| 1. | Organization and Significant Accounting Policies |
The Roumell Opportunistic Value Fund (“Fund”) is a series of the Starboard Investment Trust (“Trust”). The Trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund is a separate non-diversified series of the Trust.
The investment objective of the Fund is to seek capital appreciation and income. Roumell Asset Management, LLC (“Roumell Asset Management” or the “Advisor”) seeks to achieve the Fund’s investment objective through opportunistic value investing. The Fund's portfolio will primarily consist of (i) domestic and foreign equity securities (common stock, preferred stock, warrants, and securities convertible into common stocks); (ii) domestic and foreign fixed income securities consisting of government and corporate debt securities, "junk" bonds, municipal securities, and real estate investment trusts ("REITs"); and (iii) interest-bearing instruments consisting of treasury bills, other U.S. government obligations and bonds, collateralized repurchase contracts, money market instruments, and money market funds (collectively referred to as cash and cash equivalents). These securities may include illiquid securities with up to 15% of the Fund’s assets. The Fund may invest in these securities directly or indirectly through investments in other investment companies.
The Fund currently has an unlimited number of authorized shares. The Date of Initial Public Investment of the Fund shares was December 31, 2010.
The following is a summary of significant accounting policies consistently followed by the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Fund follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 “Financial Services – Investment Companies,” and Financial Accounting Standards Update (“ASU”) 2013-08.
Investment Valuation
The pricing and valuation of portfolio securities is determined in good faith in accordance with procedures established by, and under the direction of, the Trustees. Values are determined according to generally accepted accounting practices and all laws and regulations that apply. Using methods approved by the Trustees, the assets of the Fund are valued as follows:
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
| • | Securities that are listed on a securities exchange are valued at the last quoted sales price provided by a third-party pricing service at the time the valuation is made. Price information on listed securities is taken from the exchange where the security is primarily traded by the Fund. |
| • | Securities that are listed on an exchange and which are not traded on the valuation date are valued at the bid price. |
| • | Unlisted securities for which market quotations are not readily available are valued at the latest quoted sales price, if available, at the time of valuation, otherwise, at the latest quoted bid price. |
| • | Options are valued at the mean of the last quoted bid and ask prices at the time of valuation. |
| • | Foreign securities listed on foreign exchanges are valued with quotations from the primary market in which they are traded and are translated from the local currency into U.S. dollars using current exchange rates. |
| • | Temporary cash investments with maturities of 60 days or less will be valued at amortized cost, which approximates market value. |
| • | Securities for which no current quotations are readily available are valued at fair value as determined in good faith using methods approved by the Trustees. Securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. |
Fair Value Measurement
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1: Quoted prices in active markets for identical securities
Level 2: Other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.)
Level 3: Significant unobservable inputs (including the Fund’s own assumptions in determining fair value of investments)
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the inputs as of August 31, 2022, for the Fund’s assets measured at fair value:
Investments in Securities | | Total | | Level 1 |
| Level 2 | |
Level 3 (a) |
| Assets | | | | |
| | | |
| Common Stocks* | $ | 60,799,995 | $ | 60,799,995 | $ | - | $ | -
|
| Private Investments* | | 6,535,572 | | - | | - | | 6,535,572 |
| Warrant* | | 0 | | - | | 0 | | - |
| U.S. Treasury Security | | 1,999,546 | | - | | 1,999,546 | | - |
| Corporate Bond* | | 228,479 | | - | | 228,479 | | - |
| Total Assets | $ | 69,563,592 | $ | 60,799,995 | $ | 2,228,025 | $ | 6,535,572 |
| | | | | | | | | |
*Please refer to Schedule of Investments for breakdown by Industry.
