UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the Transition Period from _____ to _______
Commission File Number:
(Exact Name of Registrant as specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(IRS Employer |
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(Address of Principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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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 November 6, 2023, there were
RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-Q
Item 1. |
1 |
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1 |
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2 |
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3 |
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4 |
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Consolidated Schedule of Portfolio Investments as of September 30, 2023 (Unaudited) |
5 |
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Consolidated Schedule of Portfolio Investments as of December 31, 2022 |
13 |
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21 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
37 |
Item 3. |
47 |
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Item 4. |
48 |
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Item 1. |
49 |
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Item 1A. |
49 |
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Item 2. |
49 |
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Item 3. |
49 |
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Item 4. |
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Item 5. |
49 |
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Item 6. |
50 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
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September 30, |
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December 31, |
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ASSETS |
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Investments at fair value: |
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Control investments (cost of $ |
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$ |
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$ |
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Affiliate investments (cost of $ |
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Non-Control/Non-Affiliate investments (cost of $ |
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Total investments, at fair value (cost of $ |
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Cash |
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Interest receivable |
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Prepaid income taxes |
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— |
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Deferred tax asset, net |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS) |
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Liabilities: |
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Due to investment adviser |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Income taxes payable |
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— |
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Line of credit (see Note 6) |
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Capital gains incentive fees |
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Deferred revenue |
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Total liabilities |
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Stockholders’ equity (net assets): |
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Common stock, $ |
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Capital in excess of par value |
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Treasury stock, at cost: |
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Total distributable earnings |
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Total stockholders’ equity (net assets) (per share –9/30/23: $ |
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Total liabilities and stockholders’ equity (net assets) |
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$ |
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$ |
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See accompanying notes
1
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three months ended |
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Three months ended |
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Nine months ended |
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Nine months ended |
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Investment income: |
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Interest from portfolio companies: |
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Control investments |
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$ |
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$ |
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$ |
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$ |
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Affiliate investments |
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Non-Control/Non-Affiliate investments |
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Total interest from portfolio companies |
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Interest from other investments: |
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Non-Control/Non-Affiliate investments |
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Total interest from other investments |
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Dividend and other investment income: |
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Affiliate investments |
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Non-Control/Non-Affiliate investments |
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Total dividend and other investment income |
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Fee income: |
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Control investments |
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Affiliate investments |
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Non-Control/Non-Affiliate investments |
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Total fee income |
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Total investment income |
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Expenses: |
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Base management fee (see Note 8) |
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Capital gains incentive fees (see Note 8) |
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( |
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( |
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Interest expense |
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Professional fees |
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Stockholders and office operating |
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Directors' fees |
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Administrative fees |
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— |
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— |
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Insurance |
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Corporate development |
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— |
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— |
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Other operating |
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— |
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— |
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Total expenses |
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Net investment income before income taxes: |
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Income taxes, including excise tax expense |
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Net investment income |
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Net realized (loss) gain on sales and dispositions of investments: |
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Affiliate investments |
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— |
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— |
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Non-Control/Non-Affiliate investments |
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( |
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( |
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Net realized (loss) gain on sales and dispositions of investments, before income taxes |
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( |
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Income tax expense |
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— |
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— |
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— |
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Net realized (loss) gain on sales and dispositions of investments |
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( |
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Net change in unrealized appreciation/depreciation |
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Affiliate investments |
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— |
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— |
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( |
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Non-Control/Non-Affiliate investments |
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( |
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Change in unrealized appreciation/depreciation before income taxes |
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( |
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Deferred income tax benefit |
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— |
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— |
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( |
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— |
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Net change in unrealized appreciation/depreciation on investments |
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( |
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Net realized and unrealized (loss) gain on investments |
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( |
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( |
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Net increase (decrease) in net assets from operations |
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$ |
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$ |
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$ |
