UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarter ended September 30, 2006
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|
|
| o |
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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: 001-08205
Rand Capital Corporation
(Exact Name of Registrant as specified in its Charter)
| |
|
|
New York
(State or Other Jurisdiction of Incorporation
or organization)
|
|
16-0961359
(IRS Employer
Identification No.) |
| |
|
|
2200 Rand Building, Buffalo, NY
(Address of Principal executive offices)
|
|
14203
(Zip Code) |
(716) 853-0802
(Registrant’s Telephone No. Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule
12b-2 under the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filerþ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
As of November 3, 2006 there were 5,718,934 shares of the registrant’s common stock
outstanding.
RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
Rand Capital Corporation and Subsidiaries
Consolidated Statements of Financial Position
As of September 30, 2006 and December 31, 2005
| |
|
|
|
|
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|
|
|
| |
|
September 30, |
|
|
|
|
| |
|
2006 |
|
|
December 31, |
|
| |
|
(Unaudited) |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Investments at fair value (identified cost: 9/30/06 -$13,894,158; 12/31/05 - $13,712,890) |
|
$ |
14,089,941 |
|
|
$ |
13,370,862 |
|
Cash and cash equivalents |
|
|
2,012,306 |
|
|
|
1,209,839 |
|
Interest
receivable (net of allowance: 9/30/06 - $122,000; 12/31/05 - $236,870) |
|
|
486,717 |
|
|
|
297,619 |
|
Deferred tax asset |
|
|
511,000 |
|
|
|
846,000 |
|
Income tax receivable |
|
|
— |
|
|
|
15,582 |
|
Other assets |
|
|
284,711 |
|
|
|
323,703 |
|
|
|
|
|
|
|
|
| |
Total assets |
|
$ |
17,384,675 |
|
|
$ |
16,063,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS) |
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|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Debentures guaranteed by the SBA |
|
$ |
8,100,000 |
|
|
$ |
7,200,000 |
|
Accounts payable and accrued expenses |
|
|
95,837 |
|
|
|
167,788 |
|
Deferred revenue |
|
|
58,034 |
|
|
|
79,883 |
|
Income taxes payable |
|
|
1,728 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,255,599 |
|
|
|
7,447,671 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (net assets): |
|
|
|
|
|
|
|
|
Common
stock, $.10 par — shares authorized 10,000,000; shares issued 5,763,034 |
|
|
576,304 |
|
|
|
576,304 |
|
Capital in excess of par value |
|
|
6,973,454 |
|
|
|
6,973,454 |
|
Accumulated net investment (loss) |
|
|
(5,316,038 |
) |
|
|
(4,988,326 |
) |
Undistributed net realized gain on investments |
|
|
6,826,452 |
|
|
|
6,306,925 |
|
Net unrealized appreciation (depreciation) on investments |
|
|
116,110 |
|
|
|
(205,217 |
) |
Treasury stock, at cost, 44,100 shares |
|
|
(47,206 |
) |
|
|
(47,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets (per share 9/30/2006-$1.60 , 12/31/2005-$1.51) |
|
|
9,129,076 |
|
|
|
8,615,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (net assets) |
|
$ |
17,384,675 |
|
|
$ |
16,063,605 |
|
|
|
|
|
|
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months |
|
|
Three months |
|
|
Nine months |
|
|
Nine months |
|
| |
|
ended |
|
|
ended |
|
|
ended |
|
|
ended |
|
| |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
| |
|
|
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest from portfolio companies |
|
$ |
187,325 |
|
|
$ |
156,005 |
|
|
$ |
539,783 |
|
|
$ |
438,928 |
|
Interest from other investments |
|
|
13,517 |
|
|
|
803 |
|
|
|
24,856 |
|
|
|
2,287 |
|
Dividend and other investment income |
|
|
163,756 |
|
|
|
1,660 |
|
|
|
191,994 |
|
|
|
31,364 |
|
Other income |
|
|
41,529 |
|
|
|
12,535 |
|
|
|
63,910 |
|
|
|
34,136 |
|
| |
|
|
|
|
|
406,127 |
|
|
|
171,003 |
|
|
|
820,543 |
|
|
|
506,715 |
|
| |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
95,162 |
|
|
|
88,618 |
|
|
|
287,070 |
|
|
|
311,722 |
|
Employee benefits |
|
|
20,704 |
|
|
|
18,578 |
|
|
|
73,857 |
|
|
|
73,307 |
|
Directors’ fees |
|
|
9,750 |
|
|
|
9,750 |
|
|
|
46,500 |
|
|
|
46,200 |
|
Professional fees |
|
|
21,028 |
|
|
|
18,910 |
|
|
|
96,031 |
|
|
|
63,750 |
|
Stockholders and office operating |
|
|
19,389 |
|
|
|
28,121 |
|
|
|
87,257 |
|
|
|
86,494 |
|
Insurance |
|
|
10,920 |
|
|
|
11,550 |
|
|
|
32,760 |
|
|
|
34,650 |
|
Corporate development |
|
|
12,188 |
|
|
|
24,810 |
|
|
|
40,863 |
|
|
|
45,587 |
|
Other operating |
|
|
3,783 |
|
|
|
2,876 |
|
|
|
8,341 |
|
|
|
8,088 |
|
| |
|
|
|
|
|
192,924 |
|
|
|
203,213 |
|
|
|
672,679 |
|
|
|
669,798 |
|
Interest on SBA obligations |
|
|
127,137 |
|
|
|
73,689 |
|
|
|
346,635 |
|
|
|
188,423 |
|
| |
|
|
Total expenses |
|
|
320,061 |
|
|
|
276,902 |
|
|
|
1,019,314 |
|
|
|
858,221 |
|
| |
|
|
Investment gain (loss) before income taxes |
|
|
86,066 |
|
|
|
(105,899 |
) |
|
|
(198,771 |
) |
|
|
(351,506 |
) |
Current income tax (benefit) expense |
|
|
(1,842 |
) |
|
|
5,000 |
|
|
|
8,158 |
|
|
|
9,927 |
|
Deferred income tax expense (benefit) |
|
|
123,402 |
|
|
|
(212,289 |
) |
|
|
120,783 |
|
|
|
(296,446 |
) |
| |
|
|
Net investment (loss) gain |
|
|
(35,494 |
) |
|
|
101,390 |
|
|
|
(327,712 |
) |
|
|
(64,987 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales and dispositions |
|
|
292,633 |
|
|
|
(382,353 |
) |
|
|
519,527 |
|
|
|
(382,353 |
) |
Unrealized appreciation (depreciation) on
investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
487,020 |
|
|
|
(420,974 |
) |
|
|
(342,028 |
) |
|
|
(586,048 |
) |
End of period |
|
|
193,516 |
|
|
|
(22,433 |
) |
|
|
193,516 |
|
|
|
(22,433 |
) |
| |
|
|
Change in unrealized appreciation
(depreciation) before income taxes |
|
|
(293,504 |
) |
|
|
398,541 |
|
|
|
535,544 |
|
|
|
563,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense |
|
|
(117,402 |
) |
|
|
159,289 |
|
|
|
214,217 |
|
|
|
225,446 |
|
| |
|
|
Net change in unrealized appreciation (depreciation) |
|
|
(176,102 |
) |
|
|
239,252 |
|
|
|
321,327 |
|
|
|
338,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) on investments |
|
|
116,531 |
|
|
|
(143,101 |
) |
|
|
840,854 |
|
|
|
(44,184 |
) |
| |
|
|
Net increase (decrease) in net assets from operations |
|
$ |
81,037 |
|
|
$ |
(41,711 |
) |
|
$ |
513,142 |
|
|
$ |
(109,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
5,718,934 |
|
|
|
5,718,934 |
|
|
|
5,718,934 |
|
|
|
5,718,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net increase (decrease) in net assets from
operations per share |
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
$ |
0.09 |
|
|
$ |
(0.02 |
) |
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2006 |
|
|
2005 |
|
| |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets from operations |
|
$ |
513,142 |
|
|
$ |
(109,171 |
) |
Adjustments to reconcile net increase (decrease) in net
assets to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
