to determine fair value. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, management considers the pricing indicated by the external event to corroborate its valuation.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by management, as described throughout this note. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a readily available market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

The following tables present information about the Company's assets measured at fair value on a recurring basis at July 31, 2016 and October 31, 2015. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company's accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy. For the period ended July 31, 2016 and year ended October 31, 2015, there were no transfers in or out of Level 1, 2, and 3.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Assets Measured at Fair Value on a Recurring Basis at July 31, 2016:

	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance at July 31, 2016
	(Level 1)		(Level 2)		(Level 3)
Investments:
Debt Securities	$	-	$	-	$	16,860,160	$	16,860,160
Equity Securities		-		-		773,550		773,550
Investments in Partnership
Interests		-		-		908,629		908,629
Investment in Other
Investment Companies*		-		-		-		517,605
Total	$	-	$	-	$	18,542,339	$	19,059,944

Assets Measured at Fair Value on a Recurring Basis at October 31, 2015:

	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance at October 31, 2015
	(Level 1)		(Level 2)		(Level 3)
Investments:
Debt Securities	$	-	$	-	$	14,067,446	$	14,067,446
Equity Securities		-		-		301,084		301,084
Investments in Partnership
Interests		-		-		1,706,233		1,706,233
Investment in Other
Investment Companies*		-		-		-		526,940
Total	$	-	$	-	$	16,074,763	$	16,601,703

* In accordance with ASC 820, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the financial statements.

The Company estimates that it will receive liquidating distributions from its investments in Other Investment Companies over a period consistent with the investee company's estimated life plus available extension periods, which is 3 years from the effective date with two additional 12-month extensions available at the discretion of the Managing Member. For the investment in Other Investment Companies, the Company will pay the management of such investment company a monthly management fee based on the product of $65 and the number of portfolio assets then held by the investment company. The investment company specializes in the acquisition of real property rights to ground leases and easements primarily under infrastructure assets. The Company has fully funded its capital commitment to the investment company.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis:

	Debt Securities			Equity Securities		Investments in Partnership Interests			Investment in Other Investment Companies			Total

Balance at October 31, 2014		5,796,500			-		-			465,116			6,261,616
Purchase of investments		14,200,112			-		687,800			-			14,887,912
Proceeds from principal payments													-
and sales of investments		(5,057,500	)		-		-			(465,116	)		(5,522,616	)
Settlements/Conversions		(850,000	)		-		850,000			-			-
Net unrealized gains/(losses)		(21,666	)		301,084		168,433			-			447,851
Balance at October 31, 2015	$	14,067,446		$	301,084	$	1,706,233		$	-		$	16,074,763
Purchase of investments		4,434,479			-		-			-			4,434,479
Proceeds from principal payments
and sales of investments		(1,591,377	)		-		(860,916	)		-			(2,452,293	)
Net realized gains		-			-		173,116			-			173,116
Net unrealized gains/(losses)		(81,320	)		472,466		(109,804	)		-			281,342
Acretion of loan origination fees		30,932			-		-			-			30,932
Balance at July 31, 2016	$	16,860,160		$	773,550	$	908,629		$	-		$	18,542,339

Quantitative Information About Level 3 Fair Value Measurements:

Below is a table summarizing the valuation techniques, the unobservable inputs used in the valuation, along with ranges used to determine the fair value of certain Level 3 investments held at July 31, 2016 and October 31, 2015.

July 31, 2016
Type of Security	Fair Value			Valuation Technique	Unobservable Input	Range (Wtd Avg)
Debt Securities	$	15,520,430	(1)	Yield Analysis	Market Yield		6.0 - 14.5% (8.8%)
Equity Securities	$	773,550		Earnings Multiple	Market Comparables		2.3 - 3.5 (3.1)
	$	-		Income Approach	Capitalization Rate		14.8%
Investments in Partnership Interests	$	908,629		Income Approach	Capitalization Rate		7.0%

October 31, 2015
Type of Security	Fair Value		Valuation Technique	Unobservable Input	Range (Wtd Avg)
Debt Securities	$	14,067,446	Yield Analysis	Market Yield		6.0 - 14.5% (9.0%)
Equity Securities	$	301,084	Earnings Multiple	Market Comparables		2.0 - 3.0 (2.5)
	$	-	Income Approach	Capitalization Rate		14.8%
Investments in Partnership Interests	$	1,706,233	Income Approach	Capitalization Rate		6.4 - 7.8% (6.9%)

(1) Excludes $1,339,730 of loans at fair value, which the Company valued on a liquidation basis.

