10-Q

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

10-Q 1 d357747d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

☐	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.

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

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

As of May 9, 2022, there were 2,581,021 shares of the registrant’s common stock outstanding.

RAND CAPITAL CORPORATION

TABLE OF CONTENTS FOR FORM 10-Q

PART I. – FINANCIAL INFORMATION


Item 1.	Financial Statements and Supplementary Data	1

	Consolidated Statements of Financial Position as of March 31, 2022 (Unaudited) and December 31, 2021	1

	Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	2

	Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	5

	Consolidated Schedule of Portfolio Investments as of March 31, 2022 (Unaudited)	6

	Consolidated Schedule of Portfolio Investments as of December 31, 2021	14

	Notes to the Consolidated Financial Statements (Unaudited)	22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	45

PART II. – OTHER INFORMATION


Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


	March 31, 2022 (Unaudited)			December 31, 2021
ASSETS
Investments at fair value:
Affiliate investments (cost of $28,016,127 and $27,357,797, respectively)	$	30,938,203		$	30,279,873
Non-Control/Non-Affiliate investments (cost of $23,028,790 and $25,012,871, respectively)		31,473,439			33,788,589

Total investments, at fair value (cost of $51,044,917 and $52,370,668, respectively)		62,411,642			64,068,462
Cash		596,793			833,875
Interest receivable		195,797			128,047
Prepaid income taxes		234,567			252,010
Deferred tax asset		191,319			181,003
Other assets		295,103			181,457

Total assets	$	63,925,221		$	65,644,854

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)
Liabilities:
Due to investment adviser	$	240,275		$	891,102
Accounts payable and accrued expenses		49,952			51,689
Capital gains incentive fees		3,308,000			3,547,760
Deferred revenue		379,268			408,887

Total liabilities		3,977,495			4,899,438
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 3/31/22 and 12/31/21		264,892			264,892
Capital in excess of par value		51,679,809			51,679,809
Treasury stock, at cost: 67,895 shares at 3/31/22 and 12/31/21		(1,566,605	)		(1,566,605	)
Total distributable earnings		9,569,630			10,367,320

Total stockholders’ equity (net assets) (per share – 3/31/22: $23.23; 12/31/21: $23.54)		59,947,726			60,745,416

Total liabilities and stockholders’ equity (net assets)	$	63,925,221		$	65,644,854

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31, 2022			Three months ended March 31, 2021
Investment income:
Interest from portfolio companies:
Affiliate investments	$	570,116		$	319,416
Non-Control/Non-Affiliate investments		342,023			391,346

Total interest from portfolio companies		912,139			710,762

Interest from other investments:
Non-Control/Non-Affiliate investments		—			12,627

Total interest from other investments		—			12,627

Dividend and other investment income:
Affiliate investments		43,725			94,926
Non-Control/Non-Affiliate investments		129,265			151,743

Total dividend and other investment income		172,990			246,669

Fee income:
Affiliate investments		30,305			39,356
Non-Control/Non-Affiliate investments		9,314			6,978

Total fee income		39,619			46,334

Total investment income		1,124,748			1,016,392

Expenses:
Base management fee (see Note 7)		240,275			175,609
Capital gains incentive fees (see Note 7)		(239,760	)		2,600,000
Interest on SBA obligations		—			104,190
Professional fees		231,083			160,133
Stockholders and office operating		56,698			71,422
Directors’ fees		45,100			36,500
Insurance		8,910			10,327
Corporate development		3,027			7,482
Other operating		45			—

Total expenses		345,378			3,165,663

Net investment income (loss) before income taxes		779,370			(2,149,271	)
Income tax expense		7,367			17,757

Net investment income (loss)		772,003			(2,167,028	)

Net realized (loss) gain on sales and dispositions of investments:
Affiliate investments		—			135,430
Non-Control/Non-Affiliate investments		(851,471	)		175,325

Net realized (loss) gain on sales and dispositions of investments		(851,471	)		310,755


Net change in unrealized appreciation (depreciation) on investments:
Non-Control/Non-Affiliate investments		(331,069	)		9,887,032

Net change in unrealized appreciation (depreciation) on investments		(331,069	)		9,887,032

Net realized and unrealized (loss) gain on investments		(1,182,540	)		10,197,787

Net (decrease) increase in net assets from operations	($	410,537	)	$	8,030,759

Weighted average shares outstanding		2,581,021			2,582,169
Basic and diluted net (decrease) increase in net assets from operations per share	($	0.16	)	$	3.11

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	Three months ended March 31, 2022			Three months ended March 31, 2021
Net assets at beginning of period	$	60,745,416		$	46,104,830
Net investment income (loss)		772,003			(2,167,028	)
Net realized (loss) gain on sales and dispositions of investments		(851,471	)		310,755
Net change in unrealized appreciation (depreciation) on investments		(331,069	)		9,887,032