20,603 |
|
|
|
17,138 |
|
Increase in unrealized appreciation of investments |
|
|
(535,544 |
) |
|
|
(563,615 |
) |
Deferred tax expense (benefit) |
|
|
335,000 |
|
|
|
(71,000 |
) |
Net realized (gain) loss on portfolio investments |
|
|
(519,527 |
) |
|
|
382,353 |
|
Non-cash conversion of debenture interest |
|
|
(12,877 |
) |
|
|
(29,097 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) in interest receivable |
|
|
(189,098 |
) |
|
|
(94,187 |
) |
Decrease (increase) in other assets |
|
|
61,985 |
|
|
|
(9,110 |
) |
(Decrease) increase in deferred revenue |
|
|
(21,849 |
) |
|
|
5,505 |
|
Decrease in accounts payable and accrued liabilities |
|
|
(69,124 |
) |
|
|
(62,002 |
) |
| |
|
|
Total adjustments |
|
|
(930,430 |
) |
|
|
(424,015 |
) |
| |
|
|
Net cash used in operating activities |
|
|
(417,288 |
) |
|
|
(533,186 |
) |
| |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Investments originated |
|
|
(1,820,622 |
) |
|
|
(1,901,178 |
) |
Proceeds from sale of portfolio investments |
|
|
1,397,831 |
|
|
|
17,647 |
|
Proceeds from loan repayments |
|
|
773,927 |
|
|
|
131,537 |
|
Capital expenditures |
|
|
(12,256 |
) |
|
|
(3,116 |
) |
| |
|
|
Net cash provided by (used in) investing activities |
|
|
338,880 |
|
|
|
(1,755,110 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from SBA debenture |
|
|
900,000 |
|
|
|
2,200,000 |
|
Origination costs to SBA |
|
|
(19,125 |
) |
|
|
(55,000 |
) |
| |
|
|
Net cash provided by financing activities |
|
|
880,875 |
|
|
|
2,145,000 |
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
802,467 |
|
|
|
(143,296 |
) |
| |
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
1,209,839 |
|
|
|
626,744 |
|
| |
|
|
End of period |
|
$ |
2,012,306 |
|
|
$ |
483,448 |
|
| |
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Net Assets
For the Three Months and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months |
|
|
Three months |
|
|
Nine months |
|
|
Nine months |
|
| |
|
ended |
|
|
ended |
|
|
ended |
|
|
ended |
|
| |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
| |
|
|
Net assets at beginning of period |
|
$ |
9,048,039 |
|
|
$ |
8,959,594 |
|
|
$ |
8,615,934 |
|
|
$ |
9,027,054 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) gain |
|
|
(35,494 |
) |
|
|
101,390 |
|
|
|
(327,712 |
) |
|
|
(64,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on investments |
|
|
292,633 |
|
|
|
(382,353 |
) |
|
|
519,527 |
|
|
|
(382,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation
(depreciation) on investments |
|
|
(176,102 |
) |
|
|
239,252 |
|
|
|
321,327 |
|
|
|
338,169 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets from
operations |
|
|
81,037 |
|
|
|
(41,711 |
) |
|
|
513,142 |
|
|
|
(109,171 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
9,129,076 |
|
|
$ |
8,917,883 |
|
|
$ |
9,129,076 |
|
|
$ |
8,917,883 |
|
| |
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2006
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
| |
|
|
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
| |
|
|
|
Date |
|
(c) |
|
|
|
|
|
(d) |
|
of |
| Company and Business |
|
Type of Investment |
|
Acquired |
|
Equity |
|
Cost |
|
Value |
|
Rand |
Adampluseve, LLC (g)
New York, NY. Luxury
sports wear company
for men
and women.
www.adampluseve.com
|
|
$561,000 Senior
Subordinated note
at 10% due July 14,
2011. Warrants to
purchase
approximately 2.5%
of Company.
|
|
7/14/06
|
|
|
3 |
% |
|
$ |
561,000 |
|
|
$ |
563,267 |
|
|
|
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APF Group, Inc. (e)(g)(i)
Mount Vernon, NY.
Manufacturer of museum
quality picture frames and
framed mirrors for
museums,
art galleries, retail frame
shops,
upscale designers
and prominent collectors.
www.apfgroup.com
|
|
$500,000 Senior
Subordinated note
at 12.5% due July
1, 2009. $94,594
Senior Subordinated
note at 14% due
July 31, 2007.
Warrants to
purchase 10.2941
shares of common
stock.
|
|
7/8/04
|
|
|
6 |
% |
|
$ |
586,488 |
|
|
$ |
586,488 |
|
|
|
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolina Skiff LLC (e)(g)
Waycross, GA. Manufacturer
of fresh water,
ocean
fishing and pleasure boats.
www.carolinaskiff.com
|
|
$985,000 Class A
preferred
membership interest
at 11%. Redeemable
January 31, 2010.
5% common
membership
interest.
|
|
1/30/04
|
|
|
5 |
% |
|
|
1,000,000 |
|
|
|
1,227,000 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Staffing
Buffalo, NY. PEO providing
human resource
administration for small
businesses.
www.contract-staffing.com
|
|
Preferred Stock
Repurchase
Agreement through
March 31, 2010 at
5%.
|
|
11/8/99
|
|
|
10 |
% |
|
|
141,400 |
|
|
|
141,400 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EmergingMed.com, Inc. (g)
New York, NY. Cancer
clinical trial matching
and
referral service.
www.emergingmed.com
|
|
$500,000 Senior
subordinated note
at 10% due December
19, 2010.
|
|
12/19/05
|
|
|
5 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gemcor II, LLC (e)(g)(i)
West Seneca, NY. Designs
and sells automatic
riveting machines used in
the assembly of aircraft
components.
www.gemcor.com
|
|
$250,000 note at 8%
due June 28, 2010
with warrant to
purchase 6.25
membership units.
25 membership
units.
|
|
6/28/04
|
|
|
33 |
% |
|
|
736,601 |
|
|
|
736,601 |
|
|
|
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G-TEC Natural Gas Systems
Buffalo, NY. Manufactures
and distributes
systems
that allow natural gas to
be used as an alternative
fuel to gases.
www.gas-tec.com
|
|
41.322% Class A
membership
interest. 8%
cumulative
dividend.
|
|
8/31/99
|
|
|
41 |
% |
|
|
400,000 |
|
|
|
300,000 |
|
|
|
.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innov-X Systems, Inc. (e)(g)
Woburn, MA. Manufactures
portable x-ray
fluorescence
(XRF) analyzers used in
metals/alloy analysis.
www.innovxsys.com
|
|
$350,000
Subordinated
Debenture at 8.5%
due September 27,
2009. 12,344
warrants to
purchase common
shares. 3,500
Series A preferred
stock. $250,000
Series B Secured
Subordinated term
note at 8.5% due
March 1, 2010.
12,345 warrants to
purchase common
shares.
|
|
9/27/04
|
|
|
10 |
% |
|
|
635,000 |
|
|
|
635,000 |
|
|
|
.11 |
|
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2006 (Continued)
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
| |
|
|
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
| |
|
|
|
Date |
|
(c) |
|
|
|
|
|
(d) |
|
of |
| Company and Business |
|
Type of Investment |
|
Acquired |
|
Equity |
|
Cost |
|
Value |
|
Rand |
Kionix, Inc.
Ithaca, NY. Develops innovative MEMS
based
technology applications.
www.kionix.com
|
|
30,241 shares Series B
preferred stock. 696,296
shares Series C preferred
stock.
(g) 2,862,091 shares Series A
preferred stock. 714,285
shares Series B preferred
stock.
|
|
5/17/02
|
|
|
2 |
% |
|
|
1,506,044 |
|
|
|
1,221,567 |
|
|
|
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minrad International, Inc.