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$ |
( |
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Weighted average shares outstanding |
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Basic and diluted net increase (decrease) in net assets from |
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$ |
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$ |
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$ |
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$ |
( |
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See accompanying notes
2
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
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Three months ended |
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Three months ended |
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Nine months ended |
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Nine months ended |
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Net assets at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Net investment income |
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Net realized (loss) gain on sales and dispositions of investments |
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( |
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Net change in unrealized appreciation/depreciation on investments |
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( |
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Net increase (decrease) in net assets from operations |
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( |
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Declaration of dividend |
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( |
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( |
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( |
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( |
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Net assets at end of period |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes
3
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine months ended |
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Nine months ended |
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Cash flows from operating activities: |
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Net increase (decrease) in net assets from operations |
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$ |
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$ |
( |
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Adjustments to reconcile net increase (decrease) in net assets to net cash |
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Investments in portfolio companies |
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( |
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( |
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Proceeds from sale of portfolio investments |
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Proceeds from loan repayments |
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Net realized gain on sales and dispositions of portfolio investments |
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( |
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( |
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Change in unrealized (appreciation) depreciation on investments |
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( |
) |
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Deferred income tax benefit |
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( |
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( |
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Amortization |
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Original issue discount amortization |
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( |
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( |
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Non-cash conversion of debenture interest |
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( |
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( |
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Changes in operating assets and liabilities: |
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Increase in interest receivable |
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( |
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( |
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Increase in other assets |
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( |
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( |
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Decrease in prepaid income taxes |
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Increase in income taxes payable |
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— |
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Increase in accounts payable and accrued expenses |
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Decrease in due to investment adviser |
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( |
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( |
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Increase (decrease) in capital gains incentive fees payable |
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( |
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Increase (decrease) in deferred revenue |
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( |
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Total adjustments |
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( |
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Net cash (used in) provided by operating activities |
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( |
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Cash flows from financing activities: |
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Proceeds from line of credit |
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— |
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Payment of cash dividend |
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( |
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( |
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Payment of closing fee |
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— |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Net increase in cash |
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Cash: |
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Beginning of period |
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End of period |
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$ |
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$ |
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See accompanying notes
4
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023
(Unaudited)
Company, Geographic Location, Business Description, (Industry) and Website |
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(a) |
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(b) |
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(c) |
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Cost |
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(d)(f) |
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Percent of Net Assets |
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Non-Control/Non-Affiliate Investments – |
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ACV Auctions, Inc. (e)(n) |
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< |
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$ |
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$ |
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Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) |
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www.acvauctions.com |
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Ares Capital Corporation (n) |
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< |
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Barings BDC, Inc. (n) |
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< |
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Caitec, Inc. (l) |
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$ |
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www.caitec.com |
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$ |
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Total Caitec |
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Carlyle Secured Lending Inc. (n) |
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< |
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FS KKR Capital Corp. (n) |
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< |
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GoNoodle, Inc. (l) |
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$ |
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< |
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software providing core aligned physical |
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Warrant for |
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activity breaks. (Software) |
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Warrant for |
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www.gonoodle.com |
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Total GoNoodle |
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HDI Acquisition LLC (Hilton Displays) (h) (l) |
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$ |
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and maintenance of signage and brands. (Manufacturing) |
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www.hiltondisplays.com |
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Lumious (Tech 2000, Inc.) |
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$ |
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training. (Software) |
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www.t2000inc.com |
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Mattison Avenue Holdings LLC (l) |
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$ |
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www.mattisonsalonsuites.com |
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See accompanying notes
5
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
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(b) |
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(c) |
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Cost |
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|
(d)(f) |
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Percent of Net Assets |
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Nailbiter, Inc. |
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$ |
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< |
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||||