(a) The Fund had two Level 3 security during the fiscal year ended August 31, 2022 as indicated in the below table. The aggregate value of such securities is of net assets, and they have been fair valued under the procedures approved by the Board of Trustees.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
The table below presents a reconciliation of all Level 3 fair value measurements existing at August 31, 2022:
| | | Private Investments | | Total Private Investments | |
| Opening Balance | | $ 3,508,800 | | $ 3,508,800 | |
| Purchases | | 4,175,000 | | 4,175,000 | |
| Principal payments/sales | | - | | - | |
| Accrued discounts (premiums) | | - | | - | |
| Realized Gains | | - | | - | |
| Unrealized Gains | | (1,148,228) | | (1,148,228) | |
| Ending Balance | | $ 6,535,572 | | $ 6,535,572 | |
| | | | | | |
The Fund’s investments in Level 3 Private Investments have been valued at the most recent capital raise for the company, adjusted for the change in Enterprise Value of a set of Guideline Public Companies from the date of the last capital raise to the valuation date. The unobservable inputs are the assumptions as to whether a company is an appropriate Guideline Public Company and an assumption as what percentile of performance the Private Company would fall within the set of Guideline Public Companies. Below is a table summarizing the unobservable inputs used along with a sensitivity analysis, which show the impact on valuation of a change in the unobservable input.
Security | Unobservable Input - Percentile of Guideline Public Company Performance | Estimated Fair Value as of August 31, 2022 | If Percentile of Guideline Public Company Performance was | Hypothetical Impact on Valuation
|
| EAS Investors I, LP | 75th Percentile | $3,012,399 | 50th Percentile | 25% decrease in value
|
| Stream-IT App, Inc. | 90th Percentile | $3,523,173 | 50th Percentile | 26% decrease in value
|
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
The following table represents investments in affiliates during the fiscal year ended August 31, 2022:
Security Name | Share Balance at Beginning of year | Purchases (Shares) | Sales (Shares) | Share Balance at 8/31/2022 | Realized Gain/Loss | Dividend/ Interest Income | Change in Unrealized Gain (Loss) | Fair Value at 8/31/2022
|
BioCardia, Inc.
| 1,026,794 | - | 1,026,794 | - | $(1,694,159) | $ - | $ 1,093,966 | $ - |
Collplant Biotechnologies Ltd. | 563,030 | 131,926 | 89,519 | 605,437 | $ 744,436 | $ - | $(5,351,683) | $4,522,614 |
EAS Investors I, LP | N/A | N/A | - | N/A | $ -
| $ - | $(496,401) | $3,012,399 |
Enzo Biochem, Inc.* | 2,886,771 | - | 496,560 | 2,390,211 | $ 720,905 | $ - | $(3,656,295) | $5,784,311 |
FLYHT Aerospace Solutions Ltd. | 2,500,000 | - | - | 2,500,000 | $ -
| $ - | $ (145,434) | $1,598,660 |
GSI Technology, Inc. | 1,956,103 | - | 18,699 | 1,937,404 | $ (11,782) | | $(4,414,737) | $6,451,555 |
Qumu Corp. | 1,098,552 | 12,509 | - | 1,111,061 | $ -
|
$ - | $(2,516,046) | $726,856 |
Stream-ITApp, Inc. | - | 3,652,988 | - | 3,652,988 | $ -
| | $(651,827) | $3,523,173 |
TOTAL
| 10,031,250 | 3,797,423 | 1,631,572 | 12,197,101 | $(240,600) | | $(16,138,457) | $25,619,568 |
*Not considered an affiliated investments as of the fiscal year end August 31, 2022.
Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These amounts can be found on the Statement of Operations, if applicable.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes.
Expenses
The Fund bears expenses incurred specifically on its behalf as well as a portion of general expenses, which are allocated according to methods reviewed annually by the Board.
Distributions
The Fund may declare and distribute dividends from net investment income (if any) annually. Distributions from capital gains (if any) are generally declared and distributed annually. Dividends and distributions to shareholders are recorded on ex-date.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in the net assets from operations during the reported period. Actual results could differ from those estimates.
Fees on Redemptions
The Fund charges a redemption fee of 1.00% on redemptions of Fund shares occurring within 60 days following the issuance of such shares. The redemption fee is not a fee to finance sales or sales promotion expenses but is paid to the Fund to defray the costs of liquidating an investor and discourage short-term trading of the Fund’s shares. No redemption fee will be imposed on the redemption of shares representing dividends or capital gains distributions, or on amounts representing capital appreciation of shares.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
Cash and Cash Equivalents
The ETF may have cash and cash equivalents on deposit with the custodian which, at times, may exceed federally insured (“FDIC”) limits. For the fiscal year ended August 31, 2022, the Fund held a cash balance totaling $10,814,437, which exceeded the FDIC limit.