(AMEX: BUF) (h)(j)
Buffalo, NY. Developer of acute care
devices and
anesthetics.
www.minrad.com
|
|
229,640 common shares.
|
|
8/4/97
|
|
|
1 |
% |
|
|
311,118 |
|
|
|
907,078 |
|
|
|
.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Monarch Machine Tool, Inc. (e)(g)(i)
Cortland, NY. Manufactures and services
vertical/horizontal machining centers.
www.monarchmt.com
|
|
$527,876.85 note at 12% due
January 13, 2009. $300,000
note at 12% due January 13,
2009. Warrants for 22.84
shares of common stock.
|
|
9/24/03
|
|
|
15 |
% |
|
|
726,481 |
|
|
|
726,481 |
|
|
|
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Niagara Dispensing Technologies, Inc. (g)
Tonawanda, NY. Beverage dispense
technology
development and products
manufacturer,
specializing in beer
dispensing systems.
www.exactpour.com
|
|
$500,000 Senior Subordinated
note at 8% due March 7, 2011.
Adjustable warrant for 4% of
common stock.
|
|
3/8/06
|
|
|
4 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonic Products Group, Inc
(OTC:PHPG.OB) (a) (j)
(Formerly INRAD, Inc.) Northvale, NJ.
Develops
and manufactures products for
laser photonics
industry.
www.inrad.com
|
|
100 shares convertible Series B
preferred stock, 10% dividend.
22,000 shares common stock.
|
|
10/31/00
|
|
<1%
|
|
|
155,000 |
|
|
|
125,300 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAMSCO (e)(g)(i)
Albany, NY. Distributor of water,
sanitary, storm
sewer and specialty
construction materials to the
contractor, highway and municipal
markets.
www.ramsco.com
|
|
$916,947.23 notes at 13% due
November 18, 2007. Warrants to
purchase 12.5% of common
shares.
|
|
11/19/02
|
|
|
13 |
% |
|
|
870,087 |
|
|
|
870,087 |
|
|
|
.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocket Broadband Networks, Inc. (g)
Rochester, NY. Communications service
provider
of satellite TV, broadband
internet and VoIP digital phone
targeting multiple dwelling units.
www.rocketbroadband.com
|
|
285,829 Preferred shares.
247,998 Series A-1 Preferred
shares.
|
|
12/20/05
|
|
|
6 |
% |
|
|
400,000 |
|
|
|
400,000 |
|
|
|
.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerset Gas Transmission Company, LLC
Buffalo, NY. Natural gas transportation
company.
www.somersetgas.com
|
|
26.5337 Units.
|
|
7/10/02
|
|
|
2 |
% |
|
|
719,097 |
|
|
|
786,748 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Synacor, Inc. (e)(g)
Buffalo, NY. Develops provisioning
platforms for
aggregation and delivery
of content for broadband
access
providers.
www.synacor.com
|
|
$350,000 convertible note at 10%
due November 18, 2007. 200,000
shares of Series B preferred
stock. 59,828 Series A
preferred shares. Warrants for
299,146 common shares.
|
|
11/18/02
|
|
|
5 |
% |
|
|
820,000 |
|
|
|
828,674 |
|
|
|
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Topps Meat Company LLC (e)(g)
Elizabeth, NJ. Producer and supplier of
premium
branded frozen hamburgers and
portion controlled meat products.
www.toppsmeat.com
|
|
Preferred A and Class A common
membership interest.
|
|
4/3/03
|
|
|
3 |
% |
|
|
595,000 |
|
|
|
927,000 |
|
|
|
.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra — Scan Corporation
Amherst, NY. Biometrics application
developer of ultrasonic fingerprint
technology.
www.ultra-scan.com
|
|
536,596 common shares, 107,104
Series A-1 preferred shares.
(g) 95,284 Series A-1
preferred shares.
|
|
12/11/92
|
|
|
3 |
% |
|
|
938,164 |
|
|
|
1,203,000 |
|
|
|
.21 |
|
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2006 (Continued)
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
| |
|
|
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
| |
|
|
|
Date |
|
(c) |
|
|
|
|
|
(d) |
|
of |
| Company and Business |
|
Type of Investment |
|
Acquired |
|
Equity |
|
Cost |
|
Value |
|
Rand |
UStec, Inc.
Victor, NY. Markets
digital wiring systems
for
new home
construction.
www.ustecnet.com
|
|
$100,000 note at 5% due
February 1, 2007 (e).
50,000 common shares.
Warrants for 139,395
common shares.
(g) $350,000 Senior
Subordinated Convertible
Debentures at 6% due
February 2, 2008.
|
|
6/26/98
|
|
<1%
|
|
|
450,500 |
|
|
|
475,000 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WineIsIt.com, Corp. (e)
Amherst, NY. Marketing
company specializing in
customer loyalty
programs supporting the
wine and spirit
industry.
www.wineisit.com
|
|
$20,000 note at 12% due
April 26, 2007.
(g) $500,000 Senior
Subordinated note at 10%
due December 17, 2009.
$250,000 note at 10% due
April 16, 2005. Warrants
to purchase 100,000 shares
Class B common stock.
|
|
12/18/02
|
|
|
2 |
% |
|
|
821,918 |
|
|
|
395,000 |
|
|
|
.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
Other
|
|
Various
|
|
|
|
|
|
|
520,260 |
|
|
|
34,250 |
|
|
|
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio investments
|
|
|
|
|
|
|
|
$ |
13,894,158 |
|
|
$ |
14,089,941 |
|
|
$ |
2.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
Rand Capital Corporation and Subsidiaries
Condensed Consolidated Schedule of Portfolio Investments
September 30, 2006 (Continued)
(Unaudited)
Notes to Consolidated Schedule of Portfolio Investments
| (a) |
|
Unrestricted securities are freely marketable securities having readily available market
quotations. All other securities are restricted securities, which are subject to one or more
restrictions on resale and are not freely marketable. At September 30, 2006 restricted
securities represented approximately 99% of the value of the investment portfolio. Freed
Maxick & Battaglia, CPA’s, PC has not examined the business descriptions of the portfolio
companies. |
| |
| (b) |
|
The Date Acquired column indicates the year in which the Corporation acquired its first
investment in the company or a predecessor company. |
| |
| (c) |
|
The equity percentages estimate the Corporation’s ownership interest in the portfolio
investment. The estimated ownership is calculated based on the percent of outstanding voting
securities held by the Corporation or the potential percentage of voting securities held by
the Corporation or the potential percentage of voting securities held by the Corporation upon
exercise of its warrants or conversion of debentures, or other available data. Freed Maxick &
Battaglia, CPA’s, PC has not audited the equity percentages of the portfolio companies. The
symbol “<1%” indicates that the Company holds equity interest of less than one percent. |
| |
| (d) |
|
The Corporation has adopted the SBA’s valuation guidelines for SBIC’s which describes the
policies and procedures used in valuing investments. Under the valuation policy of the
Corporation, unrestricted securities are valued at the closing price for publicly held
securities for the last three days of the month. Restricted securities, including securities
of publicly-held companies, which are subject to restrictions on resale, are valued at fair
value as determined by the Board of Directors. Fair value is considered to be the amount
which the Corporation may reasonably expect to receive for portfolio securities when sold on
the valuation date. Valuations as of any particular date, however, are not necessarily
indicative of amounts which may ultimately be realized as a result of future sales or other
dispositions of securities and these favorable or unfavorable differences could be material.
Among the factors considered by the Board of Directors in determining the fair value of
restricted securities are the financial condition and operating results, projected operations,
and other analytical data relating to the investment. Also considered are the market prices
for unrestricted securities of the same class (if applicable) and other matters which may have
an impact on the value of the portfolio company. |
| |
| (e) |
|
These investments are income producing. All other investments are non-income producing.