Net (decrease) increase in net assets from operations		(410,537	)		8,030,759
Declaration of dividends		(387,153	)		(258,385	)

Net assets at end of period	$	59,947,726		$	53,877,204

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31, 2022			Three months ended March 31, 2021
Cash flows from operating activities:
Net (decrease) increase in net assets from operations	($	410,537	)	$	8,030,759
Adjustments to reconcile net (decrease) increase in net assets to net cash provided by (used in) operating activities:
Investments in portfolio companies		(542,086	)		(6,706,706	)
Proceeds from sale of portfolio investments		1,079,589			1,057,489
Proceeds from loan repayments		90,175			3,735,430
Net realized loss (gain) on portfolio investments		851,471			(310,755	)
Change in unrealized appreciation (depreciation) on investments before income taxes		331,069			(9,887,032	)
Deferred income tax (benefit) expense		(10,316	)		3,492
Depreciation and amortization		—			9,419
Original issue discount amortization		(6,252	)		(91,753	)
Non-cash conversion of debenture interest		(147,146	)		(56,157	)
Changes in operating assets and liabilities:
Increase in interest receivable		(67,750	)		(55,850	)
Increase in other assets		(113,646	)		(135,571	)
Decrease (increase) in prepaid income taxes		17,443			(4,361	)
Decrease in accounts payable and accrued expenses		(1,737	)		(71,897	)
(Decrease) increase in due to investment adviser		(650,827	)		18,610
(Decrease) increase in capital gains incentive fees payable		(239,760	)		2,600,000
(Decrease) increase in deferred revenue		(29,619	)		104,331

Total adjustments		560,608			(9,791,311	)

Net cash provided by (used in) operating activities		150,071			(1,760,552	)

Cash flows from financing activities:
Payment of cash dividend		(387,153	)		(3,692,501	)

Net cash used in financing activities		(387,153	)		(3,692,501	)

Net decrease in cash		(237,082	)		(5,453,053	)
Cash:
Beginning of period		833,875			20,365,415

End of period	$	596,793		$	14,912,362

See accompanying notes

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31, 2022

(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 – 52.5% of net assets: (j)

ACV Auctions, Inc. (e)(g)(n)(p) NASDAQ: ACVA Buffalo, NY. Live mobile wholesale auctions for new and used car dealers. (Software) www.acvauctions.com	405,934 Class A Common stock valued at $15.09.		8/12/16		<1	%	$	111,299	$	6,124,191		10.2	%

Ares Capital Corporation (n) NASDAQ: ARCC New York, NY. (BDC Investment Fund)	21,000 shares.		3/16/20		<1	%		267,140		439,740		0.7	%

Barings BDC, Inc. (n) NYSE: BBDC New York, NY. (BDC Investment Fund)	40,000 shares.		8/13/20		<1	%		333,352		414,667		0.7	%

Caitec, Inc. (l) Halethorpe, MD. Pet product manufacturer and distributor. (Consumer Goods) www.caitec.com	$1,750,000 Subordinated Secured Promissory Note at 12% (+2% PIK) due June 1, 2026.		11/6/20		2	%		1,800,250		1,800,250		6.5	%
	150 Class A Units.		11/6/20					150,000		150,000
	(g) $1,750,000 Subordinated Secured Promissory Note at 12% (+2% PIK) due June 1, 2026.		11/6/20		2	%		1,800,250		1,800,250
	(g) 150 Class A Units.		11/6/20					150,000		150,000

	Total Caitec							3,900,500		3,900,500


Empire Genomics Corp. (g) Buffalo, NY. Molecular diagnostics company that offers a comprehensive menu of assay services for diagnosing and guiding patient therapeutic treatments. (Health Care) www.empiregenomics.com	$444,915 + $1,000,000 Secured Promissory Notes at 8% due December 31, 2026.		5/3/21		0	%		1,444,915		1,444,915		2.4	%

FS KKR Capital Corp. (n) NYSE: FSK Philadelphia, PA. (BDC Investment Fund)	48,000 shares.		3/16/20		<1	%		755,058		1,095,520		1.8	%

Golub Capital BDC, Inc. (n) NASDAQ: GBDC New York, NY. (BDC Investment Fund)	31,250 shares.		3/16/20		<1	%		403,910		475,417		0.8	%

GoNoodle, Inc. (g)(h)(l) Nashville, TN. Student engagement education software providing core aligned physical activity breaks. (Software) www.gonoodle.com	$1,500,000 Secured Note at 12% (1% PIK) due September 30, 2024.		11/1/19		<1	%		1,401,233		1,401,233		2.3	%
	Warrant for 47,324 Series C Preferred.		3/1/15					25		25
	Warrant for 21,948 Series D Preferred.		11/1/19					38		38

	Total GoNoodle							1,401,296		1,401,296


HDI Acquisition LLC (Hilton Displays) (l) Greenville, NC. HDI is engaged in manufacturing, installation and maintenance of signage and brands. (Manufacturing) www.hiltondisplays.com	$1,245,119 Term Loan at 12% (+2% PIK) due June 20, 2023.		11/8/19		0	%		1,307,701		1,307,701		2.2	%