General Risks:
Opportunistic Investment Strategy Risk. There are risks associated with the Fund’s opportunistic investment strategy. The Fund is expected to be disciplined with its opportunistic investing, particularly with respect to the price it is willing to pay for the securities in which it is considering investing, and, as a result, may miss out on opportunities that have a reasonable risk/reward trade off. In addition, in periods of overall rising market levels (whether those rises are the result of speculative bubbles or the confirmation of underlying fundamentals), the Fund may not fully participate in market gains when it is heavily invested in Cash and Cash Equivalents. In such periods, mutual funds that are fully invested in equity securities will likely provide superior returns.
Non-diversified Fund Risk. The Fund is a non-diversified fund. In general, a non-diversified fund will invest a greater percentage of its assets in a particular issuer and will own fewer securities than diversified mutual funds. Accordingly, a non-diversified fund is generally subject to the risk that a large loss in an individual issuer will cause a greater loss for the fund than it would if the fund were required to hold a larger number of securities or smaller positions. A non-diversified fund may also have a more volatile NAV per share than diversified mutual funds. The Fund will limit investments in a single industry or group of industries (except U.S. Government and cash items) to less than 25% of the Fund’s total assets.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Sector Risk. Sector risk is the possibility that securities within the same group of industries will decline in price due to sector-specific market or economic developments. If the Fund invests more heavily in a particular sector, the value of its shares may be especially sensitive to factors and economic risks that specifically affect that sector. As a result, the Fund’s share price may fluctuate more widely than the value of shares of a mutual fund that invests in a broader range of industries. Additionally, some sectors could be subject to greater government regulation than other sectors. Therefore, changes in regulatory policies for those sectors may have a material effect on the value of securities issued by companies in those sectors. The sectors in which the Fund may more heavily invest will vary.
Liquidity Risk. Liquidity risk exists when particular investments would be difficult to purchase or sell, possibly preventing the Fund from selling such illiquid securities at an advantageous time or price, or possibly requiring the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations.
Shareholder Activism Risk. When the Advisor engages in activism on behalf of the Fund, the Fund will incur additional expenses, such as legal or filing costs. As a result, the cost of investing in the Fund may be higher than other funds that do not engage in such shareholder activism.
COVID-19 Risk. An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. COVID-19 has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many countries or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. As such, issuers of debt securities with operations, productions, offices, and/or personnel in (or other exposure to) areas affected with the virus may experience significant disruptions to their business and/or holdings. The potential impact on the credit markets may include market illiquidity, defaults and bankruptcies, among other consequences, particularly on issuers in the airline, travel and leisure and retail sectors. The extent to which COVID-19 will affect the Fund, the Fund’s service providers’ and/or issuer’s operations and results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19. Economies and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to countries experiencing economic, political and/or financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected by such events. If there is a significant decline in the value of the Fund’s portfolio, this may impact the Fund’s asset coverage levels for certain kinds of derivatives and other portfolio transactions. The duration of the COVID-19 outbreak and its impact on the global economy cannot be determined with certainty.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Cybersecurity Risk. As part of its business, the Advisor processes, stores, and transmits large amounts of electronic information, including information relating to the transactions of the Fund. The Advisor and the Fund are therefore susceptible to cybersecurity risk. Cybersecurity failures or breaches of the Fund or its service providers have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, and/or reputational damage. The Fund and its shareholders could be negatively impacted as a result.