Income producing investments have generated cash payments of interest or dividends within the
last twelve months. |
| |
| (f) |
|
Income Tax Information — As of September 30, 2006, the aggregate cost of investment
securities approximated $13.9 million. Net unrealized appreciation aggregated approximately
$196,000 of which $1,523,000 related to appreciated investment securities and $1,327,000
related to depreciated investment securities. |
| |
| (g) |
|
Rand Capital SBIC, L.P. investment |
| |
| (h) |
|
This is a publicly owned company. The Corporation’s shares are restricted securities but may
be sold in the open market under Rule 144. |
| |
| (i) |
|
Reduction in cost and value reflects current principal repayment. |
| |
| (j) |
|
Publicly owned company |
Rand Capital Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
Note 1. ORGANIZATION
Rand Capital Corporation (“Rand” or “Corporation”) was incorporated under the laws of the
state of New York on February 24, 1969. Commencing in 1971, Rand operated as a publicly traded,
closed-end, diversified management company that was registered under Section 8(b) of the Investment
Company Act of 1940 (the “1940 Act”). On August 16, 2001, Rand filed an election to be treated as a
business development company (“BDC”) under the 1940 Act, which became effective on the date of
filing. A BDC is a specialized type of investment company that is primarily engaged in the business
of furnishing capital and managerial expertise to companies that do not have ready access to
capital through conventional finance channels. There was no impact on the corporate structure as a
result of the change to a BDC. Rand continues to operate as a publicly held venture capital
company, listed on the NASDAQ Capital Market Composite Index under the symbol “RAND.”
Formation of SBIC Subsidiary
On January 16, 2002, Rand formed a wholly owned subsidiary, Rand Capital SBIC, L.P., (“Rand
SBIC”) for the purpose of operating it as a small business investment company. At the same time,
Rand organized another wholly owned subsidiary, Rand Capital Management, LLC (“Rand Management”),
as a Delaware limited liability company, to act as the general partner of Rand SBIC. Rand
transferred $5 million in cash to Rand SBIC to serve as “regulatory capital” in January 2002, and
on August 16, 2002 Rand received notification that its Small Business Investment Company (SBIC)
application and license had been approved by the Small Business Administration (SBA). The approval
allows Rand SBIC to obtain loans up to two times its initial $5 million of “regulatory capital”
from the SBA for purposes of making new investments in portfolio companies.
The following discussion will include Rand, Rand SBIC and Rand Management (collectively, the
“Corporation”).
The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its approved debenture
leverage. The fees were paid in two installments of $50,000 each in July 2003 and in August 2004.
These fees were 1% of the face amount of the leverage reserved under the commitment. The fee
represents a partial prepayment of the SBA’s nonrefundable 3% leverage fee. As of September 30,
2006, Rand SBIC had drawn $8,100,000 in leverage from the SBA.
SBA debentures are issued with 10-year maturities. Interest only is payable semi-annually
until maturity. Ten-year SBA debentures may be prepaid with a penalty during the first 5 years, and
then are pre-payable without penalty. Rand initially capitalized Rand SBIC with $5 million in
Regulatory Capital. Rand SBIC was approved to obtain SBA leverage at a 2:1 matching ratio,
resulting in a total capital pool eligible for investment of $15 million. The Corporation expects
to use Rand SBIC as its primary investment vehicle.
The Corporation formed Rand SBIC as a subsidiary for the purpose of causing it to be licensed
as a SBIC under the Small Business Investment Act of 1958 (the “SBA Act”) by the SBA, in order to
have access to various forms of leverage provided by the SBA to SBIC’s.
On May 28, 2002, the Corporation filed an Exemption Application with the Securities and
Exchange Commission (“SEC”) seeking an order under Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of,
and
Rule 17d-1 under, the 1940 Act for exemptions from the application of Sections 2(a)(3),
2(a)(19), 12(d)(1), 18(a), 21(b), 57(a)(1), (2), (3), and (4), and 61(a) of the 1940 Act to certain
aspects of its operations. The application was amended on May 18, 2006 in response to preliminary
SEC comments. The application also seeks an order under Section 12(h) of the Securities Exchange
Act of 1934 Act (the “Exchange Act”) for an exemption from separate reporting requirements under
Section 13(a) of the Exchange Act. In general, the Corporation applications seek orders that would
permit:
| |
• |
|
A BDC (Rand) to operate a BDC/small business investment company (Rand SBIC) as its
wholly owned subsidiary in limited partnership form; |
| |
| |
• |
|
Rand, Rand Management and Rand SBIC to engage in certain transactions that the
Corporation would otherwise be permitted to engage in as a BDC if its component parts
were organized as a single corporation; |
| |
| |
• |
|
Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage
requirements for senior securities on a consolidated basis and; |
| |
| |
• |
|
Rand SBIC, as a BDC/SBIC subsidiary of Rand, as a BDC, to file Exchange Act reports
on a consolidated basis as part of Rand’s reports. |
The Corporation has not identified from among the similar exemption applications on file with
the SEC an example of a specific grouping of all of the exemptions requested by the Corporation in
its application, but the SEC has commonly granted applications to other companies for orders
applicable to each of the exemptions requested and for orders applicable to various combinations of
those exemptions, and the Corporation’s applications do not appear to raise any specific policy
issues that have not also been raised by applications for which exemptions have been granted.
Rand operates Rand SBIC through Rand Management for the same investment purposes, and with
investments in similar kinds of securities, as Rand. Rand SBIC’s operations are consolidated with
those of Rand for both financial reporting and tax purposes.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — In Management’s opinion, the accompanying consolidated financial statements
include all adjustments necessary for a fair presentation of the consolidated financial position,
results of operations, and cash flows for the interim periods presented. Certain information and
note disclosures normally included in audited annual financial statements prepared in accordance
with U.S. generally accepted accounting principles, have been omitted; however, the Corporation
believes that the disclosures made are adequate to make the information presented not misleading.
The interim results for the period ending September 30, 2006 are not necessarily indicative of the
results for the full year.
These statements should be read in conjunction with the financial statements and the notes
included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005.
Information contained in this filing should also be reviewed in conjunction with the Corporation’s
related filings with the SEC during the period of time prior to the date of this report. Those
filings include, but are not limited to the following:
| |
|
|
N-30-B2/ARS
|
|
Quarterly & Annual Reports to Shareholders |
N-54A
|
|
Election to Adopt Business Development Company status |
DEF-14A
|
|
Definitive Proxy Statement submitted to shareholders |
Form 10-K
|
|
Annual Report on Form 10-K for the year ended December 31, 2005 |
Form 10-Q
|
|
Quarterly Report on Form 10-Q for the quarters ended June 30, 2006, March
31, 2006, and September 30, 2005 |
Form N-23C-1
|
|
Reports by closed-end investment companies of purchases of their own securities |
Our Corporation’s website is www.randcapital.com. Available through our website is the
Corporation’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and other reports filed with the SEC.
Principles of Consolidation — The consolidated financial statements include the accounts of Rand,
Rand SBIC and Rand Management, collectively, the “Corporation.” All intercompany accounts and
transactions have been eliminated in consolidation.
Investments
— Investments are stated at fair value as determined in good faith by the Board of
Directors, as described in the Notes to Consolidated Schedule of Portfolio Investments. Certain
investment valuations have been determined by the Board of Directors in the absence of readily
ascertainable fair values. The estimated valuations are not necessarily indicative of amounts
which may ultimately be realized as a result of future sales or other dispositions of securities,
and these favorable or unfavorable differences could be material.
Amounts reported as realized gains and losses are measured by the difference between the net
proceeds of sale or exchange and the cost basis of the investment without regard to unrealized
gains or losses reported in prior periods. The cost of securities that have, in the Board of
Directors’ judgment, become worthless, are written off and reported as realized losses.
Cash and Cash Equivalents — Temporary cash investments having a maturity of three months or
less when purchased are considered to be cash equivalents.
Revenue Recognition — Interest Income — Interest income generally is recognized on the accrual
basis except where the investment is in default or otherwise presumed to be in doubt. In such
cases, interest is recognized at the time of receipt. A reserve for possible losses on interest
receivable is maintained when appropriate.
