UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K


---



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




FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008




OR




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




FOR THE TRANSITION PERIOD FROM
                    TO




COMMISSION
FILE NUMBER: 0-53504





KEATING
CAPITAL, INC.


(Exact
name of registrant as specified in its charter)





Maryland
              26-2582882(State
      of Incorporation)
              (I.R.S.
      Employer Identification Number)5251
      DTC Parkway, Suite 1000
                Greenwood
      Village, CO
              80111(Address
      of principal executive offices)
              (Zip
      Code)




Registrant’s
telephone number, including area code: (720) 889-0139





Securities
registered pursuant to Section 12(b) of the Act:


None




Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, par value


$0.001
per share





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No  x.




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x.




Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days.    Yes    ̈   No  x.




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.     x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer,“, “large accelerated filer” and “smaller
reporting company”  in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer     ̈
                  Non-accelerated
      filer    x
                Accelerated
      filer     ̈
                  Smaller
      reporting company     ̈




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




No
established market exists for the Registrant’s shares of common
stock.  As a result, there is no market value for such
shares.  As of June 30, 2008, no shares of the Registrant’s common
stock were held by non-affiliates.  Based upon the $10 offering price
of the shares issued in connection with the Registrant’s initial private
placement, approximately $3,498,000 of the Registrant’s common stock was held by
non-affiliates as of December 31, 2008.  For the purposes of
calculating the above amounts only, all directors and executive officers of the
Registrant have been treated as affiliates. There were 569,900 shares of the
Registrant’s common stock outstanding as of March 5, 2009.


KEATING
CAPITAL, INC.




FORM
10-K FOR THE FISCAL YEAR


ENDED
DECEMBER 31, 2008




TABLE
OF CONTENTS


PagePART IITEM 1.
                BUSINESS
                3ITEM 1A.
                RISK FACTORS
                31ITEM 1B.
                UNRESOLVED STAFF COMMENTS
                47ITEM 2.
                PROPERTIES
                47ITEM 3.
                LEGAL PROCEEDINGS
                47ITEM 4.
                SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                47PART IIITEM 5.
                MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                48ITEM 6.
                SELECTED FINANCIAL DATA
                50ITEM 7.
                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
                50ITEM 7A.
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                58ITEM 8.
                FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
                59ITEM 9.
                CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                74ITEM 9A.
                CONTROLS AND PROCEDURES
                74ITEM 9B.
                OTHER INFORMATION
                74PART IIIITEM 10.
                DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
                74ITEM 11.
                EXECUTIVE COMPENSATION
                79ITEM 12.
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
                80ITEM 13.
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
                81ITEM 14.
                PRINCIPAL ACCOUNTANT FEES AND
    SERVICES
                84PART IVITEM 15.
                EXHIBITS, FINANCIAL STATEMENT
    SCHEDULES
                85SIGNATURES
                87




2


PART I




Item 1.
            Business




In this
annual report, unless otherwise indicated, the “Company”, “we”, “us” or “our”
refer to Keating Capital, Inc.





We were
incorporated on May 9, 2008 under the laws of the State of
Maryland.  We have filed an election to be regulated as a business
development company under the Investment Company Act of 1940, as amended (the
“1940 Act”).  Keating Investments, LLC (“Keating Investments”) serves
as our investment adviser and also provides us with the administrative services
necessary for us to operate. Keating Investments may also retain additional
investment professionals in the future, based upon its needs.





Congress
created business development companies in 1980 in an effort to help public
capital reach smaller and growing private and public
companies.   We are designed to do precisely that.  We
intend to make minority, non-controlling equity investments in private
businesses that are seeking growth capital and that we believe are committed to,
and capable of, becoming public, which we refer to as “public ready” or “primed
to become public.”





We intend
to invest principally in equity securities, including convertible preferred
securities, and other debt securities convertible into equity securities, of
primarily non-public U.S.-based companies. Our investment objective is to
maximize total return.  In accordance with our investment objective,
we intend to provide capital principally to U.S.-based, private companies with
an equity value of less than $250 million, which we refer to as “micro-cap
companies.”  Our primary emphasis will be to attempt to generate
capital gains through our equity investments in micro-cap companies, including
through the conversion of the convertible debt or convertible preferred
securities we will seek to acquire in such companies.  However, we
anticipate that a significant portion of our investments at any given time will
include a component of interest or dividends, which we believe will provide us
with current yield, in addition to the potential for capital appreciation. We
may also make investments on an opportunistic basis in U.S.-based
publicly-traded companies with market capitalizations of less than $250 million,
as well as foreign companies that otherwise meet our investment criteria,
subject to certain limitations imposed under the 1940 Act. However, at the
present time, we do not expect our investments in foreign companies to exceed
more than 10% of our total investment portfolio on a cost basis.





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





·
            an
      initial investment consisting of convertible
  debt,





·
            a
      going public preparation process,
and





·
            a
      subsequent follow-on investment principally consisting of convertible
      preferred stock or other equity.




3


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





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





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





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





4


The
convertible debt instruments we expect to receive in connection with our initial
investments will likely be unsecured or subordinated debt securities. The
convertible preferred stock we principally expect to receive in connection with
our follow-on investments will typically be non-controlling investments, meaning
we will not be in a position to control the management, operation and strategic
decision-making of the companies in which we invest.   In the
near term, we expect that our total initial and follow-on investments in each
portfolio company will typically range from $250,000 to $500,000, although we
may invest more than this threshold in certain opportunistic
situations.  We expect the size of our individual investments to
increase to the extent our capital base increases in the future.





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





During the
last half of 2008, the state of the economy in the U.S. and abroad continued to
deteriorate to what we believe is a recession, which could be long-term. The
generally deteriorating economic situation, together with the limited
availability of debt and equity capital, including through bank financing, will
likely have a disproportionate impact on the micro-cap companies we intend to
target for investment.  As a result, we may experience a reduction in
attractive investment opportunities in prospective portfolio companies that fit
our investment criteria.  In addition, micro-cap companies in which we
ultimately invest may be unable to pay us the interest or dividends on their
convertible securities or repay their debt obligations to us, and the common
stock which we may receive upon conversion of the convertible securities may
have little or no value, resulting in the loss of all or substantially all of
our investment in such micro-cap companies.





We
have no operating history.  At this time, we do not have any
arrangements, agreements or commitments to make an investment in a portfolio
company.  We are subject to all of the business risks and
uncertainties associated with any new business, including the risk that we will
not achieve our investment objective and that the value of your investment could
decline substantially.





Our
principal executive offices are located at 5251 DTC Parkway, Suite 1000,
Greenwood Village, Colorado 80111, and our telephone number is (720) 889-0139.
We maintain a website on the Internet at www.keatingcapital.com.
Information contained on our website is not incorporated by reference into this
annual report, and you should not consider information contained on our website
to be part of this annual report.





Private
Issuances of Securities





On May 14,
2008, our investment adviser, Keating Investments, purchased 100 shares of our
common stock at a price of $10.00 per share as our initial
capital.  On November 12, 2008, we completed the final closing of our
initial private placement.  We sold a total of 569,800 shares of our
common stock in the initial private placement at a price of $10.00 per share
raising aggregate gross proceeds of $5,698,000.  After the payment of
commissions and other offering costs of approximately $454,566, we received
aggregate net proceeds of approximately $5,243,434 in connection with our
initial private placement.  As of December 31, 2008, we had cash
resources of approximately $4.78 million and no indebtedness other than accounts
payable and accrued expenses incurred in the ordinary course of business of
approximately $83,000, and management fees payable to Keating Investments of
approximately $12,000.




As of
January 15, 2009, our shares of common stock were owned by a total of 37
persons, including our President, Chief Executive Officer and Chairman of the
Board of Directors, our Chief Operating Officer, and one of our independent
directors, who own, in the aggregate, a total of 120,000 shares of our common
stock, representing approximately 21.1% of our issued and outstanding shares of
common stock following our initial private placement.





All shares
of our common stock issued in our initial private placement are restricted
shares and cannot be sold by the holders thereof without registration under the
Securities Act or an available exemption from registration under the Securities
Act.




Liquidity
Strategy
  We
presently intend to seek the listing of our shares of common stock on the Nasdaq
Capital Market within the next 18 to 24 months.  However, we cannot
provide you with any assurance that we will be successful in obtaining a listing
of our shares on the Nasdaq Capital Market in the manner or within the timeframe
we propose, if at all.  Specifically, we may fail to meet the
applicable standards for listing on the Nasdaq Capital Market, as a result of
insufficient assets, revenue, net income or record holders, among other
things.  In the event we do not qualify for, or are unable to obtain,
a listing on the Nasdaq Capital Market within our proposed timeframe, we will
instead seek to have our shares quoted on the Over-the-Counter Bulletin Board,
or “OTC Bulletin Board,” until such time as we are able to obtain a Nasdaq
Capital Market listing for our shares.  Although we anticipate meeting
the requirements to have our shares quoted on the OTC Bulletin Board within the
next 18 to 24 months, we cannot assure you that we will be successful in
obtaining such a listing within that timeframe, if at all.  Securities
traded on the OTC Bulletin Board also generally have a less liquid market than
those traded on the Nasdaq Capital Market or other national securities
exchanges.  In addition, our Board of Directors retains the discretion
to postpone a listing on either the Nasdaq Capital Market or the OTC Bulletin
Board if it determines such a listing is not in the best interests of Keating
Capital and our stockholders, though we would expect such a postponement to
occur only in the event of extraordinary market or economic
turmoil.  As a result, investors in our shares may have limited
liquidity for a substantial period of time, and we cannot provide any assurance
regarding when or if our shares will be accepted for listing or quotation on the
Nasdaq Capital Market or the OTC Bulletin Board.  In addition, we can
provide no assurance that, even if our shares are listed on the Nasdaq Capital
Market or the OTC Bulletin Board, an active trading market for our shares will
develop.





Targeted
Investments




We intend
to provide capital primarily to micro-cap companies with an equity value of less
than $250 million.  With micro-cap companies historically having
difficulty accessing the traditional capital markets and having less analyst
coverage, less institutional ownership and lower trading volume, we believe an
opportunity exists to become a preferred source of capital to such micro-cap
companies, particularly given our public markets strategy and the expertise of
our investment adviser.  Our investment activities will generally be
focused on micro-cap companies that have demonstrated attractive revenue and
earnings growth relative to their peers, and whose management teams are
committed to becoming public reporting companies.  We expect these
public ready companies will also have some or all of the following
characteristics:


5


·
            Operates in an attractive
      growth industry. We intend to focus on micro-cap companies across a
      broad range of attractive growth industries that we believe are being
      transformed or created anew by technological, economic and social forces
      and are capable of attracting interest from both retail and institutional
      investors.




·
            Immediate need for external
      capital. We intend to target micro-cap companies whose organic
      growth is currently constrained by limited capital, and which have reached
      a point in their development where we believe external capital is
      required.  As part of our investment, we intend to offer a more
      stable form of equity capital for our portfolio companies, while requiring
      that their ownership structure align the economic interests of their
      management team with the success of the
  enterprise.





·
            Demonstrated revenue
      stream. We intend to invest in micro-cap companies that have a
      demonstrated revenue stream that we believe will make them attractive as
      publicly traded companies.  As such, we do not intend to invest
      in developmental stage, pre-revenue stage and, with some exceptions, early
      revenue stage companies.





·
            Demonstrated
      profitability. We intend to focus on micro-cap companies that are
      at or near profitability on an earnings before interest, taxes,
      depreciation and amortization (“EBITDA”) basis. With the capital we
      provide, together with the projected EBITDA of our portfolio companies, we
      expect each of our portfolio companies to be able to finance their
      development over the next twelve to eighteen months without requiring
      additional outside capital subsequent to completion of our follow-on
      investment.  Once our portfolio companies become listed on the
      Nasdaq Capital Market, which we generally expect to occur within twelve to
      eighteen months after completion of our follow-on investment, we would
      expect our portfolio companies to be positioned to conduct, if
      appropriate, a public follow-on
offering.





In
addition to the foregoing, we currently intend to concentrate our investments in
micro-cap companies having annual revenues between $10 million and $100 million
that we believe have a strong prospect of revenue and earnings
growth.  We also expect our portfolio companies to generally have an
equity valuation, before our investment, of between $25 and $200
million.  These criteria provide general guidelines for our investment
decisions; however, we may not require each prospective portfolio company in
which we choose to invest to meet all of these criteria.





The
success of our strategy depends largely on our ability to identify micro-cap
companies that are committed to becoming, and that we believe we can assist in
becoming, public companies.  With over ten years experience sponsoring
going public transactions, we believe that our investment adviser has the
experience and expertise to assess which micro-cap companies are public ready
and to assist such companies in achieving public status in a timely and
cost-effective manner.   Our three-step investment structure is
designed to ensure that there is a shared commitment to going public between us
and the management teams of each of our portfolio companies.  As part
of our initial debt investment, we will require that our portfolio companies
agree to undertake the necessary steps to become a public reporting company
through the filing of a registration statement under the Securities Act or the
Exchange Act.   In the event a portfolio company fails to
complete the going public process in a satisfactory manner, our debt instruments
will impose certain penalties, which we expect will generally include a right to
put the debt investment back to the portfolio company at a premium to our
initial investment.





While we
believe that the use of economic disincentives will provide us with some
downside protection on our initial investments, we believe the real incentive
for our portfolio companies to become public is our more substantial follow-on
investment that is tied to achieving certain pre-established milestones
associated with the going public process, as well as what we believe are the
advantages of becoming a public company.  An important part of our
investment adviser’s due diligence process will focus on assessing the appeal
that a prospective portfolio company may have in the public markets, as well as
its suitability for achieving and maintaining public company
status.  In addition, while we expect to make passive, non-controlling
investments where we have little power to control the management, operation and
strategic decision-making of our portfolio companies, we expect to provide
managerial assistance to our portfolio companies throughout the investment
process, especially as it pertains to the engagement of third party consultants
with which our investment adviser has relationships, the completion of the going
public process through the filing of a registration statement, and the design of
an overall public markets strategy.





In the
near term, we expect that our total initial and follow-on investment in each
portfolio company will typically range from $250,000 to $500,000, although we
may invest more than this threshold in certain opportunistic
situations.  We expect the size of our individual investments to
increase if and to the extent our capital base increases in the
future.





6


We intend
to limit our investments in any one portfolio company to not more than 5% of our
net assets; however, we may invest more than this threshold in certain
opportunistic situations.  With an initial capital base of
approximately $5 million, we intend to limit our investments in any one
portfolio company to $500,000, or 10% of our net assets.  While this
amount exceeds our target limit of 5% of net assets, we intend to be more
selective during our initial investment period and take advantage of
opportunistic situations at this higher level.





We will
also generally limit our investments in any one portfolio company so that our
total outstanding equity interest in the portfolio company is not more than 9.9%
of a portfolio company’s outstanding equity, although we may exceed this
threshold in certain opportunistic situations.  We also intend to
include certain “blocker” language in our warrant instruments which would
prevent us from exercising warrants we are issued by our portfolio companies, if
by doing so we would exceed the 9.9% level.  We intend to be the lead
investor in our portfolio investments and, to the extent our portfolio companies
require more financing than we desire to invest, we anticipate seeking
non-affiliated co-investors to participate in the financing of our portfolio
companies.  In addition, our portfolio companies may engage one or
more placement agents with whom our investment adviser has relationships to
assist in capital raising from non-affiliated co-investors.





Keating
Investments





Our
investment activities are managed by Keating Investments.  Keating
Investments was founded in 1997 and is an investment adviser registered under
the Investment Advisers Act of 1940, as amended.  The managing member
and majority owner of Keating Investments is Timothy J. Keating.  Our
investment adviser’s senior investment professionals are Timothy J. Keating, our
President, Chief Executive Officer and Chairman of our Board of Directors,
Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our
Board of Directors, and Kyle L. Rogers, our Chief Operating Officer and
Secretary.  In addition, Keating Investments’ other investment
professionals consist of three portfolio company originators, one analyst and a
Chief Compliance Officer.  Under our Investment Advisory and
Administrative Services Agreement with Keating Investments, we have agreed to
pay Keating Investments, for its investment advisory services, an annual base
management fee based on our gross assets as well as an incentive fee based on
our performance. See “Investment Advisory and Administrative Services
Agreement.”





Market
Opportunity





Although
the current negative economic environment has severely limited access to the
capital markets and is likely to have a disproportionate impact on the financial
condition and results of operations of the types of micro-cap companies we
intend to target, we believe the following market opportunity continues to exist
to provide financing for public ready micro-cap companies.





Continued need
for growth capital by public ready micro-cap companies looking for an equity
partner.  We believe a significant opportunity exists to
provide growth, expansion and other types of capital to public ready micro-cap
companies that have reached a point in their development where additional equity
capital is needed.  We believe our investment model offering
non-controlling equity investments will provide an attractive vehicle for our
portfolio companies to meet their capital needs.  While we will
require our portfolio companies to become public reporting companies, we believe
that we will be viewed by prospective portfolio companies as a provider of
“patient” capital, given our focus on longer-term growth versus short-term
gains, which we believe will serve as a key differentiator for us.  We
believe there are a significant number of companies that are looking for the
type of “patient” capital we will be able to provide.  We also expect
to bring enhanced value to our portfolio companies through our investment
adviser’s going public and public markets expertise, rather than through
financial engineering or as a strategic business adviser to our portfolio
companies.





Absence of
traditional IPO financing for micro-cap companies.  We will
focus on micro-cap companies that have demonstrated revenues, not pre-revenue or
start-up companies, that are at a point in their development where we believe
equity capital is required, but which are unable to raise capital through a
traditional IPO or are unwilling, or unable due to market conditions, to raise
capital from private equity and venture capital sources.





Since
2000, we believe the traditional IPO market has been virtually non-existent for
micro-cap companies seeking to raise less than $25 million.  In fact,
from 2001 through 2008, there has been an average of only nine IPOs raising less
than $25 million each year.





7





Number
of IPOs Raising Less Than $25 Million









In
response to this void, alternatives to the traditional IPO for micro-cap
companies began to flourish in 2005.  One of these alternatives was a
PIPE offering which typically involved a reverse merger into a public shell
company with a simultaneous PIPE investment – an industry in which our
investment adviser was an active participant.  In a reverse merger,
shareholders of a private company purchase control of a public company with no
or nominal assets (other than cash) and no or nominal operations and then merge
it with the private company.  While the PIPE offering temporarily
filled the void that exists for micro-cap companies seeking to raise less than
$25 million, we believe that recent regulatory actions by the SEC which
unfavorably impacted reverse mergers, coupled with the recent deterioration of
the PIPE market as part of the broader difficulties within the U.S. credit
markets generally, have largely limited recent PIPE offerings to more
established, highly liquid, large-cap public companies. As a result, we believe
there are many public ready micro-cap companies that meet our investment
criteria, but simply do not have access to the U.S. public capital
markets.





Difficult market
for private equity and venture capital funds.We believe that the public
ready micro-cap companies in which we intend to invest are also feeling the
adverse impacts from the difficulties in current private equity and venture
capital markets.  Recently, private equity funds that typically relied
on commercial banks or a syndicate of lenders to provide the debt capital
necessary to produce their “leveraged” returns have seen these traditional
sources of capital become largely closed.  We believe that the impact
of these substantially tightened credit markets will be even more pronounced on
the micro-cap companies we intend to target, as they tend to be unable to
support large debt burdens.  As a result, we believe private equity
firms will be less interested in providing growth capital to public ready micro
cap companies where leverage is limited.





We believe
that venture capital funds are typically the least desired financing for our
targeted growth companies due to pricing and control issues.  While
many venture capital firms have cash to invest, they typically insist on a
controlling interest in their portfolio companies.  Recent market
trends, including the weak traditional IPO market in general, have put
significant liquidity pressures on venture capital funds that are now faced with
fewer attractive exit alternatives, extended holding periods and possible “mark
to market” valuation write-downs.





Accordingly,
we believe that many viable public ready micro-cap companies that fit our
investment criteria will have limited, if any, access to the private equity
market or venture capital financing, and we believe this trend is likely to
continue for the foreseeable future.





Further,
since our typical equity investment will be a non-controlling interest, we
believe there is a significant opportunity for us to become a capital provider
of choice for entrepreneurial businesses that are unwilling to give up a
controlling interest typically mandated by both private equity and venture
capital funds.  While we will generally have no direct control over
the management and strategic direction of our portfolio companies, we intend to
ensure that our portfolio companies’ management teams have a meaningful equity
stake and that their interests are aligned with our interests as an investor –
mainly, to create stockholder value through a widely held and actively traded
public stock. As part of the going public process, we also intend to provide our
portfolio companies with recommendations on the composition of their Board of
Directors, which we will require to be comprised of a majority of independent
directors so as to satisfy the Nasdaq Capital Market initial listing
requirements.





8


IPO financing
alternative.We believe that there exist significant and
continuing opportunities to originate and lead investments in public ready
micro-cap companies.  We believe that the market for the companies
that we are targeting has historically been characterized by continual change,
which creates an ongoing need for capital within that marketplace. We believe
that there exists a significant market opportunity to meet the capital
requirements of a growing number of these businesses as they find the U.S.
public and private capital markets largely closed.  In addition, we
believe that the capital markets have tended in recent years to be focused on
larger funds and larger deals – deals which are magnitudes larger than what is
required by the public ready micro-cap companies we intend to
target.





We believe
that we can offer public ready micro-cap companies that have solid financial
qualifications and strong growth prospects with an attractive, well-structured
capital markets alternative which is supported by our investment adviser’s
public markets approach and expertise.  Our focus will be to identify
these companies and provide a three-step investment program that provides them a
level of immediate capital followed by a more substantial equity financing
component once they have proven they are ready to become a public
company.  We believe our three-step investment process and going
public through the filing of a registration statement under the Securities Act
or the Exchange Act may prove more time-effective and less costly than a
traditional IPO for the micro-cap companies we intend to target.  In
addition, our investment in each portfolio company, unlike an IPO, will not
generally depend on general market conditions or prevailing investor sentiment.
We also believe that our investment adviser’s going public expertise and access
to third-party consultants, that we expect will be retained by our portfolio
companies, will allow our portfolio companies’ management teams to concentrate
on maximizing their business potential and marketplace influence as we proceed
through our disciplined and systematic going public process.





Benefits of being
a public company.  Typically, we believe investors place a
premium on liquidity, or having the ability to sell stock quickly. As a result,
we believe that public companies typically trade at higher valuations than
private companies with similar financial attributes. By going public, we believe
that our portfolio companies may be able to receive the benefit of this
liquidity premium, provided that they are successful in obtaining a listing on
the Nasdaq Capital Market.










Source:
Pratt’s Stats® at BVMarketData.com, Public StatsTM at BVMarketData.com as of June
5, 2008 for transactions between January 1, 2003 and December 31, 2007. Used
with permission from Business Valuation Resources, LLC.


*Valuation
data based on a combined total of 4,900+ U.S. based private and public company
transactions under $100 million.


**Keating
Investments, LLC calculation based on those companies having positive net
income, valuation data based on a combined total of 3,600+ U.S. based private
and public company transactions under $100 million.





9




In
addition to higher valuations, we believe that public companies also enjoy other
benefits, including:





·
            lower
      cost of capital, superior access to the capital markets, and less stock
      dilution to founders when raising additional
  capital;





·
            creation
      of a stock currency to fund
acquisitions;





·
            equity-based
      compensation to retain and attract management and
    employees;





·
            more
      liquidity for founders, minority shareholders, and investors;
      and





·
            added
      corporate prestige and visibility with customers, suppliers, employees and
      the financial community.





Of course,
public companies also incur significant obligations, such as the cost of
periodic financial reporting, compliance with the Sarbanes-Oxley Act of 2002, as
amended (the “Sarbanes-Oxley Act”), required disclosure of sensitive company
information and restrictions on stock sales by major or controlling
shareholders. But for the type of micro-cap companies we intend to target, we
believe that the capital-raising opportunities and other benefits of being
public may substantially outweigh these disadvantages.





However,
we can provide no assurance that the portfolio companies in which we may invest
will be successful in completing the SEC registration process to become a public
company, or if they do so, that they will be able to obtain a subsequent listing
on either the OTC Bulletin Board or the Nasdaq Capital Market.  Any
failure to do so could substantially reduce or eliminate the market premium
associated with being a publicly traded company.





Total
Return Objective




Our
investment objective is to maximize total return.  In furtherance of
that objective, our primary emphasis will be to attempt to generate capital
gains through our equity investments in micro-cap companies, including through
the conversion of the convertible debt or convertible preferred securities we
will seek to acquire in such companies.  However, we anticipate that a
significant portion of our investments at any given time will include a
component of interest or dividends, which we believe will provide us with
current yield, in addition to the potential for capital
appreciation.





Investment
Strategy





We intend
to implement the following strategies to take advantage of the market
opportunity for providing capital to public ready micro-cap companies that we
believe have strong prospects for growth and which are at a point in their
development where we believe a significant equity investment is
required:





Visionary,
industry leading management.  We plan to invest in businesses
with a strong management team with industry experience, a visionary business
strategy, a passionate commitment to achieve results, the proven ability to
execute and lead, and a track record of being able to attract experienced
industry talent.  Our portfolio companies must have in place, or have
a commitment from, a qualified chief financial officer with a strong background
in SEC reporting and compliance with proven experience in managing a micro-cap
public company’s financial reporting, internal controls, accounting and finance
functions, and investor relations.





Innovative and
quality products.  We intend to focus our investments on
companies where there is a proven demand for the products or services they offer
rather than focusing on ideas that have not been proven or situations in which a
completely new market must be created.  We look for businesses that
are innovators, have technologies or products that extend, accelerate, or
disrupt identified markets, have premium niche products capable of higher and
more sustainable margins, and are able to attract top sales and engineering
talent.  We intend to target companies whose business will benefit
from exposure as a public company and have appeal to retail and institutional
investors alike.





Large potential
markets.  We intend to provide capital to established micro-cap
companies with demonstrated growth that we believe is sustainable in industries
where we believe there are substantial, leading edge market
opportunities.  We intend to focus on micro-cap companies across a
broad range of industries and markets that we believe will be capable of
attracting interest from retail and institutional investors.  We
intend to focus on industries that we believe are being transformed or created
anew by technological, economic and social forces – such as globalization,
demographics, environment, energy, the knowledge economy and the
Internet.  We will look for businesses whose products or services are
capable of moving into the mass market and disrupt existing, more mature
markets.  We will tend to limit our exposure to companies where
long-term growth is dependent on favorable economic factors – such as a strong
economy, rising consumer and business sentiment, lowering interest rates,
falling inflation and stable financial markets.





10


Consistent and
predictable results.   We intend to focus on micro-cap
companies that have realistic operating targets set by management that are
consistently achieved, have a demonstrated ability to grow market share
profitably, have growing and sustainable profits, generate or have the potential
to generate recurring revenue streams, have recognized technological barriers to
market entry and have a commitment to stay ahead of innovation.  We
intend to invest in micro-cap companies that we believe will be rewarded in the
public markets for consistent and predictable financial results.





Aligned
interests.We intend to target micro-cap companies that we
believe offer growth opportunities and proactively approach them regarding
investment possibilities. We believe that the experience of our investment
adviser’s senior investment professionals and their understanding of public
ready micro-cap companies, our three-step financing structure, our public
markets strategy and our investment adviser’s going public expertise, and the
opportunity to capture a potential liquidity premium as a publicly traded
company will be attractive to prospective portfolio companies.  We
believe it is important that each of our portfolio companies’ management teams
have a meaningful equity stake in their business and that their interests are
aligned with our interests as investors in the portfolio company to create
substantial stockholder value through a widely held and actively traded public
stock.





Competitive
Advantages





We believe
that we will have the following competitive advantages over other providers of
capital to public ready micro-cap companies including private equity firms,
venture capital firms and reverse merger sponsors:





Public markets
focus.We intend to invest in micro-cap companies that are committed to,
and capable of, becoming public companies and have defensible valuations to
support our initial investment pricing.  We believe we have expertise
in evaluating whether a portfolio company is capable of becoming a successful
public company – both management commitment and skills and public market appeal.
By providing capital to micro-cap companies that are at a point in their
development where we believe an equity investment is required, we hope to
accelerate their growth with a properly timed going public
strategy.  The going public process is a critical step in our overall
investment process for each portfolio company that we expect will take between
three and twelve months following our initial investment and be substantially
completed before we make our more substantial follow-on investment.





Going public
expertise.We believe that our investment adviser’s senior
investment professionals and various third party consultants, with which our
investment adviser has relationships, have extensive experience in taking
companies public and designing capital markets and investor relations
programs.  Our investment adviser had been a reverse merger sponsor
for nearly a decade and has completed 19 going public transactions over the last
five years.  Our investment adviser’s senior investment professionals
and various third party consultants will assist our portfolio companies in this
going public process.  Through the terms of our initial investment, we
will generally require that one of our recommended third party consultants be
retained by our portfolio companies to actively participate and lead the going
public process.  The third party consultants will assist our portfolio
companies by organizing and coordinating the due diligence process for the
portfolio companies, providing information to the portfolio companies’ senior
management on the regulatory framework and compliance requirements of public
companies under the Securities Act and the Exchange Act,  reviewing
and analyzing the portfolio companies’ existing corporate governance, financial
documents and structure, material contracts and business and financial plans,
and assisting in the preparation of the portfolios companies’ registration
statements and any other documents related to the going public
process.  We believe that these third party consultants are highly
experienced in the going public process, SEC compliance matters, public company
reporting, and legal and financial matters associated with micro-cap
companies.  We believe the involvement of a third party consultant
will result in a more coordinated, timely and cost-effective going public
process – allowing each portfolio company’s management team to remain focused on
growing their business.