Equity Securities Risks:
Common Stocks. The Fund’s investments in common stocks, both directly and indirectly through the Fund’s investment in shares of other investment companies, may fluctuate in value in response to many factors, including the activities of the individual companies whose securities the Fund owns, general market and economic conditions, interest rates, and specific industry changes. Moreover, small- and micro-cap equities, where the Fund focuses, are generally more volatile than are large cap equities. Such price fluctuations subject the Fund to potential losses. In addition, regardless of any one company’s particular prospects, a declining stock market may produce a decline in prices for all equity securities, which could also result in losses for the Fund. Market declines may continue for an indefinite period of time, and investors should understand that during temporary or extended bear markets, the value of common stocks will decline. Common stock generally is subordinate to preferred stock and debt securities with respect to the payment of dividends and upon the liquidation or bankruptcy of the issuing company.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Small-Cap and Mid-Cap Securities Risk. The Fund may invest in securities of small-cap and mid-cap companies, which involves greater volatility than investing in larger and more established companies. Small-cap and mid-cap companies can be subject to more abrupt or erratic share price changes than larger, more established companies. Securities of these types of companies have limited market liquidity, and their prices may be more volatile. You should expect that the value of the Fund’s shares will be more volatile than a fund that invests exclusively in large-capitalization companies.
Micro-Cap Securities Risk. Some of the small companies in which the Fund invests may be micro-cap companies. Micro-cap stocks may offer greater opportunity for capital appreciation than the stocks of larger and more established companies; however, they also involve substantially greater risks of loss and price fluctuations. Micro-cap companies carry additional risks because of the tendency of their earnings and revenues to be less predictable (and some companies may be experiencing significant losses), their share prices to be more volatile and their markets to be less liquid than companies with larger market capitalizations. Micro-cap companies may be newly formed or in the early stages of development, with limited product lines, markets or financial resources, and may lack management depth. In addition, there may be less public information available about these companies. The shares of micro-cap companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities. Also, it may take a long time before the Fund realizes a gain, if any, on an investment in a micro-cap company.
Risks Related to Investing in Other Investment Companies. The Fund’s investment strategy may involve investing in other investment companies. Investments in other investment companies subject the Fund to additional operating and management fees and expenses. For example, investors in the Fund will indirectly bear fees and expenses charged by the investment companies in which the Fund invests, in addition to the Fund’s direct fees and expenses. As a result, the cost of investing in the Fund will be higher than the cost of investing directly in such closed-end funds and also may be higher than other funds that invest directly in securities. The shares of closed-end funds frequently trade at a premium or discount relative to their net asset value. When the Fund purchases shares of a closed-end fund at a discount to its net asset value, there can be no assurance that the discount will decrease, and it is possible that the discount may increase. Furthermore, investing in other investment companies may affect the timing, amount, and character of distributions and therefore may increase the amount of taxes payable by you.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Large-Cap Securities Risk. Stocks of large companies as a group can fall out of favor with the market, causing the Fund to underperform investments that have a greater focus on mid-cap or small-cap stocks. Larger, more established companies may be slow to respond to challenges and may grow more slowly than smaller companies.
Preferred Stock Risk. Like shares of common stock, the value of preferred stock may fluctuate in response to many factors, including the activities of the issuer, general market and economic conditions, interest rates, and specific industry changes. Preferred stock may fail to pay dividends when expected. The rights of holders of preferred stock are generally subordinate to the rights associated with a corporation’s debt securities.
Convertible Securities Risk. Convertible securities are securities that may be converted into shares of stock. Due to the conversion feature, the interest rate or dividend preference of a convertible security is usually less than if the securities were non-convertible. The value of convertible securities tends to change when the market value of the underlying stock fluctuates and tends to fluctuate inversely with changes in interest rates.
Fixed-Income Securities Risks:
Lower-rated Securities or “Junk Bonds” Risk. Fixed income securities rated below BBB by S&P or Baa by Moody’s are considered speculative in nature and may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than higher rated fixed income securities. Lower rated fixed income securities are usually issued by companies without long track records of sales and earnings, or by companies with questionable credit strength. These fixed income securities are considered “below investment-grade.” The retail secondary market for these “junk bonds” may be less liquid than that of higher rated fixed income securities and adverse conditions could make it difficult at times to sell certain securities or could result in lower prices than those used in calculating the Fund’s net asset value. These risks can reduce value of the Fund’s shares and the income it earns.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Risks of Investing in Corporate Debt Securities. Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The credit risks of corporate debt securities vary widely among issuers. In addition, the credit risk of an issuer’s debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Interest Rate and Credit Risk. Interest rates may rise resulting in a decrease in the value of the fixed income securities held by the Fund or may fall resulting in an increase in the value of such securities. Fixed income securities with longer maturities generally involve greater risk than those with shorter maturities. Issuers of fixed income securities might be unable to make principal and interest payments when due.