The Rand SBIC interest accrual is regulated by the SBA’s “Accounting Standards and Financial
Reporting Requirements for Small Business Investments Companies.” Under these rules interest income
cannot be recognized if collection is doubtful, and a 100% reserve must be established. The
collection of interest is presumed to be in doubt when there is substantial doubt about a portfolio
company’s ability to continue as a going concern or the loan is in default more than 120 days.
Management also utilizes other qualitative and quantitative measures to determine the value of a
portfolio investment and the collectability of any accrued interest.
Original
Issue Discount — Investments may create “original issue discount” or OID income. This
situation arises when the Corporation purchases a warrant and a note from a portfolio company
simultaneously. The transaction requires an allocation of a portion of the purchase price to the
warrant and reduces the note or debt instrument by the equal amount in the form of a note discount
or OID. The note is then reported net of the OID and the OID, therefore, is amortized into interest
income over the life of the loan. The Corporation has recorded one original issue discount during
the quarter ended September 30, 2006 in the amount of approximately $68,000 and has recognized
$2,266 in OID income for the nine month period ending September 30, 2006. The unamortized OID as of
September 30, 2006 amounted to $65,733.
Deferred Debenture Costs — SBA debenture origination and commitment costs, which are included in
other assets, will be amortized ratably over the terms of the SBA debentures. Amortization expense
was $19,470 for the nine months ended September 30, 2006, compared to $11,738 for the nine months
ended September 30, 2005.
Net Assets per Share — Net assets per share are based on the number of shares of common stock
outstanding. There are no common stock equivalents.
Supplemental Cash Flow Information — Income taxes refunded (paid) during the nine months ended
September 30, 2006 and 2005 amounted to $9,151 and ($18,583), respectively. Interest paid during
the nine months ended September 30, 2006 and 2005 amounted to $392,080 and $215,068, respectively.
During the nine months ended September 30, 2006 and 2005, the Corporation converted $12,877 and
$29,097, respectively, of interest receivable into equity investments.
Accounting Estimates — The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Stockholders Equity (Net Assets) — At September 30, 2006 and December 31, 2005, there were 500,000
shares of $10.00 par value preferred stock authorized and unissued.
The Board of Directors has authorized the repurchase of up to 5% of the Corporation’s
outstanding stock on the open market through October 26, 2007. During the nine month period ended
September 30, 2006 the Corporation did not purchase any shares for the treasury.
Stock
Option Plan — In July 2001, the shareholders of the Corporation authorized the establishment
of an Employee Stock Option Plan (the “Plan”). The Plan provides for an award of options to
purchase up to 200,000 common shares to eligible employees. In 2002, the Corporation placed the
Plan on inactive status as it developed a new profit sharing plan for two of the Corporation’s
employees in connection with the establishment of its SBIC subsidiary. The profit sharing plan
provided for incentive compensation based on a stated percentage of realized gain, capital gains,
net of realized capital losses and unrealized depreciation, and limited to a stated percentage of
Rand SBIC’s net income. As of September 30, 2006, no stock options had been awarded under the Plan.
Because Section 57(n) of the 1940 Act prohibits maintenance of a profit sharing plan for the
officers and employees of a BDC where any option, warrant or right is outstanding under an
executive compensation plan, no options will be granted under the Plan while any profit sharing
plan is in effect with respect to the Corporation.
Subsequent Events — Subsequent to the quarter end of September 30, 2006, the Corporation made
an investment in one portfolio company for $508,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our financial statements and related notes included elsewhere in
this report.
FORWARD LOOKING STATEMENTS
Statements included in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this document that do not relate to present or
historical conditions are “forward-looking statements” within the meaning of that term in Section
27A of the Securities Act of 1933, and in Section 21F of the Securities Exchange Act of 1934.
Additional oral or written forward-looking statements may be made by the Corporation from time to
time and those statements may be included in documents that are filed with the Securities and
Exchange Commission. Such forward-looking statements involve risks and uncertainties that could
cause results or outcomes to differ materially from those expressed in the forward-looking
statements. Forward-looking statements may include, without limitation, statements relating to the
Corporation’s plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,”
“anticipates,” or “plans” and similar expressions are intended to identify forward-looking
statements. Among the important factors on which such statements are based are assumptions
concerning the state of the national economy and the local markets in which the Corporation’s
portfolio companies operate, the state of the securities markets in which the securities of the
Corporation’s portfolio company trade or could be traded, liquidity within the national financial
markets, and inflation. Forward-looking statements are also subject to the risks and uncertainties
described under the caption “Risk Factors and Other Considerations,” below.
There may be other factors that we have not identified that affect the likelihood that the
forward-looking statements may prove to be accurate. Further, any forward-looking statement speaks
only as of the date it is made and, except as required by law, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which it is made
or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors
emerge from time to time that may cause our business not to develop as we expect, and we cannot
predict all of them.
Overview
The following discussion includes Rand Capital Corporation (“Rand”), Rand Capital SBIC, L.P.,
(“Rand SBIC”), and Rand Capital Management, LLC (“Rand Management”), (collectively the
“Corporation”), its financial position and results of operations.
Rand is incorporated under the laws of New York and is regulated under the 1940 Act as a
business development company (“BDC”). In addition, a wholly-owned subsidiary, Rand SBIC is
regulated as a Small Business Investment Company (“SBIC”) by the Small Business Administration
(“SBA”). The Corporation anticipates that most, if not all, of its investments in the next year
will be originated through the SBIC subsidiary.
Critical Accounting Policies
The Corporation prepares its financial statements in accordance with U.S. generally accepted
accounting principles (GAAP) which requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities. For a summary of certain of our significant accounting
policies see Note 2 of the consolidated financial statements in December 31, 2005 Form 10-K. A
summary of our critical accounting policies can be found in the December 31, 2005 Form 10-K in Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Financial Condition
Overview:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
9/30/06 |
|
12/31/05 |
|
Increase |
|
% Increase |
Total assets |
|
$ |
17,384,675 |
|
|
$ |
16,063,605 |
|
|
$ |
1,321,070 |
|
|
|
8.2 |
% |
Total liabilities |
|
|
8,255,599 |
|
|
|
7,447,671 |
|
|
|
807,928 |
|
|
|
10.8 |
% |
| |
|
|
Net assets |
|
$ |
9,129,076 |
|
|
$ |
8,615,934 |
|
|
$ |
513,142 |
|
|
|
6.0 |
% |
| |
|
|
The Corporation’s financial condition is dependent on the success of its portfolio holdings.
It has invested a substantial portion of its assets in small to medium sized private companies. The
following summarizes the Corporation’s investment portfolio at the period-ends indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
9/30/06 |
|
12/31/05 |
|
Increase |
|
% Increase |
Investments, at cost |
|
$ |
13,894,158 |
|
|
$ |
13,712,890 |
|
|
$ |
181,268 |
|
|
|
1.3 |
% |
Unrealized appreciation
(depreciation), net |
|
|
195,783 |
|
|
|
(342,028 |
) |
|
|
537,811 |
|
|
|
157.2 |
% |
| |
|
|
Investments at fair value |
|
$ |
14,089,941 |
|
|
$ |
13,370,862 |
|
|
$ |
719,079 |
|
|
|
5.4 |
% |
| |
|
|
The increase in investments, at cost, is comprised of the following:
| |
|
|
|
|
| New Investments |
|
Amount |
|
Adampluseve, LLC (Adam+Eve) |
|
$ |
561,000 |
|
Niagara Dispensing Technologies, Inc.