Possibility of
obtaining a Nasdaq Capital Market listing.  We believe that a
Nasdaq Capital Market listing, if obtained, generally will provide our portfolio
companies with visibility, marketability, liquidity and third party established
valuations, all of which will aid in their future capital raising
efforts.  More specifically, the advantages that a Nasdaq Capital
Market listing would be expected to have for our portfolio companies
include:





·
              Visibility – greater
      access to investment analyst coverage to disseminate our portfolio
      companies’ stories, and added corporate prestige and visibility with
      exchange listing;





·
            Valuation and liquidity
      – potential for more stock liquidity as retail brokers become more
      interested in making a market in the stock and soliciting their clients to
      purchase the stock and as institutional investors who typically do not
      invest in OTC Bulletin Board stocks consider investments;
    and





·
            Access to capital –
      greater interest from top- and mid-tier investment banking firms to
      conduct a public follow-on offering for our portfolio
      companies.





11


We intend
to utilize our investment adviser’s expertise in public markets strategies to
assist our portfolio companies in the design of a comprehensive aftermarket
support program aimed at achieving a Nasdaq Capital Market
listing.  We also intend to leverage our investment adviser’s
expertise and access to their  contacts and third party consultants to
develop and execute a disciplined plan to upgrade our portfolio companies from
the OTC Bulletin Board to the Nasdaq Capital Market, which we anticipate will
take twelve to eighteen months after completion of our follow-on investment in
each portfolio company.





The
following table summarizes the initial listing requirements for companies that
want to list their securities on the Nasdaq Capital Market.  A company
must meet all of the requirements under at least one of the three standards
below.


Requirements
                                        Standard
      1
                                        Standard
      21
                                        Standard
      3Stockholders’
      equity
                                        $5
      million
                                        $4
      million
                                        $4
      millionMarket
      value of publicly held shares
                                        $15
      million
                                        $15
      million
                                        $5
      millionOperating
      history
                                        2
      years
                                        N/A
                                        N/AMarket
      value of listed securities2
                                        N/A
                                        $50
      million
                                        N/ANet
      income from continuing operations (in latest fiscal year or in two of last
      three fiscal years)
                                        N/A
                                        N/A
                                        $750,000Publicly
      held shares3
                                        1
      million
                                        1
      million
                                        1
      millionBid
      price
                                        $4
                                        $4
                                        $4Shareholders
      (round lot holders)4
                                        300
                                        300
                                        300Market
      makers
                                        3
                                        3
                                        3Corporate
      governance
                                        Yes
                                        Yes
                                        Yes





1Seasoned
companies (those companies already listed or quoted on another marketplace)
qualifying only under the market value of listed securities requirement must
meet the market value of listed securities and the bid price requirements for 90
consecutive trading days prior to applying for listing.





2Listed
securities are defined as “securities listed on the Nasdaq Capital Market or
another national securities exchange.”





3Publicly
held shares is defined as total shares outstanding, less any shares held by
officers, directors or beneficial owners of 10% or more.





4Round lot
holders are shareholders of 100 shares or more.





We believe
our public markets strategy, if successfully implemented and coupled with a
successful listing on the Nasdaq Capital Market, will give us an expected
portfolio company investment horizon of two to three years via an orderly public
market exit, which we believe represents a substantially shorter investment
horizon when compared to traditional private equity and venture capital
investments which have investment periods of five to seven years.





However,
we can provide no assurance that the portfolio companies in which we may invest
will be successful in completing the SEC registration process to become a public
company, or if they do so, that they will be able to obtain a subsequent listing
on either the OTC Bulletin Board or the Nasdaq Capital Market.  Any
failure to do so could substantially reduce or eliminate the market premium
associated with being a publicly traded company.





Three-step equity
investment structure.We will use a three-step
investment structure with:





·
            an
      initial convertible debt investment that allows us to meet the immediate
      capital needs of a portfolio company in a timely
  manner,





·
            a
      going public phase where we provide managerial assistance to prepare the
      prospective portfolio company for the eligibility and governance standards
      required by the Nasdaq Capital Market;
and





·
            a
      subsequent follow-on investment principally consisting of convertible
      preferred stock or other equity.





Our more
substantial follow-on investments, which we expect will typically occur within
three to twelve months after our initial investment, will be tied to
pre-established milestone achievements including continued business performance,
new management hires and substantial completion of a going public process
through the filing of a registration statement.  Although our initial
investments will typically be structured as convertible debt, our primary focus
will be on equity investments, including preferred securities convertible into
common stock.  We believe our non-controlling, equity investment
structure will provide an attractive vehicle for our portfolio companies to meet
their immediate and short-term capital needs.  We also believe that
our flexible approach to structuring investments will facilitate positive,
long-term relationships with our portfolio companies and better position them to
conduct a subsequent registered public follow-on offering, if necessary, if and
to the extent they are successful in obtaining a Nasdaq Capital Market
listing.





12


Non-controlling,
minority investments.  We intend to make non-controlling,
minority investments in our portfolio companies.   We believe
this makes us a more attractive source of capital in comparison to private
equity and venture capital funds which typically require controlling
investments.  Although we will not generally have the power to control
the management, operations and strategic decision-making of the companies in
which we invest, we expect to provide managerial assistance to our portfolio
companies throughout the investment process, especially as it pertains to the
engagement of our investment adviser’s recommended third party consultants, the
completion of the going public process, and the design of an overall public
markets strategy.  We believe that we will bring enhanced value to the
process through our investment adviser’s public markets expertise, rather than
through financial engineering or by serving as a strategic adviser to our
portfolio companies.





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





Investment
Selection





Investment
criteria.We have identified criteria that we believe are
important in meeting our investment objective. These criteria provide general
guidelines for our investment decisions; however, we may not require each
prospective portfolio company in which we choose to invest to meet all of these
criteria.





·
            Revenue growth. We will
      seek to invest primarily in micro-cap companies that are already
      generating revenue and which we believe have significant growth potential.
      We intend to invest in companies with annual revenues of $10 to $100
      million.  We intend to examine the market segment in which each
      prospective portfolio company is operating, including its size, geographic
      focus and competition, to determine whether that company is likely to
      continue its current growth rate prior to
  investing.





·
            Large addressable
      markets. We will seek to invest in businesses where we believe
      there is a proven demand for the company’s products or services that
      address large market opportunities.  We believe that large
      markets not only provide for more attractive growth prospects, but also
      have the ability to support a healthy competitive environment with more
      than one successful competitor.





·
            Strong industry
      position. We will seek to invest in companies that have developed
      defendable market positions within their respective markets and are well
      positioned to capitalize on growth opportunities. We will seek to invest
      in companies that demonstrate competitive advantages versus their
      competitors, which should help to protect their market position and
      profitability and permit them to adapt to changes in their respective
      business environments.





·
            Strong, experienced management
      team. We will generally require that our portfolio companies have
      an experienced management team. We will also require our portfolio
      companies to have in place proper incentives to induce management to
      succeed and to act in concert with our interests as investors, including
      having significant equity
interests.





·
            Profitable on EBITDA
      basis. We will focus on companies that are at or near profitability
      on an EBITDA basis.  We will seek to invest in companies that we
      believe will provide a predictable and growing EBITDA. We expect that
      projected EBITDA, together with the proceeds from our investments, will be
      a key means by which our portfolio companies will financially support
      their future growth plans until they are listed on the Nasdaq Capital
      Market and ready for a registered public follow-on
    offering.





·
            Attractive public markets
      company. We intend to invest in public ready micro-cap companies
      whose management is committed to, and capable of, becoming a public
      company, whose business we believe will benefit from exposure as a public
      company and will have appeal to retail and institutional investors, and
      that we believe is capable of obtaining a Nasdaq Capital Market listing
      typically within twelve to eighteen months after we complete our follow-on
      investment.





·
            Regulatory compliance.
      We will generally require that our portfolio companies have in place, or
      ready for hire, a qualified chief financial officer with a strong
      background in SEC reporting, Sarbanes-Oxley Act compliance, Generally
      Accepted Accounting Principles (“GAAP”), accounting and internal controls
      management, and investors relations.  Before we complete our
      more substantial follow-on investment, our portfolio companies will be
      required to have GAAP compliant financial statements for at least the past
      two years which have been audited by a Public Company Accounting Oversight
      Board (“PCAOB”) registered auditor acceptable to
  us.





13


Due
diligence.If a potential portfolio company meets all, or
most, of the characteristics described above, our investment adviser’s
investment professionals will perform a preliminary due diligence review
including company assessments, market and competitive analysis, evaluation of
management team, financial models and business risks, and assessments of
transaction size, pricing and structure. The process outlined below provides
general parameters for our investment adviser’s investment decisions, although
not all will be followed in evaluating each opportunity. Upon successful
completion of this preliminary evaluation process, our investment adviser’s
Investment Committee will decide whether to enter into a non-binding letter of
intent, continue the due diligence process and move forward towards the
completion of an investment transaction.





Our due
diligence process will typically encompass the following steps:





·
            Assessment of
      management. Our investment adviser will typically perform an
      assessment including a review of experience, passion, proven leadership
      ability, vision, ability to attract key employees, dispute resolution
      skills, and reputation in the market.  Our investment adviser
      will generally corroborate and verify management’s track record, industry
      accomplishments and leadership capabilities through extensive background
      checks, interviews with management, employees, references and other
      industry leaders, and on-site visits.  Our investment adviser
      will also assess the qualifications and experience of the chief financial
      officer to manage micro-cap public
companies.





·
            Market and competitive
      analysis. Our investment adviser will utilize its investment
      analysts and engage, on an as-needed basis, outside experts to perform
      market and competitive analysis and due diligence. This analysis and due
      diligence typically will provide our investment adviser with a detailed
      understanding of the prospective portfolio company’s business, market
      opportunities and operations. This analysis may
  include:





o
            industry
      and competitive analysis, including verification of market potential, the
      relative position of the prospective portfolio company within its market,
      the existence of significant barriers to entry for potential competitors,
      and pricing elasticity;





o
            customer
      and vendor interviews to assess reputation within its
    market;





o
            assessment
      of technology and intellectual capital;
and





o
            examination
      of potential regulatory and legal
issues.




·
            Business model and financial
      assessment. Prior to making an investment decision, our investment
      adviser will typically review a prospective portfolio company’s business
      model and financial reporting. This will include a thorough review of
      historical and prospective financial information, accounting practices and
      financial models, and investment and loan documents.  Our
      investment adviser intends to challenge management’s financial
      assumptions, make an independent assessment of revenue and earnings
      quality, and conduct interviews with attorneys and
    auditors.





·
            Strategic and public company
      analysis. Our investment adviser will also generally perform a
      strategic analysis of each prospective portfolio company, during which it
      will evaluate operating and market risks, public company attractiveness,
      comparable public company valuations, potential to become a public company
      in a cost-effective and timely manner, management commitment to being a
      public company, and potential appeal to retail and institutional investors
      in the aftermarket.




Deal
sourcing.We believe that the combined experience of our
investment adviser’s investment professionals will provide us with access to a
investment opportunities. Our investment adviser’s reputation in the reverse
merger industry has exposed us to a network of contacts and sources from which
we intend to generate investment opportunities in public ready micro-cap
companies that are seeking alternatives to traditional IPO
financing.  Our investment adviser’s network includes relationships
with prior deal participants, prospective management teams, entrepreneurs,
industry organizations, corporate development professionals, financial
institutions, high net worth and institutional investors and service
professionals.





We also
expect to receive deal referrals from strategic advisers, industry consultants,
industry analysts, portfolio company managers, finders, lawyers, accountants and
investment bankers. In addition, we expect that our investment adviser’s
investment professionals will also serve as the direct source of proprietary
deal referrals from their own business networks.





14


In many
transactions, we expect that our investment adviser’s investment professionals
will have prior knowledge of a prospective portfolio company and will have
developed a relationship with its management or investors over a period of time
resulting in an investment opportunity. We believe that such relationship
building will serve us in several ways with respect to our investments,
including: (i) generating investments on a timely, non-auction basis;
(ii) assuring an alignment of interests between us and our portfolio
companies’ management teams; and (iii) providing comfort that our portfolio
companies’ management teams are committed to, and capable of, becoming public
and achieving a Nasdaq Capital Market listing.  We intend to make
investments in negotiated transactions as opposed to auction
situations.





We also
intend to implement a proactive marketing program to communicate with our
investment adviser’s established referral network and with companies that meet
our investment criteria.





Investment
decisions. Keating Investments is registered as an investment
adviser under the Advisers Act, and will serve as our investment
adviser.  Keating Investments will manage our day-to-day operations
and will determine companies in which we will invest.  Our investment
adviser’s Investment Committee must unanimously approve each new investment that
we make. The members of the Investment Committee currently consist of Timothy J.
Keating, Ranjit P. Mankekar and Kyle L. Rogers, who are the senior investment
professionals of Keating Investments and our executive officers.  We
believe the Investment Committee’s approach embraces an investment process with
well-defined investment parameters, risk assessment techniques and valuation
metrics that are applied consistently to all investments.





Investment
Structure




Once our
investment adviser has determined that a prospective portfolio company is
suitable for investment, it will work with the management team of that company
and, if necessary, its other capital providers, including senior and junior
lenders, and equity capital providers, to structure an
investment.   We intend to utilize a three-step investment
process focused on an initial convertible debt investment, going public
preparation and a subsequent follow-on investment, typically consisting of
convertible preferred stock or other equity investments, that will be contingent
upon a portfolio company satisfying pre-established milestones towards the
filing of a registration statement under the Securities Act or the Exchange
Act.  Where appropriate, we may also negotiate to receive warrants,
either as part of our initial or follow-on investments in our portfolio
companies.





We believe
that our three-step investment structure is an attractive approach for
prospective portfolio companies that complements the going public process and
strategy we intend to implement with each of our portfolio companies. We also
believe our non-controlling, equity investment structure provides an attractive
vehicle for our portfolio companies to meet their immediate and short-term
capital needs.  While we believe there are many micro-cap businesses
that are both interested in, and capable of, becoming public companies, many of
these companies lack the personnel, organization, expertise and control systems
to properly become a public company and manage the SEC compliance and filing
requirements and general business aspects of being public.  We believe
that the founders of many existing micro-cap companies realize the potential
benefits of being public, but also recognize the effort it takes to become a
public company and maintain the public company status.  Our three-step
investment structure is designed to ensure our portfolio companies are public
ready before we make our follow-on investments.  We believe that our
portfolio company management teams will benefit from this approach because our
portfolio companies can focus on growing their business and increasing their
earnings after having hired the right personnel to operate as a public company,
including an experienced chief financial officer.





The
investment structure discussed below is intended to provide general guidelines
for the terms and conditions which we intend to negotiate for our investments;
however, we may not require each investment to contain all of these terms and
conditions.




Seed investments
in the form of convertible debt.In the near term, we
expect that our initial investments in a portfolio company will typically range
from $100,000 to $250,000 each.  However, we may increase this
investment size to take advantage of opportunistic situations.  In
addition, we expect this investment size to increase as the size of our capital
base increases.  We anticipate structuring our investments primarily
as unsecured and subordinated loans that provide for a fixed interest rate that
will provide us with current interest income. We will set interest rates based
on prevailing market rates at the time of our investment for comparable types of
investments.  Typically, these loans will have maturities not to
exceed one year, which coincides with the maximum period we believe is required
to complete the going public process.





In the
case of our unsecured and subordinated debt investments, we intend to tailor the
terms of our initial investments to the facts and circumstances of the
transaction and prospective portfolio company, negotiating a structure that
seeks to protect our rights and manage our risk while creating incentives for
the portfolio company to achieve its business plan and complete the going public
process in a timely manner.  For example, when structuring a debt
investment, we will seek to limit the downside potential of our investments
by:





15


·
            requiring
      a total return on our investments (including both interest and potential
      equity appreciation) that compensates us for credit
  risk;





·
            incorporating
      a “put” right into the investment structure;
and





·
            negotiating
      covenants and other contractual provisions in connection with our
      investments. Such provisions may include affirmative and negative
      covenants, default penalties, lien protection, change of control
      provisions and possibly board
rights.




Our
initial investments may include an additional equity component, such as warrants
to buy common stock in our portfolio companies.   Any warrants we
receive with our initial debt securities will require us to pay an additional
cost to exercise, and thus, if our portfolio companies appreciate in value, we
may be able to realize additional investment return in the form of capital gains
from the exercise of these warrants.  Any warrants associated with our
initial investments will typically be detachable, which will allow us to receive
repayment of our principal while retaining our equity interests in the portfolio
companies.





We also
intend to structure our initial debt investments to give us the option to
convert our debt into common stock at a pre-determined conversion price, subject
to adjustment for certain events including performance events.  Our
conversion prices will generally be determined by reference to an agreed upon
discount from the common stock price in our follow-on investment.  If
we complete the follow-on investment, the convertible debt instrument will be
automatically converted into common stock upon the filing of the registration
statement.  Since our convertible debt investments will have elements
of both debt and equity instruments, we believe that we will be able to realize
fixed returns in the form of interest payments associated with debt until the
follow-on investment is completed, while maintaining an opportunity to
participate in the capital appreciation of the portfolio company, if any,
through the conversion of debt to equity at the time of the follow-on
investment.  In the event we do not complete a follow-on investment
with a portfolio company, or if a portfolio company abandons the going public
process, we will likely take steps to exit the investment.





In many
cases, we will also obtain registration rights in connection with the common
stock underlying the warrants and convertible debt investments associated with
our initial investment.  We may also include exercise and conversion
price adjustments based on certain events.  We will seek to achieve
additional investment return in the form of capital gains from the appreciation
and sale of the common stock underlying the warrants and convertible debt
associated with our initial investment.





Our
initial investments will also typically contain a “put” option which will allow
us to require the company, at any time prior to maturity, to redeem the loan at
a price of 120% of the outstanding principal amount plus accrued and unpaid
interest. We may exercise this “put” option in the event the portfolio company
either: (i) completes a debt or equity financing with a third party, or (ii)
fails to complete, or elects to abandon, the going public process.  We
believe that this “put” option will allow us to attempt to manage our
risk.  However, we can provide no assurance that the micro-cap
companies in which we intend to invest will have sufficient resources to satisfy
their payment obligation to us in the event we exercise our “put” option, and we
may still lose a substantial portion or all of our initial investment
notwithstanding our “put” option.





As a
condition of our initial investment, we will generally require the portfolio
company to engage a third party consultant recommended by our investment adviser
and experienced in the going public process to actively participate in and lead
the process.





We intend
to act as the lead investor in all of our follow-on investments. To the extent
our portfolio companies require more financing than we desire to invest, we may
seek non-affiliated co-investors to participate in the financing of our
portfolio companies.  In addition, we expect our portfolio companies
may engage one or more non-affiliated placement agents with whom our investment
adviser has had prior experience to assist in capital raising from such
non-affiliated co-investors.





Going public
process.The going public process for our portfolio companies
– though the filing of a registration statement under the Securities Act or the
Exchange Act – is a critical step in our overall investment
process.  We expect that this going public process will be implemented
during the three to twelve month period following our initial investment, and we
will require that it be completed, and the registration statement be ready for
filing with the SEC, at the time we make our follow-on
investment.  Our investment adviser’s senior investment professionals
and certain third party consultants, who we will require be retained by our
portfolio companies, will assist our portfolio companies in this going public
process, which will generally commence after our initial
investment.  We will require that one of our investment adviser’s
recommended third party consultants be engaged by the portfolio company to
actively participate and lead the going public process.  The third
party consultants will assist our portfolio companies by organizing and
coordinating the due diligence process for the portfolio companies, providing
information to the portfolio companies’ senior management on the regulatory
framework and compliance requirements of public companies under the Securities
Act and the Exchange Act,  reviewing and analyzing the portfolio
companies’ existing corporate governance, financial documents and structure,
material contracts and business and financial plans, and assisting in the
preparation of the portfolios companies’ registration statements and any other
documents related to the going public process.  We believe that these
third party consultants are experienced in the going public process, SEC
compliance matters, public company reporting, and legal and financial matters
associated with micro-cap companies.





16


We do not
intend to close on a follow-on investment in a portfolio company unless and
until the portfolio company satisfactorily completes the going public process
and the registration statement is in final form acceptable to us and ready for
filing with the SEC.  The registration statement may take the form of
a primary offering or resale registration statement filed by the portfolio
company under the Securities Act coupled with a concurrent registration of the
portfolio company’s common stock under the Exchange Act, or alternatively a
stand-alone registration statement registering the common stock of a portfolio
company under the Exchange Act without a concurrent registered offering under
the Securities Act.  We believe that there may be situations where a
portfolio company in which we made an initial investment will not be capable of
completing the going public process to our satisfaction.  In these
cases, we will not provide any follow-on investment and will attempt to take
steps to promptly obtain repayment of our investments in accordance with the
terms of our convertible debt instruments.





For
portfolio companies who receive follow-on investment financing from us, we
believe the going public process we have required as condition thereto will help
prepare the portfolio company to comply with the public company regulatory
environment and, at the same time, better position it to best create value from
its growth initiatives.





Our going
public process through the filing of a registration statement under the
Securities Act or the Exchange Act will generally include the following steps
which will be coordinated and led by the third party consultant:





·
            Verify business and financial
      disclosures. Assure accuracy of public disclosures regarding the
      portfolio company’s business, operations, management, products and
      services, markets, finances, major contracts, tangible and intangible
      properties, business strategies, related party transactions, compensation
      arrangements and stock ownership.  Organize all supporting
      documentation, diligence materials and corporate
    information.





·
            Review and preparation of
      business plans and financial models. Thorough review of historical
      and prospective financial information, accounting practices and financial
      models, review investment and loan documents, challenge management’s
      financial assumptions, and review revenue and earnings
      quality.  Assist in preparation of business history and plans,
      and management discussion and
analysis.





·
            Coordinate audit and legal
      processes. Work directly with the portfolio company’s internal
      staff and their audit and legal teams to prepare, present, review and
      complete audited financial statements, footnote disclosures and supporting
      analysis and documentation.  Assist in internal control
      compliance matters.





·
            Assess and make
      recommendations on financial management team. Continue assessment
      of chief financial officer’s capabilities to lead and manage financial
      reporting and accounting functions for a public company.  Make
      recommendations for additional hires, if necessary.  Before our
      follow-on investment is made, a portfolio company must have in place, or
      ready for hire, a qualified chief financial officer with a strong
      background in SEC reporting, Sarbanes-Oxley Act compliance, GAAP
      accounting and internal controls management, and investor
      relations.





·
            Composition of Board of
      Directors.Work directly with the portfolio company’s management to
      identify the ideal composition of the Board of Directors and to assess the
      skills and experience they should be seeking from new Board members
      including the financial expert.  The majority of the Board must
      consist of independent directors and the proper Board committee charters
      must be adopted and the committees selected, all in compliance with the
      initial quotation requirements of the Nasdaq Capital
    Market.





·
            Preparation and filing of
      registration statements.Work directly with the portfolio company’s
      internal staff and their audit and legal teams to prepare and complete
      appropriate documentation for filing with the SEC under the Exchange Act,
      as applicable.  Before our follow-on investment is made, the
      registration statement must be in final form ready for filing with the SEC
      at the closing of the follow-on
investment.





·
            Obtain trading symbol.Assist selected market maker in the preparation of documents to be
      filed with the Financial Industry Regulatory Authority (“FINRA”) to allow
      for submission of initial price quotation on the OTC Bulletin Board, or
      assist the portfolio company, if it so qualifies, with its initial
      application for listing on the Nasdaq Capital Market. Obtain and organize
      required supporting documentation.





17


Follow-on
investments in the form of convertible preferred stock.We do
not intend to make a follow-on investment in a portfolio company unless and
until the portfolio company satisfactorily completes the going public process
and the registration statement is in final form acceptable to us and ready for
filing with the SEC. We will generally make follow-on investments in a portfolio
company through equity securities, principally convertible preferred
stock.





Our
convertible preferred stock investments will represent an equity ownership
interest in a portfolio company.  Although we believe that such equity
investments have historically generated higher average total returns than
fixed-income securities over the long term, such equity investments also have
experienced significantly more volatility in those returns and may under perform
relative to fixed-income securities during certain periods. An adverse event,
such as an unfavorable earnings report, may depress the value. Also, prices of
equity securities are sensitive to general movements in the stock market and a
drop in the stock market may depress the price of equity securities to which we
have exposure. Equity prices fluctuate for several reasons including changes in
investors' perceptions of the financial condition of an issuer or the general
condition of the relevant stock market, or when political or economic events
affecting the issuer occur. In addition, equity prices may be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing
costs increase.





Our
convertible preferred equity investments may pay fixed or adjustable rate
dividends to us and will generally have a “preference” over common equity in the
payment of dividends and the liquidation of a portfolio company's assets. This
means that a portfolio company must pay dividends on preferred equity before
paying any dividends on its common equity. In order to be payable, distributions
on such preferred equity must be declared by the portfolio company's Board of
Directors. Dividend payments on typical preferred equity is cumulative, meaning
dividends will accumulate even if not declared by the Board of Directors or
otherwise made payable. In such a case, all accumulated dividends must be paid
before any dividend on the common equity can be paid. However, there is no
assurance that any dividends will be paid by a portfolio company even in the
case of cumulative preferred equity.





We intend
to tailor the terms of our follow-on investments to the facts and circumstances
of each transaction and prospective portfolio company, negotiating a structure
that seeks to protect our rights and manage our risk while creating incentives
for the portfolio company to achieve its revenue and earnings
growth.  We intend to include a cumulative preferred dividend feature
in our convertible preferred stock instruments which will allow us to realize
fixed returns in the form of a preferred dividend until conversion
thereof.  The convertible preferred stock instrument also allows us to
maintain an opportunity to participate in the capital appreciation of the
portfolio company.  We intend to tailor the pricing of our follow-on
investments, including the conversion price, such that we receive a reasonable
discount to the risk-adjusted, public company comparable
valuations.





In the
near term, we expect that our follow-on investments in a portfolio company will
typically range from $250,000 to $500,000 each.  However, we may
increase this investment size to take advantage of opportunistic
situations.  In addition, we expect this investment size to increase
as the size of our capital base increases.





We intend
to limit our investments in any one portfolio company to not more than 5% of our
net assets; however, we may invest more than this threshold in certain
opportunistic situations.  With an initial capital base of
approximately $5 million, we intend to limit our investments in any one
portfolio company to $500,000, or 10% of our net assets.  While this
amount exceeds our target limit of 5% of net assets, we intend to be more
selective during our initial investment period and take advantage of
opportunistic situations at this higher level.





We also
intend to limit our investments in any one portfolio company so that our equity
interest in the portfolio company is not more than 9.9%, although we may exceed
this threshold in certain opportunistic situations.





Our
follow-on investments will typically be non-control investments (even in cases
where we elect to convert our initial investment into common
stock).  In some circumstances, we may take a control position in a
portfolio company where we believe a unique opportunity exists for such an
investment.  Our non-control equity investments will typically not
provide us with Board seats or Board observation rights.





We may
also receive warrants in connection with our follow-on
investments.  We will also generally seek performance features for any
warrants that we may receive. We will seek to structure these performance
features to allow our relative equity position in a portfolio company to
increase in the event the portfolio company fails to meet certain specified
performance targets.





We
may  also seek to obtain registration rights in connection with all of
our equity investments, which may include demand and “piggyback” registration
rights.





We intend
to act as the lead investor in all of our follow-on investments. To the extent
our portfolio companies require more financing than we desire to invest, we may
seek non-affiliated co-investors to participate in the financing of our
portfolio companies.  In certain cases, our co-investors will be
required to agree to certain resale conditions in order to mitigate the risk of
any competing aftermarket sales among the holders of follow-on investment
securities.





18


Co-investments.We
believe that our investment adviser’s network of high net worth investors,
institutional investors and investment bankers, both from prior transactions and
who are known to be focused on the type of micro-cap companies we intend to
target, will provide a source of capital for portfolio companies where we will
seek co-investors to complement our investment.  In all cases, we
intend to act as lead investor in all of our follow-on investments. We expect
our portfolio companies may engage one or more placement agents with whom our
investment adviser has had prior experience to assist in capital raising from
non-affiliated co-investors.





Total return
objective with focus on capital appreciation. While we expect to
generate interest and dividend income through our investments in convertible
securities, our primary emphasis will be to attempt to generate capital gains
through the sale of the common stock we receive upon conversion of the
convertible securities of micro-cap companies which are expected to become
public reporting companies through the filing of a registration statement at the
time we make our follow-on investment.  Once this registration
statement becomes effective and all comments from the SEC are cleared, we expect
our portfolio companies’ common stock to typically be initially quoted on the
OTC Bulletin Board, depending upon satisfaction of listing
requirements.  However, for those portfolio companies that meet the
initial listing requirements of the Nasdaq Capital Market following the
completion of the registration process, such companies may seek an initial
listing on the Nasdaq Capital Market.  We do not expect the securities
in our publicly traded portfolio companies to initially have an active secondary
trading market and, as such, these securities will be illiquid until an active
market develops. We believe that typically this liquidity will develop in
conjunction with a Nasdaq Capital Market listing, which may not occur until
twelve to eighteen months after our follow-on investment is made, if at
all.  However, there can be no assurance that our portfolio companies
will obtain a Nasdaq Capital Market listing or, even if a listing is obtained,
that an active trading market will ever develop in the securities of our
publicly traded portfolio companies. The lack of such liquidity could impair the
market price of such portfolio companies, and ultimately the return we may
receive from our equity investment.





Other
Investments





Currently,
we do not intend to make investments, even to the extent permitted by the 1940
Act, in the following types of securities: (i) asset-backed securities, (ii)
collateralized debt obligations, (iii) high yield bonds, or (iv) distressed
debt.





However,
we may invest, consistent with the requirements of the 1940 Act, in securities
of public companies that are already traded on the OTC Bulletin Board or an
exchange, in securities of private companies that may not be based in the United
States, or in securities we acquire in the secondary market and, in analyzing
such investments, we will employ the same analytical process as we use for our
primary investments in micro-cap companies.





