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, 2024

 

☐ 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 13, 2024, there were 2,581,021 shares of the registrant’s common stock outstanding.

 

 

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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, 2024 (Unaudited) and December 31, 2023	1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	2
	Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	4
	Consolidated Schedule of Portfolio Investments as of March 31, 2024 (Unaudited)	5
	Consolidated Schedule of Portfolio Investments as of December 31, 2023	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	43
PART II. – OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45

 

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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

 

		March 31, 2024 (Unaudited)				December 31, 2023
ASSETS
Investments at fair value:
Control investments (cost of $5,661,245 and $5,272,770, respectively)		$	4,537,435			$	4,148,960
Affiliate investments (cost of $46,960,202 and $45,720,974, respectively)			54,638,600				53,499,372
Non-Control/Non-Affiliate investments (cost of $24,282,868 and $17,371,862, respectively)			23,598,090				19,477,380
Total investments, at fair value (cost of $76,904,315 and $68,365,606, respectively)			82,774,125				77,125,712
Cash			759,183				3,295,321
Interest receivable			347,755				244,600
Prepaid income taxes			154,404				127,869
Deferred tax asset, net			65,815				39,179
Other assets			253,848				189,301
Total assets		$	84,355,130			$	81,021,982
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)
Liabilities:
Due to investment adviser		$	302,480			$	979,297
Accounts payable and accrued expenses			272,086				145,516
Line of credit (see Note 6)			19,200,000				16,250,000
Capital gains incentive fees			2,392,000				2,279,700
Deferred revenue			619,225				552,256
Total liabilities			22,785,791				20,206,769
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 3/31/24 and 12/31/23			264,892				264,892
Capital in excess of par value			55,801,170				55,801,170
Treasury stock, at cost: 67,895 shares at 3/31/24 and 12/31/23			(1,566,605	)			(1,566,605	)
Total distributable earnings			7,069,882				6,315,756
Total stockholders’ equity (net assets) (per share – 3/31/24: $23.85;    12/31/23: $23.56)			61,569,339				60,815,213
Total liabilities and stockholders’ equity (net assets)		$	84,355,130			$	81,021,982

 

See accompanying notes

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RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended March 31, 2024				Three months ended March 31, 2023
Investment income:
Interest from portfolio companies:
Control investments		$	187,483			$	150,916
Affiliate investments			1,166,085				787,821
Non-Control/Non-Affiliate investments			460,080				358,166
Total interest from portfolio companies			1,813,648				1,296,903
Interest from other investments:
Non-Control/Non-Affiliate investments			1,914				132
Total interest from other investments			1,914				132
Dividend and other investment income:
Affiliate investments			13,125				347,148
Non-Control/Non-Affiliate investments			138,710				127,595
Total dividend and other investment income			151,835				474,743
Fee income:
Control investments			4,516				3,900
Affiliate investments			73,720				67,842
Non-Control/Non-Affiliate investments			21,586				7,978
Total fee income			99,822				79,720
Total investment income			2,067,219				1,851,498
Expenses:
Base management fee (see Note 8)			302,595				245,393
Capital gains incentive fees (see Note 8)			112,300				291,000
Interest expense			390,020				158,400
Professional fees			232,307				170,975
Stockholders and office operating			69,028				64,304
Directors' fees			63,850				63,850
Administrative fees			38,167				37,250
Insurance			13,044				12,960
Corporate development			5,545				3,713
Total expenses			1,226,856				1,047,845
Net investment income before income taxes:			840,363				803,653
Income taxes, including excise tax expense			778				88,737
Net investment income			839,585				714,916
Net realized gain on sales and dispositions of investments:
Affiliate investments			—				58,329
Non-Control/Non-Affiliate investments			3,450,092				(4,941	)
Net realized gain on sales and dispositions of investments			3,450,092				53,388
Net change in unrealized appreciation/depreciation   on investments:
Affiliate investments			(100,000	)			—
Non-Control/Non-Affiliate investments			(2,790,296	)			1,401,973
Net change in unrealized appreciation/depreciation on investments			(2,890,296	)			1,401,973
Net realized and unrealized gain on investments			559,796				1,455,361
Net increase in net assets from operations		$	1,399,381			$	2,170,277
Weighted average shares outstanding			2,581,021				2,581,021
Basic and diluted net increase in net assets from operations per share		$	0.54			$	0.84

 

See accompanying notes

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RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