(Niagara Dispensing) |
|
|
500,000 |
|
New Monarch Machine Tool, Inc. (Monarch) |
|
|
300,000 |
|
Kionix, Inc (Kionix) |
|
|
243,704 |
|
Rocket Broadband Networks, Inc (Rocket Broadband) |
|
|
195,918 |
|
WineIsIt.com, Corp. (Wineisit) |
|
|
20,000 |
|
|
|
|
|
Total of investments made during the nine months
ended September 30, 2006 |
|
$ |
1,820,622 |
|
|
|
|
|
Interest conversions: |
|
|
|
|
Photonic Products Group, Inc. (Photonics) |
|
|
10,000 |
|
Monarch |
|
|
2,877 |
|
|
|
|
|
Total of new investments and interest conversions
during the nine months ended September 30, 2006 |
|
$ |
1,833,499 |
|
|
|
|
|
|
|
|
|
|
Sales/Investment Repayments |
|
|
|
|
Minrad International, Inc. (Minrad) |
|
|
(608,304 |
) |
Concentrix |
|
|
(600,000 |
) |
Vanguard Modular Building Systems (Vanguard) |
|
|
(270,000 |
) |
Monarch |
|
|
(101,395 |
) |
Ramsco |
|
|
(46,860 |
) |
Gemcor II, LLC (Gemcor) |
|
|
(13,399 |
) |
APF Group, Inc. (APF) |
|
|
(8,106 |
) |
Takeform |
|
|
(4,167 |
) |
|
|
|
|
Total of sales or investment repayments
during the nine months ended September 30, 2006 |
|
|
(1,652,231 |
) |
|
|
|
|
|
|
|
|
|
Total change in investment balance, at cost
during the nine months ended September 30, 2006 |
|
$ |
181,268 |
|
|
|
|
|
Net asset value per share (NAV) was $1.60/share at September 30, 2006 versus $1.51/share at
December 31, 2005.
The Corporation’s total investments at fair value, whose fair value have been estimated by the
Board of Directors, approximated 154% of net assets at September 30, 2006 and 155% of net assets at
December 31, 2005.
Cash and cash equivalents approximated 22% of net assets at September 30, 2006 compared to 14%
at December 31, 2005.
Results of Operations
Investment Income
The Corporation’s investment objective is to achieve long-term capital appreciation on its
equity investments while maintaining a current cash flow from its debenture and pass through equity
instruments. Therefore, the Corporation will invest in a mixture of debenture and equity
instruments, which will provide a current return on a portion of the investment portfolio. The
equity features contained in our investment portfolio are structured to realize capital
appreciation over the long-term and may not necessarily generate current income in the form of
dividends or interest. In addition, the Corporation earns interest income from investing its idle
funds in money market instruments.
Comparison of the nine months ended September 30, 2006 to the nine months ended September 30,
2005
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2006 |
|
September 30, 2005 |
|
Increase |
|
% Increase |
| |
|
|
Interest from portfolio companies |
|
$ |
539,783 |
|
|
$ |
438,928 |
|
|
$ |
100,855 |
|
|
|
23.0 |
% |
Interest from other investments |
|
|
24,856 |
|
|
|
2,287 |
|
|
|
22,569 |
|
|
|
986.8 |
% |
Dividend and other investment income |
|
|
191,994 |
|
|
|
31,364 |
|
|
|
160,630 |
|
|
|
512.1 |
% |
Other income |
|
|
63,910 |
|
|
|
34,136 |
|
|
|
29,774 |
|
|
|
87.2 |
% |
| |
|
|
Total investment income |
|
$ |
820,543 |
|
|
$ |
506,715 |
|
|
$ |
313,828 |
|
|
|
61.9 |
% |
| |
|
|
Interest from portfolio companies — Portfolio interest income increased $100,855 or
23% during the nine months ended September 30, 2006 as compared to the same period in the prior
year. This increase is attributable to the fact that 64% of the total of the new investments during
2005 and the first nine months of 2006 originated out of the Corporation are debenture instruments
that earn interest income at a blended interest rate of approximately 10.7%.
After reviewing the portfolio companies’ performance and the circumstances surrounding the
investments the Corporation has ceased accruing interest income on the following investment
instruments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Year that Interest |
| Company |
|
Interest Rate |
|
Investment Cost |
|
Accrual Ceased |
Contract Staffing |
|
|
5 |
% |
|
|
141,400 |
|
|
|
2006 |
|
G-Tec |
|
|
8 |
% |
|
|
400,000 |
|
|
|
2004 |
|
WineIsIt.com |
|
|
10 |
% |
|
|
821,918 |
|
|
|
2005 |
|
Interest from other investments — The increase in interest income is primarily due to
higher yields on idle cash balances and the fact that the cash balance is approximately $1,529,000
higher than at September 30, 2006 then at September 30, 2005.
Dividend and other investment income — Dividend income is comprised of distributions from
Limited Liability Companies (LLC’s) that the Corporation has invested in. The Corporation’s
investment agreements with certain LLC companies require the entities to distribute funds to the
Corporation for
payment of income taxes on its allocable share of the entities’ profits. These dividends will
fluctuate based upon the profitability of the entities and the timing of the distributions.
Dividend income for the nine months ended September 30, 2006 consisted of distributions from Gemcor
II, LLC (Gemcor) for $159,087, Topps Meat Company LLC (Topps) for $22,752, Carolina Skiff LLC
(Carolina Skiff) for $8,981 and Vanguard Modular Building Systems (Vanguard) for $1,174. Dividend
income for the nine months ended September 30, 2005 consisted of distributions from Topps for
$18,379, Carolina Skiff for $11,811 and Vanguard for $1,174.
Other income — Other income consists of the revenue associated with the amortization of
financing fees charged to the portfolio companies upon successful closing of Rand SBIC financing.
The SBA regulations limit the amount of fees that can be charged to a portfolio company and the
Corporation typically charges 1% to 3% to the portfolio concerns. These fees are amortized ratably
over the life of the instrument associated with the fees. Upon the prepayment of a loan or debt
security, any unamortized closing fees are recorded as income. The unamortized fees are carried on
the balance sheet under Deferred Revenue. In addition, other income includes fees charged by the
Corporation to its portfolio companies for attendance at the portfolio company board meetings.
The increase in other income for the nine months ended September 30, 2006 can be attributed to
the fact that the one of the portfolio companies of the Corporation, Concentrix, paid off its debt
instrument early and therefore the remaining $12,000 in unamortized closing fees were brought into
income. In addition, the Corporation charged Concentrix an $18,000 prepayment penalty fee and the
income was included in this line item. The annualized financing fee income based on the existing
portfolio will be approximately $32,000 annually in 2006 and 2007 and less than $10,000 annually
thereafter. In addition board attendance fees are included in this line item and amounted to $5,000
for the nine months ended September 30, 2006 and $5,000 for same period ending September 30, 2005.
Operating Expenses
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2006 |
|
September 30, 2005 |
|
Increase |
|
% Increase |
Total Expenses |
|
$ |
1,019,314 |
|
|
$ |
858,221 |
|
|
$ |
161,093 |
|
|
|
19 |
% |
Operating expenses predominately consist of interest expense on SBA obligations, employee
compensation and benefits, directors’ fees, shareholder related costs, office expenses,
professional fees, and expenses related to identifying and reviewing investment opportunities. The
increase in operating expenses during the nine months ended September 30, 2006 can be primarily
attributed to the 84% or $158,212 increase in SBA interest expense. The SBA interest expense was
$346,635 for the nine months ended September 30, 2006 and $188,423 for the nine months ended
September 30, 2005. The Corporation has borrowed $8,100,000 from the SBA as of September 30, 2006
at an average borrowing rate, including surcharges, of approximately 5.9%. Interest costs will
continue to increase in 2006 and beyond as the Corporation continues to draw down SBA leverage up
to the maximum approved leverage of $10 million. This interest is paid on a semi-annual basis.
In addition, salaries decreased 8% or ($24,652) from $311,722 for the nine months ended
September 30, 2005 to $287,070 for the nine months ended September 30, 2006. This decrease is due
to the fact that the executive officers were not paid bonuses during the first nine months of 2006
as they were during the nine months ended September 30, 2005. Professional fees were $96,031 for
the nine months ended September 30, 2006 and $63,750 for the nine months ended September 30, 2005.
This represents an increase of 51% or $32,281 and can be attributed to the increasing legal, audit
and tax costs due to the increasingly more complex regulatory environment in which the Corporation
operates.