Changes to
the laws and regulations governing our operations relating to permitted
investments may cause us to alter our investment strategy in order to avail
ourselves of new or different opportunities.  If legislation is
enacted, new rules are adopted, or existing rules are materially amended, we may
change our investment strategy. Such changes could result in material
differences to the strategies and plans set forth in this annual report and may
result in our investment focus shifting.





For
example, effective July 21, 2008, the SEC changed the criteria used to determine
if a company is an Eligible Portfolio Company under the 1940 Act by permitting
qualifying investments to be made by business development companies in
publicly-traded companies, whether or not they are listed on an exchange, as
long as their market capitalizations are no greater than $250
million.  Due to our public markets approach, we believe this change
may be beneficial to us and provide us greater latitude to implement our
investment strategy.





Until the
net proceeds of our initial private placement are invested in accordance with
our investment strategy, and (i) during periods in which we determine that we
are temporarily unable to follow our investment strategy or that it is
impractical to do so, or (ii) pending investment of proceeds received in
connection with the sale of a portfolio security or the issuance of additional
securities or borrowing money by us, all or any portion of our assets may be
invested in cash, cash equivalents, U.S. government securities and other high
quality debt investments that mature in one year or less from the date of our
investment.  Our determination that we are temporarily unable to
follow our investment strategy or that it is impractical to do so will generally
occur only in situations in which a market disruption event has occurred and
where trading in the securities selected through application of our investment
strategy is extremely limited or absent. In such a case, our shares may be
adversely affected and we may be unable to pursue or achieve our investment
objective.





19


Ongoing
Relationships with Portfolio Companies




Strategic value
added model.As an integral part of our initial investment, we
intend to partner with and help prepare our portfolio companies to become public
and meet the governance and eligibility requirements of a Nasdaq Capital Market
listing.  We intend for our interests to be aligned with our portfolio
companies’ management teams to maximize stockholder value through an eventual
listing on the Nasdaq Capital Market, if possible.





We expect
to offer and provide managerial assistance to our portfolio companies, in
particular, in the completion of the going public process and the design of an
overall public markets strategy.  We intend to fully utilize our
investment adviser’s expertise in public markets strategies including the design
of comprehensive aftermarket support programs for our portfolio
companies.  We also intend to leverage our investment adviser’s
expertise and access third party professionals and consultants to develop and
execute a disciplined “migration plan” to upgrade our portfolio companies from
the OTC Bulletin Board to the Nasdaq Capital Market, which we believe will
typically occur twelve to eighteen months after our follow-on investment is
made.





We believe
this public markets strategy will provide us with an expected portfolio company
investment horizon of two to three years via an orderly public market exit,
which we believe represents a substantially shorter investment horizon when
compared to traditional private equity and venture capital
investments.  However, we can provide no assurance that the portfolio
companies in which we may invest will be successful in completing the SEC
registration process to become a public company, or if they do so, that they
will be able to obtain a subsequent listing on either the OTC Bulletin Board or
the Nasdaq Capital Market.  Any failure to do so could substantially
reduce or eliminate the market premium associated with being a publicly traded
company.





Monitoring.We
intend to monitor the financial trends of each portfolio company to assess the
appropriate course of action for each company and to evaluate overall portfolio
quality. In certain limited cases, we may also control one or more of our
portfolio companies.




We intend
to utilize several methods for evaluating and monitoring the performance of our
investments, including but not limited to, the following:





·
            assessment
      of business development success, including product development,
      profitability and the portfolio company’s overall adherence to its
      business plan;





·
            periodic
      and regular contact with portfolio company management to discuss financial
      position, requirements and
accomplishments;




·
            periodic
      formal update interviews with portfolio company management;
      and





·
            review
      of monthly and quarterly financial statements and financial projections
      for portfolio companies.




As a
result of active monitoring and communication, we believe that our portfolio
management process will emphasize value creation throughout the life cycle of a
given investment. Paramount to these efforts will be the ongoing emphasis on our
public markets strategy.  By doing so, we believe that our value to
the portfolio company will go beyond the capital we have invested, and will
extend to the overall goals of each portfolio company, which we believe will
benefit the return on investment we realize in our portfolio
companies.





Investment
Advisory and Administrative Services Agreement





Management
services.Keating Investments is registered as an investment
adviser under the Advisers Act, and serves as our investment adviser. Subject to
the overall supervision of our Board of Directors, Keating Investments manages
our day-to-day operations and provides us with investment advisory services.
Under the terms of the Investment Advisory and Administrative Services
Agreement, as currently in effect, Keating Investments will:


·
            determine
      the composition of our portfolio, the nature and timing of the changes to
      our portfolio and the manner of implementing such
  changes;·
            determine
      which securities we will purchase, retain or sell;·
            identify,
      evaluate and negotiate the structure of the investments we
      make; and·
            close,
      monitor and service the investments we
make.




20


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




Management
fees.We pay Keating Investments a fee for its investment
advisory services under the Investment Advisory and Administrative Services
Agreement consisting of two components - a base management fee and an incentive
fee. The cost of both the base management fee payable to Keating Investments and
any incentive fees earned by Keating Investments is ultimately borne by our
common stockholders.




The base
management fee (the “Base Fee”) is calculated at an annual rate of 2% of our
gross assets, which includes any borrowings for investment purposes. We do not
presently expect to use borrowed funds for the purpose of making portfolio
investments.  For the period commencing from the final closing of our
initial private placement, the Base Fee is payable monthly in arrears, and will
be calculated based on the value of our gross assets at the end of the most
recently completed calendar quarter, and appropriately adjusted for any equity
capital raises or repurchases during the current calendar quarter. The Base Fee
for any partial month or quarter will be appropriately pro rated.




The
incentive fee is determined and payable in arrears as of the end of each
calendar year (or upon termination of the Investment Advisory and Administrative
Services Agreement, as of the termination date) and equals 20% of our realized
capital gains, if any, on a cumulative basis from inception through the end of
each calendar year, computed net of all realized capital losses and unrealized
capital depreciation on a cumulative basis, less the aggregate amount of any
previously paid incentive fees.




The
following table sets forth various examples of the calculation of our annual
incentive fee based on different levels of realized and unrealized gains and
losses over a period of years.  These calculations are based on the
different assumptions set forth in the table:





Examples
      of Annual Incentive Fee for Capital Gains* (all dollar amounts in
      millions)Example
      1Year
                          
                          Investment Description
                          
                          Incentive Fee
                          
                          Explanatory comments1
                          
                          Invested
      $5 in Company A stock and $10 in Company B stock.
                          
                          $
                          0
                          
                          No
      incentive fee as there are no realized gains.2
                          
                          Sold
      Company A stock for $15 ($10 realized gain).  Fair value of
      Company B stock at $20 ($10 unrealized gain)
                          
                          $
                          2.0
                          
                          Incentive
      fee equals 20% of $10 realized gains.  Unrealized gains do not
      affect calculation.3
                          
                          Fair
      value of Company B stock at $8 ($2 unrealized loss).
                          
                          $
                          0
                          
                          No
      incentive fee as there is only unrealized loss in the
  year.4
                          
                          Sold
      Company B stock for $12 ($2 realized gain).
                          
                          $
                          0.4
                          
                          Incentive
      fee equals 20% of cumulative realized gains of $12, or $2.4, less
      previously paid incentive fee of
$2.





Example
      2Year
                                      
                                      Investment Description
                                      
                                      Incentive Fee
                                      
                                      Explanatory comments1
                                      
                                      Invested
      $20 in Company A stock, $30 in Company B stock and $25 in Company C
      stock
                                      
                                      $
                                      0
                                      
                                      No
      incentive fee as there are no realized gains.2
                                      
                                      Sold
      Company A stock for $50 (realized gain $30).  Fair value of
      Company B stock at $25 ($5 unrealized loss).  Fair value of
      Company C stock at $25 (no unrealized gain or loss).
                                      
                                      $
                                      5.0
                                      
                                      Incentive
      fee equals 20% of $25 (which is the $30 realized gains less the $5
      unrealized loss).3
                                      
                                      Sold
      Company C stock for $30 ($5 realized gain).  Fair value of
      Company B stock at $27 ($3 unrealized loss)
                                      
                                      $
                                      1.4
                                      
                                      Incentive
      fee equals 20% of $32 (which is the $35 of realized gains less the $3 of
      unrealized losses), reduced by the $5 previously paid incentive
      fee.4
                                      
                                      Fair
      value of Company B stock at $35 ($5 unrealized gain).
                                      
                                      $
                                      0
                                      
                                      No
      incentive fee as there are no realized gains in year.5
                                      
                                      Sold
      Company B stock for $20 ($10 realized loss).
                                      
                                      $
                                      0
                                      
                                      No
      incentive fee as the 20% incentive fee on $25 (which is the $35 cumulative
      realized gains less the $10 realized losses) is less than the $6.4
      previously paid incentive
fee.
  *
              
              The
      hypothetical amount of income, gains and returns shown in the above tables
      assumes no leverage. There is no guarantee that the income, gains, or the
      income returns based on our net asset values, will be realized and actual
      income, gains and returns may vary from those shown in
      these examples.




21


Administrative
services.  Pursuant to the Investment Advisory and
Administrative Services Agreement, Keating Investments furnishes us with
equipment and clerical, bookkeeping and record-keeping services. Under the
Investment Advisory and Administrative Services Agreement, Keating Investments
also performs, or facilitates the performance of, certain administrative
services, which will include being responsible for the financial records which
we are required to maintain and preparing reports to our stockholders and
reports filed with the SEC. In addition, Keating Investments assists us in
monitoring our portfolio accounting and bookkeeping, managing portfolio
collections and reporting, performing internal audit services, determining and
publishing our net asset value, overseeing the preparation and filing of our tax
returns and the printing and dissemination of reports to our stockholders,
providing support for our risk management efforts and generally overseeing the
payment of our expenses and the performance of administrative and professional
services rendered to us by others. We reimburse Keating Investments for the
allocable portion of overhead and other expenses incurred by it in performing
its administrative obligations under the Investment Advisory and Administrative
Services Agreement, including the compensation of our Chief Financial Officer
and Chief Compliance Officer, and their respective staff.





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


•
            costs
      of calculating our net asset value, including the cost of any third-party
      valuation services;•
            costs
      of effecting sales and repurchases of shares of our common stock and other
      securities;•
            fees
      payable to third parties relating to, or associated with, making
      investments, including fees and expenses associated with performing due
      diligence reviews of prospective investments;•
            transfer
      agent and custodial fees;•
            costs
      related to organization and offerings;•
            fees
      and expenses associated with marketing efforts;•
            federal
      and state registration fees;•
            any
      stock exchange listing fees;•
            applicable
      federal, state and local taxes;•
            independent
      directors’ fees and expenses;•
            excess
      brokerage commissions;•
            costs
      of proxy statements, stockholders’ reports and notices;•
            fidelity
      bond, directors and officers/errors and omissions liability insurance and
      other insurance premiums;•
            direct
      costs such as printing and mailing, and staff;•
            fees
      and expenses associated with independent audits and outside legal
      costs;•
            costs
      associated with our reporting and compliance obligations under the 1940
      Act, the Exchange Act and applicable federal and state securities
      laws; and•
            all
      other expenses incurred by either Keating Investments or us in connection
      with administering our business, including payments under the Investment
      Advisory and Administrative Services Agreement that will be based upon our
      allocable portion of overhead and other expenses incurred by Keating
      Investments in performing its obligations under the Investment Advisory
      and Administrative Services Agreement, including the compensation of our
      Chief Financial Officer and Chief Compliance Officer, and their respective
      staff.




All of
these expenses are ultimately borne by our common stockholders.





22


Reimbursement of
Keating Investments.We reimburse Keating Investments for the allocable
portion of overhead and other expenses incurred by it in performing its
administrative obligations under the Investment Advisory and Administrative
Services Agreement, including the compensation of our Chief Financial Officer
and Chief Compliance Officer, and their respective
staff.





Duration and
termination.The Investment Advisory and Administrative
Services Agreement was initially approved by our Board of Directors and our sole
stockholder on July 28, 2008.  Unless earlier terminated as described
below, our current Investment Advisory and Administrative Services Agreement
will remain in effect for a period of two years from the date it was approved by
the Board of Directors and will remain in effect from year to year thereafter if
approved annually by (i) the vote of our Board of Directors, or by the vote of a
majority of our outstanding voting securities, and (ii) the vote of a majority
of our directors who are not interested persons. An affirmative vote of the
holders of a majority of our outstanding voting securities is also necessary in
order to make material amendments to the Investment Advisory and Administrative
Services Agreement.




The
Investment Advisory and Administrative Services Agreement will automatically
terminate in the event of its assignment. As required by the 1940 Act, the
current Investment Advisory and Administrative Services Agreement provides that
we and Keating Investments may terminate the agreement without penalty upon
60 days’ written notice to the other party. The Investment Advisory and
Administrative Services Agreement may also be terminated, without penalty, upon
the vote of a majority of our outstanding voting securities. See “Risk
Factors — Risks Relating to Our Business and Structure.”




Without
the vote of a majority of our outstanding voting securities, our Investment
Advisory and Administrative Services Agreement may not be materially amended,
nor may we engage in a merger or other reorganization of Keating Investments. In
addition, should we or Keating Investments elect to terminate the Investment
Advisory and Administrative Services Agreement, a new investment adviser may not
be appointed without approval of a majority of our outstanding common stock,
except in limited circumstances where a temporary adviser may be appointed
without stockholder consent, consistent with the 1940 Act.




Proposed Amended
and Restated Investment Advisory and Administrative Services
Agreement.  Our management has proposed, and we anticipate
adopting during 2009, subject to required stockholder and board approval, an
amended and restated version of our Investment Advisory and Administrative
Services Agreement (the “Proposed Amended and Restated Investment Advisory and
Administrative Services Agreement”).  Under the Proposed Amended and
Restated Investment Advisory and Administrative Services Agreement, we will
agree not to reimburse Keating Investments for any services for which it
receives a separate fee, nor for rent, depreciation, utilities, capital
equipment or other administrative items allocated to a controlling person of
Keating Investments.  In addition, to the extent the Proposed Amended
and Restated Investment Advisory and Administrative Services Agreement is
approved, if Keating Investments wishes to voluntarily terminate the Investment
Advisory and Administrative Services Agreement, it will be required to give
stockholders a minimum of 120 days notice prior to termination and must pay all
expenses associated with its termination.  The Proposed Amended and
Restated Investment Advisory and Administrative Services Agreement, if approved,
will also prohibit the following activities between us and Keating
Investments:




•
            We
      may not purchase or lease assets in which Keating Investments has an
      interest unless we disclose the terms of the transaction to our
      stockholders and the terms do not exceed the lesser of cost or fair market
      value, as determined by an independent
expert;




•
            Keating
      Investments may not acquire assets from us unless approved by our
      stockholders in accordance with our
charter;




•
            We
      may not lease assets to Keating Investments unless we disclose the terms
      of the transaction to our stockholders and such terms are fair and
      reasonable to us;




•
            We
      may not make any loans to Keating Investments except for the advancement
      of funds as permitted by our
charter;




•
            We
      may not acquire assets in exchange for our
  stock;




•
            We
      may not pay a commission or fee, either directly or indirectly to Keating
      Investments, except as otherwise permitted by our charter, in connection
      with the reinvestment of cash flows from operations and available reserves
      or from the proceeds of the resale, exchange or refinancing of our
      assets;




•
            Keating
      Investments may not charge duplicate fees to us;
  and




•
            Keating
      Investments may not provide financing to us with a term in excess of
      12 months.





23


In
addition, Keating Investments will be prohibited from receiving or accepting any
rebate, give-up or similar arrangement that is prohibited under federal or state
securities laws. Keating Investments will also be prohibited from participating
in any reciprocal business arrangement that would circumvent provisions of
federal or state securities laws governing conflicts of interest or investment
restrictions. Finally, Keating Investments will be prohibited from entering into
any agreement, arrangement or understanding that would circumvent restrictions
against dealing with affiliates or promoters under applicable federal or state
securities laws.  In accordance with the 1940 Act, we intend to seek
stockholder approval of the Proposed Investment Advisory and Administrative
Services Agreement prior to its implementation.  We cannot assure you
when or if the Proposed Investment Advisory and Administrative Services
Agreement will be approved.





Organization of
the investment adviser.Keating Investments is a
Delaware limited liability company that is registered as an investment adviser
under the Advisers Act. Timothy J. Keating is the majority owner and managing
member of Keating Investments.  Messrs. Keating, Mankekar and Rogers
are Keating Investments’ senior investment professionals and the members of its
Investment Committee and manage our day-to-day operations and provide the
services under the Investment Advisory and Administrative Services Agreement.
Although not currently contemplated, Keating Investments may in the future
provide similar investment advisory services to other entities in addition to
us.  In the event that Keating Investments provides investment
advisory services to other entities, Keating Investments intends to allocate
investment opportunities in a fair and equitable manner pursuant to its
allocation policies and procedures and in any event consistent with the
fiduciary duties owed to us.  The principal address of Keating
Investments is 5251 DTC Parkway, Suite 1000, Greenwood Village, Colorado
80111.





License
Agreement





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





Competition




We compete
for investments with a number of business development companies and other
investment funds (including private equity funds and venture capital funds),
reverse merger and special purpose acquisition company (“SPACs”) sponsors,
investment bankers that underwrite initial public offerings, hedge funds that
invest in PIPEs, traditional financial services companies such as commercial
banks, and other sources of financing.  Many of these entities have
greater financial and managerial resources than we do. Furthermore, many of our
competitors are not subject to the regulatory restrictions that the 1940 Act
will impose on us as a business development company. We believe we compete with
these entities primarily on the basis of our willingness to make smaller,
non-controlling investments, our public markets approach, the experience and
contacts of our investment professionals within our targeted industries, our
responsive and efficient investment analysis and decision-making processes, and
the investment terms that we offer. We do not seek to compete primarily on the
deal terms we offer to potential portfolio companies. For additional information
concerning the competitive risks we face, see “Risk Factors — Risks
Relating to Our Business and Structure — We will operate in a highly
competitive market for investment opportunities.”




Employees




Currently,
we do not have any employees.  The management of our investment
portfolio will be the responsibility of our investment adviser, Keating
Investments, and its Investment Committee, which currently consists of Timothy
J. Keating, our President, Chief Executive Officer and Chairman of our Board of
Directors, Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a
member of our Board of Directors, and Kyle L. Rogers, our Chief Operating
Officer and Secretary.  Keating Investments’ Investment Committee must
unanimously approve each new investment that we make. The members of the
Investment Committee will not be employed by us, and will receive no
compensation from us in connection with their portfolio management activities.
However, Messrs. Keating, Mankekar and Rogers, through their financial
interests in, or management positions with, Keating Investments, will be
entitled to a portion of any investment advisory fees paid by us to Keating
Investments pursuant to the Investment Advisory and Administrative Services
Agreement.





24


Material
U.S. Federal Income Tax Considerations





We intend
to elect to be treated as a regulated investment company, or “RIC” under
Subchapter M of the Internal Revenue Code of 1980, as amended (the “Code”), as
soon as we are able to qualify for such election. However, such an election and
qualification requires that we comply with certain requirements contained in
Subchapter M of the Code that may affect our ability to pursue additional
business opportunities or strategies that, if we were to determine we should
pursue, could diminish the desirability of or impede our ability to qualify as a
RIC. For example, a RIC must meet certain requirements, including source of
income and asset diversification requirements. The source of income requirement
mandates that we receive 90% or more of our income from qualified earnings,
typically referred to as “good income.”





As a RIC,
we generally will not have to pay corporate-level federal income taxes on any
ordinary income or realized capital gains that we distribute to our stockholders
as dividends. To qualify as a RIC, we must, among other things, meet certain
source of income and asset diversification requirements (as described below). In
addition, in order to obtain the federal income tax benefits allowable to RICs,
we must distribute to our stockholders, for each taxable year, at least 90% of
our “investment company taxable income,” which is generally our net ordinary
income plus the excess, if any, of realized net short-term capital gains over
realized net long-term capital losses (the “Annual Distribution
Requirement”).




Conversion to RIC
Status.  As of the filing
date of this annual report on Form 10-K, we believe we will be able to qualify,
and intend to elect to be treated, as a RIC beginning with our 2009 taxable
year.  Prior to our 2009 taxable year, we were taxable as a regular
corporation under Subchapter C of the Code (a “C corporation”).  We
anticipate that, on the effective date of our RIC election, we may hold assets
(including intangible assets not reflected on the balance sheet, such as
goodwill) with “built-in gain,” which are assets whose fair market value as of
the effective date of the election exceeds their tax basis.  In
general, a corporation that converts to taxation as a RIC must pay corporate
level tax on any of the net built-in gains it recognizes during the 10-year
period beginning on the effective date of its election to be treated as a
RIC.  Alternatively, the corporation may elect to recognize all of its
built-in gain at the time of its conversion and pay tax on the built-in gain at
that time.  We may or may not make this election.  Any such
corporate level tax is payable at the time the built-in gains are recognized
(which generally will be the years in which the built-in gain assets are sold in
a taxable transaction).  The amount of this tax will vary depending on
the assets that are actually sold by us in this 10-year period and the actual
amount of net built-in gain or loss present in those assets as of the effective
date of our election to be treated as a RIC and effective tax rates. Recognized
built-in gains that are ordinary in character and the excess of short-term
capital gains over long-term capital losses will be included in our investment
company taxable income, and generally we must distribute annually at least 90%
of any such amounts (net of corporate taxes we pay on those gains) in order to
be eligible for RIC tax treatment.  Any such amount distributed likely
will be taxable to stockholders as ordinary income.  Built-in gains
(net of taxes) that are recognized within the 10-year period and that are
long-term capital gains likely will also be distributed (or deemed distributed)
annually to our stockholders.  Any such amount distributed (or deemed
distributed) likely will be taxable to stockholders as capital
gains.




One
requirement to qualify as a RIC is that, by the end of our first taxable year as
a RIC, we must eliminate the earnings and profits accumulated while we were
taxable as a C corporation. We intend to accomplish this by paying to our
stockholders in the first quarter of the tax year for which we make a RIC
election a cash dividend representing all of our accumulated earnings and
profits (if any) for the period from our inception through the end of the prior
tax year. The actual amount of that dividend (if any) will be based on a number
of factors, including our results of operations through the end of the
prior.  The dividend, if any, of our accumulated earnings and profits
will be taxable to stockholders as ordinary income.  Any such dividend
will be in addition to the dividends we intend to pay (or be deemed to have
distributed) during our first taxable year as a RIC.




Taxation as a
Regulated Investment Company.For any taxable year in which
we:




•      qualify
as a RIC; and




•      satisfy
the Annual Distribution Requirement;




we
generally will not be subject to federal income tax on the portion of our
investment company taxable income and net capital gain (i.e., net realized long-term
capital gains in excess of net realized short-term capital losses) that we
distribute to stockholders with respect to that year.  We will be
subject to United States federal income tax at the regular corporate rates on
any income or capital gain not distributed (or deemed distributed) to our
stockholders.




Although
we currently intend to distribute realized net capital gains (i.e., net realized long-term
capital gains in excess of net realized short-term capital losses), if any, at
least annually, we may in the future decide to retain some or all of our net
capital gains, but to designate the retained amount as a “deemed distribution.”
In that case, among other consequences, we will pay corporate-level tax on the
retained amount, each U.S. stockholder will be required to include its
share of the deemed distribution in income as if it had been actually
distributed to the U.S. stockholder, and the U.S. stockholder will be
entitled to claim a credit or refund equal to its allocable share of the
corporate-level tax we pay on the retained capital gain.





25


As a RIC,
we will be subject to a 4% nondeductible federal excise tax on certain
undistributed income unless we distribute in a timely manner an amount at least
equal to the sum of (i) 98% of our ordinary income for each calendar year,
(ii) 98% of our capital gain net income for the 1-year period ending
October 31 in that calendar year, and (iii) any income realized, but
not distributed, in the preceding year (the “Excise Tax Avoidance Requirement”).
We will not be subject to excise taxes on amounts on which we are required to
pay corporate income tax (such as retained net capital gains). We currently
intend to make sufficient distributions each taxable year to satisfy the Excise
Tax Avoidance Requirement.




In order
to qualify as a RIC for federal income tax purposes and obtain the tax benefits
of RIC status, in addition to satisfying the Annual Distribution Requirement, we
must, among other things:




•
            have
      in effect at all times during each taxable year an election to be
      regulated as a business development company under the 1940
      Act;




•
            derive
      in each taxable year at least 90% of our gross income from
      (a) dividends, interest, payments with respect to certain securities
      loans, gains from the sale of stock or other securities, or other income
      derived with respect to our business of investing in such stock or
      securities and (b) net income derived from an interest in a
      “qualified publicly traded limited partnership” (the “90% Income Test”);
      and





•
            diversify
      our holdings so that at the end of each quarter of the taxable
      year:





•
            at
      least 50% of the value of our assets consists of (i) cash, cash
      equivalents, U.S. government securities, securities of other RICs, and
      other securities if such other securities of any one issuer do not
      represent more than 5% of the value of our assets or more than 10% of the
      outstanding voting securities of such issuer, or (ii) interests in one or
      more “qualified publicly traded partnerships”;
  and




•
            no
      more than 25% of the value of our assets is invested in (i) securities
      (other than U.S. government securities or securities of other RICs) of one
      issuer, (ii) securities of two or more issuers that are controlled, as
      determined under applicable tax rules, by us and that are engaged in the
      same or similar or related trades or businesses, or (iii) securities of
      one or more “qualified publicly traded partnerships” (the “Diversification
      Tests”).




We may be
required to recognize taxable income in circumstances in which we do not receive
cash. For example, if we hold debt obligations that are treated under applicable
tax rules as having original issue discount (such as debt instruments with
payment-in-kind interest or, in certain cases, increasing interest rates or
issued with warrants), we must include in income each year a portion of the
original issue discount that accrues over the life of the obligation, regardless
of whether cash representing such income is received by us in the same taxable
year. Because any original issue discount accrued will be included in our
investment company taxable income for the year of accrual, we may be required to
make a distribution to our stockholders in order to satisfy the Annual
Distribution Requirement, even though we will not have received any
corresponding cash amount.




Gain or
loss realized by us from the sale or exchange of warrants acquired by us as well
as any loss attributable to the lapse of such warrants generally will be treated
as capital gain or loss. Such gain or loss generally will be long-term or
short-term, depending on how long we held a particular warrant. Upon the
exercise of a warrant acquired by us, our tax basis in the stock purchased under
the warrant will equal the sum of the amount paid for the warrant plus the
strike price paid on the exercise of the warrant.




We are
authorized to borrow funds and to sell assets in order to satisfy the Annual
Distribution Requirement and the Excise Tax Avoidance Requirement (collectively,
the “Distribution Requirements”).  However, under the 1940 Act, we are
not permitted to make distributions to our stockholders while our debt
obligations and other senior securities are outstanding unless certain “asset
coverage” tests are met. Moreover, our ability to dispose of assets to meet the
Distribution Requirements may be limited by: (i) the illiquid nature of our
portfolio, or (ii) other requirements relating to our status as a RIC,
including the Diversification Tests. If we dispose of assets in order to meet
the Distribution Requirements, we may make such dispositions at times that, from
an investment standpoint, are not advantageous.





Any
transactions in options, futures contracts, hedging transactions, and forward
contracts will be subject to special tax rules, the effect of which may be to
accelerate income to us, defer losses, cause adjustments to the holding periods
of our investments, convert long-term capital gains into short-term capital
gains, convert short-term capital losses into long-term capital losses or have
other tax consequences. These rules could affect the amount, timing and
character of distributions to stockholders.




26


A RIC is
limited in its ability to deduct expenses in excess of its “investment company
taxable income” (which is, generally, ordinary income plus net realized
short-term capital gains in excess of net realized long-term capital losses). If
our expenses in a given year exceed investment company taxable income (e.g., as
the result of large amounts of equity-based compensation), we would experience a
net operating loss for that year. However, a RIC is not permitted to carry
forward net operating losses to subsequent years. In addition, expenses can be
used only to offset investment company taxable income, not net capital gain. Due
to these limits on the deductibility of expenses, we may for tax purposes have
aggregate taxable income for several years that we are required to distribute
and that is taxable to our stockholders even if such income is greater than the
aggregate net income we actually earned during those years. Such required
distributions may be made from our cash assets or by liquidation of investments,
if necessary. We may realize gains or losses from such liquidations. In the
event we realize net capital gains from such transactions, you may receive a
larger capital gain distribution than you would have received in the absence of
such transactions.




Following
the effective date of our election to be treated as a RIC, assuming we qualify
as a RIC, our corporate-level federal income tax should be substantially reduced
or eliminated and, as explained above, a portion of our distributions or deemed
distributions may be characterized as long-term capital gain in the hands of
stockholders. Except as otherwise provided, the remainder of this discussion
assumes that we qualify as a RIC and have satisfied the Annual Distribution
Requirement.





Failure to
qualify as a Regulated Investment Company.If, subsequent to
our qualification for, and election as, a RIC, we were unable to continue to
qualify for treatment as a RIC, we would be subject to tax on all of our taxable
income at regular corporate rates. We would not be able to deduct distributions
to stockholders, nor would they be required to be made. Such distributions (if
made in a taxable year beginning on or before December 31, 2010) would be
taxable to our stockholders and provided certain holding period and other
requirements were met, could qualify for treatment as “qualified dividend
income” eligible for the 15% maximum rate to the extent of our current and
accumulated earnings and profits. Subject to certain limitations under the Code,
corporate distributees would be eligible for the dividends received deduction.
Distributions in excess of our current and accumulated earnings and profits
would be treated first as a return of capital to the extent of the stockholder’s
tax basis, and any remaining distributions would be treated as a capital gain.
To requalify as a RIC in a subsequent taxable year, we would be required to
satisfy the RIC qualification requirements for that year and dispose of any
earnings and profits from any year in which we failed to qualify as a RIC.
Subject to a limited exception applicable to RICs that qualified as such under
Subchapter M of the Code for at least one year prior to disqualification and
that requalify as a RIC no later than the second year following the
nonqualifying year, we could be subject to tax on any unrealized net built-in
gains in the assets held by us during the period in which we failed to qualify
as a RIC that are recognized within the subsequent 10 years, unless we made a
special election to pay corporate-level tax on such built-in gain at the time of
our requalification as a RIC.