		Three months ended March 31, 2024				Three months ended March 31, 2023
Net assets at beginning of period		$	60,815,213			$	57,721,320
Net investment income			839,585				714,916
Net realized gain on sales and dispositions of investments			3,450,092				53,388
Net change in unrealized appreciation/depreciation on investments			(2,890,296	)			1,401,973
Net increase in net assets from operations			1,399,381				2,170,277
Declaration of dividend			(645,255	)			(516,204	)
Net assets at end of period		$	61,569,339			$	59,375,393

 

See accompanying notes

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RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three months ended March 31, 2024				Three months ended March 31, 2023
Cash flows from operating activities:
Net increase in net assets from operations		$	1,399,381			$	2,170,277
Adjustments to reconcile net increase in net assets to net cash used in operating activities:
Investments in portfolio companies			(10,837,878	)			(5,570,000	)
Proceeds from sale of portfolio investments			3,503,186				268,329
Proceeds from loan repayments			2,581,906				300,000
Net realized gain on sales and dispositions of portfolio investments			(3,450,092	)			(53,388	)
Change in unrealized depreciation (appreciation) on investments			2,890,296				(1,401,973	)
Deferred income tax benefit			(26,636	)			(5,535	)
Amortization			6,250				6,250
Original issue discount amortization			(7,002	)			(7,752	)
Non-cash conversion of debenture interest			(328,829	)			(216,286	)
Changes in operating assets and liabilities:
Increase in interest receivable			(103,155	)			(1,154	)
Increase in other assets			(70,797	)			(2,863	)
(Increase) decrease in prepaid income taxes			(26,535	)			32,457
Increase in accounts payable and accrued expenses			126,570				30,980
Decrease in due to investment adviser			(676,817	)			(316,453	)
Increase in capital gains incentive fees payable			112,300				291,000
Increase in deferred revenue			66,969				64,481
Total adjustments			(6,240,264	)			(6,581,907	)
Net cash used in operating activities			(4,840,883	)			(4,411,630	)
Cash flows from financing activities:
Net proceeds from line of credit			2,950,000				5,400,000
Payment of cash dividend			(645,255	)			(516,204	)
Net cash provided by financing activities			2,304,745				4,883,796
Net (decrease) increase in cash			(2,536,138	)			472,166
Cash:
Beginning of period			3,295,321				1,368,996
End of period		$	759,183			$	1,841,162

 

See accompanying notes

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RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31, 2024

(Unaudited)

 

Company, Geographic Location, Business Description, (Industry) and Website		(a) Type of Investment		(b) Date Acquired		(c) Equity		Cost				(d)(f) Fair Value				Percent of Net Assets
Non-Control/Non-Affiliate Investments – 38.3% of net assets: (g) (j)
Ares Capital Corporation (n) NASDAQ: ARCC New York, NY. (BDC Investment Fund)		21,000 shares valued at $20.82 per share.		3/16/20		<1%		$	267,140			$	437,220			0.7%
Barings BDC, Inc. (n) NYSE: BBDC New York, NY. (BDC Investment Fund)		40,000 shares valued at $9.30 per share.		8/13/20		<1%			333,352				372,000			0.6%
Caitec, Inc. (e)(l)(p) Halethorpe, MD. Pet product manufacturer and distributor. (Consumer Goods) www.caitec.com		$1,750,000 Subordinated Secured Promissory Note modified to 14% PIK through December 31, 2024, thereafter 12% (+2% PIK), due June 1, 2026.		11/6/20		4%			2,011,791				2,011,791			6.6%
		36,261 Series A Preferred.		12/28/23					36,261				36,261
		150 Class A Units.		11/6/20					150,000				—
		$1,750,000 Subordinated Secured Promissory Note modified to 14% PIK through December 31, 2024, thereafter 12% (+2% PIK), due June 1, 2026.		11/6/20					2,011,791				2,011,791
		150 Class A Units.		11/6/20					150,000				—
		36,261 Series A Preferred.		12/28/23					36,261				36,261
		Total Caitec							4,396,104				4,096,104
Carlyle Secured Lending Inc. (n) NASDAQ: CGBD New York, NY. (BDC Investment Fund)		86,000 shares valued at $16.28 per share.		8/13/20		<1%			899,749				1,400,080			2.3%
FS KKR Capital Corp. (n) NYSE: FSK Philadelphia, PA. (BDC Investment Fund)		48,000 shares valued at $19.07 per share.		3/16/20		<1%