www.nailbiter.com |
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Warrants for Preferred Stock. |
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— |
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— |
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Total Nailbiter |
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(i) Interest Receivable $ |
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OnCore Golf Technology, Inc. (e) |
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Open Exchange, Inc. (e) |
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|
|
|
|
|
|
|
|
||||||
Lincoln, MA. Online presentation and training |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|||
software. (Software) |
|
Total Open Exchange |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.openexc.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
PennantPark Investment Corporation (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
PostProcess Technologies, Inc. (e) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
Subtotal Non-Control/Non-Affiliate Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
Affiliate Investments – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Applied Image, Inc. |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
imaged optical components and calibration |
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
standards for a wide range of industries and |
|
Total Applied Image |
|
|
|
|
|
|
|
|
|
|
|
|
||
applications. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
BMP Food Service Supply Holdco, LLC (h)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
Salt Lake City, UT. Provides design, |
|
|
|
|
|
|
|
|
|
|
|
|
||||
distribution, and installation services for |
|
Total BMP Food Service Supply |
|
|
|
|
|
|
|
|
|
|
|
|
||
commercial kitchen renovations and new builds. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
BMP Swanson Holdco, LLC (l) (m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
variety of fire protection systems. |
|
Preferred Membership Interest for |
|
|
|
|
|
|
|
|
|
|
|
|||
(Professional and Business Services) |
|
Total BMP Swanson |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.swansonfire.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes
6
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Carolina Skiff LLC (m) |
|
|
|
|
|
|
|
|
|
|
||||||
and pleasure boats. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
FCM Industries Holdco LLC (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
installation company that serves a range |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
(Professional and Business Services) |
|
Total FCM |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.firstcoastmulch.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Filterworks Acquisition USA, LLC d/b/a Autotality (l)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
booth filter services for collision shops. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Automotive) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
www.autotality.com |
|
Total Filterworks |
|
|
|
|
|
|
|
|
|
|
|
|
||
Highland All About People Holdings, Inc. (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
executive search firm with a focus on the |
|
|
|
|
|
|
|
|
|
|
|
|
||||
healthcare industry. |
|
Total All About People |
|
|
|
|
|
|
|
|
|
|
|
|
||
(Professional and Business Services) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Inter-National Electronic Alloys LLC |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
Oakland, NJ. Stocking distributor of controlled |
|
|
|
|
|
|
|
|
|
|
|
|
||||
expansion alloys, electronic grade nickels, |
|
Total EFINEA |
|
|
|
|
|
|
|
|
|
|
|
|
||
refractory grade metals and alloys, and soft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Knoa Software, Inc. |
|
|
|
|
|
|
|
|
— |
|
|
|||||
management and performance (EMP) solutions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
utilizing enterprise applications. (Software) |
|
Total Knoa |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.knoa.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Mezmeriz, Inc. (e) |
|
|
|
|
|
|
|
|
— |
|
|
|||||
Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.mezmeriz.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Pressure Pro, Inc. (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
pressure monitoring systems consisting |
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
of a suite of proprietary hardware |
|
Total Pressure Pro |
|
|
|
|
|
|
|
|
|
|
|
|
||
and software. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.pressurepro.us |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
SciAps, Inc. |
|
|
|
|
|
|
|
|
|
|
||||||
Woburn, MA. Instrumentation company |
|
|
|
|
|
|
|
|
|
|
|
|
||||
producing portable analytical devices using |
|
|
|
|
|
|
|
|
|
|
|
|
||||
XRF, LIBS and RAMAN spectroscopy to |
|
|
|
|
|
|
|
|
|
|
|
|
||||
identify compounds, minerals, and elements. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
www.sciaps.com |
|
Warrant to purchase Series D-1 Preferred. |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Total SciAps |
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes
7
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Seybert’s Billiards Corporation |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
Coldwater, MI. Billiard supplies. |
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
(Consumer Product) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total Seybert’s |
|
|
|
|
|
|
|
|
|
|
|
|
||
Tilson Technology Management, Inc. |
|
* |
|
|
|
|
|
|
|
|
|
|||||
Portland, ME. Provides network deployment |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
construction and information system services |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
management for cellular, fiber optic and |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
wireless systems providers. Its affiliated |
|
|
|
|
|
|
|
|
|
|
|
|
||||
entity, SQF, LLC is a CLEC supporting |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|||
small cell 5G deployment. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
www.tilsontech.com |
|
Total Tilson |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
Control Investments - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ITA Acquisition, LLC (l)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
www.itawindowfashions.com |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|||
|
|
Total ITA |
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal Control Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
TOTAL INVESTMENTS – |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
LIABILITIES IN EXCESS OF OTHER ASSETS - ( |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
NET ASSETS – |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
||
See accompanying notes
8
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Notes to the Consolidated Schedule of Portfolio Investments
9
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Investments in and Advances to Affiliates
Company |
|
Type of Investment |
|
January 1, 2023, Fair Value |
|
|
Net Change in Unrealized Appreciation (Depreciation) |
|
|
Gross Additions |
|
|
Gross Reductions |
|
|
September 30, 2023, Fair Value |
|
|
Net Realized Gains (Losses) |
|
|
Amount of Interest/ |
|
|||||||
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
ITA Acquisition, LLC |
|
$ |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
Total ITA |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Total Control Investments |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Applied Image, Inc. |
|
$ |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
Warrant for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Total Applied Image |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
BMP Food Service Supply Holdco, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total FSS |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
||||
BMP Swanson Holdco, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Preferred Membership Interest for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
Total BMP Swanson |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Carolina Skiff LLC |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
DSD Operating, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
||||
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
Total DSD |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
||||
FCM Industries Holdco LLC |
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
Total FCM |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Filterworks Acquisition USA, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Filterworks |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Highland All About People Holdings, Inc. |
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total All About People |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Inter-National Electronic Alloys LLC |
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total INEA |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
See accompanying notes
10
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Company |
|
Type of Investment |
|
January 1, 2023, Fair Value |
|
|
Net Change in Unrealized Appreciation (Depreciation) |
|
|
Gross Additions |
|
|
Gross Reductions |
|
|
September 30, 2023, Fair Value |
|
|
Net Realized Gains (Losses) |
|
|
Amount of Interest/ |
|
|||||||
Knoa Software, Inc. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Knoa |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Mezmeriz, Inc. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Microcision LLC |
|
Membership Interest Purchase Warrant for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Pressure Pro, Inc. |
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
Warrant for |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
Total Pressure Pro |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
SciAps, Inc. |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Warrant to purchase Series D-1 Preferred. |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Total SciAps |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Seybert’s Billiards Corporation |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Seybert’s |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Tilson Technology |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Management, Inc. |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Tilson |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Total Affiliate Investments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
Total Control and Affiliate Investments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements and the Consolidated Schedule of Portfolio Investments.