Regulation
as a Business Development Company




We have
elected to be regulated as a business development company under the 1940 Act.
The 1940 Act requires that a majority of our directors be persons other than
“interested persons,” as that term is defined in the 1940 Act. In addition, the
1940 Act provides that we may not change the nature of our business so as to
cease to be, or to withdraw our election as, a business development company
without the approval of a “majority of our outstanding voting securities,”
within the meaning of the 1940 Act.




Qualifying
assets.Under the 1940 Act, a business development company may
not acquire any asset other than assets of the type listed in Section 55(a)
of the 1940 Act, which are referred to here as “qualifying assets,” unless, at
the time the acquisition is made, qualifying assets represent at least 70% of
the company’s total assets (the “70% test”). The principal categories of
qualifying assets relevant to our business are any of the
following:




(i) Securities
purchased in transactions not involving any public offering from the issuer of
such securities, which issuer (subject to certain limited exceptions) is an
Eligible Portfolio Company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an Eligible Portfolio Company,
or from any other person, subject to such rules as may be prescribed by the SEC.
An Eligible Portfolio Company is defined in the 1940 Act as any issuer
which:




(a) is
organized under the laws of, and has its principal place of business in, the
United States;




(b) is
not an investment company (other than a small business investment company
wholly-owned by the business development company) or a company that would be an
investment company but for certain exclusions under the 1940
Act; and




(c) satisfies
any of the
following:




27


(1) does
not have any class of securities listed on a national securities
exchange;





(2) is
controlled by a business development company or a group of companies including a
business development company and the business development company has an
affiliated person who is a director of the eligible portfolio
company; or




(3) is
a small and solvent company having total assets of not more than $4 million
and capital and surplus of not less than $2 million; or





(4)
effective beginning July 21, 2008, has a class of securities listed on a
national securities exchange, but has an aggregate market value of outstanding
voting and non-voting common equity of less than $250 million during the 60 days
prior to acquisition by the business development company.




(ii) Securities
of any Eligible Portfolio Company which we control.




(iii) Securities
purchased in a private transaction from a U.S. issuer that is not an
investment company or from an affiliated person of the issuer, or in
transactions incident thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the purchase of its
securities was unable to meet its obligations as they came due without material
assistance other than conventional lending or financing
arrangements.




(iv) Securities
of an Eligible Portfolio Company purchased from any person in a private
transaction if there is no ready market for such securities and we already own
60% of the outstanding equity of the Eligible Portfolio Company.




(v) Securities
received in exchange for or distributed on or with respect to securities
described in (i) through (iv) above, or pursuant to the exercise of
warrants or rights relating to such securities.





(vi) Cash,
cash equivalents, U.S. government securities or high-quality debt
securities maturing in one year or less from the time of
investment.




In
addition, a business development company must have been organized and have its
principal place of business in the United States and must be operated for the
purpose of making investments in the types of securities described in (i),
(ii) or (iii) above.





Managerial
assistance to portfolio companies.In general, in order to
count portfolio securities as qualifying assets for the purpose of the 70% test,
we must either control the issuer of the securities or must offer to make
available to the issuer of the securities (other than small and solvent
companies described above) significant managerial assistance; except that, where
we purchase such securities in conjunction with one or more other persons acting
together, one of the other persons in the group may make available such
managerial assistance. Making available managerial assistance means, among other
things, any arrangement whereby the business development company, through its
directors, officers or employees, offers to provide, and, if requested to,
provides significant guidance and counsel concerning the management, operations
or business objectives and policies of a portfolio company.





Senior
securities.We are permitted, under specified conditions, to
issue multiple classes of debt and one class of stock senior to our common stock
if our asset coverage, as defined in the 1940 Act, is at least equal to 200%
immediately after each such issuance. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our
stockholders or the repurchase of such securities or shares unless we meet the
applicable asset coverage ratios at the time of the distribution or repurchase.
We may also borrow amounts up to 5% of the value of our total assets for
temporary or emergency purposes without regard to asset coverage.





Except for
temporary or emergency borrowings in amounts not exceeding 5% of the value of
our total assets, it is unlikely that we will borrow funds in the foreseeable
future to finance the purchase of our investment in portfolio
companies.  However, in the event we do borrow funds to make
investments, we are exposed to the risks of leverage, which may be considered a
speculative investment technique. Borrowings, also known as leverage, magnify
the potential for gain and loss on amounts invested and therefore increase the
risks associated with investing in our securities. In addition, the costs
associated with our borrowings, including any increase in the management fee
payable to our investment adviser will be borne by our common
stockholders.





Proxy voting
policies and procedures.We vote proxies relating to our
portfolio securities in the best interest of our stockholders. We review on a
case-by-case basis each proposal submitted to a stockholder vote to determine
its impact on the portfolio securities held by us. Although we generally vote
against proposals that may have a negative impact on our portfolio securities,
we may vote for such a proposal if there exists compelling long-term reasons to
do so.




28


Our proxy
voting decisions are made by our investment adviser’s senior investment
professionals. To ensure that our vote is not the product of a conflict of
interest, we require that: (i) anyone involved in the decision making
process disclose to our Chief Compliance Officer any potential conflict that he
is aware of and any contact that he has had with any interested party regarding
a proxy vote; and (ii) employees involved in the decision making process or
vote administration are prohibited from revealing how we intend to vote on a
proposal in order to reduce any attempted influence from interested
parties.




Stockholders
may obtain information regarding how we voted proxies with respect to our
portfolio securities by making a written request for proxy voting information
to: Chief Compliance Officer, Keating Capital, Inc. 5251 DTC Parkway, Suite
1000, Greenwood Village, Colorado 80111.




Temporary
investments.Pending investment in other types of “qualifying
assets,” as described above, our investments may consist of cash, cash
equivalents, U.S. government securities or high-quality debt securities maturing
in one year or less.





Code of
ethics.We and our investment adviser have each adopted a code
of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1
under the Advisers Act, respectively, that establishes procedures for personal
investments and restricts certain transactions by our personnel. Our codes of
ethics generally do not permit investments by our employees in securities that
may be purchased or held by us. You may read and copy these codes of ethics at
the SEC’s Public Reference Room in Washington, DC. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
(202) 551-8090. In addition, each code of ethics is available on the SEC’s
website at www.sec.gov.  You
may also obtain copies of the codes of ethics, after paying a duplicating fee,
by electronic request at the following Email address: publicinfo@sec.gov, or by
writing the SEC’s Public Reference Section, 100 F Street, N.E.,
Washington, DC 20549.  You may also obtain a copy of the code of
ethics on our website at www.keatingcapital.com.




Compliance
policies and procedures.We and our investment
adviser have adopted and implemented written policies and procedures reasonably
designed to detect and prevent violation of the federal securities laws and are
required to review these compliance policies and procedures annually for their
adequacy and the effectiveness of their implementation and designate a Chief
Compliance Officer to be responsible for administering the policies and
procedures. Brett W. Green will serve as our Chief Compliance
Officer.





The
Sarbanes-Oxley Act.The Sarbanes-Oxley Act imposes a wide
variety of new regulatory requirements on publicly-held companies and their
insiders. Many of these requirements affect us. For example:




•
            
            pursuant
      to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and
      Chief Financial Officer must certify the accuracy of the financial
      statements contained in our periodic reports;•
            
            pursuant
      to Item 307 of Regulation S-K, our periodic reports must
      disclose our conclusions about the effectiveness of our disclosure
      controls and procedures;•
            
            pursuant
      to Rule 13a-15 of the Exchange Act, once such Rule becomes effective, our
      management must prepare an annual report regarding its assessment of our
      internal control over financial reporting and must obtain an audit of the
      effectiveness of internal control over financial reporting performed by
      our independent registered public accounting firm;•
            
            pursuant
      to Item 308 of Regulation S-K and Rule 13a-15 of the
      Exchange Act, our periodic reports must disclose whether there were
      significant changes in our internal controls over financial reporting or
      in other factors that could significantly affect these controls subsequent
      to the date of their evaluation, including any corrective actions with
      regard to significant deficiencies and material weaknesses;
      and•
            
            pursuant
      to Section 404 of the Sarbanes-Oxley Act, our Form 10-K for the fiscal
      year ending December 31, 2009 will contain a report from our management on
      internal controls over financial reporting, including a statement
      that our management is responsible for establishing and maintaining
      adequate internal control over financial reporting as well as our
      management's assessment of our effectiveness of our internal control over
      financial reporting, and an attestation report on the effectiveness of our
      internal control over financial reporting issued by our independent
      registered public accounting firm.




The
Sarbanes-Oxley Act requires us to review our current policies and procedures to
determine whether we comply with the Sarbanes-Oxley Act and the regulations
promulgated thereunder.  We will continue to monitor our compliance
with all regulations that are adopted under the Sarbanes-Oxley Act and will take
actions necessary to ensure that we are in compliance therewith.





29


Privacy
principles.We are committed to maintaining the privacy of our
stockholders and to safeguarding their non-public personal information. The
following information is provided to help you understand what personal
information we collect, how we protect that information and why, in certain
cases, we may share information with select other parties.




Generally,
we do not receive any non-public personal information relating to our
stockholders, although certain non-public personal information of our
stockholders may become available to us. We do not disclose any non-public
personal information about our stockholders or former stockholders to anyone,
except as permitted by law or as is necessary in order to service stockholder
accounts (for example, to a transfer agent or third party
administrator).




We
restrict access to non-public personal information about our stockholders to
employees of our investment adviser and its affiliates with a legitimate
business need for the information. We will maintain physical, electronic and
procedural safeguards designed to protect the non-public personal information of
our stockholders.





Other.We
may also be prohibited under the 1940 Act from knowingly participating in
certain transactions with our affiliates without the prior approval of our Board
of Directors who are not interested persons and, in some cases, prior approval
by the SEC.




We expect
to be periodically be examined by the SEC for compliance with the 1940
Act.




We are
required to provide and maintain a bond issued by a reputable fidelity insurance
company to protect us against larceny and embezzlement. Furthermore, as a
business development company, we are prohibited from protecting any director or
officer against any liability to us or our stockholders arising from willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person’s office.





Available
Information





We are
required to file with or submit to the SEC annual, quarterly and current
reports, proxy statements and other information meeting the informational
requirements of the Exchange Act. You may inspect and copy these reports, proxy
statements and other information, as well as related exhibits and schedules, at
the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information filed
electronically by us with the SEC, which are available on the SEC’s website at
www.sec.gov. Copies of
these reports, proxy and information statements and other information may be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference
Section, 100 F Street, N.E., Washington, DC 20549.





You may
also obtain a copy of these reports, proxy and information statements and other
information on our website at www.keatingcapital.com. We
make available free of charge on our website these reports, proxy and
information statements and other information as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC.
Information contained on our website is not incorporated by reference into this
annual report on Form 10-K and you should not consider information
contained on our website to be part of this annual report on
Form 10-K.





30


Item 1A.
            Risk Factors





An
investment in our securities involves certain risks relating to our structure
and investment objective. The risks set forth below are not the only risks we
face, and we may face other risks that we have not yet identified, which we do
not currently deem material or which are not yet predictable. If any of the
following risks occur, our business, financial condition and results of
operations could be materially adversely affected. In such case, our net asset
value and the price of our common stock could decline, and you may lose all or
part of your investment.




Risks
Relating to Our Business and Structure




We
are a recently-formed company with no operating history and are subject to
the business risks and uncertainties associated with any new business, including
the risk that we will not achieve our investment objective .




We were
initially formed in May 2008. As a result, we have limited financial information
on which you can evaluate an investment in our company or our prior performance.
We are subject to all of the business risks and uncertainties associated with
any new business, including the risk that we will not achieve our investment
objective and that the value of your investment could decline substantially or
become worthless. Although we anticipate that it may take twelve to twenty-four
months to invest substantially all of the net proceeds of our initial private
placement in our targeted investments, because of our relatively small size and
lack of operating history, we may be unable to identify and fund investments
that meet our criteria.




Until we
are able to invest such net proceeds in suitable investments, we will invest in
temporary investments, such as cash, cash equivalents, U.S. government
securities and other high-quality debt investments that mature in one year or
less, which we expect will earn yields substantially lower than the interest,
dividend or other income that we anticipate receiving in respect of investments
in debt and equity securities of our target portfolio companies. As a result,
our ability to pay dividends in our initial years of operation will be based on
our ability to invest our capital in suitable portfolio companies in a timely
manner.  Further, the management fee payable to our investment
adviser, Keating Investments, will not be reduced while our assets are invested
in such temporary investments.




We
are dependent upon key management personnel of Keating Investments, our
investment adviser, for our future success, particularly Timothy J. Keating,
Ranjit P. Mankekar and Kyle L. Rogers. If we lose any member of Keating
Investments’ senior management team, our ability to implement our business
strategy could be significantly harmed.




We depend
on the experience, diligence, skill and network of business contacts of our
investment adviser’s senior investment professionals. The senior investment
professionals, together with other investment professionals that Keating
Investments currently retains or may subsequently retain, will identify,
evaluate, negotiate, structure, close, monitor and service our investments. Our
future success will depend to a significant extent on the continued service and
coordination of Keating Investments’ senior investment professionals, Timothy J.
Keating, who is also our President, Chief Executive Officer
and  Chairman of our Board of Directors, Ranjit P. Mankekar, who is
also our Chief Financial Officer, Treasurer and a member of our Board of
Directors, and Kyle L. Rogers, who is also our Chief Operating Officer and
Secretary.  The departure of any of these senior investment
professionals could have a material adverse effect on our ability to achieve our
investment objective. While our investment adviser’s senior investment
professionals expect to devote a majority of their business time to our
operations, none of Messrs. Keating, Mankekar and Rogers are subject to an
employment contract.




Our
investment adviser and its management have no prior experience managing a
business development company.




The 1940
Act imposes numerous constraints on the operations of business development
companies. For example, business development companies are required to invest at
least 70% of their total assets primarily in securities of eligible portfolio
companies, cash, cash equivalents, U.S. government securities and other
high quality debt investments that mature in one year or less. These constraints
may hinder our investment adviser’s ability to take advantage of attractive
investment opportunities and to achieve our investment objective. In addition,
the senior investment professionals of Keating Investments have no prior
experience managing a business development company, and the investment
philosophy and techniques used by Keating Investments may differ from those
private investments in smaller public companies with which Keating Investments’
senior investment professionals have experience. Accordingly, we can offer no
assurance that we will replicate the historical performance of other companies
with which Keating Investments’ senior investment professionals have been
affiliated, and we caution you that our investment returns could be
substantially lower than the returns achieved by such other
companies.





31


Our
business model depends upon the development and maintenance of strong referral
relationships with investment banking firms, professional services firms and
private equity and venture capital funds.




If we fail
to maintain our relationships with key firms, or if we fail to establish strong
referral relationships with other firms or other sources of investment
opportunities, we will not be able to grow our portfolio and achieve our
investment objective. In addition, persons with whom we have informal
relationships are not obligated to inform us of investment opportunities and
therefore such relationships may not lead to the origination of portfolio
company investments.




Regulations
governing our operation as a business development company affect our ability to,
and the way in which we, raise additional capital. As a business development
company, the necessity of raising additional capital may expose us to
risks  and may result in dilution to our current
stockholders.




Although
we do not presently anticipate issuing debt to finance our investments, we may
in the future issue debt securities or preferred stock and/or borrow money from
banks or other financial institutions, which we refer to collectively as “senior
securities,” up to the maximum amount permitted by the 1940 Act. Under the
provisions of the 1940 Act, we will be permitted, as a business development
company, to issue senior securities in amounts such that our asset coverage
ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all
liabilities and indebtedness not represented by senior securities, after each
issuance of senior securities. If the value of our assets declines, we may be
unable to satisfy this test. If that happens, we may be required to sell a
portion of our investments and, depending on the nature of our leverage, repay a
portion of our indebtedness at a time when such sales may be disadvantageous.
Also, any amounts that we use to service our indebtedness would not be available
for distributions to our common stockholders. Furthermore, as a result of
issuing senior securities, we would also be exposed to typical risks associated
with leverage, including an increased risk of loss. If we issue preferred stock,
the preferred stock would rank “senior” to common stock in our capital
structure, preferred stockholders would have separate voting rights and might
have rights, preferences, or privileges more favorable than those of our common
stockholders, and the issuance of preferred stock could have the effect of
delaying, deferring, or preventing a transaction or a change of control that
might involve a premium price for holders of our common stock or otherwise be in
your best interest.




We are not
generally able to issue and sell our common stock at a price below net asset
value per share. We may, however, sell our common stock, or warrants, options or
rights to acquire our common stock, at a price below the then-current net asset
value per share of our common stock if our Board of Directors determines that
such sale is in the best interests of us and our stockholders, and our
stockholders approve such sale. In any such case, the price at which our
securities are to be issued and sold may not be less than a price that, in the
determination of our Board of Directors, closely approximates the market value
of such securities (less any distributing commission or discount). If we raise
additional funds by issuing more common stock or senior securities convertible
into, or exchangeable for, our common stock, then the percentage ownership of
our stockholders at that time will decrease, and you might experience
dilution.




Any
failure on our part to maintain our status as a business development company
would reduce our operating flexibility.




Upon
approval of a majority of our stockholders, we may elect to withdraw our status
as a business development company. If we decide to withdraw our election, or if
we otherwise fail to qualify as a business development company, we may be
subject to the substantially greater regulation under the 1940 Act as a
closed-end investment company. Compliance with such regulations would
significantly increase our costs of doing business and correspondingly decrease
our operating flexibility.




Our
ability to grow will depend on our ability to raise capital.




We will
need to periodically access the capital markets to raise cash to fund new
investments. Unfavorable economic conditions could increase our funding costs,
limit our access to the capital markets or result in a decision by lenders not
to extend credit to us. An inability to successfully access the capital markets
could limit our ability to grow our business and fully execute our business
strategy and could decrease our earnings, if any.




In
the event we borrow money, which we currently do not intend to do, the potential
for gain or loss on amounts invested would be magnified and may increase the
risk of investing in us.




The use of
leverage magnifies the potential for gain or loss on amounts invested and,
therefore, increase the risks associated with investing in our
securities.  Although we do not presently intend to do so, we may
borrow from and issue senior debt securities to banks, insurance companies, and
other lenders. Lenders of these senior securities will have fixed dollar claims
on our assets that are superior to the claims of our common shareholders and we
would expect such lenders to seek recovery against our assets in the event of a
default. If the value of our assets decreases, leveraging would cause net asset
value to decline more sharply than it otherwise would have had we not leveraged.
Similarly, any decrease in our income would cause net income to decline more
sharply than it would have had we not borrowed. Such a decline could negatively
affect our ability to make common stock dividend payments. Leverage is generally
considered a speculative investment technique. Our ability to service any debt
that we incur will depend largely on our financial performance and will be
subject to prevailing economic conditions and competitive pressures. Moreover,
as the management fee payable to our investment adviser, Keating Investments,
will be payable based on our gross assets, including those assets acquired
through the use of leverage, Keating Investments will have a financial incentive
to incur leverage which may not be consistent with our stockholders’ interests.
In addition, our common stockholders will bear the burden of any increase in our
expenses as a result of leverage, including any increase in the management fee
payable to Keating Investments.




32


As a
business development company, we generally are required to meet a coverage ratio
of total assets to total borrowings and other senior securities, which include
all of our borrowings and any preferred stock that we may issue in the future,
of at least 200%. If this ratio declines below 200%, we may not be able to incur
additional debt and could be required by law to sell a portion of our
investments to repay some debt when it is disadvantageous to do so, which could
have a material adverse effect on our operations, and we may not be able to make
distributions. The amount of leverage that we employ will depend on our
investment adviser’s and our Board of Directors’ assessment of market and other
factors at the time of any proposed borrowing. We cannot assure you that we will
be able to obtain credit at all or on terms acceptable to us.  Any
borrowings by us will require the approval of our Board.




In
addition, any debt facility into which we may enter would likely impose
financial and operating covenants that restrict our business activities,
including limitations that would hinder our ability to finance additional loans
and investments or to make the distributions required to maintain our status as
a RIC under Subchapter M of the Code.




Our
financial condition and results of operations will depend on our ability to
manage our future growth effectively.




Although
Keating Investments has been an investment adviser registered under the Advisors
Act since 2001, it has no experience in managing a business development
company.  Further, as discussed above, we are a recently organized
company with no operating history. As such, we and our investment adviser
are subject to the business risks and uncertainties associated with any new
business enterprise, including the lack of experience in managing or operating a
business development company. Our ability to achieve our investment objective
will depend on our ability to grow, which will depend, in turn, on our
investment adviser’s ability to identify, analyze, invest in and finance
companies that meet our investment criteria.




Although
we anticipate that it may take twelve to twenty-four months to invest
substantially all of the net proceeds of our initial private placement in our
targeted investments, because of our relatively small size and lack of operating
history, we may be unable to identify and fund investments that meet our
criteria.  Until we are able to invest such net proceeds in suitable
investments, we will invest in temporary investments, such as cash, cash
equivalents, U.S. government securities and other high-quality debt
investments that mature in one year or less, which we expect will earn yields
substantially lower than the interest, dividend or other income that we
anticipate receiving in respect of investments in debt and equity securities of
our target portfolio companies.




Accomplishing
this result on a cost-effective basis is largely a function of our investment
adviser’s proper structuring and implementation of the investment process, its
ability to identify and evaluate companies that meet our investment criteria,
its ability to provide competent, attentive and efficient services to us, and
our access to financing on acceptable terms. The senior investment professionals
of Keating Investments have substantial responsibilities under the Investment
Advisory and Administrative Services Agreement. These demands on their time may
distract them or slow the rate of investment. In order to grow, we and our
investment adviser may need to hire, train, supervise and manage new employees.
Failure to manage our future growth effectively could have a material adverse
effect on our business, financial condition and results of
operations.




We
operate in a highly competitive market for investment
opportunities.




We compete
for investments with a number of business development companies and other
investment funds (including private equity funds and venture capital funds),
reverse merger and SPACs sponsors, investment bankers which underwrite initial
public offerings, hedge funds that invest in private investments in public
equity (“PIPE”), traditional financial services companies such as commercial
banks, and other sources of financing.  Many of our competitors are
substantially larger than us and have considerably greater financial, technical
and marketing resources than we do. For example, some competitors may have a
lower cost of funds and access to funding sources that are not available to us.
In addition, some of our competitors may have higher risk tolerances or
different risk assessments, which could allow them to consider a wider variety
of investments and establish more relationships than we can. Furthermore, many
of our competitors are not subject to the regulatory restrictions that the 1940
Act imposes on us as a business development company and, as a result, such
companies may be more successful in completing their investments. There can be
no assurance that the competitive pressures we face will not have a material
adverse effect on our business, financial condition, and results of operations.
Also, as a result of this competition, we may not be able to take advantage of
attractive investment opportunities from time to time, and we can offer no
assurance that we will be able to identify and make investments that are
consistent with our investment objective.




33


A
significant portion of our investment portfolio will be recorded at fair value
as determined in good faith by our Board of Directors and, as a result, there is
and will be uncertainty as to the value of our portfolio
investments.




Under the
1940 Act, we are required to carry our portfolio investments at market value or,
if there is no readily available market value, at fair value as determined by
our Board of Directors. Typically, there is not a public market for the
securities of the privately held companies in which we intend to invest. As a
result, we will value these securities quarterly at fair value as determined in
good faith by our Board of Directors.




Certain
factors that may be considered in determining the fair value of our investments
include the nature and realizable value of any collateral, the portfolio
company’s earnings and its ability to make payments on its indebtedness, the
markets in which the portfolio company does business, comparison to comparable
publicly-traded companies, discounted cash flow and other relevant factors.
Because such valuations, and particularly valuations of private securities and
private companies, are inherently uncertain, may fluctuate over short periods of
time and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these
securities existed. Due to this uncertainty, our fair value determinations may
cause our net asset value on a given date to materially understate or overstate
the value that we may ultimately realize upon the sale of one or more of our
investments.





Even
in the event the value of your investment declines, the base management fee and,
in certain circumstances, the incentive fee will still be payable.




The base
annual management fee is calculated as 2.0% of the value of our gross assets at
a specific time. Accordingly, the management fee is payable regardless of
whether the value of our gross assets and/or your investment have decreased.
Moreover, the incentive fee payable to our investment adviser is calculated
annually based upon our realized capital gains, computed net of realized capital
losses and unrealized capital depreciation on a cumulative basis. As a result,
we may owe our investment adviser an incentive fee during one year as a result
of realized capital gains on certain investments, and then later incur
significant realized capital losses and unrealized capital depreciation on the
remaining investments in our portfolio during subsequent years.




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




Although
we intend to elect to be treated as a RIC under Subchapter M of the Code
effective as of January 1, 2009 and succeeding tax years, no assurance can be
given that we will be able to qualify for and maintain RIC status. To obtain and
maintain RIC tax treatment under the Code, we must meet the following annual
distribution, income source and asset diversification requirements.




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




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




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




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




34


There is a risk
that you may not receive dividends or that our dividends may not grow over
time.




We cannot
assure you that we will achieve investment results or maintain a tax status that
will allow or require any specified level of cash distributions or year-to-year
increases in cash distributions.  Although we expect to be able to pay
dividends from the interest and preferred dividends we receive from our initial
and follow-on investments prior to our conversion thereof, we do not expect to
generate capital gains from the sale of our portfolio investments on a level or
uniform basis from quarter to quarter.  This may result in substantial
fluctuations in our quarterly dividend payments to stockholders.




In
addition, since we expect to have an average holding period for our portfolio
company investments of two to three years, it is unlikely we will generate any
capital gains during our initial years of operations and thus we are likely to
pay dividends in our initial years of operation principally from interest and
preferred dividends we receive from our initial and follow-on investments prior
to our conversion thereof.  However, our ability to pay dividends in
our initial years of operation will be based on our ability to invest our
capital in suitable portfolio companies in a timely manner.





In
addition, the micro-cap companies in which we intend to invest are generally
more susceptible to economic downturns than larger operating companies, and
therefore may be more likely to default on their payment obligations to us
during recessionary periods, including the current economic
environment.  Any such defaults could substantially reduce our net
investment income available for distribution in the form of dividends to our
shareholders.




We
may have difficulty paying our required distributions if we recognize income
before or without receiving cash representing such income.




Because in
certain cases we may recognize income before or without receiving cash
representing such income, we may have difficulty satisfying the annual
distribution requirement applicable to RICs. For example, we will include in
income certain amounts that we have not yet received in cash, such as original
issue discount, which may arise if we receive warrants in connection with the
making of a loan or possibly in other circumstances, or contracted
payment-in-kind (“PIK”) interest, which represents contractual interest added to
the loan balance and due at the end of the loan
term.   Accordingly, we may have to sell some of our investments
at times we would not consider advantageous, raise additional debt or equity
capital or reduce new investments to meet these distribution requirements. If we
are not able to obtain cash from other sources, we may fail to qualify for RIC
tax treatment and thus be subject to corporate-level income tax.




Our
quarterly and annual operating results will be subject to fluctuation as a
result of the nature of our business, and if we fail to achieve our investment
objective, the net asset value of our common stock may decline.




We could
experience fluctuations in our quarterly and annual operating results due to a
number of factors, some of which are beyond our control, including the interest
rates and dividend rates payable on our debt securities and preferred stock
investments, respectively, the default rate on any such securities, the level of
our expenses, variations in and the timing of the recognition of realized and
unrealized gains or losses, the degree to which we encounter competition in our
markets and general economic conditions. As a result of these factors, results
for any period should not be relied upon as being indicative of performance in
future periods.  In addition, the currently prevailing negative
economic conditions may cause such default rates to be greater than they
otherwise would be during a period of economic growth.




Our
quarterly dividends are subject to substantial fluctuation due to our focus on
capital appreciation from equity investments as opposed to a more steady current
income stream from interest-bearing debt investments.




We intend
to invest principally in equity securities, including convertible preferred
securities, and debt securities convertible into equity securities, of primarily
micro-cap companies. Our primary emphasis will be to generate capital gains
through our equity investments in such micro-cap companies, which we expect to
become public reporting companies with their securities typically being
initially quoted on the OTC Bulletin Board.  We do not expect the
securities in our publicly traded portfolio companies to initially have an
active secondary trading market and, as such, these securities will be illiquid
until an active market develops. We believe that typically this liquidity will
develop in conjunction with a Nasdaq Capital Market listing, which may not occur
until twelve to eighteen months after our follow-on investment is made, if at
all.  However, there can be no assurance that our portfolio companies
will obtain either an OTC Bulletin Board or Nasdaq Capital Market listing or,
even if a listing is obtained, that an active trading market will ever develop
in the securities of our publicly traded portfolio companies.




Even if
our portfolio companies are successful in becoming publicly traded companies,
there is no assurance that they will be able to achieve their projected revenue
and earnings targets or effectively maintain their status as public reporting
companies.  In such case, there may be little or no demand for the
securities of our portfolio companies in the public markets, we may have
difficulty disposing of our investments, and the value of our investments may
decline substantially.




35


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




There
are significant potential conflicts of interest which could impact our
investment returns.




Our
executive officers and directors, and any that may be retained in the future,
and the future members of our investment adviser, may serve as officers,
directors or principals of entities that operate in the same or a related line
of business as we do or of investment funds managed by our investment adviser or
its affiliates that may be formed in the future. Accordingly, if this occurs,
they may have obligations to investors in those entities, the fulfillment of
which might not be in the best interests of us or our stockholders.