Net Realized Gains and Losses on Investments
During the nine months ended September 30, 2006, the Corporation recognized a net realized
gain of $600,527 on its sale of 448,341 shares of Minrad. The average sales price of Minrad was
$2.75/share and the basis of the stock was $1.36/share. The Corporation incurred $22,417 in broker
transaction fees that were netted against the realized gain. In addition, the Corporation sold its
interest in Vanguard during the nine months ended September 30, 2006 and recognized a ($81,000)
loss on the disposition. During the nine months ended September 30, 2005, the Corporation
recognized a realized loss of ($382,353) on its investment in D’Lisi Food Systems, Inc. (D’Lisi).
Net Change in Unrealized Appreciation (Depreciation) of Investments
The Corporation recorded a net increase in unrealized appreciation on investments of $535,544
during the nine months ended September 30, 2006, as compared to an increase of $563,615 during the
nine months ended September 30, 2005. The increase in unrealized appreciation (depreciation) on
investments of $535,544 is due to the following valuation changes made by the Corporation:
| |
|
|
|
|
| |
|
September 30, |
|
| |
|
2006 |
|
Minrad valuation to market |
|
$ |
829,717 |
|
Increase Carolina Skiff valuation |
|
|
189,000 |
|
Vanguard Sale |
|
|
135,000 |
|
Photonics valuation to market |
|
|
(7,920 |
) |
Decrease Wineisit valuation |
|
|
(176,918 |
) |
Minrad Stock Sales |
|
|
(433,335 |
) |
|
|
|
|
Total Change in net Unrealized Appreciation
during the nine months ended September 30, 2006 |
|
$ |
535,544 |
|
|
|
|
|
The Corporation recognized appreciation on its equity investment in Carolina Skiff based on
the improving financial condition of this portfolio company since the Corporation’s first
investments. Per the Corporation’s valuation policy a portfolio company can be valued based on a
very conservative financial measure if the portfolio company has been self-financing and has had
positive cash flow from operations for at least the past two fiscal years. These portfolio
companies were valued on a multiple of earnings before interest, tax, depreciation and amortization
(EBITDA).
The Corporation held 229,640 shares of Minrad stock at September 30, 2006. These shares were
valued at the average closing price for the last three days of the period ending September 30,
2006. The total value of the remaining Minrad shares amounted to $907,078 and included unrealized
appreciation of $595,960. Minrad is a publicly traded stock (AMEX symbol: BUF), and the
Corporation’s Minrad shares are restricted but may be sold in compliance with SEC Rule 144.
Photonics is a publicly traded stock (Nasdaq symbol: PHPG.OB) and is marked to market at the
end of each quarter.
The WineIsIt investment was revalued during the nine month period ended September 30, 2006
after a review by management which identified that the WineIsIt business model had deteriorated
since the time of the original funding, as compared to their original plan. The portfolio company
remains in operation and is developing a new business strategy.
For the nine month period ending September 30, 2005, the Corporation recognized appreciation
of $509,000 on its 667,981 shares of Minrad to reflect a change in pricing from a private offering
of preferred stock. In addition, the Corporation decreased its value in Kionix by ($284,477) during
the nine
months ended September 30, 2005 due to the fact that the portfolio company failed to achieve
certain performance milestones, therefore changing the liquidation preferences of the Series A and
B securities. This caused the Corporation to reprice its shares in Kionix from $0.35/share to
$0.25/share. Somerset’s value was decreased by ($50,349) during the nine months ended September
30, 2005 based on a round of financing that caused the price per membership unit to decrease. In
addition the Corporation reclassed its investment in D’Lisi Food Systems, Inc. (D’Lisi) from
unrealized to a realized loss for ($400,000).
All of these value adjustments are consistent with the Corporation’s established valuation
policy.
Net Increase in Net Assets from Operations
The Corporation accounts for its operations under U.S. generally accepted accounting
principles for investment companies. The principal measure of its financial performance is “net
increase (decrease) in net assets from operations” on its consolidated statements of operations.
For the nine months ended September 30, 2006, the net increase in net assets from operations was
$513,142 as compared to a net decrease in net assets from operations of $(109,171) for the same
nine month period in 2005. This increase is attributed to the realized and unrealized appreciation
recognized on the Minrad shares offset by the net investment losses for the same period discussed
above.
Liquidity and Capital Resources
The Corporation’s principal objective is to achieve capital appreciation. Therefore, a
significant portion of the investment portfolio is structured to maximize the potential for capital
appreciation, and certain of the Corporation’s portfolio investments may be structured to provide
little or no current yield in the form of dividends or interest payments.
As of September 30, 2006, the Corporation’s total liquidity, consisting of cash and cash
equivalents, was $2,012,306. Management expects that it may not be necessary to continue to draw
down SBA leverage in the current fiscal year in order to fund operations and new investments.
As of September 30, 2006 the Corporation had paid $100,000 to the SBA to reserve its approved
$10,000,000 leverage. It has drawn down $8,100,000 of this leverage as of September 30, 2006. The
remaining SBA leverage is guaranteed by the SBA to be available through September 30, 2008. These
SBA borrowings will have a balloon maturity beginning in 2014.
The Corporation has investments at cost at September 30, 2006 of approximately $13.9 million,
of which approximately 49%, or $6.7 million, provide for returns of interest at an annual blended
rate of 10.7%. $1.85 million of the $6.7 million in interest bearing instruments provide for the
deferral of interest payments after December 31, 2007. The Corporations current outstanding debt to
the SBA of $8.1 million carries a blended interest cost of 5.9%, which requires semi-annual
payments of interest. The Corporation’s focus is to continue to make investments that provide for
current returns of cash in the form of interest and dividends to provide funding to repay current
SBA interest charges and to also fund its operating costs. Net cash used in operating activities
has averaged approximately $455,000 over the last three years and management anticipates this
amount will continue at similar levels. The cash flow may fluctuate based on possible expenses
associated with compliance with new regulations. Management believes that the cash and cash
equivalents at September 30, 2006, coupled with the anticipated additional SBIC leverage draw downs
and interest and dividend payments on its portfolio investments, will provide the Corporation with
the liquidity necessary to fund operations and new investments over the next twelve months. The
Corporation’s cash flows related to its investing activities will continue to fluctuate based on
its success in originating investments and its ability to realize gains on liquidation of
investments.
Risk Factors and Other Considerations
The Corporation’s Portfolio Investments are Illiquid
Most of the investments of the Corporation are or will be either equity securities acquired
directly from small companies or below investment grade subordinated debt securities. The
Corporation’s portfolio of equity securities is, and will usually be, subject to restrictions on
resale or otherwise have no established trading market. The illiquidity of most of the
Corporation’s portfolio may adversely affect the ability of the Corporation to dispose of such
securities at times when it may be advantageous for the Corporation to liquidate such investments.
Investing in Private Companies involves a High Degree of Risk
The Corporation typically invests a substantial portion of its assets in small and medium
sized private companies. These private businesses may be thinly capitalized, unproven companies
with risky technologies and may lack management depth and have not attained profitability. Because
of the speculative nature and the lack of a public market for these investments, there is
significantly greater risk of loss than is the case with traditional investment securities. The
Corporation expects that some of its venture capital investments will be a complete loss or will be
unprofitable and that some will appear to be likely to become successful but never realize their
potential. The Corporation has been risk seeking rather than risk averse in its approach to venture
capital and other investments. Neither the Corporation’s investments nor an investment in the
Corporation is intended to constitute a balanced investment program.
Even if the Corporation’s portfolio companies are able to develop commercially viable
products, the market for new products and services is highly competitive and rapidly changing.
Commercial success is difficult to predict and the marketing efforts of the portfolio companies may
not be successful.
The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
There is typically no public market for equity securities of the small privately held
companies in which the Corporation invests. As a result, the valuations of the equity securities in
the Corporation’s portfolio are stated at fair value as determined by the good faith estimate of
the Corporation’s Board of Directors in accordance with the established SBA valuation policy. In
the absence of a readily ascertainable market value, the estimated value of the Corporation’s
portfolio of securities may differ significantly, favorably or unfavorably, from the values that
would be placed on the portfolio if a ready market for the equity securities existed. Any changes
in estimated net asset value are recorded in the statement of operations as “Net change in
unrealized appreciation (depreciation).”