Maturity Risk. Maturity risk is another factor that can affect the value of the Fund’s debt holdings. In general, the longer the maturity of a fixed income instrument, the higher its yield and the greater its sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability.
Government Debt Markets May Be Illiquid or Disrupted. Although generally highly liquid, the markets in which the Fund trades could experience periods of illiquidity, sometimes of significant duration.
Inflation Risk. Fixed income securities are subject to inflation risk. Because inflation reduces the purchasing power of income produced by existing fixed income securities, the prices at which fixed income securities trade will be reduced to compensate for the fact that the income they produce is worth less. This potential decrease in market value of fixed income securities would result in a loss in the value of the Fund’s portfolio.
Risks of Investing in REITs. The Fund may invest in REITs. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. Shareholders of the Fund will indirectly be subject to the fees and expenses of the individual REITs in which the Fund invests.
Foreign Securities Risks:
Currency Risk. Currency risk is the chance that changes in currency exchange rates will negatively affect securities denominated in, and/or receiving revenues in, foreign currencies. The Fund’s investments in foreign securities exposes the Fund to foreign currencies and subjects the Fund to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of short positions, that the U.S. dollar will decline in value relative to the currency being hedged. Adverse changes in currency exchange rates (relative to the U.S. dollar) may erode or reverse any potential gains from a portfolio’s investment in securities denominated in a foreign currency or may widen existing losses. Currency gains and losses could occur regardless of the performance of the underlying investment.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Foreign Securities Risk. Foreign securities involve investment risks different from those associated with domestic securities. Changes in foreign economies and political climates are more likely to affect the Fund than a mutual fund that invests exclusively in domestic securities. The value of foreign currency denominated securities or foreign currency contracts is affected by the value of the local currency relative to the U.S. dollar. There may be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information about issuers of foreign currency denominated securities. The value of foreign investments may be affected by changes in exchange control regulations, application of foreign tax laws (including withholding tax), changes in governmental administration or economic or monetary policy (in this country or abroad), or changed circumstances in dealings between nations. In addition, foreign brokerage commissions, custody fees, and other costs of investing in foreign securities are generally higher than in the United States. Investments in foreign issues could be affected by other factors not present in the United States, including expropriation, armed conflict, confiscatory taxation, and potential difficulties in enforcing contractual obligations.
| 3. | Transactions with Affiliates and Service Providers |
Advisor
The Fund pays a monthly fee to the Advisor calculated at the annual rate of 0.92% of the Fund’s average daily net assets. For the fiscal year ended August 31, 2022, $984,315 in advisory fees were incurred by the Fund, of which $21,057 were waived by the Advisor.
The Advisor has entered into a contractual agreement (the “Expense Limitation Agreement”) with the Trust, on behalf of the Fund, under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in amounts that limit the Fund’s total operating expenses (exclusive of (i) any front-end or contingent deferred loads; (ii) brokerage fees and commissions, (iii) acquired fund fees and expenses; (iv) fees and expenses associated with investments in other collective investment vehicles or derivative instruments (including for example option and swap fees and expenses); (v) borrowing costs (such as interest and dividend expense on securities sold short); (vi) taxes; and (vii) extraordinary expenses, such as litigation expenses (which may include indemnification of Fund officers and Trustees and contractual indemnification of Fund service providers (other than the Adviser)) to not more than 1.23% of the average daily net assets of the Fund. The current term of the Expense Limitation Agreement remains in effect until January 1, 2023.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Administrator
The Fund pay customary fees to The Nottingham Company (the “Administrator”) for its services as Fund Administrator and Fund Accountant. Certain officers of the Administrator are also officers of the Trust.
Compliance Services
The Nottingham Company, Inc. serves as the Trust’s compliance services provider including services as the Trust’s Chief Compliance Officer. The Nottingham Company, Inc. is entitled to receive customary fees from the Fund for its services pursuant to the Compliance Services Agreement with the Fund.