See accompanying notes
11
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
September 30, 2023 (Continued)
(Unaudited)
Industry Classification |
|
Percentage of Total Investments (at fair value) as of September 30, 2023 |
|
|
Professional and Business Services |
|
|
% |
|
Manufacturing |
|
|
|
|
Consumer Product |
|
|
|
|
Software |
|
|
|
|
Distribution |
|
|
|
|
BDC Investment Funds |
|
|
|
|
Automotive |
|
|
|
|
Total Investments |
|
|
% |
|
See accompanying notes
12
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Non-Control/Non-Affiliate Investments – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ACV Auctions, Inc. (e)(n) |
|
|
|
< |
|
$ |
|
|
$ |
|
|
|||||
Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.acvauctions.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Ares Capital Corporation (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
Barings BDC, Inc. (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
Caitec, Inc. (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
www.caitec.com |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total Caitec |
|
|
|
|
|
|
|
|
|
|
|
|
||
Carlyle Secured Lending Inc. (formerly TCG BDC, Inc.) (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
FS KKR Capital Corp. (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
GoNoodle, Inc. (h) (l) |
|
$ |
|
|
< |
|
|
|
|
|
|
|
||||
software providing core aligned physical |
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
activity breaks. (Software) |
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
www.gonoodle.com |
|
Total GoNoodle |
|
|
|
|
|
|
|
|
|
|
|
|
||
HDI Acquisition LLC (Hilton Displays) (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
and maintenance of signage and brands. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.hiltondisplays.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Lumious (Tech 2000, Inc.) (h) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
training. (Software) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.t2000inc.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Mattison Avenue Holdings LLC (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
www.mattisonsalonsuites.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes
13
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Nailbiter, Inc. |
|
$ |
|
|
< |
|
|
|
|
|
|
|
||||
www.nailbiter.com |
|
Warrants for Preferred Stock. |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Total Nailbiter, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
||
OnCore Golf Technology, Inc. (e) |
|
|
|
|
|
|
|
|
|
|
||||||
Open Exchange, Inc. (e) |
|
|
|
|
|
|
|
|
|
|
||||||
Lincoln, MA. Online presentation and training |
|
|
|
|
|
|
|
|
|
|
|
|
||||
software. (Software) |
|
Total Open Exchange |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.openexc.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
PennantPark Investment Corporation (n) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
PostProcess Technologies, Inc. (e) |
|
|
|
< |
|
|
|
|
|
|
|
|||||
Rheonix, Inc. (e) |
|
|
|
|
|
— |
|
|
|
— |
|
|
||||
Ithaca, NY. Developer of fully automated |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|||
microfluidic based molecular assay and |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
||
diagnostic testing devices. (Health Care) |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|||
www.rheonix.com |
|
Total Rheonix |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
Somerset Gas Transmission Company, LLC (e)(m) |
|
|
|
|
|
|
|
|
|
|
||||||
Subtotal Non-Control/Non-Affiliate Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
Affiliate Investments – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Applied Image, Inc. |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
imaged optical components and calibration |
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
standards for a wide range of industries and |
|
Total Applied Image |
|
|
|
|
|
|
|
|
|
|
|
|
||
applications. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
BMP Food Service Supply Holdco, LLC (m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
distribution, and installation services for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
commercial kitchen renovations and new builds. |
|
Total BMP Food Service Supply |
|
|
|
|
|
|
|
|
|
|
|
|
||
(Professional Services) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
BMP Swanson Holdco, LLC (m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
variety of fire protection systems. |
|
Preferred Membership Interest for |
|
|
|
|
|
|
|
|
|
|
|
|||
(Professional Services) |
|
Total BMP Swanson |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.swansonfire.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes
14
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Carolina Skiff LLC (m) |
|
|
|
|
|
|
|
|
|
|
||||||
and pleasure boats. (Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
DSD Operating, LLC (l)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
dealerships. (Automotive) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
www.dsdteam.com |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total DSD |
|
|
|
|
|
|
|
|
|
|
|
|
||
Filterworks Acquisition USA, LLC DBA Autotality (l)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
(Automotive) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
www.autotality.com |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total Filterworks |
|
|
|
|
|
|
|
|
|
|
|
|
||
Knoa Software, Inc. |
|
|
|
|
|
|
|
|
— |
|
|
|||||
New York, NY. End user experience |
|
|
|
|
|
|
|
|
|
|
|
|
||||
management and performance (EMP) solutions |
|
Total Knoa |
|
|
|
|
|
|
|
|
|
|
|
|
||
utilizing enterprise applications. (Software) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.knoa.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Mezmeriz, Inc. (e) |
|
|
|
|
|
|
|
|
— |
|
|
|||||
Ithaca, NY. Technology company developing novel reality capture tools for 3D mapping, reality modeling, object tracking and classification. (Electronics Developer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
www.mezmeriz.com |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
SciAps, Inc. |
|
|
|
|
|
|
|
|
|
|
||||||
Woburn, MA. Instrumentation company |
|
|
|
|
|
|
|
|
|
|
|
|
||||
producing portable analytical devices using |
|
|
|
|
|
|
|
|
|
|
|
|
||||
XRF, LIBS and RAMAN spectroscopy to |
|
|
|
|
|
|
|
|
|
|
|
|
||||
identify compounds, minerals, and elements. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Manufacturing) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
www.sciaps.com |
|
Warrant to purchase Series D-1 Preferred. |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Total SciAps |
|
|
|
|
|
|
|
|
|
|
|
|
||
Seybert’s Billiards Corporation (l) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
(Consumer Product) |
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
www.seyberts.com |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Warrant for |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total Seybert’s |
|
|
|
|
|
|
|
|
|
|
|
|
||
See accompanying notes
15
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Company, Geographic Location, Business Description, (Industry) and Website |
|
(a) |
|
(b) |
|
(c) |
|
Cost |
|
|
(d)(f) |
|
|
Percent of Net Assets |
||
Tilson Technology Management, Inc. |
|
* |
|
|
|
|
|
|
|
|
|
|||||
Portland, ME. Provides network deployment |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
construction and information system services |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
management for cellular, fiber optic and |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|||
wireless systems providers. Its affiliated |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|||
small cell 5G deployment. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Professional Services) |