The above tables are not intended to be all-inclusive but rather to provide information on significant unobservable inputs and valuation techniques used by the Company. The significant unobservable input used in the fair value measurement of the Company's debt investments is market interest rates. The Company uses market interest rates for loans to determine if the effective yield on a loan is commensurate with the market yields for that type of loan. If a loan's effective yield is significantly less than the market yield for a similar loan with a similar credit profile, then the resulting fair value of the loan may be lower.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company may enter into commitments to invest in certain private equity funds. Under these agreements, the Company would be required to make payments to third parties upon request. As of July 31, 2016, the Company had $165,445 in outsanding commitments. The Company had no such commitments outstanding at October 31, 2015.

EARNINGS PER SHARE

The following information sets forth the computation of basic net increase in net assets per share (earnings per share) resulting from operations for the three and nine months ended July 31, 2016 and July 31, 2015.

	Three months ended				Nine Months Ended
	July 31, 2016		July 31, 2015		July 31, 2016		July 31, 2015
Earnings per share - basic:
Net increase in net assets resulting from operations	$	121,274	$	210,437	$	919,809	$	748,003
Weighted average shares outstanding - basic		2,405,554		1,302,662		2,319,636		1,092,250
Earnings per share - basic:	$	0.05	$	0.16	$	0.39	$	0.68

DISTRIBUTIONS FROM INCOME

The Company's distributions from income and realized gains are recorded on the date declared (record date). The following table summarizes the Company's declarations and distributions during the nine months ended July 31, 2016:

Declaration Date	Distribution Date	Amount Per Share	Cash Distribution
11/25/2015	11/27/2015	$0.0625	$122,898
12/28/2015	12/30/2015	$0.0625	$141,633
1/25/2016	1/26/2016	$0.0625	$144,291
2/25/2016	2/26/2016	$0.0625	$149,912
3/25/2016	3/28/2016	$0.0625	$150,458
4/25/2016	4/27/2016	$0.0625	$151,732
5/25/2016	5/25/2016	$0.0625	$149,650
6/27/2016	6/28/2016	$0.0625	$151,227
7/25/2016	7/26/2016	$0.0625	$148,035

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

FINANCIAL HIGHLIGHTS

Per Share Data:	For the nine months ended July 31, 2016			For the nine months ended July 31, 2015

Net asset value at beginning of period	$	10.18		$	9.86
Issuance of common stock		-			-
Net investment income/(loss) (2)		0.20			0.45
Net realized and unrealized gain (loss) (3)		0.19			0.24
Net increase in shareholders' equity		0.39			0.69
Accretive effect of share issuance above NAV		0.02			0.07
Shareholder distributions:
From net investment income		(0.56	)		(0.56	)
Income tax expense		-			-
Net asset value at end of period	$	10.03		$	10.06
Shares outstanding at end of period		2,379,922			1,576,779
Ratio/Supplemental Data:
Weighted average net assets at end of period		23,642,334			10,873,238

Total return based on net asset value (4)		3.83	%		7.60	%

Ratio of gross operating expenses to average net assets (1)		4.84	%		4.71	%
Deferred or reimbursed expenses (1)		-1.89	%		-1.76	%
Ratio of net operating expenses to average net assets (1)		2.95	%		2.95	%
Ratio of net investment income/(loss) to average net assets		4.02	%		5.97	%
Average debt outstanding		1,350,504			-
Average debt outstanding per share	$	0.58		$	-
Portfolio turnover		14.60	%		46.27	%

(1)

The ratios have been annualized except for those expenses that are not recurring.