In the
course of our investing activities, we will pay investment advisory and
incentive fees to Keating Investments, as our investment adviser, and will
reimburse Keating Investments for certain expenses it incurs. As a result,
investors in our common stock will invest on a “gross” basis and receive
distributions on a “net” basis after expenses, resulting in a lower rate of
return than an investor might achieve through direct investments. Accordingly,
there may be times when the senior investment professionals of Keating
Investments have interests that differ from those of our stockholders, giving
rise to a conflict.




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




In
connection with the consummation of our initial private placement, we entered
into a license agreement with our investment adviser, pursuant to which our
investment adviser will grant us a non-exclusive license to use the name
“Keating.” Under the license agreement, we will have the right to use the
“Keating” name and logo for so long as Keating Investments or one of its
affiliates remains our investment adviser. In addition, we will pay Keating
Investments, our allocable portion of overhead and other expenses incurred by
Keating Investments in performing its obligations under the administration
agreement, including our allocable portion of the cost of our Chief Financial
Officer and Chief Compliance Officer and their respective staffs. These
arrangements may create conflicts of interest that our Board of Directors must
monitor.




Our
Board of Directors may be authorized to reclassify any unissued shares of common
stock into one or more classes of preferred stock, which could convey special
rights and privileges to its owners.




Under
Maryland General Corporation Law, our Board of Directors is permitted to
reclassify any authorized but unissued shares of common stock into one or more
classes of preferred stock. If the Board of Directors undertakes such a
reclassification, it is required to file Articles of Incorporation
Supplementary, which include, among other things, a description of the stock and
a statement that the stock has been reclassified by the Board of Directors under
authority contained in the charter. The Board of Directors is not required to
make a specific finding prior to approving a reclassification, though we would
generally expect the Board of Directors to determine, at a minimum, that any
reclassification was in our best interests. In the event that our Board of
Directors opts to reclassify a portion of our unissued shares of common stock
into a class of preferred stock, those preferred shares would have a preference
over our common stock with respect to dividends and liquidation, which would
reduce the amount distributable to our common stockholders. The cost of any such
reclassification would be borne by our existing common stockholders. The class
voting rights of any preferred shares we may issue could make it more difficult
for us to take some actions that may, in the future, be proposed by the Board of
Directors and/or the holders of our common stock, such as a merger, exchange of
securities, liquidation, or alteration of the rights of a class of our
securities, if these actions were perceived by the holders of preferred shares
as not in their best interests. The issuance of preferred shares convertible
into shares of common stock might also reduce the net income and net asset value
per share of our common stock upon conversion. These events, among others, could
have an adverse effect on your investment in our common stock.




36


Our
Board of Directors may change our investment objective, operating policies and
strategies without prior notice or stockholder approval.




Our Board
of Directors has the authority to modify or waive certain of our operating
policies and strategies without prior notice (except as required by the 1940
Act) and without stockholder approval. However, absent stockholder approval, we
may not change the nature of our business so as to cease to be, or withdraw our
election as, a business development company. We cannot predict the effect any
changes to our current operating policies and strategies would have on our
business, operating results and value of our stock. Nevertheless, these events
may adversely affect our business and impact our ability to make
distributions.




Keating
Investments and its affiliates, including our officers and some of our
directors, will face conflicts of interest caused by compensation arrangements
with us and our affiliates, which could result in actions that are not in the
best interests of our stockholders.





Keating
Investments and its affiliates will receive substantial fees from us in return
for their services, and these fees could influence the advice provided to us.
Among other matters, the compensation arrangements could affect their judgment
with respect to public offerings of equity by us, which allow the dealer manager
to earn additional dealer manager fees and Keating Investments to earn increased
asset management fees.




Changes
in laws or regulations governing our operations may adversely affect our
business.





We and our
portfolio companies will be subject to regulation by laws at the local, state
and federal levels. These laws and regulations, as well as their interpretation,
may be changed from time to time. Any change in these laws or regulations could
have a material adverse effect on our business.




Changes to
the laws and regulations governing our operations relating to permitted
investments may cause us to alter our investment strategy in order to avail
ourselves of new or different opportunities. If legislation is enacted, new
rules are adopted, or existing rules are materially amended, we may change our
investment strategy. Such changes could result in material differences to the
strategies and plans set forth in this annual report and may result in our
investment focus shifting.




Provisions
of the Maryland General Corporation Law and of our charter and bylaws could
deter takeover attempts and have an adverse impact on the price of our common
stock.




The
Maryland General Corporation Law, our charter and our bylaws contain provisions
that may discourage, delay or make more difficult a change in control of us or
the removal of our directors. Our Board of Directors has adopted a resolution
exempting from the Business Combination Act any business combination between us
and any other person, subject to prior approval of such business combination by
our Board, including approval by a majority of our disinterested directors. If
the resolution exempting business combinations is repealed or our Board does not
approve a business combination, the Business Combination Act may discourage
third parties from trying to acquire control of us and increase the difficulty
of consummating such an offer. Our bylaws exempt from the Maryland Control Share
Acquisition Act acquisitions of our stock by any person. If we amend our bylaws
to repeal the exemption from the Control Share Acquisition Act, the Control
Share Acquisition Act also may make it more difficult for a third party to
obtain control of us and increase the difficulty of consummating such a
transaction.




We have
also adopted measures that may make it difficult for a third party to obtain
control of us, including provisions of our charter classifying our Board of
Directors in three classes serving staggered three-year terms, and provisions of
our charter authorizing our Board of Directors to classify or reclassify shares
of our stock in one or more classes or series, to cause the issuance of
additional shares of our stock, and to amend our charter, without stockholder
approval, to increase or decrease the number of shares of stock that we have
authority to issue. These provisions, as well as other provisions of our charter
and bylaws, may delay, defer or prevent a transaction or a change in control
that might otherwise be in the best interests of our stockholders.




Our
investment adviser can resign on 60  days’ notice, or 120 days’ notice if
the Proposed Amended and Restated Investment Advisory and Administrative
Services Agreement is adopted, and we may not be able to find a suitable
replacement within that time, resulting in a disruption in our operations that
could adversely affect our financial condition, business and results of
operations.




Our
investment adviser has the right, under the current Investment Advisory and
Administrative Services Agreement, to resign at any time upon not less than
60 days’ written notice, whether we have found a replacement or not. Even
if the Proposed Amended and Restated Investment Advisory Agreement is approved
by our stockholders and adopted, our investment adviser will still retain the
right thereunder to resign at any time upon not less than 120 days’ written
notice.  If our investment adviser resigns, we may not be able to find
a new investment adviser or hire internal management with similar expertise and
ability to provide the same or equivalent services on acceptable terms within
the applicable notice period, or at all. If we are unable to do so quickly, our
operations are likely to experience a disruption, our financial condition,
business and results of operations as well as our ability to pay distributions
are likely to be adversely affected and the market price of our shares may
decline. In addition, the coordination of our internal management and investment
activities is likely to suffer if we are unable to identify and reach an
agreement with a single institution or group of executives having the expertise
possessed by our investment adviser and its affiliates. Even if we are able to
retain comparable management, whether internal or external, the integration of
such management and their lack of familiarity with our investment objective may
result in additional costs and time delays that may adversely affect our
financial condition, business and results of operations.




37


To
the extent that we do not realize income or choose not to retain after-tax
realized capital gains, we will have a greater need for additional capital to
fund our investments and operating expenses.




As a RIC,
we must annually distribute at least 90 percent of our investment company
taxable income as a dividend and may either distribute or retain our realized
net capital gains from investments. As a result, these earnings may not be
available to fund investments or to pay operating expenses. If we fail to
generate net realized capital gains or to obtain additional funds, it would have
a material adverse effect on our financial condition and results of operations
as well as our ability to make follow-on and new investments. Because of the
structure and objectives of our business, we may experience operating losses and
expect to rely on proceeds from sales of investments, rather than on interest
and dividend income, to pay our operating expenses. There is no assurance that
we will be able to sell our investments and thereby fund our operating
expenses.




Our
ability to enter into transactions with our affiliates will be
restricted.




We will be
prohibited under the 1940 Act from participating in certain transactions with
certain of our affiliates without the prior approval of a majority of the
independent members of our Board of Directors and, in some cases, the SEC. Any
person that owns, directly or indirectly, 5% or more of our outstanding voting
securities will be our affiliate for purposes of the 1940 Act and we will
generally be prohibited from buying or selling any securities from or to such
affiliate, absent the prior approval of our Board of Directors. The 1940 Act
also prohibits certain “joint” transactions with certain of our affiliates,
which could include investments in the same portfolio company (whether at the
same or different times), without prior approval of our Board of Directors and,
in some cases, the SEC. If a person acquires more than 25% of our voting
securities, we will be prohibited from buying or selling any security from or to
such person or that person’s affiliates, or entering into prohibited joint
transactions with such persons, absent the prior approval of the SEC. Similar
restrictions limit our ability to transact business with our officers or
directors or their affiliates. As a result of these restrictions, we may be
prohibited from buying or selling any security from or to any portfolio company
of a private equity fund managed by Keating Investments without the prior
approval of the SEC, which may limit the scope of investment opportunities that
would otherwise be available to us.




We
are uncertain of our sources for funding our future capital needs; if we cannot
obtain debt or equity financing on acceptable terms, our ability to acquire
investments and to expand our operations will be adversely
affected.




The net
proceeds from any sale of shares will be used for our investment opportunities,
operating expenses and for payment of various fees and expenses such as base
management fees, incentive fees and other fees. Any working capital reserves we
maintain may not be sufficient for investment purposes, and we may require debt
or equity financing to operate. Accordingly, in the event that we develop a need
for additional capital in the future for investments or for any other reason,
these sources of funding may not be available to us. Consequently, if we cannot
obtain debt or equity financing on acceptable terms, our ability to acquire
investments and to expand our operations will be adversely affected. As a
result, we would be less able to achieve portfolio diversification and our
investment objective, which may negatively impact our results of operations and
reduce our ability to make distributions to our stockholders.





We
will incur significant costs as a result of being a public company.





As a
public company, we will incur legal, accounting and other expenses, including
costs associated with the periodic reporting requirements applicable to a
company whose securities are registered under the Exchange Act, recently adopted
corporate governance requirements, including requirements under the
Sarbanes-Oxley Act, and other rules implemented by the SEC. We believe that
complying with these rules and regulations will make some activities
time-consuming and costly and may divert significant attention of our investment
adviser’s Senior Investment Professionals from implementing our investment
objective to these and related matters.




38


The
amount of any distributions we may make is uncertain. Our distribution proceeds
may exceed our earnings, particularly during the period before we have
substantially invested the net proceeds from our initial private placement.
Therefore, portions of the distributions that we make may represent a return of
capital to you which will lower your tax basis in your shares and reduce the
amount of funds we have for investment in targeted assets. We may not be able to
pay you distributions, and our distributions may not grow over
time.





We intend
to declare and pay distributions on a quarterly basis beginning no later than
the first calendar quarter after the month in which we have raised at least $10
million in capital from investors not affiliated with us or Keating Investments.
We will pay these distributions to our stockholders out of assets legally
available for distribution. We cannot assure you that we will achieve investment
results that will allow us to make a targeted level of cash distributions or
year-to-year increases in cash distributions. Our ability to pay distributions
might be adversely affected by, among other things, the impact of one or more of
the risk factors described in this annual report. In addition, the inability to
satisfy the asset coverage test applicable to us as a business development
company can limit our ability to pay distributions. All distributions will be
paid at the discretion of our Board of Directors and will depend on our
earnings, our financial condition, maintenance of our RIC status, compliance
with applicable business development company regulations and such other factors
as our Board of Directors may deem relevant from time to time. We cannot assure
you that we will pay distributions to our stockholders in the future. In the
event that we encounter delays in locating suitable investment opportunities, we
may pay all or a substantial portion of our distributions from the proceeds of
our initial private placement or from borrowings in anticipation of future cash
flow, which may constitute a return of your capital and will lower your tax
basis in your shares. Distributions from the proceeds of our initial private
placement or from borrowings also could reduce the amount of capital we
ultimately invest in interests of portfolio companies.





Risks
Related to Our Portfolio Company Investments





The
current economic recession will likely have a material adverse impact on the
micro-cap companies we intend to target, which will significantly reduce the
number of potential portfolio companies that fit our investment
criteria.




During the
last half of 2008, the state of the economy in the U.S. and abroad continued to
deteriorate to what we believe is a recession, which could be long-term. Banks
and others in the financial services industry have continued to report
significant write-downs in the fair value of their assets, which has led to the
failure of a number of banks and investment companies, a number of distressed
mergers and acquisitions, the government take-over of the nation’s two largest
government-sponsored mortgage companies, and the passage of the $700 billion
Emergency Economic
Stabilization of 2008in early October 2008. In addition, the stock
market has declined significantly, with both the S&P 500 and the Nasdaq
Composite, declining by over 38% during 2008. These events have significantly
constrained the availability of debt and equity capital for the market as a
whole. Further, these and other events have also led to rising unemployment,
deteriorating consumer confidence and a general reduction in spending by both
consumers and businesses.




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




We
are currently in a period of capital markets disruption and recession and we do
not expect these conditions to improve in the near future.




The U.S.
capital markets have been experiencing extreme volatility and disruption for
more than 12 months and we believe that the U.S. economy has entered into a
period of recession. Disruptions in the capital markets have increased the
spread between the yields realized on risk-free and higher risk securities,
resulting in illiquidity in parts of the capital markets. We believe these
conditions may continue for a prolonged period of time or worsen in the future.
A prolonged period of market illiquidity may have an adverse effect on our
business, financial condition and results of operations. Unfavorable economic
conditions could also increase our portfolio companies’ funding costs, limit
their access to the capital markets or result in a decision by lenders not to
extend credit to them. These events could limit our investment originations,
limit their ability to grow and negatively impact our operating
results.





Our
equity and debt investments in the companies that we are targeting may be
extremely risky and we could lose all or part of our investments.




The
convertible unsecured or subordinated debt that we will invest in as a part of
our initial investments will not be rated by any rating agency, but we believe
that if such investments were rated, they would be below investment grade (rated
lower than “Baa3” by Moody’s or lower than “BBB-” by Standard &
Poor’s), which investments are commonly referred to as “junk.” Indebtedness of
below investment grade quality is regarded as having predominantly speculative
characteristics with respect to the issuer’s capacity to pay interest and repay
principal and is, therefore, commonly subject to additional risks.




39


We expect
our follow-on investments to consist primarily of equity securities, including
preferred securities convertible into common stock.  We also expect to
receive warrants as part of our initial debt and follow on equity
investments.  These debt and equity investments will entail additional
risks that could adversely affect our investment returns.




In
addition, investment in the micro-cap companies that we are targeting involves a
number of significant risks, including:




•
            they
      may have limited financial resources and may be unable to meet their
      obligations, which may lead to bankruptcy or liquidation and the loss of
      our investment;




•
            they
      typically have limited operating histories, narrower, less established
      product lines or offerings and smaller market shares than larger
      businesses, which tend to render them more vulnerable to competitors’
      actions, market conditions, operational risks and consumer sentiment in
      respect of their products or services, as well as general economic
      downturns;




•
            at
      the time of our investment, since they are primarily privately owned,
      there is generally little publicly available information about these
      businesses; therefore, although Keating Investments’ investment
      professionals and agents will perform “due diligence” investigations on
      these portfolio companies, their operations and their prospects, we may
      not learn all of the material information we need to know regarding these
      businesses;




•
            they
      are more likely to depend on the management talents and efforts of a small
      group of persons; therefore, the death, disability, resignation or
      termination of one or more of these persons could have a material adverse
      impact on our portfolio company and, in turn, on us;
  and




•
            since
      part of our investment process requires that these companies become
      publicly traded companies, they will need resources, processes, procedures
      and systems to satisfy the additional regulatory burdens, they will incur
      legal, accounting and other expenses, including costs associated with the
      periodic reporting requirements applicable to a company whose securities
      are registered under the Exchange Act, recently adopted corporate
      governance requirements, including requirements under the Sarbanes-Oxley
      Act, and other rules implemented by the SEC, and they may not be able to
      attract retail and institutional investor interest in the secondary
      market, all of which may have a material adverse impact on our portfolio
      companies and, in turn, on us.




A
portfolio company’s failure to satisfy financial or operating covenants imposed
by us or other lenders could lead to defaults and, potentially, termination of
its loans and foreclosure on its assets, which could trigger cross-defaults
under other agreements and jeopardize the portfolio company’s ability to meet
its obligations under any debt securities that we hold and render our equity
investments in that portfolio company worthless. In addition, a substantial
portion of our investments will be in the form of equity, which will generally
rank below any debt issued by our portfolio companies.




Even if
our portfolio companies are successful in becoming publicly traded companies,
there is no assurance that they will be able to achieve their projected revenue
and earnings targets or effectively maintain their status as public reporting
companies.  In such case, there may be little or no demand for the
securities of our portfolio companies in the public markets, we may have
difficulty disposing of our investments, and the value of our investments may
decline substantially.




Our
incentive fee may induce Keating Investments, our investment adviser, to make
speculative investments.




The
incentive fee payable by us to Keating Investments may create an incentive for
Keating Investments to make investments on our behalf that are risky or more
speculative than would be the case in the absence of such compensation
arrangement. As our investment strategy is based primarily on equity investing
and as Keating Investments’ incentive fee is based upon the capital gains
realized on our investments, the investment adviser will invest more in
companies whose securities are likely to yield capital gains, as compared to
income producing securities. Such a practice could result in our investing in
more speculative securities than would otherwise be the case, which could result
in higher investment losses, particularly during cyclical economic
downturns.




Our
portfolio companies may incur debt or issue equity securities that rank equally
with, or senior to, our investments in such companies.




Our
portfolio companies may have, or may be permitted to incur, other debt, or issue
other equity securities, that rank equally with, or senior to, our investments.
By their terms, such instruments may provide that the holders are entitled to
receive payment of dividends, interest or principal on or before the dates on
which we are entitled to receive payments in respect of our investments. These
debt instruments will usually prohibit the portfolio companies from paying
interest or dividends on or repaying our investments in the event and during the
continuance of a default under such debt. Also, in the event of insolvency,
liquidation, dissolution, reorganization or bankruptcy of a portfolio company,
holders of securities ranking senior to our investment in that portfolio company
will typically be entitled to receive payment in full before we receive any
distribution in respect of our investment. After repaying such holders, the
portfolio company may not have any remaining assets to use for repaying its
obligation to us. In the case of securities ranking equally with our
investments, we would have to share on an equal basis any distributions with
other security holders in the event of an insolvency, liquidation, dissolution,
reorganization or bankruptcy of the relevant portfolio company.




40


We
may not realize any income or gains from our equity investments.




We intend
to invest a substantial portion of our portfolio in equity securities, including
convertible preferred securities and debt securities convertible into equity
securities, of our portfolio companies. We also expect to receive warrants as
part of our initial debt and follow-on investments. These equity interests we
acquire may not appreciate in value and, in fact, may decline in value if the
company fails to perform financially or achieve its growth
objectives.  We will generally have little, if any, control over the
timing of any gains we may realize from our equity investments since the
securities of our portfolio companies may have restrictions on their transfer or
may not have an active trading market.





Equity
investments also have experienced significantly more volatility in their returns
and may under perform relative to fixed-income securities during certain
periods. An adverse event, such as an unfavorable earnings report, may depress
the value. Also, prices of equity investments are sensitive to general movements
in the stock market and a drop in the stock market may depress the price of
common stock investments to which we have exposure. Equity prices fluctuate for
several reasons including changes in investors' perceptions of the financial
condition of an issuer or the general condition of the relevant stock market, or
when political or economic events affecting the issuers occur. In addition,
common stock prices may be particularly sensitive to rising interest rates, as
the cost of capital rises and borrowing costs increase.




Since we
intend to invest principally in equity securities, including convertible
preferred securities and debt securities convertible into equity securities, of
primarily micro-cap companies, our primary emphasis will be to generate capital
gains through our equity investments in portfolio
companies.  Accordingly, although we expect to receive current income
in the form of interest payments on our convertible debt investments and
dividend payments on our convertible preferred equity investments, a substantial
portion of the dividends we may pay to our stockholders will likely be from the
capital gains generated from the sale of our equity investments upon conversion
of our convertible securities, the timing of which we cannot
predict.  We do not expect to generate capital gains from the sale of
our portfolio investments on a level or uniform basis from quarter to
quarter.




While our
investments will typically be made in private companies, we expect that these
companies will become public reporting companies with their common stock being
typically initially quoted on the OTC Bulletin Board.  We do not
expect the preferred equity of our portfolio companies to be listed or quoted on
an exchange or quotation system. We also do not expect the common stock in our
publicly traded portfolio companies to initially have a large number of freely
tradable shares available for sale or an active secondary trading market and, as
such, the common stock will be illiquid until an active market develops. We
believe that typically this liquidity will develop in conjunction with a Nasdaq
Capital Market listing which may not occur until twelve to eighteen months after
our follow-on investment is made, if at all.  Our convertible
preferred stock instruments will generally provide for conversion upon the
portfolio companies’ achievement of certain milestone events, including a Nasdaq
Capital Market listing for their common stock.  However, there can be
no assurance that our portfolio companies will obtain either an OTC Bulletin
Board or Nasdaq Capital Market listing or, even if a listing is obtained, that
an active trading market will ever develop in the common stock of our publicly
traded portfolio companies.




Accordingly,
we may not be able to realize gains from our equity interests, and any gains
that we do realize on the disposition of any equity interests may not be
sufficient to offset any other losses we experience. Furthermore, due to the
expected growth of our portfolio companies, we do not generally expect to
receive dividend income from our common stock investments. In the case of
cumulative preferred stock, there is no assurance that any dividends will ever
be paid by a portfolio company.




Our
portfolio may be focused in a limited number of portfolio companies, which will
subject us to a risk of significant loss if the business or market position of
these companies deteriorates.




We are
classified as a non-diversified investment company within the meaning of the
1940 Act, which means that we are not limited by the 1940 Act with respect to
the proportion of our assets that we may invest in securities of a single
issuer. To the extent that we assume large positions in the securities of a
small number of issuers, our net asset value may fluctuate to a greater extent
than that of a diversified investment company as a result of changes in the
financial condition or the market’s assessment of the issuer. We may also be
more susceptible to any single economic or regulatory occurrence than a
diversified investment company. Beyond our income tax diversification
requirements, we do not have fixed guidelines for diversification, and our
investments could be focused in relatively few portfolio companies or market
segments. As a result, a market downturn affecting one of our portfolio
companies or one of these market segments could materially adversely affect
us.




41


We
expect to concentrate our investments in micro-cap companies, which are subject
to many risks, including periodic downturns.




We expect
to concentrate our investments in what we believe are “public ready” micro-cap
companies. Under negative economic conditions, this could cause our investment
performance to be worse than business development companies with no such
concentration. We may avoid purchasing certain securities in certain micro-cap
companies when it is otherwise advantageous to purchase those securities or may
sell certain securities of micro-cap companies when it is otherwise advantageous
to hold those securities. In general, our focus on micro-cap companies may
affect our exposure to certain market segments, which may affect our financial
performance — positively or negatively — depending on whether these
segments are in or out of favor.




The
revenues, income (or losses) and valuations of micro-cap companies, can and
often do fluctuate suddenly and dramatically. There is no assurance that
decreases in market capitalizations will not occur, or that any decreases in
valuations will be insubstantial or temporary in nature. Also, our portfolio
companies may face considerably more risk of loss and may not have the same
returns as companies in other industry sectors due to their growth
nature.




Even if
our portfolio companies are successful in becoming publicly-traded companies,
there is no assurance that they will be able to achieve their projected revenue
and earnings targets or effectively maintain their status as public reporting
companies.  In such case, there may be little or no demand for the
securities of our portfolio companies in the public markets, we may have
difficulty disposing of our investments, and the value of our investments may
decline substantially.




The
value of our portfolio securities may not have a readily available market price
and, in such case, we will value these securities at fair value as determined in
good faith by our Board of Directors, which valuation is inherently subjective
and may not reflect what we may actually realize for the sale of the
investment.




The value
of our portfolio securities may not have readily available market
prices.  In such cases, we will value these securities at fair value
as determined in good faith by our Board of Directors based upon the
recommendation of the Board’s Valuation Committee. In connection with that
determination, investment professionals from our investment adviser will prepare
portfolio company valuations using the most recent portfolio company financial
statements and forecasts. The Board of Directors will also utilize the services
of a third-party valuation firm, which will review valuations for each of our
portfolio investments for which no market quotations are readily available. The
participation of Keating Investments in our valuation process could result in a
conflict of interest as Keating Investments’ management fee is based, in part,
on our gross assets. However, the Board of Directors will retain ultimate
authority as to the appropriate valuation of each investment. Because such
valuations are inherently subjective and may be based on estimates, assumptions
and forecasts, our determinations of fair value may differ materially from the
values that would be determined if a readily available market price for these
securities existed.  In addition, the valuation of these types of
securities may result in substantial write-downs and excessive earnings
volatility.




Even
if the equity securities of our public portfolio companies may be sold in the
public markets, we expect these securities will initially be thinly traded and,
as a result, the lack of liquidity in our investments may adversely affect our
business, and will delay distributions of gains, if any.




While our
investments will typically be made in private companies, we expect that, as part
of our investment process, these companies will become public reporting
companies with their common stock typically being initially quoted on the OTC
Bulletin Board.  We do not expect the preferred equity of our
portfolio companies to be listed or quoted on an exchange or quotation system.
We do not expect the common stock in our public portfolio companies to initially
have an active secondary trading market and, as such, these securities will be
illiquid until an active market develops. We believe that typically this
liquidity will develop in conjunction with a Nasdaq Capital Market listing,
which we do not expect to occur until twelve to eighteen months after our
investment is made, if at all.  Our convertible preferred stock
instruments will generally provide for conversion upon the portfolio companies’
achievement of certain milestone events, including a Nasdaq Capital Market
listing for their common stock. However, there can be no assurance that our
portfolio companies will obtain either an OTC Bulletin Board or Nasdaq Capital
Market listing or, even if a listing is obtained, that an active trading market
will ever develop in the securities of our publicly traded portfolio
companies.





We expect
substantially all of the common stock we purchase in a portfolio company will be
“restricted securities” within the meaning of Rule 144 under the Securities Act
(“Rule 144”).  As restricted securities, these shares may be resold
only pursuant to an effective registration statement under the Securities Act or
pursuant to the requirements of Rule 144 or other applicable exemption from
registration under the Securities Act, and in accordance with any applicable
state securities laws.




42


Typically,
we will seek to obtain registration rights in connection with our purchase of
equity investments in a portfolio company.  As such, the portfolio
company will generally be required to file a resale registration statement under
the Securities Act to register for resale the shares of common stock we
acquire.  Notwithstanding such registration rights, we will be largely
unable to control the timing of completion of any such registration process
given external factors beyond our control. Even if a resale registration
statement is declared effective, there can be no assurances that the occurrence
of subsequent events may not preclude a portfolio company’s ability to maintain
the effectiveness of such registration statement. Any of the foregoing items
could have adverse effects on the liquidity of our shares of common
stock.




In
addition, the SEC has recently disclosed that it has developed internal
guidelines concerning the use of a resale registration statement to register the
securities issued to certain investors in PIPE transactions, where the issuer
has a market capitalization of less than $75 million and, in general, does not
qualify to file a registration statement on Form S-3 to register its securities.
The SEC has indicated its position that these smaller issuers may not be able to
rely on Rule 415 under the Securities Act (“Rule 415”), which generally permits
the offer and sale of securities by selling shareholders on a continued or
delayed basis over a period of time, but instead would require that the issuer
offer and sell such securities in a direct or "primary" public offering, at a
fixed price, if the facts and circumstances are such that the SEC believes the
investors seeking to have their shares registered are underwriters and/or
affiliates of the issuer. We believe that the SEC in most cases would permit a
registration for resale of up to one third of the total number of shares of
common stock then currently owned by persons who are not affiliates of such
issuer and, in some cases, a larger percentage depending on the facts and
circumstances.




SEC staff
members also have indicated that an issuer in most cases will have to wait until
the later of six months after effectiveness of the first registration or such
time as substantially all securities registered in the first registration are
sold before filing a subsequent registration on behalf of the same investors.
Since our portfolio companies will have little or no tradable shares of common
stock, it is unclear as to how many, if any, shares of common stock the SEC will
permit our portfolio companies to register for resale.  The SEC may
require as a condition to the declaration of effectiveness of a resale
registration statement that we reduce or “cut back” the number of shares of
common stock to be registered in such registration statement. The result of the
foregoing is that the liquidity in the common stock of our portfolio companies
may be adversely affected in the event the SEC requires a cut back of the
securities as a condition to allow our portfolio company to rely on Rule 415
with respect to a resale registration statement, or, if the SEC requires our
portfolio company to file a primary registration statement.




In the
event our portfolio companies are unable to register their common stock for
resale under the Securities Act, we may be able to resell our common stock
investments pursuant to an exemption from the registration requirements under
the Securities Act if we meet the conditions of Rule 144. Rule 144 currently
provides that a non-affiliated person (and who has not been an affiliate during
the prior three months) may sell all of his restricted securities in a reporting
company beginning six months after purchase, provided the issuer remains current
in its reporting obligations during the next six months.  However, an
affiliated person may sell his restricted securities beginning six months after
purchase, provided the following conditions are met: (i) the issuer is current
in its reporting obligations, (ii) all sales are in brokerage transactions,
(iii) a Form 144 is filed, and (iv) during every three months the number of
shares sold that does not exceed 1.0% of a company's outstanding common
stock.




In some
cases, we may be deemed an affiliate of our portfolio companies based on our
level of stock ownership or our ability to influence control over our portfolio
company.  As such, in the absence of an effective registration
statement for our shares, we may be limited in the number of shares we may be
able to sell in any three months period under Rule 144.  This
illiquidity may make it difficult for us to sell such investments if the need
arises. Also, if we are required to liquidate all or a portion of our portfolio
quickly, we may realize significantly less than the value at which we have
previously recorded our investments.