|
Total Tilson |
|
|
|
|
|
|
|
|
|
|
|
|
||
www.tilsontech.com |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
Control Investments - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ITA Acquisition, LLC (l)(m) |
|
$ |
|
|
|
|
|
|
|
|
|
|||||
manufacturing. (Manufacturing) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|||
|
|
Total ITA |
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal Control Investments |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
TOTAL INVESTMENTS – |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
||
LIABILITIES IN EXCESS OF OTHER ASSETS - ( |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
NET ASSETS – |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
||
See accompanying notes
16
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Notes to the Consolidated Schedule of Portfolio Investments
17
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Investments in and Advances to Affiliates
Company |
|
Type of Investment |
|
January 1, 2022, Fair Value |
|
|
Net Change in Unrealized Appreciation (Depreciation) |
|
|
Gross Additions |
|
|
Gross Reductions |
|
|
December 31, 2022, Fair Value |
|
|
Net Realized Gains (Losses) |
|
|
Amount of Interest/ |
|
|||||||
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
ITA Acquisition, LLC |
|
$ |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
|
|
Total ITA |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
Total Control Investments |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Applied Image, Inc. |
|
$ |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
Warrant for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Total Applied Image |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
BMP Food Service Supply Holdco, LLC |
|
$ |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total FSS |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
BMP Swanson Holdco, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
Preferred Membership Interest for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
Total BMP Swanson |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Carolina Skiff LLC |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
DSD Operating, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
Total DSD |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Filterworks Acquisition USA, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Filterworks |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
ITA Acquisition, LLC |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total ITA |
|
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|||
Knoa Software, Inc. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Knoa |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Mezmeriz, Inc. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Microcision |
|
Membership Interest Purchase Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
||
New Monarch Machine Tool, Inc. |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
See accompanying notes
18
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Company |
|
Type of Investment |
|
January 1, 2022, Fair Value |
|
|
Net Change in Unrealized Appreciation (Depreciation) |
|
|
Gross Additions |
|
|
Gross Reductions |
|
|
December 31, 2022, Fair Value |
|
|
Net Realized Gains (Losses) |
|
|
Amount of Interest/ |
|
|||||||
SciAps, Inc. |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Warrant to purchase Series D-1 Preferred. |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Total SciAps |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Seybert’s Billiards Corporation |
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
$ |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Warrant for |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
Total Seybert’s |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Tilson Technology |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Management, Inc. |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
|
|
Total Tilson |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
Total Affiliate Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Total Control and Affiliate Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
This schedule should be read in conjunction with the Corporation’s Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements and the Consolidated Schedule of Portfolio Investments.
See accompanying notes
19
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2022 (Continued)
Industry Classification |
|
Percentage of Total Investments (at fair value) as of December 31, 2022 |
|
|
Professional Services |
|
|
% |
|
Manufacturing |
|
|
|
|
Consumer Product |
|
|
|
|
Automotive |
|
|
|
|
Software |
|
|
|
|
BDC Investment Funds |
|
|
|
|
Oil and Gas |
|
|
|
|
Total Investments |
|
|
% |
|
See accompanying notes
20
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. ORGANIZATION
Rand Capital Corporation (“Rand”, “we”, “us” and “our”) was incorporated under the laws of New York in February 1969. We completed our initial public offering in 1971 and operated as an internally managed, closed end, management investment company from that time until November 2019.
In November 2019, Rand completed a stock sale transaction (the “Closing”) with East Asset Management (“East”). The transaction consisted of a $
In connection with the Closing, we also entered into a shareholder agreement by and between Rand and East (the “Shareholder Agreement”). Pursuant to the terms of the Shareholder Agreement, East has the right to designate two or three persons, depending upon the size of the Board, for nomination for election to the Board. East has the right to designate (i) up to two persons if the size of the Board is composed of fewer than seven directors or (ii) up to three persons if the size of the Board is composed of seven or more directors. East’s right to designate persons for nomination for election to the Board under the Shareholder Agreement is the exclusive means by which East may designate or nominate persons for election to the Board. The Board currently consists of five directors, and East’s designees are Adam S. Gusky and Benjamin E. Godley.
We are an externally managed, closed-end, non-diversified investment company. We have elected to be regulated as a business development company (“BDC”) under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements specified in the 1940 Act. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets” and provide managerial assistance to the portfolio companies in which we invest. See “Item 1. Business - Regulations, Business Development Company Regulations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Since the completion of the Transaction, we adopted an investment strategy focused on higher yielding debt investments and elected to be treated as a regulated investment company (“RIC”) for U.S. Federal income tax purposes as of January 1, 2020 on our U.S. Federal tax return for the 2020 tax year.
The Board declared the following quarterly cash dividends during the nine months ended September 30, 2023:
|
|
Dividend/Share |
|
|
Record Date |
|
Payment Date |
|
1st |
|
$ |
|
|
|
|||
2nd |
|
$ |
|
|
|
|||
3rd |
|
$ |
|
|
|
|||
In order to continue to qualify as a RIC, Rand holds several of its equity investments in holding companies that facilitate a tax structure that is advantageous to the RIC election. Rand has the following wholly owned blocker subsidiaries in place at September 30, 2023: Rand BMP Swanson Holdings Corp., Rand Carolina Skiff Holdings Corp., Rand DSD Holdings Corp., Rand Filterworks Holdings Corp., Rand FSS Holdings Corp., Rand INEA Holdings Corp., Rand ITA Holdings Corp., and Rand Somerset Holdings Corp. (the “Blocker Corps”). These subsidiaries are consolidated using United States generally accepted accounting principles (“GAAP”) for financial reporting purposes.