Transfer Agent
Nottingham Shareholder Services, LLC (“Transfer Agent”) serves as transfer, dividend paying, and shareholder servicing agent for the Fund. For its services, the Transfer Agent is entitled to receive compensation from the Fund pursuant to the Transfer Agent’s fee arrangements with the Fund.
Distributor
Capital Investment Group, Inc. (the “Distributor”) serves as the Fund’s principal underwriter and distributor.
4. Trustees and Officers
The Trust is governed by the Board of Trustees, which is responsible for the management and supervision of the Fund. The Trustees meet periodically throughout the year to review contractual agreements with companies that furnish services to the Fund; review performance of the Advisor and the Fund; and oversee activities of the Fund. Officers of the Trust and Trustees who are interested persons of the Trust or the Advisor will receive no salary or fees from the Trust. Each Trustee who is not an “interested person” of the Trust or the Advisor within the meaning of the Investment Company Act of 1940, as amended (the “Independent Trustee”) receives $2,000 per series per year, $200 per meeting attended, and $500 per series per special meeting related to contract renewal issues. The Trust reimburses each Trustee and officer of the Trust for his or her travel and other expenses related to attendance of Board meetings. Additional fees were incurred during the year as special meetings were necessary in addition to the regularly scheduled meetings of the Board of Trustees.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
Certain officers of the Trust may also be officers of the Administrator and receive no compensation from the Trust for serving as officers.
5. Purchases and Sales of Investment Securities
For the fiscal year ended August 31, 2022, the aggregate cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows:
| Purchases of Securities | Proceeds from Sales of Securities |
| $51,398,809 | $39,161,064 |
For the fiscal year ended August 31, 2022, there were no long-term purchases of Long-Term U.S. Treasury Notes during the year. Sales include $2,511,123 of Long-Term U.S. Treasury Notes during the year.
| ROUMELL OPPORTUNISTIC VALUE FUND |
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| Notes to Financial Statements |
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| As of August 31, 2022 |
The following table shows the realized gains and losses that resulted from sales of securities during the fiscal year ended August 31, 2022:
| Description | | Cost ($) | | Sales Proceeds ($) | Realized Gain (Loss) (% of Cost) | | Realized Gain (Loss)($) |
| Allot Ltd. | | $ 391,022 | | $ 420,185 | 7.46% | | $ 29,163 |
| | | | | | | | |
| Amyris, Inc. | | 3,360,251 | | 1,411,870 | -57.98% | | (1,948,381) |
| | | | | | | | |
| Barnes & Noble Education, Inc. | | 449,048 | | 604,267 | 34.57% | | 155,219 |
| | | | | | | | |
| Biocardia, Inc. | | 4,123,008 | | 2,428,849 | -41.09% | | (1,694,159) |
| | | | | | | | |
| Collplant Biotechnologies Ltd. | | 1,223,780 | | 1,968,216 | 60.83% | | 744,436 |
| | | | | | | | |
| comScore, Inc. | | 787,675 | | 527,848 | -32.99% | | (259,827) |
| | | | | | | | |
| Dundee Precious Metals, Inc. | | 1,620,135 | | 1,934,718 | 19.42% | | 314,583 |
| | | | | | | | |
| eHealth, Inc. | | 8,026,043 | | 6,099,029 | -24.01% | | (1,927,014) |
| | | | | | | | |
| Enzo Biochem, Inc. | | 1,124,975 | | 1,845,881 | 64.08% | | 720,906 |
| | | | | | | | |
| Eros STX Global Corp. | | 1,816,832 | | 1,021,614 | -43.77% | | (795,218) |
| | | | | | | | |
| Exterran Corp. | | 1,533,333 | | 1,959,538 | 27.80% | | 426,205 |
| | | | | | | | |
| GSI Technology Inc | | 87,885 | | 76,103 | -13.41% | | (11,782) |
| | | | | | | | |
| Korean Investment Holdings Co. | | 2,794,383 | | 2,812,079 | 0.63% | | 17,696 |
| | | | | | | | |
| Laredo Petroleum, Inc. | | 4,332,732 | | 5,800,483 | 33.88% | | 1,467,751 |
| | | | | | | | |
| Ricebran Technologies, Inc. | | 1,440,397 | | 708,236 | -50.83% | | (732,161) |
| | | | | | | | |
| Streamline Health, Inc. | | 3,150,623 | | 3,101,978 | -1.54% | | (48,645) |
| | | | | | | | |
| Tetra Technologies, Ltd. | | 1,326,555 | | 2,181,485 | 64.45% | | 854,930 |
| | | | | | | | |
| U.S. Treasury Note | | 2,499,767 | | 2,511,133 | 0.45% | | 11,366 |
| | | | | | | | |
| Venus Concept, Inc. | | 986,619 | | 1,261,105 | 27.82% | | 274,486 |
| | | | | | | | |
| Wayside Technologies Ltd. | | 384,848 | | 486,448 | 26.40% | | 101,600 |
Total Realized Loss (a) | | | | | | | (2,298,846) |
| | | | | | | | |
(a) Net realized gain differs from total realized gains on the Statement of Operations due to realized loss on foreign currency totaling $(39,586).