Compliance
with the criteria for securing exemptions under federal securities laws and the
securities laws of the various states is extremely complex, especially in
respect of those exemptions affording flexibility and the elimination of trading
restrictions in respect of securities received by us in exempt transactions and
subsequently disposed of without registration under the Securities Act or state
securities laws.




A sale
under Rule 144 or under any other exemption from the Securities Act, if
available, or pursuant to a registration statement, may have a depressive effect
upon the price of the common stock of our portfolio companies in any market that
may develop.





43


Our
failure to make additional investments in our portfolio companies could impair
the value of our portfolio.




Following
our initial and follow-on investments in a portfolio company, we may have
opportunities to make additional subsequent investments in that portfolio
company. We may elect not to make such additional subsequent investments or
otherwise lack sufficient funds to make those investments. We have the
discretion to make any additional subsequent investments, subject to the
availability of capital resources. The failure to make additional subsequent
investments may, in some circumstances, jeopardize the continued viability of a
portfolio company and our prior investments, or may result in a missed
opportunity for us to increase our participation in a successful operation. Even
if we have sufficient capital to make a desired additional subsequent
investment, we may elect not to make that investment because we may not want to
increase our concentration of risk, because we prefer other opportunities, or
because we are inhibited by compliance with business development company
requirements or the desire to obtain or maintain our RIC tax
status.  If our portfolio companies are not able to generate
sufficient cash flow from operations, they may lack sufficient capital to
continue to grow their businesses, or they may not be able to continue their
operations at all.  If our portfolio companies lack sufficient capital
before they are able to obtain a Nasdaq Capital Market listing, there may be
few, if any, options available to them to raise additional capital.




Because
we likely will not hold controlling equity interests in our portfolio companies,
we may not be in a position to exercise control over such portfolio companies or
to prevent decisions by management of such portfolio companies that could
decrease the value of our investments.




Our equity
investments will typically be non-controlling investments, meaning we will not
be in a position to control the management, operation and strategic
decision-making of the companies we invest in.  As a result, we will
be subject to the risk that a portfolio company we do not control, or in which
we do not have a majority ownership position, may make business decisions with
which we disagree, and the stockholders and management of such a portfolio
company may take risks or otherwise act in ways that are adverse to our
interests. Due to the lack of liquidity for the debt and equity investments that
we will typically hold in our portfolio companies, we may not be able to dispose
of our investments in the event that we disagree with the actions of a portfolio
company, and may therefore suffer a decrease in the value of our
investments.




We
may be subject to certain risks associated with foreign
investments.




In order
to seek to enhance our overall return, we may selectively invest in companies
that have operations or are domiciled outside the U.S., although we presently
expect such investments to constitute no more than 10% of our total investment
portfolio on a cost basis. Certain risks are inherent in foreign
operations, including:




•
                        difficulties
      in enforcing agreements and collecting receivables through certain foreign
      legal systems;•
                        foreign
      customers may have longer payment cycles than customers in the
    U.S.;•
                        tax
      rates in certain foreign countries may exceed those in the U.S. and
      foreign earnings may be subject to withholding requirements, exchange
      controls or other
restrictions;




•
            general
      economic and political conditions in countries where we operate may have
      an adverse effect on our
operations;




•
            exposure
      to risks associated with changes in foreign exchange
  rates;





•
            difficulties
      associated with managing a large organization spread throughout various
      countries;





•
            difficulties
      in enforcing intellectual property
  rights; and





•
            required
      compliance with a variety of foreign laws and
  regulations.





Investing
in foreign companies may expose us to additional risks not typically associated
with investing in U.S. companies. These risks include changes in foreign
exchange rates, exchange control regulations, political and social instability,
expropriation, imposition of foreign taxes, less liquid markets and less
available information than is generally the case in the United States, higher
transaction costs, less government supervision of exchanges, brokers and
issuers, less developed bankruptcy laws, difficulty in enforcing contractual
obligations, lack of uniform accounting and auditing standards and greater price
volatility.




The
success of our foreign investments will depend, in part, on our ability to
anticipate and effectively manage these and other risks. We cannot assure you
that these and other factors will not have a material adverse effect on our
operations or our business as a whole.




44


Investing
in primarily micro-cap companies may present certain challenges to us, including
the lack of available information about these companies.




In
accordance with our investment strategy, we intend to make investments in
primarily micro-cap private companies. Generally, very little public information
exists about these companies, and we are required to rely on the ability of the
senior investment professionals and our investment adviser to obtain adequate
information to evaluate the merits of investing in these companies. If we are
unable to uncover all material information about these companies, then we may
not make a fully informed investment decision, and we may lose money on our
investments.




Resources
could be expended in researching and negotiating investments that may never be
consummated, even if non-binding letters of intent or definitive agreements are
reached, which could materially adversely affect subsequent attempts to make
other investments.




It is
anticipated that the investigation of each specific target company and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial time and attention and
substantial costs for accountants, attorneys, and others. If a decision is made
not to complete a specific investment, the costs incurred up to that point for
the proposed portfolio investment likely would not be recoverable. Furthermore,
even if an agreement is reached relating to a specific portfolio investment, up
to and including the execution of a definitive agreement, we may fail to
consummate the portfolio investment for any number of reasons including those
beyond our control. Any such event will result in a loss to us of the related
costs incurred.




Risks
Related to An Investment in Our Common Stock




There
is currently no public market for shares of our common stock, and we may be
unable to obtain a listing of our shares on the Nasdaq Capital Market or the OTC
Bulletin Board within our proposed timeframe. As a result, it may be difficult
for you to sell your shares.





No public
market exists for our shares.  While we presently intend to seek the
listing of our shares of common stock on the Nasdaq Capital Market within the
next 18 to 24 months, we cannot provide you with any assurance that we will be
successful in obtaining a listing of our shares on the Nasdaq Capital Market in
the manner or within the timeframe we propose, if at
all.  Specifically, we may fail to meet the applicable standards for
listing on the Nasdaq Capital Market, as a result of insufficient assets,
revenue, net income or record holders, among other things.  In the
event we do not qualify for, or are unable to obtain, a listing on the Nasdaq
Capital Market within our proposed timeframe, we will instead seek to have our
shares quoted on the OTC Bulletin Board until such time as we are able to obtain
a Nasdaq Capital Market listing for our shares.  Although we
anticipate meeting the requirements to have our shares quoted on the OTC
Bulletin Board within the next 18 to 24 months, we cannot assure you that we
will be successful in obtaining such a listing within that timeframe, if at
all.  Securities traded on the OTC Bulletin Board also generally have
a less liquid market than those traded on the Nasdaq Capital Market or other
national securities exchanges.  In addition, our Board of Directors
retains the discretion to postpone a listing on either the Nasdaq Capital Market
or the OTC Bulletin Board if it determines such a listing is not in the best
interests of Keating Capital and our stockholders, though we would expect such a
postponement to occur only in the event of extraordinary market or economic
turmoil.  As a result, an investor in our shares may have limited
liquidity for a substantial period of time, and we cannot provide any assurance
regarding when or if our shares will be accepted for listing or quotation on the
Nasdaq Capital Market or the OTC Bulletin Board.  In addition, we can
provide no assurance that, even if our shares are listed on the Nasdaq Capital
Market or the OTC Bulletin Board, an active trading market for our shares will
develop.





Our
common stock price, if we become listed or quoted on a national securities
exchange, may be volatile and may decrease substantially.




We cannot
predict the prices at which our common stock will trade, if and when they become
listed on the Nasdaq Capital Market or the OTC Bulletin Board.  Shares
of closed-end management investment companies have in the past frequently traded
at discounts to their net asset values and our stock may also be discounted in
the market. This characteristic of closed-end management investment companies is
separate and distinct from the risk that our net asset value per share may
decline. We cannot predict whether shares of our common stock will trade above,
at or below our net asset value. In addition, if our common stock trades below
its net asset value, we will generally not be able to sell additional shares of
our common stock to the public at its market price without first obtaining the
approval of our stockholders (including our unaffiliated stockholders) and our
independent directors for such issuance.




The
trading price of our common stock, if we become listed on the Nasdaq Capital
Market or the OTC Bulletin Board, may fluctuate substantially. The price of our
common stock that will prevail in the market in the future will depend on many
factors, some of which are beyond our control and may not be directly related to
our operating performance. These factors include, but are not limited to, the
following:




45


•
            price
      and volume fluctuations in the overall stock market from time to
      time;




•
            investor
      demand for our shares;




•
            significant
      volatility in the market price and trading volume of securities of
      business development companies or other companies in our sector, which are
      not necessarily related to the operating performance of these
      companies;




•
            changes
      in regulatory policies or tax guidelines with respect to regulated
      investment companies or business development
  companies;




•
            failure
      to qualify as a RIC, or the loss of RIC
status;




•
            any
      shortfall in revenue or net income or any increase in losses from levels
      expected by investors or securities
analysts;




•
            increases
      or decreases, or expectations about increases or decreases, in our
      quarterly dividends;




•
            changes,
      or perceived changes, in the value of our portfolio
      investments;




•
            departures
      of Keating Investments’ key
personnel;




•
            operating
      performance of companies comparable to
  us; or




•
            general
      economic conditions and trends and other external
  factors.




In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been brought against
that company. Due to the potential volatility of our stock price once a market
for our stock is established, we may become the target of securities litigation
in the future. Securities litigation could result in substantial costs and
divert management’s attention and resources from our business.




Investor
confidence and the value of our shares may be adversely impacted if we or our
independent registered public accountants are unable to attest to the adequacy
of the internal controls over our financial reporting as of December 31, 2009,
as required by Section 404 of the Sarbanes-Oxley Act.




The SEC,
as directed by Section 404 of Sarbanes-Oxley Act, adopted rules requiring public
companies, including us following our becoming a reporting company, to include a
report of management of their internal control structure and procedures for
financial reporting in their annual reports on Form 10-K that contains an
assessment by management of the effectiveness of their internal controls over
financial reporting. In addition, independent registered public accountants of
these public companies must provide an attestation report on the effectiveness
of our internal controls over financial reporting. These requirements will first
apply to our annual report on Form 10-K for the fiscal year ending December 31,
2009. Our management may conclude that our internal controls over financial
reporting are not effective. Moreover, even if our management concludes
otherwise, if our independent registered public accountants are not satisfied
with our internal control structure and procedures, the level at which our
internal controls are documented, designed, operated or reviewed, or if the
independent registered public accountants interpret the requirements, rules or
regulations differently from us, they may decline to attest to our management’s
assessment or may issue a report that is qualified. Any of these possible
outcomes could result in an adverse reaction in the financial marketplace due to
a loss of investor confidence in the reliability of our financial statements,
which could negatively impact the value of our shares.




There
is a risk that our stockholders may not receive consistent distributions or that
our distributions may not grow over time.




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




46


Your
interest in us will be diluted if we issue additional shares, which could reduce
the overall value of your investment.





Our
charter authorizes us to issue 200,000,000 shares of common
stock. Pursuant to our charter, a majority of our entire Board of Directors
may amend our charter to increase the number of authorized shares of stock
without stockholder approval. Our board may elect to sell additional shares
in future public offerings or issue equity interests in private offerings.
To the extent we issue additional equity interests, your percentage ownership
interest in us will be diluted. In addition, depending upon the terms and
pricing of any additional offerings and the value of our investments, you may
also experience dilution in the book value and fair value of your
shares.




Item 1B.
            Unresolved Staff
Comments




Not
applicable.




Item 2.
            Properties




We do not
own any real estate or other physical properties materially important to our
operation. Our headquarters are located at 5251 DTC Parkway, Suite 1000,
Greenwood Village, Colorado, where we occupy our office space pursuant to our
Investment Advisory and Administration Agreement with Keating Investments. We
believe that our office facilities are suitable and adequate for our business as
it is presently conducted.




Item 3.
            Legal Proceedings




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




Item 4.
            Submission of Matters to a Vote of Security
      Holders




No matters
were submitted to a vote of security holders during the fourth quarter of the
fiscal year ended December 31, 2008.





47


PART II




Item 5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity
  Securities





Market
Information




There is
currently no public market for our common stock. Our common stock is not listed
on any securities exchange or inter-dealer quotation system at the present time.
We presently intend to seek a listing of our shares of common stock on the
Nasdaq Capital Market within the next 18 to 24 months.  If we are
unable to obtain such a listing on the Nasdaq Capital Market within our proposed
timeframe, we will instead seek to have our shares of common stock quoted on the
Over-the-Counter Bulletin Board, or “OTC Bulletin Board,” until such time as we
are able to obtain a Nasdaq Capital Market listing for our
shares.  However, we cannot provide you with any assurance that we
will be successful in obtaining a listing of our shares on the Nasdaq Capital
Market or the OTC Bulletin Board in the manner or within the timeframe we
propose, if at all.





Even if
our common stock is approved for listing on the Nasdaq Capital Market or the OTC
Bulletin Board, we are not certain that any trading market will develop or, if
it develops, whether such trading market will be
sustained.





Holders




As of
March 5, 2009, there were 37 stockholders of record of our common
stock.





Distributions





We have
not paid any dividends or distributions since our inception.  Our
Board of Directors will determine the payment of any distributions in the
future.  We intend to declare and pay distributions on a quarterly
basis beginning no later than the first calendar quarter after the month in
which we have raised at least $10,000,000 in capital from investors not
affiliated with us or Keating Investments.  We will pay these
distributions to our stockholders out of assets legally available for
distribution. We cannot assure you that we will achieve investment results that
will allow us to make a targeted level of cash distributions or year-to-year
increases in cash distributions.  Any dividends to our stockholders
will be declared out of assets legally available for distribution.




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




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




In
addition, although we currently intend to distribute realized net capital gains
(net long-term capital gains in excess of short-term capital losses), if any, at
least annually, we may in the future decide to retain such capital gains for
investment and elect to treat such gains as deemed distributions to you. If this
happens, you will be treated as if you had received an actual distribution of
the capital gains we retain and reinvested the net after-tax proceeds in us. In
this situation, you would be eligible to claim a tax credit (or, in certain
circumstances, a tax refund) equal to your allocable share of the tax we paid on
the capital gains deemed distributed to you. See “Material U.S. Federal Income
Tax Considerations.” We can offer no assurance that we will achieve results that
will permit the payment of any cash distributions and, to the extent that we
issue senior securities, we will be prohibited from making distributions if
doing so causes us to fail to maintain the asset coverage ratios stipulated by
the 1940 Act or if distributions are limited by the terms of any of our
borrowings.




48


Beginning
with our 2009 taxable year, we intend to elect to be treated, and intend to
qualify annually thereafter, as a RIC under Subchapter M of the Code. To obtain
and maintain RIC tax treatment, we must, among other things, distribute at least
90% of our ordinary income and realized net capital gains in excess of realized
net capital losses, if any. In order to avoid certain excise taxes imposed on
RICs, we currently intend to distribute during each calendar year an amount at
least equal to the sum of: (i) 98% of our ordinary income for the calendar
year, (ii) 98% of our capital gains in excess of capital losses for the
one-year period ending on October 31 of the calendar year, and
(iii) any ordinary income and net capital gains for preceding years that
were not distributed during such years.





Our
current intention is to make any distributions in the form of additional shares
of our common stock under a dividend reinvestment plan we expect to adopt,
unless you elect to receive your dividends and/or long-term capital gains
distributions in cash. See “Dividend Reinvestment Plan.” If you hold shares in
the name of a broker or financial intermediary, you should contact the broker or
financial intermediary regarding your election to receive distributions in cash
if we adopt a dividend reinvestment plan. We can offer no assurance that we will
achieve results that will permit the payment of any cash distributions and, if
we issue senior securities, we will be prohibited from making distributions if
doing so causes us to fail to maintain the asset coverage ratios stipulated by
the 1940 Act or if distributions are limited by the terms of any of our
borrowings.




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





Recent
Sales of Unregistered Securities





On May 14,
2008, our external investment adviser, Keating Investments purchased 100 shares
of our common stock at a price of $10.00 per share as our initial
capital.  The issuance of our common stock to Keating Investments was
made in reliance upon certain exemptions from the registration requirements of
the Securities Act including the exemptions under Section 4(2)
thereof.  In connection with our stock issuance to Keating
Investments, we did not pay any underwriting discounts or
commissions.





In
connection with our initial private placement which commenced June 16, 2008 and
was completed on November 12, 2008, we sold 569,800 shares of our common stock
at a price of $10.00 per share.  After the payment of commissions and
other offering costs of approximately $454,566, we received net proceeds of
approximately $5,243,434 in connection with our initial private
placement.  In connection with the initial private placement, we paid
Andrews Securities, LLC an aggregate of approximately $398,860 in commissions
and $15,632 in expense reimbursements for acting as our exclusive placement
agent under the initial private placement.





The
issuance of our common stock under the initial private placement was made in
reliance upon certain exemptions from the registration requirements of the
Securities Act including, without limitation, the exemptions under Section 4(2)
thereof, and Regulation D ("Regulation D") and Regulation S (“Regulation S”)
thereunder.  Our common stock was sold only to investors who were
“accredited investors,” as defined in Rule 501 promulgated under the Securities
Act, except that certain common stock was sold under Regulation S outside the
United States to certain non-U.S. persons who agreed to be subject to the same
restrictions on transfer that would be applicable to them were they sold common
stock pursuant to Regulation D. In addition, pursuant to the Advisers Act, the
common stock was only sold to investors that were “qualified clients,” as
defined in Rule 205-3(d) promulgated under the Advisers Act. Except as permitted
by Regulation S with respect to offers and sales to non-U.S. persons, no general
solicitation or advertising was used in connection with the sales of our common
stock in the initial private placement.





None of
the sales of securities described or referred to above was registered under the
Securities Act.  As a result, a restrictive legend was placed on the
stock certificates stating that the securities have not been registered under
the Securities Act and cannot be sold or otherwise transferred without an
effective registration or an exemption therefrom.





49


Item 6.
            Selected Financial
Data




The
following selected financial data for the period from May 9, 2008 (inception)
through December 31, 2008 is derived from our financial statements which
have been audited by Grant Thornton LLP, our independent registered public
accounting firm. The data should be read in conjunction with our financial
statements and related notes thereto and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this
report.





May
      9, 2008
                    though
                    December
      31, 2008Total
      investment
      income
                
                $
                14,005Total
      operating
      expenses
                
                $
                542,965Net
      investment
      loss
                
                $
                (528,960
                )Per
      Share Data:Net
      decrease in net assets resulting from net investment loss per share (basic
      and diluted)
                
                $
                (1.93
                )Net
      decrease in net assets resulting from operations (basic and
      diluted)
                
                $
                (1.93
                )Balance
      Sheet Data:Total
      assets
                
                $
                4,810,163Total
      net
      assets
                
                $
                4,715,474




Item 7.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations




Forward-Looking
Statements





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




•
            our
      future operating results;




•
            our
      business prospects and the prospects of our portfolio
      companies;




•
            the
      impact of the investments that we expect to
  make;




•
            the
      ability of our portfolio companies to achieve their
      objectives;




•
            our
      expected financings and
investments;




•
            the
      adequacy of our cash resources and working
    capital; and




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




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




·
            an
      economic downturn, such as the one we are currently experiencing, could
      likely impair 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;





·
            an
      economic downturn, such as the one we are currently experiencing, could
      disproportionately impact the public ready growth companies which we
      intend to target for investment, potentially causing us to suffer losses
      in our portfolio and experience diminished demand for capital from these
      companies;·
            an
      inability to access the equity markets could impair our investment
      activities.




We have
based the forward-looking statements included in this annual report on
information available to us at the time we filed this annual report with the
SEC, and we assume no obligation to update any such forward-looking statements.
Except as required by the federal securities laws, we undertake no obligation to
revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised to consult any
additional disclosures that we may make directly to you or through reports that
we in the future may file with the SEC, including annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K. The forward-looking statements and projections contained in this
annual report are excluded from the safe harbor protection provided by
Section 27A of the Securities Act of 1933.





50


Overview




We were
incorporated on May 9, 2008 under the laws of the State of
Maryland.  We have filed an election to be regulated as a business
development company under the 1940 Act.




We intend
to invest principally in equity securities, including convertible preferred
securities and other debt securities convertible into equity securities, of
primarily micro-cap companies. Our investment objective is to maximize total
return.  In accordance with our investment objective, we intend to
provide capital principally to U.S.-based private companies with an equity value
of less than $250 million, which we refer to as “micro-cap”
companies.  Our primary emphasis will be to generate capital gains
through our equity investments in private micro-cap companies which we expect to
become public reporting companies with their securities being initially quoted
on the OTC Bulletin Board.  However, we anticipate that a significant
portion of our investments at any given time will include a component of
interest or dividends, which we believe will provide us with current yield, in
addition to the potential for capital appreciation.  We do not expect
the securities in our publicly traded portfolio companies to initially have an
active secondary trading market and, as such, these securities will be illiquid
until an active trading market develops.




We intend
to utilize a three-step investment process focused on an initial investment,
consisting of convertible debt, going public preparation and a subsequent
follow-on investment, consisting of common or convertible preferred stock or
other equity, that will be contingent upon a portfolio company satisfying
pre-established milestones towards the filing of a registration under the
Securities Act or the Exchange Act.  Where appropriate, we may also
negotiate to receive warrants, either as part of our initial or follow-on
investments in our portfolio companies.




In
accordance with our three-step investment process, we expect our investments
will generally include common stock, convertible preferred stock and convertible
debt, as well as warrants issued to us in connection with our
investments.  Convertible debt instruments will likely be unsecured or
subordinated debt securities. Our equity investments will typically be
non-controlling investments, meaning we will not be in a position to control the
management, operation and strategic decision-making of the companies we invest
in.




We are
externally managed by Keating Investments, an investment adviser registered
under the Advisers Act.  As our investment adviser, Keating
Investments will be responsible for managing our day-to-day operations
including, without limitation, identifying, evaluating, negotiating, closing,
monitoring and servicing our investments.  Keating Investments will
also provide us with the administrative services necessary for us to
operate.




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




Operating
and Regulatory Structure




Our
investment activities are managed by Keating Investments.  Keating
Investments was founded in 1997 and is an investment adviser registered under
the Investment Advisers Act of 1940, as amended.  The managing member
and majority owner of Keating Investments is Timothy J. Keating.  Our
investment adviser’s senior investment professionals are Timothy J. Keating, our
President, Chief Executive Officer and Chairman of our Board of Directors,,
Ranjit P. Mankekar, our Chief Financial Officer, Treasurer and a member of our
Board of Directors, and Kyle L. Rogers, our Chief Operating Officer and
Secretary.  In addition, Keating Investments’ other investment
professionals consist of three portfolio company originators, one analyst and a
Chief Compliance Officer.  Under our Investment Advisory and
Administrative Services Agreement with Keating Investments, we have agreed to
pay Keating Investments, for its investment advisory services, an annual base
management fee based on our gross assets as well as an incentive fee based on
our performance. See “Business – Investment Advisory and Administrative Services
Agreement.”




51


Revenues




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




We
previously raised a total of $5,698,000 in gross proceeds in a private placement
that began on June 16 and ended on November 12, 2008.  Management of
Keating Investments contributed 16.7% of that total.  Net of
formation, private placement offering, legal and other operating expenses of
approximately $1,122,000, we have approximately $4.58 million of capital
currently available as of the date of this annual report.  We intend
to generate limited revenue from interest earned from the temporary investment
of the net proceeds from the private placement offering in U.S. government
securities and other high-quality debt investments that mature in one year or
less. For the period from May 9, 2008 (inception) through December 31, 2008, we
earned interest and dividend income from money market investments of
approximately $14,000.




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




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




Expenses




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





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




•
            costs
      of effecting sales and repurchases of shares of our common stock and other
      securities;





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





•
            costs
      related to organization and
offerings;





•
            transfer
      agent and custodial fees;





•
            fees
      and expenses associated with marketing
efforts;





•
            federal
      and state registration fees;





•
            any
      stock exchange listing fees;





•
            applicable
      federal, state and local taxes;




•
            independent
      directors’ fees and expenses;





•
            excess
      brokerage commissions;





•
            costs
      of proxy statements, stockholders’ reports and
  notices;





52


•
            fidelity
      bond, directors and officers/errors and omissions liability insurance and
      other insurance premiums;





•
            direct
      costs such as printing, mailing, long distance telephone, and
      staff;




•
            fees
      and expenses associated with independent audits and outside legal
      costs;





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




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




For the
period from May 9, 2008 (inception) through December 31, 2008, we had operating
expenses of $542,965, comprised of: (i) legal and other professional fees of
$360,420 incurred in connection with our organization and the registration of
our shares of common stock under the Exchange Act; (ii) directors’ fees of
$53,189, (iii) base management fees of $11,990, and (iv) other general and
administrative expenses of $117,366.




Financial
Condition, Liquidity and Capital Resources




We
generated cash of $5,243,434 from the net proceeds of the initial private
placement which was completed on November 12, 2008.  We plan to invest
the net proceeds of the initial private placement in portfolio companies in
accordance with our investment objective and strategies described in this annual
report. We anticipate that it will take us up to 12 to 24 months to invest
substantially all of the proceeds of our initial private placement in accordance
with our investment strategy, depending on the availability of appropriate
investment opportunities consistent with our investment objective and market
conditions. We cannot assure you we will achieve our targeted investment
pace.




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




We may
also fund a portion of our investments through borrowings from banks and the
issuance of senior securities, including before we have fully invested the
proceeds of our initial private placement.  In the event we incur
borrowings, we will incur interest costs.  However, we do not
presently intend to borrow monies to fund our investments.




Our
primary use of funds will be investments in portfolio companies, cash
distributions to holders of our common stock, and the payment of operating
expenses, including debt service if we borrow to fund our investments. As of the
date of this annual report, we have made no investments in portfolio
companies.




As of
December 31, 2008, we had cash resources of approximately $4.78 million and no
indebtedness other than accounts payable and accrued expenses incurred in the
ordinary course of business of approximately $83,000, and management fees
payable to Keating Investments of approximately $12,000.




As of
December 31, 2008, our cash resources included approximately $4.41 million
invested in a Goldman Sachs Financial Square Treasury Instruments Fund (“GS
Fund”), a money market mutual fund holding primarily short-term U.S. Treasury
securities, which have been valued by us at the GS Fund’s net asset value as of
December 31, 2008.  The remainder of our cash resources of
approximately $368,000 is held in depository accounts at Steele Street Bank
& Trust, which serves as our custodian.   We currently have
no investments in debt or equity securities of private or public
companies.




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




Distribution
Policy




We have
not paid any dividends or distributions since our inception.  Our
Board of Directors will determine the payment of any distributions in the
future.  We intend to declare and pay distributions on a quarterly
basis beginning no later than the first calendar quarter after the month in
which we have raised at least $10,000,000 in capital from investors not
affiliated with us or Keating Investments.  We will pay these
distributions to our stockholders out of assets legally available for
distribution. We cannot assure you that we will achieve investment results that
will allow us to make a targeted level of cash distributions or year-to-year
increases in cash distributions.  Any dividends to our stockholders
will be declared out of assets legally available for distribution.




53


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




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





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




Beginning
with our 2009 taxable year, we intend to elect to be treated, and intend to
qualify annually thereafter, as a RIC under Subchapter M of the Code. To obtain
and maintain RIC tax treatment, we must, among other things, distribute at least
90% of our ordinary income and realized net capital gains in excess of realized
net capital losses, if any. In order to avoid certain excise taxes imposed on
RICs, we currently intend to distribute during each calendar year an amount at
least equal to the sum of: (i) 98% of our ordinary income for the calendar
year, (ii) 98% of our capital gains in excess of capital losses for the
one-year period ending on October 31 of the calendar year, and
(iii) any ordinary income and net capital gains for preceding years that
were not distributed during such years.




If and to
the extent our shares become listed or quoted on an exchange, our current
intention is to make any distributions in the form of additional shares of our
common stock under a dividend reinvestment plan we expect to adopt at such time,
unless you elect to receive your dividends and/or long-term capital gains
distributions in cash. See “Dividend Reinvestment Plan.” If you hold shares in
the name of a broker or financial intermediary, you should contact the broker or
financial intermediary regarding your election to receive distributions in cash
if we adopt a dividend reinvestment plan. We can offer no assurance that we will
achieve results that will permit the payment of any cash distributions and, if
we issue senior securities, we will be prohibited from making distributions if
doing so causes us to fail to maintain the asset coverage ratios stipulated by
the 1940 Act or if distributions are limited by the terms of any of our
borrowings.




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




54


Contractual
Obligations




We have
entered into a contract under which we have material future commitments, the
Investment Advisory and Administrative Services Agreement, pursuant to which
Keating Investments agrees to serve as our investment adviser and to furnish us
with certain administrative services necessary to conduct our day-to-day
operations. This agreement is terminable by either party upon proper notice. We
will pay Keating Investments a fee for its investment advisory services under
the Investment Advisory and Administrative Services Agreement consisting of two
components - a base management fee and an incentive fee. We will also reimburse
Keating Investments for the allocable portion of overhead and other expenses
incurred by it in performing its administrative obligations under the Investment
Advisory and Administrative Services Agreement, including the compensation of
our Chief Financial Officer and Chief Compliance Officer, and their respective
staffs.  See “Investment Advisory and Administrative Services
Agreement.”





Our
current Investment Advisory and Administrative Services Agreement may be
terminated by either party without penalty upon not less than 60 days’
written notice to the other. If this agreement is terminated, our costs under a
new agreement that we may enter into may increase. In addition, we will likely
incur significant time and expense in locating alternative parties to provide
the services we expect to receive under the Investment Advisory and
Administrative Services Agreement. Any new Investment Advisory and
Administrative Services Agreement would also be subject to approval by our
stockholders.