(2)

Calculated using the weighted average shares outstanding during the respective period.

(3)

Amounts are balancing amounts necessary to reconcile the change in net asset value per unit to the per unit information.

(4)

Total return based on market value is calculated assuming a purchase of common shares at the market value on the first day and a sale at the market value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company's distribution reinvestment plan. Total return based on market value does not reflect brokerage commissions. Return calculations are not annualized.

These financial highlights may not be indicative of the future performance of the Company. Financial highlights are calculated for all outstanding common stock as a whole. An individual shareholder's return and ratios may vary.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

10.

RISKS AND UNCERTAINTIES

The Company in the normal course of business makes investments in financial instruments where the risk of potential loss exists due to changes in the market (market risk), or failure or inability of the counterparty to a transaction to perform (credit and counterparty risk). See below for a detailed description of select principal risks.

Market Risk

Market risk is the company's investments in financial instruments and derivatives that expose it to various risks such as, but not limited to, interest rate, foreign currency, and equity. Interest rate risk is the risk that a fixed income investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (for example, investing in fixed- income securities with different durations) or hedging (for example, through an interest rate swap).

Equity Risk

Equity risk is the risk that the market values of equities, such as common stocks or equity related investments such as futures and options, may decline due to general market conditions, such as political or macroeconomic factors. Additionally, equities may decline in value due to specific factors affecting a related industry or industries. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.

Credit and Counterparty Risk

The Company is exposed to credit risk to counterparties with whom it transacts with and also bears the risk of settlement default. The company may lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivative instrument contract, repurchase agreement or securities lending is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings. The Company minimizes concentrations of credit risk by undertaking transactions with a diverse population of counterparties with a history of good credit quality. Further, the company manages counterparty risk by entering into appropriate legally enforceable master netting agreements, or similar agreements which include provisions for offsetting positions, collateral, or both in the event of counterparty default or nonperformance.

As the Company currently holds three investments with PIK interest, we note that the interest rate and warrants received on PIK securities reflects the payment deferral and increased credit risk associated with such instruments. Such investments generally represent a significantly higher credit risk than coupon loans. We note that even if accounting conditions were met, the borrower could still default when the Company's actual collection is supposed to occur at the maturity of the obligation. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of associated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also reduces the loan-to-value ratio at a compounding rate. PIK securities also create the risk that incentive fees will be paid to the Adviser based on non-cash accruals that ultimately may not be realized, but the Adviser will be under no obligation to reimburse the Company for these fees.

Integrity Capital Income Fund, Inc.

Notes to Financial Statements

Three and Nine Months Ended July 31, 2016

(unaudited)

11.

INDEMNIFICATIONS

The Company has provided general indemnifications to the Adviser, any affiliate of the Adviser and any person acting on behalf of the Adviser or such affiliate when they act, in good faith, in the best interest of the Company. The Company is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote.

12.

SUBSEQUENT EVENTS

For the purpose of issuing these financial statements, the Company evaluated events and transactions through the date the financial statements were issued.

The Company continued to pay its monthly distribution of $0.0625 per share.

On August 4, 2016, the Company made an additional investment of $353,000 through a promissory note with Monarch Country Meadows, LLC. On August 25, 2016, the Company made an additional investment of $2,214,800 through a promissory note with Lincoln Meadows, LLC. On September 1, 2016, the Company made an additional investment of $165,445 through a promissory note with Northstar Portfolio, LLC.

On August 31, 2016, the Company received a $1,060,000 principal payment related to its promissory note with Lincoln Meadows, LLC.

From August 1, 2016 to September 14, 2016, the Company sold 35,631 shares of common stock at a price of $10.30 per share, for a total of $367,000 of new capital invested.

On August 30, 2016, the Adviser gave a termination notice of the OELA to the Company, effective as of the close of business October 31, 2016. See additional discussion regarding the termination in Note 4.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our unaudited financial statements and notes thereto included in this quarterly report and our 2015 Annual Report on Form 10-K for the year ended October 31, 2015.