| ROUMELL OPPORTUNISTIC VALUE FUND |
|
| Notes to Financial Statements |
|
| As of August 31, 2022 |
6. Federal Income Tax
Distributions are determined in accordance with Federal income tax regulations, which differ from GAAP, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
Management has reviewed the Fund’s tax positions taken or to be taken on the federal income tax returns during the years ended August 31, 2019 through August 31, 2022 and determined that the Fund does not have a liability for uncertain tax positions. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the fiscal year, the Fund did not incur any interest or penalties.
Distributions during the fiscal years ended below were characterized for tax purposes as follows:
Fiscal Years Ended | Distributions from Ordinary Income | Distributions from Long- Term Capital Gains |
| August 31, 2022 | $46,921,755 | $688,245 |
| August 31, 2021 | $ 23,660 | $ -
|
Permanent book and tax differences, primarily attributable to the book/tax treatment of wash sales and return of capital resulted in the following reclassifications in the Fund as of the year ended August 31, 2022:
| Paid in Capital | $ (214,354) |
| Accumulated Deficit | 214,354 |
| ROUMELL OPPORTUNISTIC VALUE FUND |
|
| Notes to Financial Statements |
|
| As of August 31, 2022 |
At August 31, 2022, the tax-basis cost of investments and components of distributable earnings were as follows:
| Cost of Investments | | $ 113,470,588 |
| | | |
| Gross Unrealized Appreciation | | 949,504 |
| Gross Unrealized Depreciation | | (44,856,500) |
| Net Unrealized Depreciation | | (43,906,996) |
| | | |
| Late Year Losses | | (601,157) |
| Post-October Losses | | (6,034,482) |
| Accumulated Deficit | | $ (50,542,635) |
| | | |
Realized losses reflected in the accompanying financial statements include net capital losses realized between January 1 and the Fund’s fiscal year-end that have not been recognized for tax purposes (Late Year Losses) totaling $601,157.
Realized losses reflected in the accompanying financial statements also include net capital losses realized between November 1 and the Fund’s fiscal year-end that have not been recognized for tax purposes (Post-October Losses) totaling $6,034,482.
| ROUMELL OPPORTUNISTIC VALUE FUND |
|
| Notes to Financial Statements |
|
| As of August 31, 2022 |
7. Beneficial Ownership
The beneficial ownership, either directly or indirectly, of 25% or more of the voting securities of a fund creates a presumption of control of a fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of August 31, 2022, Charles Schwab and National Fidelity Services, Inc. (“NFS”) held 36.98% and 34.09%, respectively, of the Fund. The Fund has no knowledge as to whether all or any portion of the shares owned of record by Charles Schwab or NFS are also owned beneficially.
8. Commitments and Contingencies
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Trust entered into contracts with its service providers, on behalf of the Fund, and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. The Fund expects risk of loss to be remote.
Contingent Liability
In October 2021, the Advisor entered into an Agreement with a law firm to pursue litigation against Enzo Biochem, Inc. (“ENZ”) due to a replacement in shareholder-nominated independent directors. If the litigation is successfully settled, or if ENZ is sold at a gain, the Advisor would then be required to remit a portion of the settlement or realized gain to the law firm. The Advisor may charge a portion of this contingent fee, not to exceed $60,000, back to the Fund.