Current
Economic Environment




During the
last half of 2008, the state of the economy in the U.S. and abroad continued to
deteriorate to what we believe is a recession, which could be long-term. The
generally deteriorating economic situation, together with the limited
availability of debt and equity capital, including through bank financing, will
likely have a disproportionate impact on the micro-cap companies we intend to
target for investment.  As a result, we may experience a reduction in
attractive investment opportunities in prospective portfolio companies that fit
our investment criteria.  In addition, micro-cap companies in which we
ultimately invest may be unable to pay us the interest or dividends on their
convertible securities or repay their debt obligations to us, and the common
stock which we may receive upon conversion of the convertible securities may
have little or no value, resulting in the loss of all or substantially all of
our investment in such micro-cap companies.




Off-Balance
Sheet Arrangements




As of
December 31, 2008, we have no off-balance sheet arrangements.




Related
Parties




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




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




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




55


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




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




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




Critical
Accounting Policies




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




Valuation of
Portfolio Investments.We will determine the
net asset value per share of our common stock quarterly. The net asset value per
share is equal to the value of our total assets minus liabilities and any
preferred stock outstanding divided by the total number of shares of common
stock outstanding. At present, we do not have any preferred stock
outstanding.




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




In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) 157, Fair Value Measurements,
which clarifies the definition of fair value and requires companies to expand
their disclosure about the use of fair value to measure assets and liabilities
in interim and annual periods subsequent to initial recognition. SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS 157 also establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These
tiers include: Level 1, defined as observable inputs such as quoted prices in
active markets; Level 2, which includes inputs such as quoted prices for similar
securities in active markets and quoted prices for identical securities where
there is little or no activity in the market; and Level 3, defined as
unobservable inputs for which little or no market data exists, therefore
requiring an entity to develop its own assumptions. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.





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




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




56


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




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




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




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




•
            preliminary
      valuation conclusions will then be documented and discussed with Keating
      Investments’ senior investment
professionals;




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





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




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




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




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




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




We may
enter into forward exchange contracts in order to economically hedge against
foreign currency risk. These contracts are marked-to-market by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized appreciation or depreciation. Realized gains or losses are recognized
when contracts are settled.




57


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





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




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




Federal Income
Taxes.Beginning with our 2009
taxable year, we intend to elect to be treated, and intend to qualify annually
thereafter, as a RIC under Subchapter M of the Code.  We intend to
operate so as to qualify to be taxed as a RIC under Subchapter M of the Code
and, as such, to not be subject to federal income tax on the portion of our
taxable income and gains distributed to stockholders. To qualify for RIC tax
treatment, we are required to distribute at least 90% of our investment company
taxable income, as defined by the Code.




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




Item 7A.                    Quantitative and Qualitative Disclosures About Market
Risk




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




As of
December 31, 2008, approximately $4.41 million was invested in the GS Fund,
a money market mutual fund holding primarily short-term U.S. Treasury
securities. As of December 31, 2008, the effective annualized interest rate
payable on our investment in the GS Fund was approximately 0.29%, net of fees
and other expenses. Assuming no other changes to our holdings as of
December 31, 2008, a 1% change in the underlying interest rate payable on
our GS Fund investment as of December 31, 2008 would not have a
material effect on the amount of interest income earned from our GS Fund
investment for the following 90-day period.




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




58


Item 8.                      Financial Statements and Supplementary Data





Keating
Capital, Inc.


Index
to Financial Statements





Page(s)


Financial
      StatementsReport
      of Independent Registered Public Accounting Firm
                  
                  
                  60Statement
      of Assets and Liabilities as of December 31, 2008
                  
                  
                  61Statement
      of Operations for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
                  
                  
                  62Statement
      of Changes in Net Assets for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
                  
                  
                  63Statement
      of Cash Flows for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
                  
                  
                  64Schedule
      of Investments as of December 31, 2008
                  
                  
                  65Financial
      Highlights for the Cumulative Period from May 9, 2008 (Inception) to
      December 31, 2008
                  
                  
                  66Notes
      to Financial Statements
                  
                  
                  67




59


Report of Independent
Registered Public Accounting Firm








To the
Shareholders and Board of Directors of


Keating
Capital, Inc.





We have
audited the accompanying statement of assets and liabilities of Keating Capital,
Inc. (the “Company”), including the schedule of investments, as of December 31,
2008, and the related statements of operations, cash flows, changes in net
assets, and financial highlights for the period from May 9, 2008 (inception)
through December 31, 2008. These financial statements and financial highlights
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2008, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Keating
Capital, Inc. as of December 31, 2008, and the results of its operations, its
cash flows, the changes in its net assets, and the financial highlights for the
period from May 9 (inception) to December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.




/s/ GRANT
THORNTON LLP




Denver,
Colorado


February
5, 2009




60


Keating
Capital, Inc.


Statement
of Assets and Liabilities







December
      31,2008AssetsInvestments
      in money market funds
                                
                                $
                                4,411,127Cash
      and cash equivalents
                                
                                
                                367,588Prepaid
      expenses and other assets
                                
                                
                                31,448Total
      Assets
                                
                                
                                4,810,163LiabilitiesBase
      management fees payable to Investment Adviser
                                
                                
                                11,990Administrative
      fees payable to Investment Adviser
                                
                                
                                28,041Reimbursable
      expenses payable to Investment Adviser
                                
                                
                                13,875Accounts
      payable
                                
                                
                                35,783Accrued
      expenses
                                
                                
                                5,000Total
      Liabilities
                                
                                
                                94,689Net
      Assets
                                
                                $
                                4,715,474Components
      of Net Assets:Common
      stock, $0.001 par value; 200,000,000 shares authorized;569,900
      shares issued and outstanding
                                
                                $
                                570Additional
      paid-in capital
                                
                                
                                5,243,864Accumulated
      net investment loss
                                
                                
                                (528,960
                                )Net
      Assets
                                
                                $
                                4,715,474Common
      Shares Outstanding
                                
                                
                                569,900Net
      Asset Value Per Outstanding Common Share
                                
                                $
                                8.27




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




61


Keating
Capital, Inc.


Statement
of Operations








Cumulative
      Periodfrom
      May 9, 2008(Inception)
      toDecember
      31, 2008Investment
      IncomeInterest
      and dividend income from money market investments
                                
                                $
                                14,005Total
      Investment Income
                                
                                
                                14,005Operating
      ExpensesBase
      management fees
                                
                                
                                11,990Administrative
      fees
                                
                                
                                28,041Legal
      and professional fees
                                
                                
                                360,420Directors'
      fees
                                
                                
                                53,189Other
      general and administrative expenses
                                
                                
                                89,325Total
      Operating Expenses
                                
                                
                                542,965Net
      Investment Loss
                                
                                
                                (528,960
                                )Net
      Decrease in Net Assets Resulting from Operations
                                
                                $
                                (528,960
                                )Net
      Decrease in Net Assets Resulting from OperationsPer
      Common Share
                                
                                $
                                (1.79
                                )Weighted
      Average Number of Common Shares Outstanding:Basic
      and Diluted
                                
                                
                                294,824




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




62


Keating
Capital, Inc.


Statement
of Changes in Net Assets







Cumulative
      Periodfrom
      May 9, 2008(Inception)
      toDecember
      31, 2008Net
      investment loss
                              
                              $
                              (528,960
                              )Net
      Decrease in Net Assets Resulting from Operations
                              
                              
                              (528,960
                              )Issuance
      of common stock in private offering (569,900 shares at $10 per
      share)
                              
                              
                              5,699,000Offering
      expenses associated with the issuance of common stock
                              
                              
                              (454,566
                              )Increase
      in Net Assets Resulting From Capital Stock Transactions
                              
                              
                              5,244,434Net
      Increase in Net Assets
                              
                              
                              4,715,474Net
      assets at beginning of period
                              
                              
                              -Net
      Assets at End of Period
                              
                              $
                              4,715,474




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




63


Keating
Capital, Inc.


Statement
of Cash Flows








Cumulative
      Periodfrom
      May 9, 2008(Inception)
      toDecember
      31, 2008Cash
      Flows From Operating ActivitiesNet
      decrease in net assets resulting from operations
                              
                              $
                              (528,960
                              )Changes
      in operating assets and liabilities:Increase
      in prepaid expenses and other assets
                              
                              
                              (31,448
                              )Increase
      in base management fees payable to Investment Adviser
                              
                              
                              11,990Increase
      in administrative fees payable to Investment Adviser
                              
                              
                              28,041Increase
      in reimbursable expenses payable to Investment Adviser
                              
                              
                              13,875Increase
      in accounts payable
                              
                              
                              35,783Increase
      in accrued expenses
                              
                              
                              5,000Net
      cash used in operating activities
                              
                              
                              (465,719
                              )Cash
      Flows From Investing ActivitiesPurchase
      of money market funds
                              
                              
                              (4,411,127
                              )Net
      cash used in investing activities
                              
                              
                              (4,411,127
                              )Cash
      Flows From Financing ActivitiesProceeds
      from issuance of common stock
                              
                              
                              5,699,000Offering
      expenses associated with the issuance of common stock
                              
                              
                              (454,566
                              )Net
      cash provided by financing activities
                              
                              
                              5,244,434Net
      increase in cash and cash equivalents
                              
                              
                              367,588Cash
      and cash equivalents, beginning of period
                              
                              
                              -Cash
      and cash equivalents, end of period
                              
                              $
                              367,588




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




64


Keating
Capital, Inc.


Schedule
of Investments


December
31, 2008








%
      ofShares
                          
                          
                          Cost
                          
                          
                          Fair
      Value
                          
                          
                          Net
      AssetsMoney
      Market FundsGoldman
      Sachs Financial SquareTreasury
      Instruments Fund (1)
                          
                          
                          4,411,127
                          
                          
                          $
                          4,411,127
                          
                          
                          $
                          4,411,127
                          
                          
                          
                          93.55
                          %Total
      Investments
                          
                          
                          
                          
                          
                          $
                          4,411,127
                          
                          
                          $
                          4,411,127
                          
                          
                          
                          93.55
                          %




(1)
                Fair
      value reflects redemption value as of December 31, 2008.




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




65


Keating
Capital, Inc.


Financial
Highlights








Cumulative
      Periodfrom
      May 9, 2008(Inception)
      toDecember
      31, 2008Per
      Common Share Data (1):Net
      asset value, beginning of period
                          
                          $
                          -Loss
      from investment operations:Net
      investment loss
                          
                          
                          (0.93
                          )Total
      decrease from investment operations
                          
                          
                          (0.93
                          )Capital
      stock transactions:Issuance
      of common stock in private offering
                          
                          
                          10.00Offering
      expenses associated with the issuance of common stock
                          
                          
                          (0.80
                          )Total
      increase from capital stock transactions
                          
                          
                          9.20Net
      asset value, end of period
                          
                          $
                          8.27Common
      shares outstanding, end of period
                          
                          
                          569,900Supplemental
      Data and Ratios:Net
      assets, end of period
                          
                          $
                          4,715,474Average
      net assets during period
                          
                          $
                          2,357,737Annualized
      ratio of operating expenses to average net assets
                          
                          
                          35.62
                          %Annualized
      ratio of net investment loss to average net assets
                          
                          
                          34.70
                          %




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




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




66


Keating
Capital, Inc.


Notes
to Financial Statements


December
31, 2008







1.
              Organization




References
herein to “we”, “us” or “our” refer to Keating Capital, Inc. unless the context
specifically requires otherwise.





Keating
Capital, Inc. (“Keating Capital” or the “Company”) was incorporated on May 9,
2008 under the laws of the State of Maryland and is recently organized,
externally managed, closed-end management investment company that has filed an
election to be regulated as a Business Development Company (“BDC”) under the
Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, we intend
to elect to be treated as a regulated investment company (“RIC”) under
Subchapter M of the Internal Revenue Code beginning with our 2009 taxable
year.  For our 2008 taxable year, we will be taxable as a regular
corporation under Subchapter C of the Internal Revenue Code.





Since we
only recently commenced operations, we have limited financial information and
the accompanying financial statements cover the period from inception (May 9,
2008) through December 31, 2008.





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





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





2.
              Significant
      Accounting Policies




Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reported period. Changes in the
economic environment, financial markets, creditworthiness of the portfolio
companies we choose to invest in and any other parameters used in determining
these estimates could cause actual results to differ.  We consider our
significant estimates to include the fair value of investments in money market
instruments.





Valuation
of Investments


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





In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements,” which
clarifies the definition of fair value and requires companies to expand their
disclosure about the use of fair value to measure assets and liabilities in
interim and annual periods subsequent to initial recognition. SFAS 157 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS 157 also establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value. These
tiers include: Level 1, defined as observable inputs such as quoted prices in
active markets; Level 2, which includes inputs such as quoted prices for similar
securities in active markets and quoted prices for identical securities where
there is little or no activity in the market; and Level 3, defined as
unobservable inputs for which little or no market data exists, therefore
requiring an entity to develop its own assumptions.





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





67


Short-Term
Investments


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





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





Debt
Investments


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





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





Equity
Investments


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





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





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




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





a)
              the
      quarterly valuation process begins with each portfolio company or
      investment being initially valued by Keating Investments’ senior
      investment professionals;





b)
              a
      third-party valuation firm engaged by our Board of Directors will review
      these preliminary valuations;




c)
              the
      Valuation Committee of the Board of Directors will review the preliminary
      valuations, and Keating Investments and the third-party valuation firm
      will respond and supplement the preliminary valuation to reflect any
      comments provided by the Valuation
  Committee; and





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





68


As we made
no debt or equity portfolio company investments during the period from May 9,
2008 (Inception) to December 31, 2008, the debt and equity investment valuation
policies summarized above will be applied prospectively.





Consolidation


Under the
1940 Act rules and the regulations pursuant to Article 6 of Regulation S-X, we
are precluded from consolidating any entity other than another investment
company or an operating company which provides substantially all of its services
and benefits to us. Our December 31, 2008 financial statements include only the
accounts of Keating Capital, Inc. as we currently have no
subsidiaries.





Cash
and Cash Equivalents


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





Concentration
of Credit Risk


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





Securities
Transactions


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





Interest,
Dividend and Other Income


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




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





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




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





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





As we have
made no debt or equity investment in any portfolio company since inception, no
interest, dividend or other income from portfolio company investments was
recorded during the period from May 9, 2008 (Inception) to December 31,
2008.





Federal
and State Income Taxes


As we are
taxable as a C corporation for our 2008 taxable year, we currently use the
liability method of accounting for income taxes. Deferred tax assets and
liabilities are recorded for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
using statutory tax rates in effect for the year in which the temporary
differences are expected to reverse. A valuation allowance is provided against
deferred tax assets when it is more likely than not that some portion or all of
the deferred tax assets will not be realized.





We have
adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48
(‘‘FIN 48’’), “Accounting for Uncertainty in Income Taxes.” FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented, and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
preparing our tax returns to determine whether the tax positions are
‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax
positions not deemed to meet the “more-likely-than-not” threshold are recorded
as an expense in the applicable year. As of December 31, 2008 and for the period
then ended, we did not have a liability for any unrecognized tax benefits.
Management’s determinations regarding FIN 48 may be subject to review and
adjustment at a later date based upon factors including, but not limited to, an
on-going analysis of tax laws, regulations and interpretations
thereof.





69


Dividends
and Distributions


Dividends
and distributions to common stockholders are recorded on the ex-dividend date.
Net realized capital gains, if any, are distributed at least
annually.  For the period from May 9, 2008 (Inception) to December 31,
2008, no dividends or distributions were declared or paid to common
stockholders.





Guarantees
and Indemnifications


We follow
FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN
45”). FIN 45 elaborates on the disclosure requirements of a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires a guarantor to recognize, at the
inception of a guarantee, for those guarantees that are covered by FIN 45, the
fair value of the obligation undertaken in issuing certain
guarantees.





Under our
organizational documents, our officers and directors are indemnified against
certain liabilities arising out of the performance of their duties to the
Company. In addition, in the normal course of business, we may enter into
contracts that provide general indemnification to other parties. Our maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Company that have not yet occurred, and may not
occur.  Since inception, we have not incurred claims or losses
pursuant to such indemnifications.





Per
Share Information


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





Recently
Issued Accounting Pronouncements


In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of FASB Statement No. 133”. SFAS 161 is
intended to improve financial reporting for derivative instruments by requiring
enhanced disclosure that enables investors to understand how and why the entity
uses derivatives, how derivatives are accounted for, and how derivatives affect
an entity’s results of operations, financial position, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15, 2008 and, therefore,
is applicable for our fiscal year beginning January 1, 2009. We do not believe
that the adoption of SFAS 161 will have a material impact on our financial
position, results of operations or cash flows because we currently hold no
derivative instruments.





In October
2008, the FASB issued Staff Position No. FAS157-3, “Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3
clarifies the application of FAS 157. FSP FAS 157-3 illustrates how
the fair value of a financial asset is determined when the market for that
financial asset is inactive. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements had not been issued. The
implementation of this standard did not have an impact on the Company’s
financial position, results of operations or cash flows.


3.
                Related
      Party Agreements and
Transactions


Investment
Advisory and Administrative Services Agreement


Subject to
the overall supervision of our Board of Directors, Keating Investments, our
third party Investment Adviser, will manage our day-to-day operations and
provide us with investment advisory services. Under the terms of the Investment
Advisory and Administrative Services Agreement, Keating Investments
will:





a)
              determine
      the composition of our investment portfolio, the nature and timing of the
      changes to the  investment portfolio and the manner of
      implementing such changes;





b)
              determine
      which securities we will purchase, retain or
  sell;





c)
              identify,
      evaluate and negotiate the structure of the investments we make, including
      performing due diligence on prospective portfolio
      companies; and




d)
              close,
      monitor and service the investments we
make.





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





70


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





Base
Management Fees


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





In
accordance with the Investment Advisory and Administrative Services Agreement,
Base Fees payable to Keating Investments began accruing on November 13,
2008.  During the period from November 13, 2008 to December 31, 2008,
Base Fees totaled $11,990.





Incentive
Fees


The
incentive fee will be determined and payable in arrears as of the end of each
calendar year (or upon termination of the Investment Advisory and Administrative
Services Agreement, as of the termination date), commencing on the calendar year
ended December 31, 2008, and will equal 20% of our realized capital gains,
if any, on a cumulative basis from inception through the end of each calendar
year, computed net of all realized capital losses and unrealized capital
depreciation on a cumulative basis, less the aggregate amount of any previously
paid incentive fees, with respect to each of the investments in our portfolio,
provided that, the incentive fee determined as of December 31, 2008 will be
calculated for a period of shorter than twelve calendar months to take into
account any realized capital gains computed net of all realized capital losses
and unrealized capital depreciation from inception.





No
incentive fees were earned by or paid to Keating Investments during the period
from May 9, 2008 (Inception) to December 31, 2008 as we generated no realized
capital gains during this period.





Administrative
Services


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




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





In
accordance with the Investment Advisory and Administrative Services Agreement,
the allocation of administrative expenses from Keating Investments commenced on
November 13, 2008.  During the period from November 13, 2008 to
December 31, 2008, allocated administrative expenses totaled
$28,041.





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





Duration
and Termination


The
Investment Advisory and Administrative Services Agreement was approved by our
Board of Directors on July 28, 2008.  Unless terminated early, the
Investment Advisory and Administrative Services Agreement will remain in effect
for a period of two years from the date it was approved by the Board of
Directors and will remain in effect from year to year thereafter if approved
annually by (i) the vote of the Company’s Board of Directors, or by the vote of
a majority of the Company’s outstanding voting securities, and (ii) the vote of
a majority of the Company’s directors who are not interested persons. The
Investment Advisory and Administrative Services Agreement may be terminated by
either party, without penalty, upon not less than 60 days’ written notice
to the other.





71


License
Agreement


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


4.
                Capital
      Stock


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





On May 14,
2008, we sold 100 shares of common stock to Keating Investments at $10.00 per
share, resulting in gross proceeds of $1,000.  The issuance of common
stock to Keating Investments was made in reliance upon certain exemptions from
the registration requirements of the Securities Act of 1933 and Regulation D
promulgated thereunder.  In connection with the issuance of common
stock to Keating Investments, we did not pay any underwriting discounts or
commissions.




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





The
issuance of our common stock under the Offering was made in reliance upon
certain exemptions from the registration requirements of the Securities Act of
1933 including, without limitation, the exemptions under Section 4(2) thereof,
and Regulation D and Regulation S thereunder.  Our common stock was
sold only to investors who were “accredited investors,” as defined in Rule 501
promulgated under the Securities Act, except that certain common stock was sold
under Regulation S outside the United States to certain non-U.S. persons who
agreed to be subject to the same restrictions on transfer that would be
applicable to them had they been sold common stock pursuant to Regulation
D.





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





Prior to
August 21, 2008, Andrews Securities was 100% owned by our investment adviser,
Keating Investments.  On August 21, 2008, a transaction was completed
whereby Keating Investments sold 80% of Andrews Securities to Jeff L. Andrews
and Michael J. Keating, the brother of Timothy J. Keating, our President and
Chief Executive Officer.  Following completion of this transaction,
Keating Investments continued to own 20% of Andrews Securities, but did not
actively participate in the operations or management of Andrews
Securities.  On January 31, 2009, Keating Investments sold its
remaining 20% interest in Andrews Securities to Jeff L. Andrews and upon
completion of the sale transaction, was terminated as a member of Andrews
Securities. As a result of Keating Investments’ previous ownership of Andrews
Securities, Andrews Securities may have previously been deemed an affiliate of
Keating Investments and, as a result of the Company’s relationship with Keating
Investments and Timothy J. Keating, previously an affiliate of the
Company’s.





5.
              Changes
      in Net Assets Per Share




The
following table sets forth the computation of the basic and diluted per share
net decrease in net assets resulting from operations for the period from May 9,
2008 (Inception) to December 31, 2008:




For
      the Period EndedDecember
      31, 2008Numerator
      for decrease in net assets per share
                              
                              $
                              (528,960
                              )Denominator
      for basic and diluted weighted average shares
                              
                              
                              294,824Basic
      and diluted net decrease in net assets per shareresulting
      from operations
                              
                              $
                              (1.79
                              )




72


6.
              Income
      Taxes




At
December 31, 2008, the Company had net operating loss carryforwards of
approximately $246,000 which may be used to offset future taxable income as long
as the Company remains a Corporation in future taxable years.  These
carryforwards expire beginning in 2028.





The tax
effects of temporary differences that give rise to significant portions of the
Company’s deferred tax assets at December 31, 2008 are as follows:




December
      31,2008Deferred
      tax assets:Net
      operating loss carryforwards
                        
                        $
                        86,899Capitalized
      start-up expenses
                        
                        
                        103,421Gross
      deferred tax assets
                        
                        
                        190,320Valuation
      allowance
                        
                        
                        (190,320
                        )Net
      deferred tax assets
                        
                        $
                        -





A full
valuation allowance has been recorded against the Company’s deferred tax assets
because, based on the weight of available evidence, it is more likely than not
that such benefits will not be realized.




The
benefit from income taxes differs from the amount computed by applying the U.S.
federal income tax rate of 34% to loss before income taxes for the cumulative
period from May 9, 2008 (Inception) to December 31, 2008 as
follows:




December
      31,2008U.S.
      federal income tax benefit at statutory rate
                      
                      $
                      (179,847
                      )State
      income tax benefit, net of federal benefit
                      
                      
                      (10,473
                      )Change
      in valuation allowance
                      
                      
                      190,320Benefit
      from income taxes
                      
                      $
                      -






7.
              Selected
      Quarterly Financial Data
(Unaudited)






Net
      DecreaseInvestment
                          
                          
                          Net
      Investment
                          
                          
                          in
      Net AssetsIncome
                          
                          
                          Loss
                          
                          
                          from
      OperationsPer
                          
                          
                          
                          
                          
                          Per
                          
                          
                          
                          
                          
                          PerQuarter
      Ended
                          
                          Total
                          
                          
                          Share
      (1)
                          
                          
                          Total
                          
                          
                          Share
      (1)
                          
                          
                          Total
                          
                          
                          Share
      (1)June
      30, 2008 (2)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (130,643
                          )
                          
                          
                          (1,435.64
                          )
                          
                          
                          (130,643
                          )
                          
                          
                          (1,435.64
                          )September
      30, 2008
                          
                          
                          6,011
                          
                          
                          
                          0.03
                          
                          
                          
                          (219,329
                          )
                          
                          
                          (1.13
                          )
                          
                          
                          (219,329
                          )
                          
                          
                          (1.13
                          )December
      31, 2008
                          
                          
                          7,994
                          
                          
                          
                          0.01
                          
                          
                          
                          (178,988
                          )
                          
                          
                          (0.32
                          )
                          
                          
                          (178,988
                          )
                          
                          
                          (0.32
                          )




(1)
                            Per  share
      amounts are caclulated using weighted average shares during
      period.(2)
                            Reflects
      the period from May 9, 2008 (Inception) to June 30,
  2008.




73


Item 9.
              Changes in and Disagreements with Independent Registered
      Public Accounting Firm on Accounting and Financial
      Disclosure


There were
no changes in or disagreements on accounting or financial disclosure with Grant
Thornton LLP, the Company’s independent registered public accounting firm,
during the fiscal year ended December 31, 2008.




Item 9A.
            Controls and
Procedures.




(a)
Evaluation of Disclosure Controls and Procedures




As of
December 31, 2008 (the end of the period covered by this report), we,
including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that
evaluation, our management, including our Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures were
effective and provided reasonable assurance that information required to be
disclosed in our periodic SEC filings is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
However, in evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.




(b)
Changes in Internal Control Over Financial Reporting




Management
has not identified any change in the Company’s internal control over financial
reporting that occurred during the fourth quarter of 2008 that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.




Item 9B.
            Other
Information.




Not
applicable.




PART III




Item 10.
            Directors, Executive Officers and Corporate
      Governance





Our Board
of Directors oversees our management. The Board of Directors currently consists
of five members, three of whom are not “interested persons” of Keating Capital
as defined in Section 2(a)(19) of the 1940 Act. We refer to these
individuals as our independent directors. Our Board of Directors elects our
officers, who will serve at the discretion of the Board of Directors. The
responsibilities of each director include, among other things, the oversight of
our investment activity, the quarterly valuation of our assets, and oversight of
our financing arrangements. The Board of Directors maintains an Audit Committee
and a Valuation Committee, and may establish additional committees in the
future. Unless approved by our Board of Directors, we will not permit our
executive officers or directors to serve as officers, directors or principals of
entities that operate in the same or related line of business as we do, other
than investment funds, if any,  managed by our investment adviser and
its affiliates.




Board
of Directors and Executive Officers




Under our
charter, our directors are divided into three classes. Each class of directors
holds office for a three-year term. However, the initial members of the three
classes have initial terms of one, two and three years, respectively. At each
annual meeting of our stockholders, the successors to the class of directors
whose terms expire at such meeting will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. Each director will hold office for the term to which
he is elected and until his successor is duly elected and
qualifies.




74


Directors




Information
regarding the Board of Directors is as follows:





Name
                    
                    Age
                    
                    Positions
      Held
                    Director
      Since
                    Expiration
      of TermIndependent
      Directors:J.
      Taylor Simonton (1)(2)
                    
                    
                    64
                    
                    Director
                    2008
                    2010Anthony
      K. McDonald (1)(2)
                    
                    
                    50
                    
                    Director
                    2008
                    2010Andrew
      S. Miller (1)
                    
                    
                    52
                    
                    Director
                    2008
                    2009Interested
      Directors:Timothy
      J. Keating
                    
                    
                    45
                    
                    President,
      Chief Executive Officer and Chairman of the Board
      of  Directors
                    2008
                    2011Ranjit
      P. Mankekar (2)
                    
                    
                    32
                    
                    Chief
      Financial Officer, Treasurer and Director
                    2008
                    2011





(1)        Member
of the Audit Committee





(2)        Member
of the Valuation Committee





The
address for each director is c/o Keating Capital, Inc., 5251 DTC Parkway, Suite
1000, Greenwood Village, Colorado 80111.





Biographical
Information




Independent
Directors




J. Taylor
Simonton.   Mr. Simonton spent 35 years at
PricewaterhouseCoopers LLP, including 23 years as an audit partner in the firm’s
Accounting and Business Advisory Services practice group, before retiring in
2001.  Mr. Simonton was a partner for seven years in
PricewaterhouseCoopers’ National Office Risk & Quality Group that handles
the firm’s auditing and accounting standards, SEC, corporate governance, risk
management and quality matters.   He has extensive experience in
business consulting, auditing services, initial public offerings and SEC
filings.  Mr. Simonton is currently a director and the chair of the Audit
Committee of Red Robin Gourmet Burgers, Inc., a Nasdaq Global Select market
company that operates a casual dining restaurant chain serving high quality
gourmet burgers, having been appointed to these positions in September 2005 and
October 2005, respectively.    In October 2008, he was elected an
independent director and chair of the Audit Committee of Zynex, Inc., an OTC
Bulletin Board traded company that engineers, manufactures, markets and sells
medical devices for the electrotherapy and stroke and spinal cord injury
rehabilitation markets.  From January 2003 to February 2007, he also
served as a director and the chair of the Audit Committee of Fischer Imaging
Corporation, a public company that designed, manufactured and marketed medical
imaging systems.  Mr. Simonton received a B.S. in Accounting from the
University of Tennessee, is a Certified Public Accountant and serves as the
President of the Colorado Chapter of the National Association of Corporate
Directors.




Anthony K. McDonald.  Mr. McDonald is
the President of Marz Capital Corporation, a specialty finance firm that invests
and advises in lower middle market corporate acquisitions.  Since September
2008, Mr. McDonald also has served as the Vice President of Sales for Coolerado
Corporation, a clean technology company that developed and produces an efficient
air conditioning system.  From 2002 to 2007 Mr. McDonald was
Vice-President of Corporate Acquisitions for Private Capital Resource Group,
Inc. and its predecessor firms, a private investment firm that acquired
corporations across the United States. From 1998 to 2001 he was Managing
Director at Republic Financial Corporation, a merchant banking and private
investment firm in Denver, Colorado, where he managed the firm’s one billion
dollar portfolio of operating businesses and assets in manufacturing, power
generation and distressed assets industries.  Mr. McDonald also was a
Senior Consultant with KPMG Consulting where he advised national and
international banks and financial services firms in KPMG’s Financial Services
Consulting Practice.  Mr. McDonald earned a B.S. degree in Engineering and
Economics from the U.S. Military Academy at West Point, New York (1982) and an
M.B.A. degree from the Harvard Business School (1989). His military service with
the U.S. Army includes serving as an analyst with Military Intelligence and as
an officer in the 10th U.S. Cavalry.