21
On October 7, 2020, Rand, RCM and certain of their affiliates received an exemptive order for relief from the Securities and Exchange Commission (“SEC”) to permit Rand to co-invest in portfolio companies with certain affiliates, including other BDCs and registered investment companies, managed by RCM and certain of its affiliates in a manner consistent with Rand’s investment objective, policies, strategies and restrictions as well as regulatory requirements, subject to compliance with certain conditions (the “Order”). On March 29, 2021, the SEC granted Rand, Callodine Group, LLC (“Callodine”), which holds a controlling interest in RCM, and certain of their affiliates a new exemptive order (the “New Order”) that superseded the Order and permits Rand to co-invest with affiliates managed by RCM and Callodine. Callodine is a yield focused asset management platform. Pursuant to the New Order, Rand is generally permitted to co-invest with affiliates covered by the New Order if a “required majority” (as defined in Section 57(o) of the 1940 Act) of Rand’s independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to Rand and its shareholders and do not involve overreaching of Rand or its shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of Rand’s shareholders and is consistent with Rand’s investment objective and strategies and (3) the investment by Rand’s affiliates would not disadvantage Rand, and Rand’s participation would not be on a basis different from or less advantageous than that on which Rand’s affiliates are investing. In addition, on September 6, 2022, the SEC granted an amendment to the New Order to permit Rand to participate in follow-on investments in our existing portfolio companies with certain Affiliated Funds (as defined in the amended New Order) that do not hold any investments in such existing portfolio companies.
The accompanying consolidated financial statements describe the operations of Rand and its wholly-owned subsidiaries, Rand Capital Sub, LLC ("Rand Sub") and the Blocker Corps (collectively, the “Corporation”).
Our corporate office is located in Buffalo, NY and our website address is www.randcapital.com. We make available on our website our annual and quarterly reports, proxy statements and other information as soon as reasonably practicable after such material is filed with the Securities and Exchange Commission (“SEC”). Our shares are traded on the Nasdaq Capital Market under the ticker symbol “RAND.”
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – It is our opinion that the accompanying consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation in accordance with GAAP of the consolidated financial position, results of operations, cash flows and statement of changes in net assets for the interim periods presented. The Corporation is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies. Certain information and note disclosures normally included in audited annual consolidated financial statements prepared in accordance with GAAP have been omitted; however, we believe that the disclosures made are adequate to make the information presented herein not misleading. The interim results for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. Information contained in this filing should also be reviewed in conjunction with our related filings with the SEC prior to the date of this report.
Principles of Consolidation - The consolidated financial statements include the accounts of Rand and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Fair Value of Financial Instruments – The carrying amounts reported in the consolidated statement of financial position of cash, interest receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term nature of these financial instruments.
Investment Classification – In accordance with the provisions of the 1940 Act, the Corporation classifies its investments by level of control. Under the 1940 Act, “Control Investments” are investments in companies that the Corporation is deemed to “Control” because it owns more than
Investments - Investments are valued at fair value as determined in good faith by RCM and approved by the Board. The Corporation generally invests in loan, debt, and equity instruments and there is no single standard for determining fair value of these investments. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio company while employing a consistent valuation process. Due to the inherent uncertainty of determining the fair value of portfolio investments, there may be material risks associated with this determination including that estimated fair values may differ
22
from the values that would have been used had a readily available market value for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events. The Corporation analyzes and values each investment quarterly and records unrealized depreciation for an investment that it believes has become impaired, including where collection of a loan or realization of the recorded value of an equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that an underlying portfolio company has appreciated in value and, therefore, the Corporation's equity securities in the underlying portfolio company has also appreciated in value. Additionally, the Corporation continues to assess any material risks associated with this fair value determination, including risks associated with material conflicts of interest. Under the valuation policy of the Corporation, unrestricted publicly traded securities are valued at the closing price for these securities on the last trading day of the reporting period.
Qualifying Assets - The Corporation’s portfolio of investments includes both qualifying and non-qualifying assets. A majority of the Corporation’s investments represent qualifying investments in privately held businesses, principally based in the United States, and represent qualifying assets as defined by Section 55(a) of the 1940 Act. The non-qualifying assets generally include investments in other publicly traded BDC investment companies and other publicly traded securities.
Revenue Recognition - Interest Income - Interest income 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. There was no reserve for possible losses as of September 30, 2023 or December 31, 2022.
The Corporation holds debt securities in its investment portfolio that contain payment-in-kind (“PIK”) interest provisions. PIK interest, computed at the contractual rate specified in each debt agreement, is added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment.
Revenue Recognition - Dividend Income – The Corporation may receive cash distributions from portfolio companies that are limited liability companies or corporations, and these distributions are classified as dividend income on the consolidated statement of operations. Dividend income is recognized on an accrual basis when it can be reasonably estimated for private portfolio companies or on the record date for publicly traded portfolio companies.
The Corporation may hold preferred equity securities that contain cumulative dividend provisions. Cumulative dividends are recorded as dividend income, if declared and deemed collectible, and any dividends in arrears are recognized into income and added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed.