Overview

We were incorporated on December 10, 2013 under the laws of the State of Colorado. We are externally managed and have elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. We must not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in "eligible portfolio companies." Under the relevant SEC rules, the term "eligible portfolio company" includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but no longer meet the definition.

We invest principally in debt securities and equity securities, including convertible preferred securities, limited liability companies, partnerships and other debt securities convertible into equity securities, of primarily non-public U.S.-based companies. We expect that the debt securities will generally be collateralized by the assets of the company and will carry a market rate of interest.

We seek to create a diverse portfolio that includes senior secured and second lien loans and warrants and equity securities by primarily investing approximately $500,000 to $5.0 million of capital, on average, in the securities of U.S. micro-cap companies. As of July 31, 2016, we had sixteen debt investments in fourteen companies and equity investments in one investment partnership, one other investment company and three portfolio companies in the form of warrants. As of October 31, 2015, we had fourteen debt investments in twelve companies and equity investments in three investment partnerships, one other investment company and three portfolio companies in the form of warrants.

Results of Operations

Investment Income. We generate revenue in the form of interest and fee income on debt investments and capital gains and distributions, if any, on portfolio company investments that we originate or acquire. Our debt investments typically have a term of two to five years and bear interest at a fixed or floating rate. In some cases, our investments provide for deferred interest payments or payment-in–kind (or "PIK") interest. We may also generate revenue in the form of commitment, origination (related to debt investments), structuring or diligence fees, consulting fees, and fees for providing significant managerial assistance.

We generated revenue of $337,428 during the three months ended July 31, 2016. This included $325,744 in interest on investments (including $13,251 interest on investments from affiliate company and $12,539 in revenue recognized from origination fees), $6,593 in interest income from bank accounts, and $5,091 in dividend income. For the comparable three months ended July 31, 2015, we generated revenue of $251,549. This included $242,661 in interest on investments (including $27,625 in revenue recognized from origination fees) and $8,888 in dividend income.

We generated revenue of $997,773 during the nine months ended July 31, 2016. This included $970,059 in interest on investments (including $45,182 interest on investments from affiliate company and $30,932 in revenue recognized from origination fees), $9,267 in interest income from bank accounts, and $18,447 in dividend income. During the nine months ended July 31, 2016, the Company wrote-off $6,243, $7,180, and $10,333 in interest income and interest receivable related to its equity securities with Aequitas Commercial Finance, LLC, Aequitas Peer-To-Peer Funding, LLC, and Care Payment Holdings, LLC, respectively as the amounts were determined to be uncollectible. For the comparable nine months ended July 31, 2015, we generated revenue of $727,708. This included $705,325 in interest on investments (including $63,375 in revenue recognized from origination fees) and $22,383 in dividend income.

Expenses. We expect our operating expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and increase during periods of asset declines. Once current expenses fall below the limitation of 2.95%, the Adviser will start to receive reimbursements from the Company for any deferred expenses up to the 2.95%.

During the three months ended July 31, 2016, the Company had expenses of $154,567, consisting of: (i) legal fees of $7,525; (ii) other professional fees of $33,235; (iii) base management fees of $92,854; (iv) directors' fees of $5,049; (v) marketing expenses of $2,680; (vi) custody fees of $9,286; and (vii) insurance expenses of $3,938. For the comparable three months ended July 31, 2015, the Company had expenses of $113,076, consisting of (i) amortization of offering costs of $7,899; (ii) legal fees of $3,656; (iii) other professional fees of $46,405; (iv) base management fees of $49,771; (v) directors' fees of $1,500; (vi) marketing expenses of $4,020; (vii) custody fees of $2,232; (viii) insurance expenses of $3,875; and (ix) miscellaneous reimbursements of $6,282.