9. Subsequent Events
In accordance with GAAP, management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements. Management has concluded there are no additional matters, other than those noted above, requiring recognition or disclosure.
A copy of the Advisor’s Proxy Voting and Disclosure Policy is included as Appendix B to the Fund’s Statement of Additional Information and is available, without charge, upon request, by calling 800-773-3863, and on the website of the Securities and Exchange Commission (“SEC”) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, is available (1) without charge, upon request, by calling the Fund at the number above and (2) on the SEC’s website at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Form N-PORT is available on the SEC’s website at http://www.sec.gov. You may also obtain copies without charge, upon request, by calling the Fund at 800-773-3863.
The following information is provided for the Fund’s fiscal year ended August 31, 2022.
During the fiscal year, the Fund paid no income distributions and $47,610,000 in long-term capital gain distributions.
Dividend and distributions received by retirement plans such as IRAs, Keogh-type plans, and 403(b) plans need not be reported as taxable income. However, many retirement plans may need this information for their annual information meeting.
As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2022 through August 31, 2022.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
*Expenses are equal to the average account value over the period multiplied by the Fund’s annualized expense ratio of 1.23%, multiplied by 184/365 (to reflect the one-half year period).
In connection with the regular Board meeting held on September 9, 2021, the Board, including a majority of the Independent Trustees, discussed the approval of a management agreement between the Trust and the Advisor, with respect to the Fund (the "Investment Advisory Agreement"). The Trustees were assisted by legal counsel throughout the review process. The Trustees relied upon the advice of legal counsel and their own business judgment in determining the material factors to be considered in evaluating the Investment Advisory Agreement and the weight to be given to each factor considered. The conclusions reached by the Trustees were based on a comprehensive evaluation of all of the information provided and were not the result of any one factor. Moreover, each Trustee may have afforded different weight to the various factors in reaching his conclusions with respect to the approval of the Investment Advisory Agreement. In connection with their deliberations regarding approval of the Investment Advisory Agreement, the Trustees reviewed materials prepared by the Advisor.
In deciding on whether to approve the renewal of the Investment Advisory Agreement, the Trustees considered numerous factors, including:
The business and affairs of the Fund and the Trust are managed under the direction of the Board of Trustees of the Trust. Information concerning the Trustees and officers of the Trust and Fund is set forth below. Generally, each Trustee and officer serves an indefinite term or until certain circumstances such as their resignation, death, or otherwise as specified in the Trust’s organizational documents. Any Trustee may be removed at a meeting of shareholders by a vote meeting the requirements of the Trust’s organizational documents. The Statement of Additional Information of the Fund includes additional information about the Trustees and officers and is available, without charge, upon request by calling the Fund toll-free at 800-773-3863. The address of each Trustee and officer, unless otherwise indicated below, is 116 South Franklin Street, Rocky Mount, North Carolina 27804. The Independent Trustees received aggregate compensation of $9,292 during the fiscal year ended August 31, 2022 from the Fund for their services to the Fund and Trust.
Rule 22e-4, or the “Liquidity Rule,” under the Investment Company Act of 1940, requires a mutual fund to adopt a liquidity risk management program (“Program”) and disclose information about the operation and effectiveness of its Program in its reports to shareholders.
Under the Program, the Fund’s portfolio investments are classified into one of four liquidity categories defined by the SEC: highly liquid, moderately liquid, less liquid, and illiquid. Liquidity classifications take into account a variety of market, trading, and investment factors, including the Fund’s reasonably anticipated trade size, and the Program Administrator has engaged a third-party vendor to assist with the classification of portfolio investments.
In accordance with the Liquidity Rule, the Program Administrator prepared, and the Fund’s Board of Trustees reviewed, a report regarding the operation and effectiveness of the Program for the period from December 1, 2020 through November 30, 2021 (the “Period”). During the Period, there were no liquidity events that materially impacted the Fund’s ability to timely meet redemptions without significantly diluting remaining investors’ interests. The report concluded that the Program remains reasonably designed to assess and manage the Fund’s liquidity risk, and that, during the Period, the Program was implemented effectively.