Andrew S.
Miller.  Mr. Miller is the founder and currently the Manager of
Rapid Funding, LLC, a commercial and residential hard money lender, which began
business in 1998.  Since its inception Rapid Funding has loaned to
projects including land developments for single family homes, shopping centers,
office buildings and construction loans on condominium buildings.  Mr.
Miller also is the co-founder and currently the Managing Member of Realty
Funding Group, a mortgage and finance company which has provided financing for
commercial real estate projects across the United States, which began business
in 1994.  Mr. Miller is co-founder and currently the President and
Chief Operating Officer of SevoMiller, Inc., a full service real estate company
specializing in purchasing and developing commercial real estate, which began
business in March 1990.  To date, SevoMiller, Inc. has purchased
apartment units, retail space and office projects across the United
States.  From 1980 to 1989, Mr. Miller co-founded and served as Vice
President of Loup-Miller Development Company, a real estate company which
designed and developed numerous shopping centers, apartment communities, office
buildings and warehouses.  Mr. Miller is a 1978 graduate of the
University of Denver with a B.S. in Accounting.




75


Interested
Directors




Timothy J.
Keating.  Mr. Keating is the founder, President, managing
member and majority owner of Keating Investments, LLC, an investment adviser
registered under the Advisers Act, since it was founded in 1997.  Mr.
Keating has also served as the President of Andrews Securities, LLC, formerly
known as Keating Securities, LLC, from August 1999 to August
2008.  Andrews Securities, LLC was formerly a wholly owned subsidiary
of Keating Investments and is a FINRA registered broker-dealer.  Prior
to founding Keating Investments, Mr. Keating was a proprietary arbitrage trader
and also head of the European Equity Trading Department at Bear Stearns
International Limited (London) from 1994 to 1997.  From 1990 to 1994, Mr.
Keating founded and ran the European Equity Derivative Products Department for
Nomura International PLC in London.  Mr. Keating began his career at
Kidder, Peabody & Co., Inc. where he was active in the Financial Futures
Department in both New York and London.  Mr. Keating is a 1985 cum laude graduate of Harvard
College with an A.B. in economics. Mr. Keating is a registered investment
adviser representative of Keating Investments.




Ranjit P.
Mankekar.  Mr. Mankekar has been the Chief Financial Officer of
Keating Investments, LLC since July 2006.  In January 2009, Mr.
Mankekar became a member of Keating Investments.  Mr. Mankekar has
also served as the Controller of Andrews Securities, LLC, formerly a wholly
owned subsidiary of Keating Investments and a FINRA registered broker-dealer,
from January 2007 to August 2008.  Prior to joining Keating
Investments, Mr. Mankekar worked with PricewaterhouseCoopers LLP from September
1999 to June 2006, where he had attained the position of audit and assurance
services manager.  Mr. Mankekar was a recipient of the Gold Medal for
earning the highest score in the State of Colorado on the May 1999 Certified
Public Accounting examination.  Mr. Mankekar is a 1999 summa cum laudegraduate of
the University of Colorado with an M.S. in Accounting and a B.S. in Business
Administration. Mr. Mankekar is a registered investment adviser representative
of Keating Investments.




Executive
Officers who are not Directors




Kyle L. Rogers.  Mr.
Rogers has been the Chief Operating Officer of Keating Investments, LLC since
October 2001. In January 2006, Mr. Rogers became a member of Keating
Investments.  Mr. Rogers also served as the Chief Compliance Officer
of Keating Investments and Andrews Securities, LLC, formerly a wholly owned
subsidiary of Keating Investments and a FINRA registered broker-dealer, from
January 2004 until January 2007.  Prior to joining Keating
Investments, Mr. Rogers was a financial analyst in the Private Wealth Management
and Fixed Income Currency & Commodities divisions at Goldman Sachs from July
1999 to September 2001.  Mr. Rogers is a CFA Charter holder.  Mr.
Rogers is a 1999 graduate of Dartmouth College with a B.A.
degree.  Mr. Rogers is currently a registered investment adviser
representative of Keating Investments.




Brett W. Green.  Mr.
Green has been the Chief Compliance Officer of Keating Investments, LLC since
November 2006.  Mr. Green also served as the Chief Compliance Officer
of Andrews Securities, LLC, formerly a wholly owned subsidiary of Keating
Investments and a FINRA registered broker-dealer, from March 2007 to October
2008.  Prior to joining Keating Investments, Mr. Green worked for
Janus Mutual Funds where he managed and trained registered representatives in
evaluating investors’ financial goals and trading their funds.  Mr.
Green is a 1998 graduate of Vanderbilt University with a B.A. degree and a 2006
graduate of the University of Denver Sturm College of Law.  He was
admitted to the Colorado State Bar in 2006.




Committees of the Board of
Directors




Our Board
of Directors currently has the following committees:




Audit
Committee




The Audit
Committee will operate pursuant to a charter approved by our Board of
Directors.  The charter sets forth the responsibilities of the Audit
Committee. The Audit Committee’s responsibilities will include selecting the
independent registered public accounting firm for Keating Capital, reviewing
with such independent registered public accounting firm the planning, scope and
results of their audit of Keating Capital’s financial statements, pre-approving
the fees for services performed, reviewing with the independent registered
public accounting firm the adequacy of internal control systems, and reviewing
Keating Capital’s annual and quarterly financial statements and periodic
filings. Mr. Simonton serves as Chairman of the Audit Committee. Our Board
of Directors has determined that Mr. Simonton is an “Audit Committee
financial expert” as that term is defined under Item 407 of
Regulation S-K, as promulgated under the Exchange
Act.  Mr. Simonton meets the current independence and experience
requirements of Rule 10A-3 of the Exchange Act and, in addition, is not an
“interested person” of Keating Capital as that term is defined in
Section 2(a)(19) of the 1940 Act.  The Audit Committee met two
times during the 2008 fiscal year.




76


Valuation
Committee




The
Valuation Committee will operate pursuant to a charter approved by our Board of
Directors. The Valuation Committee will establish guidelines and make
recommendations to our Board of Directors regarding the valuation of our
investments. The Valuation Committee will be responsible for aiding our Board of
Directors in determining the fair value of debt and equity securities that are
not publicly traded or for which current market quotations are not readily
available. The Board of Directors and Valuation Committee will utilize the
services of a third-party valuation firm to help determine the fair value of
these securities. Mr. Simonton serves as Chairman of the Valuation
Committee.  The Valuation Committee did not meet during the 2008
fiscal year.




Nominating
Committee




We do not
have a nominating committee. A majority of the independent directors of the
Board of Directors recommends candidates for election as directors. We do not
currently have a charter or written policy with regard to the nomination process
or stockholder recommendations. The absence of such a policy does not mean,
however, that a stockholder recommendation would not have been considered had
one been received.




Our
independent directors will consider qualified director nominees recommended by
stockholders when such recommendations are submitted in accordance with our
bylaws and any applicable law, rule or regulation regarding director
nominations. When submitting a nomination for consideration, a stockholder must
provide certain information that would be required under applicable SEC rules,
including the following minimum information for each director nominee: full
name, age and address; principal occupation during the past five years; current
directorships on publicly held companies and investment companies; number of
shares of Company common stock owned, if any; and, a written consent of the
individual to stand for election if nominated by the Board of Directors and to
serve if elected by the stockholders.





In
evaluating director nominees, the independent members of the Board of Directors
will generally consider the following factors:





•
            
            the
      appropriate size and composition of our Board of
  Directors;




•
            
            whether
      or not the person is an “interested person” of the Company as defined in
      Section 2(a)(19) of the 1940
Act;




•
            
            the
      needs of the Company with respect to the particular talents and experience
      of its directors;




•
            
            the
      knowledge, skills and experience of nominees in light of prevailing
      business conditions and the knowledge, skills and experience already
      possessed by other members of the Board of
  Directors;




•
            
            familiarity
      with national and international business
  matters;




•
            
            experience
      with accounting rules and
practices;




•
            
            appreciation
      of the relationship of our business to the changing needs of
      society;




•
            
            the
      desire to balance the considerable benefit of continuity with the periodic
      injection of the fresh perspective provided by new members;
      and




•
            
            all
      applicable laws, rules, regulations and listing standards, if
      applicable.




The Board
of Directors’ goal is to assemble a Board of Directors that brings to the
Company a variety of perspectives and skills derived from high quality business
and professional experience.




Other than
the foregoing there are no stated minimum criteria for director nominees,
although the independent members of the Board of Directors may also consider
such other factors as they may deem are in the best interests of the Company and
its stockholders. The Board of Directors also believes it appropriate for
certain key members of our management to participate as members of the Board of
Directors.




The
independent directors of the Board of Directors identify nominees by first
evaluating the current members of the Board of Directors willing to continue in
service. Current members of the Board of Directors with skills and experience
that are relevant to our business and who are willing to continue in service are
considered for re-nomination, balancing the value of continuity of service by
existing members of the Board of Directors with that of obtaining a new
perspective. If any member of the Board of Directors does not wish to continue
in service or if the Board of Directors decides not to re-nominate a member for
re-election, the independent members of the Board of Directors identify the
desired skills and experience of a new nominee in light of the criteria above.
The entire Board of Directors is polled for suggestions as to individuals
meeting the aforementioned criteria. Research may also be performed to identify
qualified individuals. To date, we have not engaged third parties to identify or
evaluate or assist in identifying potential nominees although we reserve the
right in the future to retain a third party search firm, if
necessary.





77


Compensation
Committee





We do not
have a compensation committee because our executive officers do not receive any
direct compensation from us.




Communication
with the Board of Directors




Stockholders
with questions about Keating Capital are encouraged to contact our Investor
Relations department. However, if stockholders believe that their questions have
not been addressed, they may communicate with the Company’s Board of Directors
by sending their communications to Keating Capital, Inc., c/o Kyle L. Rogers,
Corporate Secretary, 5251 DTC Parkway, Suite 1000, Greenwood Village, Colorado
80111. All stockholder communications received in this manner will be delivered
to one or more members of the Board of Directors.





Code
of Ethics




A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:




•
            honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;




•
            full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the SEC and in other
      public communications made by us;




•
            compliance
      with applicable governmental laws, rules and
  regulations;




•
            the
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code;
and




•
            accountability
      for adherence to the code.




Our Board
of Directors has adopted a corporate code of ethics that applies to our
executive officers, a copy of which is available on our website at www.keatingcapital.com.  We
intend to disclose amendments to or waivers from a required provision of the
code on Form 8-K.




Indemnification




Under the
Maryland General Corporation Law and pursuant to our certificate of
incorporation and bylaws, we may indemnify our officers and directors for
various expenses and damages resulting from their acting in these
capacities.  Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our officers and directors pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities
Act, and is therefore unenforceable.





We have
entered into indemnification agreements with our directors.  The
indemnification agreements are intended to provide our directors the maximum
indemnification permitted under the Maryland General Corporation Law and the
1940 Act. Each indemnification agreement is expected to provide that we
shall indemnify the director who is a party to the agreement (an “Indemnitee”),
including the advancement of legal expenses, if, by reason of his corporate
status, the Indemnitee is, or is threatened to be, made a party to or a witness
in any threatened, pending, or completed proceeding.  The
indemnification agreements also require us to procure liability insurance
coverage for our officers and directors.




78


Item 11.
            Executive
Compensation





Compensation
of Directors





The
following table sets forth compensation of the Company’s directors, for the year
ended December 31, 2008.




Name
                
                Fees Earned or
                  Paid in Cash(1)
                
                All
      Other
                  Compensation
                
                TotalInterested
      DirectorsTimothy
      J. Keating
                
                
                —
                
                —
                
                
                —Ranjit
      P. Mankekar
                
                
                —
                
                —
                
                
                —Independent
      DirectorsJ.
      Taylor Simonton
                
                $
                25,190
                
                —
                
                $
                25,190Anthony
      K. McDonald
                
                $
                16,869
                
                —
                
                $
                16,869Andrew
      S. Miller
                
                $
                11,130
                
                —
                
                $
                11,130





(1)
            For
      a discussion of the independent directors’ compensation, see
      below.


(2)
            We
      do not maintain a stock or option plan, non-equity incentive plan or
      pension plan for our directors.




We
currently pay our independent directors an annual fee of $18,000, payable
quarterly in advance. Our independent directors also receive a fee of $2,000 for
any regular or special meeting attended in person in excess of four meetings in
any year.  The meeting fees for the first four meetings of a year are
included within the annual retainer fee paid to the directors. Each independent
director also receives $500 for each telephonic meeting in which the director
participated.  We also pay our lead independent director, as
designated from time to time by our Board of Directors, an additional annual fee
of $5,000, payable quarterly in advance.  J. Taylor Simonton is
presently designated as our lead independent director.




Each
independent member of the Audit Committee (including the chair) receives an
annual committee fee of $8,000 for serving on the committee, payable quarterly
in advance.  Each independent director also receives a fee of $500 for
any regular or special meeting of the Audit Committee attended in person, for
any meeting in excess of four meetings in any year. The meeting fees for the
first four meetings of a year are included within the annual committee fee paid
to the directors. Each independent director also receives $250 for each
telephonic meeting of the Audit Committee in which the director
participated.  We pay our independent director who serves as the chair
of the Audit Committee an additional annual fee of $10,000, payable quarterly in
advance.  Mr. Simonton is presently designated as chair of our Audit
Committee.




Each
independent member of the Valuation Committee (including the chair) receives an
annual committee fee of $4,000 for serving on the committee, payable quarterly
in advance.  Each independent director also receives a fee of $1,000
for any regular or special meeting of the Valuation Committee attended in
person, for any meeting in excess of four meetings in any year. The meeting fees
for the first four meetings of a year are included within the annual committee
fee paid to the directors. Each independent director also receives $250 for each
telephonic meeting of the Valuation Committee in which the director
participated.




We
reimburse directors for out-of-pocket expenses incurred in attending Board and
committee meetings and undertaking certain matters on our behalf.




Interested
directors do not receive separate fees for their services as
directors.




We may
secure insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Company or is or was serving at our request as a
director or officer of another enterprise for any liability arising out of his
actions, regardless of whether the Maryland General Corporation Law would permit
indemnification. We have obtained liability insurance for our officers and
directors.





Compensation
of Chief Executive Officer and Other Executive Officers





None of
our executive officers receive direct compensation from
us.  Messrs. Keating, Mankekar and Rogers, through their
ownership interest in, or management positions with, Keating Investments, are
entitled to a portion of any profits earned by Keating Investments, which
includes any fees payable to Keating Investments under the terms of our
Investment Advisory and Administrative Services Agreement, less expenses
incurred by Keating Investments in performing its services under our Investment
Advisory and Administrative Services Agreement. Keating Investments may pay
additional salaries, bonuses, and individual performance awards and/or
individual performance bonuses to Messrs. Keating, Mankekar and Rogers in
addition to their ownership interest, which may be reduced proportionately to
reflect such payments.




79


Mr. Mankekar serves as our Chief
Financial Officer and Mr. Green serves as our Chief Compliance
Officer.  The compensation of our Chief Financial Officer and our
Chief Compliance Officer will be paid by Keating Investments, subject to
reimbursement by us of an allocable portion of such compensation for services
rendered by such persons to us.




Item 12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder
Matters





As of
March 5, 2009, no person is deemed to “control” us, as such term is defined in
the 1940 Act.  The following table provides information regarding the
beneficial ownership of our common stock as of March 5, 2009 for (i) each
shareholder whom we know to be the beneficial owner of 5% or more of our
outstanding common stock, (ii) each of our executive officers and directors, and
(iii) all executive officers and directors as a group. To the best of the
Company’s knowledge, all persons named have sole voting and investment power
with respect to such shares, except as otherwise noted. The inclusion of shares
listed as beneficially owned does not constitute an admission of beneficial
ownership.  As of March 5, 2009, there were issued and outstanding
569,900 shares of our common stock, which includes the shares of common stock
which we issued in connection with our initial private placement.





As of
March 5, 2009, we did not have any outstanding shares of preferred stock, any
outstanding securities which are convertible into our common stock or any
outstanding options or warrants to acquire our common stock.




Name and
      Address
                
                Shares
      Beneficially Owned
                
                Percent
      of  SharesExecutive
      Officers and Directors:Timothy
      J. Keating/Keating Investments, LLC (1)
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                90,100
                
                15.8%Ranjit
      P. Mankekar
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                0
                
                0.0%Kyle
      L. Rogers
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                5,000
                
                0.9%Brett
      W. Green
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                0
                
                0.0%J.
      Taylor Simonton
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                0
                
                0.0%Anthony
      K. McDonald
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                0
                
                0.0%Andrew
      S. Miller
                  c/o
      Keating Capital, Inc.
                  5251
      DTC Parkway, Suite 1000
                  Greenwood
      Village, Colorado 80111
                
                25,000
                
                4.4
      %All
      Executive Officers and Directors as a group
                
                120,100
                
                21.1%5%
      or More Stockholders:Jonathan
      D. Ungar
                  7
      Dunham Road
                  Scarsdale,
      New York 10583
                
                100,000
                
                17.6%Stanley
      F. and Kathleen A. McGinnis (2)
                  c/o
      McGinnis Group International Defined Benefit Plan
                  2320
      Elm Street
                  Denver,
      Colorado 80207
                
                50,000
                
                8.8%Michael
      Katz
                  28
      Old Brompton Road, #909
                  London,
      United Kingdom SW3 1LD
                
                40,000
                
                7.0%





80


(1)
            Timothy
      J. Keating is the managing member and majority owner of Keating
      Investments, our investment adviser, and has voting and investment control
      over the securities owned by Keating Investments.  As such,
      Timothy J. Keating may be deemed a beneficial owner of the 100 shares of
      our common stock owned by Keating Investments.  The shares shown
      as owned by Timothy J. Keating in the above list include the 100 shares of
      common stock he may be deemed to beneficially own through his voting and
      investment control over the securities owned by Keating
      Investments.  The shares of our common stock which are
      beneficially owned by Timothy J. Keating include 10,000 shares owned
      directly by Timothy J. Keating and 80,000 shares owned indirectly in an
      individual retirement account for the benefit of Timothy J.
      Keating.





(2)
            The
      shares of our common stock which are beneficially owned by Stanley F. and
      Kathleen A. McGinnis are held in the McGinnis Group International Defined
      Benefit Plan, a self-directed employee benefit plan.  Mr. and
      Mrs. McGinnis are the trustees under the plan and are the only
      participants in the plan.  As trustees under the plan, Mr. and
      Mrs. McGinnis have voting and investment control over the securities held
      in the plan.  As such, Mr. and Mrs. McGinnis may be deemed
      beneficial owners of the 50,000 shares of our common stock held by the
      plan.




The
following table sets forth, as of March 5, 2009, the dollar range of our equity
securities that is beneficially owned by each of our directors.




Name
      of Director
              
              Dollar Range of
                Equity Securities
                Beneficially
                Owned(1)(2)(3)Interested
      Directors:Timothy
      J. Keating
              
              Over $100,000Ranjit
      P. Mankekar
              
              NoneIndependent
      Directors:J.
      Taylor Simonton
              
              NoneAnthony
      K. McDonald
              
              NoneAndrew
      S. Miller
              
              Over
      $100,000




___________________


(1)
            Beneficial
      ownership has been determined in accordance with Rule 16a-1(a)(2) of
      the Exchange Act.




(2)
            The
      dollar range of equity securities beneficially owned by our directors is
      based on an assumed initial public offering price of $10.00 per
      share.




(3)
            The
      dollar range of equity securities beneficially owned are: none,
      $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over
      $100,000.




Item 13.
            Certain Relationships and Related Transactions, and Director
      Independence





Certain
Relationships and Related Transactions





Transactions
with Management and Others




Our Board
of Directors oversees our management. The Board of Directors currently consists
of five members, three of whom are not “interested persons” of Keating Capital
as defined in Section 2(a)(19) of the 1940 Act. We refer to these
individuals as our independent directors. Our Board of Directors elects our
officers, who serve at the discretion of the Board of Directors. The
responsibilities of each director include, among other things, the oversight of
our investment activity, the quarterly valuation of our assets, and oversight of
our financing arrangements. The Board of Directors maintains an Audit Committee
and a Valuation Committee, and may establish additional committees in the
future.




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




81


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





Andrews
Securities




Prior to
August 21, 2008, Andrews Securities, formerly known as Keating Securities, LLC,
was 100% owned by our investment adviser, Keating Investments.  On
August 21, 2008, a transaction was completed whereby Keating Investments sold
80% of Andrews Securities to Jeff L. Andrews and Michael J. Keating, the brother
of Timothy J. Keating, our President and Chief Executive
Officer.  Following completion of this transaction, Keating
Investments continued to own 20% of Andrews Securities, but did not actively
participate in the operations or management of Andrews Securities.  In
connection with the transactions by which Keating Investments sold its 80%
interest in Andrews Securities, a continuing membership application (“CMA”) was
filed with FINRA on June 3, 2008.  The CMA was approved by FINRA in
December of 2008.  Additionally, effective November 4, 2008, Timothy
J. Keating, Kyle L. Rogers and Brett W. Green no longer provided regulatory
supervision over, and ceased being registered representatives of, Andrews
Securities.




On January
31, 2009, Keating Investments sold its remaining 20% interest in Andrews
Securities to Jeff L. Andrews and upon completion of the sale transaction, was
terminated as a member of Andrews Securities. As a result of Keating
Investments’ previous ownership of Andrews Securities, Andrews Securities may
have previously been deemed an affiliate of Keating Investments and, as a result
of our relationship with Keating Investments and Timothy J. Keating, previously
an affiliate of ours.





On
November 12, 2008, we completed the final closing of our initial private
placement where we sold a total of 569,800 shares of our common at a price of
$10.00 per share raising aggregate gross proceeds of $5,698,000.  In
connection with our initial private placement, we paid Andrews Securities an
aggregate of $398,860 in commissions (7% of the gross proceeds received) and
$15,632 in pre-approved expense reimbursements for acting as our exclusive
placement agent.





We may
decide to engage Andrews Securities as a placement agent and/or managing
underwriter for our future securities offerings.  It is also possible
that Andrews Securities will assist our portfolio companies in identifying
co-investors for their offerings for which it will receive a commission, expense
reimbursement and warrants in our portfolio companies.




Allocation
of Time




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




Investments




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




82


Appraisal
and Compensation




Our
management has proposed an amendment to our charter that provides, in pertinent
part, that, in connection with any transaction involving a merger, conversion or
consolidation, either directly or indirectly, involving us and the issuance of
securities of a surviving entity after the successful completion of such
transaction, or “roll-up,” an appraisal of all our assets will be obtained from
a competent independent appraiser which will be filed as an exhibit to the
registration statement registering the roll-up transaction. Such appraisal will
be based on all relevant information and shall indicate the value of our assets
as of a date immediately prior to the announcement of the proposed roll-up. The
engagement of such independent appraiser shall be for the exclusive benefit of
our stockholders. A summary of such appraisal shall be included in a report to
our stockholders in connection with a proposed roll-up. All stockholders will be
afforded the opportunity to vote to approve such proposed roll-up, and shall be
permitted to receive cash in an amount of such stockholder’s pro rata share of
the appraised value of our net assets.  We anticipate submitting the
proposed amendment to our charter for approval of our stockholders during
2009.  We cannot assure when, or if, the proposed amendment will be
approved by our stockholders.




Director
Independence




Our Board
of Directors has determined that Messrs. Simonton, McDonald and Miller are
“independent directors” as such term is defined in Rule 10A-3 of the Exchange
Act and the rules of the Nasdaq Stock Market.




83


Item 14.
            Principal Accountant Fees and
  Services




Grant
Thornton LLP is exclusively responsible for the opinion rendered in connection
with its examination.




Fiscal Year Ended
                        December 31, 2008Audit
      Fees
                      
                      $
                      53,000Audit-Related
      Fees
                      
                      
                      —Tax
      Fees
                      
                      
                      5,250All
      Other Fees
                      
                      
                      —Total
      fees
                      
                      $
                      58,250




Audit Fees. Audit fees
consist of fees billed for professional services rendered for the audit of our
year-end financial statements and services that are normally provided by Grant
Thornton LLP in connection with statutory and regulatory filings.




Audit-Related
Fees. Audit-related services consist of fees billed for assurance
and related services that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under “Audit Fees.”
These services include attest services that are not required by statute or
regulation and consultations concerning financial accounting and reporting
standards.




Tax Fees. Tax fees
consist of fees billed for professional services for tax compliance. These
services include assistance regarding federal, state, and local tax
compliance.




All Other Fees. All
other fees would include fees for products and services other than the services
reported above.




Policy
on Board Pre-Approval of Audit and Permissible Non-audit Services of Independent
Auditors




The Audit
Committee is responsible for appointing, setting compensation, and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor.




In
addition to retaining Grant Thornton LLP to audit our financial statements for
the year ended December 31, 2008, we retained Grant Thornton LLP to provide
tax preparation work, and assistance regarding federal, state, and local tax
compliance, to us for our 2008 fiscal year. We understand the need for Grant
Thornton LLP to maintain objectivity and independence in its audit of our
financial statements.




84


PART IV




Item 15.
            Exhibits, Financial Statement
  Schedules




a.
Documents Filed as Part of this Report




The
following financial statements are set forth in Item 8:




Page(s)


Financial
      StatementsReport
      of Independent Registered Public Accounting Firm
              60Statement
      of Assets and Liabilities as of December 31, 2008
              61Statement
      of Operations for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
              62Statement
      of Changes in Net Assets for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
              63Statement
      of Cash Flows for the Cumulative Period from May 9, 2008
      (Inception) to December 31, 2008
              64Schedule
      of Investments as of December 31, 2008
              65Financial
      Highlights for the Cumulative Period from May 9, 2008 (Inception) to
      December 31, 2008
              66Notes
      to Financial Statements
              67




b. Exhibits




The
following exhibits are filed as part of this report or hereby incorporated by
reference to exhibits previously filed with the SEC:




3.1
                  Articles
      of Incorporation (Incorporated by reference to the Registrant’s
      Registration Statement on Form 10 (File No. 0-53504), filed on November
      20, 2008)3.2
                  Bylaws
      (Incorporated by reference to the Registrant’s Registration Statement on
      Form 10 (File No. 0-53504), filed on November 20, 2008)3.3
                  Form
      of Dividend Reinvestment Plan (Incorporated by reference to the
      Registrant’s Registration Statement on Form 10 (File No. 0-53504), filed
      on November 20, 2008)4.1*
                  Form
      of Share Certificate10.1
                  Common
      Stock Agreement between the Company and Keating Investments, LLC
      (Incorporated by reference to the Registrant’s Registration Statement on
      Form 10 (File No. 0-53504), filed on November 20, 2008)10.2
                  Form
      of Securities Purchase Agreement for Investors in the Company’s Initial
      Private Placement (Incorporated by reference to the Registrant’s
      Registration Statement on Form 10 (File No. 0-53504), filed on November
      20, 2008)10.3
                  Investment
      Advisory and Administrative Services Agreement (Incorporated by reference
      to the Registrant’s Registration Statement on Form 10 (File No. 0-53504),
      filed on November 20, 2008)10.4
                  License
      Agreement between the Company and Keating Investments, LLC (Incorporated
      by reference to the Registrant’s Registration Statement on Form 10 (File
      No. 0-53504), filed on November 20, 2008)10.5
                  Form
      of Indemnification Agreement for Directors (Incorporated by reference to
      the Registrant’s Registration Statement on Form 10 (File No. 0-53504),
      filed on November 20, 2008)10.6
                  Custody
      Agreement between the Company and Steele Street Bank & Trust
      (Incorporated by reference to the Registrant’s Registration Statement on
      Form 10 (File No. 0-53504), filed on November 20, 2008)11
                  Computation
      of Per Share Earnings (included in the notes to the audited financial
      statements contained in this report).31.1*
                  Certification
      of Chief Executive Officer pursuant to Rule 13a-14 of the Securities
      Exchange Act of 1934, as amended.31.2*
                  Certification
      of Chief Financial Officer pursuant to Rule 13a-14 of the Securities
      Exchange Act of 1934, as amended.32.1*
                  Certification
      of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley
      Act of 2002.32.2*
                  Certification
      of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley
      Act of 2002.





*
            Filed
      herewith.




85


c. Financial
statement schedules




No
financial statement schedules are filed herewith because (1) such schedules
are not required or (2) the information has been presented in the
aforementioned financial statements.




86


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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.





KEATING
      CAPITAL, INC.Date:
       March 9, 2009
            /s/    Timothy
      J. KeatingTimothy
      J. Keating
              President
      and Chief Executive Officer











Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacity and on the dates indicated.







/s/    Timothy
      J. KeatingDate:  March
      9, 2009
              Timothy
      J. Keating
                President,
      Chief Executive Officer and
                Chairman
      of the Board of Directors
                (Principal
      Executive Officer)/s/   Ranjit
      P. MankekarDate:  March
      9, 2009
              Ranjit
      P. Mankekar
                Chief
      Financial Officer, Treasurer and Director
                (Principal
      Accounting and Financial Officer)/s/    J.
      Taylor SimontonDate:  March
      9, 2009
              J.
      Taylor Simonton
                Director/s/    Anthony
      K. McDonaldDate:  March
      9, 2009
              Anthony
      K. McDonald
                Director/s/    Andrew
      S. MillerDate:  March
      9, 2009
              Andrew
      S. Miller
                Director







87