During the nine months ended July 31, 2016, the Company had expenses of $572,466, consisting of: (i) legal fees of $59,821; (ii) other professional fees of $172,215; (iii) base management fees of $274,046, (iv) directors' fees of $9,549; (v) marketing expenses of $10,720; (vi) custody fees of $27,405; (vii) insurance expenses of $11,688; (viii) interest expense of $5,554; and (ix) miscellaneous expenses of $1,468. For the comparable nine months ended July 31, 2015, the Company had expenses of $383,992, consisting of (i) amortization of offering costs of $23,695; (ii) legal fees of $69,967; (iii) other professional fees of $133,255; (iv) base management fees of $122,309; (v) directors' fees of $6,000; (vi) marketing expenses of $12,060; (vii) custody fees of $10,938; (viii) insurance expenses of $11,625; and (ix) miscellaneous reimbursements of $5,857.

The Adviser has entered into the OELA with the Company effective January 2, 2014, to limit the total operating expenses of the Company to 2.34%. Effective September 1, 2014, the OELA was amended to 2.95%, whereby any expenses in excess of the OELA will be reimbursed to the Company by the Adviser. However, the Adviser will be able to recoup from the Company these expenses reimbursed in excess of the limit over a period not to exceed three years. The total amount of operating expenses incurred by the Company were $26,178 less than the limit for three months ended July 31, 2016, and therefore were refunded by the Company to the Adviser. The total amount of operating expenses incurred by the Company which exceeded the limit and were reimbursed by the Adviser for the three months ended July 31, 2015 were $15,643.

The total amount of operating expenses incurred by the Company which exceeded the limit and were reimbursed by the Adviser for the nine months ended July 31, 2016 and July 31, 2015 were $49,379 and $143,422, respectively. Such expenses paid by the Adviser each quarter will be subject to reimbursement to the Adviser over a period not to exceed three years, if the Company's expense ratio for such future period is less than the 2.95% limit or the 2.34% limit related to each respective period.

On August 30, 2016, the Adviser gave a termination notice of the Operating Expense Limitation Agreement to the Company, effective as of the close of business, October 31, 2016. The Company's independent directors have reviewed the request and have approved the termination of the agreement. The original purpose of the OELA was to limit the expenses during the initial start of the Company. The Directors noted that this purpose has been achieved. In their determination, the independent directors reviewed the relevant factors including the operating expense and performance history of the Company and compared that information with the performance of other BDC's. This revealed that the Company's operating expenses were materially lower than the average operating expenses of those reviewed. It is noted that the existing operating expense reimbursement schedule and expiration dates are not affected by this termination and reimbursements to the Adviser remain in place subject to the OELA agreement.

Through the normal course of business, the Adviser or an affiliate of the Adviser processes payments on behalf of the Company and then is reimbursed for expenses paid on behalf of the Company. The Company reimburses the Adviser for expenses paid on its behalf monthly in arrears. These reimbursements are presented net of the OELA discussed above.

Net Unrealized Gains and Losses.

For the nine months ended July 31, 2016, the Company had $272,007 in net unrealized gains, of which $81,320 was as a result of net unrealized loss on investments in debt securities, $472,466 was as a result of net unrealized gain on investments in equity securities, $109,804 was a result of net unrealized loss on investment in partnership interests, and $9,335 was a result of the net unrealized loss on investment in other real estate investment companies.

For the nine months ended July 31, 2015, the Company had $260,865 in net unrealized gains, of which $35,502 was a result of net unrealized loss on investments in debt securities, $196,428 was a result of net unrealized gain on investments in equity securities, $79,068 was a result of the net unrealized gain on investment in partnership interests, and $20,871 was a result of net unrealized gain on investment in other investment companies.

Net Realized Gains and Losses.

For the nine months ended July 31, 2016, the Company had $173,116 in net realized gains as a result of investments in partnership interests. For the nine months ended July 31, 2015, the Company did not have any realized gains or losses.

Financial condition, liquidity and capital resources.

We received $6,484,000 from the net proceeds of sales of the Company's common stock and partially redeemed twenty eight investors for $1,058,039 of the Company's common stock during the nine months ended July 31, 2016. We received $8,702,200 from the net proceeds of sales of the Company's common stock during the nine months ended July 31, 2015. We invested the net proceeds in portfolio companies in accordance with our investment objective and strategies described in this report and paid down the Company's line of credit.