Lumious (Tech 2000, Inc.) (g) Herndon, VA. Develops and delivers IT training. (Software) www.t2000inc.com	$850,000 Replacement Term Note at 14% due November 15, 2023.		11/16/18		0	%		860,777		860,777		1.4	%

Mattison Avenue Holdings LLC (l) Dallas, TX. Provider of upscale salon spaces for lease. (Professional Services) www.mattisonsalonsuites.com	$1,794,944 Third Amended, Restated and Consolidated Promissory Note at 14% (2% PIK) due December 9, 2023.		6/23/21		0	%		1,828,459		1,828,459		3.1	%

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31, 2022 (Continued)

(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

Nailbiter, Inc. Reston, VA. Video-metrics data analytics supporting name brand Consumer Products Groups (CPG) shopping behavioral insight. (Professional Services) www.nailbiter.com	$2,250,000 Membership Interest of USB Focus Fund Nailbiter I, LLC with economic interest of $2,250,000 Subordinated Secured Promissory Note at net 9% due November 23, 2024.		11/22/21		<1	%		2,250,000		2,250,000		3.8	%
	Warrants for Preferred stock of Nailbiter, Inc.							—		—

OnCore Golf Technology, Inc. (e)(g) Buffalo, NY. Patented and proprietary golf balls utilizing technology and innovation. (Consumer Product) www.oncoregolf.com	300,483 Preferred AA.		11/30/18		3	%		752,712		300,000		0.5	%

Open Exchange, Inc.(e)(g) Lincoln, MA. Online presentation and training software. (Software) www.openexc.com	397,899 Series C Preferred.		11/13/13		3	%		1,193,697		2,785,000		9.3	%
	397,899 Common.		10/22/19					208,243		2,785,000

	Total Open Exchange							1,401,940		5,570,000


Owl Rock Capital Corporation (n) NYSE:ORCC New York, NY. (BDC Investment Fund)	30,000 shares.		3/16/20		<1	%		347,067		446,000		0.7	%

PennantPark Investment Corporation (n) NASDAQ: PNNT New York, NY. (BDC Investment Fund)	195,000 shares.		8/13/20		<1	%		892,212		1,515,800		2.6	%

PostProcess Technologies, Inc. (e)(g) Buffalo, NY. Provides innovative solutions for the post-processing of additive manufactured 3D parts. (Manufacturing) www.postprocess.com	360,002 Series A1 Preferred.		11/1/19		<1	%		348,875		348,875		0.6	%

Rheonix, Inc. (e)(g) Ithaca, NY. Developer of fully automated microfluidic based molecular assay and diagnostic testing devices. (Health Care) www.rheonix.com	9,676 Common.		10/29/09		4	%		—		—		0.0	%
	(g) 1,839,422 Series A Preferred.		12/12/13					2,099,999		—
	(g) 50,593 Common.		10/24/09					—		—
	(g) 589,420 Series B Preferred.		9/29/15					702,732		—

	Total Rheonix							2,802,731		—


Somerset Gas Transmission Company, LLC (e)(m) Columbus, OH. Natural gas transportation. (Oil and Gas) www.somersetgas.com	26.5337 Units.		4/1/05		3	%		719,097		500,000		0.8	%

TCG BDC, Inc. (n) NASDAQ: CGBD New York, NY. (BDC Investment Fund)	86,000 shares.		8/13/20		<1	%		899,749		1,249,581		2.1	%

Subtotal Non-Control/Non-Affiliate Investments							$	23,028,790	$	31,473,439

RAND CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS

March 31, 2022 (Continued)

(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
Affiliate Investments – 51.6% of net assets (k)

Applied Image, Inc. Rochester, NY. Global supplier of precision imaged optical components and calibration standards for a wide range of industries and applications. (Manufacturing) www.appliedimage.com	$1,750,000 Term Note at 10% due February 1, 2029.		12/31/21		12	%	$	1,750,000	$	1,750,000		2.9	%
	Warrant for 1,167 shares.		12/31/21					—		—

	Total Applied Image						$	1,750,000	$	1,750,000



BMP Swanson Holdco, LLC (g)(m) Plano, TX. Designs, installs and maintains a variety of fire protection systems. (Professional Services) www.swansonfire.com	$1,600,000 Term Note at 12% due September 4, 2026.		3/4/21		9	%		1,600,000		1,600,000		3.1	%
	Preferred Membership Interest for 9.29%.		3/4/21					233,333		233,333

	Total BMP Swanson							1,833,333		1,833,333



Carolina Skiff LLC (g)(m) Waycross, GA. Manufacturer of ocean fishing and pleasure boats. (Manufactu

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

SEC Form 10-Q filed by Rand Capital Corporation