Revenue Recognition - Fee Income - Consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of financings and income associated with portfolio company board meeting attendance fees.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Investments - Amounts reported as realized gains and losses are measured by the difference between the proceeds from the sale or exchange and the cost basis of the investment without regard to unrealized gains or losses recorded in prior periods. The cost of securities that have, in management’s judgment, become worthless are written off and reported as realized losses when appropriate. Unrealized appreciation or depreciation reflects the difference between the fair value of the investments and the cost basis of the investments.
Original Issue Discount – Investments may include “original issue discount” or OID income. This occurs when the Corporation purchases a warrant and a note from a portfolio company simultaneously, which requires an allocation of a portion of the purchase price to the warrant and reduces the note or debt instrument by an equal amount in the form of a note discount or OID.
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 outstanding.
Supplemental Cash Flow Information - Income taxes paid (refunded) during the nine months ended September 30, 2023 and 2022 were $
Accounting 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
23
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, 2023 and December 31, 2022, there were
On April 19, 2023, the Board approved a share repurchase plan which authorizes the Corporation to repurchase shares of Rand’s outstanding common stock with an aggregate cost of up to $
Income Taxes – The Corporation elected to be treated, for U.S. federal income tax purposes, as a RIC for the 2022 and 2021 tax years under Subchapter M of the Code. The Corporation must distribute substantially all of its investment company taxable income each tax year as dividends to its shareholders to maintain its RIC status. If the Corporation continues to qualify as a RIC and continues to satisfy the annual distribution requirement, the Corporation will not have to pay corporate level U.S. federal income taxes on any income that the Corporation distributes to its stockholders.
The Blocker Corps, which are consolidated under U.S. GAAP for financial reporting purposes, are subject to U.S. federal and state income taxes. Therefore, the Corporation accounts for income taxes pursuant to FASB ASC Topic 740, Income Taxes. Under FASB ASC Topic 740, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The Corporation records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Corporation will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Corporation weights all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Changes in circumstances, including the Blocker Corps generating significant taxable income and tax planning strategies, could cause a change in judgment about the need for a valuation allowance of the related deferred tax assets. Any change in the valuation allowance will be included in income in the period of the change in estimate.
Accordingly, during the three and nine months ended September 30, 2023, the Corporation estimated that a portion of its Blocker Corps’ deferred tax assets are not expected to be fully recoverable in the future. As a result, the Corporation recorded a partial valuation allowance of approximately $
The Corporation reviews the tax positions it has taken to determine if they meet a "more likely than not threshold" for the benefit of the tax position to be recognized in the consolidated financial statements. A tax position that fails to meet the more likely than not recognition threshold will result in either a reduction of a current or deferred tax asset or receivable, or the recording of a current or deferred tax liability. There were
Depending on the level of taxable income earned in a tax year, the Corporation may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a
Distributions from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-tax differences, including the offset of net operating losses against short-term gains and nondeductible meals and entertainment, have no impact on net assets.
The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2019 through 2022. In general, the Corporation’s state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2019 through 2022.
It is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax expense on the Consolidated Statement of Operations. There were
24
Concentration of Credit and Market Risk – The Corporation’s financial instruments potentially subject it to concentrations of credit risk. Cash is invested with banks in amounts which, at times, exceed insured limits. The Corporation does not anticipate non-performance by such banks.
The following are the concentrations of the top five portfolio company values compared to the fair value of the Corporation’s total investment portfolio:
|
|
September 30, 2023 |
|
|
Tilson Technology Management, Inc. (Tilson) |
|
|
% |
|
Seybert’s Billiards Corporation (Seybert’s) |
|
|
% |
|
SciAps, Inc. (Sciaps) |
|
|
% |
|
BMP Food Service Supply Holdco, LLC (FSS) |
|
|
% |
|
Inter-National Electronic Alloys LLC (INEA) |
|
|
% |
|
|
|
December 31, 2022 |
|
|
Tilson |
|
|
% |
|
Seybert's |
|
|
% |
|
Sciaps |
|
|
% |
|
DSD Operating, LLC (DSD) |
|
|
% |
|
Caitec, Inc. (Caitec) |
|
|
% |
|
Recent Accounting Pronouncements – In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)”, which is intended to address issues identified during the post-implementation review of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, “Receivables - Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning after December 15, 2022. The Corporation evaluated the impact of the adoption of ASU 2022-02 on its consolidated financial statements and disclosures and determined that this guidance does not have a material impact on its consolidated financial statements.
Note 3. INVESTMENTS
The Corporation’s investments are carried at fair value, as determined in good faith by the Board, in accordance with FASB Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.
Loan investments are defined as traditional loan financings typically with no equity features or required equity co-investment. Debt investments are defined as debt financings that include one or more equity features such as conversion rights, stock purchase warrants, and/or stock purchase options. Equity investments will be direct investments into a portfolio company and may include preferred stock, common stock, warrants and limited liability company membership interests.
The Corporation uses several approaches to determine the fair value of an investment. The main approaches are:
25
ASC 820 classifies the inputs used to measure fair value into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s valuation at the measurement date. Under the valuation policy, the Corporation values unrestricted publicly traded companies, categorized as Level 1 investments, at the closing price on the last trading day of the reporting period.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable and significant inputs to determining the fair value.
Financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Any changes in estimated fair value are recorded in the statement of operations.
At September 30, 2023,
In the valuation process, the Corporation values restricted securities categorized as Level 3 investments, using information from these portfolio companies, which may include:
The valuation may be reduced if a portfolio company’s performance and potential have deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted.
Equity Securities
Equity securities may include preferred stock, common stock, warrants and limited liability company membership interests.
The significant unobservable inputs used in the fair value measurement of the Corporation’s equity investments are earnings before interest, tax and depreciation and amortization (EBITDA) and revenue multiples, where applicable, the financial and operational performance of the business, and the debt and senior equity preferences that may exist in a deemed liquidation event. Standard industry multiples may be used when available; however, the Corporation’s portfolio companies are typically privately-held,
26
lower middle market companies and these industry standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company. Due to the nature of certain investments, fair value measurements may be based on other criteria, which may include third party appraisals. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.
Another key factor used in valuing equity investments is a significant recent arms-length equity transaction entered into by the portfolio company with a sophisticated, non-strategic, unrelated, new investor. The terms of these equity transactions may not be identical to the equity transactions between the portfolio company and the Corporation, and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify.
When appropriate the Black-Scholes pricing model is used to estimate the fair value of warrants for accounting purposes. This model requires the use of highly subjective inputs including expected volatility and expected life, in addition to variables for the valuation of minority equity positions in small private and early stage companies. Significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate.
For investments made within the last year, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation to depart from this basis.
Loan and Debt Securities
The significant unobservable inputs used in the fair value measurement of the Corporation’s loan and debt securities are the financial and operational performance of the portfolio company, similar debt with similar terms with other portfolio companies, as well as the market acceptance for the portfolio company’s products or services. These inputs will likely provide an indicator as to the probability of principal recovery of the investment. The Corporation’s loan and debt investments are often junior secured or unsecured securities. Fair value may also be determined based on other criteria where appropriate. Significant changes to the unobservable inputs may result in a change in fair value. For recent investments, the Corporation generally relies on the cost basis, which is deemed to represent the fair value, unless other fair value inputs are identified causing the Corporation to depart from this basis.
The following table provides a summary of the significant unobservable inputs used to determine the fair value of the Corporation’s Level 3 portfolio investments as of September 30, 2023:
|
|
Market Approach EBITDA Multiple |
|
|
Market Approach Liquidation Seniority |
|
|
Market Approach |
|
|
Market Approach Transaction Pricing |
|
|
Totals |
|
|||||
Non-Control/Non-Affiliate Equity |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-Control/Non-Affiliate Loan and Debt |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total Non-Control/Non-Affiliate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Affiliate Equity |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Affiliate Loan and Debt |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Total Affiliate |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Control Equity |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Control Loan and Debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total Control |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total Level 3 Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Range |
|
4X - 7X |
|
|
1X |
|
|
1X - 3X |
|
|
Not Applicable |
|
|
|
|
|||||
Unobservable Input |
|
EBITDA Multiple |
|
|
Asset Value |
|
|
Revenue Multiple |
|
|
Transaction Price |
|
|
|
|
|||||
Weighted Average |
|
5.4X |
|
|
1X |
|
|
1.7X |
|
|
Not Applicable |
|
|
|
|
|||||
27
The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at September 30, 2023:
|
|
|
|
|
Fair Value Measurements at Reported Date Using |
|
||||||||||
|
|
September 30, 2023 |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant |
|
|
Other Significant |
|
||||
Loan investments |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Debt investments |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Equity investments |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
The following table provides a summary of the components of Level 1, 2 and 3 Assets Measured at Fair Value at December 31, 2022:
|
|
|
|
|
Fair Value Measurements at Reported Date Using |
|
||||||||||
|
|
December 31, 2022 |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant |
|
|
Other Significant |
|
||||
Loan investments |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Debt investments |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Equity investments |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
28
The following table provides a summary of changes in Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3) for the nine months ended September 30, 2023:
|
|
Fair Value Measurements Using Significant |
|
|||||||||||||
Description |
|
Loan Investments |
|
|
Debt |
|
|
Equity |
|
|
Total |
|
||||
Ending balance December 31, 2022, of Level 3 Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Realized gains (losses) included in net change in net assets from |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ClearView Social, Inc. (Clearview Social) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
DSD Operating, LLC (DSD) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Microcision, LLC (Microcision) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Rheonix, Inc. (Rheonix) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
SocialFlow, Inc. (Social Flow) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Somerset Gas Transmission Company, LLC (Somerset) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Total realized losses, net |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Unrealized gains (losses) included in net change in net assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
DSD |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Open Exchange, Inc. (Open Exchange) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Rheonix |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Somerset |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total unrealized gains (losses) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Purchases of securities/changes to securities/non-cash |
|
|
|
|
|
|
|
|
|
|
|
|
||||
BMP Food Service Supply Holdco, LLC (FSS) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
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BMP Swanson Holdco, LLC (Swanson) |
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— |
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— |
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Caitec, Inc. (Caitec) |
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— |
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— |
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DSD |
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