Our primary use of funds is investments in portfolio companies, cash distributions to holders of our common stock, and the payment of operating expenses, including debt service if we borrow to fund our investments.

As of July 31, 2016, we were approximately 80% invested, compared to 88% invested at October 31, 2015. We had cash resources of $5,209,448, which is an increase of 38% over cash resources held on October 31, 2015. We had indebtedness of $1,000,000 as of July 31, 2016. As of July 31, 2016, the balance of organization and operating expenses subject to the OELA was $386,752. For the period from and including August 1, 2016 through September 14, 2016, the Company received additional net proceeds from the sale of common stock of $367,000 at a price of $10.30 per share.

As of October 31, 2015, we had cash resources of $3,764,999. We had indebtedness of $1,701,008 as of October 31, 2015. As of October 31, 2015, the balance of organization and operating expenses subject to the recoupment under the OELA was $337,372.

As of July 31, 2016, our debt investments included: (i) three secured promissory notes currently on non-accrual status, previously bearing interest rates of 14.5%; (ii) subordinated debt bearing an interest rate of 8% with 73,424 warrants (5% of the outstanding equity of the portfolio company); (iii) a secured promissory note at 75% loan to value bearing an interest rate of 11%; (iv) five secured promissory notes bearing an interest rate of 12%, one of which is currently on non-accrual status; (v) a secured promissory note bearing an interest rate of 9% with 136,459 warrants (6.59% of the outstanding equity of the portfolio company); (vi) a promissory note secured by tax liens bearing an 7% interest rate; (vii) subordinated debt bearing an interest rate of 8% with 49 warrants for the purchase of Class B shares of the portfolio company; (viii) a secured promissory note bearing an interest rate of 6% ; (ix) a secured promissory note bearing an interest rate of 8%; and (x) a secured promissory note bearing an interest rate of 10.5%.

On March 10th the SEC filed a complaint against the Aequitas group of companies which are related to two of the Company's debt investments. Both notes have been placed on non-accrual and the Company has reversed all unpaid accrued interest. In addition, the Care Payment Holdings promissory note due September 18, 2018 has also been placed on non-accrual. During the nine months ended July 31, 2016, a receiver was appointed over these investments. The total invested amount in receivership is $1,626,500. During the three months ended July 31, 2016, the Company wrote down the non-accrual notes by $286,770. This reflects 65% of par value on the Aequitas Commercial Finance, LLC and Aequitas Peer-To-Peer Funding, LLC notes and 93.25% of par value on the Care Payment Holdings note. The Company is continuing to monitor the notes and the potential impact on valuations and income to the Fund.

As of October 31, 2015, our debt investments included: (i) three secured promissory notes bearing interest rates of 14.5%; (ii) subordinated debt bearing an interest rate of 8% with 73,424 warrants (5% of the outstanding equity of the portfolio company); (iii) a secured promissory note at 75% loan to value bearing an interest rate of 11%; (iv) four secured promissory notes bearing an interest rate of 12%; (v) a secured promissory note bearing an interest rate of 10% with 136,459 warrants (6.59% of the outstanding equity of the portfolio company); (vi) a promissory note secured by tax liens bearing a 7% interest rate; (vii) subordinated debt bearing an interest rate of 8% with 49 warrants for the purchase of Class B shares of the portfolio company; (viii) a secured promissory note bearing an interest rate of 6%; and (ix) a secured promissory note bearing an 8% interest rate.

As of July 31, 2016, the Company holds membership interest in a limited liability company (or LLC) that invests in real property rights to ground leases and easements under infrastructure assets. The LLC pays annual dividends at a rate of 7%. The Company holds 14% membership interest in an LLC that is also in the real estate industry. The Company also held Class B membership interests in two other LLC's at October 31, 2015 that were in the real estate industry. These two investments were sold during the nine months ended July 31, 2016 for total proceeds of $860,916. Our cash resources are held in depository accounts at First Republic Bank and Texas Capital Bank. We currently have no investments in debt or equity securities of public companies.