Investing in The Corporation’s Shares May be Inappropriate for the Investor’s Risk Tolerance
The Corporation’s investments, in accordance with its investment objective and principal
strategies, result in a far above average amount of risk and volatility and may well result in loss
of principal. The Corporation’s investments in portfolio companies are highly speculative and
aggressive and, therefore, an investment in its shares may not be suitable for investors for whom
such risk is inappropriate.
The Corporation is Subject to Risks Created by its Regulated Environment
The Corporation is regulated by the SBA and the SEC. Changes in the laws or regulations that
govern SBICs and BDCs could significantly affect the Corporation’s business. Regulations and laws
may
be changed periodically, and the interpretations of the relevant regulations and laws are also
subject to change. Any change in the regulations and laws governing the Corporation’s business
could have a material impact on its financial condition or its results of operations.
The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
The Corporation’s Leverageable Capital may include large amounts of debt securities issued
through the SBA, and all of the debentures will have fixed interest rates. Until and unless the
Corporation is able to invest substantially all of the proceeds from debentures at annualized
interest or other rates of return that substantially exceed annualized interest rates that Rand
SBIC must pay the SBA, the Corporation’s operating results may be adversely affected which may, in
turn, depress the market price of the Corporation’s common stock.
The Economic Environment May Change
The value of the Corporation’s common stock may decline and may be affected by numerous market
conditions, which could result in the loss of some or the entire amount invested in its shares. The
securities markets frequently experience extreme price and volume fluctuations which affect market
prices for securities of companies generally, and technology and very small capitalization
companies in particular. General economic conditions, and general conditions in the Internet and
information technology, life sciences, material sciences and other high technology industries, will
also affect the stock price.
The Corporation is Dependent Upon Key Management Personnel for Future Success
The Corporation is dependent for the selection, structuring, closing and monitoring of its
investments on the diligence and skill of its two senior officers, Allen F. Grum and Daniel P.
Penberthy. The future success of the Corporation depends to a significant extent on the continued
service and coordination of its senior management team. The departure of either of its executive
officers could materially adversely affect its ability to implement its business strategy. The
Corporation does not maintain key man life insurance on any of its officers or employees.
The Corporation Operates in a Competitive Market for Investment Opportunities
The Corporation faces competition in its investing activities from many entities including
other SBIC’s, private venture capital funds, investment affiliates of large companies, wealthy
individuals and other domestic or foreign investors. The competition is not limited to entities
that operate in the same geographical area as the Corporation. As a regulated BDC, the Corporation
is required to disclose quarterly and annually the name and business description of portfolio
companies and the value of its portfolio securities. Most of its competitors are not subject to
this disclosure requirement. The Corporation’s obligation to disclose this information could hinder
its ability to invest in certain portfolio companies. Additionally, other regulations, current and
future, may make the Corporation less attractive as a potential investor to a given portfolio
company than a private venture capital fund.
Fluctuations of Quarterly Results
The Corporation’s quarterly operating results could fluctuate as a result of a number of
factors. These factors include, among others, variations in and the timing of the recognition of
realized and unrealized gains or losses, the degree to which portfolio companies encounter
competition in their markets and general economic conditions. As a result of these factors, results
for any one quarter should not be relied upon as being indicative of performance in future
quarters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Corporation’s investment activities contain elements of risk. The portion of the
Corporation’s investment portfolio consisting of equity and equity-linked debt securities in
private companies is subject to valuation risk. Because there is typically no public market for the
equity and equity-linked debt securities in which it invests, the valuation of the equity interests
in the portfolio is stated at “fair value” as determined in good faith by the Board of Directors in
accordance with the Corporation’s investment valuation policy. (The discussion of valuation policy
contained in Item 1 “Financial Statements” and Supplementary Data in the “Notes to Consolidated
Schedule of Portfolio Investments” and is hereby incorporated herein by reference.) In the absence
of a readily ascertainable market value, the estimated value of the Corporation’s portfolio may
differ significantly from the values that would be placed on the portfolio if a ready market for
the investments existed. Any changes in valuation are recorded in the Corporation’s consolidated
Statement of Operations as “Net change in unrealized appreciation (depreciation).”
At times, a portion of the Corporation’s portfolio may include marketable securities traded in
the over-the-counter market. In addition, there may be a portion of the Corporation’s portfolio for
which no regular trading market exists. In order to realize the full value of a security, the
market must trade in an orderly fashion or a willing purchaser must be available when a sale is to
be made. Should an economic or other event occur that would not allow the markets to trade in an
orderly fashion, the Corporation may not be able to realize the fair value of its marketable
investments or other investments in a timely manner.
As of September 30, 2006 the Corporation did not have any off-balance sheet investments or
hedging investments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of
our principal executive officer and principal financial officer, has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period
covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive
officer and principal financial officer have concluded that as of such date, our disclosure
controls and procedures were designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in applicable SEC rules and forms and were effective.
Changes in Internal Control Over Financial Reporting. There have been no significant
changes in our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
We have had no material changes to risk factors as previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
The following exhibits are filed with this report or are incorporated herein by
reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934.
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(3)(i)
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Certificate of Incorporation of the Corporation, incorporated by
reference to Exhibit (a) (1) of Form N-2 filed with the Securities
Exchange Commission on April 22, 1997. |
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(3)(ii)
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By-laws of the Corporation incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997. |
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(4)
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Specimen certificate of common stock certificate,
incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997. |
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(10.1)
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Employee Stock Option Plan — incorporated by reference to Appendix B to
the Corporation’s definitive Proxy Statement filed on June 1, 2002.* |
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(10.3)
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Agreement of Limited Partnership for Rand Capital SBIC, L.P. —
incorporated by reference to Exhibit 10.3 to the Corporation’s Form 10-K
filed for the year ended December 31, 2001. |
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(10.4)
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Certificate of Limited Partnership of Rand Capital SBIC, L.P. —
incorporated by reference to Exhibit 10.4 to the Corporation’s Form 10-K
filed for the year ended December 31, 2001. |
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(10.5)
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Limited Liability Corporation Agreement of Rand Capital Management, LLC
— incorporated by reference to Exhibit 10.5 to the Corporation’s Form
10-K Report filed for the year ended December 31, 2001. |
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(10.6)
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Certificate of Formation of Rand Capital Management, LLC— incorporated
by reference to Exhibit 10.6 to the Corporation’s Form 10-K Report filed
for the year ended December 31, 2001. |
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(10.7)
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N/A |
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(10.8)
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Profit Sharing Plan — incorporated by reference to Exhibit 10.8 to the
Corporation’s Form 10-K Report filed for the year ended December 31,
2002.* |
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(21)
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Subsidiaries of the Corporation — incorporated by
reference to Exhibit 21 to the Corporation’s Form 10-K Report filed for
the year ended December 31, 2001. |
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(31.1)
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Certification of the Chief Executive Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith |
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(31.2)
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Certification of Chief Financial Officer Pursuant to Rules
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as
amended, filed herewith |
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(32.1)
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
— Rand Capital Corporation — filed herewith |
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(32.2)
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
— Rand Capital SBIC, L.P. — filed herewith |
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Management contract or compensatory plan. |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 7, 2006
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RAND CAPITAL CORPORATION |
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By:
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/s/ Allen F. Grum
Allen F. Grum, President
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By:
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/s/ Daniel P. Penberthy
Daniel P. Penberthy, Treasurer
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RAND CAPITAL SBIC, L.P. |
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RAND CAPITAL MANAGEMENT LLC
General Partner |
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RAND CAPITAL CORPORATION
Member |
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By:
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/s/ Allen F. Grum
Allen F. Grum, President
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By:
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/s/ Daniel P. Penberthy
Daniel P. Penberthy, Treasurer
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