10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

☐ 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: 814-00235

Rand Capital Corporation

(Exact Name of Registrant as specified in its Charter)


New York		16-0961359
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

1405 Rand Building, Buffalo, NY		14203
(Address of Principal executive offices)		(Zip Code)

(716) 853-0802

(Registrant’s telephone number, including area code)

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

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock, $0.10 par value

RAND

Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of May 9, 2023, there were 2,581,021 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	1
	Consolidated Statements of Financial Position as of March 31, 2023 (Unaudited) and December 31, 2022	1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	2
	Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	4
	Consolidated Schedule of Portfolio Investments as of March 31, 2023 (Unaudited)	5
	Consolidated Schedule of Portfolio Investments as of December 31, 2022	13
	Notes to the Consolidated Financial Statements (Unaudited)	21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
PART II. – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


	March 31, 2023 (Unaudited)			December 31, 2022
ASSETS
Investments at fair value:
Control investments (cost of $4,704,404 and $4,660,017, respectively)	$	3,580,594		$	3,536,207
Affiliate investments (cost of $35,706,050 and $30,204,160, respectively)		43,743,479			38,241,589
Non-Control/Non-Affiliate investments (cost of $20,589,821 and $20,852,060, respectively)		20,866,197			19,726,463
Total investments, at fair value (cost of $61,000,275 and $55,716,237, respectively)		68,190,270			61,504,259
Cash		1,841,162			1,368,996
Interest receivable		209,492			208,338
Prepaid income taxes		43,939			76,396
Deferred tax asset		33,695			28,160
Other assets		286,715			295,043
Total assets	$	70,605,273		$	63,481,192
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)
Liabilities:
Due to investment adviser	$	245,768		$	562,221
Accounts payable and accrued expenses		97,660			66,680
Line of credit (see Note 6)		7,950,000			2,550,000
Capital gains incentive fees		2,458,000			2,167,000
Deferred revenue		478,452			413,971
Total liabilities		11,229,880			5,759,872
Commitments and contingencies (See Note 5)
Stockholders’ equity (net assets):
Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916; shares outstanding: 2,581,021 at 3/31/23 and 12/31/22		264,892			264,892
Capital in excess of par value		51,464,267			51,464,267
Treasury stock, at cost: 67,895 shares at 3/31/23 and 12/31/22		(1,566,605	)		(1,566,605	)
Total distributable earnings		9,212,839			7,558,766
Total stockholders’ equity (net assets) (per share – 3/31/23: $23.00; 12/31/22: $22.36)		59,375,393			57,721,320
Total liabilities and stockholders’ equity (net assets)	$	70,605,273		$	63,481,192

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31, 2023			Three months ended March 31, 2022
Investment income:
Interest from portfolio companies:
Control investments	$	150,916		$	—
Affiliate investments		787,821			570,116
Non-Control/Non-Affiliate investments		358,166			342,023
Total interest from portfolio companies		1,296,903			912,139
Interest from other investments:
Non-Control/Non-Affiliate investments		132			—
Total interest from other investments		132			—
Dividend and other investment income:
Affiliate investments		347,148			43,725
Non-Control/Non-Affiliate investments		127,595			129,265
Total dividend and other investment income		474,743			172,990
Fee income:
Control investments		3,900			—
Affiliate investments		67,842			30,305
Non-Control/Non-Affiliate investments		7,978			9,314
Total fee income		79,720			39,619
Total investment income		1,851,498			1,124,748
Expenses:
Base management fee (see Note 8)		245,393			240,275
Capital gains incentive fees (see Note 8)		291,000			(239,760	)
Professional fees		170,975			231,083
Interest expense		158,400			—
Stockholders and office operating		64,304			56,698
Directors' fees		63,850			45,100
Administrative fees		37,250			—
Insurance		12,960			8,910
Corporate development		3,713			3,027
Other operating		—			45
Total expenses		1,047,845			345,378
Net investment income before income taxes:		803,653			779,370
Income tax expense		88,737			7,367
Net investment income		714,916			772,003
Net realized gain (loss) on sales and dispositions of investments:
Affiliate investments		58,329			—
Non-Control/Non-Affiliate investments		(4,941	)		(851,471	)
Net realized gain (loss) on sales and dispositions of investments		53,388			(851,471	)
Net change in unrealized appreciation/depreciation on investments:
Non-Control/Non-Affiliate investments		1,401,973			(331,069	)
Net change in unrealized appreciation/depreciation on investments		1,401,973			(331,069	)
Net realized and unrealized gain (loss) on investments		1,455,361			(1,182,540	)
Net increase (decrease) in net assets from operations	$	2,170,277		$	(410,537	)
Weighted average shares outstanding		2,581,021			2,581,021
Basic and diluted net increase (decrease) in net assets from operations per share	$	0.84		$	(0.16	)

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	Three months ended March 31, 2023			Three months ended March 31, 2022
Net assets at beginning of period	$	57,721,320		$	60,745,416
Net investment income		714,916			772,003
Net realized gain (loss) on sales and dispositions of investments		53,388			(851,471	)
Net change in unrealized appreciation/depreciation on investments		1,401,973			(331,069	)
Net increase (decrease) in net assets from operations		2,170,277			(410,537	)
Declaration of dividend		(516,204	)		(387,153	)
Net assets at end of period	$	59,375,393		$	59,947,726

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31, 2023			Three months ended March 31, 2022
Cash flows from operating activities:
Net increase (decrease) in net assets from operations	$	2,170,277		$	(410,537	)
Adjustments to reconcile net increase (decrease) in net assets to net cash (used in) provided by operating activities:
Investments in portfolio companies		(5,570,000	)		(542,086	)
Proceeds from sale of portfolio investments		268,329			1,079,589
Proceeds from loan repayments		300,000			90,175
Net realized gain (loss) on sales and dispositions of portfolio investments		(53,388	)		851,471
Change in unrealized (appreciation) depreciation on investments		(1,401,973	)		331,069
Deferred income tax benefit		(5,535	)		(10,316	)
Amortization		6,250			—
Original issue discount amortization		(7,752	)		(6,252	)
Non-cash conversion of debenture interest		(216,286	)		(147,146	)
Changes in operating assets and liabilities:
Increase in interest receivable		(1,154	)		(67,750	)
Increase in other assets		(2,863	)		(113,646

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