As of July 31, 2016 we had net assets of $23,860,882 and, based on 2,379,922 shares of common stock outstanding, a net asset value per common share of $10.03. This represents an increase of 27% in net assets as compared to October 31, 2015. As of October 31, 2015, we had net assets of $18,824,948 and, based on 1,849,246 shares of common stock outstanding, a net asset value per common share of $10.18.

Revolving Credit Facility The Company has available a senior secured revolving credit facility which allows the Company to borrow up to $3,200,000 at any one time outstanding, which was entered into on October 21, 2015. The line of credit expires on October 21, 2016, unless extended. Borrowings under the line of credit bear interest at a rate of 4.85% over a year of 360 days. All borrowings are collateralized by all assets of the Company. The outstanding balance on the line of credit was $1,000,000 and $1,701,008 at July 31, 2016 and October 31, 2015, respectively. Borrowings under the line of credit are subject to certain financial covenants and restrictions on indebtedness, distribution payments, financial guarantees, business combinations, and other related items. As of July 31, 2016 and October 31, 2015, the Company was in compliance with all covenants.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to financial market risks, including changes in interest rates. As of July 31, 2016, we did not have any loans in our portfolio that had floating interest rates. In the future, we may enter into loan arrangements that may have floating interest rates. Future floating loan arrangements may be based on a floating rate index and typically will have interest rate reset provisions that adjust applicable interest rates under such loans to current market rates either on a quarterly basis or a rest to changes in the national prime rate index.

Assuming that the Statements of Assets, Liabilities, and Net Assets as of July 31, 2016 was to remain constant and that we took no actions to alter interest rate sensitivity as of such date, the annualized impact of hypothetical changes in interest rates would have limited impact on interest income, interest expense, or net investment income.

We have not engaged in any hedging activities since our inception. 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

Evaluation of Disclosure Controls and Procedures.

Our President, Eric Davis, and our Chief Financial Officer, Randall Rush, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report on Form 10-Q (the "Evaluation Date"). Based on this evaluation, they believe that as of the Evaluation Date our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms; and (ii) is accumulated and communicated to the Company's management, including the President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting.

There has not been any change in our internal control over financial reporting that occurred during the fiscal quarter ended July 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

N/A

(b)

N/A

(c)	Purchases of Equity Securities by the Issuer:

ISSUER PURCHASES OF EQUITY SECURITIES

	(a)	(b)	(c)	(d)
Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 (May 1 – 31, 2016)	43,127	$10.14	43,127 (1)	0
Month #2 (June 1 – 30, 2016)	0	0	0	0
Month #3 (July 1 – 31, 2016)	51,076	$10.16	51,076 (2)	0
Total	94,203		94,203	0

(1)

A tender offer was announced on April 6, 2016 to purchase up to 43,127 shares. The offer expired on May 4, 2016. The offer has expired during the period covered by the table.

(2)

A tender offer was announced on June 20, 2016 to purchase up to 51,076 shares. The offer expired on July 18, 2016. The offer has expired during the period covered by the table.

Item 6. EXHIBITS

Exhibit No.	Document
3.1 3.2	Articles of Incorporation* By-laws**
31.1	Rule 13a-14(a)/15d-14(a) - Certification of Principal Executive Officer. Filed herewith.
31.2	Rule 13a-14(a)/15d-14(a) - Certification of Principal Financial Officer. Filed herewith.
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2	Certification Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101	Interactive data files pursuant to Rule 405 of Regulation S-T. Filed herewith.

*	Incorporated by reference from Form 10-Q filed June 14, 2016.

**	Incorporated by reference from Form 10 filed August 29, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: September 14, 2016	Integrity Capital Income Fund, Inc.

	By:	/s/ Eric Davis
	Name:	Eric Davis
	Title:	President, Chief Investment Officer and Chief Compliance Officer

	By:	/s/ Randall Rush
	Name:	Randall Rush
	Title:	Chief Financial Officer, Treasurer and Director

Integrity Capital Income Fund, Inc. - FORM 10-Q - September 14, 2016

Attached files

Integrity Capital Income Fund, Inc. Reports